ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Friday, July 28, 2017

Why Pyeatte v. Pyeatte May Be the Best Teaching Tool in Contracts Law

Our friend and esteemed colleague, Professor Charles Calleros, has kindly sent the following as a guest contribution to the ContractsProf Blog.  Enjoy!

Recently Val Ricks has collected a number of essays from colleagues on best and worst cases for the development or application of contract law.  In addition to participating in that project, Charles Calleros invites faculty to upload and post links to essays about their favorite cases as teaching tools (regardless whether the cases advance the law in an important way). He starts the ball rolling with this Introduction to his essay on "Why Pyeatte v. Pyeatte Might be the Best Teaching Tool in the Contracts Casebook":

Pyeatte v. Pyeatte, a 1983 decision of the Arizona Court of Appeals, did not break new ground in the field of contracts. Nonetheless, I assert that it is one of the best pedagogic tools in the Contracts casebook, for several reasons:

  •  *          The facts are sure to grab the attention of first-semester law students: A law grad reneges on a promise to support his ex-wife through graduate school after she supported him through law school during their marriage;

*          This 1980’s opinion is written in modern plain English, allowing students to focus on substance, while also learning a few necessary legal terms of art.

*          After their immersion in a cold and rather unforgiving bath of consideration and mutual assent, students can finally warm up to a tool for addressing injustice: quasi-contract;

*          The opinion’s presentation of background information on quasi-contract provides an opportunity to discuss the difference between an express contract, an implied-in-fact contract, and an implied-in-law contract; 

*          Although the wife’s act of supporting her husband through law school seems to beg for reciprocation or restitution, students must confront judicial reticence to render an accounting for benefits conferred between partners in a marriage, exposing students to overlap between contract law and domestic relations law;

*          The appellate ruling of indefiniteness of the husband’s promise – presented in a later chapter in my casebook, but looming vaguely in the background of the discussion of quasi-contract – invites critique and perhaps even speculation that the appellate panel felt comfortable denying enforcement of the promise precisely because it knew it could grant restitution under quasi-contract; and

*          The court’s admonition that expectation interest forms a ceiling for the calculation of restitution reveals a fascinating conundrum that brings us back to the court’s ruling on indefiniteness. . . .

You can find the whole essay here.

July 28, 2017 in Commentary, Contract Profs, Famous Cases, Law Schools, Miscellaneous, Recent Scholarship, Teaching, True Contracts | Permalink | Comments (2)

Thursday, July 27, 2017

Make Sure You Use Photos According to the License Agreement

Recently, Procter & Gamble has been sued for copyright infringement based on its use of photographs on packaging. It's not that P&G didn't have a license; it's that P&G allegedly violated the scope of the license. The allegations claim that P&G, trying to keep costs down, negotiated for fairly narrow rights. It makes a ton of sense to do that if that's all you want the photos for. After all, why pay for rights that you're probably not going to utilize? However, the caveat with that is to be sure that you won't want to use the photos beyond what you're negotiating. That's allegedly what P&G did, and why it finds itself the subject of a lawsuit. 

July 27, 2017 in Commentary, Current Affairs, In the News, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, July 26, 2017

Court Refuses to Send Claims Against DirecTV to Arbitration

This recent case out of the Central District of California, Perez v. DirecTV Group Holdings, LLC, Case No. 8:16-cv-1440-JLS-DFMx, has some interesting allegations. The plaintiff claims that DirecTV contacted her, unsolicited, at her place of business and sold her a promotional deal there for satellite cable. After the plaintiff agreed to the deal, DirecTV installed the equipment that same day and then asked the plaintiff to sign an Equipment Lease Agreement (ELA). The ELA was entirely in English, even though all communications up to that point had taken place in Spanish (and even though DirecTV apparently had a Spanish-language version of the ELA). The plaintiff signed the ELA, even though she couldn't understand it and it wasn't translated for her, and gave it to the DirecTV representative. She was not given a copy to keep for herself. 

Later, after selling her the satellite cable, DirecTV then contacted the plaintiff to say that she didn't have permission to display the cable, since she was displaying it in a business. It demanded settlement of the purported illegal reception and display. The reception and display DirecTV complained about was the same equipment that DirecTV had just installed. DirecTV demanded $5,000 from the plaintiff to settle the claim. The plaintiff brought this class action, alleging that this was part of a scheme DirecTV had to target selling its services to small business owners (especially minority business owners) and then immediately turn around and accuse those small business owners of having purchased the wrong type of DirecTV for their businesses.  

DirecTV moved to compel arbitration.  The ELA did have an arbitration provision, and the plaintiff did sign it. However, the ELA referenced the Customer Agreement, which she did not receive until it was sent to her by mail later, and therefore the ELA's terms were actually ambiguous, meaning there was no clear agreement to arbitrate.  

DirecTV therefore argued that the plaintiff consented to arbitration when she received the Customer Agreement in the mail, with its full and thorough arbitration provision, and didn't cancel DirecTV's service. However, silence alone does not ordinarily represent acceptance. And the offer and acceptance on the contract between the plaintiff and DirecTV had already happened, on the day of installation. There was nothing in the ELA that indicated that the terms of the contract would change in the future when she received the Customer Agreement and that by keeping the Customer Agreement she was consenting to those changes. 

Other courts have enforced DirecTV's arbitration provision but those cases were distinguishable because those customers were given the Customer Agreement before installation. In at least one other case, a court enforced the Customer Agreement when it was provided after installation because of "practical business realities." This court, however, expressed skepticism that "business practicalities" were a valid justification, and, at any rate, there was no such business practicality at issue here. DirecTV could easily have provided the plaintiff with the Customer Agreement when service was installed. 

At any rate, even if the arbitration provision were enforceable, it excepted any dispute regarding "theft of service," which the case at issue concerns. DirecTV alleged that it was not required to arbitrate these disputes, but its customers were. This one-sided interpretation of this provision raised issues of unconscionability, especially paired with the plaintiff's powerlessness to negotiate the contract at all, which was not in a language she spoke, and which she did not receive until after she was in a position where to refuse the terms would have resulted in a contractual penalty of a cancellation fee of several hundred dollars. Therefore, the court refused to compel arbitration. 

July 26, 2017 in Recent Cases, Television, True Contracts | Permalink | Comments (0)

Tuesday, July 25, 2017

Differences Between German and American Law Don't Preclude German Forum

I started reading this case out of the Northern District of Alabama, ProctorU, Inc. v. TM3 Software GMBH, Civil Action Number 2:17-cv-00926-AKK (behind paywall), because it involves exam proctoring software, which of course is a type of software I am interested in. It ends up really being a case about forum selection and German law vs. American law. 

ProctorU alleged that TM3 was contractually obligated to provide software that could "accurately identify test-takers" within 140 characters. Instead, TM3 provided software that ProctorU claimed could not accurately identify test-takers, even after 280 characters. (I'm not sure how this works technologically; the opinion doesn't get into it beyond this, although I found the website for the software here.) ProctorU therefore sued in the Northern District of Alabama. TM3 moved to dismiss based on a forum selection clause in their contract that required cases to be brought in Germany. 

ProctorU tried to argue that the forum selection clause was unenforceable because of the differences between German and American law. For instance, a jury trial wouldn't be available to ProctorU, it wouldn't be able to recover punitive damages, and discovery would be much more limited than American discovery. The court, however, found that nothing about those differences indicated that ProctorU would be unable to prove its case in Germany. 

ProctorU also tried to argue that it had agreed to the forum selection clause based on misrepresentations by TM3, and that, having been induced by fraud, it should therefore be unenforceable. ProctorU alleged that TM3 told ProctorU its investor was the state of Bavaria, who would not agree to any forum selection clause that was not German. It turned out that Bavaria had only an indirect minority interest in TM3. ProctorU claimed had it known how minor the state of Bavaria's interest was, it would not have agreed to the German provision. However, the court found that the statement that the state of Bavaria was an investor was true; TM3 had not told ProctorU that the state of Bavaria was a majority investor. Furthermore, it was ProctorU's obligation to conduct due diligence before accepting the contract terms, which should have revealed who TM3's investors were. 

Therefore, the court dismissed the case based on the forum selection clause. 

July 25, 2017 in Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Monday, July 17, 2017

Conditions Precedent, Specific Performance, and Unclean Hands, All in One Case!

A recent case out of Texas, Carnegie Homes & Construction, LLC v. Sahin, No. 01-16-00733-CV, brings up no fewer than three golden discussion topics of contracts law courses: conditions precedent, specific performance, and unclean hands. 

The dispute is actually a pretty run-of-the-mill disagreement over a real estate purchase. It just happens to contain a lot of arguments. 

First, Carnegie Homes, the buyer, attempted to argue that a number of conditions precedent had never been fulfilled, and therefore none of its obligations to buy the property had been triggered. The contract in question did read it "shall only be effective upon performance of the conditions set forth in Section E of this agreement." But despite calling the contents of Section E "conditions," the court read them and found them to be covenants, not conditions, dictating when and how much Carnegie Homes would pay and how much their respective obligations would be. Rather than conditions, Section E contained mutual promises, and indeed, Section E was called "Terms" instead of conditions. Therefore, the reference to conditions was a mistaken one. 

Second, specific performance was deemed to be the proper remedy, because the contract was for the sale of a unique property. Carnegie Homes tried to argue that specific performance was not usually made available to the seller of a piece of property, only to the buyer of that property. However, the court said that specific performance was not so limited and that sellers have the right to seek and be rewarded specific performance just as much as buyers. 

Finally, Carnegie Homes tried to argue that unclean hands prevented the seller, Sahin, from receiving relief. The conduct Carnegie Homes complained of concerned Sahin's service of a supplemental petition that alleged Carnegie Homes committed fraud. Sahin served the petition but never filed it. Carnegie Homes, however, was required to disclose it in a loan application, which allegedly caused it to be refused financing, leading to Carnegie Homes's difficulty in fulfilling its obligation to buy the property. The court, however, found that the disclosure to one lender did not block Carnegie Homes from performing the rest of its obligations, and did not act as unclean hands on Sahin's part. The contract did not require Sahin to help Carnegie Homes obtain financing, nor did it condition Carnegie Homes's obligation to pay on the receipt of financing. Therefore, Carnegie Homes was not excused from its obligations and Sahin was entitled to relief. 

July 17, 2017 in Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Wednesday, July 12, 2017

What Does "Renovate" Mean to You? (A Perfect Question for Those, Like Me, Addicted to HGTV)

I'm blogging this case because I had a whole conversation with non-lawyer friends about what the term "renovate" means, and I think maybe they changed my mind about what "renovate" means. I don't know. Upon first reading this case, I spent a lot of time reflecting on all the episode of "House Hunters Renovations" I've watched and what actually happens in them. 

Anyway, if you want to go away and watch a marathon of "House Hunters Renovation" at this point, it's okay. I understand. This blog post will still be here for you to contemplate afterward. 

The case in question (there is an actual case) is a recent case out of Pennsylvania, Blackburn v. King Investment Group, No. 2409 EDA 2016, and, as you may have guessed, the debate in the case was over the meaning of the word "renovate" in the contract. One party maintained that the term was ambiguous, because it could have required them to demolish the bathrooms at issue or merely to do what was necessary to bring them up to modern standards (which was less than full demolition). The other party argued that it was not an ambiguous term and clearly required demolition. 

The court agreed that it was a clear and unambiguous term that required demolition and replacement, and this was what got me to thinking: Do I think that renovation requires demolition? At first my kneejerk reaction was like, "I don't know, I don't think it does." But after conversations with people, I decided maybe it does mean demolition? That doing something less than demolition wouldn't be called renovation but just updating? If you say you're going to renovate your kitchen, does that always imply that you're demolishing the entire kitchen? If you do less than that, is saying you renovated your kitchen misleading? 

My struggling with the word leads me to believe maybe it's not clear and unambiguous but I often feel that way with these types of cases. What I find extra-striking about this case is that, while the court proclaimed the term "clear and unambiguous," it did so by relying entirely on parol evidence, and this parol evidence, in my view, just determined what the parties understood "renovation" to mean. I think finding what renovation meant in the context of this contract to these parties makes a lot more sense than declaring it to be a clear and unambiguous term generally. 

July 12, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Tuesday, July 11, 2017

Law Firm Associate Makes $1.5 Billion Mistake

Will an associate who makes a $1.5 billion (yes, with a “b”) clerical error still make partner?... Do law firms owe a duty of care to clients of opposing party’s law firm? The answers, as you can guess: very likely not and no! The case goes like this:

General Motors (“GM”), represented by law firm Mayer Brown, takes out a 2001 loan for $300 million and a 2006 loan for $1.5 billion secured by different real estate properties. JP Morgan acts as agent for the two different groups of lenders. GM pays off the first loan, but encounters severe financial troubles and enters into bankruptcy proceedings before paying off the big 2006 loan. GM continues to follow the terms on that loan, and the bankruptcy court also treats the lenders as if they were still secured.

What’s the problem with this, you ask? When Mayer Brown prepared and filed the UCC-3 termination statement for the 2001 loan, the firm also released the 2006 loan by mistake. The lenders of that were thus not secured under the law any longer even though both GM itself and the bankruptcy court treated them as such. The big loan was simply been converted from a secured transaction into a lending contract. Yikes.

How did this happen? The following is too good to be true, if you are in an irritable or easily amused summer mode, so I cite from the case:

“The plaintiffs' complaint offers the following autopsy of the error[]: a senior Mayer Brown partner was responsible for supervising the work on the closing. He instructed an associate to prepare the closing checklist. The associate, in turn, relied on a paralegal to identify the relevant UCC-1 financing statements. As a cost-saving measure, the paralegal used an old UCC search on General Motors and included the 2006 Term Loan. Another paralegal tasked with preparing the termination statements recognized that the 2006 Term Loan had been included by mistake and informed the associate of the problem, but he ignored the discrepancy. The erroneous checklist and documents were then sent to [JP Morgan’s law firm] Simpson Thacher for review. The supervising partner at Mayer Brown never caught the error, nor did anyone else. With JP Morgan's authorization, the 2001 Synthetic Lease payoff closed on October 30, 2008 … We must also note that, when provided an opportunity to review the Mayer Brown drafts, a Simpson Thacher attorney replied, ‘Nice job on the documents.’”

The lenders represented by JP Morgan sued not Simpson Thacher or JP Morgan, but… Mayer Brown; counsel for the opposing party, arguing that the law firm owed a duty to them not because Mayer Brown represented them or their agent, JP Morgan, in connection with these loans, but rather because, plaintiffs argued, Mayer Brown owed JP Morgan – not the plaintiffs directly – a duty of care as a client in other unrelated matters! As the court said, an astonishing claim.

A law firm or a party directly must always prepare a first draft of any document. “By preparing a first draft, an attorney does not undertake a professional duty to all other parties in the deal.” In sum, said the court, “there is no exception to the Pelham primary purpose rule, and there is no plausible allegation that Mayer Brown voluntarily assumed a duty to plaintiffs by providing drafts to Simpson Thacher for review.”

The case is Oakland Police & Fire Ret. Sys. v. Mayer Brown, LLP, States District Court for the Northern District of Illinois, Eastern Division, Case No. 15 C 6742

July 11, 2017 in Current Affairs, Famous Cases, In the News, Miscellaneous, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, July 10, 2017

Who Typed What Where, and Does That Matter?

When I teach my students rules of construction and we talk about contra proforentem, I feel like the standard examples I use with them are insurance contracts, where it's easy to identify who the drafter is. A recent case out of Indiana, Song v. Iatarola, Court of Appeals Case No. 64A03-1609-PL-2094 (thank to D.C. Toedt for the new non-paywall link!), involved an actual discussion of who was the "drafter" in a situation where both parties had input in the contract. The Iatarolas seemed to try to argue that Song should be considered the drafter and have the contract construed against him because he was the one who typed it into Microsoft Word. The court pointed out, though, that the rule of construction is about independent drafting, not a situation where both parties contributed to the contractual terms. Who physically types the contract up means nothing if both parties have helped to decide on the terms being typed up. I have never thought to discuss that with my students, but I think I might bring it up, just to be clear on what the rule is talking about. 

July 10, 2017 in Commentary, Law Schools, Recent Cases, True Contracts | Permalink | Comments (2)

Friday, July 7, 2017

If You Want to Hold Your Real Estate Development to Its Master Plan, Make Sure It's in Your Contract

A recent case out of Idaho, Swafford v. Huntsman Springs, Inc., Docket No. 44240, serves as a word of warning for those purchasing plots in real estate developments. As someone who recently purchased a plot of land in an in-progress real estate development, I read this case with interest.

The Swaffords bought a plot of land early on in the development's life, based on a master plan that they had viewed. Later, as the development continued underway, Huntsman Springs altered its plans, so that they way it turned out was not as it had been in the master plan the Swaffords had viewed. The Swaffords then sued for breach of contract. 

The problem was that the "master plan" had never been part of the Swaffords' contract with Hunstman Springs. The contract did not incorporate the master plan and in fact the contract stated in several places that Huntsman Springs was bound by no other representations outside of the four corners of the contract and, in an integration clause, that the contract was the entire agreement. The contract was much less specific in Huntsman Springs's obligations to the Swaffords, but Huntsman Springs did comply with all of them. Therefore, there was no breach of contract. 

Important lesson learned: If you want your developer bound by a master plan, make sure it's in your contract. (Of course, that's possibly easier said than done, depending on power differentials. But, if you allow for reasonable modifications of that master plan in some way, maybe you could accomplish it.)

July 7, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Tuesday, July 4, 2017

New York Court Explains What It Takes for Promissory Estoppel to Trump the Statute of Frauds

A recent case out of New York, In re Estate of Edmund Felix Hennel, No. 78, explains when promissory estoppel will overcome the statute of frauds, and the answer is: not always. Sometimes unfairness may result from the failure to overcome the statute of frauds, but promissory estoppel only saves a party in cases of unconscionable injury. 

In the case, Hennel's grandsons allegedly reached an agreement  with him whereby they would assume maintenance for a particular property and eventually assume ownership, and their grandfather would pay off the property's mortgage in his will. A 2006 will seemed to have terms that supported this oral agreement. However, a 2008 will revoked all previous wills and did not include the same terms, although the grandsons claimed Hennel told them nothing had changed in their agreement. The grandsons assumed ownership of the property but the 2008 will failed to pay off the property's mortgage. 

After Hennel's death, his grandsons sued to have the property's mortgage satisfied by their grandfather's estate, but they admitted that they could not satisfy the statute of frauds, since their agreement with their grandfather had been oral. Instead, the grandsons sought to rely on promissory estoppel. The court held, however, that even if they satisfied the elements of promissory estoppel, they would not suffer unconscionable injury if the statute of frauds was enforced, and unconscionable injury was required to allow promissory estoppel to trump the statute of frauds. Here, the grandsons had been able to pay the mortgage out of the rental income the property generated, and the grandsons did not have to expend any personal money to pay the mortgage. In such a case, there was no unconscionable injury.

The court noted that the grandsons could always sell the property if they wished to get out from under the mortgage, considering that the property had an estimated $150,000 worth of equity. The grandsons contended that, had the mortgage been paid as they had been promised, they would have received the full value of the property ($235,000) as equity. The court agreed this loss was unfair, but it was not unconscionable. In fact, the court stated, "cases where the party attempting to avoid the statute of frauds will suffer unconscionable injury will be rare." 

July 4, 2017 in Recent Cases, True Contracts | Permalink | Comments (0)

Sunday, July 2, 2017

The McMansion Hell Dispute Was Really About Contracts

Zillow's cease-and-desist letter to popular Tumblr blog McMansion Hell --and its subsequent backing down from its position after the blogger secured representation from the Electronic Frontier Foundation --has been well-documented, including by such outlets as BBC News. However, a lot of outlets reported it as being a copyright dispute. While there was definitely a copyright angle to the disagreement--Zillow even alleged as such in its letter--the issue was really one of contract. After all, as many commentators pointed out, Zillow didn't even own the copyright in any of the photos. The true dispute, as Zillow conceded and EFF explained in its letter response, was over Zillow's terms of use. 

Zillow alleged that its terms of use prevented "reproducing, modifying, distributing, or otherwise creating derivative works from any portion of the Zillow site." Zillow seemed to be alleging that the blogger's parodies and commentaries of the photos on the site--otherwise easily protected by copyright's fair use doctrine--were prohibited by the terms of use. EFF fought back on this, though. EFF claimed that the blogger had never effectively assented to be bound by the website's terms of use, and that even if she had, the agreement's clause permitting modification without notice rendered the terms of use illusory and unenforceable. EFF also noted that contract doctrines have in the past restricted terms that restrict speech, at least in part due to public policy concerns. Finally, EFF raised the recently enacted Consumer Review Fairness Act of 2016, which voids contract provisions that attempt to prevent people from posting reviews, performance assessments, or other analyses of goods and services. The blogger's parodies of the real estate photographs on Zillow, according to EFF, are analyses of Zillow's services, and therefore Zillow cannot restrict them through its terms of use. 

Zillow backed off pretty quickly, claiming that it never intended to cause McMansion Hell to shut down, and McMansion Hell is back up, without having deleted any of the demanded photos. It seems like a victory for McMansion Hell and, more importantly, for individual speech. All of us spend a lot of time on websites with terms of use that we never bother to read. The quick reaction of many in the legal community to help McMansion Hell fight back, and the subsequent news coverage it received, is a nice reminder that not all contracts are automatically binding, especially not when criticism is involved. Hopefully other less high-profile recipients of dubious cease-and-desist letters can take heart from this story. 

July 2, 2017 in Commentary, Current Affairs, In the News, True Contracts, Web/Tech, Weblogs | Permalink | Comments (0)

Monday, June 26, 2017

"As Is" Clauses Don't Grant You Immunity If You Commit Fraud -- and Parol Evidence Can Help Prove It

A recent case out of South Dakota, Oxton v. Rudland, #28070 (behind paywall), is another case involving alleged fraud during the sale and purchase of a house, this one with an explicit parol evidence debate. 

As in the previous case I blogged about on this topic, the contract for the house contained an "as is" clause. The Oxtons agreed that the contract with this "as is" clause was unambiguous and fully integrated. However, they argued that the parol evidence rule never applies when a party is alleging fraud. Because they were alleging fraud, they wanted to be able to bring in parol evidence regarding that fraud. 

The court agreed that the parol evidence rule does not apply in cases of fraud, which cannot be avoided by disclaimers in the contract. Therefore, the court looked at the Oxtons' evidence of fraud, which consisted of the fact that the Rudlands who sold them the house had just bought it a few months before and in the course of buying it had been told about "major settling" of the house (the problem at issue). The Rudlands, however, did not disclose that "major settling" when they sold to the Oxtons months later. The Rudlands countered that the disclosure statement that did not contain any language about "major settling" was largely irrelevant, and that the Oxtons were well aware they were purchasing the home "as is" and had the opportunity to obtain an inspection before finalizing the contract. 

The court found that it could not resolve these questions of fact but that there was enough evidence to possibly support the Oxtons' fraud claim, such that summary dismissal of that claim was inappropriate. The court allowed the parol evidence to support the claim, and also explicitly pointed out that "as is" clauses do not provide "general immunity from liability for fraud." Therefore, the Rudlands could not rely on the "as is" clause alone as blanket protection for all of their behavior and statement, and the litigation over the alleged fraudulent inducement should continue. 

It's interesting to contrast this with the Texas case I just blogged. There, the court held that getting an inspection was enough to prove that you were not relying on the sellers' statements. The Oxtons did obtain an inspection in this case but little attention is given to that fact. I wonder if it will gain more prominence as the debate over the alleged fraud goes forward, as at the moment the case was pretty focused on the parol evidence rule and the operation of the "as is" clause, not on the effect of the inspection. 

June 26, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Friday, June 23, 2017

Trade Usage vs. Express Terms in Lawsuit Against Hardware Stores

Two by FourWhen I teach "usage of trade" (UCC § 1-303) in Contracts or in Sales, I inevitably bring up the example of  "two-by-four" lumber. The example is a good one in that most students either already know first hand that a two-by-four board is smaller than two inches by four inches, or else they readily grasp the concept that terms in a contract can come from a widespread meaning that is at variance with its literal meaning. For years, I thought the point of the example was non-controversial--or at least less convoluted than more famous interpretive questions like, "What is 'chicken'?" or "Is a burrito a 'sandwich'?"

At least one litigant would disagree with my characterization of the lumber example as being obvious. This story in the Des Moines Register describes a lawsuit in which hardware chains Home Depot and Menards are accused of deceiving buyers by selling "four-by-four" lumber that is not four inches by four inches in dimension:

HomeDepot_svgThe retailers say the allegations are bogus. It is common knowledge and longstanding industry practice, they say, that names such as two-by-four or four-by-four do not describe the width and thickness of those pieces of lumber.

 Rather, the retailers say, those are “nominal” designations accepted in government-approved industry standards, which also specify actual minimum dimensions — 1½ inches by 3½ inches for a two-by-four, for example, and 3½ inches by 3½ inches for a four-by-four.

“Anybody who’s in the trades or construction knows that,” said Tim Stich, a carpentry instructor at Milwaukee Area Technical College.

True enough, said Yevgeniy (Eugene) Turin of McGuire Law, the firm that represents the plaintiffs in both cases.

However, Turin and his clients dispute that the differences between nominal descriptions and actual dimensions are common knowledge.

 

“It’s difficult to say that for a reasonable consumer, when they walk into a store and they see a label that says four-by-four, that that’s simply — quote unquote — a trade name,” Turin said in an interview.

Turin said his clients don’t argue that the retailers’ four-by-fours (and, in the Menards’ case, a one-by-six board as well) are not the correct size under the standards published by the U.S. Department of Commerce. The product labels, however, should disclose that those are “nominal” designations and not actual sizes, Turin said.

With some of Menards’ lumber products, both the nominal and actual size are shown, a document Turin filed in the case against Menards says. But the lumber in question is labeled only with a nominal size — "4 x 4 — 10’," for example — that consists of numbers “arranged in a way to represent the dimensions of the products,” the document says. That leaves the “average consumer” to conclude that the pieces measure four inches by four inches, Turin said.

Some Menards customers aren’t buying it.

“They haven’t measured four inches by four inches since the ‘50s,” said Scott Sunila after loading purchases into his pickup.

“My God, that’s crazy,” the 60-year-old bulldozer operator said of the lawsuits. “Let me on the jury. They ain’t winning. And they’re gonna pay me extra for my time.”

But an unscientific survey of 18 Menards shoppers found that about a third were unaware that "four-by-four" doesn’t represent actual dimensions of that piece of lumber.

The problem with defining terms by usage of trade is that the term usage must have "such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question." UCC § 1-303(c). The existence of the trade usage is not a question of law, but a question of fact when (as here) it is not embodied in a trade code, such codes rarely being applicable to or ratified by consumers. If a party cannot establish the existence of trade usage terminology, then express terms will typically prevail over trade usage. UCC § 1-303(e).

My initial take was that this lawsuit was a clear loser, but the fact that the burden of proof lies with the hardware stores suggests that the plaintiffs at least have a chance. Now, would I take this case on a contingent fee basis?  Er... no.

June 23, 2017 in Current Affairs, In the News, True Contracts | Permalink | Comments (2)

Wednesday, June 21, 2017

Grammatical Rules Shed Little Light on Contract Provision

More fun with ambiguity! I like this recent case out of Pennsylvania, BL Partners Group, L.P. v. Interbroad, LLC, No. 465 EDA 2016, because it really delves into grammatical rules in a way that pleases the 13-year-old me who enjoyed learning how to diagram sentences. (I did. I can't help it. I admit it publicly here.)

The appellant leased billboard space on the rooftop of a building owned by the appellee. The appellee decided to demolish the building and sent the appellant a termination notice. The appellant argued that the termination notice was invalid under the terms of the lease and that it would not vacate the premises. The provision in question was: 

"In the event that Lessor's building is damaged by fire or other casualty and Lessor elects not to restore such building, or Lessor elects to demolish the building, Lessor may terminate the Lease . . . ."

The trial court found that this provision gave the appellee the right to demolish the building for any reason, finding that the comma preceding the "or" indicated that it was an independent basis for termination and was not dependent upon the building first being damaged by fire or other casualty. This appeal followed. 

The appellate court began its analysis by looking to the dictionary definition of the word "or," and then finding that the placement of a comma before the word "or" joins two independent clauses. Nonrestrictive phrases separated by commas are construed as parentheticals, "supplemental to the main clause." The appellate court then concluded that the intent of the contracting parties was not clear. The appellate court said that the trial court's reading actually read words into the contract, i.e., "In the event that Lessor's building is damaged by fire or other casualty and Lessor elects not to restore such building, or in the event that Lessor elects to demolish the building, Lessor may terminate the Lease . . . ." The appellate court said it was unclear if that reading was correct, or if in fact the clause should be read in conjunction with the previous clause, and therefore the meaning could not "be determined definitively from the particular terms, grammar, or structure" of the provision. Both parties offered reasonable interpretations, and therefore extrinsic evidence had to be examined for the true meaning of the provision. 

June 21, 2017 in Recent Cases, True Contracts | Permalink | Comments (1)

Monday, June 19, 2017

David Mamet's Last-Minute License Term

 

Puyallup High School Auditorium.jpg
Public Domain, Link

This story is a few weeks old, but I think it's an interesting one still deserving of discussion. Apparently, one of the terms of licensing one of David Mamet's plays to perform is that the theater not host any "talk backs" within two hours of the show. It's interesting to me first because talk backs are fairly common within the theater industry, and I'm not sure most theater companies would assume there were restrictions around them. This makes me wonder if other playwrights have similar policies and how much theater companies check into those specific terms. 

Another thing that struck me about this, though, was that apparently this talk-back-prohibiting term was not in the original terms of the license. The theater company detailed in the article received a new contract with the new licensing term just four hours before the show opened. Do we think that was a valid modification of the original license terms? There is no discussion of this in the article, but do you think that the theater company, threatened with fines of $25,000, felt compelled to agree to the new term after having sold tickets and invested time in rehearsing the play? Was the new term in that license enforceable? 

Finally, apparently Mamet's agent will ensure that the clause is included in license terms from this point on. Generally, parties can enter into any contractual terms they wish (within certain bounds of reason). Presumably if Mamet's no-talk-back provision is disliked by theater companies, Mamet's plays could fall out of fashion and the market could handle the situation. However, if other playwrights start demanding similar terms, then there might not be as much pushback from the theater companies. So far it seems that Mamet's clause just prohibits discussion within two hours of completion of the play, so that could allow an enterprising theater company to just hold a talk back two and a half hours later. It could be interesting to see what effect, if any, this situation has on theater talk backs going forward. Anyway, it was an interesting little contract story, so I thought I'd pass it along. 

(h/t to Rebecca for bringing the article to my attention!)

June 19, 2017 in Commentary, Current Affairs, In the News, True Contracts | Permalink | Comments (1)

Thursday, June 15, 2017

Disclaimer Saves a Faculty Handbook from Being Considered a Contract

I've blogged before about whether a faculty handbook creates a binding contract between a university and its faculty. A recent case out of Indiana, Dodson v. Board of Trustees of Indiana University, Court of Appeals Case No. 45A03-1611-CT-2703, found that disclaimers contained within the faculty handbook can protect it from being considered a binding contract. 

Dodson had alleged that she had been denied tenure in contravention of the faculty handbook, and that this constituted a breach of contract on behalf of the university. The university, however, pointed out that the handbook had a disclaimer that it was not be a construed as a contract, and as a result Dodson's claim failed. The disclaimer was evidence that the university never intended the handbook to be part of its contract with Dodson. 

June 15, 2017 in Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Tuesday, June 13, 2017

5-hour ENERGY + 3-year delay could = laches

5-hour ENERGY is one of those products that I feel like an entire class could be built around. I already teach a couple of 5-hour ENERGY cases in trademark, and here's a contracts case (that seems to also have patent and trade secret implications). The case is Innovation Ventures, LLC v. Custom Nutrition Laboratories, LLC, Case No. 12-13850 (behind paywall), out of the Eastern District of Michigan. 

The heart of the allegations currently at issue in this most recent litigation revolve around a previous settlement agreement between the parties, under which the defendant agreed not to use certain 5-hour ENERGY ingredients in any formulas for other energy shots. The defendant didn't deny that it did in fact use those prohibited ingredients. However, it raised a laches defense to try to shield it from liability, alleging that the plaintiff delayed filing the lawsuit for three years, during which the defendant was openly using the ingredients at issue, with the plaintiff's knowledge. During the time period that the plaintiff delayed suit, the defendant alleged that it developed and sold other products that it would have developed differently had the plaintiff indicated that it had an issue with the defendant's activities. The plaintiff's response, however, was that, because it brought suit within the applicable statute of limitations, laches can't apply. 

The plaintiff's argument was unavailing. The court noted that Michigan had again and again reiterated that statute of limitations not having run alone cannot be enough to defeat a valid laches defense. The defendant alleged that the plaintiff knew that the defendant was selling products with the prohibited ingredients and sat back and waited for more products to be developed and further damages to accrue before bringing suit. This behavior, if true, could support a finding of laches. 

(There were lots of other issues, allegations, and defenses in this litigation. I've focused on this one small piece.)

June 13, 2017 in Food and Drink, Recent Cases, True Contracts | Permalink | Comments (2)

Wednesday, June 7, 2017

Looking for Some Unambiguous Insurance Policy Language? Here's Some

Insurance contracts often provoke disputes over language interpretation. A recent case out of West Virginia, Erie Insurance Property & Casualty Co. v. Chaber, No. 16-0490, overturns on appeal the lower court's finding of ambiguity, declaring that the language at issue was in fact unambiguous.

The Chabers had an insurance policy that excluded "earth movement," which was defined as including "landslide . . . whether . . . caused by an act of nature or . . . otherwise caused." Soil and rock slid down a hill behind the Chabers' property and damaged it. The insurance company refused to pay out, pointing to the exclusion of landslides. The Chabers alleged that the landslide was caused by improper excavation, not natural causes, and thus shouldn't have been excluded under the policy. The lower court found that the insurance policy was ambiguous, and that the Chabers might have expected that landslides caused by actions of humans were covered. The appellate court, however, disagreed. 

The appellate court found that previous cases had found ambiguity in insurance policies that excluded events arising "from natural or external forces." In contrast, the Chabers' insurance policy language was the much more general "act of nature or . . . otherwise caused," losing the word "external" that had been considered ambiguous. The language in the Chabers' policy was relatively new but the few courts that had considered it had found it to be unambiguous. Therefore, the appellate court found the policy was unambiguous and covered landslides, whether human-triggered or naturally occurring. 

I always find it interesting when courts disagree regarding ambiguity, because the very fact of courts disagreeing seems to indicate ambiguity! However, this policy does seem to be unambiguous in its breadth of exclusions. Possibly the lower court just felt bad for the Chabers. 

June 7, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, June 5, 2017

Prince's Music: More Contract Disputes

I've already blogged about the contractual disputes around the music that the late artist Prince left behind when he died unexpectedly. They continue with another case in the District of Minnesota, Paisley Park Enterprises, Inc. v. Boxill, Case No. 17-cv-1212 (WMW/TNL). In this dispute, Boxill, a consultant and sound engineer who worked with Prince, had announced that he would release five Prince recordings in his possession on the anniversary of Prince's death. Prince's estate sued, seeking a preliminary injunction against the release, which the court granted. One of the causes of action revolved around the Confidentiality Agreement that Boxill had entered into with Prince. Under the terms of the agreement, Boxill was allowed to enter Prince's home and work with Prince and disclaimed any property interest connected with this work. Yet when Prince's estate demanded return of the recordings in Boxill's possession, he refused to turn them over. This was sufficient to demonstrate a likelihood of success on the merits for breach of the contract. 

Boxill's main argument was that the Confidentiality Agreement only covered his work consulting on the remodel of Prince's music studio; the Confidentiality Agreement did not cover Boxill's work as a sound engineer recording music with Prince. Boxill's reasoning on this was that the Confidentiality Agreement prohibited him recording any of Prince's performances, but he was required to do so when he was working with Prince as a sound engineer. The Prince estate's response to this was that it had waived the recording portion of the Confidentiality Agreement but the rest stayed in force and covered all of Boxill's activities. The Court concluded that either interpretation was plausible, and that Prince's estate had a "fair chance" of prevailing on the merits. 

A motion to dismiss is currently pending in the case, so we'll see what happens!

June 5, 2017 in Celebrity Contracts, Current Affairs, In the News, Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, May 31, 2017

Alleging Medical Necessity Under a Health Insurance Contract

We are by now probably all familiar with the modern phenomenon of GoFundMes to cover medical care. Those funds likely aren't just to cover situations where the parties didn't have health insurance, but also situations where the parties did have health insurance and the health insurance refused to pay. Sometimes because of the terms of the particular health insurance policy, but also sometimes without adequate justification. A recent case out of the Southern District of Florida, Grewal v. Aetna Life Insurance Co., Case No. 17-cv-80318-MIDDLEBROOKS (behind paywall), seems like the latter situation, based on the allegations of the complaint. 

Grewal, who had Aetna health insurance, also had a six-year-old son, A., who became seriously and unexpectedly ill. He was eventually diagnosed with a rare and very dangerous condition that required long-term care and inpatient rehabilitation. A.'s doctors determined that he should be transferred to a different hospital that could properly treat A. The hospital where A. had been was unable to handle the specialized care A.'s condition required. (In fact, there were allegations the hospital had allowed A. to lay in his own vomit for long periods of time, which seems...alarming???)

Aetna refused to clear A.'s flight transfer, finding that it was not medically necessary, but A.'s condition grew increasingly serious, so A.'s father decided to go through with the flight. He then filed a claim with Aetna to pay for the flight, which Aetna refused within days, without examining A. or the hospitals in question. This refusal left A.'s father with a bill over $300,000. 

Aetna's motion to dismiss required the court to determine if the complaint had sufficient allegations that A.'s flight between hospitals was indeed "medically necessary." And the court determined that it did. The complaint alleged that, at the time that A. was transferred, ground transportation was unsafe because of the seriousness of A.'s condition. Therefore, if A. had to be transported, it had to be by flight. And the complaint further alleged that A.'s current hospital was so inadequate to treat A. that it was a life-threatening situation for A. Finally, the complaint alleged that A.'s doctors, those medical professionals most familiar with A.'s condition, recommended the flight transfer. Those allegations were all sufficient to establish that the transfer was "medically necessary" and thus covered by the health insurance policy. Therefore, taking the facts in the complaint as true, a breach of contract was alleged. 

We'll see how this case plays out, but I can't help but feel intense sympathy for A.'s father, having to make this decision. Imagine your six-year-old son being suddenly, unexpectedly, very seriously sick, and your son's doctors saying he needed to be transferred to have any chance at recovery. How rational do you think you would be dealing with your insurance company in your situation? Would you really consider it time to have a debate over contractual language? 

May 31, 2017 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)