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Valparaiso Univ. Law School

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Monday, August 5, 2013

Dentist with Curious "I Own Your Criticism Contract" is On the Lam

DentistArs Technica provides a nice summary of the state of affairs in the case of the New York City dentist who attempted to contract around the criticism of her patients.  It even includes a shout out to law profs Eric Goldman (Santa Clara) and Jason Schultz (Berkeley).  Open wide, here's a taste:

A lawsuit regarding a dentist and her ticked-off patient was meant to be a test of a controversial copyright contract created by a company called Medical Justice. Just a day after the lawsuit was filed, though, Medical Justice backed down, saying it was “retiring” that contract.

Now, more than a year after the lawsuit was filed, the case against Dr. Stacy Makhnevich seems to have turned into a case about a fugitive dentist. Makhnevich is nowhere to be found, won’t defend the lawsuit, and her lawyers have asked to withdraw from the case.

***

In 2010, Robert Lee was experiencing serious dental pain. He went to see Dr. Stacy Makhnevich, the “Classical Singer Dentist of New York,” in part because she was a preferred provider for his dental insurance company. Before Makhnevich treated him, she asked him to sign a contract titled “Mutual Agreement to Maintain Privacy.”

The contract worked like this: in return for closing “loopholes” in HIPAA privacy law, Lee promised to refrain from publishing any “commentary” of Makhnevich, online or elsewhere. The contract specified that Lee should “not denigrate, defame, disparage, or cast aspersions upon the Dentist.”

And the kicker: if he did write such reviews, the copyright would be assigned to the dentist. She’d own it.

This “I own your criticism” contract would soon be put to the test, because Lee was an extremely unhappy customer. “Avoid at all cost!” he wrote in a one-star Yelp review. “Scamming their customers! Overcharged me by about $4000 for what should have been only a couple-hundred dollar procedure.”

The forms Makhnevich was using, provided to her by a company called Medical Justice, were already the subject of considerable controversy. Two tech-savvy law professors, Eric Goldman of Santa Clara University and Jason Schultz of UC Berkeley, launched a website to fight the contracts, which garnered considerable press. Former Ars Technica writer Tim Lee chronicled his own experience with a Philadelphia dentist who was using the contract.

The “Mutual Agreement” was essentially a work-around to try to stifle patient reviews. Doctors, or any other business, who believe that an online review is, say, defamatory, can go ahead and sue a reviewer—but they don’t have an easy way to get the review down. Review sites like Yelp are protected by Section 230 of the Communications Decency Act, which immunizes the platforms hosting such user-generated content, as long as they don’t edit it heavily. Review sites in the US don’t typically remove posts when a business claims defamation.

Copyright, however, is a different story. Section 230 doesn’t cover intellectual property laws, and Yelp has to react quickly to claims that a user has violated copyright law.

Users of the Medical Justice form were counting on that, and it worked. In September 2011, staff members of Dr. Makhnevich sent DMCA takedown notices to Yelp and DoctorBase. That was followed up with invoices sent to Robert Lee, saying he owed $100 per day for copyright infringement. Accompanying letters threatened to pursue “all legal actions” against him.

Of course, the dentist's disappearance and considerable negative press leads Paul Levy of Public Citizen to remark: 

“It’s quite possible that the consequence of her having this contract is that she had to give up her dental practice,” said Levy. “It’s the Streisand effect gone bonkers.”

Yes, indeed.  More from Ars Technica here.

[Meredith R. Miller]

August 5, 2013 in In the News, Recent Cases, True Contracts | Permalink | Comments (1) | TrackBack (0)

Thursday, July 18, 2013

Another Tragic Story of Lost Air Miles

We reported in May here about Northwest Inc. v. Ginsberg, a case on which the U.S. Supreme Court granted cert. so that it can decide "Whether the court of appeals erred in holding, in contrast with the decisions of other circuits, that respondent’s implied covenant of good faith and fair dealing was not preempted under the Airline Deregulation Act because such claims are categorically unrelated to a price, route, or service, notwithstanding that respondent’s claim arises out of a frequent-flyer program (the precise context of American Airlines, Inc. v. Wolens ) and manifestly enlarged the terms of the parties’ undertakings, which allowed termination in Northwest’s sole discretion."

Stephen Colbert reports on another tragic case of lost air miles, this time involving a frequent-flying cello.  The report is provided below:

 

[JT]

July 18, 2013 in In the News, Travel, True Contracts | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 9, 2013

When Non-Competes Attack

FpasqualeOver at Balkinization, University of Maryland Law Prof Frank Pasquale (pictured) has a post about a recent article by Alana Samuels in the L.A. Times.  Samuels' article begins with the now-familiar story of a janitor owed back wages who was forced into an arbitral forum that favored employers.  His arbitration agreement, which was among the papers he signed without reading (and likely without being given the opportunity to read) on the first day of work, also included a class action waiver.  Employers are also emboldened by the pro-business climate engendered by recent SCOTUS decisions to throw in attorneys' fees provisions, thus increasing the risks to employees who seek redress.

The story then proceeds to detail the plight of relatively low-wage workers, such as limo drivers and hair stylists, whose employers force them to sign non-compete clauses, even if they are part-time, meaning that they cannot find work with other businesses, even if they are not getting enough hours from their current employers.  Pasquale reports that non-competes are now starting to kick in at the job application stage.  He reports that at some job fairs, employers will not look at your application unless you sign a "letter of intent," which prevents the applicant from applying elsewhere whie the current application is pending.

It is not clear to me that such a letter would be or could be enforceable.  What is the company's remedy if a potential employee violates the letter of intent?  Presumably, the only remedy would be to refuse to hire, but if the employer is otherwise inclined to hire someone, would that person's failure to abide by the company's b.s. letter of intent really deter the company from hiring?  And if the company does not decide to hire the person, there is obviously no harm to the company and so no way to enfore the letter of intent.  The issue could arise, perhaps, if the company hired someone and then learned that the employee had violated the letter of intent.  But since the employment is almost certainly at-will, what difference does the letter of intent issue make?  The employer still is free to fire or not fire.

[JT]

July 9, 2013 in Commentary, In the News, True Contracts | Permalink | Comments (3) | TrackBack (0)

Wednesday, July 3, 2013

A non-disparagement clause and a contract that pushes the limits without one

The NYT's (new) ethicist, Chuck Klosterman tackled the issue of non-disparagement clauses in last Sunday's magazine (you have to scroll down past the first question about the ethics of skipping commercials).  Klosterman stated that, "(n)ondisclosure provisions that stretch beyond a straightforward embargo on business-oriented “trade secrets” represent the worst kind of corporate limitations on individual freedom — no one should be contractually stopped from talking about their personal experiences with any company."  He adds, "You did, however, sign this contract (possibly under mild duress, but not against your will)."  A non-disparagement clause, however, is quite different from a blanket nondisclosure provision - the ex-employee may presumably talk about her personal experiences, as long as she leaves out the disparaging remarks.  "Mild duress" is an oxymoron since duress, by its definition, is not mild and if you sign something under duress, you are signing it against your will.  Despite getting the nuances wrong, the advice -- which is basically to say nothing bad but say nothing good either --  is sound. Sometimes silence speaks volumes.

Non-disparagement clauses in settlement agreements are fairly common and I don't think they are necessarily outrageous (it is a settlement agreement afterall).  That's not the case with this agreement, posted courtesy of radaronline and discussed at Consumerist.  The agreement doesn't contain a non-disparagement clause but still manages to be overreaching.  The agreement, purportedly from Amy's Baking Company , requires that its employees work holidays and weekends, and extracts a $250 penalty for no-shows.  It also forbids employees from using cell phones, bringing purses and bags to work, and having friends and family visit during working hours.  The contract also contains a non-compete clause, prohibiting employees from working for competitors within a 50 mile radius for one year after termination.  What the agreement doesn't contain is a non-disparagement clause - and a clause prohibiting employees from sharing the terms of the agreement with others.  My guess is that those clauses will probably show up in the next iteration of the contract....

 

[Nancy Kim]

July 3, 2013 in Current Affairs, Miscellaneous, True Contracts | Permalink | Comments (1) | TrackBack (0)

Monday, July 1, 2013

Adventures in Contracts of Adhesion

I was traveling this weekend and stayed at a hotel.  As we were about to check in, I noticed this sign, which I would surely never have noticed if I did not teach contracts.

Parking warning

Look,much of this may be true whether or not the sign exists, but still I hope that I do not live in a world in which someone can plop down a sign on a parking lot and thereby bind me to whatever terms she chooses to impose.  The troublesome word here, of course, is "irrefutable."  Since this was an open parking lot that my hotel shared with a number of other hotels, there was no parking attendant.  I could have written out a note certifying that my 2001 Camry is immaculate and handed to the people at reception.  I expect that would have been flummoxed by such a note.  Whether or not my note is accurate, I would regard it as a reasonable response to the sign.  I would not want to run the risk of being on the wrong side of an irrefutable presumption, so better to state my claim as sweepingly as possible.

The wicked witch had it right.  "What a world, what a world!"

[JT]

July 1, 2013 in Commentary, Travel, True Contracts | Permalink | Comments (0) | TrackBack (0)

Thursday, May 9, 2013

Plain Meaning Leads to Mood Indigo for Ellington Heir

220px-Duke_Ellington_-_publicityDuke Ellington’s grandson brought a breach of contract action against a group of music publishers; he sought to recover royalties allegedly due under a 1961 contract. Under that contract, Ellington and his heirs are described as the “First Party” and several music publishers, including EMI Mills, are referred to as the “Second Party.” On appeal from the dismissal of the case, Ellington’s grandson pointed to paragraph 3(a) of the contract which required the Second Party to pay Ellington "a sum equal to fifty (50 percent) percent of the net revenue actually received by the Second Party from…foreign publication" of Ellington's compositions. Ellington’s grandson argued that the music publishers had since acquired ownership of the foreign subpublishers, thereby skimming net revenue actually received in the form of fees and, in turn, payment due to Ellington’s heirs.

The appellate court explained the contract and the grandson’s argument:

This is known in the music publishing industry as a "net receipts" arrangement by which a composer, such as Ellington, would collect royalties based on income received by a publisher after the deduction of fees charged by foreign subpublishers. As stated in plaintiff's brief, "net receipts" arrangements were standard when the agreement was executed in 1961. Plaintiff also notes that at that time foreign subpublishers were typically unaffiliated with domestic publishers such as Mills Music. Over time, however, EMI Mills, like other publishers, acquired ownership of the foreign subpublishers through which revenues derived from foreign subpublications were generated. Accordingly, in this case, fees that previously had been charged by independent foreign subpublishers under the instant net receipts agreement are now being charged by subpublishers owned by EMI Mills. Plaintiff asserts that EMI Mills has enabled itself to skim his claimed share of royalties from the Duke Ellington compositions by paying commissions to its affiliated foreign subpublishers before remitting the bargained-for royalty payments to Duke Ellington's heirs.

Ellington’s grandson asserted on appeal that the agreement is ambiguous as to whether "net revenue actually received by the Second Party" entails revenue received from EMI Mills's foreign subpublisher affiliates. The appellate court found no ambiguity in the agreement; the court stated that the agreement “by its terms, requires EMI Mills to pay Ellington’s heirs 50 percent of the net revenue actually received from foreign publication of Ellington’s compositions.” It reasoned:

"Foreign publication" has one unmistakable meaning regardless of whether it is performed by independent or affiliated subpublishers. Given the plain meaning of the agreement's language, plaintiff's argument that foreign subpublishers were generally unaffiliated in 1961, when the agreement was executed, is immaterial.

The court continued by stating that “the complaint sets forth no basis for plaintiff's apparent premise that subpublishers owned by EMI Mills should render their services for free although independent subpublishers were presumably compensated for rendering identical services.” Thus, dismissal of the suit was affirmed.

Ellington v. EMI Music, 651558/10, NYLJ 1202598616249, at *1 (App. Div., 1st, Decided May 2, 2013). 

[Meredith R. Miller]

May 9, 2013 in Celebrity Contracts, In the News, Music, Recent Cases, True Contracts | Permalink | Comments (0) | TrackBack (0)

Harper Lee Sues to Recover Her Rights to To Kill a Mockingbird

TKAMFor many lawyers, To Kill a Mockingbird (TKAM) is at the top of their list of "favorite books/movies about a lawyer." TKAM is about more than lawyering, of course.  It's about racism, family, class and much more.  This week, TKAM also is about "fraudulent inducement," "consideration" (a lack thereof) and "fiduciary duty." All of those subjects are in the complaint filed by TKAM author, (Nelle) Harper Lee, against her purported literary agent.

In the suit, Lee alleges that Samuel L. Pinkus (and a few other defendants) fraudulently induced her to sign her TKAM rights over to one of Pinkus's companies in 2007 and again in 2011. According to Lee, Pinkus, the son-in-law of Lee's longtime agent, Eugene Winick, transferred many of Winick's clients to himself when Winick fell ill in 2006. Pinkus then allegedly misappropriated royalties and failed to promote Lee's copyright in the U.S. and abroad.

For Contracts professors, the Lee v. Pinkus suit provides some interesting hypos to discuss when teaching fraud, consideration, and assignments of rights. Regarding fraud, Lee alleges that Pinkus lied to her about what she was signing at a time when she was particularly vulnerable due to a recent stroke and declining eyesight.  Consideration is in play because there allegedly was no consideration from Pinkus to Lee in exchange for Lee's transfer of rights to Pinkus.  Assignment issues arose because the many companies who owed Lee royalties reportedly struggled to figure out which company or companies they should pay given Pinkus's many shell companies.  Overall, it's a sad story for Ms. Lee but one that students may find particularly engaging.

[Heidi R. Anderson]

p.s. Although there are many quote-worthy passages in TKAM, a favorite of mine (useful when advising students about their writing) is: “Atticus told me to delete the adjectives and I'd have the facts.” Please feel free to share your favorites in the comments.

May 9, 2013 in Books, Current Affairs, Film, In the News, Recent Cases, Teaching, True Contracts | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 1, 2013

"Cop Killer" Reward Offer Leads to Breach of Contract Suit

We previously blogged about high-profile reward offers by Donald Trump, Bill Maher, a laptop-seeking music producer, and a Hong Kong businessman. Only one of those (the producer) led to an actual lawsuit.  The latest reward offer in the news involves murder.

In February of this year, the City of Los Angeles and other entities collectively offered a $1 million reward for information regarding Chris Dorner.  Dorner was the former policeman and Navy officer who (allegedly) killed four people, including two policemen. The manhunt for Dorner, labeled the "Cop Killer," reportedly was one of the largest in LA County's history. 

One of the people claiming the reward, Rick Heltebrake, has filed a breach of contract suit in LA Superior Court (the complaint can be obtained here but only for a fee).  Heltebrake is suing the City of Los Angeles, and supporting entities for $1 million and is suing three cities that offered separate $100,000 rewards related to Dorner. Heltebrake was a carjacking victim of Dorner's. After he escaped, Heltebrake called the police and told them where they could find Dorner. Because Dorner was found at the location Heltebrake identified, he is seeking the rewards.  

The contract controversy is one of interpretation.  The rewards reportedly were available for "information leading to the apprehension and capture of" Dorner, for the "identification and apprehension" of Dorner, for the "capture and conviction" of Dorner, and for "information leading to the arrest and conviction of" Dorner (I do not have the complaint so these excerpts are cobbled together from TMZ, Courthouse News Service, ABC and other sources).  Police charged Dorner on February 11, 2013. Heltebrake called police on February 12.  On February 25, after a shootout with police and structure fire, Dorner was found dead from an apparently self-inflicted gunshot wound.

Given the above facts, some of the intepretations questions are: (i) whether the authorities' shootout and recovery of Dorner's body qualifies as "apprehension" or "arrest," (ii) whether the "and" between "identification and arrest" or between "capture and conviction" means that both are required in order to collect, and many, many more. A complicating factor is that the $1 million reward was merely announced on TV; no written record was made.  At least one reward offeror, the City of Riverside, has stated that the lack of a "conviction" means that it won't pay. Although this is a tragic story, I may mention it the next time I teach the Carbolic Smoke Ball case.

If anyone is able to find the complaint for free, please post a link in the comments.

[Heidi R. Anderson]

 

May 1, 2013 in Current Affairs, In the News, Teaching, True Contracts | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 2, 2013

Liquidated Damages Clause Leads to Protests in the Streets of Ann Arbor

A student recently sent me this story as an example of a liquidated damages clause gone awry, at least for the contractor. The contractor, Crystal Corp., was supposed to remodel a building to be the new location for a restaurant, Kuroshio, by September 30th. The work was not completed until late December. The contractor does not appear to be contesting whether there was a breach. However, he is contesting the damages.

The contract apparently contained a liquidated damages clause that specified a per-day penalty for any delays. It also required Crystal to notify Kuroshio, in writing, of any delays, and the reason(s) for those delays. Crystal did not supply the required notice. And, because of the length of the delay, the contractor now reportedly owes more money to Kuroshio than he is owed for completing the work. Further, because the contractor has not been paid by the restaurant, he reportedly has not paid his own employees. Thus, the contractor and/or his employees have taken to the street in front of the restaurant.  According to AnnArbor.com, they protested in front of the restaurant every evening for over a week (there's no obvious update since late March). A protester's photo is available here.

I thought this case was a good one to mention in class because it's not every day that a contract dispute leads to public protest. More specifically, I hope to use this dispute to illustrate how liquidated damages clauses may not be enforceable (the cases in the text I use, Kvassay and O'Brian, are great but a present day example always seems to work better for cementing the material into students' minds).  

I also hope to use this dispute as an example of another theme I stress in class.  I tell my studentes that, as a deal lawyer, they'll often have to be the most negative person in the room.  They have to ask many "what if" questions of their clients before suggesting they sign contracts.  For example, "What if...you get inside and find out that the HVAC system is in terrible disrepair? Are you going to want to pay the per-day penalty in that situation? If not, then we need to revise the contract because, as written, you're going to be on the hook for the daily penalty no matter what."  I'm not sure how much of this they'll remember but I'm hopeful that at least some of it will stick with them.

[Heidi R. Anderson, h/t to student Michael DeRosa]

April 2, 2013 in In the News, Teaching, True Contracts | Permalink | Comments (2) | TrackBack (0)

Wednesday, March 20, 2013

Recent Article Covering Contractual Aspects of Egg Donation

Sperm-eggWith the help of our former intern, Christina Phillips, we stumbled upon this cover story from Santa Cruz's Good Times magazine.  It is a profile of Racquel Cool, who makes a living as an egg donor.  The article gives background on why Cool decided to become an egg donor and the process through which one registers with various services and gets matched up with couples in the market for viable eggs.

The article also provides the following interesting information about contractual aspects of egg donation:

  • The contracts specify that the payment to the donor is not for the eggs but for her time, effort and discomfort;
  • The payment, appropriately enough, since it is not a payment for the ova themselves, is the same regardless of the number of eggs harvested;
  • The amount one is paid per donation increases if a donation results in a pregnancy;
  • If the donor has a partner, s/he must also consent to the donation;
  • While the practice is frowned upon by the American Society for Reproductive Medicine, donors with especially prized qualities (athletes, Ivy League graduates, etc.) can sell their eggs (that is, their services) at much higher prices.

[JT]

 

March 20, 2013 in True Contracts | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 12, 2013

Crime and Punishment . . . and the Parol Evidence Rule

DosteovksyIn Book II, Chapter 1 of Crime and Punishment by Fyodor Dostoevsky (pictured), beginning on page 192 in the version to which I have linked, the novel's protagonist, Rodion Romanovich Raskolnikov, describes an oral agreement with his landlady.  The context is as follows:

The day after Raskolnikov has committed a double homicide, he is called to the police office.  He is understandably unnerved and fears that the authorities are on to him.  Moreoever, he is about to fall into a fit of delirium and is in no condition to keep his wits about him before the police.  However, when he arrives, it turns out that he has been called in as a debtor.  The supersilious assistant superintendent informs Raskolnikov that he has been called in on an I.O.U. that he made out to his landlady, the widow Zarnitsyn, for 115 roubles. It appears that the good widow has assigned the I.O.U. to one Mr. Tchebarov who is now seeking recovery.

Raskolnikov, relieved that he has not been called in for murder, explains to the authorities why he is so surprised to be expected to pay his debt.  He informs them that he had had his rooms with the widow Zarnitsyn for three years.  Early in his time there, he promised to marry the widow's daughter, and since he was practially a son-in-law, the widow extrended credit to him.  But the daughter had died of typhus.

Some time after that, the widow came to Raskolnikov and, while claiming that she still trusted him, offered that she would trust him more if he gave her an I.O.U. for the full amount of the debt that he owed her for the lodgings -- that would be the 115 roubles.  He signed the I.O.U. based on her assurances that, once he signed, she would trust him and would never, never seek to enforce it.  Raskolnikov adds a sort of laches argument that the widow had waited until he had lost his lessons and had no source of income whatsoever to seek to recover on the I.O.U. 

The authorities were not interested in these details, instructing Raskolnikov: :"You must give a written undertaking, but as for your love affairs and all these tragic events, we have nothing to do with that."  If any of our readers has any familiarity with 19th-century Russian law, feel free to weigh in, but it does seem like Raskolnikov has only the weakest of fraud in the inducement claims and so his testimony as to the widow's promise, though perhaps admissible despite the written agreement, will carry little weight.  Of course, Raskolnikov would have to show that the widow knew, at the time she promised not to enforce the I.O.U. that she in fact would do so.  And does it matter that such a promise should not be taken seriously on any account, or were 19th-century Russians really so romantic that they valued signed undertakings even if they had no intention of enforcing them?  

Or, even absent a showing of fraud, Raskolnikov's parol evidence might be relevant to show the parties' frames of mind.  Although the document looks legally binding, perhaps neither party regarded it as such.  Both had in mind only a written affirmation of their mutual obligations -- the landlady avowed her trust and Raskolnikov evidenced his trustworthiness through his willingness to sign.  The I.O.U. is no more enforceable than a written pledge to be best friends forever.  

There is also the additional issue.  The widow did not seek to enforce the I.O.U.; she assigned it to Tchebarov, whom she likely did not inform of her promise to Raskolnikov.  If the I.O.U. really is unenforceable, then the transfer of it ought not to make it any more so, and if the widow has committed some sort of fraud, it might arise from passing on an I.O.U. that she knows to be worthless as though it were of some value.

[JT]

 

March 12, 2013 in Books, Commentary, True Contracts | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 5, 2013

Magic Johnson's Offer to Tempt LeBron James

LeBron James participated in this year's NBA All-Star game but one former player, Magic Johnson, was not happy.  Magic, like many fans, would like to see the league's star players participate in the fun events leading up to the game, such as the slam dunk contest. Apparently, Magic would like that so much that he's willing to offer $1 million to the winner of next year's slam dunk contest if the contest includes LeBron James. He made that offer on ESPN's show, NBA Countdown:

 

When I first learned of this, I suspected that Magic's statement was an offer to James himself. However, in the video, Magic appears to say that the money would go to the winner of the contest, LeBron or not (OK, sure, the winner likely would be LeBron but you never know--underdogs can win, too).

Jalen Rose, Magic's co-host of the show NBA Countdown, stated that another player, Blake Griffin, would have to participate, too. Magic's verbal agreement with Rose seems to indicate a modified offer--one in which the $1 million payout is now conditioned on the participation of James and Griffin. From the video, it also appears that Magic is bargaining for performance versus promise but I'm not 100% sure. 

For professors looking for a modern-day reward-style offer, this could serve as a less political alternative to the recent reward-style offers by Donald Trump and Bill Maher, about which we previously blogged.

[Heidi R. Anderson]

March 5, 2013 in Celebrity Contracts, Sports, True Contracts | Permalink | Comments (0) | TrackBack (0)

Thursday, February 28, 2013

Jay the Intern, Brought to You By Contracts

On last night's Colbert Report, Stephen announced that he, a company man, was contractually obligated to provide a sponsor integration for Halls Mentho-Lyptus cough drops. He does so by changing the name of his intern Jay to "Halls Mentho-Lyptus with Triple-Soothing Action Presents Jay the Intern."

 

Ahh, the power of contracts.

[JT]

February 28, 2013 in Television, True Contracts | Permalink | Comments (0) | TrackBack (0)

Monday, February 11, 2013

CA fires contractor, providing a helpful breach of K scenario

The LA Times reports that the state of California has terminated its contract with SAP Public Services, a contractor that was supposed to fix the state's outdated computer network system that handles paychecks and medical benefits for 240,000 state employees. 

While both SAP and California are unhappy about the state of events, I have just covered breach, substantial performance, conditions and damages in my Contracts course and was delighted to find a real life scenario to illustrate the relevance of the material we just covered. 

So what triggered CA's termination?  SAP was hired three years ago but when its program was tested, it made errors at "more than 100 times" the rate of the old system. 

Was failing this test a breach?  If so, was it a minor or material breach?  It seems it would depend on what was in the contract. As contracts profs know, the first place to look in a contract dispute is the contract itself.  The are terms in the contract that will be relevant in evaluating whether there was a breach or the applicable measure of damages.  For example, there may be performance targets (i.e. conditions) that SAP had to meet which weren't met.  Those conditions would be relevant in determining each party's obligations (would the contract terminate upon failure to meet the condition, for example?)  There's also likely to be a provision dealing with whether SAP gets paid per deliverable or target met or per person/hour or time spent on a project. If this was a scheduled deliverable, then the facts tend toward finding a breach (or, if the contract language indicates, it could be a condition that was just never met).  If it was a test done in the course of moving the project toward completion, CA may have jumped the gun.  A material breach would allow CA to then terminate its obligation.  If not a material breach, CA should have sought adequate assurance of performance and could itself be in breach by terminating the contract.

 Facts matter, as I repeat like a broken record to my students (I guess I should update my reference for the iPod generation) - so it matters what it means to say that SAP failed the test.  The LA Times reports that:

    "During a trial run involving 1,300 employees....some paychecks went to the wrong person for the wrong amoung.  The system canceled some medical coverage and sent child-support payments to the wrong beneficiaries."

Furthermore, because the system sent money to retirement accounts "incorrectly,"' the state had to pay $50,000 in penalties.

Given the late stage of the project, if not a material breach itself, the failed trial seems to at least give rise to a reasonable belief that SAP would breach.  What did CA do then?  Did it immediately terminate or seek explanations/reassurance? 

 Another issue is what damages measure is applicable?  CA paid SAP $50million dollars but it had incurred much more trying to get the system up and running.  It wasn't clear to me whether the $50million dollar amount was the amount paid up to that point, or the total due to SAP.  In class, the cases we study regarding breach of contract to provide services typically involve some type of construction contract.  The standard measure then would be the difference between the cost of completion and the contract price.  But in a situation like this, the cost of completion is a bit funny given the various factors involved - and the period of time it would take to implement a new project (SAP took the project over from a prior contractor).  Furthermore, the purpose of the new system wasn't so CA could make money (no loss profit measure applicable here).  Given that, the standard expectation measure likely would not be appropriate and a reliance (or restitution) measure makes more sense.  Not surprisingly, CA is seeking recovery of the $50million dollars paid. 

What about SAP? Will it claim that it substantially performed?  I don't think it can with a straight face, but again, I am only basing my conclusion upon the facts contained in the newspaper article.  Will SAP seek restitution for the reasonable value of its services to CA?  It very well may, (and any students reading this, should raise it on an exam...) since it has spent three years on this project.  Based upon the information in the article, it doesn't sound as though CA received any benefit from the services rendered.  If SAP is determined to be the breaching party, it may not get awarded anything. The real world problem for SAP is that trying to hang on to money for delivering a system that doesn't work might hurt its reputation even more.  And it doesn't help that the other party is a state entity - meaning lots of future potential business at stake.  (The LA times noted that SAP projects with other CA entities are not going so well, either).

As is true for other contracts profs, I spend a lot time trying to situate doctrine into a problem solving (or minimizing) scenario since this is how most lawyers deal with contract law.  For example, prior to cancelling the contract, the attorneys for the state of CA most likely sat down and discussed its available options under both the contract and contract law.  SAP, too, likely reviewed (or is reviewing) its options under the contract and contract law.  My guess is that the contract terms probably permit CA to cancel under these circumstances, although a spokesperson for SAP stated that it believed it had "satisfied all contractual obligations in this project."

I'm sure I missed a few things in my quick analysis of ths situation, so feel free to note any other issues in the comments.

[Nancy Kim]

February 11, 2013 in Current Affairs, In the News, Miscellaneous, Teaching, True Contracts | Permalink | Comments (0) | TrackBack (0)

Thursday, February 7, 2013

A Unilateral Contract to "Like"

Shades of Hamer v. Sidway!  A man offered his daughter $200 if she quits Facebook for five months.  It seems that the daughter was well aware of the irresistible time-wasting hazards of the popular social networking site, but needed an incentive to quit.  The father even had her sign a contract.  But, as contractsprofs know, it's not the written form that makes the contract but the bargain.  Even though quitting Facebook may be better for productivity (as I keep telling my students....), it is still a legal "detriment" so if she's successful, dad should pay up.

Fbcontract

[Nancy Kim]

February 7, 2013 in Current Affairs, In the News, Miscellaneous, True Contracts | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 5, 2013

NY Appellate Court Enforces No Oral Modification Clause

AppDiv1DeptBuyer and seller enter into a contract of sale for property in Manhattan for a purchase price of over $56 million.  The contract sets a closing date and contains a no oral modification clause.  The parties had extended the closing date numerous times by written agreement.  The buyer, however, did not appear at the scheduled closing. Later that day, the parties began negotiating an amendment to the contract of sale.  While the parties communicated by email, their negotiations did not result in a written modification agreement.  The seller declared the buyer in breach of contract for failure to close and notified the buyer that the seller would retain the down payment (upwards of $9 million).  The buyer sued for its return.

After the trial court granted the seller’s motion for summary judgment, the buyer appealed.  Judge Saxe writing for a unanimous appellate court (App Div 1st Dep’t) began the decision:

A standard provision included in many commercial contracts is one requiring any modification of the agreement to be in writing. Nevertheless, courts are presented over and over again with litigation arising out of circumstances where one party to a contract wrongly presumes, based on past practice, that an oral modification will be sufficient. This appeal illustrates the problem.

The Appellate Division affirmed:

The question then becomes whether [the buyer’s] evidence suffices to create an issue of fact as to whether the parties’ written agreement was modified by an agreement extending the closing date. Since the contract of sale provided that any amendments or modifications must be in a signed writing, under General Obligations Law §15-301, the contract cannot be changed by an executory agreement that is not in a signed writing.

The court rejected the buyer’s argument that the existence of a modification was proved by the parties' full (or at least partial) performance of the alleged oral modification:

We reject [the buyer’s] contention that the parties fully performed the oral modification of the contract providing for the adjournment of the closing, since they met at 3:00 p.m. on [the date of the scheduled closing]. At best, that 3:00 p.m. meeting could qualify as partial performance of the alleged oral modification. But, while partial performance of an alleged oral modification may permit avoidance of the requirement of a writing, any such partial performance must be unequivocally referable to the modification (see Rose v. Spa Realty Assoc., 42 NY2d 338, 341 [1977]). The "unequivocally referable" standard requires that the conduct must be "explainable only with reference to the oral agreement." Where the conduct is "reasonably explained" by other possible reasons, it does not satisfy this standard (Anostario v. Vicinanzo, 59 NY2d 662, 664 [1983]). If "the performance undertaken by plaintiff is also explainable as preparatory steps taken with a view toward consummation of an agreement in the future," then that performance is not "unequivocally referable" to the new contract (id.).

* * *

[The buyer’s] submissions fail to satisfy this standard. None of the documents and events that [the buyer] relies on are unequivocally referable to the alleged oral extension. The unexecuted proposed fifth amendment to the contract, the emails exchanged between the parties after noon on [the scheduled closing date], and the 3:00 p.m. meeting attended by the parties that day are insufficient. Not only do the emails fail to even indicate that the closing was adjourned by agreement, but all these items were clearly explainable as preparatory steps taken with a view of attempting to arrive at a possible agreement in the future (see Sutphin Mgt. Corp. v. REP 755 Real Estate, LLC, 73 AD3d 738 [2d Dept 2010]; RAJ Acquisition Corp. v. Atamanuk, 272 AD2d 164 [1st Dept 2000]). In the absence of a resulting written modification, the mere fact that the parties met at 3:00 p.m. does not negate [the buyer’s] default at the 12:00 p.m. closing, or reflect an adjournment of that scheduled closing; it may be understood to merely reflect that [the seller] was willing to attempt to negotiate a new modification, as the parties had done once before, and which, if accomplished, would have nullified the default. Since [the buyer] had already invested $9 million into the project, it had many reasons to continue meeting and negotiating in order to attempt to salvage the deal despite the expiration of the closing deadline, so meetings held after the time set for the closing do not establish that an extension was orally agreed to.

The court also held that estoppel was inapplicable.

Get those modifications in writing! As Beyonce says, "if you liked it then you should've put a pen to it."

Nassau Beekman, LLC v. Ann/Nassau Realty, LLC, 116402/08 (NY App. Div. 1st Dep’t Jan. 31, 2013).

[Meredith R. Miller]

February 5, 2013 in Recent Cases, True Contracts | Permalink | Comments (0) | TrackBack (0)

Thursday, January 24, 2013

When is a Contract Not a Contract?

I recently finished a book manuscript on the subject of “wrap contracts” – shrinkwraps, clickwraps, browsewraps, tapwraps, etc.  These non-traditional contracts are interstitial, occupying space in and between contracts and internet law, but not neatly fitting into one alone.  I'll be blogging a lot more about them in the future.

On the subject of wrap contracts, not long ago I bought a new laptop with Windows 8 pre-installed. 
But that didn’t mean I didn’t have to agree to this:

Windows License Terms 

What's interesting is that my old laptop, which I ordered online, came in a package like this:

  Torn Agreement

Like the typical shrinkwrap, ripping the plastic bag (which was necessary to get to the laptop inside it) was deemed acceptance. 

Both were examples of rolling contracts, but they came in different forms -- and neither gave me notice of any terms to come at the time of the transaction.  Yet consider the hassle I would have to go through if I decided, after having received the goods and a "reasonable opportunity to read" the terms, that I didn't want to accept the terms.  I would  have to ship back the computer or take it back to the store, and try to explain that I was rejecting it because I disagreed with the contract terms. 

Honestly, now - don't you think the retailer would just think I was nuts?  Or that I had found a better deal elsewhere?  (Or that I had done something sneaky, like somehow copied the software or infected the computer with a virus?)  How many think I would actually get my money back if there was nothing (else) wrong with the laptop(s)?

 

[Nancy Kim]

January 24, 2013 in E-commerce, Miscellaneous, True Contracts, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 15, 2013

Conde Nast and Writers Rights

The N.Y. Times reports that Conde Nast has issued new contracts to its writers with changes that diminish their right to profits from articles.  Conde Nast is the publisher for magazines like Wired, Vanity Fair and The New Yorker.  (You remember magazines, right?  They’re printed on paper and you can usually find them at airports.  Unlike newspapers, they don’t leave inky residue on your fingers).  Conde Nast writers typically lack job security and benefits, signing one-year contracts – but they are (or were) allowed to keep the rights to their work. These rights could be valuable if an article becomes a movie, like “Argo” or “Brokeback Mountain.”  Under the new contracts, however, Conde Nast has exclusive rights to articles for periods of time ranging from thirty days to one year and option rights where payments to the writer top out at $5K. If the article is turned into a movie, there is also a cap on what writers can receive.

It would be easy for me to demonize Conde Nast given my association with writers.  Yet, it’s no secret that the demand for glossies is diminishing and that publishers need to figure out a way to monetize their content better – otherwise, there won’t be any magazine writers at all.  Perhaps Conde Nast could bargain employee benefits for these rights, the way newspapers do.  Maybe they could increase the cap based on different variables.  Maybe they could lift the exclusivity for certain writers after a period of time (or a designated number of successes).  Maybe they could commission articles that they conceived in-house, so that the work is a traditional work for hire, and the cap isn’t tied to an idea that originated with the writer.  In any event, it’s clear that Conde Nast needs to evolve with the marketplace; what’s not so clear is that this is the way to do it.

[Nancy Kim]

January 15, 2013 in Current Affairs, In the News, Miscellaneous, True Contracts | Permalink | Comments (0) | TrackBack (0)

Monday, January 7, 2013

Parking Contract

Below is a parking ticket I got from a parking lot outside of a hotel I stayed at over the holidays.  The fact that the ticket announced itself as a contract caught my attention.  It was as if the busboy in a restaurant, after clearing the table and placing a towel in his waistband, pulled out a pad of paper and announced, "My name's Devon, and I'll be your server tonight."  

Nothing against busboys or servers.  They each have their designated role, and for some reason restaurants keep them separate.  If you ask a busboy to bring you some ketchup, the best he can do is pass word on to the server that you need something, who will then send over the ketchup sommelier who will intimidate you with questions about what you have in mind for what he calls "catsup," what kind of tomato you prefer and if there was a particular vintage you had in mind.  Similarly, it seems a bit ambitious for a simple parking ticket to announce itself as a contract.  That's all I'm saying.

Parking Ticket

At this point, it should not shock us that our knowing assent to terms is not required for the the formation of a consumer contract, but still I found this little parking ticket a bit jarring.  The reason for that is as follows.  At the hotel at which I stayed, you actually don't use the ticket to get in and out of the parking lot; you use your room key, which has no contractual langauge written on it.  Nor were there signs elsewhere in the parking area that I noticed about limitations of liability.  I got the ticket because I parked my car before getting my room key.  

Moreover, the information provided does not seem adequate to establish a contract.  How long can I park my car?  What do I pay for the license to do so.  That information was not provided to me until I checked in to the hotel.  If I had just wandered into that parking lot without checking into the hotel, I would have no information about parking rates, and I'm not sure how a court would go about implying a price term in this case.  Social conventions suggest that I ought to know that by taking a ticket, proceeding through a raised gate and entering a parking lot, I am agreeing to pay for the privilege, but that should not mean they can charge me whatever they please.

If I had parked outside the front entrance of the hotel, unpacked my stuff, registered and then parked my car, I would have used my room key to get into the parking lot and never have received the notice printed on the ticket.  I suspect that the hotel somehow would still have found a way to limit its liabilty for any damage to my (rental) car while it was parked in its lot, but I really have no idea how or if it matters.  It's all for the best, because this way I started my little holiday thinking about contracts.

[JT]

January 7, 2013 in Miscellaneous, True Contracts | Permalink | Comments (2) | TrackBack (0)

Wednesday, December 19, 2012

Thoughts on the Instagram Kerfuffle

Stop me if you've heard this one before - Facebook changes its Terms in a way that its users find offensive and invasive of their privacy.  Uproar ensues and Facebook promises that the changes are harmless and everyone is just overreacting.  Facebook backs off, a little, and then pushes the boundaries a little further next time, regaining even more ground against its users.  Sound familiar? 

When Facebook bought Instagram for (approximately) $750 million dollars, we should have known the time was coming when Instagram would piss off its users, too.  Well, that time is here.  Instagram posted changes to its Terms of Use this week which made users concerned that the company could use their content (i.e. photos) in advertisements.  So that lovely picture you took of your sweet grandmother could be used in an ad for Depends. The media was all over it, and you can read about it here, and here, and here

I think the public backlash is a very good thing since it reminds companies that there are at least some people who are reading their online agreements.  Unfortunately, they are usually only reading the terms of companies that already have a monopoly in the marketplace.  It's not easy for unhappy Facebookers, Googlers or Instagramers to pick up their content and go elsewhere - where would they go? 

What makes my skin crawl, however, is the misleading reassurances doled out by companies when they are called on their online agreements.  Instagram, for example, states on its blog that users shouldn't fear, because it respects them, really it does:

"Instagram users own their content and Instagram does not claim any ownership rights over your photos. Nothing about this has changed. We respect that there are creative artists and hobbyists alike that pour their heart into creating beautiful photos, and we respect that your photos are your photos. Period.

I always want you to feel comfortable sharing your photos on Instagram and we will always work hard to foster and respect our community and go out of our way to support its rights."

While it may be true that Instagram users own their content, Instagram does take a pretty broad license from its users:

"Instead, you hereby grant to Instagram a non-exclusive, fully paid and royalty-free, transferable, sub-licensable, worldwide license to use the Content that you post on or through the Service, except that you can control who can view certain of your Content and activities on the Service as described in the Service's Privacy Policy, available here: http://instagram.com/legal/privacy/."

As Instagram knows, it doesn't need to own your content in order to use it as if it owned it.  All it needs is a broad license, like the one it has.  Note that it has the right to "use" the content - and doesn't define what that means or restrict that use very much.

The Privacy Policy states that Instagram may use the information to in the following ways:

  • "provide personalized content and information to you and others, which could include online ads or other forms of marketing
  • provide, improve, test, and monitor the effectiveness of our Service
  • develop and test new products and features
  • monitor metrics such as total number of visitors, traffic, and demographic patterns"

I found this sentence particularly sneaky:

"We will not rent or sell your information to third parties outside Instagram (or the group of companies of which Instagram is a part) without your consent, except as noted in this Policy"

Did you like the "except as noted in this Policy" ?  And, as Contracts profs know, "consent" means something other than what a layperson might think - it can mean just using a website in many cases.  There is similar broad language here:

"We may also share certain information such as cookie data with third-party advertising partners. This information would allow third-party ad networks to, among other things, deliver targeted advertisements that they believe will be of most interest to you." 

I'm not as concerned about the targeted advertisements (which doesn't mean I'm not concerned at all) as I am about the "such as" and "among other things."

And remember, the Terms do expressly state:

"Some or all of the Service may be supported by advertising revenue. To help us deliver interesting paid or sponsored content or promotions, you agree that a business or other entity may pay us to display your username, likeness, photos (along with any associated metadata), and/or actions you take, in connection with paid or sponsored content or promotions, without any compensation to you."

The company reassures its users, on its blog that it is not their "intention" to "sell" user photos.  The company says it is working on language to make that clear.  Let's hope so, but my guess is that they are probably going to use more mealy language like "at the moment" or "sell as a good defined under the UCC," or something that leaves wide open the possibility that it can make money off user photos by selling them to third party advertisers. 

I'd suggest you save Granny some embarrassment and delete that photo now.

[Nancy Kim]

 

December 19, 2012 in Commentary, Current Affairs, Miscellaneous, True Contracts, Web/Tech, Weblogs | Permalink | Comments (0) | TrackBack (0)