Monday, February 1, 2016
Okay, there's actual contract stuff to talk about in this case, but mostly I was fascinated to learn that IMAX theaters rent the movie-showing equipment from IMAX and, in 2004 at least, the cost was $41,400 in annual maintenance fees plus the greater of $75,000 or 7% of the box office receipts in annual rent. So, if you win the lottery and want an IMAX theater in your house, there's a rough idea of the kind of costs you're looking at.
And now that we've learned that fascinating tidbit of information, what happens when you get into a fight with IMAX about whether the equipment it's leased you is capable of playing "Hollywood" movies?
That's what happened in a recent case out of the Middle District of Pennsylvania, IMAX Corp. v. The Capital Center, Civ. No. 1:15-CV-0378. In that dispute, Capital Center alleged that it told IMAX it wanted to rent its equipment so it would be able to show "Hollywood" movies. In 2004, it entered into a fifteen-year lease of IMAX's movie-showing equipment/software/etc. Apparently around 2014, IMAX announced that it had developed new technology that rendered the equipment Capital Center had rented obsolete, interfering with Capital Center's ability to play "Hollywood" movies. (I keep putting "Hollywood" in quotation marks because it's in quotation marks in the opinion. Clearly Capital Center considered it a direct quote and an important characterization.)
In reaction to the new technology, Capital Center stopped paying rent on the old technology, apparently because it felt its equipment was now valueless. IMAX pointed out that Capital Center had therefore breached the contract and IMAX was entitled to the remainder due under the lease in liquidated damages (a clause in the contract). Capital Center gave the equipment back to IMAX, and IMAX sued to collect the money it claimed it was due under the contract. Capital Center raised in response defenses of mutual mistake and frustration of purpose. It also claimed IMAX had no right to demand the further rent amounts because Capital Center no longer had possession of the equipment. Finally, it claimed that IMAX had not properly disclaimed its warranty that the equipment was fit for a particular purpose, i.e., playing "Hollywood" movies. Unfortunately for Capital Center, none of these defenses succeeded.
Capital Center's mutual mistake defense centered on the "mistake" that both parties made that the equipment that was the subject of the lease would still be capable of playing "Hollywood" movies fifteen years later. However, the mutual mistake defense exists to vindicate mistakes of fact, not errors in predicting the future; this situation was the latter. There was no "fact" that IMAX thought it knew that the equipment would still be valid in fifteen years. And, in fact, the agreement itself contemplated as much, because the agreement contained a clause noting that IMAX might upgrade its equipment and setting forth the terms by which Capital Center could receive the improved equipment. Difficult for Capital Center to argue that the parties were mistaken about the future viability of the equipment in question when the agreement itself noted that the equipment in question might not be viable in the future.
The frustration of purpose defense failed for a similar reason. Here, the purpose of the contract might have been to play "Hollywood" movies but there was no unforeseen event that occurred after the signing of the contract that frustrated that purpose. The agreement itself predicted that the equipment might not continue to be viable for the showing of "Hollywood" movies. Therefore, the continued viability of the equipment could not be said to have been a basic assumption of the contract.
As for the argument that IMAX shouldn't be entitled to future rent payments because IMAX was in possession of the equipment, under Pennsylvania law, IMAX was entitled to choose either future rent payments or repossession of the equipment. However, IMAX didn't seek to repossess the equipment; Capital Center gave the equipment back to IMAX of its own volition. Therefore, IMAX wasn't seeking repossession, only the future rent payments: a choice it was allowed to make.
Finally, the contract between the parties had contained a clause in which IMAX disclaimed all of the usual warranties, including suitability to a particular use, i.e., showing "Hollywood" movies. Under Pennsylvania law, such a disclaimer is valid as long as it is "conspicuous." Capital Center tried to argue that the disclaimer in question wasn't conspicuous, but it was the only clause in the seven-page Schedule B of the agreement that was in bold font, which, according to the precedent, rendered it "sufficiently conspicuous."
Wednesday, January 27, 2016
No, it's not legal-education-related, but rather real-estate-education-related. Which, according to the plaintiff, didn't actually teach her what it promised to teach her. So she sued. The defendant, however, noted that she'd signed a contract with an arbitration clause and so they shouldn't be in court. And the court agreed, in Kane v. Yancy, CIVIL ACTION NO. H-15-1861 (behind paywall), a recent case out of the Southern District of Texas.
Arbitration clauses are, of course, generally looked upon favorably by courts. In this case, there was no dispute that the contract contained an arbitration clause and that the plaintiff signed the contract. Rather, the plaintiff argued that the arbitration clause was unconscionable. The plaintiff claimed the arbitration clause was on the back of the piece of paper that she signed and she never saw it. She further claimed that the arbitration clause required each party to bear their own costs and attorneys' fees, which made the cost of arbitration unconscionably prohibitive for her.
All of the plaintiff's arguments failed. Texas precedent indicated that the question of whether the costs and attorneys' fees portion of the arbitration clause was enforceable was a question for the arbitrator to decide, not the court. At any rate, the court didn't feel that the fees were so exorbitant as to cause concern.
In addition, the court didn't really care about her allegation that she had never seen the arbitration clause because the plaintiff's signature was under a statement indicating that she had read everything on the back of the piece of paper she signed. As we all know, on virtually a daily basis we attest that we've read terms and conditions that we have maybe only barely glanced at, if that. Clearly, that's what the plaintiff in this case did, too. This court didn't care from a legal unconscionability standpoint.
The plaintiff made a couple of other interesting arguments. She tried to argue that, by answering her complaint in court, the defendant had waived its right to arbitration. The court, unsurprisingly, didn't buy it. She also tried to argue that the defendant's breach of the contract excused her from being bound by the arbitration clause. The court, however, noted that the defendant's alleged breach of the contract had nothing to do with the arbitration clause itself, and thus that clause was not excused by the defendant's alleged conduct.
The defendant actually moved for sanctions but the court said that the plaintiff's actions weren't frivolous or intended to harass. So the plaintiff may have lost everything else, but at least she didn't get sanctioned. Hashtag-finding-a-silver-lining.
Monday, January 25, 2016
The average price for a movie ticket in the United States is apparently $8.61. A recent case out of Ohio, Capital City Community Urban Development v. Columbus City, Case No. 13CVH-01-833 (behind a paywall), dealt with the question of whether a dollar movie is still feasible when most movies cost more than $8.00.
The contractual provision at issue was: "The Buyer agrees to provide Saturday movies for children once the theater is operational, and for as long as feasible. The cost is to be $1.00 or less for a double feature." (So, in fact, it was fifty cents a movie.) The clause actually wasn't that old (from what I could discern from the facts, it seems to have only been written in 2002), so it wasn't as if the dollar price was intended to be profitable, which both parties acknowledged. However, the issue was that the defendant had sought donations to offset the cost of the features and been unsuccessful. That meant that the theater would suffer a loss of $100,000 a year to fulfill the contractual provision, which would have been a substantial hardship to the theater. Moreover, the double feature wasn't very popular in the community. In a theater with a capacity of 400, it usually only attracted a few dozen patrons.
The parties fought over whether the definition of feasibility included a consideration of the economics of the issue. There was some precedent that feasibility required looking at the finances of the situation. Also, compellingly in the court's view, feasibility had to take into account the finances or else it had no meaning. The argument that "feasible" meant "capable of being done" without looking to the finances meant that it would be "feasible" basically as long as the theater was open, i.e., as long as the theater had a projection. That would mean that it would be "feasible" until the theater closed down entirely. If that was the meaning of the word "feasible," there was really no reason to have that specification in the contract: it would have just been a clause in effect until the theater closed.
This all makes sense to me, especially considering that there didn't seem to be much public interest in having the double feature continue. However, what's really striking to me about this opinion is the statement that "Columbus never showed a Saturday children's movie." So apparently Columbus's argument was really that it was never feasible to have the double feature. This meant Columbus agreed to a provision in the contract that it apparently never intended to comply with? That's not a wrinkle that gets introduced in this case--in fact, the line that no double feature had ever been shown is basically a throwaway line--but I found it to be the most striking detail.
Saturday, January 23, 2016
This relatively new and unknown funding idea is being tested by Purdue University in cooperation with financial services company Verno Education. The loans are called “Income-share Agreements” or “ISAs.” Investors lend money to students in return for a certain percentage of the student’s future income for a set number of years. A few companies and NGOs in the United States are offering contracts on a limited, pilot basis, although the idea itself is not new: Economist Milton Friedman introduced the idea in the 1950s.
Purdue President Mitch Daniels has touted the idea, claiming that the loans “shift the risk of career shortcomings from student to investor: if the graduate earns less than expected, it is the investors who are disappointed; if the student decides to go off … to Nepal instead of working, the loss is entirely on the funding providers….” Voila, truly “debt-free-college” according to Daniels.
Not so fast. First, most college students of course end up finding a job. They will thus have to repay something. That something could easily be very expensive. For example, if a student borrowed $10,000 via a contract to repay 5% of her income for five years after graduation and ends up getting a $60,000 job, she or he will have to pay back $15,000 without compounded interest.
Student protections are currently poor. For example, there is no clarity as to whether the Fair Credit Reporting Act would apply. Further regulations of this area are necessary. Meanwhile, students will have to individually bargain these types of contracts very carefully.
Wednesday, January 20, 2016
When I was in law school, I remember starting to be really struck by how often I had to sign liability releases: going to play paintball, renting skis, etc. A recent case out of the Tenth Circuit, Espinoza v. Arkansas Valley Adventures, had to deal with just such a release in the context of a tragic whitewater rafting accident.
The plaintiff's mother drowned when her raft capsized during a rafting trip organized by the defendant. She had signed a contract that released the defendant from liability for negligence. The plaintiff agreed that his mother had signed the release but tried to argue that the release was unenforceable. As a matter of Colorado law, though, he lost. The court found the release enforceable both as a matter of public policy and under the particular circumstances of the mother's signing.
The court explained that Colorado uses four facts to determine whether a release of liability for negligence is enforceable:
(1) the existence [or nonexistence] of a duty to the public; (2) the nature of the service performed; (3) whether the contract was fairly entered into; and (4) whether the intention of the parties is expressed in clear and unambiguous language.
The court concluded that, while other states were free to disagree on this, Colorado had decided that corporations providing recreational activities are allowed to protect themselves from liability for negligence. The court stated that this is a valid policy choice for Colorado to make because it arguably encourages the active, outdoorsy lifestyle that the state of Colorado cherishes and wants to protect and promote. Without such ability to protect themselves, companies might be discouraged from offering recreational activities like horseback riding, snowboarding, or whitewater rafting. And in fact other courts in Colorado had explicitly found that companies offering whitewater rafting trips can protect themselves from liability for negligence using a contractual release. The court stated that the Colorado legislature was free to introduce a statute that would change this legal precedent, but, as it stood, the court was bound to follow the precedent.
Having decided that the release was not against public policy according to the first two factors of the balancing test, the court then further decided that the plaintiff's mother had fairly entered into the contract with full knowledge of the risks at stake. The court dismissed the plaintiff's expert testimony that the rapids his mother was exposed to were too advanced for a beginner (in contrast to what the defendant had assured her) by pointing to the fact that the defendant had expert testimony that the rapids were suitable for beginners. Finally, the court noted that the release had the typical all-caps language that you see on these sorts of contracts. You know: "HAZARDOUS AND INVOLVES THE RISK OF PHYSICAL INJURY AND/OR DEATH" and "THIS IS A RELEASE OF LIABILITY & WAIVER OF LEGAL RIGHTS." The truth is, seldom does any consumer seeing that stuff really take it a serious communication of a great risk of death, I think. Especially not when there was some evidence that the consumer has been assured the trip in question was suitable for families with children. Nonetheless, the court found that the language of the release unambiguously informed the plaintiff's mother of the risks of the activity and the fact that she was releasing the defendant from liability should those risks come to pass.
There was a dissent in this case, however, who agreed that the release wasn't against public policy but disagreed on the conclusion that the contract had been fairly entered into. In the dissent's view, the contradictory testimony about the level of difficulty of the rapids meant that the question should have gone to the jury.
I don't spend a lot of time in my Contracts class talking in detail about liability releases for negligence, but this case made me think that I should talk about them more, because they really do seem to arise in the context of so many activities.
Monday, January 18, 2016
The plaintiff in this case had a bunch of videos on YouTube. One day, she found that YouTube had deleted them. The videos had had close to 500,000 views at the time YouTube deleted them. The plaintiff claimed that she spent a lot of time and money promoting them but there was no commercial aspect to the videos; she didn't make any money off of them.
Upon realizing YouTube had deleted her videos, she sent YouTube an e-mail asking what had happened and if her videos could be restored. She received in response what appeared to be a form e-mail informing her that she'd violated YouTube's terms and conditions but not giving any truly specific information. The best that I can discern is that YouTube thought she was a spammer.
The plaintiff replied to the e-mail from YouTube saying that she had not engaged in any behavior violating the terms and conditions. She received another response from YouTube identical to the first. She filed a formal appeal with YouTube, and received another identical response.
So that brings us to the lawsuit in question, in which the plaintiff was alleging that YouTube violated the covenant of good faith and fair dealing implicit in its terms and conditions when it deleted her videos unjustifiably and without any notice.
To be honest, I see the plaintiff's point and I'm kind of on her side. It's frustrating when you have no idea what you've done wrong and you can't get a website to explain anything to you and you just feel kind of powerless. The good news is that at some point she did get YouTube's attention enough that it did restore her videos. I don't know if that happened before or after the lawsuit was filed.
It seems, therefore, like the plaintiff got what she wanted, which was restoration of her videos. The lawsuit appears to have really been about trying to get damages, but the court pointed out that YouTube's terms and conditions (which, let's face it, none of us reads) contained a limitation of liability clause that is valid in California, so the plaintiff couldn't seek any damages.
I think this is a situation where the court just thought that plaintiff had what she wanted and was just being greedy. I would be curious to see another case challenging the limitation of liability clause where the plaintiff could prove actual damages that might sway a sympathetic judge. But, for now, YouTube's terms and conditions do act to protect YouTube from having to pay out damages. If you find yourself a victim of YouTube's apparently aggressive anti-spamming patrol, you might just have to settle in for a bit of a fight in getting YouTube's attention, without much hope of compensation for any of that time and effort.
Friday, January 15, 2016
If a customer belongs to an airline’s frequent flyer program, but flies so often that one obtains an elevated status under that program, is the customer then also by implication governed by a separate contract with the airline and not just the “basic” version of the frequent flyer rules?
No, according to a Seventh Circuit Court of Appeals opinion in Hammarquist v. United Continental Holdings, Inc. (Nos. 15-1836 and 15-1845).
In the class action lawsuit against beleaguered United Airlines, plaintiffs were members of the airline’s “MileagePlus” program. Condition no. 1 of the program rules stated that the airline had the “right to change the Program Rules, regulations, benefits, conditions of participation or mileage levels … at any time, with or without notice ….” Plaintiffs, who had obtained “Premier” status argued that under the Premier Program, an alternative modification provision prohibited United from changing the benefits that had already been earned, but which could, per airline tradition and the basic program rules, only be enjoyed the following year. The court made short shrift of that: The plaintiffs did not dispute that the parties’ contractual relationship was governed by the Program Rules that, under precedent established in Lagen v. United Continental Holdings, the elevated status of some frequent flyers does not result in a free-standing contracts separate from the underlying frequent flyer program being established. United Airlines had not made any contractual representations that would render it unable to change the benefits under the basic contract.
Plaintiffs also argued that at the most, United Airlines should only be allowed to change the benefits once a year and not, as had apparently been the case, in the
middle of the year. Plaintiffs relied on the airline’s website, which had stated th at changes were possible “from year to year,” but also that “unless otherwise stated,” the basic Program Rules applied to the Premier Program. That, according to the plaintiffs, meant that the airline could not change the benefits “at any time” as had been stated in the frequent flyer rules. The court found that United Airlines had never “stated” that Condition no. 1 did not also apply to its very frequent flyers, and that the airline had never contractually promised that changes could only be implemented only from year to year.
Nice try, but in this case, a contractually fair enough outcome, it seems. United Airlines “cannot be liable for breaching a contract that it did not make.”
Wednesday, January 13, 2016
A recent case out of Ohio, Oryann, Ltd. v. SL & MB, LLC, highlights how complicated it can be to determine whether a contract ever existed in the first place.
This case involved the sale and purchase of a horse farm that was being operated as a horse-boarding business. The parties agreed on a price of $640,000, and in all of their communications back and forth, that price was always stated as being the price for the real estate of the farm. There was no written reference to purchase of the business and its assets until the parties were through with their negotiations and signing the final papers. Those final papers indicated that the buyer was buying real estate for $350,000 and the business for $290,000. The business sale contract referenced "Exhibit A" as listing the assets that were being transferred, but Exhibit A was never completed.
A disagreement arose between the parties, and the trial court found that there was never any meeting of the minds with respect to the sale of the business and it was illusory because it didn't have enough specificity to show that anyone was bound to do anything due to the fact that there was never any enumeration of the assets to be transferred (given the blank Exhibit A). While the trial court enforced the real estate contract in the amount of $350,000, it threw the business sale contract out as unenforceable.
The appellate court, however, disagreed with the trial court's conclusion. To the appellate court, it was obvious from the language of the contracts and the behavior of the parties that there was a meeting of the minds with respect to the sale of the business and that the parties were bound by the contract. The appellate court noted that the two contracts were intended to be read as one entire deal, not two separate deals the way the trial court was reading it. The appellate court thought that if the parties intended to be bound by the real estate contract (as the trial court had found), then it had to follow that they intended to be bound by the business sale contract as well, as the contracts' language expressly referenced each other and the fact that they were one deal. And, as the appellate court noted, the trial court's ruling on the contracts meant that the trial court was ignoring was ignoring the fact that, at all times, the amount of money the parties were discussing was $640,000. It didn't make sense to then pretend that the parties had only intended to pay half of that.
The appellate court was untroubled by the blank Exhibit A. The business sale contract's language explicitly stated that "all" of the business would be transferred; the purchasing party took possession and ran the business for over a year without complaining about a lack of specificity in the contract because of the missing Exhibit A; and the evidence showed that the parties did indeed transfer over their business assets. The appellate court thought it was therefore clear from the parties' behavior that they understood what the business sale contract achieved, even without the Exhibit A.
So, where the trial court had seen questionable conduct, the appellate court found an enforceable contract.
The key to the trial court's ruling might actually be in the parties' testimony as to why they ended up executing two separate contracts: They wished to lessen the amount of real estate tax paid in the transaction. I think the trial court thought that the parties clearly thought the real estate was worth $640,000, didn't want to pay the taxes owed on that, and so pretended the real estate was only worth $350,000 in order to avoid those taxes. In fact, it appears from the parties' testimony that that's exactly what they did. I think the trial court disapproved of that and that its ruling probably reflects its unwillingness to endorse the parties' behavior.
Monday, January 11, 2016
Beware Insurance Policy Exclusions: Liquid Nitrogen Cocktails and Precious Metal Air Conditioning Units Edition
A pair of cases, Evanston Ins. Co. v. Haven South Beach, out of the Southern District of Florida, and Celebration Church v. United National Insurance Co., out of the Eastern District of Louisiana, reminds us that insurance policies can be tricky things.
In Evanston, Barbara Kaufman went to the Ninth Annual Taste of the Garden at the Miami Beach Botanical Garden. Haven South Beach, one of the vendors there, sold her a drink containing liquid nitrogen. Mrs. Kaufman became ill after consuming the drink and sued Haven. Haven, in turn, tried to involve Evanston under its insurance policy. However, the insurance policy contained a clause stating that it didn't apply to situations involving the "dispersal" of "pollutants." So the debate, of course, was over whether the presence of the liquid nitrogen in the drink, added to give the drink a "smoking" appearance, was the introduction of a pollutant that disqualified the insurance policy from applying. The policy described a "pollutant" as, among other things, an "irritant," and the court concluded that the liquid nitrogen was an irritant, as a dangerous and hazardous chemical likely to cause at least some irritation. Therefore, its dispersal into the drink was a circumstance that excluded Mrs. Kaufman's injury from insurance coverage under the policy.
In Celebration Church, the insurance policy in question excluded coverage for theft of precious metals. Celebration Church had a number of rooftop air conditioning units whose condensers were stolen. The condensers each contained coils made of one of the precious metals excluded from the insurance policy. Therefore, the insurance company refused to pay out under the policy. The court found the insurance company was justified in its reading of the contract. Although the theft of the air conditioning units extended to thievery beyond just a "precious metal," the court concluded that the only common sense reading of the clause was that the insurance policy did not apply to any damage caused by a theft of precious metals, and the court further concluded that the theft of the air conditioning condensers was to obtain the precious metal inside, so their entire theft was excluded.
The lesson is clear: Those insurance policy exclusions can really come back to haunt you.
(Also, avoid liquid nitrogen in your cocktails, I think.)
Thursday, January 7, 2016
Recently, Stacey blogged here about whether tenure is a contract. Yesterday, the news broke that a tenured associate political science professor at Wheaton College, a private Christian university, may soon get to test that theory.
Shortly after the San Bernadino, California, shooting massacre, Professor Larycia Hawkins stated on her Facebook account (which listed her profession and employer) that she “stand[s] in religious solidarity with Muslims because they, like me, a Christian, are people of the book. And as Pope Francis stated last week, we worship the same God." She elaborated that “we are formed of the same primordial clay, descendants of the same cradle of humankind--a cave in Sterkfontein, South Africa that I had the privilege to descend into to plumb the depths of our common humanity in 2014.” She also wore a hijab in “embodied solidarity” with Muslim women.
The response by the College is, for now, the equivalent of “You’re fired.” The College placed Professor Hawkins on administrative leave in December "to explore significant questions regarding the theological implications of her recent public statements, including but not limited to those indicating the relationship of Christianity to Islam." Further, "Wheaton College faculty and staff make a commitment to accept and model our institution's faith foundations with integrity, compassion and theological clarity. As they participate in various causes, it is essential that faculty and staff engage in and speak about public issues in ways that faithfully represent the college's evangelical Statement of Faith." According to Wheaton College President Ryken, however, the College also “support[s] the protection of all Americans including the right to the free exercise of religion, as guaranteed by the Constitution of the United States." Professor Hawkins’ legal team is, according to televised news statements on 1/6, exploring the possibility of a lawsuit should the professor’s preferred solution – mediation and an amicable solution – turn out to be impossible.
This case raises serious questions about the academic freedom of tenured professors – even untenured ones - with which we as law professors are also very familiar. This is perhaps even more so in the cases of private colleges. It seems to me that with a message along the lines of what even Pope Francis uttered along with a reasoned (meta)physical explanation of her views and the College’s self-professed acceptance of freedom of religion, Professor Hawkins did not act in a way that should, under notions of academic freedom, get her fired. If we as law professors do not agree with or wish to challenge certain traditional or even untraditional legal views, are we not allowed to do so because the institutions we work for or the majority of our colleagues hold another view? One would hope so. Most of us can probably agree that academic freedom is exactly all about being able to, within reason at least, provoke deeper thought in relation to what we teach. Note that Dr. Hawkins did not teach religious studies, but political science. With the current embittered debate about Muslims and terrorism around the world, Dr. Hawkins arguably raised some interesting points even if one does not agree with her statements from a Christian point of view.
Stay tuned for more news on this case!
Monday, January 4, 2016
The antitrust ruling finding Apple engaged in anticompetitive behavior with regard to the e-book industry has resulted in a number of follow-up suits by parties allegedly harmed by Apple and its co-conspirator publishers' price-fixing scheme. Now, one of the first cases to be filed has reached the end of its line, derailed by the lack of an assignment clause with sufficiently explicit wording.
In the Southern District of New York, DNAML Pty, Ltd. v. Apple Inc., 13cv6516 (DLC) (behind a paywall), the plaintiff's claims were rooted in antitrust, but it was ultimately contract law that decided the case. The problem arose because the DNAML who sued Apple and the publishers here is actually "new" DNAML. "New" DNAML is not the same entity that was damaged by the anticompetitive conduct here; that was "old" DNAML.
In 2010, "old" DNAML entered into the agency agreement with the publisher Hachette that gave rise to the cause of action here. That agency agreement, according to the allegations, was disastrous for "old" DNAML, as the anticompetitive measures adopted by Apple and the publishers did their job and eliminated "old" DNAML's ability to effectively compete by requiring that Hachette strictly control all e-book pricing. Consequently deprived of distinguishing itself from all of the other sellers of e-books in any way, "old" DNAML got out of the e-book business a few months after signing the agreement, in September 2010.
Over a year later, on December 23, 2011, "old" DNAML executed a contract under which it transferred all of its assets to "new" DNAML. Under the agreement, "new" DNAML purchased the "Business and Assets" of "old" DNAML. "Business" was defined as "the business carried on" by "old" DNAML, "being the business of owning and operating eBook technologies, including the sale of eBooks." "Assets" was defined as "all of the assets" owned by "old" DNAML and "used in connection" with its business, "including its cash, the Book Debts, the DNAML UK Shares, the Business Agreements, Leasehold Property interest, Equipment, Intellectual Property, and the Goodwill." After the execution of the agreement, "old" DNAML allegedly still existed but had no active business.
In July 2013, Apple was found liable for antitrust violations in the e-book market. In September 2013, DNAML filed this lawsuit. Apple and the publishers argued that summary judgment should be entered in their favor because "new" DNAML lacked the standing to pursue the antitrust claims, which were inflicted upon "old" DNAML. The court agreed.
"New" DNAML agreed that it could not sue Apple and the publishers absent an assignment of the antitrust claims from "old" DNAML. The court found that the antitrust claims could have been assigned, but that the agreement here failed to do so:
To effect a transfer of the right to bring an antitrust claim, the transferee must expressly assign the right to bring that cause of action, either by making specific reference to the antitrust claim or by making an unambiguous assignment of causes of action in a manner that would clearly encompass the antitrust claim.
No such express assignment existed here, either of antitrust claims or of claims in general. The definitions of "Business" and "Assets" did not include claims. A transfer merely of assets is not sufficient to act as an assignment of antitrust claims.
"New" DNAML tried to argue that the purchase of "old" DNAML's "Business" "unambiguous[ly]" included an assignment of the antitrust claims because of the reference to "old" DNAML's sale of e-books. "New" DNAML argued that should be read to include any claims arising out of that business. But the court stated that was not the express assignment of claims that the law requires.
"New" DNAML also tried to introduce extrinsic evidence to support its argument that the agreement was intended to include antitrust claims, but the court, having found the agreement unambiguous on its face, refused to use extrinsic evidence to alter its interpretation.
As a result, "new" DNAML never acquired "old" DNAML's standing to bring the suit, and the court dismissed DNAML's claims with prejudice.
The moral of the story: Mention "claims" explicitly in your asset purchase agreements.
Sunday, January 3, 2016
Exactly one year ago, I blogged here about United Airlines and Orbitz suing a 22-year old creator of a website that lets travelers find the cheapest airfare possible between two desired cities. Travelers would buy tickets to a cheaper end destination, but get off at stopover point to which a ticket would have been more expensive. For example, if you want to travel from New York to Chicago, it may be cheaper to buy one-way airfare all the way to San Francisco, not check any luggage, and simply get off in Chicago.
The problem with that, according to the airline industry: that is “unfair competition” and “deceptive behavior.” (Yes, the _airline industry_ truly alleged that.) Additionally, the plaintiffs claimed that the website promoted “strictly prohibited” travel; a breach of contracts cause of action under the airlines’ contract of carriage.
It seems that the United Airlines attorneys may not have remembered their 1L Contracts course well enough, for a contracts cause of action must, of course, be between the parties themselves or intended third party beneficiaries. The website in question was simply a third party with only incidental effects and benefits under the circumstances. Without more, such a party cannot be sued under contract law. (This may also be a free speech issue.)
Orbitz has since settled the suit. Recently, a federal lawsuit was dismissed for lack of personal jurisdiction over the now 23-year old website inventor. United Airlines has not indicated whether it plans further legal action.
Along these lines, cruise ship passengers are similarly not allowed to get off a cruise ship in a domestic port if embarking in another domestic port unless the cruise ship is built in the United States and owned by U.S. citizens. This is because the Passenger Vessel Services Act of 1866 – enacted to support American shipping – requires passengers sailing exclusively between U.S. ports to travel in ships built in this country and owned by American owners. Thus, cruise ships traveling from, for example, San Diego to Alaska and back will often stop in Canada in order not to break the law. But if the vessel also stops in, for example, San Francisco and you want to get off, you will be subject to a $300 fine which, under cruise ship contracts of carriages, will be passed on to the passenger. See 19 CFR 4.80A and a government handbook here.
Convoluted, right? Indeed. Necessary? In this day and age: not in my opinion. As I wrote in my initial blogs on the issue, if one has a contract for a given product or service, pays it in full, and does not do anything that will harm the seller’s business situation, there should be no contractual or regulatory prohibitions against simply deciding not to actually consume the product or use the service one has bought. Again: if you buy a loaf of bread, there is also nothing that says that you actually have to eat it. You don’t have to sit and watch all sorts of TV channels simply because you bought the channel line-up. In my opinion, United Airlines and Orbitz were trying to hinder healthy competition and understandable consumer conduct. What is still rather incomprehensible to me in this context is why in the world airlines would have anything against passengers getting off at a midway point. It’s less work for them to perform and it gives them a chance to, if they allowed the conduct openly, resell the same seat twice. A win-win-win situation, it seems, for the original passenger, the airline, and the passenger that might want to buy the second leg at a potentially later point in time at whatever price then would be applicable. The same goes for the typically unaffordable “change fees” applied by most airlines: if they charged less (a change can very easily be done by travelers on a website with no airline interaction) and the consumer was willing to pay the then-applicable rate for the new date (prices typically go up, not down, as the departure dates approach), the airlines might actually benefit from being able to sell the given-up seat. Of course, they don’t see it that way… yet.
In many ways, traveling in this country seems to be going full circle in that it is becoming an expensive luxury. Thankfully, new low-cost airlines also appear on the market to provide much needed competition in this close-knit industry that, in the United States, seems to be able to carefully skirt around anti-trust rules without too many legal allegations of wrongdoing. (See here for allegations against United, American, Delta and Southwest Airlines for controlling capacity in order to keep airline prices up).
Happy New Year and safe travels!
Wednesday, December 30, 2015
Here's one for all the professors out there: Smith v. Board of Supervisors for the University of Louisiana System, Civil Action Case No. 13-5505 Section: "G" (3), out of the Eastern District of Louisiana.
Steven Smith was a tenured professor at the University of New Orleans ("UNO"). Smith alleged a series of disagreements / misunderstandings that eventually led to Smith being committed to teaching the spring 2012 semester at both UNO and a Brazilian university, the Federal University of Bahia ("UFBA"). Smith attempted to resolve the conflict by pushing his start date at UFBA to the last two weeks of his semester at UNO. He had his students at UNO use the final two weeks to work on final projects, which would be submitted to him electronically while he was in Brazil at UFBA. Smith alleged that there was further miscommunication between him and UNO administration about Smith's schedule and whether or not it was acceptable. As a result, Smith stated that he was threatened numerous times with termination. Eventually, he was encouraged to resign and did so.
Smith sued asserting several causes of action, including breach of contract. The Board responded by arguing that Smith and the Board never entered into a contract at all.
Smith first pointed to the faculty handbook and UNO bylaws as the contract between himself and the Board. However, the faculty handbook explicitly stated that it "should not be construed as a formal contractual agreement between the University and its faculty." The court therefore found that the handbook did not constitute a contract.
That was not the end of Smith's contract claims, however, and that's where the tenure issue comes in. Smith argued that his tenure provided him with "a contractual right to continued employment." To support his argument, Smith pointed to the definition of "tenure" in Black's Law Dictionary as well as a number of statements made to Smith when he was granted tenure. The Board made no argument in opposition, leading the court to conclude that, "[a]lthough there was no specific written tenure contract, the parties appear to agree that Smith's achieving tenure meant that he was no longer an at-will employee." Accordingly, the court found that tenure was a contract between Smith and the Board. Whether or not this contract had been breached was a genuine issue of material fact precluding summary judgment.
Monday, December 28, 2015
I always tell my students that no one sets out to enter into an ambiguous contract. Everyone thinks their contract is crystal-clear. Everyone thinks they've examined the problem from every angle and have exactly what they want.
Everyone is often wrong. And I include myself in that "everyone."
I was thinking of this while flying recently. As usual, the flight was overbooked and the airline was throwing cash around looking for volunteers to take a different flight. I've never done this before, but my travel plans were decently flexible, and when the price got to be high enough, I figured I'd give it a go. I had the following conversation with the airline employee.
Me: If I give up my seat, when would I get out of here?
Her: We can book you on an itinerary that would get you in 30 minutes later than you would have. In fact, I can confirm you for that flight right now.
Me: I'm confirmed for that flight?
So I gave up my seat and walked down to the gate of the new flight I had been "confirmed" on. And here is where the ambiguity arose: When I heard and repeated back "confirmed," I thought that meant I had a seat on that flight. However, when the airline said the word "confirmed," what it meant was that they had confirmed me on a list of people who desire to take that flight. Basically, I was confirmed on the standby list. Which wasn't at all what I wanted. Long story short: I got in 19 hours after I was supposed to, not 30 minutes. And the whole time I was kicking myself, because I teach contracts law! I should be alert to the possibility of ambiguity! During that conversation, I should have asked for an actual seat assignment. Or even used the words "I have a seat on that flight." But I didn't. I understood "confirmed" to be referring to a completely different concept, and then I re-used the airline's word, with a completely different understanding in mind. (I like to think we never understood each other and so there was never a meeting of the minds but that was cold comfort while I was sitting around O'Hare for many hours.)
I decided to use the entire situation as a real-life lesson: The ambiguity entered because I did nothing but repeat their words back to them. I should have, instead, repeated back to them what I understood their words to mean. I tell my students all the time: Say what you mean in your contracts; don't beat around the bush. But it's so easy to flub that in the heat of the contract-making moment. It's so easy to think that, actually, you are saying what you mean.
Which is why we have contracts cases.
Wednesday, December 23, 2015
I'm probably going to develop a personal expertise in the limited field of Parking Sagas; be forewarned.
This case, Gietzen v. Goveia, B255925, out of the Second Appellate District of the Court of Appeal of California, concerned a shopping center that leased spaces to several businesses. One of these businesses was a restaurant called Yolanda's and another of these businesses was a gym called 24 Hour Fitness. When Gietzen, the owner of Yolanda's, entered into negotiations with the developers of the shopping center, he asked who the other tenants of the shopping center were going to be. Apparently, Amy Williams, one of the developers' agents, told him that the anchor tenant was likely to be a marine hardware company. In fact, negotiations with the hardware company eventually fell through and the anchor tenant ended up being 24 Hour Fitness.
Apparently, in California at least, it is fairly well known among real estate-related business people that gyms can "cause major parking congestion problems." Here is where I betray that I do not belong to a gym, so I have no first-hand experience of this. But apparently very many people are much more dedicated to working out than I realized, because the gym in this case ended up utilizing around 95% of the available parking spaces. Williams had apparently known this was likely to happen based on previous similar experiences with gyms in shopping centers she'd helped develop, and Gietzen also said that he knew gyms caused such issues and would never have leased space in the shopping center if he'd known a gym was going to be an anchor tenant.
Amid evidence that potential Yolanda's patrons were actually eating at other restaurants because they didn't want to deal with the lack of parking at the Yolanda's shopping center, Gietzen complained, as did other tenants having similar problems. Eventually, several solutions were attempted, but the parking lot still remained almost entirely full of gym patrons to the detriment of the other tenants. So, eventually, Gietzen sued, alleging, among other things, breach of contract and breach of the covenant of good faith and fair dealing.
The relevant clause of the contract was Article 9.1: "The Common Area shall be available for the nonexclusive use of Tenant during the full term of this Lease or any extension of the term hereof . . . ." The Common Area included the parking lot. The court interpreted that clause to mean that the common area had to actually be available for the tenant to use; the availability could not be hypothetical. Because 95% of the common area was being monopolized by the anchor tenant gym, the court found that Gietzen had been denied use of the common area in breach of the contract. The shopping center developers tried to argue that this interpretation implied that gyms can never be allowed to be shopping center tenants because of their propensity to take up so many parking spaces at all times. The court found, however, that no such implication was required.
As far as the breach of covenant of good faith and fair dealing, the shopping center developers pointed to a clause in the lease that said no covenants were implied. But the court said that good faith is required of all contracts, and that courts would not allow a contract to permit a party to act in bad faith based on a statement as vague as the one this contract contained: "The good faith of the parties is essential to all contracts. No agreement, no matter how finely crafted, will protect a party if the other party is not acting in good faith. If indeed [the developer] is contending that the lease allows it to act in bad faith, it must point to a clause more specific than a general clause against implied covenants."
Mainly I felt like I had to share this case so that I can spread around my guilt over not being one of those many people parked at the gym.
Monday, December 21, 2015
Once, when I lived in a city, my car got towed. I was properly, legally parked at the time I parked the car. Unfortunately, after I parked the car, the city came by and put up a sign saying they were cutting down a tree the next day and my car needed to be moved. Unfortunately, the car wasn't parked on the street where I lived (that's city living for you) and also unfortunately, I didn't go back to my car for a few days (also city living for you). When I went to retrieve my car for a driving errand and found it missing, I had a moment of utter panic that it had been stolen. Then I noticed the bedraggled sign and realized it must have been towed. Thus commenced a long, involved saga. My license plate number was not reported online as having been towed, so I had to take two separate buses across the length of the city to a police station, where I waited in a very long line of people doing various police business to be told yes, it had been towed, but no, it wasn't in the system, and I had to go another opposite side of the city (I was making a triangle) to retrieve it and I had to BRING CASH (I was told this many times, in oral all-caps). Which meant that first I had to locate an ATM in an area of the city with which I was unfamiliar, and then take more buses to the tow company location. This entire ordeal (which I maintain wasn't entirely my fault, considering I think it was unrealistic of the city to provide so little notice of the tree issue, because the vast majority of us city-dwellers don't go to our cars on a daily basis) took the better part of my day and cost hundreds of dollars but, at the end of it, at least I got my car back (and then afterward I had to keep making out-of-my-way trips on a daily basis to make sure that my car hadn't become subject to any weird new towing orders).
I tell all of you this saga because when I started reading the fact pattern of Parham v. Cih Properties, Civil Case No. 14-1706 (RJL), out of the District Court for the District of Columbia, I had flashbacks. In that case, the plaintiff lived in an apartment complex that had a parking lot. (There is a prior Parham v. Cih Properties case, involving a plaintiff with a different first name, possibly the plaintiff's mother.) She alleged that her car was towed from the lot. After allegedly having to engage in a complicated search, the plaintiff determined that the car had been ticketed for having "dead tags" and had been sent "to be crushed for scrap metal." The plaintiff alleged that her car did not have dead tags and also that the tag number she was given on the ticket wasn't even the tag number of her car. At any rate, the plaintiff has never actually been able to locate the man who allegedly towed the car and so has never actually located her car and so never received her car back. So, she's sued.
Why, you might wonder, am I talking about all these parking sagas in the ContractsProf Blog? Well, there was a breach of contract aspect to this case, in that she alleged that she had a contract with the apartment complex that the complex breached when it authorized the towing of her car. However, the only contract between the plaintiff and the apartment complex was a thirty-year-old lease agreement that explicitly stated that parking was not covered by the agreement. Therefore, the court found there was no breach of any contract.
I understand the court's analysis but I'm incredibly perplexed and wish I had more information. Was there never any updating of the lease agreement in the ensuing thirty years? Surely the rent had been increased, at least? And, honestly, under what authority was she parking in the parking lot? Whenever I have had parking in a city lot, it came with tags or cards or permits or something, so that the parking could be managed. And never, in a city situation, has the parking been free. The parking here was apparently located in Washington, D.C. (see above photo for an only-slightly-out-of-date depiction of parking in Washington, D.C.), so I wish knew more about the circumstances under which the parking lot was being governed. I just find it difficult to believe that there wasn't some sort of agreement somewhere between the plaintiff and someone about what the parking situation was, even if the agreement was only oral in nature, or even if we had to turn to promissory estoppel to get there. But am I thinking about this from a completely wrong angle somehow?
The plaintiff in this case was proceeding pro se, which might have contributed to the fact that there wasn't enough evidence for the plaintiff to survive summary judgment. Indeed, none of the plaintiff's claims (which included fraud and consumer protection claims) survived summary judgment.
This case made me think of my own parking saga because, well, what would I have done if I'd just never been able to locate my car again? Even though I thought it was unfair that I was forced to inconveniently traipse all over the city and produce hundreds of dollars in cash based on what I considered a "surprise" towing sign, I think I also vaguely thought that probably one of the "terms" of my agreement with the city under which it had given me a street parking permit was that I would check on the car at least every twenty-four hours. So, although I was annoyed during my saga, I put most of the blame on myself. I have no idea what I would have done if I'd never found my car, though.
Wednesday, December 16, 2015
If so, it's always better to be precise in your negotiations.
Of course, the flip side of this is that you frequently don't feel like you have the power to demand precision.
In Bubble Pony v. Facepunch Studios, Civil No. 15-601(DSD/FLN) (sorry, I can only find versions behind paywalls for now), out of the District of Minnesota, Patrick Glynn was a computer programmer in need of a job. He e-mailed Facepunch looking for one, highlighting his abilities (as one does when job-hunting). Facepunch's majority owner, Garry Newman, responded to Glynn's e-mail positively, describing what he was looking for in a new employee and adding:
I want to eventually be in a position where you'd be making games for Facepunch Studios, which we'd sell on Steam, or the apple appstore, or whatever, but once that game makes what we've paid you so far back, you'd get something like a 60% cut of all the profits (probably more, that's kind of TBD). So we'd kind of be investing in your, kind of.
Does that sounds [sic] like the kind of situation you'd like to be in?
Glynn replied that yes, he was interested, and that his "only concerns" were "making rent, paying bills, and buying groceries." Eventually, the parties agreed on compensation of $1,900 per month, to be increased by $100 per month until they reached $3,000. At the time, Glynn's responsibilities were going to be things like fixing bugs and otherwise optimizing Facepunch's existing code. The parties did not further negotiate what would happen if/when Glynn started creating games for Facepunch. They did, however, agree that Glynn was an independent contractor and not an employee.
Eventually, Glynn began creating games for Facepunch, producing more than 75% of the source code for a game called RUST. RUST was a huge success that "has generated at least $46 million in sales." Facepunch paid Glynn bonuses totaling around $700,000. Facepunch also asked Glynn, after RUST's major success had been established, to draft a document explaining how the RUST programming worked. Once it received the document, Facepunch terminated its relationship with Glynn, pulled RUST off the market, and announced a new "experimental game" based on RUST.
As you might imagine, Glynn has sued for a number of causes of action, and there are other issues in this case, including an issue of personal jurisdiction, because Facepunch and Newman are both British (the court found personal jurisdiction to exist). However, to focus on the contract issue, the court found that the parties' e-mails on the subject of 60% of the profits if Glynn started developing games never rose to the level of an agreement. The court said that the terms about the compensation were "vague and indefinite," pointing to the words "eventually" and "something like 60%" and "TBD." Therefore, Glynn's breach of contract claims here were dismissed. The court also dismissed his promissory estoppel claims, finding that Newman's e-mail statements were too "vague and indefinite" to constitute promises.
Glynn should have been sure to clarify his compensation before embarking on developing games for Facepunch. Of course, from Glynn's perspective, he was probably happy just to get a job, and, by the time he started developing games, he might have developed enough of a relationship with Facepunch that he didn't feel it necessary to rock the boat, so to speak.
Glynn isn't completely out of luck, however. Although the court dismissed most of his claims, the lack of definite terms actually works in his favor in the copyright context. Because the parties were allegedly clear that Glynn was an independent contractor and not an employee, and because there was allegedly no agreement anywhere otherwise (so far, at this early stage), Glynn's claim for joint copyright ownership of RUST (and its associated causes of action) survived the motion to dismiss. So to be continued on the copyright question...
Monday, December 14, 2015
On December 14, the United States Supreme Court decided DirecTV v. Imburgia, the latest chapter in an expansion of the Federal Arbitration Act to pre-empt state law well beyond anything Congress in the 1920s could plausibly have imagined. Full disclosure: I'm not a fan of the Court's FAA jurisprudence.
The Court once again purports to place arbitration agreements "on equal footing with all other contracts," while at the same time giving arbitration clauses a force that even a Sith would have to admire. Don't underestimate the power of arbitration clauses over all other terms in a contract. Professor Imre Stephen Szalai (Loyola - New Orleans) may have said it best in an e-mail that made the rounds on ADR, CivPro, and Contracts Prof listervs and that is especially appropriate for this blog:
"Nothing can stand in the way of FAA preemption, not even the parties' contract."
Many commentators will write many words about many aspects of the DirecTV case in the upcoming days and weeks, such as the eloquent dissent by Justice Ginsburg addressing economic imbalances of power in consumer contracts. I want to take a moment here, however, to praise the short and lonely dissent by Justice Thomas, espousing a view on which he has been unwaivering for more than two decades: "I remain of the view that the Federal Arbitration Act does not apply to proceedings in state courts."
While that solo dissent--and five dollars--will get you a café mocha at Starbucks, he has Congressional intent right. A pre-Erie statute intended to overcome federal courts' traditional hostility to arbitration was never intended to become a federal preemption juggernaut capable of divesting states of huge swaths of jurisdiction over state contract law.
Federal Arbitration Act rant now complete. Thank you for listening.
I find that my students are very fond of posing hypothetical questions to me that touch upon unconscionability, even before we get to the doctrine, so I always love to see unconscionability cases in action.
This one, Roberts v. Unimin Corp., No. 1:15CV00071 JLH, from the Eastern District of Arkansas, involved a mineral lease that was entered into in 1961. Now, in 2015, the successors in interest are seeking to get out of the contract, arguing that it's either terminable at will or unconscionable and also alleging that they are owed over $75,000 as a result of unjust enrichment. The court concluded that the plaintiffs alleged enough to survive a motion to dismiss.
The parties alleged that the lease was for an indefinite term and therefore terminable at will. The lease's term was "as long thereafter as mining and/or mining operations are prosecuted." The court stated it was "plausible" that this term was so indefinite as to render the lease terminable at will.
Turning to unconscionability, the court noted the fact that the lease was negotiated shortly after the death of the father to whom the land had belonged, with children who were still reeling from the death and had had no experience negotiating mineral leases. The children therefore relied upon the defendant's predecessor-in-interest during the negotiation, according to the complaint, and that trust was taken advantage of by the insertion of a royalty price far below market value. This was enough to survive the motion to dismiss. I wonder if this case will continue and have further pleadings, because I'm curious as to how this unconscionability argument develops.
A recent case out of New York, Summit Apparel v. Promo Nation, 2014-795 Q C, strikes me as being a lovely demonstration of the UCC in action.
My favorite part of this case is the court's little aside that "ASAP" written on the order form for the T-shirts meant "as soon as possible." It's just a reminder that the things we often think are crystal-clear in our communication do sometimes need a translating step that happens so quickly in our brains that we seldom stop to acknowledge it.
Anyway, the meaning of "ASAP" is important to this case, because the parties are having a disagreement over whether the T-shirts were, in fact, delivered ASAP. On August 13, the defendant ordered 38,640 T-shirts from the plaintiff, to be delivered "ASAP." By September 8, 16,800 of these T-shirts had been shipped. The plaintiff told the defendant the remainder of the order would be shipped by September 20, provided that payment was received before that. In fact, the defendant didn't provide payment until November 17, when it paid the balance less $10,000. The plaintiff delivered the remainder of the order the following day, November 18. However, the defendant never paid the remaining $10,000 due and the plaintiff sued. The defendant counterclaimed, saying that the November delivery was untimely and caused the defendant to lose a customer, with all attendant future business opportunities and profits, which the defendant estimated as $750,000. The defendant pointed to the fact that the inscription of "ASAP" on the order form meant that time was of the essence and yet the plaintiff nevertheless delayed fulfilling the order.
The court turned to the UCC to analyze whether the defendant's actions permitted it to seek the $750,000 in damages. The court noted that the defendant could have rejected the T-shirts as non-conforming because of their alleged untimely delivery. Instead, however, examination of the course of performance between the parties indicated that the defendant accepted the T-shirts without raising any objection as to their timeliness at all. In fact, the timeliness was never raised by the defendant until several years later, when it was first raised by the defendant's counsel in connection with the plaintiff's attempt to collect the $10,000 balance. (Additionally, it was the defendant's own delay in payment that actually caused the delay in the delivery of the T-shirts in the first place.)
Of course, the UCC allows that acceptance of non-conforming goods did not necessarily impair the defendant's ability to seek other remedies. However, the right to seek other remedies under the UCC is preserved as long as the defendant notifies the plaintiff of the non-conforming nature of the goods within a reasonable time after discovering it. The defendant failed to notify the plaintiff, as stated above, until several years had gone by. Therefore, the court concluded, the defendant was barred from seeking other remedies.
The court made one last note that even if the defendant could somehow prove it had notified the plaintiff that it considered the goods non-conforming within a reasonable time, the defendant's lost profits and business opportunities were "purely speculative."
This is a fairly brief and relatively straightforward opinion, which I sometimes think it's nice to remind ourselves exists out there.