ContractsProf Blog

Bobby Bonilla's Contract

Fascinating!  As reported here in the Wall Street Journal blog, the Mets are about to start paying Bobby Bonilla for doing nothing!  They are obligated to do so under the terms of their agreement with Bonilla from 2000 when they bought out the final year of his contract.  Beginning July 1st and continuing for another 25 years, the Mets will pay Mr. Bonilla $1.2 million/year.  

Although Bonilla had been a highly productive player for much of his career, he never lived up to the tough New York standards, and neither party seemed happy with the relationship.  In his last season with the Mets, Bonilla hit .160 in 60 games.  He then notoriously showed his disdain for the team and its prospects by playing cards with Rickey Henderson during the National League championship series.  The Mets thus agreed to defer his $5.9 million salary for the last season just in order to be rid of him.  

The deal was not unprecedented and seemed to be in the best interest of both parties at the time.  The Mets freed up enough room under the salary cap to lure some good players and become contenders in 2000.  However, long-term the deferred salary is a drain on the Mets' resources.  Because of the agreed-upon 8% interest, Bonilla will eventually collect $30 million from the Mets. Still, Adam Meshell of NJ.com provides an intelligent defense of the agreement here.  

All hail the power of contracts!

[JT]

Katy Perry's 45-page Contract Rider

We love celebrity contract riders here at ContractsProf blog.  Excerpts of Katy Perry's 45-page rider are available at thesmokinggun.com.  (If you don't know who Katy Perry is, you are reading too much of this blog and instead you could have learned that California Girls are scantily glad, wear stilettos on the beach and are, therefore, unforgettable.)  

Highlights of the rider include a ban on carnations, a 23-point "principle driver policy" for chauffeurs, and the requirement of a spacious dressing room "piped or draped in cream or soft pink."

Take that Van Halen!

[Meredith R. Miller] 

The Truth Behind Van Halen's Famous M&M's Rider

This may not exactly be news, but if you haven't read David Lee Roth's autobiography, it is likely news to you. We got this contracts story when we downloaded the most recent podcast of This American Life called "Fine Print 2011."  More posts may follow once we finish listening to the entire show.  Actually, it's not news to our Meredith Miller, who blogged about the earlier version of This American Life's "Fine Print" show.

The basic story is as follows: rumor had it that Van Halen insisted on a bowl of M&Ms backstage whenever they performed and that -- this is the crucial part of the infamous rider -- all brown M&Ms be removed from the bowl.  As This American Life's Ira Glass explains, this story has usually been read as epitomizing the extent to which our celebrities demand that we pamper them.  But David Lee Roth (pictured to the right) provides a different explanation in his aforementioned autobiography, helpfully excerpted on Snopes.com here:

Van Halen was the first band to take huge productions into tertiary, third-level markets.  We'd pull up with nine eighteen-wheeler trucks, full of gear, where the standard was three trucks, max.  And there were many, many technical errors -- whether it was the girders couldn't support the weight, or the flooring would sin in, or the doors weren't big enough to move the gear through.

The contract rider read like a version of the Chinese Yellow Pages because there was so much equipment, and so many human beings to make it function.  So just as a little test, in the technical aspect of the rider, it would say "Article 148: There will be fifteen amperage voltage sockets at twenty-foot spaces, evenly, providing nineteen amperes . . ."  This kind of thing.  And article number 126, in the middle of nowhere, was: "There will be no brown M&Ms in the backstage area, upon pain of forfeiture of the show, with full compensation.  

So, when I would walk backstage, if I saw a brown M&M in that bowl, well, line-check the entire production.  Guaranteed you're going to arrive at a technical error.  They didn't read the contract.  Guaranteed you'd run into a problem.  Sometimes it would threaten to just destroy the whole show.  Something like, literally, life-threatening.  

It's a nice story, but I don't buy it.  If you are concerned about girders not being able to support the weight of your show, check the girders, not the M&Ms.  Moreover, Meredith's earlier post links to the relevant page of the rider from TheSmokingGun.com, and it does not threaten forfeiture or anything else.  

Another nice excerpt from the autobiography:

I came backstage.  I found some brown M&Ms, I went into full Shakespearean "What is this before me?" . . . you know, with the skull in one hand . . . and promptly trashed the dressing room.  Dumped the buffet, kicked a hole in the door, twelve thousand dollars' worth of fun.

Two problems.  First, the rider does not seem to permit twelve thousand dollars worth of fun.  That's not covered under the term "forfeiture."  Second, Hamlet doesn't say anything like "What is this before me" when he contemplates Yorick's skull.  I think Roth is thinking of Macbeth's dagger monologue, which begins, "Is this a dagger which I see before me?"  And then in some productions he dumps the buffet and kicks a hole in the door.

[JT]

The Huffington Post/AOL Merger: Choice and Value in Contracts

 The Huffington Post/AOL Merger that is rousing indignation in certain quarters  got me thinking about value and choice in contractual bargains. 

What is “a good bargain”?  Is it all in the price?  The price may or may not reflect the value of the subject of the bargain.  It may be underpriced (to the glee of the buyer), or overpriced (to the satisfaction of the seller).   An underlying belief about what the basic value of the subject is must also exist.  Without that underlying belief, judgments about how underpriced or overpriced - and thus, how good or bad - the proposed contractual bargain (price) is, cannot be made.  So, what is the true value of the Huffington Post?  Some see the HuffPo as a barely five year old celebrity upstart that defied expectations to become a remarkably popular blog.   Was it a steal or a bust at 315 million?  

Celebrity, even notoriety, seems admired and  highly valued these days.  And, if admiration is not quite the word, the fact of celebrity -  even where the person concerned is famous for simply being famous – certainly draws our attention.  It is because of this that the 'art' of being a celebrity is a hardnosed business pursuit rather than a frivolous lark.  There is no shortage  of promoters willing to pay someone - anyone - who can attract, however fleetingly, the public’s attention.  In this era of the ever shrinking attention span therefore, the proverbial fifteen minutes of fame is a lifetime in dog celebrity years.  How to explain otherwise the high dollar book deals, and the endorsements that are the badge of even the most tenuous celebutante? 

So, how to quantify the objects of our admiration?  We may not even be dealing with objects but with abstract values if you will – celebrity, popularity, notoriety to name a few.  Might a sampling of celebrity book deal dollar values yield a value index of sorts?  Perhaps - if accurate figures were not so fiercely guarded and exaggerated accounts were not so eagerly circulated.  Perhaps a listing of celebrity books on the New York Times Bestseller List might provide a surrogate of sorts?  One can only hope it was no mean feat for the reflections of a celebutante to make the New York Times Best Seller list at the same time that the memoirs of a former U.S. president did. 

Contract law permits a wide exercise of choice here.  As one person’s trash may be another’s  treasure, it is the buyer’s (or seller’s) choice to make a deal that might seem a bad idea to someone else.  Choice is the operative word – if the party was misled, unduly influenced or improperly threatened for example, the deal will of course be voidable. 

Twenty years ago, America On Line (AOL) was a profitable media giant.  A decade later, a less vibrant AOL consented to become a part of the Time Warner group.   Seen as a bad idea at the time by some and now viewed as possibly the worst merger deal in history,  there was no suggestion when it all ended badly, that it was anything other than an ill-advised gamble.    Now a very publicly ailing member of a reputably dying breed of media and print enterprises, AOL has by this merger bought itself a chance to turn around it’s all but inevitable demise.

Presuming that this can only be a good deal for AOL which had to do something, anything, or die, what about the Huffington Post?  Did the HuffPo get ‘good value’ for the trade?  The jury is out on whether the deal  will be a vindicated or regretted.  Contractually speaking, however, a contractual party is entitled to exactly what he or she bargained for – nothing more, nothing less.  Full performance of a party’s side of the bargain discharges that party’s duty to perform, while the unexcused non performance of even part of a due duty is a breach per the Restatement of Contracts (2^nd) §235. 

The bargain, ideally, was shaped by the parties preferences.  A party may thus receive as the exchange, if she chooses, a little something now whose value at the time of contracting is greater to her than its face value. She may promise to pay, if she wishes, double, threefold or more of that face value in exchange, sometime in the future.  She may choose, conversely, to pay big money for a subject of seemingly slight value in the hope that the potential she sees will soon be realized.  If that potential is unrealized, she will wear the risk.  Unfair tactics and public policy aside, the law is content to permit her to assign whatever value she chooses to the subject of her desire be it increased popularity, an entry pass into a stronger corporate group, or a chance to play with the big boys. 

Should we conclude therefore that value is in the eye of the beholder, and that the measure of a subject’s value is how much people are willing to pay for it?  This is a logical deduction,  but only one side of the value-is-determined-subjectively v objectively jurisprudential debate.   It must be harder in any event, to quantify the value of celebrity musings without reference to sponsored endorsements, celebrity impact rankings and such.  It evidently is just as difficult, if not more so, higher up the food chain.  Take our example of  a very popular upstart website/blog.  Analyses of monitored acquisition deals indicate that online media sites are typically acquired for 1½ times the amount of their generated revenues.  Launched barely five years ago, the Huffington Post was acquired for 315 million - reportedly five times its generated revenue.  It is hard to know whether this figure is a hardnosed assessment of the HuffPo’s worth, or a reflection of the fact that the negotiations were between an ailing giant and an ambitious upstart fledgling.

If all goes well, the ultimate verdict may one day be that the HuffPo was a steal at 315 M.  It is possible that Adrianna Huffington may come to rue the bargain that looked oh so good at the time.  If AOL’s profitability hemorrhage is not stemmed by this deal, on the other hand, its 315 M payout will be just one more milestone in its march to oblivion. There is no contractual rule against a deal that was, with hindsight, ruefully underpriced or fatally expensive.   Contract law will be content where the regretted deal, truly bargained for and not compromised by vitiating factors, was based upon a freely quantified exchange. 

The parties considered the bargain.  They assessed its value.   Once you have done that, “you pays your money and you takes your choice.”

 

[Eniola O Akindemowo]

Charlie Sheen Has No Morals...Clause (allegedly)

After we discuss ambiguity, contractual interpretation, interpretive maxims and other related topics, I have my first-year Contracts students draft a morals clause for a faux contract between a television network and a performer.  The exercise is an attempt to put the issues "in context" and demonstrate how and why ambiguity actually arises.  We also discuss the general benefits of brevity versus the costs of leaving something out of the contract.  It seems that Warner Brothers may be facing the latter scenario in its contract with actor Charlie Sheen. The clause allegedly left out is a morals clause. 

Most contracts between producers and performers routinely contain a "morals clause," the breach of which entitles the show's producer to fire the performer.  Conduct swept within a morals clause can range from more serious offenses, such as criminal convictions, to any behavior that merely would make the producer or network look bad.  For example, as we've previously reported, Tiger Woods's reported marital infidelities may have triggered the morals clauses in some of his endorsement contracts.  Because Sheen's recent off-camera behavior has made him appear to be, ahem, less than 100% moral, some industry insiders have suggested that Sheen would be fired from the highly-successful CBS show, Two and a Half Men, produced by Warner Brothers.  Not so fast, says Sheen.  Sheen reportedly is telling friends and advisors not to fear because his contract, unlike most others, has no morals clause.  Thus, in Sheen's world, he cannot be fired from the show without his firing being a breach of the contract by Warner Brothers. 

So, if you are tired of hearing about Charlie Sheen's off-camera exploits on this blog or elsewhere, blame  Warner Brothers' lawyers.  If they had included a morals clause in his contract, I am confident that Sheen would not be doing these allegedly immoral things (this sentence brought to you by our sponsor, Sarcasm).

[HRA]

A New Contracts Defense: Killer Bees

In my contracts class, we’ve just begun our study of standard contracts defenses.  Interestingly, via the Consumerist, here's a very non-standard attempt to get out of a contract, based on an alleged infestation of an RV by Killer Bees. 

Having bid on an auction for an RV that was posted on eBay, the buyer sent in a deposit quickly (in part because it was such a good deal).  In response, this was the email that the buyer allegedly received from the auto dealership:

We are devastated with our discovery this morning of a swarm of Africanized killer bees in the 2007 Sandpiper 325RG 5th wheel that you have a deposit on. We have used multiple poisons in an attempt eradicate them. We have vacuumed up the bees that covered the floors, cabinets, and furniture. We tried to clean the traces of honey on the countertops and cabinet tops as completely as possible. This is one of the terrible acts of Mother Nature we have in Arizona. As best we can determine, the bees entered from the door that had been left opened yesterday morning. The interior of this trailer does have a strong chemical odor from the poison and is TOXIC. Our insurance regulations prohibit us from selling this 5th wheel at this time.  Due to these circumstances beyond our control, we are unable to proceed with the sale of this 2007 Sandpiper 325RG 5th wheel. This vehicle is unsafe for occupancy or use. We are therefore refunding your deposit at this time. We have attached several photos. Watch EBay for other close-outs we will be posting soon.

After consulting with an attorney, the buyer sent an email saying that he would still take possession of the vehicle despite the problems.  According to the buyer, the dealership then changed tactics, then claiming that they had no idea about the bees, that there was no contract, and that the

Assuming Buyer’s version is believed, the conflicting versions begin to look like fraud, rather than the establishment of a frustration of purpose (by bee) defense.

[Miriam Cherry/Hat Tip: Megan Thacker]

Melanie Thernstrom on Surrogacy in the New York Times Magazine

Two years ago, we posted about a New York Times Magazine article by Alex Kuczynski in which she recounts her experience as the mother of a child born through the use of a surrogate mother.  That article was problematic for reasons touched on in the previous post, which mostly focused on the criticisms directed at people who enter into surrogacy contracts and ended with the following plea: "Rather than simply bashing people who enter into surrogacy contracts, let's talk about the implications of the options."

The New York Times Magazine has now published Melanie Thernstrom's essay, "My Futuristic Insta-Family,"  aka "Meet the Twiblings" in the online version, which does precisely that.  In the article, Thernstrom briefly recounts her experience with infertility treatments and then describes how she and her husband decided to have two children using two different surrogate mothers.  Thernstrom's "Twiblings" were born five days apart.

For those interested in the topic, I recommend reading the article, because I cannot do it justice in a blog post.  What amazes me about Thernstrom's piece is that she manages to raise just about every issue relating to surrogacy contracts -- legal issues, moral issues, socio-economic issues, political issues, linguistic issues -- and she has something interesting to say about each one, but she does not try to provide satisfactory solutions to any of them.  She acknowledges that this stuff is messy and personal and that we lack the ability right now to figure a way out of the mess that satisfies all interested parties.  Such is life.  We muddle through.  

She also writes so well that I will not try to paraphrase her.  Rather here are some choice quotations that struck me as especially appropriate for this blog:

The legal status of surrogacy is varied. In a number of states, the status is unclear or surrogacy is prohibited. There were several cases of surrogacy in recent years in which the surrogate succeeded in keeping the baby despite an absence of any genetic connection. 

There are objections to it on the right, on religious grounds, as violating the natural order and the trinity of father-mother-baby, or as being part of a slippery slope that would lead to abominations like human cloning. There are objections on the left by those who say that surrogacy is exploitative and degrading for the women, irrespective of what the women who become surrogates say about it. (Some people believe only paid surrogacy is exploitative but unpaid surrogacy is fine.)

The role of a gestational carrier’s husband is, in some ways, more difficult than that of the carrier herself. The husband is, as Fie puts it, “a bystander to a miracle,” who partakes in the inconvenience of his wife’s pregnancy but has fewer emotional rewards (as well as the occasional negative reaction from a stranger whose congratulations for a new chip off the old block can turn to disapproval).

A childless friend of mine compared surrogacy to prostitution, saying that she personally would prefer to be a prostitute. 

We wanted to pay, because it made the relationship feel more reciprocal. There was one woman who responded to my surrogacy listing who said she didn’t want any financial compensation. . . . “That’s our contribution,” I said, flummoxed — “one of the things we can give back.” 

Third-party reproduction creates all kinds of relationships for which there are not yet terms. For example, there is no word to describe the relationship between our children and the carriers’ children, but it feels to me that they are, somehow, related. 

There is also no word to describe our children’s relationship with each other. 

 Not surprisingly, not every reader reacted positively to Thernstrom's article.  She responds to her critics here.

[JT]

Duty to Read: Howard Stern on How to Impress Your Wife

The big entertainment news last week: shock jock Howard Stern's announcement of a new 5-year contract with satellite radio company Sirius XM.  The terms of the deal were not disclosed, but the previous 5-year deal paid Stern $100 million a year in cash and stock.

What was the most shocking part of Stern's announcement?  He actually took the time to read for the contract for himself, thinking it might impress his wife.  The WSJ online reported:

The announcement was made live on the air by Mr. Stern during his Thursday-morning show, with his usual flair for putting his neuroses on display.

He claimed that the new contract was the first such document he had ever personally read—and that he did it ostentatiously in front of his wife, hoping to make a positive impression on her. After the radio host complained that his gambit was unsuccessful, his wife, Beth Ostrosky, called in and told him she hadn't realized she was supposed to be impressed.

That's a new spin on the duty to read.

[Meredith R. Miller]

 

Frightening: A Halloween Costume Contract

The Washington Post gets in the Halloween spirit with reporting on this costume contract that a Michigan junior high school required parents and students to sign before the students could wear costumes to school.

 Here's the deal (no emphasis added or punctuation changes made):

 

JEANNETTE JR. HIGH SCHOOL 

HALLOWEEN COSTUME RULES/GUIDELINES
Parent Agreement Form 2010

1. All students wearing costumes to school MUST read and understand the costume guidelines. In addition, they MUST sign the registration form provided by their FIRST HOUR teacher. They must also have this form signed by their parent and submitted to their first hour teacher by the Wednesday, October 27th deadline. If form is not submitted in a timely manner, then student is NOT allowed to dress up.

2. All costume preparations are to be completed at home. (No dressing or applying of make-up or colored hairspray once students arrive at school).

3. No masks are to be worn during the school day.

4. NO COSTUMES THAT DEPICT VIOLENCE OR VIOLENT CHARACTERS!

5. Costumes that promote the use of illegal substances or activities or are derogatory or disrespectful are NOT allowed.

6. Teachers may take away any accessory that is used improperly or is considered inappropriate for school.

7. School rules regarding the dress code must be followed.

8. Students who have questions about the acceptability of their costume should check with their FIRST HOUR teacher by Wednesday, October 27th.

9. Students wearing inappropriate costumes will be sent to the office to call home for a change of clothes, and/or may result in one or both of the following disciplinary consequences: Saturday school, Suspension.

10. Students who do not submit parent agreement form by the Wednesday, Oct. 27th deadline and still choose to wear a costume will also face disciplinary action as deemed appropriate by administration.

11. Costumes MUST be worn all day.

KEEP IN MIND WE WOULD LIKE TO CONTINUE THIS TRADITION HERE AT JEANNETTE TO DRESS UP FOR HALLOWEEN, AND WE WOULD LIKE TO MAKE THIS A TRADITION FOR THE FUTURE...BE RESPECTFUL AND RESPONSIBLE!!

I have read and discussed with my child the Jeannette Jr. High School Halloween costume rules/guidelines. I understand that if my child violates any of the above rules, he/she will have earned Saturday school and/or suspension as a consequence. I also understand that this form must be signed and returned to my child’s 1st hour teacher, on or before Wednesday, October 27th. 
X_________________________________ 
(print student first and last name) 
X_________________________________ 
(student signature) 
X_________________________________ 
(print parent first and last name) 
X__________________________________ 
(parent signature) 

Wow, frightening indeed!  It sure leaves a lot open to interpretation, including whether a costume depicts a "violent character" and whether certain costumes are "inappropriate."  Some traditional Halloween staples come to mind as arguably violent: the devil? grim reaper? vampire?  This year's most popular costumes are apparently Lady Gaga and Jersey Shore characters: appropriate?  And, what is the remedy if a student doesn't comply with paragraph 11?

[Meredith R. Miller]

Bedbugs Have Crept into Contracts

Bedbugs and real estate contracts seems to be a topic in regular rotation in the New York Times.  (See previous post, Timeless Topics: Insects and Real Estate Contracts). Today's paper reports on the pesky little bedbug problem and the emerging practice of bedbug disclosure riders: 

BEDBUGS have infiltrated more and more places in New York City, and now they’ve even found their way into co-op and condominium contracts.

The New York State Legislature passed a law this summer requiring city landlords to disclose any history of bedbug infestation before leasing an apartment. Real estate lawyers and brokers say that even though the law was intended to address rentals, bedbug disclosure has become an issue in the sales market as well.

The law requires landlords to give renters written notice before a lease is signed indicating whether the apartment being considered, or any other apartment in the building, has been infested within the last year. Anyone renting out an apartment in a co-op or condo would also have to comply with the law.

There has been confusion in the real estate industry over the scope of the law, but Nancy Peters, a spokeswoman for the state’s Division of Housing and Community Renewal, said last week that co-ops must also follow the law when there is a sale, because new buyers enter into a proprietary lease.

The division has issued a form (http://www.dhcr.state.ny.us/Forms/Rent/dbbn.pdf) with a checklist that clearly states whether there has been any bedbug infestation in the apartment or in the building within the last year, and also whether any “eradication measures” have been taken. There is no penalty for not complying, although renters who do not receive a disclosure form can file a complaint requiring disclosure.

In recent weeks, some lawyers representing co-op and condo buyers had already made bedbug disclosure a part of contract negotiation.

In early September, about a week after the law went into effect, Daniel Farris, a senior vice president of Brown Harris Stevens, said he came across a bedbug rider while reviewing a client’s proposed contract to buy a two-bedroom co-op on the Upper West Side.

The rider, which was proposed by the buyer’s lawyer, read, “The seller has no knowledge of the existence or presence of bedbugs in the unit either currently or in the past.” The seller signed the rider, and Mr. Farris’s buyer is now in contract for the apartment. Mr. Farris said he routinely counseled buyers to ask whether a unit has had a history of leaks or other problems and to have the building checked for rodents. He said he thought the rider made perfect sense, “for your own level of comfort; a buyer should know what they’re getting into.”

You can read the rest here.

[Meredith R. Miller]

 

 

People's Court: Contract Dispute at the Flaming Hearth

One of my former contracts students brought this People's Court dispute to my attention because of its eerie (and coincidental) similarity to the fact pattern on my Spring 2010 exam.  Though, I had the added issue of a supervening referendum that (re)banned same-sex marriage.  

Short of it: Plaintiff put down a $1000 deposit on a wedding reception venue called the Flaming Hearth.  She was only required to put down a $500 deposit.  She decided the dance floor wasn't big enough ("cause it's all about dancing to me") and reneged on the contract, asking for the extra $500 back.  The owner of the Flaming Hearth refused to return any portion of the deposit, stating that the dance floor was big enough and the plaintiff was in breach of contract.

Here's the dispute:

Here's the "Judge's" "ruling":

Do you agree with the result?  

[Meredith R. Miller h/t Cynthia Motschmann]

Sarah Palin’s CSU Contract (and Speaking Fee) Revealed

Sarah Palin was hired by California State University Stanislaus to appear at a June Fundraiser.  When a non-profit government transparency group sought to find out her speaking fee through a public information request, the University refused to reveal the information.  Last week, a California judge ordered the University to disclose the details.

Now that the contract is public record (you can read it in its entirety here), it reveals that Palin received $75,000 for three hours' work, in two payments of $37,500. The University was also on the hook for her accommodations and travel expenses, which included two first class tickets and two unrestricted coach tickets.  Among other interesting tidbits, we learn that Palin requires bendable straws, wooden lecterns and skirted tables:

A spotlight directly on the Speaker should be avoided. Unopened bottled still water (2 bottles) and bendable straws are to be placed in or near the wooden lectern. A representative of WSB [Washington Speakers Bureau] or the Speaker's party will open the water at an appropriate time prior to the Speaker's participation in the program.

 * * *

No Plexiglass or thin lecterns, please. If Speaker is seated on-stage at a table (sic) customer to ensure that the table is skirted.

Guess this confidentiality clause could not insulate the government entity from transparency:

The Parties agree that the terms of this Agreement, including its compensation terms, ("Confidential Information") are confidential and should be held in confidence by each party. The Parties shall not publicly disclose any Confidential Information and acknowledge that any breach, negligent or intentional, of this confidentiality shall be deemed a material breach of this Agreement for which the breaching party will be held liable.

[Meredith R. Miller]

One Happy Meal™, Hold the Cadmium

Friday, the Consumer Product Safety Commission(CPSC), in conjunction with fast-food giant McDonald’s®, voluntarily recalled about 12 million Shrek Forever After™ collectible drinking glasses (photo courtesy of the CPSC) sold or awaiting sale at McDonald’s® locations throughout the U.S. after someone in Representative Jackie Speier's(D-CA) office alerted the CPSC that the movie-character illustrations on the glasses contained cadmium, prolonged exposure to which may pose a serious long-term health risk.

Millville, NJ-based Durand Glass Manufacturing Co.(DGMC), a subsidiary of Arques, France-based Arc International, manufactured the movie-themed glasses, which another Arc International subsidiary, Millville-based Arc International North America, distributed exclusively to McDonald's. McDonald's locations nationwide sold the glasses in May and early June 2010.

McDonald's web site addresses the recall through a series of FAQs (and answers). (For the benefit of those with short attention spans, every answer to which the statement would be germane includes the statement "the CPSC has said the glassware is not toxic.") Arc International deployed a press release. Representative Speier posted a statement on her web site, which also includes a link to a Los Angeles Times article about the recall. Only DreamWorks™ appears to be mum on the subject -- so far, at least. (Perhaps the Shrek-iverse's creators didn't retain all of the product licensing-rights like George Lucas did, not so long ago and not so far away, with the original Star Wars™ trilogy or they made McDonald's pay a non-refundable lump sum to market the glassware.) Rumors of a replacement glass featuring an image of McDonald's CEO Jim Skinnerthat transmogrifies into a Shrek-alike when filled with any non-Coca-Cola® brand soft or sport drink appear to be completely unfounded.

So, what's the contract law angle on collectible glassware manufactured for and sold to McDonald's for resale to McDonald's retail customers?

It should go without saying that the most interesting legal issues arising out of this scenario involve (1) what express and implied UCC Article 2 warrantieseach seller in the chain from DGMC (or DGMC's ingredient supplier) to McDonald's made to anyone who purchased or used the glassware; (2) to what extent, if any, each seller in that chain may have disclaimed some or all of its warranty liability, limited the remedies available to the buyer, user, or other person affected by the glassware's use, or both; (3) whether one or more warranty-making sellers breached one or more warranties to one or more buyer, user, or other person affected by the glassware's use; and (4) what remedies Article 2 affords any person to whom any seller is liable for breach of warranty.

For those wanting to add some international flavor to the mix, the CBC reports here that the recall has spread to include all Canadian McDonald's restaurants. Information from the Associated Press and Reuters, reported here, indicates that recalling the glassware sent to Canadian McDonald's restaurants raises the total number of recalled glasses to 13.4 million. Both the U.S. and Canada are partiesto the U.N. Convention on Contracts for the International Sale of Goods (CISG). To the extent that the Canadian McDonald's restaurants purchased their Shrek Forever After™ collectible glassware from New Jersey-based DGMC or New Jersey-based Arc International North America, that transaction constituted a sale of specially-manufactured goods (CISG art. 3(1)), purchased for resale, rather than personal, family, or household use (CISG art. 2(a)), by a buyer located in one CISG "contracting state" from a seller located in a different "contracting state" (CISG art. 1(1)(a)). Therefore, unless the Canadian McDonald's buyers and New Jersey-based DGMC or New Jersey-based Arc International North America effectively opted out of the CISG (CISG art. 6), any breach of warranty claim the Canadian buyers might have (CISG art. 35), the extent to which any U.S. seller disclaimed any warranty or limited its liability for breaching any warranty (CISG arts. 6 & 35), and the available remedies (CISG arts. 45-52 & 74-78), will be matters for the CISG to resolve.

[Keith A. Rowley] (partially cross-posted on the Commercial Law blog)

What a Long Strange Contract It's Been...

There is a Grateful Dead exhibit “currently playing” at the New York Historical Society, with lots of knick knacks on loan from the archives at UC Santa Cruz. (Jon Stewart once did a funny bit about a job listing for an archivist of the collection, though it apparently peeved serious archivists everywhere).  Here's more information on the exhibit, including the insights of a sociology professor who has written a book called Deadhead Social Science and sounds like she's study the culture like Jane Goodall studied chimps.

The exhibit was a bit sparse and dissatisfying, and it mostly felt like at $12 excuse to lure you into the gift shop to buy a large peace sign tapestry or small stuffed dancing bear for your kids.  (It still beat grading exams, of course).  There were a few cool pictures of the Fillmore East, which I suppose were obligatory because it was after all an exhibit at the New York Historical Society.

It should be no surprise that, for me, the most interesting thing at the exhibit was a contract – actually, the notice of an exercise of an option pursuant to a contract.  I learned that the Grateful Dead signed their first contract with Warner Bros. in 1966.  They were the first rock band signed to the Warner label.  The exercise of option (pictured, click to enlarge) was dated 1968 and it extended the terms of the 1966 contract through 1969.  There was not a copy (at least that I saw) of the 1966 contract.

In the document, “notice is herby given” to Jerome Garcia and his bandmates that “the undersigned, WARNER BROS. – SEVEN ARTS RECORDS, INC., has exercised and hereby exercises its option under the contract referred to above, for with respect to the Term specified, upon and subject to all of the terms and conditions set forth above and in said contract.”  The exercise came with a $30,000 advance and 8% of domestic royalties, and 5% of foreign royalties. The rest, as they say, is history.

More than anything, I came away with a sense that this band was a superb marketing machine and had a really good business sense, or at least someone advising them that did…. and still does.

[Meredith R. Miller]

An $18,000 Phone Bill. Can you hear me now?

Somehow I missed this all-too-believable story last week.  From the inimitable WSJ Law Blog (with help from the Boston Globe):

Here’s the deal, according to the Boston Globe: Back in 2006, Bob St. Germain renewed his wireless phone service contract, which included his cellphone and cellphones for his son and daughter. Unbeknownst to St. Germain, the two-year promotional period allowing free downloads had expired, and Verizon was now charging for downloaded kilobytes.

But St. Germain’s son, Bryan, a student at Framingham State College, didn’t realize this, and started downloading a lot of stuff to his phone. The August 2006 bill was for $12,233. When St. Germain called to complain, Verizon told him that since that last bill, he’d run up an additional $5,000 in downloading fees.

“You can’t print what my husband said’’ when the bill came, Mary St. Germain said. “He was very shocked.’’

According to the Globe, Verizon eventually offered to reduce the bill by half. But St. Germain would have none of it. He rejected the offer and Verizon responded by sending the bill to a collection agency.

Verizon officials said that the charges were legitimate and that they have tried to work with St. Germain to resolve the dispute.

“We go to great lengths to educate our customers on their products and services so that they avoid any unintended bills,’’ two Verizon spokesmen wrote in an email to the Globe. Verizon also says the amount of the charges were laid out clearly in St. Germain’s agreement.

* * *

On the one hand, Verizon claims its charges were clearly stated. It’s also agreed to cut the charges down by half.

On the other hand, the St. Germains say the charges are ridiculous, that someone should have let them know that something odd was going on with their account. Others say consumers can’t be blamed for failing to read or comprehend the fine print of a user agreement. It also seems fair to wonder how much it cost Verizon to provide the 816,000 kilobytes of stuff to Bryan Germain’s phone, though telecom companies often argue that demand on their networks, and the costs to expand networks to allow for it, can add up.

Gotcha contracting?  Is Restatement (2d) 211 up to the task?  Or, should St Germain be held to the old "duty to read"?  

[Meredith R. Miller]

Computer Game Retailer Uses Contract to Claim 7,500 Immortal Souls

This story from Fox News:

A computer game retailer revealed that it legally owns the souls of thousands of online shoppers, thanks to a clause in the terms and conditions agreed to by online shoppers.

The retailer, British firm GameStation, added the "immortal soul clause" to the contract signed before making any online purchases earlier this month. It states that customers grant the company the right to claim their soul.

"By placing an order via this Web site on the first day of the fourth month of the year 2010 Anno Domini, you agree to grant Us a non transferable option to claim, for now and for ever more, your immortal soul. Should We wish to exercise this option, you agree to surrender your immortal soul, and any claim you may have on it, within 5 (five) working days of receiving written notification from gamesation.co.uk or one of its duly authorised minions."

GameStation's form also points out that "we reserve the right to serve such notice in 6 (six) foot high letters of fire, however we can accept no liability for any loss or damage caused by such an act. If you a) do not believe you have an immortal soul, b) have already given it to another party, or c) do not wish to grant Us such a license, please click the link below to nullify this sub-clause and proceed with your transaction."

The terms of service were updated on April Fool's Day as a gag, but the retailer did so to make a very real point: No one reads the online terms and conditions of shopping, and companies are free to insert whatever language they want into the documents. 

While all shoppers during the test were given a simple tick box option to opt out, very few did this, which would have also rewarded them with a £5 voucher, according to news:lite. Due to the number of people who ticked the box, GameStation claims believes as many as 88 percent of people do not read the terms and conditions of a Web site before they make a purchase.

The company noted that it would not be enforcing the ownership rights, and planned to e-mail customers nullifying any claim on their soul.

This reminds me of the episode of the Simpsons when Bart sells his soul to Millhouse.  Though Bart had agreed to sell his soul to Millhouse in a negotiated deal - and, of course, Millhouse went and resold it for Alf pogs:

[Meredith R. Miller – h/t Cynthea Motschmann]

Protecting Your Passwords From Beyond the Grave

 BYU's Cheryl Preston gave a very stimulating presentation at the UNLV Spring Contracts Conference called "Hosting Kids Online: Applying 'Terms of Use to Minors."  At issue in the presentation are the rights of the parents of a deceased minor to that minor's password-protected internet communications.  Some internet service providers' Terms of Service provide that the ISP may destroy such communications upon the demise of their author, but Professor Preston's research questions the enforceability of such a ToS when entered into with a minor.   

Fellow conferee Sid DeLong has called our attention to a possible, but perhaps problematic solution.  There is a service called Legacy Locker.  Among other things, Legacy Locker gathers and tests your online passwords for you and then passes them on to your personal representative or named beneficiary when you die.  More information on the service can be found here.  Please note: although the name of the principal behind Legacy Locker is similar to that of the undersigned, we at the blog intend neither to endorse nor to criticize the product.  We just think it is an interesting example of private ordering that could at least potentially save the bereaved from the kinds of adversarial wrangling described by Professor Preston. 

In the specific case described by Professor Preston, the parents of a beloved child wanted to recover some of her e-mail communications, and Professor Preston believes that they had a legal right to such communications. However, in many cases, though not the case Professor Preston discusses, minors have passwords on their internet accounts precisely because they want to keep those communications private from their parents.  That reasonable assumption could be easily overcome if children specified, through Legacy Locker or some other service what was to become of their accounts in case of their demise.

[Jeremy Telman]

A Sign of Rational Acting?

 This blog has suggested elsewhere that baseball contracting is irrational.  Players are offered jaw-dropping contracts based on their past performance which incentivizes them to have performed well in the past.  Sports contracts, we suggested, should have enough downside protection to lure players to a team, but the bulk of the salary should be in the form of incentives.  That's how it works in the world of corporate executive pay, and clearly corporate executives are not paid when they don't perform. Oh, wait.  Yeah.  Well, perhaps we more than a few tweaks away from the Peaceable Kingdom.  

In any case, today's New York Times reports that the film industry is moving away from the mega-contracts that paid the likes of Leonardo DiCaprio and Russell Crowe $20 million up front for appearing in blockbuster movies.  Although nobody will talk on the record, it seems that the newly risk-averse studios are now paying a measly $2 million or so up front to land even huge stars like George Clooney.  But don't worry, George Clooney and Sandra Bullock will not soon be sharing a roach-infested bed-sit in the East Village.  They make their profits, which still can be in the $20 million range, or even higher, once their films pass the break-even point.

So, even if actors cannot be counted on to behave rationally, there is evidence of some rational acting in Hollywood.

[Jeremy Telman]

Breach of Contract Costs Kid a Chance to Be a Contender

 
According to this story in the Los Angeles Times (and about a zillion other websites), Michael Lynche has been cut from the top 24 contestants of this year's version of American Idol.  The ground for his dismissal is breach of contract.  The breach allegedly occurred when Lynche's soon-to-be-estranged father confirmed rumors that his son had made the semi-final round.  This a breach of the contestants' agreement that they will not divulge their fates on the show.

"Aww, come on!" I hear you type into your favorite blog, "Michael Lynche is awesome!!!"  That may well be.  I wouldn't know, as I don't watch the show.  But one aspect of the report strikes me as very interesting.  According to this report, the non-disclosure agreement binds not only the contestants, but also their families.  Now how does the network manage that?  I mean, if I ever did anything of which my family could be proud, what could I do to prevent my mother from reporting on the nachas?  "So, you said he was a nichtgutkeit," I can hear her crow, "But now whose son is idle -- eh? Eh?"

[Jeremy Telman]

The New Nexus of Contracts: Assisted Reproduction

 In light of the Baby M case, we have posted before on the subject of advanced assisted reproduction.  Sunday’s New York Times had a lengthy report on page A1 about the tragically confused state of the law in this area.  The report begins with the story of  Amy Kehoe, who has clearly adopted the nexus of contracts approach to reproduction:

“We paid for the egg, the sperm, the in vitro fertilization,” Ms. Kehoe said as she showed off baby pictures at her home near Grand Rapids, Mich. “They wouldn’t be here if it weren’t for us.”

Ms. Kehoe’s story highlights the difficult issues raised by assisted reproduction.  After her surrogate, Laschell Baker, whose medical bills related to the pregnancy Ms. Kehoe covered, learned that Ms. Kehoe had a history of paranoid schizophrenia, Baker demanded the return of the twins she had carried but to whom she had no genetic link. 

A Michigan court has granted temporary custody of the twins to Ms. Baker and her husband, who already have four children (Ms. Baker has also served as a surrogate mother to two other couples).  Under Michigan law, surrogacy agreements are unenforceable on public policy grounds.  The Kehoes have abandoned their attempts to get custody of the babies, citing the difficulty of the task under Michigan law.

 Applicable law in other states ranges from the permissive to the non-existent.  Surrogacy contracts have been upheld in California courts.  In other states, the law is silent on the subject, leaving courts without guidance when faced with a parentage and custody dispute.  Sometimes, the transactions might involve a sperm donor in one state, an egg donor in another, a surrogate in a third and an adopting couple in a fourth.  The IVF clinic might bring in a fifth state.  The jurisdictional issues alone raise significant challenges. 

The New York Times article illustrates the complexities with two law stories.  The first involves a single, New Jersey man in his 60s who attempted to pick up his twins in Indiana.  While he appears to have settled matters with the New Jersey courts, Indiana courts are still adjudicating the status of the twins.  Frances Watson from the Indiana University School of Law served briefly as the children’s appointed legal representative.  The Times quotes her as follows: “You should not be able to come from out of state on some contract and order up some babies and then go about your business.”

The other story involves Donald Robinson and Sean Hollingsworth, a gay couple residing in New Jersey and married in California in 2008.  Mr. Hollingsworth served as a sperm donor and the couple used a donated egg.  The fertilized egg was then implanted in Mr. Robinson’s sister, who was to act as surrogate and as a doting aunt.  But Ms. Robinson’s relationship with her brother unraveled during the pregnancy, which was a difficult one, which produced twins.  The court in Baby M’s state has temporarily awarded shared custody of the children, with a trial slated for April.

Help is on the way, it is to be hoped, as the ABA has developed a model surrogacy act that could provide needed guidance to courts.   One helpful provision would be a requirement that all parties undergo psychological screening before entering into a surrogacy agreement.  Still, one would hope that people with a history of mental illness would not be legally precluded from entering into surrogacy agreements, assuming full disclosure and a willing partner.  We do not want the law to be in the position of determining ex ante who has a right to be a parent 

There  are already 152 comments on the New York Times website, so I will refrain from piling on.

[Jeremy Telman]