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Friday, January 31, 2014

Sperm Donor Ordered to Pay Child Support Despite Agreement

I like to remind my 1Ls Contracts students that a contract is private law between two parties, but it doesn't override public law.  This story is last week's news, but I thought I'd blog about it anyway because it provides a pretty good example of this point.  In 2009, William Marotta responded to a Craigslist ad posted by two women for a sperm donor.  All three parties agreed - and signed an agreement to the effect - that Marotta waived his parental rights and responsibilities.  The Kansas Department for Children and Families sought to have Marotta declared the father and responsible for payments of $6,000 that the state had already paid and for future child support. 

Unfortunately for Marotta, a Kansas state statute requires a physician to perform the artificial insemination procedure.  The Shawnee County District Court Judge Mary Mattivi ruled that because the parties "failed to conform to the statutory requirements of the Kansas Parentage Act in not enlisting a licensed physician...the parties' self-designation of (Marotta) as a sperm donor is insufficient to relieve (Marotta) of parental rights and responsibilities."

Note that the couple was not seeking to invalidate the contract - it was the Kansas state agency. 

It's unclear whether the parties will appeal.


[Nancy Kim]


January 31, 2014 in Current Affairs, In the News, Miscellaneous, True Contracts | Permalink | Comments (0) | TrackBack (0)

Monday, January 20, 2014

Is Disney to Yahoo! as Tragedy Is to Farce?

Mad StacksIn the mid-1990s, the Walt Disney Company hired Michael Ovitz to be its #2 executive.  After slightly over a year in the position, Disney's Board of Directors fired Ovitz, having determined that he was an ineffective executive for the company.  He received over $100 million in severance pay.  After years of litigation, the Delaware courts found that Disney's Board of Directors did not breach its duty of care in approving an excecutive compensation scheme that made Ovitz better off for having been terminated than he would have been had he stayed on the job.  The Delaware Supreme Court noted that Disney's corporate governanace was far from optimal and should not pass muster in a post-Enron/WorldCom etc., world.  I have written about the case here.

According to this article in The New York Times, Yahoo! was not paying attention.  In 2012, Yahoo! hired Henrique de Castro to be its #2 executive.  He lasted a little over a year and is now walking away with at least $88 million.  The Times quotes Charles M. Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, who says that such hiring decisions are usually made by the corporation's CEO and that the Board can't tell the CEO whom to hire.  However, Professor Elson also notes that Boards have an obligation to "ask hard questions," especially when executive compensation seems "out of whack."  Mr. de Castro was the eighth highest paid executive in the region, earning more than Yahoo!'s CEO.  

I suppose it is usually true that a Board cannot tell a CEO whom to hire, but the Board and its Compensation Committee do set executive pay.  And nobody at that level can be hired without Board approval.  In order to lure an executive of de Castro's experience, a corporation must offer "downside protection."  That is, a business person of de Castro's experience is not going to leave a secure, well-compensated position without a guarantee that he will be well-compensated at the new position, even if the relationship sours.  However, as the Times points out, de Castro's record at Google was mixed.  He had been demoted and then promoted again, which suggests his position was not that secure.  In any case, his compensation seems to have been well in excess of what was necessary to protect his potential downside.  

Board capture apparently is still a major problem in U.S. public companies, and the Times suggests that the problem is especially bad in Silicon Valley.  The real problem is that executive pay remains absurdly, stratospherically high in this country.   No pay package should be structured to guarantee millions in dollars of severance even in cases of abject failure.

January 20, 2014 in Commentary, In the News, True Contracts | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 14, 2014

A License to Kill

$350,000.  That’s the value an anonymous American big game hunter is willing to pay to shoot one of the world’s last 5,000 black rhinoceroses.  1,700 of these live in Namibia, which recently auctioned off a permit to kill an old bull through the Dallas Safari Club.

Contracts are meant to assign market values to various items and services in order to facilitate commercial exchanges of these.  But does this make sense with critically endangered species?

Namibia and the Safari Club tout the sustainability of the sale claiming that the bull is an “old, geriatric male that is no longer contributing to the herd.”  All $350,000 will allegedly go to conservation measures.  That is, of course, unless some of the funds disappear to corruptness, not unheard of in the USA and perhaps not in Namibia either.  Although the male may no longer be contributing to his herd, he does contribute to the enjoyment of, just as one example, people potentially able to see him and his likes on safari trips as well as to a much greater number of people around the world who simply enjoy the rich diversity of nature as it still is even if unable to personally see the animals.

Conservationists thus decry the sale, claiming that it is “perverse” to kill even one of a species that is so rapidly becoming extinct.  The argument has been made that critically endangered species should not be valued more dead than alive.  If humans cull the aging, natural predators will have to go one step “down the ladder” for the next one; a healthier one.  Who are we to continually mess with nature in these ways?  Counterarguments are made that poachers are the real problem, not a “single sale.”  And so it goes.

At bottom, the irony in killing such an animal to “increase” the population is, indeed, great.  This particular contract was not.

Myanna Dellinger

January 14, 2014 in Commentary, In the News, True Contracts | Permalink | Comments (0) | TrackBack (0)

Monday, December 2, 2013

Privacy Invasion? Facebook Has an App for That

Over at the Huffington Post, Sam Fiorella takes note of the egregious terms in Facebook Messenger's Mobile App Terms of Service.  These terms include allowing the app to record audio, take pictures and video and make phone calls without your confirmation or intervention.  It also allows the app to read your phone call log and your personal profile information.  Of course, an app that can do all that is also vulnerable to malicious viruses which can share that information without your knowledge.  But, of course, this is allowed only with your "consent."


[Nancy Kim]

December 2, 2013 in Current Affairs, E-commerce, Miscellaneous, True Contracts, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 27, 2013

Dysfunctional Real Estate Contracts

SFKToday’s mini-review is of Dysfunctional Contracts and the Laws and Practices that Enable Them: An Empirical Analysis, 46 Ind. L. Rev. 797 (2013), by Debra Pogrund Stark, Dr. Jessica M. Choplin, and Eileen Linnabery.

Apparently, many real estate contracts limit buyers’ remedies to return of earnest money, and many courts enforce such limitations. The problem is that if a buyer’s only remedy for breach of contract is the return of earnest money, then the seller hasn’t really bound himself to anything. If the seller doesn’t want to perform, all he has to do is return the earnest money. This encourages the kind of strategic behavior that contracts are supposed to prevent. For example, a seller may agree to sell real estate, but if the property's market value increases, the seller can breach the contract, return the earnest money, and sell the property to a second buyer at a higher price. The seller essentially gets to speculate on the buyer's dime.

Further, many buyers don’t understand the meaning of these limitation of remedy clauses, even if they read them. The authors conducted a study which suggests more than a third of people who read a limitation of remedies clause fail to comprehend that their remedies have been limited. The authors use this finding to challenge some courts’ reasoning that buyers knowingly consent to the limitation of their remedies.

The authors offer several reforms, and two are particularly interesting: (1) enacting legislation that prohibits limiting buyers’ remedies to the return of earnest money, and (2) replacing the exacting standards of unconscionability with a "reasonable limitation of remedy” test similar to that used in evaluating liquidated damages.

This article is state-of-the-art in its use of empirical research to aid legal analysis. It not only provides interesting data, but it also marshals that data against flimsy intuitive arguments still common wherever people talk about contracts.

[Kenneth Ching]

[Image by thinkpanama]

November 27, 2013 in Commentary, Contract Profs, Recent Scholarship, True Contracts | Permalink | Comments (0) | TrackBack (0)

Thursday, November 21, 2013

Wrap Contracts Symposium: Response to Moringiello and Hartzog


Wrap Contracts

        It’s my pleasure to respond to Tuesday’s posts from Juliet Moringiello and Woodrow Hartzog.   Juliet Moringiello asks whether wrap contracts are different enough to warrant different terminology.  Moringiello’s knowledge in this area of law is both wide and deep  and her article (Signals, Assent and Internet Contracting, 57 Rutgers L. Rev. 1307) greatly informed my thinking on the signaling effects of wrap contracts.  The early electronic contracting cases involved old- school clickwraps where the terms were presented alongside the check box and their signaling effects were much stronger than browsewraps.  Nowadays, the more common form of ‘wrap is the “multi-wrap,” such as that employed by Facebook and Google with a check or click required to manifest consent but the terms visible only by clicking on a hyperlink.  Because they are everywhere, and have become seamlessly integrated onto websites, consumers don’t even see them.  Moringiello writes that today’s 25-year old is more accustomed to clicking agree than signing a contract.  I think that’s true and it’s that ubiquity which diminishes their signaling effects.  Because we are all clicking constantly, we fail to realize the significance of doing so.  It’s not the act alone that should matter, but the awareness of what the act means.   I’m willing to bet that even among the savvy readers of this blog, none has read or even noticed every wrap agreement  agreed to in the past week alone.  I wouldn’t have made such a bold statement eight years ago.    

             Woodrow Hartzog provides a different angle on the wrap contract mess by looking at how they control and regulate online speech.  With a few exceptions, most online speech happens on private websites that are governed by “codes of conduct.”  In my book, I note that the power that drafting companies have over the way they present their contracts should create a responsibility to exercise that power reasonably.  Hartzog expands upon this idea and provides terrific examples of how companies might indicate “specific assent” which underscore just how much more companies could be doing to heighten user awareness.  For example, he explains how a website’s privacy settings (e.g. “only friends” or authorized “followers”) could be used to enable a user to specifically assent to certain uses.  (His example is a much more creative way to elicit specific assent than the example of multiple clicking which I use in my book which is not surprising given his previous work in this area).

                Hartzog also explains how wrap contracts that incorporate community guidelines may also benefit users by encouraging civil behavior and providing the company with a way to regulate conduct and curb hate speech and revenge porn.  I made a similar point in this article.  I am, however, skeptical that community guidelines will be used in this way without some legal carrot or stick, such as tort or contract liability.  (Generally, these types of policies are viewed in a one-sided manner, enforceable as contracts against the user but not binding against the company).   On the contrary, the law – in the form of the Communications Decency Act, section 230- provides website with immunity from liability for content posted by third parties.  Some companies, such as Facebook, Twitter or Google, have a public image to maintain and will use their discretionary power under these policies to protect that image.  But the sites where bad stuff really happens– the revenge porn and trash talking sites – have no reason to curb bad behavior since their livelihood depends upon it.  And in some cases, the company uses the discretionary power that a wrap contract allocates to it to stifle speech or conduct that the website doesn’t like.  A recent example involves Yelp, the online consumer review company that is suing a user for posting positive reviews about itself.  Yelp claims that the positive reviews are fake and is suing the user because posting fake reviews violates its wrap contract.  What’s troubling about the lawsuit, however, is that  (i) Yelp almost never sues its users, even those who post fake bad reviews, and (ii)  the user it is suing is a law firm that earlier, had sued Yelp in small claims court for coercing it into buying advertising.  To make matters worse, the law firm’s initial victory against Yelp (where the court compared Yelp’s sales tactics to extortion by the Mafia) for $2,700 was overturned on appeal. The reason?  Under the terms of Yelp’s wrap contract, the law firm was required to arbitrate all claims.  The law firm claims that arbitration would cost it from $4,000-$5,000.

                I agree with Hartzog that wrap contracts have the potential to shape behavior in ways that benefit users, but most companies will need some sort of legal incentive or prod to actually employ them in that way. 


 [Nancy Kim]

November 21, 2013 in Commentary, Contract Profs, E-commerce, Miscellaneous, True Contracts, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Monday, November 18, 2013

What Harm Can A Wrap Contract Cause Anyway?

I'm enjoying the posts from Ryan Calo and Miriam Cherry about my book, Wrap Contracts:  Foundations and Ramifications and plan to post a response later this week.  A common question I get (after, Are these things really legal?) is What harm can these contracts cause anyway?  Well, one woman claims that a company can use them to ruin your credit.  The woman, Jen Palmer, ordered some trinkets from but she claims that she never received them and canceled the payment.  After she allegedly failed to reach someone at the company, she  wrote a negative review of on a consumer reporting website stating that they have "horrible" customer service.  KlearGear allegedly emailed her, claiming that her negative review ran afoul of a non-disparagement clause in their online terms of sale.  She says that they told her to remove the post or face a $3500 fine.  Ms. Palmer was unable to get the post removed and alleges that reported her to a credit bureau!  She claims that she is now fighting the negative mark on her credit report which is preventing her from getting loans for a new car and house repairs. 

I don't think the terms of sale are enforceable against Ms. Palmer but that's almost beside the point.  Contracts are used in a variety of ways - one of those ways is to deter problems.  Not many consumers are willing to fight to test the enforceabilty of a contract in court.

But I have a question:  Why would a credit agency ding someone's record simply because they received a call from an online retailer about someone who wasn't even a customer breaching the terms of sale?  I checked KlearGear's website and couldn't find the non-disparagement clause in their terms of sale- they might have removed it after the negative publicity or it might not be in another agreement that doesn't appear until a customer places an order.  There's got to be more to this story...or else we've just entered a new era of abuse by wrap contracts.


[Nancy Kim]

November 18, 2013 in Current Affairs, Miscellaneous, True Contracts, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 13, 2013

A Slam Dunk of a Deal

In a situation that underscores the importance of thinking twice about very long term contracts, the NBA wants to end a contract which requires it to pay two brothers a percentage of its broadcast revenues.  Back in 1976, the Silna brothers owned an ABA franchise, the Spirits of St. Louis.  When the ABA merged with the NBA, the Silnas agreed to this bargain - they would dissolve their team in exchange for 1/7 of the television revenues for the four ABA teams that were merged.  The four teams were the Indiana Pacers, the San Antonio Spurs, the Brooklyn Nets and the Denver Nuggets. 

Sure, back in 1976, the Silnas might have looked silly for giving up a huge buyout for something that seemed pretty worthless (the NBA wasn't even televised prime time) but now the deal is being called "the greatest sports deal of all time."  

Not kidding about that "all time" either - the Silvas reportedly received $19 million under the contract last season and the contract term is "in perpetuity."  Fat chance the NBA will be able to scream foul on the basis of lack of mutuality...


[Nancy Kim]

November 13, 2013 in Current Affairs, Games, In the News, Miscellaneous, Sports, True Contracts | Permalink | Comments (0) | TrackBack (0)

Thursday, September 26, 2013

There Is Hope: Battle Creek


Vince Gilligan by Gage Skidmore
It's not as if I thought the world was going to end on Sunday, when AMC shows the absolutely, positively last episode of Breaking Bad, I just thought I would never again have anything to which I could look foward.  I did just turn 50, so there is AARP membership and a colonoscopy, but I thought there would be nothing in my future that I would anticipate enjoying.  


But then came this in today's New York Times.  Vince Gilligan, the creator of Breaking Bad just sigend an agreement for a new show on CBS.  The timing of the announcement speaks well of both Mr. Gilligan and CBS, capitalizing on the current fan feeding frenzy surrounding the end of the series.  But the fact that CBS is belatedly pouncing on a Gilligan script originally offered to CBS ten years ago speaks less well of that party to the deal.  

Mr. Gilligan has an exclusive deal with Sony Pictures Television, which negotiated for him an unsual deal in which CBS agreed up front to air 13 episodes of Mr. Gilligan's series, Battle Creek.  There's a lot of money involved, but who cares?  If Battle Creek is anything like Breaking Bad, I will forgive CBS for not airing a single show that I have wanted to watch in the last 25 years.

Or am I forgetting something?  Has CBS had any good comedies or dramas in prime time?


September 26, 2013 in Celebrity Contracts, Commentary, In the News, Teaching, True Contracts | Permalink | Comments (0) | TrackBack (0)

Friday, September 20, 2013

Carnival Cruise and the Contracting of Everything


"By now, you’ve heard the stories of passengers urinating in bags, slipping on sewage, and eating stale cereal aboard the Carnival Cruise ship that was stranded in the Gulf of Mexico — not exactly the fun-filled cruise for which the passengers had signed up and paid."   My post on "Carnival Cruise and the Contracting of Everything" is available here.


[Nancy Kim]

September 20, 2013 in Current Affairs, In the News, Miscellaneous, True Contracts | Permalink | Comments (0) | TrackBack (0)

Friday, September 13, 2013

BBC Severance Pay: Kerfuffle or Fooferaw?

BBCBroadcastingHouseOver the summer, hte UK's National Audit Office presented to the BBC Trust Finance Committee this Report on executive severance payments made to fromer BBC executives.   The BBC has reduced its management staff signficantly since 2009.  In so doing, it expects savings totalling £92 million.  However, the BBC also has made severance payments to the 150 ousted executives totalling £25 million.  

According to the Report, the BBC plans changes going forward.  From now on severance pay will not exceed 12-months salary or £150,000, whichever is less.

The drama of Parliamentary hearings into the payments is well described here in the UK's The Guardian.  The BBC's Director General at the time of the payments was Mark Thompson, who recently moved on to The New York Times, where he is Chief Executive.  Thompson defended the payments before Parliament, although they exceeded by £1.4 million (£2 million in The Independent's account) the BBC's contractual obligations to its former executives.  The largest single payment was just over £1 million, and it went to Thompson's deputy, Mark Byford.  According to the BBC, the investigation into severance payments was triggered by a £450,000 payment to one BBC executive who resigned in connection with a scandal after just 54 days on the job.  

From an American perspective, it is a bit hard to see what the fuss is all about.  Sure, capping severance for executives at publicly-owned entities is certainly a reasonable policy, but even without the cap, exceeding contractual obligations by something less than 10% while achieving significant savings overall seems pretty tame on the overall scales of both wasteful public-sector spending and  executive severance packages.  As Brad Pitt's character puts it in Inglorious Bastards, that should just get you a chewing out.  But perhaps we have been desensitized by the size of severance packets, even at public corporations, on this side of the pond.  

Two footnotes:

1. It is perhaps telling that the Report begins with three blank pages (after the cover page) followed by two mostly blank pages.  Apparently they don't audit their own use of paper.

2. UK usage seems to have completely abandoned the hyphenated compound adjective.  Thus, after all the blank pages, the Report begins, "The BBC Trust receives value for money investigations into specific areas of BBC activity."  I had to read this sentence three times before I could make any sense of it.  That's because "value for money" is a compound adjective rather than two nouns separated by a preposition.  To my eyes, the sentence would have been far more readable if it had been written: "The BBC Trust receives value-for-money investigations into specific areas of BBC activity. "  Am I the only one?  My inquiry also relates to changes going on in Law Review offices in the US, as I have tussled with student editors who have grown hostile to hyphens in recent years.  I like the little fellas.  


September 13, 2013 in Commentary, In the News, Television, True Contracts | Permalink | Comments (0) | TrackBack (0)

Thursday, September 12, 2013

The $250 Million Gift that Wasn't

Centre_College_Athletics_LogoThe New York Times reports here that a $250 million gift, pledged to Centre College over the summer has now evaporated.

In July, Centre College announced that the A. Eugene Brockman Charitable Trust had pledged the largest gift in the history of small, liberal arts colleges.  The fund would be used to create 160 scholarships for students majoring in the natural sciences, computational sciences or dismal sciences (aka economics).  Eugene Brockman died in 1986, but his son, Robert T. Brockman attended Centre College and is now a principal in Reynolds & Reynolds, a car dealership support company.  

Earlier this week, Centre College announced that the gift had been withdrawn.  The gift was contingent, as it turns out, on "a significant capital market event."  The event was a $3.4 billion loan deal involving Reynolds & Reynolds.  The proceeds from the deal would go to Reynolds & Reynolds shareholders, including the Brockman Trust.  But the rating agencies did not like the deal and downgraded Reynolds & Reynolds.  As a result, no deal, no proceeds, no revenues to the Brockman Trust and then none to the College. 

For our purposes, there are two money quotes in the Times  coverage from Centre College's President John Roush.  First, “In retrospect, we might have put a big asterisk on this thing . . . ."  And second “We had a lot of people who have poured mountains of time into this . . . ."  

No doubt, Centre College would like to maintain its good relations with the Brockman Trust.  It has received money from the Trust in the past; it would like to continue to do so in the future.  But if there were a clean break, is the pledge enforceable?  

The answer may turn on where that astserisk should be.  Was there an asterisk attached to the gift or an asterisk attached to the announcement of the gift?  If Brockman made clear that its gift was contingent on the significant capital market event, then its pledge is not binding.  There was no promise.  But if the condition was not clear, there may still be a representation that one would reasonably expect to induce reliance and that apparently induced actual reliance when the Centre College people "poured mountains of time" into the gift.  Even the announcement of the gift, its purposes and its source, might be consideration, rendering the gift pledge enforceable (if there was indeed a promise), because the Trust got something of value (publicity) in exchange for its pledge.

One also wonders about other donors.  If the Brockman Charitable Trust pledge was used to attract other donors, those donors might now be experiencing donor's remorse. If the other donors now renege on their pledges, might the College have a cause of action against the Trust?


September 12, 2013 in In the News, True Contracts | Permalink | Comments (0) | TrackBack (0)

Monday, September 2, 2013

Dave Chappelle and Breach of Contract

ChappelleComedian Dave Chappelle (pictured) is edgy, and people like that about his comedy.  His edge is what makes his comedy sophisticated, challenging and -- when it really works -- thrilling.  But edgy comedy can easily go awry.  Audiences might miss the fact that Mr. Chappelle often plays upon racial stereotypes rather than simply indulging or reenacting them. Edgy comedy makes demands of its audience, and sometimes the audience is not up to the challenge.  That is what appears to have happened last week in Hartford, Connecticut.  The other theory is that Mr. Chappelle had "a meltdown" in the face of a loud audience that wanted Mr. Chappelle's routine to be more interactive than he intended.  Aisha Harris has a balanced report on Slate, including some YouTube videos that might help people judge for themselves which version is accurate.  

Apparently, Mr. Chappelle was so disturbed, distracted, annoyed, and frustrated by an audience that would not stop shouting at him -- even though the shouts started as encouragement -- that he decided not to perform.  However, people speculate that he felt contractually obligated to remain on the stage for a full 25 minutes, and so he read aloud from a book, smoked a cigarette and variously occupied himself in ways that people have concluded were not his act until the time expired.  

The event raises interesting contractual questions whether one believes that Mr. Chappelle himself or Mr. Chappelles audience was to blame for what transpired.  Some of those questions run as follows:

  • Regardless of Mr. Chappelle's reasons, did he in fact abide by his contract simply by remaining on stage for 25 minutes?
  • Is there any argument that could be made that what happend in Hartford was a performance?  Could anyone have claimed breach of contract upon witnessing the premiere of John Cage's 4'33?
  • If heckling actually motivated a comedian (any comedian) to leave the stage early, would that be a breach of contract?
  • But if the shouting at Mr. Chappelle's show was actually intended to be encouraging or simply cries of affection for the comedian, does that change the analysis in the previous question? [The Beatles stopped touring because all that could be heard at their concerts were the screams of their teenaged fans, so if they stopped touring in the middle of a concert, would they be justified?]
  • Is there a remedy for individual ticket-holders in such a case, and against whom is their remedy?  They were not in privity with Mr. Chappelle, so they might sue the concert organizers who in turn could attempt to recover from Mr. Chappelle.
  • But if in fact the dynamic at the show in Hartford replayed the dynamic that motivated Mr. Chappelle to end his television show, is that a legitimate defense?  Can an African American comedian defend himself against a breach of contract suit on the ground that too many audience members were laughing at his jokes for the wrong reasons?



September 2, 2013 in Celebrity Contracts, Commentary, True Contracts | Permalink | Comments (0) | TrackBack (0)

Starbucks' Acquisition of La Boulange

Being an observant type, I noticed that the Starbucks that I wandered into this weekend was festooned in pink.  Breast cancer awareness?  Nope.  Starbucks has "partnered" with a San Francisco-based chain of bakeries called La Boulange, and since La Boulange's color is pink, Starbucks is celebrating its new "partnership" with a complementary color scheme.  The barista who explained all this to me characterized the transaction as an acquisition rather than a partnership, and that seems more accurate, since that's what Starbucks called the transaction when it announced last summer that it acquired La Boulange for $100 million.

This is a very interesting transaction.  La Boulange had about 20 cafes in the San Francisco area.  How does La Boulange ramp up its operations to supply 8000 Starbucks outlets with its baked goods without degrading quality?  Working all that out might have been the reason beyond the 14-month delay between the announcement of the partnership and the arrival of the chocolate croissants on my plate.  

San Francisco's Business Times suggests that the creator of La Boulange, Pascal Rigo, still thinks there is a lot to sort out.  His bakeries will continue to exist, and it seems that he plans to double the number of La Boulange outlets in the Bay area.  Meanwhile, he hopes that Starbucks will become known as a cafe and bakery and that it could even become a lunch destination.  That may be a challenge, since people are attracted to Starbucks becasue they can buy a coffee and a snack and spread out at a table for four for four hours while they work on their laptops.  That use of space might not be optimal if Starbucks wants to pack in the lunch crowd. 

The other thing about this transaction that interests me is why it took Starbucks, the company that realized that you can charge people $2 for a small coffee, so long to realize that people who like gourmet coffee also like high-quality baked goods, something the Viennese have known since the 17th century.  Perhaps they were just waiting for the right parntner or perhaps they realized that people who are willing to pay $5 for a fancy coffee-based dessert drink do not want to pay $10 for a fancy coffee-based dessert drink plus a fancy dessert.  Also, some regulars have to avoid the place entirely if it is going to tempt them with delicious desserts each time they enter.


September 2, 2013 in Food and Drink, True Contracts | Permalink | Comments (0) | TrackBack (0)

Monday, August 5, 2013

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

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

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

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


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

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

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

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

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

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

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

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

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

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

Yes, indeed.  More from Ars Technica here.

[Meredith R. Miller]

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

Thursday, July 18, 2013

Another Tragic Story of Lost Air Miles

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

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



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

Tuesday, July 9, 2013

When Non-Competes Attack

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

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

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


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

Wednesday, July 3, 2013

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

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

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


[Nancy Kim]

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

Monday, July 1, 2013

Adventures in Contracts of Adhesion

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

Parking warning

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

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


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

Thursday, May 9, 2013

Plain Meaning Leads to Mood Indigo for Ellington Heir

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

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

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

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

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

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

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

[Meredith R. Miller]

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