Thursday, September 26, 2013
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?
Friday, September 20, 2013
"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.
Friday, September 13, 2013
Over 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.
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.
Thursday, September 12, 2013
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?
Monday, September 2, 2013
Comedian 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?
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.
Monday, August 5, 2013
Ars 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]
Thursday, July 18, 2013
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:
Tuesday, July 9, 2013
Over 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.
Wednesday, July 3, 2013
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....
Monday, July 1, 2013
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.
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!"
Thursday, May 9, 2013
Duke 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]
For many lawyers, To Kill a Mockingbird (TKAM) is at the top of their list of "favorite books/movies about a lawyer." TKAM is about more than lawyering, of course. It's about racism, family, class and much more. This week, TKAM also is about "fraudulent inducement," "consideration" (a lack thereof) and "fiduciary duty." All of those subjects are in the complaint filed by TKAM author, (Nelle) Harper Lee, against her purported literary agent.
In the suit, Lee alleges that Samuel L. Pinkus (and a few other defendants) fraudulently induced her to sign her TKAM rights over to one of Pinkus's companies in 2007 and again in 2011. According to Lee, Pinkus, the son-in-law of Lee's longtime agent, Eugene Winick, transferred many of Winick's clients to himself when Winick fell ill in 2006. Pinkus then allegedly misappropriated royalties and failed to promote Lee's copyright in the U.S. and abroad.
For Contracts professors, the Lee v. Pinkus suit provides some interesting hypos to discuss when teaching fraud, consideration, and assignments of rights. Regarding fraud, Lee alleges that Pinkus lied to her about what she was signing at a time when she was particularly vulnerable due to a recent stroke and declining eyesight. Consideration is in play because there allegedly was no consideration from Pinkus to Lee in exchange for Lee's transfer of rights to Pinkus. Assignment issues arose because the many companies who owed Lee royalties reportedly struggled to figure out which company or companies they should pay given Pinkus's many shell companies. Overall, it's a sad story for Ms. Lee but one that students may find particularly engaging.
[Heidi R. Anderson]
p.s. Although there are many quote-worthy passages in TKAM, a favorite of mine (useful when advising students about their writing) is: “Atticus told me to delete the adjectives and I'd have the facts.” Please feel free to share your favorites in the comments.
Wednesday, May 1, 2013
We previously blogged about high-profile reward offers by Donald Trump, Bill Maher, a laptop-seeking music producer, and a Hong Kong businessman. Only one of those (the producer) led to an actual lawsuit. The latest reward offer in the news involves murder.
In February of this year, the City of Los Angeles and other entities collectively offered a $1 million reward for information regarding Chris Dorner. Dorner was the former policeman and Navy officer who (allegedly) killed four people, including two policemen. The manhunt for Dorner, labeled the "Cop Killer," reportedly was one of the largest in LA County's history.
One of the people claiming the reward, Rick Heltebrake, has filed a breach of contract suit in LA Superior Court (the complaint can be obtained here but only for a fee). Heltebrake is suing the City of Los Angeles, and supporting entities for $1 million and is suing three cities that offered separate $100,000 rewards related to Dorner. Heltebrake was a carjacking victim of Dorner's. After he escaped, Heltebrake called the police and told them where they could find Dorner. Because Dorner was found at the location Heltebrake identified, he is seeking the rewards.
The contract controversy is one of interpretation. The rewards reportedly were available for "information leading to the apprehension and capture of" Dorner, for the "identification and apprehension" of Dorner, for the "capture and conviction" of Dorner, and for "information leading to the arrest and conviction of" Dorner (I do not have the complaint so these excerpts are cobbled together from TMZ, Courthouse News Service, ABC and other sources). Police charged Dorner on February 11, 2013. Heltebrake called police on February 12. On February 25, after a shootout with police and structure fire, Dorner was found dead from an apparently self-inflicted gunshot wound.
Given the above facts, some of the intepretations questions are: (i) whether the authorities' shootout and recovery of Dorner's body qualifies as "apprehension" or "arrest," (ii) whether the "and" between "identification and arrest" or between "capture and conviction" means that both are required in order to collect, and many, many more. A complicating factor is that the $1 million reward was merely announced on TV; no written record was made. At least one reward offeror, the City of Riverside, has stated that the lack of a "conviction" means that it won't pay. Although this is a tragic story, I may mention it the next time I teach the Carbolic Smoke Ball case.
If anyone is able to find the complaint for free, please post a link in the comments.
[Heidi R. Anderson]
Tuesday, April 2, 2013
A student recently sent me this story as an example of a liquidated damages clause gone awry, at least for the contractor. The contractor, Crystal Corp., was supposed to remodel a building to be the new location for a restaurant, Kuroshio, by September 30th. The work was not completed until late December. The contractor does not appear to be contesting whether there was a breach. However, he is contesting the damages.
The contract apparently contained a liquidated damages clause that specified a per-day penalty for any delays. It also required Crystal to notify Kuroshio, in writing, of any delays, and the reason(s) for those delays. Crystal did not supply the required notice. And, because of the length of the delay, the contractor now reportedly owes more money to Kuroshio than he is owed for completing the work. Further, because the contractor has not been paid by the restaurant, he reportedly has not paid his own employees. Thus, the contractor and/or his employees have taken to the street in front of the restaurant. According to AnnArbor.com, they protested in front of the restaurant every evening for over a week (there's no obvious update since late March). A protester's photo is available here.
I thought this case was a good one to mention in class because it's not every day that a contract dispute leads to public protest. More specifically, I hope to use this dispute to illustrate how liquidated damages clauses may not be enforceable (the cases in the text I use, Kvassay and O'Brian, are great but a present day example always seems to work better for cementing the material into students' minds).
I also hope to use this dispute as an example of another theme I stress in class. I tell my studentes that, as a deal lawyer, they'll often have to be the most negative person in the room. They have to ask many "what if" questions of their clients before suggesting they sign contracts. For example, "What if...you get inside and find out that the HVAC system is in terrible disrepair? Are you going to want to pay the per-day penalty in that situation? If not, then we need to revise the contract because, as written, you're going to be on the hook for the daily penalty no matter what." I'm not sure how much of this they'll remember but I'm hopeful that at least some of it will stick with them.
[Heidi R. Anderson, h/t to student Michael DeRosa]
Wednesday, March 20, 2013
With the help of our former intern, Christina Phillips, we stumbled upon this cover story from Santa Cruz's Good Times magazine. It is a profile of Racquel Cool, who makes a living as an egg donor. The article gives background on why Cool decided to become an egg donor and the process through which one registers with various services and gets matched up with couples in the market for viable eggs.
The article also provides the following interesting information about contractual aspects of egg donation:
- The contracts specify that the payment to the donor is not for the eggs but for her time, effort and discomfort;
- The payment, appropriately enough, since it is not a payment for the ova themselves, is the same regardless of the number of eggs harvested;
- The amount one is paid per donation increases if a donation results in a pregnancy;
- If the donor has a partner, s/he must also consent to the donation;
- While the practice is frowned upon by the American Society for Reproductive Medicine, donors with especially prized qualities (athletes, Ivy League graduates, etc.) can sell their eggs (that is, their services) at much higher prices.
Tuesday, March 12, 2013
In Book II, Chapter 1 of Crime and Punishment by Fyodor Dostoevsky (pictured), beginning on page 192 in the version to which I have linked, the novel's protagonist, Rodion Romanovich Raskolnikov, describes an oral agreement with his landlady. The context is as follows:
The day after Raskolnikov has committed a double homicide, he is called to the police office. He is understandably unnerved and fears that the authorities are on to him. Moreoever, he is about to fall into a fit of delirium and is in no condition to keep his wits about him before the police. However, when he arrives, it turns out that he has been called in as a debtor. The supersilious assistant superintendent informs Raskolnikov that he has been called in on an I.O.U. that he made out to his landlady, the widow Zarnitsyn, for 115 roubles. It appears that the good widow has assigned the I.O.U. to one Mr. Tchebarov who is now seeking recovery.
Raskolnikov, relieved that he has not been called in for murder, explains to the authorities why he is so surprised to be expected to pay his debt. He informs them that he had had his rooms with the widow Zarnitsyn for three years. Early in his time there, he promised to marry the widow's daughter, and since he was practially a son-in-law, the widow extrended credit to him. But the daughter had died of typhus.
Some time after that, the widow came to Raskolnikov and, while claiming that she still trusted him, offered that she would trust him more if he gave her an I.O.U. for the full amount of the debt that he owed her for the lodgings -- that would be the 115 roubles. He signed the I.O.U. based on her assurances that, once he signed, she would trust him and would never, never seek to enforce it. Raskolnikov adds a sort of laches argument that the widow had waited until he had lost his lessons and had no source of income whatsoever to seek to recover on the I.O.U.
The authorities were not interested in these details, instructing Raskolnikov: :"You must give a written undertaking, but as for your love affairs and all these tragic events, we have nothing to do with that." If any of our readers has any familiarity with 19th-century Russian law, feel free to weigh in, but it does seem like Raskolnikov has only the weakest of fraud in the inducement claims and so his testimony as to the widow's promise, though perhaps admissible despite the written agreement, will carry little weight. Of course, Raskolnikov would have to show that the widow knew, at the time she promised not to enforce the I.O.U. that she in fact would do so. And does it matter that such a promise should not be taken seriously on any account, or were 19th-century Russians really so romantic that they valued signed undertakings even if they had no intention of enforcing them?
Or, even absent a showing of fraud, Raskolnikov's parol evidence might be relevant to show the parties' frames of mind. Although the document looks legally binding, perhaps neither party regarded it as such. Both had in mind only a written affirmation of their mutual obligations -- the landlady avowed her trust and Raskolnikov evidenced his trustworthiness through his willingness to sign. The I.O.U. is no more enforceable than a written pledge to be best friends forever.
There is also the additional issue. The widow did not seek to enforce the I.O.U.; she assigned it to Tchebarov, whom she likely did not inform of her promise to Raskolnikov. If the I.O.U. really is unenforceable, then the transfer of it ought not to make it any more so, and if the widow has committed some sort of fraud, it might arise from passing on an I.O.U. that she knows to be worthless as though it were of some value.
Tuesday, March 5, 2013
LeBron James participated in this year's NBA All-Star game but one former player, Magic Johnson, was not happy. Magic, like many fans, would like to see the league's star players participate in the fun events leading up to the game, such as the slam dunk contest. Apparently, Magic would like that so much that he's willing to offer $1 million to the winner of next year's slam dunk contest if the contest includes LeBron James. He made that offer on ESPN's show, NBA Countdown:
When I first learned of this, I suspected that Magic's statement was an offer to James himself. However, in the video, Magic appears to say that the money would go to the winner of the contest, LeBron or not (OK, sure, the winner likely would be LeBron but you never know--underdogs can win, too).
Jalen Rose, Magic's co-host of the show NBA Countdown, stated that another player, Blake Griffin, would have to participate, too. Magic's verbal agreement with Rose seems to indicate a modified offer--one in which the $1 million payout is now conditioned on the participation of James and Griffin. From the video, it also appears that Magic is bargaining for performance versus promise but I'm not 100% sure.
For professors looking for a modern-day reward-style offer, this could serve as a less political alternative to the recent reward-style offers by Donald Trump and Bill Maher, about which we previously blogged.
[Heidi R. Anderson]
Thursday, February 28, 2013
On last night's Colbert Report, Stephen announced that he, a company man, was contractually obligated to provide a sponsor integration for Halls Mentho-Lyptus cough drops. He does so by changing the name of his intern Jay to "Halls Mentho-Lyptus with Triple-Soothing Action Presents Jay the Intern."
Ahh, the power of contracts.
Monday, February 11, 2013
The LA Times reports that the state of California has terminated its contract with SAP Public Services, a contractor that was supposed to fix the state's outdated computer network system that handles paychecks and medical benefits for 240,000 state employees.
While both SAP and California are unhappy about the state of events, I have just covered breach, substantial performance, conditions and damages in my Contracts course and was delighted to find a real life scenario to illustrate the relevance of the material we just covered.
So what triggered CA's termination? SAP was hired three years ago but when its program was tested, it made errors at "more than 100 times" the rate of the old system.
Was failing this test a breach? If so, was it a minor or material breach? It seems it would depend on what was in the contract. As contracts profs know, the first place to look in a contract dispute is the contract itself. The are terms in the contract that will be relevant in evaluating whether there was a breach or the applicable measure of damages. For example, there may be performance targets (i.e. conditions) that SAP had to meet which weren't met. Those conditions would be relevant in determining each party's obligations (would the contract terminate upon failure to meet the condition, for example?) There's also likely to be a provision dealing with whether SAP gets paid per deliverable or target met or per person/hour or time spent on a project. If this was a scheduled deliverable, then the facts tend toward finding a breach (or, if the contract language indicates, it could be a condition that was just never met). If it was a test done in the course of moving the project toward completion, CA may have jumped the gun. A material breach would allow CA to then terminate its obligation. If not a material breach, CA should have sought adequate assurance of performance and could itself be in breach by terminating the contract.
Facts matter, as I repeat like a broken record to my students (I guess I should update my reference for the iPod generation) - so it matters what it means to say that SAP failed the test. The LA Times reports that:
"During a trial run involving 1,300 employees....some paychecks went to the wrong person for the wrong amoung. The system canceled some medical coverage and sent child-support payments to the wrong beneficiaries."
Furthermore, because the system sent money to retirement accounts "incorrectly,"' the state had to pay $50,000 in penalties.
Given the late stage of the project, if not a material breach itself, the failed trial seems to at least give rise to a reasonable belief that SAP would breach. What did CA do then? Did it immediately terminate or seek explanations/reassurance?
Another issue is what damages measure is applicable? CA paid SAP $50million dollars but it had incurred much more trying to get the system up and running. It wasn't clear to me whether the $50million dollar amount was the amount paid up to that point, or the total due to SAP. In class, the cases we study regarding breach of contract to provide services typically involve some type of construction contract. The standard measure then would be the difference between the cost of completion and the contract price. But in a situation like this, the cost of completion is a bit funny given the various factors involved - and the period of time it would take to implement a new project (SAP took the project over from a prior contractor). Furthermore, the purpose of the new system wasn't so CA could make money (no loss profit measure applicable here). Given that, the standard expectation measure likely would not be appropriate and a reliance (or restitution) measure makes more sense. Not surprisingly, CA is seeking recovery of the $50million dollars paid.
What about SAP? Will it claim that it substantially performed? I don't think it can with a straight face, but again, I am only basing my conclusion upon the facts contained in the newspaper article. Will SAP seek restitution for the reasonable value of its services to CA? It very well may, (and any students reading this, should raise it on an exam...) since it has spent three years on this project. Based upon the information in the article, it doesn't sound as though CA received any benefit from the services rendered. If SAP is determined to be the breaching party, it may not get awarded anything. The real world problem for SAP is that trying to hang on to money for delivering a system that doesn't work might hurt its reputation even more. And it doesn't help that the other party is a state entity - meaning lots of future potential business at stake. (The LA times noted that SAP projects with other CA entities are not going so well, either).
As is true for other contracts profs, I spend a lot time trying to situate doctrine into a problem solving (or minimizing) scenario since this is how most lawyers deal with contract law. For example, prior to cancelling the contract, the attorneys for the state of CA most likely sat down and discussed its available options under both the contract and contract law. SAP, too, likely reviewed (or is reviewing) its options under the contract and contract law. My guess is that the contract terms probably permit CA to cancel under these circumstances, although a spokesperson for SAP stated that it believed it had "satisfied all contractual obligations in this project."
I'm sure I missed a few things in my quick analysis of ths situation, so feel free to note any other issues in the comments.