Tuesday, August 26, 2014
Intervening Illegality of Underlying Promises Does Not Cause Contract to Fail for Lack of Consideration; Does Not Breach Warranty
What happens when a party to an agreement terminates and begins to make quarterly termination (liquidated damage) payments as promised and then, while payments are being made, a law is past that makes the underlying promised performance illegal? The parties are sorting this out in a case against Orbitz.
In 2005, Orbitz and Trilegiant entered into an agreement (“Master Service Agreement,” or “MSA”) for Orbitz to provide “DataPass” marketing services. Pursuant to the MSA, Orbitz marketed Trilegiant’s services to Orbitz customers. If a customer enrolled in Trilegiant’s services, Orbitz would transfer the customer’s billing and credit card info to Trilegiant and, thereafter, Trilegiant would charge the customer and pay Orbitz a commission. As a result, customers were charged for Trilegiant’s services without ever affirmatively providing their credit card information to Trilegiant (though, they had arguably agreed to be charged when purchasing travel arrangements on the Orbitz site – I leave that part to Nancy Kim).
Customers eventually complained about their credit cards being charged without their knowledge. In 2007, Orbitz notified Trilegiant that it would be terminating the MSA. The MSA allowed for early termination but required Orbitz to make a series of quarterly termination payments (totaling over $18 million) through 2016.
In 2010, Congress enacted the Restore Online Shopper Confidence Act (“ROSCA”), which made the DataPass marketing practice illegal. Orbitz stopped making the quarterly termination payments to Trilegiant. Trilegiant sued Orbitz in New York and a recent decision of the trial court (Supreme Court, New York County, Ramos, J.) granted Trilegiant summary judgment on 3 of Orbitz’s 17 affirmative defenses.
First, the court rejected Orbitz’s defense of lack of consideration. The court explained:
Orbitz contends that there had to be consideration for each quarterly termination payment and that Trilegiant's continued use of DataPass is necessary to its claim against Orbitz. Orbitz argues that the consideration for the termination payments was supposed to be Trilegiant's forfeit of potential earnings, earnings that Trilegiant cannot forfeit if it is not in the business of DataPass (see Orbitz's Memorandum of Law at 8-9).
The law does not support Orbitz's argument. It is well settled that an agreement "should be interpreted as of the date of its making and not as of the date of its breach" (X.L.O. Concrete Corp. v John T. Brady and Co., 104 AD2d 181, 184 [1st Dept 2009]). Additionally, "[i]f there is consideration for the entire agreement that is sufficient; the consideration supports every other obligation in the agreement" (Sablosky v Edward S. Gordon Co., 73 NY2d 133, 137 ). A single promise "may be bargained for and given as the agreed equivalent of one promise or of two promises or of many promises. The consideration is not rendered invalid by the fact that it is exchanged for more than one promise" (2-5 Corbin on Contracts § 5.12).
Considerations of public policy also support this conclusion, because a promisor should not be permitted to renege on a promise either because that specific promise lacks textually designated consideration or because the promisor wants to avoid performance of multiple obligations when the promisee has already performed and has no further obligations concurrent with the promisor's performance (see 15 Williston on Contracts §45:7 [4th ed.]).
While Orbitz contends that Trilegiant has been unable to forfeit earnings from new DataPass customers since it ceased the practice in January 2010, that fact has no bearing on whether there was consideration for the termination payment provision in the MSA. The termination payments were part of the original MSA (see MSA at Ex. B), and Trilegiant is correct when it asserts that the existence of consideration for the MSA itself, whether "consist[ing] of either a benefit to the promisor or a detriment to the promisee" (Weiner v McGraw-Hill, 57 NY2d 458, 464 ), is not a disputed material fact in this case.
Additionally, courts do not look to the adequacy of consideration provided that there was consideration, "absent fraud or unconscionability" (Apfel v Prudential-Bache Sec. Inc., 81 NY2d 470, 476 ). There are no allegations that the MSA was fraudulently agreed upon or that it is unconscionable. Further, this Court has already held that the termination payments in the MSA do not constitute a penalty or unenforceable liquidated damages (see NYSCEF Doc. No. 97 at ¶5, Order entered 12/24/2013).
As this Court has previously stated, if these sophisticated parties to the original MSA wanted Orbitz's promise to pay each quarterly termination payment to be contingent on Trilegiant's continued use of DataPass and subsequent forfeiture of revenues, they could have so stipulated in the MSA (see NYSCEF Doc. No. 89 at p 6, Entered 10/7/2013). This Court finds that Orbitz's promise to pay all quarterly termination payments is supported by the same bargained-for consideration given by Trilegiant in exchange for Orbitz's various promises in the MSA as a whole.
Second, the court rejected Orbitz’s argument that Trilegiant lacked standing because it could not show that it was “ready, willing and able” to perform its obligations. The court reasoned:
Orbitz argues that its early termination in 2007 triggered the MSA liquidated damages remedy and that even though Trilegiant was relieved of its obligation to perform it still had to show it was able. Orbitz further argues that Trilegiant has adduced "no evidence whatsoever to prove that it was ready, willing, and able to perform its obligations under the MSA as of the time Defendants stopped making payments in 2010" (Orbitz's Memorandum of Law at p 10).
Whether the remedy constitutes liquidated damages or a separate provision of the MSA that establishes new obligations for Trilegiant and Orbitz whereby Orbitz is obligated to make quarterly payments and Trilegiant essentially is obligated only to collect them, is irrelevant in light of the fact that Trilegiant claims only general damages, which "include money that the breaching party agreed to pay under the contract" (See Biotronik A.G. v Conor Medsystems Ireland, LTD 22 NY3d 799, 805,  citing Tractebel Energy Marketing, Inc. v AEP Power Marketing, Inc., 487 F3d 89, 109 [2d Cir 2007]).
Trilegiant is not required to show its ability to perform through September 30, 2016, the date of the final quarterly termination payment. Even if, arguendo, Trilegiant was required to show it could have performed its obligations under the MSA, Orbitz's argument that those obligations would have included an ability to perform DataPass is unpersuasive. Whether Exhibit B of the MSA constitutes liquidated damages or a separate provision of the contract, Trilegiant is not textually obligated to do anything except not market to Orbitz's customers.
Furthermore, liquidated damage clauses benefit both potential plaintiffs "who [are] relieved of the difficult, if not impossible, calculation of damage, item by item" and potential defendants "who [are] insulated against a potentially devastating monetary claim in the event" of a breach and "[t]hus, public policy is served by the implementation of such clauses" (X.L.O. Concrete Corp. at 186).
Finally, the court rejected Orbitz’s argument that Trilegiant violated a warranty provision in the MSA in which the parties promised that performance of the agreement did not violate any law. The court reasoned:
While Orbitz contends that Trilegiant and similar DataPass practitioners "violated the rights of millions of Americans" (Orbitz's Response at 13), ROSCA does not refer to the violation of consumers' "rights" when it describes the actions of third party sellers, such as Trilegiant, who purchased consumers' credit card information (15 U.S.C. §8401 at Sec. 2). ROSCA's findings instead refer to DataPass as something that undermined consumer confidence and "defied consumers' expectations" (id. at Sec. 2(7)).
This Court has already held that ROSCA does not make any violating contracts unenforceable and the MSA is enforceable despite DataPass being presently illegal (see NYSCEF Doc. No. 89 at p 5, Entered 10/7/2013). Moreover, as this Court has already explained, "the primary purpose of ROSCA was to protect consumers (15 U.S.C. §8401), not marketers that were using DataPass as a tool" (NYSCEF Doc. No. 89 at p 4, Order entered 10/7/2013, citing Lloyd Capital Corp. v Pat Henchar, Inc., 80 NY2d 124, 127 ).
Orbitz claims that Trilegiant has failed to show that it was not in violation of Section 6.1 of the MSA, based on the concept that an "express warranty is as much a part of the contract as any other term" (CBS, Inc. v. Ziff-Davis Pub. Co., 75 NY2d 496, 503 ).
A breach of warranty claim is established "once the express warranty is shown to have been relied on as part of the contract," and the claiming party then has "the right to be indemnified in damages for its breach [and] the right to indemnification depends only on establishing that the warranty was breached" (id. at 504).
Orbitz argues that there are disputed issues of fact as to Trilegiant's alleged breach of warranty, but Orbitz has not alleged damages for which it could be indemnified nor has it alleged any evidence of Trilegiant's breach of warranty that is not rooted in ROSCA's condemnation of DataPass. This Court has already held that ROSCA's enactment and findings do not relieve Orbitz from its obligations under the MSA, holding that "as a general rule also, forfeitures by operation of law are disfavored, particularly where a defaulting party seeks to raise illegality as a sword for personal gain rather than a shield for the public good" (NYSCEF Doc. No. 89 at p 4, Entered 10/7/2013, quoting Lloyd Capital Corp. at 128 [internal quotations omitted]).
Orbitz tries to use ROSCA's findings that DataPass was bad for consumers and the economy and Trilegiant's cessation of DataPass activity as evidence of conduct that would violate the MSA Section 6.1. These allegations do not create a question of fact. This Court has already held that "ROSCA does not provide that any violating contracts are rendered unenforceable or that its provisions were intended to apply retroactively" (see NYSCEF Doc. No. 89 at p 5, Entered 10/7/2013), and Trilegiant ceased DataPass almost a year before ROSCA made the practice illegal.
A case worth watching.
Trilegiant Corp. v. Orbitz, LLC, 2014 NY Slip Op 24230 (Sup. Ct. N.Y. Cty. Aug. 20, 2014)(Ramos, J.).
Monday, August 25, 2014
Towards the end of 2011, Barnes & Nobles (B & N) decided to liquidate its inventory of HP Touchpads (left), by offering them for sale at deep discounts at a "fire sale." Kevin Khoa Nguyen (Nguyen) acted quickly to take advantage of this opportunity and purchased two units through the B & N website. He first received an e-mail confirmation of the transaction and then an e-mail cancellation of the transaction due to unexpectedly high demand.
Nguyen argued that he did not read or otherwise have notice of B & N's terms and did not assent to them. The District Court agreed and denied B & N's motion to compel arbitration. In Nguyen v. Barnes & Noble Inc., the Ninth Circuit affirmed. In so doing, the Ninth Circuit began by explaining the difference between clickwrap and browsewrap contracts:
Contracts formed on the Internet come primarily in two flavors: “clickwrap” (or “click-through”) agreements, in which website users are required to click on an “I agree” box after being presented with a list of terms and conditions of use; and “browsewrap” agreements, where a website’s terms and conditions of use are generally posted on the website via a hyperlink at the bottom of the screen.
Over on the Technology and Marketing Law Blog, Venkat Balasubramani has a great post on this case called "What's a Browsewrap? The Ninth Circuit Sure Doesn't Know -- Nguyen v. Barnes & Noble. The post is less snarky than it might appear (or much more so), for as Eric Goldman's contribution to the post makes clear, nobody is able to draw sufficiently clear distinctions between clickwrap and browsewrap. Goldman suggests that the time has come to retire the clickwrap/browsewrap language entirely. Fortunately, our readers are far better informed than most courts about wrap contracts!
Wednesday, August 13, 2014
Today's New York Times features an article aptly titled (in the print version) "Under the Microscope." The article describes researchers' attempts to grapple with the ethical issues relating to projects such as Facebook's experiment on its users, about which we have written previously here and here. According to the article, researchers both at universities and at in-house corporate research departments are collaborating on processes to formulate ethical guidelines that will inform future research that makes use of users' information.
The article states that Facebook has apologized for its emotion experiment, in which it manipulated users' feeds to see if those users' own posts reflected the emotional tone of the posts they were seeing. It's not really clear that Facebook apologized for experimenting on its users. As quoted on NPR, here is what Facebook's Sheryl Sandberg said on behalf of the company:
This was part of ongoing research companies do to test different products, and that was what it was; it was poorly communicated . . . . And for that communication we apologize. We never meant to upset you.
As the Washington Post noted, Sandberg did not apologize for the experiement itself. Seen in its full context, Sandberg's statement is more akin to OKCupid's in-your-face admission that it experiements on its users, about which Nancy Kim posted here.
But the Times article focuses on Cornell University's Jeffrey Hancock, who collaborated with Facebook on the experiment. He seems to have no regrets. For Hancock, researchers' ability to data mine is to his field what the microscope was to chemists. Or, one might think, what the crowbar was to people doing research in the field of breaking and entering. Hancock is now working with people at Microsoft Research and others to lead discussions to help develop ethical guidelines applicable to such research.
The Times quotes Edith Ramirez, Chair of the Federal Trade Commission on the subject. She says:
Consumers should be in the driver’s seat when it comes to their data. . . . They don’t want to be left in the dark and they don’t want to be surprised at how it’s used.
By contrast, here is the Times's synopsis of Professor Hancock's views on how the ethical guidelines ought to be developed:
Companies will not willingly participate in anything that limits their ability to innovate quickly, he said, so any process has to be “effective, lightweight, quick and accountable.”
If the companies are subject to regulation before they can experiment on their users, it does not really matter whether or not they willngly participate. And the applicable standards have already been established under Institutional Review Board (IRB) rules. Significantly, as reported here in the Washington Post, although Professor Hancock works at Cornell, his participation in the Facebook study was not subject to Cornell's IRB review. In our previous posts, we have expressed our doubt that the Facebook study could survive IRB review (or that it yielded the information that it was supposedly testing for).
The Times article does not indicate that any of the people involved in devising rules for their own regulation have any expertise in the field of ethics. Why is letting them come up with their own set of rules in which they will "willingly participate" any better than expecting the wielders of crowbars to design rules for their safe deployment?
Wednesday, August 6, 2014
Wednesday, July 9, 2014
By Myanna Dellinger
Recently, I blogged here on Aereo’s attempt to provide inexpensive TV programming to consumers by capturing and rebroadcasting cable TV operators’ products without paying the large fees charged by those operators. The technology is complex, but at bottom, Aereo argued that they were not breaking copyright laws because they merely enabled consumers to capture TV that was available over airwaves and via cloud technology anyway.
In the recent narrow 6-3 Supreme Court ruling, the Courts said that Aereo was “substantially similar” to a cable TV company since it sold a service that enabled subscribers to watch copyrighted TV programs shortly after they were broadcast by the cable companies. The Court found that “Aereo performs petitioners’ works publicly,” which violates the Copyright Act. The fact that Aereo uses slightly different technology than the cable companies does not make a “critical difference,” said the Court. Since the ruling, Aereo has suspended its operations and posted a message on its website that calls the Court’s outcome "a massive setback to consumers."
Whether or not the Supreme Court is legally right in this case is debatable, but it at least seems to be behind the technological curve. Of course the cable TV companies resisted Aereo’s services just as IBM did not predict the need for very many personal computers, Kodak failed to adjust quickly enough to the digital camera craze, music companies initially resisted digital files and online streaming of songs. But if companies want to survive in these technologically advanced times, it clearly does not make sense to resist technological changes. They should embrace not only technology, but also, in a free market, competition so long as, of course, no laws are violated. We also do not use typewriters anymore simply to protect the status quo of the companies that made them.
It is remarkable how much cable companies attempt to resist the fact that many, if not most, of us simply do not have time to watch hundreds of TV stations and thus should not have to buy huge, expensive package solutions. Not one of the traditional cable TV companies seem to consider the business advantage of offering more individualized solutions, which is technologically possible today. Instead, they are willing to waste money and time on resisting change all the way to the Supreme Court, not realizing that the change is coming whether or not they want it.
Surely an innovative company will soon be able to work its way around traditional cable companies’ strong position on this market while at the same time observing the Supreme Court’s markedly narrow holding. Some have already started doing so. Aereo itself promises that it is only “paus[ing] our operations temporarily as we consult with the court and map out our next steps.”
Monday, July 7, 2014
H/T to Eric Goldman for sharing with the list a new case from Judge Lucy Koh of the federal district court of Northern California. Tompkins v. 23andMe provides a detailed analysis of 23andMe's wrap contracts. The case involves the same Terms of Service presented as a hyperlink at the bottom of the website's pages, and then later, post-purchase and at the time of account creation, as a hyperlink that requires a "click" in order to proceed (which I refer to as a "multi-wrap" as it's neither browsewrap nor clickwrap but a little of both). The court says the former presentation lacks notice, but the latter constitutes adequate formation. Eric Goldman provides a detailed analysis of the case here.
Not surprisingly, the Terms contained a unilateral modification clause which was briefly discussed in the context of substantive unconscionability. It was not, however, raised as a defense to formation, i.e. to argue that the promises made by 23andme were illusory.
Friday, July 4, 2014
Michelle Meyer (pictured) has a very detailed post on this subject over at The Faculty Lounge. Her approach is different from Nancy's, focusing narrowly (but thoroughly) on the question of whether an Institutional Review Board (IRB) could have approved the FB experiment. There Meyer arrives at a different conclusion than I think Nancy would arrive at. Meyer thinks an IRB could have and should have approved the FB experiment based on informed consent (although she recognizes that one could dispute whether such consent was actually present), and Nancy, I think correctly, questions whether there are very strong arguments that FB users knowingly agreed to this kind of experiment when they agreed to FB's terms.
Thursday, July 3, 2014
Such is the rhetorical power of a contract, even one that nobody reads.
They also say "your trust is important to us."
Did Facebook act in bad faith by manipulating users' data feeds? It's at least arguable that they did.
Now, about the research results - as far as what the results showed, I'm not sure that the study did prove that positive posts enhanced users moods (and vice versa). A user may have changed the nature of a post in order to conform to the prevailing mood, but that doesn't mean they actually felt happier. Positive posts from others might have forced users to "fake it" by writing more positive posts and vice versa. So I'm not convinced that the research refuted the claim that happy Facebook posts depressed some FB users...
Tuesday, July 1, 2014
The Duquesne Law Review recently published a symposium issue on "Contract Law in 2025" -- I've pasted links to the contributions below:
Drafting Our Future: Contract Law In 2025
The Future of Fault in Contract Law
Robert A. Hillman
Two Alternate Visions of Contract Law in 2025
Nancy S. Kim
The Future of Many Contracts
Victor P. Goldberg
A Eulogy for the EULA
Miriam A. Cherry
The Death of Contracts
Franklin G. Snyder & Ann M. Mirabito
Friday, June 27, 2014
Several months back, I blogged about KlearGear's efforts to enforce a $3500 nondisparagement clause in their Terms of Sale against the Palmers, a Utah couple that had written a negative review about the company. It was a case so bizarre that I had a hard time believing that it was true and not some internet rumor. Even though the terms of sale most likely didn't apply to the Palmers --or to anyone given the improper presentation on the website-- KlearGear reported the couple's failure to pay the ridiculous $3500 fee to a collections agency which, in turn, hurt the couple's credit score. The couple, represented by Public Citizen, sued KlearGear and a court recently issued a default judgment against the company and awarded the couple $306,750 in compensatory and punitive damages. Consumerist has the full story here.
Congratulations to the Palmers and Scott Michelman from Public Citizen who has been representing the couple. And let this be a warning to other companies who might try to sneak a similar type of clause in their consumer contracts....
Tuesday, June 10, 2014
By Myanna Dellinger
What would you say if you found out that Facebook used your kids’ names and profile pictures to promote various third-party products and services to other kids? Appalling and legally impossible as minors cannot contract? That’s just what a group of plaintiffs (all minors) attempting to bring a class action lawsuit against Facebook argued recently, but to no avail. Here’s what happened:
Kids sign up on Facebook, “friend” their friends and add other information as well as their profile pictures. Facebook takes that information and display it to your kids’ friends, but alongside advertisements. The company insists that they do “nothing more than take information its users have voluntarily shared with their Facebook friends, and republish it to those same friends, sometimes alongside a related advertisement.” How does this happen? A program called “Social Ads” allows third parties to add their own content to the user material that is displayed when kids click on each other’s information.
The court dismissed the complaint, finding no viable theory on which it could find the user agreements between the kids and Facebook viable. In California, where the case was heard, Family Code § 6700 sets out the general rule for minors’ ability to contract: “… a minor may make a contract in the same manner as an adult, subject to the power of disaffirmance.” The plaintiffs had argued that as a general rule, minors cannot contract. That, said the court, is turning the rule on its head: minors can, as a starting point, contract, but they can affirmatively disaffirm the contracts if they wish to do so. In this case, they had not sought to do so before bringing suit.
Plaintiffs also argued that under § 6701, minors cannot delegate their power to, in effect, appoint Facebook as their agent who could then use their images and information. Wrong, said the court. Kids signing up on Facebook is “no different from the garden-variety rights a contracting party may obtain in a wide variety of contractual settings. Facebook users have, in effect, simply granted Facebook the right to use their names in pictures in certain specified situations in exchange for whatever benefits they may realize from using the Facebook site.”
In its never-ending quest to increase profits, Corporate America once again prevailed. Even children are not free from being used for this purpose. The only option they seemed to have had in this situation would have been to disaffirm the “contract;” in other words, to stop using Facebook. To me, that does not seem like a difficult choice, but I imagine the vehement protests instantly launched against parents asking their kids to stop using the popular website. Of course, kids are a highly attractive target audience. Some already have quite a bit of disposable income. They are all potential long-time customers for products/services not directed only at kids. Corporate name recognition is important in connection with this relatively impressionable audience. But is this acceptable? After all, there is an obvious reason why minors can disaffirm contracts. This option, however, would often require intense and perhaps undesirable parent supervision. In 2014, it is probably unreasonable to ask one’s kids not to be on social media (although the actual benefits of it are also highly debatable).
Although the legal outcome of this case is arguably correct, its impacts and the taste it leaves in one’s mouth are bad for unwary minors and their parents.
Tuesday, May 27, 2014
Law and Society Association's Annual Meeting is only a few days away. There will be an Author Meets Reader Salon on my book, WRAP CONTRACTS on Friday, 5/30, 8:15am-10:00am in the Duluth Room. Shubha Ghosh (Wisconsin), Danielle Kie Hart (Southwestern) and Juliet Moringiello (Widener) will be joining me in what promises to be a lively discussion about those pesky clickboxes and pop-ups on your screens. If you are attending the meeting, please stop by and join us!
Saturday, May 24, 2014
"You can stop using our Services at any time, although we’ll be sorry to see you go. Google may also stop providing Services to you, or add or create new limits to our Services at any time."
and this unilateral modification clause:
"We may modify these terms or any additional terms that apply to a Service to, for example, reflect changes to the law or changes to our Services. You should look at the terms regularly. We’ll post notice of modifications to these terms on this page. We’ll post notice of modified additional terms in the applicable Service. Changes will not apply retroactively and will become effective no sooner than fourteen days after they are posted. However, changes addressing new functions for a Service or changes made for legal reasons will be effective immediately. If you do not agree to the modified terms for a Service, you should discontinue your use of that Service."
Sunday, May 18, 2014
By Myanna Dellinger
Recently, Jeremy Telman blogged here about the insanity of having to pay for hundreds of TV stations when one really only wants to, or has time to, watch a few.
Luckily, change may finally be on its way. The company Aereo is offering about 30 channels of network programming on, so far, computers or mobile devices using cloud technology. The price? About $10 a month, surely a dream for “cable cutters” in the areas which Aereo currently serves.
How does this work? Each customer gets their own tiny Aereo antenna instead of having to either have a large, unsightly antenna on their roofs or buying expensive cable services just to get broadcast stations. In other words, Aereo enables its subscribers to watch broadcast TV on modern, mobile devices at low cost and with relative technological ease. In other words, Aereo records show for its subscribers so that they don’t have to.
That sounds great, right? Not if you are the big broadcast companies in fear of losing millions or billions of dollars (from the revenue they get via cable companies that carry their shows). They claim that this is a loophole in the law that allows private users to record shows for their own private use, but not for companies to do so for commercial gain and copyright infringement.
Of course, the great American tradition of filing suit was followed. Most judges have sided with Aero so far, the networks have filed petition for review with the United States Supreme Court, which granted the petition in January.
Stay tuned for the outcome in this case…
Monday, May 12, 2014
Today is later, and cleaning out my inbox is one way I take a break from term-end grading. Here is part of the e-mail:
- We’re adding an arbitration section to our updated Terms of Service. Arbitration is a quick and efficient way to resolve disputes, and it provides an alternative to things like state or federal courts where the process could take months or even years. If you don’t want to agree to arbitration, you can easily opt out via an online form, within 30-days of these Terms becoming effective. This form, and other details, are available on our blog.
D'oh. If I had read this when I got it, I could have opted out of the arbitration policy! Today, when I tried to click on the opt-out link, I got a screen that said, in effect, "Sorry sucker, you missed the boat!" I had already accepted the new terms of service, including the arbitration clause, by using Dropbox for 30 days without reading the e-mail. If anybody has attempted to opt out, please share your experience. I really wonder how easy it is to opt out or if Dropbox is just counting on people not to bother.
Fortunately, most of Dropbox's terms are pretty reasonable as such things go. Dropbox will pay all fees on claims under $75,000 and will pay a $1000 bonus to anybody who wins an arbitral award in excess of Dropbox's settlement offer. Dropbox promises not to seek its own fees and costs unless the arbitrator determines that the claim is frivolous. There are also exceptions to the arbitration provision for small claims and for injunctive relief, but the latter would have to be brought in San Francisco. There is also the now-unavoidable ban on class actions, as well as consolidated or representative actions.
Monday, March 3, 2014
My student, Sam Henderson (who blogs here), directed my attention to this report on the Legal Informatics Blog about blockchain contracting and conveyancing systems. Blockchain technology is apparently one of the many things that makes Bitcoin transactions foolproof, genius-proof, and completely impervious to rampant speculation, financial catastrophe and the bankruptcy of major dealers in the virtual currency. So, like Bitcoin itself, applying blockchain technology could only democratize and decentralize commercial law, or so maintains this blog post on Thought Infection.
What a strange idea.
Contracts are private legislation. They are already about as democratic and decentralized as they could possibly be. Sure, they are governed by the relevant laws of the relevant jurisdictions, but blockchain technology would not change that. In any case, the law of contracts already permits the parties to choose the law that will govern them (within reason), so that's pretty decentralized and democratic.
What is not democratic and decentralized about commercial law is the fact that contracts tend to be drafted by the powerful and imposed upon people as take-it-or-leave it deals through form contracting. Given the complexity of the technologies associated with Bitcoin, it seems unlikely that adding layers of technology to commercial law would render it more democratic and less centralized.
Unfortunately, Thought Infection's post is misinformed about contracts. He writes
Whereas today contracts are restricted to deals with enough value to justify a lawyers time (mortgages, business deals, land transfer etc…), in the future there is no limit to what could be codified into simple contracts. You could imagine forming a self-enforcing contract around something as simple as sharing a lawnmower with your neighbor, hiring a babysitter, or forming a gourmet coffee club at work. Where this could really revolutionize things is in developing nations, where the ability to exchange small-scale microloans with self-enforcing contractual agreements that come at little or no cost would be a quantum leap forward.
Here are the problems with this as I see it:
- Contracts are not restricted; they are ubiquitous;
- Contracts do not require lawyers; they are formed all the time through informal dealings that are nonetheless legally binding so long as the requisite elements of contract formation are present;
- To some extent, Thought Infection's imagined contracts already are contracts, and to the extent that they are not contracts it is because people often choose to form relationships that are not governed by law (e.g., do you really want to think about the legal implications of hiring a baby sitter -- taxes, child-labor laws, workman's comp . . . yuck!); and
- Microloans are already in existence, and the transactions costs associated with contracts do not seem to be a major impediment.
Look, I'm not a Luddite (I blog too), but I also don't think that technology improves our lives with each touch. Technology usually makes our lives more efficient, but it can also make our lives suckier in a more efficient way. Technology does not only promote democracy and decentralization; it also promotes invasions of privacy by the panopticon state and panopticon corporations or other private actors, reification of human interactions, commidication and alienation. It has not helped address income disparity on the national or the global scale, ushered in an era of egalitarian harmony overseen by benevolent governments or pastoral anarchy.
As to contracts specifically, however, there are lots of ways to use technology that are available now and are generally useful. Last week, we discussed Kingsley Martin's presentation at KCON 9. Kingsley has lots of ideas about how to deploy technology to improve sophisticated contracting processes. But for the more mundane agreements, there is a nifty little app that a couple of people mentioned at KCON 9 called Shake. For those of you looking for a neat way to introduce simple contracts to your students, or for those of you who want to make the sorts of deals that Thought Infection thinks we need blockchain to achieve, Shake is highly interactive, fun and practical.
Friday, February 21, 2014
Kingsley Martin of KM Standards gave a luncheon address on "The Emergence of Contracts Standards and Its Future Impact on Legal Education." He introduced us to some very impressive technology that can greatly increase the efficiency with which practicing attorneys review standard agreements. Here's what it looked like:
This technology enables an attorney to review a new document, say a merger agreement, by comparing it to a database of say 15 similar documents. It immediately identifies the provisions that are similar to those found in the database, those found in the new document and not in the database, and those not found in the new document but common in other, similar agreements. An attorney can then quickly pinpoint what is missing from the document and might need to be added and what unusual provisions might regard careful scrutiny.
More particularly, the technology can also use the database to identify the most common language used in standard provisions and also variations in standard provisions so that one can see the range of how parties work out standard terms and pick out the language that is best suited for a particular deal.
The steps are to identify the unitary elements of standard form agreements, identify the clauses components and then draft clauses in clear, standard English. Ultimately, Martin thinks that such the technology can help attorneys negotiate optimal terms. For example, if you are trying to find optimal compensation in an employment agreement at a public company, you could go on to EDGAR and get all the filings that disclose compensation terms. The parties then should be able to discern from the data an appropriate compensation package.
How might this affect teaching? He thinks his basic contracts clauses could be reduced to playing cards. One might then run various simulations with students (or one could just choose to characterize the exercise as a "game" that they students "play"). The students can then choose and negotiate using the various cards and see if they can work out a satisfactory deal. Or they may not be able to achieve a satisfactory deal through the use of common terms, and then the challenge is to see if they can draft unique language suitable to their ends.
Anyone interested in seeing what the cards might look like can check them out here.
Tuesday, January 21, 2014
After a night on the town, you decide to hire not a traditional taxi company, but rather a new and similar service provider that uses third-party private drivers operating their individually owned, unmarked cars and smart application payment technology. The app says, “Gratuity is included.” Would you expect the tips you give to go in full to the drivers or for the tips to be shared with the taxi-like company? Probably the former, although tipping tactics and expectations seem to be changing.
The question of whether the drivers in the above situation have a viable claim to the full amount of the tips will soon be resolved in California in O’Connor v. Uber Techs, 2013 BL 338258 (N.D. Cal. Dec. 5, 2013). After determining that no implied-in-fact contract can be said to exist between the drivers and the taxi-like company “Uber,” the court so far determined that Uber and its passengers may have entered into an implied agreement regarding the tips from which the drivers were ultimately intended to benefit as third parties to the contract between Uber and passengers.
In the USA, tipping is widely considered a fair way for service personnel to earn a more decent living than if they had to rely on base salaries. This intersects with the current debate about whether the federal minimum wage should be increased. According to recent CNN TV news, if salaries reflected the productivity levels of United States workers, the minimum salary should be $28/hr. It is currently $7.25.
But what about consumers? Tipping seems to rising more rapidly than both salaries and inflation rates in general. Not long ago (ten years or so), tipping 10% in restaurants was considered the norm, at least in California and parts of the Western USA. Now, food servers, the drivers in the above case and undoubtedly others expect 20%; a 100% increase in ten years or so. Many Los Angeles restaurants have begun to automatically add this 20% gratuity to their guest checks (some still leaving an additional line open for tips…). In comparison, the average inflation rage was 2.5% per year over the past ten years. During the 12-month period ending November 2013, inflation was 1.2%. Of course, salaries may be a more accurate yardstick. According to the Social Security Administration’s Average Wage Index, salaries increased by approximately 33% over the past ten years (approx. 3% from 2011 to 2012).
To be sure, service personnel and other workers deserve a decent income for their efforts in a wealthy, industrialized nation such as the USA. The question is whether the burden of this should be placed on consumers in the form of more or less “hidden” costs such as tax and tips in somewhat uncertain amounts or whether the employers should be expected to more openly list the true bottom-line costs of their services as is the case in other nations. A better route may be to increase the federal minimum salary to the much-discussed (e.g., here) “living wage.” At a minimum, it would seem that all tips given should go to the workers and not be a mere way for companies to award themselves more money.
Assistant Professor of Law
Western State College of Law
Thursday, January 9, 2014
Only one article this week:
But also a new book:
Contract Law and Contract Practice: Bridging the Gap Between Legal Reasoning and Commercial Expectation
By Catherine Mitchell
An oft-repeated assertion within contract law scholarship and cases is that a good contract law (or a good commercial contract law) will meet the needs and expectations of commercial contractors. Despite the prevalence of this statement, relatively little attention has been paid to why this should be the aim of contract law, how these 'commercial expectations' are identified and given substance, and what precise legal techniques might be adopted by courts to support the practices and expectations of business people. This book explores these neglected issues within contract law. It examines the idea of commercial expectation, identifying what expectations commercial contractors may have about the law and their business relationships (using empirical studies of contracting behaviour), and assesses the extent to which current contract law reflects these expectations. It considers whether supporting commercial expectations is a justifiable aim of the law according to three well-established theoretical approaches to contractual obligations: rights-based explanations, efficiency-based (or economic) explanations and the relational contract critique of the classical law. It explores the specific challenges presented to contract law by modern commercial relationships and the ways in which the general rules of contract law could be designed and applied in order to meet these challenges. Ultimately the book seeks to move contract law beyond a simple dichotomy between contextualist and formalist legal reasoning, to a more nuanced and responsive legal approach to the regulation of commercial agreements.
Catherine Mitchell is a Reader in Law at the University of Hull.
December 2013 308pp Hbk 9781849461214 RSP: £50 / €65
Discount Price: £40 / €52
Hart Publishing is delighted to offer you 20% discount.
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Monday, December 2, 2013
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."