ContractsProf Blog

Another Fact Pattern on Mistake: The Harvard Magna Carta

The last five years have been rich in mistake cases. In 2025, there was the N.C. Wyeth painting bought at a thrift shop for $4.  In 2024, we brought news of a rare African mask sold in France for €150, and of a rare brooch bought at an arts fair for $35 . In 2023, there was a scrivener’s error case involving some heavily discounted earrings, and we had a guest post by Jeff Lipshaw about a scrivener’s error in an employment agreement. The First Circuit recently reversed and remanded that decision, so expect another post soon. 2021 brought us a trio of cases. There was a drawing by Albrecht Dürer bought at an estate sale for $30, doors from the Chelsea hotel saved from the scrapheap and sold for $400,000, and  the case a Ming Dynasty Chinese bowl bought for $35 at a garage sale. 

There are two lessons to learn here. First, if you are looking to pick up something really valuable at an art fair, an estate sale, or a garage sale, $30-$35 seems to be the pricing sweet spot for accidentally buying an invaluable masterpiece or rare specimen. Second, mistake doctrine is rarely a basis for unwinding a transaction, even when there are good policy reasons for doing so. A few more cases, and I think I will have the makings of a seminar on mistake.

And so we come to the story of the recent discovery that, as reported in Harvard Law Today, Harvard University bought an “original" Magna Carta in the 1940s for $27.50. Given that the typical price range for hidden treasures is $30-35 in current dollars and adjusting for inflation, I think Harvard got taken. Scholars from London College and the University of East Anglia have established that Harvard’s version is one of seven surviving original copies from Edward I’s issue of Magna Carta from 1300. 

As is often the case with such mistake cases, much of it is bewildering. Harvard bought the document from a London book dealer, which bought the document from a British war hero (though Sotheby’s). Someone (probably Sotheby’s) dated the document to 1327 and it was described in the auction catalogue as "somewhat rubbed and damp-stained.” I wonder: a) how a war hero ended up with such a rare document; b) how Sotheby’s (or whoever) missed that the document was an Edward I original; c) how nobody at Harvard even thought to check up on the provenance of the document; and d) why 27 years differentiate something that we would now value in the hundreds of dollars from something that we should consider “priceless.” The story from Harvard Law Today provides a partial explanation for a) but not for the rest.

The story does not explain why the Edward I (right, known as Longshanks) issue of Magna Carta is especially valuable. After all, if Wikipedia is to be believed, four copies of the original manuscript from 1215 still exist and there are numerous other thirteenth century “exemplifications.” 

The basis for concluding that the manuscript is an Edward Longshanks original seems pretty straightforward. I’m sure there’s more to it than this, but the reporting suggests that it is an original because it is the right dimensions, uses the same handwriting, and has no mistakes in it. Why it is inconceivable that someone came along 27 years after Edward I’s originals were issued and made a perfect copy eludes me. I thought there were super-scientific processes whereby some one takes a few fibers of the original manuscript and establishes that they could only have come from King Edward’s preferred parchment provider, which shuttered its premises in 1301. If such an analysis has not been undertaken, color me skeptical, and I am free to express may skepticism thanks to Magna Carta.

The Bureau of Labor Statistics’ Problem with Super Users and Disclosure

Today, for the last time, I think, I am returning the first episode of the Money Stuff Podcast, featuring  Matt Levine and Katie Greifeld. The one segment of that first episode about which I have not yet written was dedicated to a bit of a scandal at the Bureau of Labor Statistics (BLS), an agency that does not regularly make for splashy news stories.

Ben Casselman and Jeanna Smialek reported on the story in The New York Times in April 2024. Yes, I’m a bit behind on my BLS news, but who isn’t? Stick with me, I have a pedagogical point to make here. 

It appears that a long-term, not particularly high-ranking economist at the BLS was getting a lot of follow-up questions when the BLS issued reports on inflation rates. A public servant, the economist was happy to field the questions, and because the questions often came from the same individuals and entities, sophisticated Wall Street traders for whom granular information about inflation data could be very valuable, he set up an e-mail list, dubbed "Superusers.” When word of the Superusers list leaked out, Wall Street was overcome with FOMO, with a dash of suspicion of insider trading. 

The BLS economist seems to have been pretty scrupulous. He did not favor his Superusers with early disclosures. He would refuse to answer queries that would force him to reveal non-public information. At times, he may have crossed the line, unintentionally revealing non-public information about BLS methodology. But there is balance in the universe. Sometimes the BLS economist made mistakes and shared explanatory theories that he later had to retract. 

The BLS faced another scandal later in August 2024, which The Money Stuff podcast covered in their “Pick Up the Phone” episode. Having learned its lesson from the Superusers affair, the BLS planned to release jobs data to the entire world by posting it on its website. Ben Casselman and Jeanna Smialek, The New York Times’ Senior BLS reporters, were once again on the case. They reported that the release of the information through the website was delayed. Perhaps the server crashed because so many nerds tried to access it at the same time. Superuser-types, very eager for the information, called the BLS, and true to the ethos of public servants, people at the BLS shared the information with the callers, thinking it was public. 

Okay. This is all sub-optimal, and the folks at BLS should have known it. They need to find a way to collect all of the questions from the Superusers and then answer them in a document released to the public. And soon after the second incident, the BLS instituted changes to ensure that backups functioned so that new information went up on the website more seasonably. 

I’m devoting time to this non-contracts subject matter to make a point about the duty to make disclosures in the contractual context and the difference between a mistake of judgment and a mistake of fact. The line can be difficult to draw between the two, but I think there is an economic principle that should help us sort out them out. Sometimes it comes down to the Money Stuff insight: pick up the phone! As a general matter, if you can get the information by picking up the phone (or some similarly simple action), it doesn’t need to be disclosed. It is the kind of information on which people can and should legally trade. The law rewards economic actors for ordinary, as well as extraordinary, diligence. More on the latter below.

My rule of thumb in the mistake context is that the party in possession of the res (subject matter) of the contract is generally the party best positioned to avoid the risk of mistake. The exception is when the buyer has expertise that the seller lacks (e.g., Wood v. Boynton) and is thus better positioned to discover the mistake. But what if that person is in possession of non-public information that can have a dramatic impact on the value of the res. E.g., I am interested in your pasture land because I have done a geological survey and discovered that there are likely valuable minerals beneath the surface.

In that case, seller is in possession of the property but could not easily acquire the relevant information. A phone call won’t do it. It seems unfair, but seller is likely going to sell the property for les than its true or potential value if the property is put to its best use. But this is how the economy grows. We need to incentivize people to maximize the value of chattels, property, and intangibles. If they had to disclose everything they had discovered about the res, the res would not flow to the people or entities that can maximize its value. Even if we know for a fact that there are valuable minerals beneath the property, it is better to treat the owner’s mistake as a mistake of judgment, as the buyer is still speculating on their ability to extract and market the minerals. 

And so, I am inclined to treat the disappointment of people who did not make it onto the Superusers list as FOMO and not insider trading. All they had to do was ask. The people who did so were rewarded, and they deserved to be. Mind you, that doesn’t mean that the BLS should be in the business of creating winners and losers in the marketplace, but I do find it charming that BLS employees were so willing to answer the questions from anyone who would bother to pick up the phone and call.

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for May 20, 2025

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 21 Mar 2025 - 20 May 2025

Rank	Paper	Downloads
1.	We Built Judge. AI. And You Should Buy It Jack Kieffaber, Kimo Gandall and Kenny McLaren Harvard University - Harvard Law School, Harvard University, Harvard Law School and Harvard University - Harvard Law School	1,441
2.	A Theory of Complexity Aversion Xavier Gabaix Harvard University - Department of Economics	445
3.	Are Equitable Remedies Discretionary? Timothy Liau and Alexander Georgiou London School of Economics - Law School and affiliation not provided to SSRN	384
4.	Propertising Contract: Two Kinds of Property and Two Kinds of Transfer Kelvin F.K. Low and Chee Ho Tham The University of Hong Kong - Faculty of Law and Singapore Management University - Yong Pung How School of Law	252
5.	The Form Knows Best Tara Chowdhury, Faith Chudkowski and Mitu Gulati University of Virginia - School of Law, University of Virginia School of Law and University of Virginia School of Law	232
6.	Exit Consents in a Liability Management World Dennis Jenkins Willkie Farr & Gallagher LLP - Willkie Library	227
7.	The Hidden Nature of Regulation Sharon Yadin The Max Stern Yezreel Valley College	206
8.	INTERNATIONAL COMMERCIAL COURTS 'MADE IN GERMANY': ATTRACTIVE ALTERNATIVE FOR BIG BUSINESS? Giesela Ruhl and Nicolas Dewitte Langenfeld Humboldt University of Berlin and Humboldt University of Berlin - Faculty of Law	187
9.	Protecting Consumers in a Post-Consent World Mark A. Lemley Stanford Law School	176
10.	Recommender Systems as Commercial Speech: A Framing for US Legislation Andrew West, Claudio Novelli, Mariarosaria Taddeo and Luciano Floridi Yale University - Digital Ethics Center, Yale University - Digital Ethics Center, University of Oxford - Oxford Internet Institute and Yale University - Digital Ethics Center	160

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 21 Mar 2025 - 20 May 2025

Rank	Paper	Downloads
1.	We Built Judge. AI. And You Should Buy It Jack Kieffaber, Kimo Gandall and Kenny McLaren Harvard University - Harvard Law School, Harvard University, Harvard Law School and Harvard University - Harvard Law School	1,442
2.	Are Equitable Remedies Discretionary? Timothy Liau and Alexander Georgiou London School of Economics - Law School and affiliation not provided to SSRN	384
3.	The Form Knows Best Tara Chowdhury, Faith Chudkowski and Mitu Gulati University of Virginia - School of Law, University of Virginia School of Law and University of Virginia School of Law	232
4.	Consumer Vulnerability: A Genealogy Mateusz Grochowski Tulane University School of Law	103
5.	Resolving Civil-Commercial Disputes through Mediation in Pakistan: Legal Framework, Sector-Specific Application, and Digital Trends Daniyal Shoukat Wakalat Online LLP	87
6.	Bankruptcy as a National Security Risk Jason Jia-Xi Wu Harvard University, Harvard Law School	81
7.	Liberal Contract Theory -- Part 1 of Freedom of Contract Michael Heller and Hanoch Dagan Columbia University - Columbia Law School and University of California, Berkeley - School of Law	80
8.	Fiduciary Standards James Toomey University of Iowa - College of Law	73
9.	Remoteness of Damage in Contract Nicholas McBride University of Cambridge - Faculty of Law	67
10.	Consumers' Unreasonable Textual Expectations David A. Hoffman University of Pennsylvania Carey Law School	65

AI Hallucinations Continue, Affecting Even BigLaw

Thanks to Eric Goldman (left), of Santa Clara Law School and the Technology and Marketing Law Blog fame, for sharing the case. 

The Special Master in Lacey v. State Farm General Insurance Co. wastes no time getting straight to the point: Referencing the attorneys’ use of artificial intelligence (AI) in the form of large-language models, the court noted that the attorneys representing plaintiff submitted briefs containing “bogus AI-generated research.” The court imposed litigation sanctions against plaintiff and financial penalties against the attorneys involved. One third of the twenty-seven citations in a ten-page letter brief submitted to the Special Master were faulty in some way.  Two cited cases did not exist; citations to existing cases were invented. The dread AI hallucination strikes again.

A Malfunctioning ChatBot, Image by DALL-E

This time, the victims were not harried solo practitioners. The plaintiff was represented by a team of attorneys at two firms. One attorney generated a draft brief with the aid of AI. Other attorneys incorporated that draft brief into their submission without checking any citations. Nobody asked, and the attorney who provided the original draft did not volunteer the key detail that his draft was AI-assisted. The other attorneys behaved no better than the original malfeasor. Offered the opportunity to revise their submission, they offered up another brief that still included AI-generated errors, and they did not avail themselves of the opportunity to admit their earlier misplaced reliance on AI.

The Special Master sanctioned the attorneys by having them cover the costs of the proceedings, which came to over $26,000, plus $5000 of defense attorneys’ fees. Because the attorneys confessed their misconduct and expressed genuine remorse, the Special Master refrained from recommending any further discipline.

A New Private Law Substack, Geeta (Gigi) Tewari’s Defining Money

Geeta Tewari, whose work we have previously featured on the Blog here and here, has launched a new Substack. Each week, Defining Money provides a simple definition of a finance or business law term with a creative story or example. The purpose of this new blog is to help others overcome financial apprehension in a fun, manageable way.

Head on over and check it out!

Friday Frivolity: Future Citibank Trader Buys 50,000 Lollipops

Citibank has been in the news a couple of times in the past few years because its complex protocols and lack of software safeguards have led to costly mistakes. We had a lot of fun with $900 million of misdirected payments back in 2021. Eventually Citibank got its money back on that one. Last year, as Dylan Sloan reported in Fortune Magazine, Citibank fired a trader who accidentally sold 58 million equity shares when he meant to sell $58 million in shares. As a result of this “fat finger” incident, Citibank dumped $444 billion in shares, causing a bit of market chaos. Citibank had to pay a $79 million fine for that mistake, which also cost it $48 million in losses at the time, and it apparently cost the trader his job. Well, he’s a legend. Rumor has it he is at work on moving markets through manipulation of tariff rates now. Even more impactful!

But move aside, anonymous Citibank trader! Make room for Liam, who is only eight, but is already negotiating highly leveraged transactions in the confectionary industry. As Christine Hauser reports in The New York Times, Liam had intended merely to place 70,000 Dum-Dums in his family’s Amazon shopping cart, awaiting budgetary approval to exercise his option from the higher ups. But little Liam had fat-fingered his way to the purchase of 50,000 lollipops before an ordinary in-house audit performed by his mother disclosed that the family’s checking account was overdrawn. 

Unfortunately, the family comptroller, one Holly LaFavers, is not Citibank. The purchase was made through Amazon, and it could not be unwound. She attempted resale of the goods on the secondary market via Facebook. Her post caught the attention of local news media, percolating up to The Old Gray Lady and then outward to places as unlikely as this Blog. Shamed out of its corporate mantra of “Sorry, nothing we can do,” Amazon offered Ms. Lafavers a refund, and then Ms. LaFebers gave away the candy to well-wishers and local charities, much to the delight of local dentists, whose investments in cavity futures really paid off.

But this is no mere feel-good story. There’s a serious message for you parents out there: password protect your websites, and don’t share your passwords, especially not with little LLF2017.

The New York Times on Zombie Contracts

We’ve been trying to follow the work of the new Department of Government Efficiency (DOGE). Back in March, we posted about DOGE’s somewhat mysterious claim that it was “cancelling” contracts and leases. As we noted, most parties cannot “cancel” a contract. Unilateral cancellation of a contract is a breach. This is the government, so things are different, but not that different. Parties with the resources and the patience can pursue administrative remedies when the government wrongfully terminates a contract. 

Last week, David A. Fahrenthold and Jeremy Singer-Vine wrote in The New York Times about what they have called "zombie contracts,” that is, contracts that DOGE supposedly cancelled that were reinstated. Sometimes the reinstated contracts are expanded or extended, rendering them more expensive than they were before.

This is fairly small potatoes. The Times has identified 44 zombie contracts, and the total value of the contracts is $220 million. According to its website, DOGE claims to have saved taxpayers $165 billion, which would be impressive if true, but is still, by my math, only 16.5% of its goal of shaving $1 trillion from the federal budget of $7 trillion in a few months. Of course, as chronicled elsewhere, DOGE has taken credit for cancelling contracts that had already been shut down by previous administrations, or it has claimed to have cancelled contracts when it really was just not renewing them. According to BBC Verify, only $61.5 billion in savings have been itemized, and despite the “Wall of Receipts," there are receipts accounting for just over half that amount. 

The existence of zombie contracts should surprise nobody. Just as with Twitter, Elon Musk’s strategy is to cut everything that seems to him wasteful and then to backfill when he discovers that the cuts have gone too far. And you can easily imagine how they might become overzealous. For example, listen to this DOGE employee, best known as “BigBalls,” explaining how he discovered waste. 

DOGE may not be as transparent as it claims to be, but its employees certainly are. They are tireless, they are dedicated, and they are uniform in their ideology. They believe that they are serving their country, and they are making personal sacrifices to do so. They are convinced that the people who work at the agencies that they are demolishing are engaged in systematic waste, fraud, and abuse. They think that they are uncovering $20 million outlays for which there is no evidence of purpose and no accountability. I’m afraid that simply doesn’t track. The receipts on the "wall of receipts” are for actual things. What I see when I watch the video is people who do not understand a system assuming the worst about that system and thus concluding that the things that they don’t understand are simply unnecessary.

It seems that many of the reinstated contracts that The Times has identified were reinstated because DOGE discovered either that they were required by law or that they were for essential services that the agencies could not accomplish on their own. It strikes me as quaint that the administration is reinstating contracts just because it would be illegal to cancel them. More recently, under its very robust version of the unitary executive theory, the administration seems to operate on the principle that the President can terminate any program or agency within the executive branch, notwithstanding the Take Care Clause.

But the real story here is not the zombie contracts or the elimination of waste, fraud, and abuse. The real story is the reduced footprint of the federal government. Whether or not DOGE becomes a permanent fixture in our government, many government programs have been shuttered, and they will not be immediately revived, at least not in their current forms. It may be that states and private entities will take up the work that the government used to do. That decentralization will no doubt give rise to its own inefficiencies, if not new forms of waste, fraud and abuse. 

Brave new worlds.

UPDATE: The two New York Times journalists cited above have published a follow-up on their earlier article. Some of the zombie contracts had been removed from DOGE’s list of its accomplishments. Some remain on the list. Meanwhile, DOGE added 800 new “cancelled” contracts to the list and claimed an additional $5 billion in “savings."

ProPublica & Tennessee Lookout Report on Pay Day Lending in Tennessee

ProPublica has a long expose about a product called Flex Loan, legal in Tennessee since 2015. The reporting was a joint effort with Tennessee Lookout. Since the invention of the Flex Loan, which allows the lender to collect interest at a 279.5% annual rate, Advance Financial, a leader in Flex Loan lending, has sued 110,000 residents of Tennessee. In one county, it has filed one law suit for every 32 residents. Because the Tennessee legislature permits the collection of attorneys’ fees in such suits, suing indebted clients is a great business model, especially when 40% of the judgments result in wage garnishments.

The cases are pretty easy to win. Advance Financial’s clients can’t afford attorneys. Often, the clients do not show up and are subject to default judgments. When they do show up, they often settle, agreeing to new payment plans that prolong their indebtedness. Since 2015, Advance Financial has won $200 million in judgments. If a client has a lawyer, a court might reduce fees based on unconscionability.

Other states were quick to see the catastrophic consequences of allowing this scheme. The Flex Loan gets around usury laws by charging 24% interest plus a 0.7% “fee” for every day the loan is not paid. The federal government characterizes the fees as interest; Tennessee does not. Virginia launched an investigation of Advance Financial in 2020 and eventually labeled the company a “predatory lender.” California and North Dakota soon capped interest rates on open-ended lines of credit, presumably characterizing the “fees” as interest, thus reining in the Flex Loans. 

Why doesn’t Tennessee see the fees as interest? Perhaps because the payday lenders have paid a combined $5.5. million since 2014 on lobbying and campaign donations in Tennessee. Of course, federal regulators, such as the Consumer Financial Protection Bureau (CFPB) could step in, but the payday lenders have also contributed $3 million to the President’s camapaign, which means he is probably on the side of lenders.

Certainly, the President has not supported CFPB efforts to regulate the industry. During his first administration, the CFPB director rescinded most CFPB regulations of the payday lending in 2020. More recently, as discussed here, the current CFPB director has attempted fire 90% of the agency’s employees. Perhaps the work of the ProPublica and Tennessee Lookout will call attention to the subject. Perhaps Tennessee’s regulators will be moved to act. Certainly, the federal government is not going to do anything to help struggling Americans in the next four years.

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for May 13, 2025

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 14 Mar 2025 - 13 May 2025

Rank	Paper	Downloads
1.	We Built Judge. AI. And You Should Buy It Jack Kieffaber, Kimo Gandall and Kenny McLaren Harvard University - Harvard Law School, Harvard University, Harvard Law School and Harvard University - Harvard Law School	1,378
2.	A Theory of Complexity Aversion Xavier Gabaix Harvard University - Department of Economics	407
3.	Are Equitable Remedies Discretionary? Timothy Liau and Alexander Georgiou London School of Economics - Law School and affiliation not provided to SSRN	373
4.	Propertising Contract: Two Kinds of Property and Two Kinds of Transfer Kelvin F.K. Low and Chee Ho Tham The University of Hong Kong - Faculty of Law and Singapore Management University - Yong Pung How School of Law	234
5.	Exit Consents in a Liability Management World Dennis Jenkins Willkie Farr & Gallagher LLP - Willkie Library	218
6.	The Form Knows Best Tara Chowdhury, Faith Chudkowski and Mitu Gulati University of Virginia - School of Law, University of Virginia School of Law and University of Virginia School of Law	205
7.	The Hidden Nature of Regulation Sharon Yadin The Max Stern Yezreel Valley College	199
8.	INTERNATIONAL COMMERCIAL COURTS 'MADE IN GERMANY': ATTRACTIVE ALTERNATIVE FOR BIG BUSINESS? Giesela Ruhl and Nicolas Dewitte Langenfeld Humboldt University of Berlin and Humboldt University of Berlin - Faculty of Law	180
9.	Protecting Consumers in a Post-Consent World Mark A. Lemley Stanford Law School	173
10.	Recommender Systems as Commercial Speech: A Framing for US Legislation Andrew West, Claudio Novelli, Mariarosaria Taddeo and Luciano Floridi Yale University - Digital Ethics Center, Yale University - Digital Ethics Center, University of Oxford - Oxford Internet Institute and Yale University - Digital Ethics Center	159

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 14 Mar 2025 - 13 May 2025

Rank	Paper	Downloads
1.	We Built Judge. AI. And You Should Buy It Jack Kieffaber, Kimo Gandall and Kenny McLaren Harvard University - Harvard Law School, Harvard University, Harvard Law School and Harvard University - Harvard Law School	1,378
2.	Are Equitable Remedies Discretionary? Timothy Liau and Alexander Georgiou London School of Economics - Law School and affiliation not provided to SSRN	373
3.	The Form Knows Best Tara Chowdhury, Faith Chudkowski and Mitu Gulati University of Virginia - School of Law, University of Virginia School of Law and University of Virginia School of Law	205
4.	Consumer Vulnerability: A Genealogy Mateusz Grochowski Tulane University School of Law	100
5.	Bankruptcy as a National Security Risk Jason Jia-Xi Wu Harvard University, Harvard Law School	79
6.	Liberal Contract Theory -- Part 1 of Freedom of Contract Michael Heller and Hanoch Dagan Columbia University - Columbia Law School and University of California, Berkeley - School of Law	77
7.	Fiduciary Standards James Toomey University of Iowa - College of Law	72
8.	The Inconvenience Doctrine Alexi Pfeffer-Gillet Washington and Lee University School of Law	71
9.	Regulating Contracts, Strictly Speaking Hanoch Dagan University of California, Berkeley - School of Law	63
10.	Consumers' Unreasonable Textual Expectations David A. Hoffman University of Pennsylvania Carey Law School	63

Texas Court of Appeals Reverses $12 Million Judgment in COVID-Related Insurance Claim

The issue in this business-interruption insurance claim is a familiar one: "Did the presence of the SARS-CoV-2 virus (COVID-19) on insured property cause 'direct physical loss of or damage to' the property?” A jury answered yes and awarded the Baylor College of Medicine (Baylor) $12 million in damages. In Lloyd’s Syndicate v. Boston College of Medicine, the Texas Fourteenth Court of Appeals decided to follow the herd and held that COVID does not constitute direct physical loss or damage. It did so despite some pretty compelling expert testimony about COVID’s physicality and the threat it could pose to medical research facilities.

Some experts explained that while Baylor could not shut its doors because it is an active medical facility, it did incur costs associated with new sterilization protocols that needed to be adopted in order to keep staff and clients safe during the pandemic. After some time, the COVID virus is no longer transmissible. The damage to the property, the expert testified, is physical, but not structural, which strikes me as a great way to explain the nature of the physical damage  that COVID causes and why it should be covered under the policy. 

But the Court of Appeals wasn’t having it. Both the Texas Supreme Court and the Fifth Circuit have adopted the view that “direct physical loss of or damage to” property requires a “tangible alteration or deprivation of the property.” The Court of Appeals adopted that same standard. Many courts have considered similar arguments and rejected them, and so the Court concluded that there was insufficient evidence to sustain the jury verdict.

Remote Work and New Cat and Mouse Games

I learned from (once again) the Money Stuff Podcast that Wells Fargo fired a bunch of employees because they were using "mouse jigglers” to make it seem like they were at their keyboards while working remotely. Jack Kelly  has the story in Forbes here. The fired workers were in the bank’s wealth and investment management division. As Matt Levine points out on the Money Stuff Podcast, employees in wealth and investment management do not profitably spend time at their keyboards. They should be out on golf courses or having conversations over martinis in some steakhouse somewhere. Moreover, money invested in time or technology tracking workers' keyboard use or mouse movement is also not well spent. Nobody at Tesla checks to see whether its CEO is at his desk. Why is that?

I write as that rare law professor who really enjoys coming in to work. I do not understand the desire to be at home all the time. It is not that I am an extrovert, but I need to interact regularly with people in order to scratch certain professional and personal itches. Productivity studies would not provide data to prove it, but I don’t think I can be as good a teacher, colleague, or scholar if I am not regularly interacting with my students and work colleagues. I need to check in regularly with my two work spouses about our common enterprise. My actual spouse and my cats are less helpful in such matters.

But I am, apparently, atypical. A lot of people really hate going in to work, and they can work happily and profitably at home. While businesses and the federal government are convinced that remote work is less efficient than making employees come in to the office, studies show that they are wrong. In October, 2024, the U.S. Bureau of Labor Statistics concluded that remote work increased total factor productivity across 61 industries in the private sector studied from 2019-2023. Other studies show that remote work had no effect on productivity, but those other studies did not factor in worker satisfaction and retention. People like being able to work remotely, and businesses that allow them to do so have less turnover. That means that businesses have to invest less in job searches and hiring. Whatever productivity is lost due to people using mouse jigglers to trick their bosses into thinking they are working on spreadsheets when they are in fact walking their dog is more than compensated for by the fact that the workers are happier at their jobs, more focused when they are working, and less inclined to quit.  Unless, of course, you are Wells Fargo and decide to waste resources on playing cat and mouse games in the form of creepily surveilling employees.

But dumb ideas, like opposition to measles vaccines, are infectious, and so, my great state of Oklahoma, imitating DOGE’s anti-remote work initiative, has instituted a sweeping ban on work-from-home. Thinking about my own household, the idea is just preposterous. I suppose there is some recognition that a lot of what professors do is hard to monitor. Lying on a couch reading a book looks like lying on a couch. Going for a walk with a friend to talk through some ideas looks like lying on a couch too, from the perspective of the keyboard-usage police.

My wife, however, is mental health counselor employed by a state institution. Consider the effect of the new obsession with coming in to work on her field. If counselors have some minor illness that they would rather not share with their colleagues, they will now have to take a day off. They cannot meet with her clients using telehealth, despite the fact that their clients might be indifferent or may even prefer to meet with their counselors on telehealth. In fact, some clients insist on meeting through telehealth even if the counselor is in the office, and so it makes absolutely no difference to the clients whether the counselors are in the.office, sharing their infectious illness with colleagues, or at home. It makes a difference to the colleagues though. And now, counselors would have to use paid-time-off days for sick leave, on days when they could otherwise work from home. Each of those days is one less day that the counselors can take for vacation, increasing the likelihood that they will leave their job in the public sector and go into private practice where they can decide for themselves how best to serve your clients.

I can imagine jobs where it matters whether or not the employees come to work. Likely, the employees who need to come to work are already required to come to work. Making people come to work who don’t need to come to work speaks of contempt for the work force, including supervisors, and of an inability to imagine the lives of others.

Friday Frivolity: Contracts with Animals

Two students stopped me in the stairway to ask whether there can be contracts with animals. “No,” I said. My colleague, Trevor Wedman, pointed out that there are European scholars who think there can be contracts with animals, and I expect that there are American scholars who think so as well. The challenge would be find an animal with the wherewithal to sue for breach of contract or a person with requisite beliefs and the power to enforce such a contract. 

And then, serendipitously, that same day I was listening to Matt Levine on the Money Stuff Podcast, and he started talking about contracts with sheep to trim grass around fields of solar panels. He misspoke, of course. The contracts are between the owners of the solar arrays and the owner of the sheep. But still, it gives me an excuse to share this  fictional imagining of how such a transaction might take place from the first episode of the podcast.

The story begins at about minute 28 of the video below.

 

Fourth Circuit Grants Citibank’s Motion to Compel Arbitration in Case Brought by Veterans

Pablo Espin, on behalf of a class of service members, brought suit against Citibank. In short, the service members accrued large balances on their Citibank credit cards while in the military. The statutory schemes required Citibank to charge low rates of interest to active-duty service members. Once the service members separated from the military, Citibank hiked the interest charged to the normal rate charted to civilians. Mr. Espin and the class allege that doing so constituted violations of the Servicemembers Civil Relief Act (SCRA) and the Military Lending Act (MLA).  The credit card agreement included a provision for mandatory arbitration (natch) and a class-action waiver (natch). 

But wait, the SCRA provides for class claims “notwithstanding any previous agreement to the contrary.” Surely this is a congressional override of the Federal Arbitration Act (FAA) to the extent that the FAA has been construed as requiring enforcement of class action waivers in arbitration agreements. Not so much, says Citibank, and in Espin v. Citibank, N.A., the Fourth Circuit agreed.

The SCRA makes no mention of the FAA. Gosh, I wonder why the SCRA, which dates from 1940 makes no mention of the FAA. Hmmm. Maybe it’s because the FAA in 1940 had nothing like the scope it has today. Or maybe it’s because the Supreme Court's jurisprudence on class action waivers and the FAA came about seventy years later. This is the problem with the courts’ recent infatuation with clear statement rules. They assume not only 20/20 vision but 20/20 foresight into what the future will hold. Or they think that Congress can adjust to changes in the legal ecosystem in which statutes operate.

That said, the Fourth Circuit is not wrong when it points out that "the Supreme Court has never concluded that a federal statute overrode the enforcement of arbitration agreements under the FAA without explicitly saying so.” If a federal statute is silent about arbitration, the strong presumption is that the FAA governs. Indeed, there is precedent from SCOTUS in CompuCredit Corp. v. Greenwood.

That case may be distinguishable. The statutory language was different, the legislative intent may have been different, and it should matter that the SCRA dates from 1940 while the statute at issue in Greenwood dated from 1996. At least by 1996, as Justice Scalia noted, arbitration clauses in consumer contracts “were not rarity.” Justice Scalia overlooked and perhaps did not care that class action waivers in connection with arbitration agreements  were an innovation in 1996. Even today, despite their ubiquity, they are something that ordinary consumers cannot be expected to understand. 

Giving priority to a general public policy from 1925 of favoring arbitration over a specific policy of protecting service members from predatory lending practices speaks of the skewed priorities of the industry-captured Court. Rather laughably, the Fourth Circuit points to language from a 2021 statute as a model for how to get around the FAA through federal legislation. The Court points out that Congress did not adopt similar language when given the opportunity to do so in 2019 and 2021 in connection with the National Defense Authorization Act of 2020 and 2022.

This is thin gruel. The Court cautions that legislative history is not the law but treats  afew crumbs of legislative history as evidence of Congress’s intent not to override the FAA through the SCRA. The Court notes that Congress commissioned a study in 2019 on "the effects of the common commercial and governmental practices of including a mandatory arbitration clause in employment and consumer agreements.” The Court considers the study, which references the SCRA, evidence that Congress knows that the SCRA does not override the FAA. Notwithstanding the study, Congress did not act. Given congressional dysfunction, Congress not acting is the norm. Reading intent into congressional inaction seems a desperate measure.  A better option would be to return to 1940 or the time when the SCRA was amended to cover the relevant transactions and to try to understand congressional intent at that time.

That said, the Fourth Circuit found that the MLA did clearly express congressional intent to override the FAA. However, the MLA did not apply to credit cards accounts opened before October 2017, and Citibank contends that all of the accounts at issue opened before that date. Plaintiffs read the MLA differently, arguing that it extends to all instances of “extending consumer credit” and that occurs whenever a credit-card holder makes a purchase. The Fourth Circuit remanded so that the District Court could resolve that issue. Meanwhile all MLA claims will have to be arbitrated.

That result leaves me with one more question about this case. I thought there was a presumption against sending some claims to arbitration while other claims arising out of the same facts are resolved in court. Given that the underlying facts of the MLA claims are intertwined with the SCRA claims, and the former can’t be arbitrated, isn’t the best course to hold off on compelling arbitration until the District Court can determine whether any MLA claims survive? If not, then the SCRA claims can go to arbitration. Otherwise, I would think adjudicatory efficiency would require that the entire case remain in court.

Another Chicago Cubs Victory (in Court, but Still)

Just last month we celebrated the Cubs’ W over the owner of a rooftop seating venue across the street from storied Wrigley Field. After the post was drafted, the District Court more emphatically denied defendant Aidan Dunican's motion for reconsideration. On April 14th, in Chicago Cubs Baseball Club, LLC v. Dunican, the court also denied the motion styled in the alternative as a motion to compel arbitration. 

Defendants sought re-hearing because the District Court relied on a new Seventh Circuit precedent created just two months prior the filing of their motion to dismiss. Judge Coleman basically said “Sorry to break it to you, but I have to follow Seventh Circuit decisions, even if they are new.” But Mr. Dunican proffered an alternative argument: the Cubs should be bound by the arbitration agreement in an expired settlement agreement.

The Court’s rejection of that argument seems sound. First the arbitration agreement in question does not empower the arbiter to determine questions of arbitrability, so the Court can decide it. Mr. Dunican tried to argue that the arbiter should aside arbitrabilty, beacuse the arbitration agreement provided for arbitration under the rules of the American Arbitration Association (AAA), and those rules assign to the arbiter the power to determine the scope of arbitrability. However, the Court notes, that’s not quite what the arbitration provision says. Rather it provides that "[a]ll disputes arising under this [Settlement Agreement] shall be arbitrated according to the rules of the American Arbitration Association (or such other organization as the parties agree upon) …” So it is not clear that the AAA rules would apply.

Second, the arbitration agreement is expired and the conduct at issue occurred after that expiration. Finally, while some provisions of the settlement agreement survive its lapse, the arbitration provision does not. This finding is also relevant to the first issue, because even if Mr. Dunican were correct about the applicability of AAA rules, it is not clear that AAA rules would apply to facts that arose once the arbitration provision is no longer effect.

This last claim is the closest issue. The settlement agreement expressly provided for the survival of some of its provisions. Arbitration was not listed. However, the settlement agreement also provided for the survival of any provision for which 'survival was equitable.” Mr. Dunican argued that survival of the arbitration provision was equitable, but provided no support for that claim, and so the Court was not persuaded.

Let’s hope the Cubs can lawyer their way to a winning season!

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for May 6, 2025

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 07 Mar 2025 - 06 May 2025

Rank	Paper	Downloads
1.	We Built Judge. AI. And You Should Buy It Jack Kieffaber, Kimo Gandall and Kenny McLaren Harvard University - Harvard Law School, Harvard University, Harvard Law School and Harvard University - Harvard Law School	1,356
2.	Are Equitable Remedies Discretionary? Timothy Liau and Alexander Georgiou London School of Economics - Law School and affiliation not provided to SSRN	363
3.	A Theory of Complexity Aversion Xavier Gabaix Harvard University - Department of Economics	353
4.	Fix the Price or Price the Fix? Resolving the Sequencing Puzzle in Corporate Contracting Joshua Higbee, Cree Jones, Matthew Jennejohn and Eric L. Talley University of Chicago - Department of Economics, Brigham Young University - J. Reuben Clark Law School, Brigham Young University - J. Reuben Clark Law School and Columbia University - School of Law	303
5.	Propertising Contract: Two Kinds of Property and Two Kinds of Transfer Kelvin F.K. Low and Chee Ho Tham The University of Hong Kong - Faculty of Law and Singapore Management University - Yong Pung How School of Law	212
6.	The Hidden Nature of Regulation Sharon Yadin The Max Stern Yezreel Valley College	187
7.	Exit Consents in a Liability Management World Dennis Jenkins Willkie Farr & Gallagher LLP - Willkie Library	187
8.	The Form Knows Best Tara Chowdhury, Faith Chudkowski and Mitu Gulati University of Virginia - School of Law, University of Virginia School of Law and University of Virginia School of Law	179
9.	Protecting Consumers in a Post-Consent World Mark A. Lemley Stanford Law School	164
10.	Recommender Systems as Commercial Speech: A Framing for US Legislation Andrew West, Claudio Novelli, Mariarosaria Taddeo and Luciano Floridi Yale University - Digital Ethics Center, Yale University - Digital Ethics Center, University of Oxford - Oxford Internet Institute and Yale University - Digital Ethics Center	159

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 07 Mar 2025 - 06 May 2025

Rank	Paper	Downloads
1.	We Built Judge. AI. And You Should Buy It Jack Kieffaber, Kimo Gandall and Kenny McLaren Harvard University - Harvard Law School, Harvard University, Harvard Law School and Harvard University - Harvard Law School	1,356
2.	Are Equitable Remedies Discretionary? Timothy Liau and Alexander Georgiou London School of Economics - Law School and affiliation not provided to SSRN	363
3.	The Form Knows Best Tara Chowdhury, Faith Chudkowski and Mitu Gulati University of Virginia - School of Law, University of Virginia School of Law and University of Virginia School of Law	179
4.	Consumer Vulnerability: A Genealogy Mateusz Grochowski Tulane University School of Law	87
5.	Bankruptcy as a National Security Risk Jason Jia-Xi Wu Harvard University, Harvard Law School	75
6.	Liberal Contract Theory -- Part 1 of Freedom of Contract Michael Heller and Hanoch Dagan Columbia University - Columbia Law School and University of California, Berkeley - School of Law	71
7.	Fiduciary Standards James Toomey University of Iowa - College of Law	69
8.	Consumers' Unreasonable Textual Expectations David A. Hoffman University of Pennsylvania Carey Law School	61
9.	The Inconvenience Doctrine Alexi Pfeffer-Gillet Washington and Lee University School of Law	60
10.	Regulating Contracts, Strictly Speaking Hanoch Dagan University of California, Berkeley - School of Law	59

Messy NIL Situation Involving the Iamaleava Brothers

We have run a few stories about university sports collectives making promises to student athletes and then not delivering. One involved the Tulsa University football team. The other involved UNLV. Today’s story is sort of the opposite — a pair of brothers transferring and leaving their NIL sponsors with possible breach of contract claims.

For those of you new to this new business, a collective is an alumni group. Universities do not pay their athletes directly; rather, the athletes enter into agreements with the collectives. Under current rules, each university has a budget of about $20 million to spend on Name, Image, and Likeness Agreements (NILs) and other forms of revenue sharing. As we have already seen, things can get messy, as representatives from the university might make promises to athletes about NILs to which the collectives have not agreed or vice versa. 

As indicated on this chart, male athletes who play basketball and football are the beneficiaries of about  94% of NILs and other forms of revenue sharing. Because football teams are seven times the size of basketball teams, the average pay per male basketball player is higher than that for the average football player, but a football quarterback can account for up to 20% of the total NIL budget. Women’s basketball players, the largest group of female athletes who get paid anything at all, account for just 1.2% of that all revenue sharing. 

University of Tennessee quarterback Nico Iamaleava had a $2.4 million NIL with the Tennessee NIL Collective, the Spyre Sports Group. Nico is a very impressive athlete, and he had a great season with Tennessee in 2024. However, as Chris Low, Max Olson, and Adam Rittenberg report on ESPN, Nico was unhappy at Tennessee, and so he entered the transfer portal and moved to UCLA.

There does seem to have been a lot of talk in the Spring about Nico’s “camp” exploring alternatives and looking for a deal in excess of $4 million, but the move doesn’t seem to have only been about money. UCLA reportedly is paying Nico less than he was due from Tennessee. Perhaps he was worried that Tennessee didn’t have adequate offerings in his planned biochemistry major. No, that wasn’t it.

The family expressed concern about Tennessee’s offensive line being unable to protect Nico and refreshing the wide receiving corps. Nico’s options were limited because he could not transfer to another SEC team and still play this season. He will already become a 21-year-old sophomore during his first season with UCLA.  To add some symmetry to the mix, Tennessee then grabbed Joey Aguilar, who was slated to be UCLA’s starting quarterback.

ESPN reports that Nico felt a lot of pressure, and there was a feeling that he was being painted as the bad guy. I’m not sure what that is about. The school invested a lot in the kid. He had enjoyed a lot of success last season, but it’s a team sport. It’s not surprising that there would be hard feelings if a key player leaves in April, and if you don’t want to be portrayed as the bad guy, what’s so hard about staying one more year with a team that is paying you $2.4 million at age 20? But the UCLA coaching staff also behaved in a mercenary way, negotiating to bring Nico to the team while keeping Joey Aguilar in the dark. By the time Nico came to UCLA, it was probably pretty late in the day, and Aguilar probably didn’t have many top-tier options, so Tennessee was the natural fit.

Things got more complicated still when Nico’s younger brother, Madden, who had a one-year contract to play in Arkansas, jumped ship to join his brother at UCLA. There is talk of the Arkansas collective coming after Madden for breach of contract. The breach seems pretty clear. I don’t know if Madden has done any advertising spots to justify his pay, but certainly leaving two months into a contract ought to trigger certain rights. Given the existence of the transfer portal, it would be extremely shortsighted if the collective’s standard agreement did not include some sort of liquidated damages provision. I would expect that Tennessee too will be hoping to claw back anything Nico was paid for the upcoming season.

Part of me rejoices. The center cannot hold. Perhaps we are getting close to admitting that college athletics, at least in football and basketball, has very little to do with college. The vast majority of college athletes have no shot at a professional career. They are capitalizing on their athletic abilities to get access to education. The current system turns them into professional athletes at age 18, and they may be forced to treat their education as a hobby.

Top programs will now all spend $20 million/year, apparently soon to go up to $30 million/year on NIL contracts. But soon those caps will be blown, and it will just be a question of which schools choose to buy the best teams. The competition will become so lopsided, and the connection between the athletes the student body so attenuated, perhaps a time will come that we will realize our mistake and create development leagues. It is true that the money to pay NILs comes from collectives rather than from university budgets, but it simply cannot be the case the university’s ability to raise money would be unaffected by alumni support being directed towards collectives. Sooner or later, boosters run out of resources, especially if the team does not win championships despite years of heavy investment.

If we were to move to the Development League model, following every other country on the planet, young athletes can still get a college education while playing, but they will be actual, professional athletes, earning a living wage or better. And when they are not professional athletes during the off-season, they will be students, subject to the same expectations as other students, enriching both education and athletics without enriching the people who for decades have been exploiting college athletes and taxpayer dollars. A man can dream.

Meanwhile, wouldn’t it be much easier to build a winning basketball team than a winning football team. $4 million for the best point guard; $4 million for the best Center or Power Forward and then $1 million to each of an outstanding supporting cast. That’s how you build championships! Quarterbacks aren’t worth much without a line to protect them and receivers to throw to. As a result, I suspect, it is much harder to detect who the best quarterbacks are, right? Tom Brady was the 199th  draft pick. Brock Purdy was the last. The Bears haven’t had much luck at that position since Sid Luckman.

A final thought on this chapter. Has anybody remarked on the fact that Nico and Madden’s last name announced in advance that they were not going to stay? I guess it’s not pronounced that way, but it looks like they were always saying, “I am a leaver."

Seventh Circuit Certifies Question on Forfeiture for Competition Provisions Under Delaware Law

Forfeiture for competition clauses have an effect similar to non-competes, but they achieve the common aim through a different vehicle. They prohibit a corporation’s former employees from leaving the firm and joining a competitor on pain of forfeiture of a realized benefit from the original employer. Last year, in Cantor Fitzgerald v. Ainslie, Delaware’s Supreme Court determined that forfeiture-for-competition provisions in limited partnership agreements are not reviewable for reasonableness. However, that case involved sophisticated parties. In LKQ Corporation v. Rutledge, the Seventh Circuit was asked to determine whether reasonableness review applied to such a provision in the contract of a “key employee” who lacked the sophistication of the parties in Ainslie. 

For over ten years, Robert Rutledge managed a Florida plant for LKQ Corporation (LKQ). In exchange for signing various restrictive covenant agreements, Mr. Rutledge was entitled to restricted stock unit awards, available to only two percent of LKQ’s employees. One of these agreements precluded Mr. Rutledge from working for a competitor within nine months of leaving LKQ’s employ. Mr Rutledge sold his LKQ restricted stock on the open market. The amount of his profits is disputed but the court puts it in excess of $600,000. He took up work with LKQ’s direct competitor five days after quitting his job with LKQ.

LKQ brought suit, alleging breach of the restrictive covenants and unjust enrichment. The District Court dismissed the unjust enrichment claim, given that the parties' relationship was governed by contract. Relying on the Delaware Chancery Court’s opinion in Ainslie, an opinion subsequently reversed, the District Court concluded that the forfeiture-for-competition provision was subject to reasonableness review. Finding the provision an unreasonable restraint on trade, the District Court entered judgment in favor of Mr. Rutledge on the breach of contract claims as well. 

On appeal, the Seventh Circuit affirmed the dismissal of LKQ’s unjust enrichment claim. The Court then reviewed LKQ’s restrictive covenants with Mr. Rutledge. These included a more conventional non-compete, which the Seventh Circuit, like the District Court, found unreasonable, as it entailed a nine-month ban on Mr. Rutledge working for any competitor in any capacity. Moreover, the ban was geographically overbroad, applying to companies within a 75 mile radius of LKQ’s Florida facility. The effect was that Mr. Rutledge would either have to change industries or move if he wanted to continue to work.

Moreover, Mr. Rutledge’s new job involved remote work in connection with facilities located hundreds of miles from LKQ’s Florida facility, and LKQ nonetheless attempted to enforce its restrictions on Mr. Rutledge’s post-resignation employment because he was working from his home, which was within the 75-mile geographic restriction. Given the unreasonableness of the restrictive covenants as a whole, the Seventh Circuit declined LKQ’s offer to take a blue pencil to some of their provisions.

I am a bit baffled as to why forfeiture-for-competition provisions should be treated any differently from regular non-competes. I have certainly seen non-competes reviewed for reasonableness when the employer was a partnership. In such cases, each of the partners had the right to enforce the non-compete against their departing peers. I have been struck by the oddity that a court will strike down a non-compete among doctors in a partnership when, there but for fortune, a defendant might have become the plaintiff challenging the non-compete and the plaintiff may be among those trying to enforce it. Notwithstanding the reciprocity in the agreement and the sophistication of the parties, the courts do not rend their garments over the grievous blows inflicted on the principle of freedom of contract when such non-competes are cast aside on public policy grounds. However, the Seventh Circuit notes that courts are split with respect to forfeiture-for-competition provisions. While some courts treat them like other non-competes, the majority position sides with freedom of contract. An employee subject to a forfeiture-for-competition clause can still work for a competitor; the clause only imposes a financial disincentive to doing so. The majority rule treats this as a matter of choice. 

In Ainslie the Delaware Supreme Court sided with the majority, but it did so in reliance on Delaware’s Uniform Limited Partnership Act, which expressly states as one of its aims “to give maximum effect to the principle of freedom of contract.” This case is distinguishable from Ainslie in many ways, but the Ainslie opinion includes language that suggests that the Delaware Supreme Court intended for it to have effect beyond the context of the Uniform Limited Partnership Act. The Seventh Circuit indicated that giving effect to the forfeiture for competition provision would have harsh — and likely unreasonable — effects. While a partner may be on either side of the enforcement of a forfeiture-for-competition provision, Mr. Rutledge was a middle manager with a salary of $109,000. For employees like him, the provision operates as a penalty clause that can claw back incentives that may have been realized years earlier.

Given the uncertainty of the scope of Ainslie, the Seventh Circuit wisely chose to certify the following questions to the Delaware Supreme Court:

(1) Whether Cantor Fitzgerald precludes reviewing forfeiture-for-competition provisions for reasonableness in circumstances outside the limited partnership context?

(2) If Cantor Fitzgerald does not apply in all other circumstances, what factors inform its application? For example, does it matter what type of agreement the forfeiture provision appears in, how sophisticated the parties are, whether the parties retained counsel to review the provision, whether the forfeiture involves a contingent payment or claw back, how far backward a claw back reaches, whether the employee quit or was involuntarily terminated, or whether the provision also entitled the company to injunctive relief?

Other than the certified issue, the Seventh Circuit affirmed the decision of the District Court. It would be nice to have these issues resolved. That said, for Mr. Rutledge’s sake, I hope that LKQ just gives up this battle.

Friday Frivolity: Nice v. Fun Markets; Clean Sports v. Dope Sports

In this, my second post inspired by the Money Stuff Podcast, I riff a bit on a conversation bewteen the hosts, Matt Levine and Katie Greifeld, about whether people who like crypto markets can be presumed to be anarchists who oppose all regulation. We recently reviewed Kara Bruce, Christopher K. Odinet, and Andrea Tosato’s Bankrupt Crypto Organizations. The Authors of that piece write of the tendency among people drawn to crypto entities to be crypto-anarchists, hostile to hierarchy, disclosure, and regulation. Matt Levine suggests that people most people who like crypto markets are not in fact anarchists. They appreciate that there are things that are just best achieved through blockchain, but that does not mean that they are hostile to all regulation. 

Matt and Katie suggest that there could be nice markets, regulated by law, and fun markets, where everyone enters with eyes open. Fun markets are unregulated, with all the attendant risks, and the game is to make money and get out before you get taken. This is a theme to which they return with regularity. Irrational markets, such as meme stocks, can look like they spike based on manipulation. But perhaps it’s not about manipulation. People flock to meme stocks because they are playing a game, while enjoying being part of a larger phenomenon and enjoying the camaraderie of trolling Wall Street traders.

Ages ago, there were things called “Big Boy Letters,” in which the parties to a transaction, with reason to believe that the seller was in possession of inside information, promised not to sue or seek to unwind the transaction. Around the same time, parties were seeking ways around fiduciary duties.  I have not continued to follow developments in this area since I stopped teaching Business Associations. It is possible that the 2008 meltdown reminded people that fiduciary duties serve an important purpose. In any case, Big Boy Letters and business entities in which the officer and directors owe no fiduciary duties to the firm’s constituents strike me as something akin to fun markets. My recollection is that the Delaware courts came down pretty hard on entities that tried to dispose of fiduciary duties entirely. Maybe it will fly in Texas.

The sports analogy to fun markets would be a Dope Olympics in which people can use performance-enhancing drugs to their hearts’ delight. In their second episode of the Money Stuff Podcast, the hosts report that they got a lot of feedback from listeners, informing them that there is a version of Dope Sports, funded by a bunch of rich guys, called “Enhanced Games,” a name perhaps chosen because "enhanced interrogation” worked out so great.  

If you read their materials (they have a “Declaration on Human Enhancement"), you will see the familiar moves of the Silicon Valley boy geniuses and their ilk who have “done their own research” and concluded that they know better than all of the conventional “experts.” They celebrate the disgraced athletes who had their world record achievements stricken once the world learned that they had achieved them with the assistance of performance-enhancing drugs; that is, by what the rest of the world calls "cheating.”

Sensitive to potential criticisms, the Enhanced Games involves a lot of monitoring (“medical profiling”) to make sure that it is safe for them to compete. Awww! That sounds like regulation. Might as well subject yourself to the anti-doping Gestapo at that point. But no, it’s a bit different. The Enhanced Games folks are really interested in collecting data on the possibility for producing improved humans, so it is more like controlled medical experimentation on human subjects. But it’s fine because it’s voluntary. And it’s voluntary because the rich guys behind the project will pay the participants much more than they could make in clean competition.

Which brings me back to Matt Levine’s description of what really is going on in the world of blockchain-based business models. Matt imagines a world in which we can do some things with blockchain that we couldn’t do without it. There is still regulation, but it is more lax, giving the participants some latitude to experiment. I think we tried this in professional cycling in the era of the Tour de Lance. It certainly wasn’t clean sports, but it wasn’t dope sports either. It was a sort of double competition to see who could become the best cyclist by using performance-enhancing drugs without getting caught by the regulators.

Hence my ambivalence about Lancy Armstrong (left). Sure, he was a liar and a jerk, especially to teammates and other cyclists who told the truth about the widespread doping practices in the world of professional cycling. On the other hand, Lance’s approach to cycling, especially in mountain stages,  was that the person who won was the person who pushed themselves the hardest and was willing to endure pain the longest. And in the Grand Tours, the pain lasts for 2000 miles of cycling over the course of three weeks. Lance’s performances were enhanced, but the pain was real. 

One might feel bad for the athletes who raced clean in that era, but it’s hard to imagine that there were many among the top cyclists. Cyclists weren’t doping on their own. The teams coordinated the doping, and cyclists switched teams. Everyone involved in the sport must of learned of the doping regimens and the tricks for evading detection. It is hard to imagine that they did not try to emulate the practices of the most successful teams.

If I’m right about all that, the cyclists were steering between the Scylla of detection and the Charybdis of the serious health risks attendant to performance-enhancing drugs. Cyclists had been doping since the nineteenth century. Each cyclist was likely familiar with the list of cyclists who died young and whose deaths had been linked to the use of performance enhancing drugs. In that era, Lance was the most successful at this double competition, pushing himself the hardest while evading detection and not giving himself a heart attack or a stroke. It is a unique athletic achievement. I cannot celebrate it, but I remain awed. 

And this is, I think, the world that people experimenting with blockchain trading and blockchain entities are navigating today. Sometimes the risks are too great and their investments crash and burn. Sometimes, they veer off into illegalities so glaring that the regulators wake up and prosecute. But those most skilled at this hybrid game can become legends, for those as impressed by money-making as I am by riders who conquer the Alpe D’Huez.

Cardozo Cup Entries and 2025 Winner!

Each year, I challenge students to create original works of art commemorating the jurisprudence of Benjamin Cardozo. This year’s entries into the Cardozo Cup competition included:

This image of a Cardozo-like figure pouring ranch dressing on a pizza. I can’t imagine why students would think Judge Cardozo capable of such a sacrilege.

Further encapulsating the course’s themes, the students supplemented their entry with a poem:

Justice Cardozo, so grand,
Held ranch and his pizza in hand.
He dipped with a grin,
Declared it no sin—
"Equity favors what's bland!"

A candle and lapel pin

 

 

 

 

 

 

 

 

 

 

 

 

An engraving, and an image of Judge Cardozo as a cat, Catdozo:

 

 

 

 

 

 

 

 

 

 

 

 

 

And finally, the winning entry: a box that will correct you if you think that we should not listen to Judge Cardozo

Thanks to all for your participation and congratulations to the winner, Sean Robinson, pictured here accepting the Cardozo Cup from Dean Paula Dalley.

May Day: Federal Judge Backs Federal Workers Union and Enjoins Executive Order

On March 27th, the President issued an Executive Order entitled Exclusions From Federal Labor-Management Relations Programs (the EO). That same day, the Office of Personnel Management (the OPM) issued a Guidance on Executive Exclusions from Federal Labor Management Programs (the OPM Guidance) implementing the EO.

Last Friday, in a two page Order in National Treasury Employees Union v. Trump, Judge Paul Friedman (below right) enjoined the defendants from effectuating Section 2 of the EO and enjoined the defendants from effectuating the OPM Guidance. The President was excepted from the scope of the injunction. I’m not sure what that means, and the explanatory opinion doesn’t explain. Judge Friedman's explanatory opinion followed on Monday.

Section 1 of the EO determines that branches of the federal government listed in Sections 2 and 3 of the EO "have as a primary function intelligence, counterintelligence, investigative, or national security work.” Section 2 lists  some agencies for which the statement seems preposterous, e.g.: Health and Human Services, the Department of Agriculture, Department of Commerce, the EPA, the National Science Foundation, the FCC, the General Services Administration, the Social Security Administration, and the Office of Personnel Management. Section 1 then provides that Chapter 71 of title 5, United States Code, which allows for collective bargaining and union representation for federal authorities, cannot apply to employees in the listed agencies.

The OPM Guidance implements the EO and other policies of the current administration designed to strip federal workers of job security and protections that have become a standard part of federal employment law since World War II. Among other things, it clarifies that the purpose is to facilitate the termination of federal employees deemed to be “underperforming.” The OPM Guidance directs agency heads to cease participating in grievance procedures and arbitrations provided for in collective bargaining procedures. With respect to on-going arbitrations, they are to cease and the employees are to be terminated.

In his 46-page opinion issued on April 28th, Judge Friedman, laid out the clear inconsistency between Congress’s directive in the 1978 Federal Service Labor-Management Relations Statute (FSLMRS) and the EO, which effectively deprived 2/3 of the federal workforce of their rights to collective bargaining. The FSLMRS took national security into account and empowered the President to suspend the rights protected in the statute on national security grounds. Presidents have done so in the past, but not in a way that approached the scope of the EO.

As is its wont, the Administration’s first response is to contend that its actions are not reviewable by the District Court. Rather, the National Treasury Employees Union (NTEU) must pursue its claims using the administrative review scheme that Congress created, the Federal Labor Relations Authority (FLRA). That would be true, Judge Friedman noted, except that the EO itself removes the agencies and subdivisions at issue in this case from the FSLMRS, thus stripping the FLRA of jurisdiction to hear complaints brought by NTEU employees in those agencies and subdivisions.

Sure, the Administration countered, if the NTEU tried to challenge the EO in the FLRA, that claim would dismissed for wont of jurisdiction, but then the NTEU could appeal that decision to a U.S. Court of Appeal. Judge Friedman noted that the government's argument misses the point. Because the effect of the EO is to remove the case from the jurisdiction of the FSLMRS, nothing bars the District Court from exercising jurisdiction.  Some day, someone will write a Catch-22-style black comedy about the Administration’s standard moves to evade review of its lawlessness.

On the merits, things get really interesting. The meat of the opinion focuses on the NTEU’s likelihood of success on the merits. In a similar case from the Reagan era, the D.C. Circuit upheld President Reagan’s exclusion of the U.S. Marshall service from the protections offered by the FSLMRS. The District Court had struck down President Reagan’s Executive Order because he had provided no justification for the move. The D.C. Circuit reversed, according the President the "presumption of regularity.”  Here, Judge Friedman analyzed two issues: 1) whether the current EO was entitled to a presumption of regularity, and 2) whether the President had acted ultra vires. 

Judge Friedman found that the NTEU had rebutted the presumption of regularity by presenting clear evidence that “the President was indifferent to the purposes and requirements of the [FSLMRS], or acted deliberately in contravention of them.” This was so because, the EO contradicts Congressional findings from the FSLMRS and because the EO’s purposes were retaliatory and designed to effectuate policy goals unrelated to the FSLMRS. On the final point, the OPM Guidance is telling, as it makes scant reference to national security, the supposed animating purpose behind the EO. Rather, it emphasizes the need to eliminate bloat, waste, and inefficiency in the federal government, returning to its DOGE-inspired mantra.

The rebuttal of the presumption of regularity suffices to justify the grant of the injunction that NTEU sought. However, Judge Friedman also concluded that the EO was ultra vires because it provided no ground for thinking that any of the affected agencies and subdivisions have “national security work" as their “primary function.” The EO arrives at this conclusion by defining the relevant terms so broadly as to encompass virtually any governmental function. The remaining factors of the test for granting a preliminary injunction go pretty quickly, once the likelihood of success on the merits has been established.

The NTEU’s work in briefing these issues is impressive. Overcoming the presumption of regularity and persuading a court to overrule executive determinations regarding national security is no small task. In introducing each section Judge Friedman notes how high a mountain NTEU has to climb in order to prevail in its arguments. But Judge Friedman carefully scales those heights, relying on close readings of strong precedents as he ascends.

There has never been a more anti-union President. There has never been a more anti-worker President. There has never before been a President who cared so little about the plight of ordinary employees. Prior to the election, 60% of members of the Teamsters Union supported the current President. How do they like him now? Perhaps they think that it will all be worth it when manufacturing jobs to the U.S. We’ll have to watch and wait to see how that goes.