Friday, February 3, 2023
As readers may recall, I spent much of the Spring of 2022 blogging my way through the first volume of Victor Goldberg's collected writings on contracts, Rethinking Contract Law and Contract Design (RCL). Links to those posts can be found here. This post is the first in a new series of posts on the second volume, Rethinking the Law of Contract Damages. (RLCD). This post covers Professor Goldberg's short introduction to RLCD.
As Professor Goldberg recounts his experience, he started with the assumption that contracts doctrine was efficient. The more he explored the law of damages, however, the more he found that it wasn't, and he learned that sophisticated attorneys often find themselves having to contract around doctrinal default rules that do not produce efficient results. That would be fine, except that courts are sometimes reluctant to give effect to the parties' terms, introducing public policy rationales for enforcing inefficient default rules that the parties have rejected.
In part I of RLCB, which covers direct damages, Professor Goldberg regards contracts as creating an option to terminate, contingent on paying damages. Default terms, he discovers, sometimes price that option irrationally, in that the costs. associated with breach bear no relation to the parties' needs. Part II covers consequential damages. Professor Goldberg revisits his assessment of the "tacit assumption" test (discussed in this previous post), rejected in the UCC but seemingly revived in the UK. The crux of the matter is risk allocation, and the US and the UK diverge on what tacit assumptions parties make regarding risk allocation, and the law of consequential damages in both jurisdictions is off. The result has been under-enforcement of consequential damages, especially in the UK.
I look forward to working my way through this book and sharing a brief summary of Professor Goldberg's insights with our readers.
Thursday, February 2, 2023
It is a familiar tale, but each has its own wrinkles. The basics, provided by Toyin Owoseje on CNN.com, are that a wealthy German Jewish family either is forced to sell its artworks as they flee persecution (or simply have their property stolen by the Nazi government or by individual party members) or they sell the art for a pittance because they are in desperate need of funds so that they can use the money to secure passage out of Germany. The Adler family's story falls into the second category.
They owned a powerful painting by Pablo Picasso (left) from his blue period, Woman Ironing. In 1938, needing money to secure short-term visas so that the family could escape to Western Europe, the Adlers sold the painting for about $1500 to the Thannhauser family. Estimates of the current value of the painting range from $100 million to $250 million.
The Adlers have now passed away, and the Thannhauser family gifted the painting to the Guggenheim Museum in the 1970s. The family now seeks the return of the painting, alleging that the 1938 sale was induced by duress, and I suppose nemo dat quod non habet -- the Thannhausers had no authority to give away something they did not rightfully own.
The Guggenheim states that it takes matters of provenance very seriously but that all of the evidence indicates that the Thannhauser family had frequent dealings with the Adlers, and that this was a lawful sale between parties who knew each other well. I don't know what a Picasso went for in 1938, so I cannot judge. But in any case, I do wonder how the duress argument works. It cannot be that every time a party takes advantage of another party's economic woes -- woes for which it bears no responsibility -- the contract can be undone under the doctrine of duress. I will be very interested to see the briefs on that issue should the case proceed to that stage.
Sid DeLong is my go-to guy on duress. Sid, do you care to weigh in?
Hat Tip to Timothy Murray
Wednesday, February 1, 2023
As Nimo Omer, in conversation with Eamonn Forde, reports in The Guardian, Justin Bieber (below -- honest, I'm not trying to be mean (yet) by posting his mugshot; it's the only public domain image I could find!) has entered into a $200 million deal giving Hipgnosis Songs Capital the rights to all of his music recorded before 2021. Baby, baby, baby, oh, that's a lot of money! But it covers 290 titles, even though I can only think of one.
The transaction is an indicator of a trend. Music is back, according to The Guardian, with album sales climbing in the U.S. over the past two years. I'm not sure what these guys mean by "album," but whatever.
And it's not just about you-know-who who is committed to owning all of her own music and insists on bringing out a new (old) album every year in order to do so to the delight of her fans who apparently are unaware that the world is teeming with talented artists of whom they've never heard (like Sarah Dooley) because all they listen to is this poor girl who is the most downloaded artist in history but for some reason is still singing about somebody who broke up with her ten years ago when she is not setting records for use of her private jet in a year when she's not even touring.
Haters gonna hate.
Actually, I wouldn't hate this artist if she were just stupendously successful. I hate that she takes up all the oxygen in the room so that no other artists can breathe (and my students disappear for 48 hours after she drops a new album so that they can commit every syllable to memory and then shoot each other knowing looks when I accidentally use some utterly humdrum phrase that also happens to have found its way into her lyrics, which are 98% utterly humdrum phrases.
But I digress.
Anyhew, Hipgnosis is a big player in the market, and that company and its rivals are betting on the long-term value of the songs that they are buying up. Hipgnosis principal proclaims himself to be a "disruptor" who wants to destroy the traditional model of music publishing. It's not clear to me that there's anything left to destroy, but his company has literally spent billions of dollars on demolition, so I suppose there's still work to be done.
Among the things that makes me wonder whether the parties know what they are doing is the round numbers involved in these transactions. According to the Guardian, "Stevie Nicks sold her catalogue for $100m. Bob Dylan shed his for a cool $300m-400m. Bruce Springsteen tops the lot at $550m." Okay, so a Bieber is twice a Nicks and half a Dylan? But also, what are these numbers based on. If there were a formula, it would produce a number with more significant digits. I think these deals are very rough guesstimates to true value, which is why I have decided not to buy the rights to all of Britney Spears' music just yet.
Tuesday, January 31, 2023
The "Billboard of Contract Law Scholarship"™ is here to close out the month of January! With that said, lets turn to the charts and see what's happening in the most interesting corners of SSRN:
Top Downloads For:Contracts & Commercial Law eJournal
Recent Top Papers (60 days)As of: 02 Dec 2022 - 31 Jan 2023
Top Downloads For:Law & Society: Private Law - Contracts eJournal
Recent Top Papers (60 days)As of: 02 Dec 2022 - 31 Jan 2023
When SCOTUS Says It’s So, It’s So:
A Speech Act Analysis of the eBay Opinion
Sidney W. DeLong
Suppose that in the Spring of 2006, you had been grading final exams in your Remedies class. You had posed a question about whether a property owner could obtain a permanent injunction against a neighbor who was threatening to misappropriate some of the owner’s property. Several classes had been devoted to the rules and principles on which courts enter permanent injunctions.
One student began his answer as follows:
According to well-established principles of equity, a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.
Notwithstanding its superficial precision and its confident tone, you gave this answer no points because you identified at least six substantive errors in it. The most glaring mistake is that says that issuance of a permanent injunction requires a plaintiff to “demonstrate that it has suffered an irreparable injury.”
That statement is wrong in at least two ways. First, because an injunction is intended to prevent future injury, it is never necessary that the plaintiff demonstrate that it has already suffered an injury. More importantly, the student fails to say that a court will not issue an injunction unless the plaintiff demonstrates that it will suffer injury in the future if the defendant is not enjoined. (The other obvious errors are discussed at the end of this post.)
Now suppose that, in an exam review after the end of the semester, the student who wrote that paragraph unexpectedly defended his answer by drawing your attention to a hot-off-the-presses Supreme Court slip opinion in eBay v Mercexchange, L.L.C, 547 U.S. 388, 390 (2006) where, (miraculously?) the identical 85-word paragraph appeared. The student demanded to know how his answer could be “wrong” if it coincided exactly with Justice Thomas’s opinion? How would you have explained his grade?
I would have found this to be a formidable task. Just saying “Well, the Court just got it wrong!” as I would have to a colleague would have sounded arrogant if not megalomaniacal to a student, even though it is exactly what I thought. Incidentally, I am not alone in this view. See, e.g. Laycock and Hansen, Modern American Remedies (Concise 5th Ed. 2019) 353-57 (below, right); Mark P. Gergen, John M. Golden, & Henry E. Smith, The Supreme Court’s Accidental Revolution? The Test for Permanent Injunctions, 112 Colum. L. Rev. 203 (2012). But how can I explain what “wrong” means in such circumstances?
Not wishing to get into waters this deep, I think instead I would have invoked speech act theory to explain how the court could have been “right” and the student wrong. In speech act theory, despite all appearances, this was not a case of two different people saying the same thing. The two identically worded utterances are different speech acts that are doing different things.
The student’s answer consisted of assertions, which are speech acts that make a statement of fact. Assertions are either true or false. Unhappily, the student’s statements about the law of permanent injunctions were all false and misleading, which I could easily prove.
Although the Supreme Court’s opinion used identical language, it performed a completely different speech act. Rather than being assertions, the Court’s language was a series of performative utterances, sometimes known as declarations. Performative utterances are what most people think of when they think of speech acts and they are particularly characteristic of legal speech. According to speech act theorist John Searle (below left) “Declarations bring about some alteration in the status or condition of the referred to object or objects solely in virtue of the fact that the declaration has been successfully performed.” When uttered by the right persons under the right circumstances, declarations or “explicit performatives” change the world in the way mentioned in the utterance.
In a successful declaration, just saying something makes it so. “I hereby declare the meeting to be adjourned” adjourns the meeting. “The motion is hereby overruled” overrules the motion. “I hereby accept your offer” accepts the offer. The speaker’s use of the legal-sounding adverb “hereby” is a universal signal of an explicit performative. Although the word may be omitted when it is tacitly understood, “hereby” can be added to any performative phrase without changing its meaning or effect.
Unlike assertions, declarations are neither true nor false: instead, they are effective or ineffective, depending on who does the declaring and under what circumstances. When an umpire yells “You’re out!” in a baseball game, the runner is out. When a fan yells “you’re out” in identical circumstances the runner is not out. When a law student writes, “A plaintiff must demonstrate that it has suffered an irreparable injury,” his writing has no declarative effect and does not affect the law. When five justices of the Supreme Court write the same sentence in an opinion, the words have a declarative effect, which creates the rule it just announced.
But it gets a bit more complicated. Often an utterance can have both assertive and performative illocutionary force. “The bar is closed” when said by a disappointed patron to a hopeful arrival is an assertion and is either true or false. But when it is loudly announced by the publican to the patrons in the bar, it is a declaration that becomes “legally” effective upon its utterance: Saying it closes the bar. But in those circumstances, it is also a true statement by the publican about the bar’s status. As such it is an assertion whose purpose is to give information to the hearers.
The same expression can thus serve two functions, formally closing the bar and truthfully informing the patrons of that sad fact. Searle called such hybrid expressions “assertive declarations.” An assertive declaration in a judicial opinion would simultaneously change the law in some way and truthfully assert that the law had become the way it described.
Finally, to complicate things still further, whether an utterance is an assertion, a declaration, or an assertive declaration depends on its correct interpretation by the hearer. The “illocutionary force” or speech act status of an utterance is always a matter of interpretation, no less than is its meaning.
What then is the speech act status of the eBay Court’s statement that, under the familiar four-factor test, the issuance of a permanent injunction requires a plaintiff to “demonstrate that it has suffered an irreparable injury”? If it was only an assertion, like the student’s answer, then it was false, as a host of Remedies authorities have confirmed. See above. It completely misstated existing law.
On the other hand, if the Court had written an explicit performative: “We hereby rule that a permanent injunction requires a plaintiff to demonstrate that he has suffered an irreparable injury,” that utterance would have been neither true nor false because it would not be an assertion. It would instead have been legally effective to change the law of injunctions in federal courts. It would have been formally unobjectionable, although of course subject to criticism as to its wisdom.
But did the court intend for its statement to be declarative of law despite its omission of “hereby”? Ostensibly, the court was merely reporting the existence of a “well-recognized four factor test” and reciting part of that test. In this, it was mistaken. Its declaratory powers do not include the power to change facts.
But the Court did more than assert the existence of the test as a fact. It implicitly adopted the test as its own and used it to resolve the case. In doing so, it declared the four-part test to be federal law, even if, as Gergen et. al. have suggested, “accidental” law.
As an “assertive declaration,” the paragraph became not only legally effective but, as a consequence, also became factually true as a description of federal law. In other words, the paragraph became a true assertion about federal law as soon as it was published, as does any successful assertive declaration. Saying it made it so.
Should my hypothetical student then have won the argument over his exam? Technically, his statements were false and misleading when he wrote them but they became true only later with the publication of eBay. Moreover, even after eBay, the non-federal law applicable to the exam hypothetical remained unchanged. I continued to teach subsequent classes the actual tests for permanent injunctions in courts uninfluenced by eBay and that its effect on federal court cases that do not involve patents is still uncertain. There is no sign that the Court itself is inclined to clarify the ruling and that is where things stand.
But I confess, if any of my students had been sharp enough to find the eBay opinion and make that argument in an exam review, he or she would have earned a grade increase for initiative.
Postscript: My brief enumeration of inaccuracies in the eBay paragraph follows. Although Justice Thomas authored the opinion, any blame for its mistakes was equally shared by the entire Court because none of them was challenged or corrected.
Monday, January 30, 2023
The Project on the Foundations of Private Law at Harvard Law School is seeking applicants for full-time, one- to two-year residential appointments, starting in the fall of 2023. The Project on the Foundations of Private Law is an interdisciplinary research program at Harvard Law School dedicated to scholarly research in private law. Applicants should be aspiring academics with a primary interest in one or more of property, contracts, torts, intellectual property, commercial law, unjust enrichment, restitution, equity, and remedies. The Project seeks applicants with a serious interest in legal structures and institutions, and welcomes a variety of perspectives, including economics, history, philosophy, and comparative law.
Application materials are due to Bradford Conner (conner at law.harvard.edu) by 9:00 a.m. on February 28, 2023. Details on both the fellowship and the application can be found at http://blogs.harvard.edu/privatelaw/people/ under "Apply to be a Postdoctoral Fellow."
The University of Wyoming College of Law welcomes applications for a Visiting Professor at any faculty rank to teach in the areas of business law and/or commercial law. Specific curricular needs include, possibly Contracts, Business Organizations, Secured Transactions, Consumer Protection, and Securities Regulation. This position can be either for a full-time, 1-year appointment or a 1-semester appointment.
We especially welcome applications from candidates who would enhance the diversity of our faculty. Applicants for these positions should hold a J.D. degree from an accredited law school, have distinguished academic credentials, relevant legal experience, and a demonstrated commitment to outstanding teaching, research, and scholarship. The University of Wyoming is dedicated to ensuring a fair and safe environment for our faculty, staff, students, and visitors. For more information, please contact Associate Dean Sam Kalen.
University of Wyoming College of Law
1000 E. University Avenue
Laramie, WY. 82071
Friday, January 27, 2023
The Sixteenth International Conference on Contracts will be held at Texas A&M University School of Law in Fort Worth on Friday & Saturday, March 17-18, 2023. Paper abstracts and proposed panels should be submitted through the Conference Website.
Both the Early Bird registration discount deadline and the deadline for submissions are are January 31st!!!
Registration for the Conference is available on the site. The Conference is booking blocks of rooms at the Fort Worth Sheraton (across the street from the law school) and the Hampton Inn Downtown Fort Worth (5 blocks from the law school). Hotel registration links are also available on the site. The Conference registration fee includes two Continental breakfasts, two catered lunches at the Schuchtman Conference Center, and the Friday night Conference Dinner. The Trinity Rail line runs directly from DFW International Airport to Fort Worth Central Station, which is 5 blocks from the law school.
Each year the Conference's goal is to present papers and works-in-progress that address the whole spectrum of contract and commercial law scholarship, whether doctrinal, historical, jurisprudential, economic, philosophical, critical, pedagogical, or interdisciplinary. Presentations by those who work in non-U.S. legal systems and by junior scholars who are new to the field are particularly encouraged. Individual paper and works-in-progress submissions will be assigned to panels. Proposals for entire panels with particular themes are particularly welcome,
KCON, which was created in Gloucester, England in 2004, affords an opportunity to present and discuss ideas on a wide range of topics at every level of development, including recently-published articles, articles accepted for publication but not yet in print, works in progress, thought experiments, preliminary ideas, and pedagogical innovations. It also provides an opportunity to network with colleagues and potential collaborators or mentors from around the country and other parts of the world. The conference is especially open and welcoming to junior scholars in contract law and related fields and those interested in entering the legal academy.
Conference Lifetime Achievement Award to Honor Texas A&M Professor Bill HenningThe International Conference on Contracts is pleased to announce that Professor William H. Henning will receive the Conference’s Lifetime Achievement Award at the Conference Dinner in Fort Worth on March 17, 2023. The Award honors individuals whose careers have been spent in legal academia and who have made major contributions to legal education, contract law scholarship, and the practice of commercial law. Henning is the fourteenth person to be so honored.
Professor Henning is Executive Professor at Texas A&M University School of Law and Emeritus Professor of Law at both the University of Alabama and the University of Missouri-Columbia Schools of Law. His forty-plus years of teaching and scholarship includes service as Executive Director of the Uniform Law Commission, Member of the Permanent Editorial Board for the Uniform Commercial Code, chair or member of multiple drafting committees revising the UCC, and member of U.S. State Department delegations working on the development of private international law instruments at UNCITRAL and UNIDROIT. He has written extensively on contract and commercial law, including popular law school texts on Sales & Leasing Law and Secured Transactions.
Submissions should identify the author(s) and contain an abstract (not more than 500 words) of the proposed presentation. Proposed panels should include the names and contact information for all participants. Submissions will be accepted on a rolling basis, and submissions after the submission deadline may be accommodated on a space-available basis. Submissions may be made by using the form on the website, if possible.
Questions should be directed to:
Professor Frank Snyder
Texas A&M University School of Law
1515 Commerce Street
Fort Worth, TX 76102
Both Texas A&M School of Law and the KCON Organizing Group look forward to seeing you in Fort Worth!
Thursday, January 26, 2023
My student Jewel Porter provided me with the following update on the DoNotPay story that we ran last week.
Alas, there is just no way to find out whether DoNotPay's robotic attorney could actually help a customer beat a parking ticket. Or is there? If Mr. Browder is really interested in trying out his robotic attorney in a real setting (but apparently not one in which his liberty is at stake), my offer stands. In exchange for a $1 million donation to my law school, I am ready to organize a Supreme Court style moot court at which Mr. Browder can show us the capabilities of his AI attorney. This offer is contingent on us coming to formal agreement and all rules being followed.
Curious minds might inquire what State Bar prosecutors are and whether they have the authority to throw someone in jail for six months. Do robots not get due process?
I feel like I have to revisit this story anew every couple of years. Over a decade ago, companies were offering AI solutions to contracts drafting problems. Software has long been available to help attorneys draft often very specific types of contracts. Now, a company (or product) called Spellbook is offering to do so using GPT technology. I imagine the technology is only getting better.
It seems pretty impressive. I think I will let them tell their own story. One thing I like about this video is that it is clear (or at least it should be) that this is a tool for attorneys. It offers language, but only an attorney or extremely knowledgeable business person would know whether the language was any good.
Hat tip to Elizabeth Winston.
Wednesday, January 25, 2023
The Rainmaker’s Case
(and the Aleatory Contingency Fee Scam)
When lawyers hear the word “rainmaker,” they think of a partner in a law firm who makes his money by attracting high-paying clients to the firm. He often assigns their legal work to his partners and associates, whose work earns the firm’s income. But don’t feel sorry for them: a good rainmaker can be worth his weight in gold to his partners, whose net earnings would dwindle without him.
The term “rainmaker” in such a case is metaphorical, referring to tribal magicians who are believed to produce rain by propitiating the gods. The recent devastating floods in drought-stricken California reminded me that “rainmaker” used to have a more literal meaning. A little over a century ago, while California was enduring yet another prolonged drought, an enterprising sewing machine salesman named Charles Mallory Hatfield invented what he claimed was a new, scientific method of making rain. Hatfield sold his services as a “pluviculturist” to several California municipalities under a series of contingency fee contracts in which he would be paid only for producing rain in agreed-upon amounts. The following version of his story can be found here.
In 1915, Hatfield entered a contract with the city of San Diego to produce enough rain to fill the nearby Morena Dam Reservoir. Under the terms of the deal, Hatfield would be paid $1,000 per inch of rain produced between 40 and 50 total inches. He would receive nothing for rain up to 40 inches, which the parties apparently assumed would fall without artificial assistance. He also would receive nothing for rain above 50 inches, which was apparently all that the city needed. The contract provided that the $10,000 fee was payable only when the reservoir was filled.
Hatfield put his mechanism into action and on January 5,1915 it began raining. And raining. And raining. Thirty inches fell in January alone. The rain not only filled the reservoir but caused devastating flooding, which broke a dam and caused millions of dollars in damage. “Hatfield’s Flood” ultimately claimed 50 lives. Pleas to Hatfield to call off the rain were ignored because he was helpless to do so. Instead of calling it off, he doubled-down, promising to provide yet more rain!
Après le deluge, Hatfield confidently claimed his $10,000 fee. The city of San Diego contested the claim. The city denied liability on the oral contract on several grounds. It also counterclaimed against Hatfield for $3.5 million in damages resulting from the flood.
These offsetting tort and contract claims created a perfect legal stalemate. The city could not lose: Either Hatfield was a fraud and did nothing to earn his fee (the rain having fallen without his assistance) or else he did cause the rain and so was liable in tort for the resultant flood damage as an intentional or negligent trespass. Hatfield likewise could not lose: either he earned the fee or else he was not liable because he did not cause the flood. Because neither party could lose, neither could win. The court reportedly held that the rain was an Act of God (not an Act of Hatfield), and so denied both the contract claim and the tort counterclaim. The only rainmakers to make money from the case were the lawyers.
The Rainmaker’s Case resonates with the dark folklore of contract, myths rooted in fears of rash promises and unintended consequences. One trope involves the consequences of breach of a promise to pay for supernatural services. Compare the people of San Diego with the citizens of Hamlin, who made a deal with the Pied Piper to pay for the extermination of the plague of rats. When they refused to pay as promised, he spirited away their children. When the city refused to pay as it had promised, Hatfield punished their breach of contract with more deadly rain.
Or perhaps Hatfield suffered the fate of the Goethe’s Sorcerer’s Apprentice, a role played by Mickey Mouse in the 1940 Disney movie Fantasia. Left to manage the sorcerer’s workshop while his master was away, Mickey wielded magic that he did not understand in order to get his water-carrying chores done by an animated broom, He found himself unable to utter the magic spell that would stop an army of implacable, bucket-carrying brooms from flooding his master’s workshop. The master returned just in time to regain control and the apprentice was duly chastened. Perhaps like Mickey Mouse, Hatfield learned the risks of tampering with the elemental forces of nature. When you mess with Mother Nature, always have a safe word.
Moving from myth to more mundane matters, the Rainmaker’s deal illustrates one of the oldest cons in the book, what I call the Aleatory Contingent Fee Scam. It works like this: Suppose someone approaches you in a casino and, recognizing that you are a novice, makes you the following offer: “I will give you guaranteed roulette wheel betting advice for a fee: If you lose a bet following my advice, you pay me nothing. If you win, you pay me 10% of your winnings.” Hatfield offered rainmaking services to San Diego on exactly the same basis. The city got his services for free if it didn’t rain, while he got paid up to $10,000 if it did.
I trust the reader can see that it would be foolish to agree to pay an aleatory contingency fee on the basis of a chance event. The key to the scam is that the payee cannot influence the contingency and simply rides along on the payor’s good fortune when it occurs.
The reader may be inclined to think that no rational person would agree to an Aleatory Contingency Fee Scam. The reader would be wrong. Consider corporate executive compensation contracts that reward CEO’s with vast bonuses payable on the contingency of stock price movements that the CEO’s may have had little or no hand in influencing. If it doesn’t’ rain, they get nothing. But if it rains, they get rich; and the corporation takes a bath.
Tuesday, January 24, 2023
Top Downloads For:Contracts & Commercial Law eJournal
Recent Top Papers (60 days)As of: 25 Nov 2022 - 24 Jan 2023
Top Downloads For:Law & Society: Private Law - Contracts eJournal
Recent Top Papers (60 days)As of: 25 Nov 2022 - 24 Jan 2023
No, not that President's son.
Teodoro Obiang Nguema Mbasogo (shown here meeting with U.S. Secretary of State, Condoleeza Rice) has been President of Equatorial Guinea since he deposed his uncle in a bloody coup in 1979. His son and presumed successor, Teodoro Nguema Obiang Mangue, serves as Vice President. According to Cecelia Macauley, writing for the BBC, the son, known as Teodorin, ordered the arrest of his half-brother, another of the President's sons, Ruslan Obiang Nsue, for having sold a plane belonging to an international airline based in Equatorial Guinea to a Spanish company. Mr. Obiang Nsue had previously served as a director of the airline, and he is alleged to have pocketed the proceeds from the transaction. The plane went missing while undergoing maintenance in Spain.
It is not the first time that Mr. Obiang Nsue has been implicated in corrupt dealings. That said according to the BBC, Teodorin has also had his business dealings questioned. The U.S., Switzerland, and France have all sanctioned him for using public funds to purchase luxury items, including a $30 million mansion and at least a dozen luxury cars. With the precedent established by his half brother, Mr. Obiang Nsue might have thought he was engaged in a standard contractual agreement when he sold the plane. But sometimes contracts for the sale of goods (the illegal kind) become geo-political events.
Monday, January 23, 2023
The Law and Political Economy Project has posted eight perspectives on the proposed rule. It's a great collection. Recommended reading!
The Roberts Court, led by Justice Alito, has pursued an aggressive anti-union agenda. For example, in Janus v. American Federation (2018), in a 5-4 decision, the Court found that a 41-year-old precedent (Abood) which permitted public-sector unions to collect dues for the purposes of collective bargaining, contract administration, and grievances, violated the free-expression rights of workers who preferred not to be represented by the union. This creates a huge free-rider problem for the unions and restricts their ability to collect the dues they need, for example, to create reserves that they need to provide benefits to workers in case of a strike. That is awesome for industrial business entities. Three years later, in Cedar Point Nursery v. Hassid (2021), in a 6-3 decision, the Court ruled that a 44-year old California regulation that allowed labor union representatives to enter private farms for the purpose of union organizing effected an unconstitutional taking. Absent this regulation, there is simply no convenient mechanism that allows unions to recruit farm workers. That is awesome for agricultural business entities. This term, the Court will decide another union case, and the prospects for the unions are not good.
In his 2021 article, How the Roberts Court Has Changed Labor and Employment Law, Scott Budow looked at the two cases discussed above and thirteen others. Here is what he found:
Supreme Court justices collectively cast 134 votes in the 15 cases discussed in this article. Those cases spanned civil procedure, constitutional law, and statutory interpretation. There is no unifying judicial philosophy—such as originalism or textualism—that neatly explains why conservative justices would reliably vote in one manner and liberal justices in the opposite manner for these cases. Yet, if all one knew was that conservative justices favor employers and liberal justices favor workers, that person would have correctly predicted 132 of the 134 votes cast (98.5%).
The new case is Glacier Northwest v. International Brotherhood of Teamsters. The facts are as follows: workers struck at a factory in Washington State. The company alleged that the workers caused intentional harm by leaving cement to harden in mixers. The trial court dismissed the suit, pending a determination by the National Labor Relation Board (NLRB) on whether the union's conduct was protected under the National Labor Relations Act (NLRA).
One issue in the case is the extent to which state tort actions are pre-empted under federal law in this area. According to Sharon Block writing on ScotusBlog, this area of law is governed by something called Garmon pre-emption. Justice Gorsuch wanted to know the size of the "penumbra" around such pre-emption. I don't think this court is particularly find of penumbras, regardless of their size.
All of the Justices were engaged in the second issue, which involved a discussion of whether there is some way to reasonably cabin the limitations on the unions' potential liability for damage to company property. Common sense would seem to dictate that unions should not be liable for incidental harms that occur during a strike but that they ought to be liable for intentional harm to company property. However, as the good people at the Strict Scrutiny podcast point out, the whole point of a strike is to do intentional harm to the corporation. Justice Kagan explained this during oral argument:
What I hear you saying is that the focus on intent is wrong because workers unions do things all the time intentionally to maximize economic harm. You know that if there is a seasonal component of a business, workers will try to time their strike in order to maximize the economic harm because, you know, more of the business is conducted in the summer than in the winter and things like that, that there are all kinds of things which are perfectly intentional to maximize economic harm. And so you’re saying that when we start focusing on intent without more it it it pulls in pretty much, you know, every strategic decision that a union makes as to when to conduct a work stoppage.
Workers might, as they did in Washington, walk out without first emptying the cement mixers because when you go on strike, you stop working, and emptying the cement mixers is, . . . well, . . . you know, . . . work. But none of those actions by the unions would effect any harm to the company if the company would strike a deal with the workers so that they could return to work. And so pinning all of the liability for the effects of a strike on the workers tilts the balance of justice in favor of employers.
Unions engage in asymmetrical warfare. Corporations are extremely powerful. Anybody who has ever been confronted with a business entity's contract of adhesion (that is, everybody) knows that, faced with that power, individual workers do not have the means protect their interests. Only if they have a union can they negotiate with their employers from something like a position of equal bargaining power. But still, the workers have limited tools, the most powerful of which is the strike, and the very purpose of the strike is to effect or threaten to effect economic harm in order to get the company to agree to terms. If the Court adopts a rule that will make the unions pay for that harm, the unions' most effective tool is blunted into uselessness.
The final issue was whether the legal issues in the case ought to be decided in the first instance by state courts of by a the NLRB. As the Strict Scrutiny crew was quick to point out, being able to limit the power of both unions and executive agencies in one case while also taking a swipe at federal pre-emption is a doctrinal turducken of a feast for the YOLO court. Noel Francisco tried to argue that whether these cases start in the state courts or in the agency, it's six of one, half a dozen of the other in terms of their ability to reach the right conclusion, but he made very clear the corporation's antipathy for legal proceedings in the agencies. As Mr. Francisco put it, "We’d prefer not to be before an administrative agency where the agency is the judge, jury, and executioner. We prefer to be in a court system where we have a neutral judge and the potential for a jury.”
The counterargument is that the NLRB, with specialized expertise and the experience of doing nothing but addressing labor disputes and interpreting the NLRA, is far more likely to reach the correct conclusion than is a state court of general jurisdiction that hears a labor dispute only every once in a while and is not immersed in the relevant sources of law. Moreover, as Justice Jackson pointed out, Congress seems to have wanted the NLRB to have the primary role here. And yet, the Biden administration also argued that the case should be sent back down to the state court.
Sharon Block reports that the conservative Justices were relatively quiet during oral argument. Nonetheless, if form holds, we can predict with 98.5% certainty that the union will lose 6-3.
Friday, January 20, 2023
I've been thinking about re-starting the Blog's Twitter feed, which has been dormant since December. Blog traffic is down, I have been losing touch with academic news that I was getting through active LawTwitter folks, and Twitter remains an awesome news aggregator. And then I came across this latest evidence that the new Twitter is a dastardly, mean-spirited Saturn that devours its own children.
I learned today on Mastodon (of course) through Andy Baio that Twitter has "quietly changed its Developer Agreement today to retroactively justify their unannounced ban on third-party Twitter clients." The change is reflected in an update in Twitter's (you guessed it!) Terms of Service. Here is a track-change comparison that highlights the changes. These changes are really targeted at independent companies that greatly improved the user experience over at Twitter. I wasn't around for the early days of Twitter, and I'm not a person who thinks much about tech matters, so I don't really understand how it all worked, but here is an account of the effect on one such company, Twitterific. #Tweetbot is another such service that the New Twitter has killed off. I take it that these were Apps that you could download that would give you a better experience on Twitter than the actual Twitter App and which contributed mightily to Twitter's success.
As you can read here in reporting from Ivan Mehta, Twitter claimed that these Twitter clients violated its "longstanding rules," without identifying any such rules. The fact that it had to changes its ToS in order to justify its actions is, in a word, suss.
Still mulling a return to Twitter. Still hoping things change over there or that one of the alternative matures into a substitute. For now, please follow the Blog on Mastodon.
I find canons of construction fun, and so I was very interested when I saw that Ethan Leib (left) has published a study of their use in contracts interpretation in New York and California. You can read his The Textual Canons in Contracts Cases: A Preliminary Study here in the Wisconsin Law Review. The article is especially timely given the vogue for textualism and SCOTUS's current inclination to use the canons and other textualist devices, rather than legislative intent, to decide statutory cases. Professor Leib notes that the scholarly consensus was, until recently, that the canons are helpful bur rarely outcome-determinative. What does the contracts caselaw have to say about that?
Spoiler alert: Here are Professor Leib's general conclusions based on his preliminary investigation of the use of three of the canons two jurisdictions:
- (1) Jurisdictions seem to favor ejusdem generis over expressio unius in contract cases and prefer both of those canons to noscitur a sociis (a canon ranking that does not recur in non-contract cases);
- (2) Jurisdictions continue to debate whether the canons should be used principally to resolve ambiguities or whether they are relevant before a legal finding of ambiguity;
- (3) Across jurisdictions, there seems to be an increased incidence of courts discussing textual canons in contract cases in recent decades; and
- (4) It is rare that textual canons do their work standing alone; rather, contract cases that draw upon the textual canons routinely invoke other linguistic and substantive can
The choice of New York and California is interesting. New York courts tend towards formalism in contracts litigation, while California courts tend toward contextualism. Both states tend towards political liberalism, so it is especially interesting to see whether their jurisprudential differences result in an different deployment of the canons.
Beyond its general conclusions, the article provides insights along the way, such as this measured judgment on the relation of linguistic and substantive canons:
These findings suggest that linguistic canons in contract cases often function in conjunction with substantive canons that are doing some of the work of nudging a textual meaning in one direction or another. Since context in combination with common sense is often going to help a court determine whether a linguistic canon ought to determine the ultimate legal meaning of a contract, it is not surprising that courts will want additional context to help them decide if a textual canon is applicable (especially since the weight of authority in New York is that a court need not find ambiguity before considering a canon-based reading of a contract). That is some modest evidence, perhaps, against the idea that New York courts are drawing upon the textual canons to avoid more comprehensively contextual or purposive readings of contracts. Substantive canons, it seems, work in the shadows, nudging textual canons even in this mostly formalist jurisdiction.
Professor Leib also provides some statistics suggesting (given the limits of the dataset, he can do no more) that reliance on linguistic canons is modestly rising in recent decades. That pattern seems more pronounced with respect to reliance on canons more generally. Contracts cases account for a small fraction of the total number of cases in which courts rely on the canons.
Both New York and California recognize the three canons that Professor Leib has researched: expressio unius, ejusdem generis, and noscitur a sociis. The canons are most likely to come up in cases involving insurance policies, exculpatory clauses, releases, and force majeure clauses. Professor Leib has interesting thoughts about the use of the canons in contractual as opposed to statutory construction. The goal in construing contracts is to arrive at the intent of the parties, and Professor Leib thinks ejusdem generis is more helpful in that enterprise than expressio unius. The latter is more helpful in the statutory context, where the focus is more on how the text will be understood by third parties.
It's a very stimulating read, and Professor Leib hints that more studies might be coming. In my very unscientific survey of the caselaw, I have noticed that citations to Scalia and Garner's book (right) seem to be increasing in frequency, almost like a shrine before which one pauses on the way to a legal conclusion. I expect that, as that book settles into its space on the bookshelf nearest the judge's desk in chambers, one will see the frequency of use of the canons continue to rise.
Thursday, January 19, 2023
Nancy Kim (right) has published Adhesive Terms and Reasonable Notice in the Seton Hall Law Review. The article begins with some recent examples of how large corporations weaponize adhesive instruments like terms of service that they characterize as "contracts" in order to "establish and maintain their empires." But Professor Kim argues that allowing the corporations to call at least some of these things contracts is like letting a robber characterize a mugging as a donation. The state sanctions theft when it permits the enforcement of terms imposed on unsuspecting persons or small businesses in the absence of consent.
The article proceeds in three steps. First, Professor Kim "deconstructs" contracts of adhesion, arguing that many of them are mere notices and not contracts at all. She categorizes these instruments and assesses the degree to which they ought to be treated as evidencing contractual obligations. Second, she argues that many adhesive instruments might be binding through tort or property law in more limited ways even if they are not binding contracts. Finally, she offers some rules for proper notice sufficient to bind the counterparty to terms within a contract of adhesion.
Professor Kim points out that the "duty to read" arose in a context of negotiated contracts and is out of place in consumer contracts or other situations where it just is not reasonable to expect parties to read the terms of purported contracts. Some courts have recognized as much and have imposed on parties that subject their customers or clients to adhesion contracts a requirement of reasonable notice of unexpected terms. Nancy points out that reasonable notice requirements and the duty to read seem to have been borrowed from torts law. But while reasonable notice provides a shield to the drafter under tort law, it operates as both sword and shield in contracts law. Moreover, in tort law the question of reasonableness is put to the jury, while judges routinely make determinations regarding reasonable notice in contracts. Too often judges' notions of what a reasonable consumer would notice in an online contract bears no relation to what actual consumers notice.
Professor Kim next argues that adhesive terms found in digital forms often are not contracts. The problem is that such digital forms are often presented to people who have no intent to enter legal relations. Absent such intent, they have no duty to read. As a result, when adhesive terms are presented in a manner that is not obviously contractual in form, they may be effective as a notice, license, or under a quasi-contract theory, but they should not be treated as enforceable contract terms. Nancy then provides a taxonomy of adhesive terms: notice, license, quasi contract, unilateral contract, bilateral contract, and waiver, indicating the purpose and legal enforceability of each type.
Although we call online terms, such as terms of service "contracts," they are not contracts; they are notices. Reasonable notice, in order to be binding, must be something that should be almost impossible to avoid reading. It must be conspicuous, concise and easily understood. Professor Kim provides examples from the torts and property context in order to illustrate types of notice that are actually effective. As Professor Kim illustrates (above and below), in other legal realms, we expect notice to be in large fonts and color-coded, often red or yellow, to give notice of potential violations, or green, to indicate permission. There is a standard for digital notice called the "3 x 5 rule" -- either three lines of text with five words each or five lines of text with three words each. So notice should come in (roughly) Haiku (or Tanka) or Limerick form.
It is a fascinating proposal, the product of at least a decade of work toiling in the trenches of contracts of adhesion, now supplemented with knowledge from other doctrinal areas. Her approach seems radical, but it is tethered to case law and supported by considerable cross-doctrinal legal reasoning. This is recommended reading, and I hope the courts take notice.
Wednesday, January 18, 2023
Last week, we reported on the Federal Trade Commission's new proposed rule to prohibit covenants not to compete in most trades. We also learned last week, thanks to Eric Chiapinelli, law prof and purveyor of champaign, that the Delaware Chancery Court took a hard look at restrictive covenants in a recent decision.
Plaintiffs in Ainslie v. Cantor Fitzgerald, L.P., six former partners of Cantor Fitzgerald (the Firm), were prohibited with competing with the Firm for one year and from soliciting business for two years (the No Breach Condition). In addition, the Firm's non-compete agreement allows the Firm to withhold four years of payments owed to the departing partners' capital accounts. The Firm is obligated to pay out 1/4 of those funds each year unless the partner engages in some competitive activity, even if that activity is not prohibited under the covenant (the Competitive Activity Condition). The Firm alleged that all six partners had engaged in competitive activities within a year of leaving the Firm. Vice Chancellor Zurn found both of the restrictive covenants at issue here facially overbroad and void against public policy. Accordingly, plaintiffs committed no breach in violating these unenforceable provisions and are entitled to the payments they sought.
Plaintiffs all left the Firm in 2010 and 2011. They sought recoveries, ranging from just under $100,000 to just under $5.5 million, of payments the Firm had withheld under the restrictive covenants due to alleged competitive activities.
The first issue contested by the parties was whether the conditioned payment provision relating to the departing partners' capital accounts was a contractual condition, as the Firm maintained, or an unenforceable penalty clause, as the plaintiffs claimed. The Vice Chancellor provides a handy "Primer On Promises, Breaches, Liquidated Damages And Penalty Provisions, And Conditions" beginning on page 26 of the opinion. This is a great review for first-year law students on the fundamentals of contracts law. The Vice Chancellor then applies its erudite exposition of the law and concludes that the conditioned payment provision was enforceable as a contractual condition precedent.Moving on to the main event, the Vice Chancellor sets out the applicable legal standard:
For the Restrictive Covenants to be enforceable under Delaware law, they must (1) be “reasonable in geographic scope and temporal duration, (2) advance a legitimate economic interest of the party seeking its enforcement, and (3) survive a balancing of the equities.” The reasonableness of the covenant’s scope is measured in relation to the employer’s legitimate interests: a greater scope must be supported by a greater interest.
The Vice Chancellor subjects the covenants to reasonableness review notwithstanding the plaintiffs' having stipulated in their employment agreements to the provisions' reasonableness. She also notes that the parties' stipulation that the provision may be amended does not require her to apply the "blue-pencil rule," according to which unenforceable provisions of a non-compete may be set aside/crossed out while the rest is enforced.
The Vice Chancellor found the No Breach Condition's global geographic scope unreasonable. She found the scope of those protected "patently unreasonable." She provides the following illustration of the breadth of the protections:
A former Cantor Fitzgerald partner who worked as a broker in the Hong Kong office could withdraw from the Partnership, move to Europe, and switch professions by taking a position as an accountant for a large international accounting firm. If that accounting firm provides services for a European-based entity in the “institutional brokerage business,” and the Managing General Partner determines that such accounting work “could be considered to be” “assist[ing] others in engaging in” indirectly competing with a Cantor Fitzgerald affiliate, then Cantor Fitzgerald could seek injunctive relief and withhold payment of all Conditioned Amounts.
To make matters worse, the determination of whether the provision has been violated is left to the sole discretion of the Managing General Partner. In light of the unreasonable geographic and scope provisions, the Vice Chancellor also found the duration of the No Breach Condition unreasonable. Balancing the equities, the Vice Chancellor concludes that the No Breach Condition is unenforceable.
The Vice Chancellor treats the Competitive Activity Condition as a "forfeiture-for-competition" provision. Such terms are subject to a reasonableness review akin to that accorded to those applied in the context of a sale of a business. Even under that more lenient standard, the provision fails the reasonableness test, as the Firm has no compelling interest to justify a four-year restriction on its former partners.
On my reading of the proposed FTC rule, even if the No Breach Condition survived review in the Chancery Court, it would still run afoul of the new rule. But with respect to the Competitive Activity Condition, the outcome is unclear. The proposed rule has an exception for covenants not to compete in the context of a sale of a business. This case does not involve the sale of a business, but the Vice Chancellor argues that the standard applicable to the sale of a business should also be applicable here. I don't know how a court should reconcile that state court opinion with the federal rule. In any case, the proposed rule would not have retroactive effect.
Tuesday, January 17, 2023
Belated happy new year from this corner of the blog as the Tuesday Top Ten returns from a holiday hiatus! What have our friends and colleagues been posting and downloading from SSRN to start the year in contracts and commercial law? The law-and-society branch of contract scholarship is down to a top five at the moment, making for a great article submission opportunity. Let's take a look at both major lists to see what's up:
Top Downloads For:Contracts & Commercial Law eJournal
Recent Top Papers (60 days)As of: 18 Nov 2022 - 17 Jan 2023
Top Downloads For:Law & Society: Private Law - Contracts eJournal
Recent Top Papers (60 days)As of: 18 Nov 2022 - 17 Jan 2023