ContractsProf Blog

Tamar Meshel on Coinbase, Inc. v. Bielski: SCOTUS' First Encounter with Arbitration Relating to Crypto

We introduced readers to Tamar Meshel (left) in Wednesday's post.  We are happy to have her back again to provide a primer on this week's oral argument in a new arbitration case.

First Crypto Arbitration Case Heard by SCOTUS
Tamar Meshel

Coinbase, Inc. v. Bielski is the first case before SCOTUS involving arbitration in the crypto context. Oral argument was heard on March 21.

Background

Coinbase, a cryptocurrency exchange, was sued by two of its customers in federal district courts in California.

The first case, Suski v. Marden-Kane, Inc., concerned a purported class action commenced by persons who opted into Coinbase’s Dogecoin sweepstakes. The plaintiffs alleged that the sweepstakes was an unlawful lottery that violated various California laws. Coinbase moved to compel arbitration and the district court denied its motion. The court found that Coinbase’s User Agreement containing the arbitration provision was superseded by its subsequent Rules for the Dogecoin sweepstakes, which contained an exclusive forum selection clause designating California courts for disputes arising out of the sweepstakes.

The second case, Bielski v. Coinbase, Inc., concerned a purported class action commenced by a victim of a scam that resulted in thousands of dollars being stolen from his Coinbase account. The action alleged violations of the Electronic Funds Transfer Act. Coinbase again moved to compel arbitration. The district court refused, finding that the arbitration agreement (as well as the delegation clause it contained) formed part of a dispute resolution procedure that was substantively and procedurally unconscionable.

Coinbase appealed both decisions denying arbitration to the Ninth Circuit pursuant to section 16 of the Federal Arbitration Act (FAA), which permits an appeal from a federal district court’s refusal to compel a dispute to arbitration (but not from a grant of a motion to compel arbitration). Coinbase also requested the district courts to stay the trial proceedings pending resolution of the appeals. The district courts and the Ninth Circuit refused Coinbase’s stay requests. The Supreme Court granted cert and heard the two cases together.

Issue on Appeal

Typically, a court has discretion to grant or deny a stay request. As a general rule, however, a notice of appeal divests a district court of power to proceed with those aspects of the case that are involved in the appeal (Griggs v. Provident Consumer Disc. Co.). The question before the Supreme Court in Coinbase is whether the Griggs rule applies to an appeal under section 16 of the FAA from a district court’s decision that the underlying dispute is not arbitrable. In other words, once a district court has decided to hear the underlying dispute, must the case be stayed pending appeal given that section 16 of the FAA allows appeals from denials of arbitration as a matter of right.

The circuit courts of appeals have split on this question, with the majority of circuits holding that an appeal from a district court’s denial of arbitration divests the court of jurisdiction to hear the underlying dispute, so long as the appeal is not frivolous. The disagreement among the courts turns on whether a district court’s finding that the underlying dispute is not arbitrable is independent of the underlying dispute, or rather implicates the entire case because it concerns the district court’s jurisdiction to hear it in the first place. 

Oral Argument

During oral argument, the Justices focused on the FAA’s appeal and stay procedures and on the potential implications of the Court’s decision for the parties. While the specific crypto context in which the procedural question before the Court arose did not seem to be on the Justices’ minds, more crypto cases involving arbitration are likely to creep up into the courts’ dockets.   

Justices Kagan, Jackson, and Sotomayor seemed sympathetic to the respondent customers, emphasizing their right to proceed in litigation once arbitration has been denied. These Justices doubted the link that Coinbase attempted to draw between the right to an interlocutory appeal under section 16 of the FAA and Congress’ presumed intention that such an appeal would be accompanied by a mandatory stay of the merits litigation. The Justices seemed to prefer a textualist approach that focused on Congress’ silence regarding a stay of proceedings in section 16 as compared with section 3 of the FAA, which explicitly provides for a stay of litigation pending arbitration. Justice Sotomayor also raised section 6 of the FAA, which states that unless expressly provided otherwise in the act, applications to the courts are to be made and heard “in the manner provided by law f or the making and hearing of motions.” In its recent decision in Morgan v. Sundance Inc. the Court held that section6 was “simply a command to apply the usual federal procedural rules.” Under these rules, Justice Sotomayor pointed out, an automatic stay is the exception rather than the rule. Justice Kagan emphasized that the Griggs rule was a judge-made rule that should be interpreted narrowly, and did not view the district courts and courts of appeals as “doing the exact same thing” in this case. Finally, Justice Jackson pointed to a “conceptual problem” with imposing a mandatory stay when it is not clear that arbitration will happen at all.

In contrast, Justices Alito, Barrett, Gorsuch, and Kavanaugh seemed more sympathetic to Coinbase. Justices Kavanaugh, Gorsuch, and Barrett appeared open to applying the Griggs rule given that the FAA is silent on the issue of a stay pending appeal. Justice Barrett suggested that while the question of arbitrability is distinct from the underlying merits of a dispute, that question is intertwined with the merits proceedings before the lower court thereby triggering the Griggs rule. Justice Alito was concerned that it would be impossible for a defendant to satisfy the irreparable harm requirement for a discretionary stay if the only potential injury is significant litigation costs. Finally, Justice Kavanaugh was concerned that a defendant could be coerced into “massive settlements” absent a mandatory stay pending appeal.

Conclusion

Refusing to impose a mandatory stay of proceedings while an appeal is pending from a denial of arbitration may defeat the very purpose of section 16 of the FAA. This section evidences a legislative preference for enforcing arbitration agreements by allowing an appeal from an order denying, but not from an order compelling, arbitration. Such an outcome would also be contrary to the federal policy favoring arbitration that the Supreme Court has long espoused. At the same time, section 16 of the FAA does not explicitly provide for a mandatory stay. Moreover, in Morgan as well as in Southwest Airlines Co. v. Saxon the Court placed limits on the policy favoring arbitration.

Coinbase is therefore a difficult case to predict, and may well produce a split decision. The outcome will ultimately depend on whether the majority opts for a strict textualist approach to the interpretation of the FAA or for a more pragmatic approach that accords with the purpose of the act and with the realities of litigating arbitration issues. 

Texas AG Ken Paxton Seeks to Scuttle Settlement With Whistleblowers

Image by Gage Skidmore

While I was in Texas for KCON, I came across this news article from James Barragán in The Texas Tribune.  In short, Texas Attorney General Ken Paxton (right) agreed to a $3.3 million settlement with eight whistleblowers who worked with him and were terminated or resigned after accusing him of corruption and abuse of office.  They agreed to pause their suit against General Paxton so that a payment of the settlement could be arranged. 

General Paxton now thinks the pause should to continue indefinitely, and plaintiffs have had to return to court to ask the court to allow the case to proceed.  The Texas legislature is refusing to approve the payment, and Paxton is now arguing that the whistleblowers, having agreed to a settlement that cannot be implemented, should walk away with nothing.  If the legislative session that ends on May 29th awards them nothing, they can wait, General Paxton avers in a legal filing, until the next legislative session . . . in 2025 and then 2027, and so on.

It seems an important commentary on our time that the incredibly powerful Attorney General of our second-most populous state should engage in corruption atop corruption and it doesn't even merit national news.  My quick Google search turned up no reporting on the issue in the national press.  General Paxton boasts on his website that he brought suit against the Obama Administration 27 times in two years.  Sixteen months into the Biden Presidency, General Paxton had already brought 25 challenges to that administration's policies.  It is hard to keep straight all of the cases that the U.S. Supreme Court has heard in the past few years that are captioned Texas v. United States.  And yet, news of significant corruption and abuse of legal process by a politician with a national impact merits little more than a shrug and a sigh.  I spoke with some friends from Texas about the story, but they could not disentangle this story about corrupt politicians from all the others and responded with hopeless resignation.

The settlement agreement included a provision for an apology from Paxton to his former subordinates.  There are no reports that General Paxton has issued the apology.  The Texas Legislature apparently has no interest in using taxpayer dollars to pay for a settlement that would resolve General Paxton's legal problems in this case.  People interested in learning about the other legal fixes for which General Paxton has never been held accountable, including two indictments for securities fraud which somehow, after seven years, still have not gone to trial, can read about them in the Texas Monthly.  

The Texas Montly also provides a litany of complaints about the inefficacy of General Paxton's office in fulfilling its primary mission -- addressing crime in Texas.  That's as may well be, but from this blog's perspective, there's just one legal delict that matters: breach of contract.

Tamar Meshel on Southwest Airlines v. Saxon

We are delighted to welcome Tamar Meshel (right) as a guest blogger!

Dr. Tamar Meshel is an Associate Professor at the University of Alberta Faculty of Law. She researches, teaches, and consults primarily in the areas of domestic and international arbitration and her work has been cited by the Supreme Court of Canada, the Supreme Court of Israel, and the Delaware Court of Chancery, as well as by numerous scholars.

Southwest Airlines v. Saxon Comes Full Circle
Tamar Meshel

One of the most criticized aspects of the Federal Arbitration Act (FAA) (and there are plenty to choose from) is that it operates to “foreclose state legislative attempts to undercut the enforceability of arbitration agreements” (Southland Corp. v. Keating) by pre-empting any state law that “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress” in enacting the FAA (AT&T Mobility LLC v. Concepcion). The conventional wisdom is that if it were left to the states, employees and consumers would not be subjected to the pre-dispute arbitration agreements that SCOTUS—through its interpretation of the FAA—is commonly accused of imposing on them.

In some states, however, the FAA may turn out to be less “pro-arbitration” than state law. Take Southwest Airlines Co. v. Saxon, one of the FAA cases SCOTUS decided in the 2021 Term. Considered a win for employees, the Court in Southwest Airlines unanimously held that airport cargo loaders were “transportation workers” exempt from arbitration under § 1 of the FAA. The Court refused to interpret § 1 of the FAA narrowly on the basis of its “proarbitration purpose,” which it has invoked numerous times in past decisions. As a result, the plaintiff could not be compelled to arbitrate her claims (including collective claims under the federal Fair Labor Standards Act) against Southwest and was permitted to pursue them in court.

Back before the district court in Illinois, however, the plaintiff was less successful in avoiding arbitration. On March 10, the district court granted Southwest’s renewed motion to compel arbitration, this time under the Illinois Uniform Arbitration Act (IUAA). Unlike the FAA, the IUAA does not exempt any category of employees from its coverage, although it allows courts to refuse to enforce arbitration agreements for failure to comply with the terms of the Illinois Workplace Transparency Act (WTA). Having no available exemption from arbitration under the IUAA, the plaintiff instead argued that she should nonetheless be allowed to proceed in court, because Southwest had waived the right to arbitrate, the arbitration agreement was substantively unconscionable, and it violated the WTA.

The district court was unconvinced. It found that Southwest did not waive its right to arbitrate under Illinois law, because it did not unreasonably delay requesting arbitration under the IUAA, did not request any decision on the merits, and no discovery was conducted. The court also rejected the plaintiff’s unconscionability arguments, which were based on provisions in the agreement that limited discovery and entitled Southwest to attorneys’ fees if an employee pursued a claim in court rather than in arbitration. Finally, the district court found that the WTA did not apply to the plaintiff’s case, because the act only prohibits arbitration of claims involving unlawful employment practices, defined as forms of “unlawful discrimination, harassment, or retaliation . . . actionable under Article 2 of the Illinois Human Rights Act, Title VII of the Civil Rights Act of 1964, or any other related State or federal rule or law.” The plaintiff’s claims, the court held, did not involve any such unlawful employment practices. The district court therefore granted Southwest’s motion to compel arbitration and stayed the case.

After spending four years litigating before three levels of federal court in order to avoid the FAA, the plaintiff in Southwest Airlines is now back where she started—in arbitration. Only this time, it is not the FAA that put her there. Some opponents of the FAA might be less bothered by this outcome because it is a function of state law rather than a domineering federal act. At the same time, many critics take issue not only with the FAA’s pre-emptive effect but also more fundamentally with arbitration of employment disputes. If this is indeed the real concern with the FAA, it should equally apply to state laws. Southwest Airlines therefore provides an interesting opportunity to elucidate what precisely is it in the FAA that critics oppose and to consider that some state legislatures have opted to enforce employment arbitration agreements even where the FAA does not mandate them to do so.   

Tuesday Top Ten - Contracts & Commercial Law Downloads for March 21, 2023

Rested and reinvigorated by KCON XVI (the Sixteenth International Conference on Contracts), the time has come for the Tuesday Top Ten to roar back with a scholarly vengeance! Let's check the SSRN charts for our indisputably favorite doctrinal field, shall we?

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 20 Jan 2023 - 21 Mar 2023

Rank	Paper	Downloads
1.	Terms of Service and Fourth Amendment Rights Orin S. Kerr University of California, Berkeley School of Law	721
2.	Defeating the Empire of Forms David A. Hoffman University of Pennsylvania Carey Law School	638
3.	Contract-Wrapped Property Danielle D'Onfro Washington University in St. Louis - School of Law	311
4.	Algorithmic Harm in Consumer Markets Oren Bar-Gill, Cass R. Sunstein and Inbal Talgam-Cohen Harvard Law School, Harvard Law School and Technion-Israel Institute of Technology	212
5.	Non-problems, Future Problems and Fairy Dust Martin Dixon University of Cambridge - Faculty of Law	135
6.	Contract Production in M&A Markets Stephen J. Choi, Mitu Gulati, Matthew Jennejohn and Robert E. Scott New York University School of Law, University of Virginia School of Law, Brigham Young University - J. Reuben Clark Law School and Columbia University - Law School	123
7.	Do Firms Value Court Enforceability of Noncompete Agreements? A Revealed Preference Approach Takuya Hiraiwa, Michael Lipsitz and Evan Starr University of Maryland - Robert H. Smith School of Business, Federal Trade Commission Bureau of Economics and University of Maryland - Robert H. Smith School of Business	121
8.	Expecting Specific Performance Tess Wilkinson‐Ryan, David A. Hoffman and Emily Campbell University of Pennsylvania Carey Law School, University of Pennsylvania Carey Law School and University of Pennsylvania Carey Law School	112
9.	The Scope of the Digital Services Act and Digital Markets Act: Thoughts on the Conflict of Laws Tobias Lutzi University of Augsburg	108
10.	On Rawlsian Contractualism and the Private Law David Blankfein-Tabachnick and Kevin A. Kordana Michigan State University College of Law and University of Virginia School of Law	106

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 20 Jan 2023 - 21 Mar 2023

Rank	Paper	Downloads
1.	Choice of Law in the American Courts in 2022: Thirty-Sixth Annual Survey John F. Coyle, William S. Dodge and Aaron D. Simowitz University of North Carolina School of Law, University of California, Davis - School of Law and Willamette University College of Law	209
2.	Do Firms Value Court Enforceability of Noncompete Agreements? A Revealed Preference Approach Takuya Hiraiwa, Michael Lipsitz and Evan Starr University of Maryland - Robert H. Smith School of Business, Federal Trade Commission Bureau of Economics and University of Maryland - Robert H. Smith School of Business	121
3.	Against Essentialism in Private Law Theory: Private Law as an Artifact Kind Thilo Kuntz Heinrich-Heine-University Düsseldorf	110
4.	On Rawlsian Contractualism and the Private Law David Blankfein-Tabachnick and Kevin A. Kordana Michigan State University College of Law and University of Virginia School of Law	106
5.	When Private Law Theory Is Close Enough Andrew S. Gold Brooklyn Law School	80
6.	Reliance Paul MacMahon London School of Economics - Law School	63
7.	How Reputational Nondisclosure Agreements Fail (Or, In Praise of Breach) Mark Fenster University of Florida Levin College of Law	52
8.	The Due Process Paranoia in International Arbitration Roshani Rathore O. P. Jindal Global University - Jindal Global Law School (JGLS)	33
9.	Binding Nonsignatories to Forum Selection Clauses Jeffrey A. Parness Northern Illinois University - College of Law	32
10.	Dispute Process Choices Among Chinese Companies in the United States: Some Preliminary Data and Analyses Ji Li and Carrie Menkel-Meadow University of California, Irvine School of Law and University of California, Irvine School of Law	29

Consultants Sue Twitter for Unpaid Fees

This post started out as one story, but when I started researching, I fell down a rabbit hole of alleged breaches of contract.  They all fit the incredibly simple pattern: one of the parties to the Elon Musk/Twitter litigation hired some company to do work in connection with the Musk/Twitter transaction.  Then, once Mr. Musk (below) owns Twitter, he doesn't pay.

First, on January 20th, Jon Brodkin reported for arstechnica, that Charles River Associates provided consulting services to Twitter in connection with its lawsuit that eventually forced Elon Musk to purchase the company.  Brodkin previously reported that Twitter had not paid over $1 million to Imply Data, Inc. and apparently intended not to pay the remaining $7 million.  Apparently, Twitter simply doesn't respond when its creditors inquire about unpaid invoices.  At one point, it was impossible to reach Twitter for comment, Brodkin reported, because the PR department had been terminated.  I don't know if that is still the case.  We reported on earlier contract breaches here.

Next, on February 3rd, Lauren Hirsch and Kate Conger reported in The New York Times, Musk has also not paid Innisfree M&A Incorporated $1.9 million owed in connection with work it did for Twitter during the acquisition.  The article details other contracts that the company is not honoring.  

Finally, Laurel Brubaker Calkins reported in Bloomberg News on February 9th that Twitter was also not paying Analysis Group Inc. of Boston $2.2 million in fees for consulting services it provided in connection with the acquisition.  Perhaps Mr. Musk doesn't want to pay the people who contributed to forcing him to buy Twitter, an acquisition he seems to be enjoying less and less these days as the bills come due, the platform degrades, and the route to profitability becomes ever more elusive.  Fortunately, The Onion has a slideshow packed with inspired ideas for making the platform profitable, all suitable for a genius of Mr. Musk's calibre. 

KCON/ContractsProf Blog Brain Trust Assembled

Sorry terrorists, you missed your opportunity.  Last weekend in Fort Worth, current contributors and founding geniuses of both KCON and the Blog were gathered in one place.  You could have taken us all out with a targeted strike, but here we are (Mark Edwin Burge, Wayne Barnes, Frank Snyder, Sid DeLong, and the author (foreground)) laughing at you!

Carol Chomsky, creator, muse, caretaker, peacekeeper, and curator of the AALS Contracts Listserv, was also in the room!  Nancy Kim, was our designated survivor, monitoring all from a secure, undisclosed location.

KCON XVI ENJOYED BY ALL!

I think the headline speaks for itself.  But here are some images in case any are unpersuaded.  

Here we have our name up in lights at the beautifully restored New Isis Theater, where we had an event (below) and dinner, during which we honored living legend Bill Henning.

Once inside, Keith Rowley (pictured left or right, who can tell?) led us through a discussion of various clips from movies and television in which the law of contracts or contract negotiation plays a central role.  

Above is Frank Snyder presenting Bill Henning with a lifetime achievement award to add to his trophy case (photo credit Andrea Tosato).

Even the panels were fun, witness these satisfied panelists, Rachel Arnow-Richman, Tamar Meshel, the author, and Orit Gan.

Thanks to our TAMU hosts, founding genius Frank Snyder, blog contributing editor Mark Edwin Burge, and host extraordinaire Wayne Barnes.  

Haunted House or Contract for Torture?

"Actual" Haunted House

This isn't exactly news, but it's news to me.  Oklahoma City University 1L Zachary Acosta alerted me to the existence of an attraction in Tennessee known as McKamey Manor, reputed to be the most extreme haunted house in the world.  Zachary brought this to my attention because we had just finished a unit on contractual waivers of liability.  

According to Marco Margaritoff & Adam Farley of allthatsinteresting.com, the McKamey Manor requires a doctor's note an the entrants' signatures on a forty-page waiver form.  McKamey offered $20,000 to anyone who could make it through the attraction, but nobody claimed the prize, and the average visitor lasts eight minutes before begging to be let go.  McKamey claims that he did away with the prize because it was attracting "the crazy ones," and McKamey now offers a milder six-hour version of the attraction, which some people make it through.  

While some people have reportedly been hospitalized after visiting the attraction, and there have been numerous threats of law suits, McKamey claims that most of what people think happened to them did not really happen.  He creates illusions, including (he claims) through hypnosis.  He records each session and posts the results to YouTube.  Once he shows participants what actually went on, they drop their suits, he maintains.  

I am of two minds about this one.  I am not a thrill-seeker and do not understand that drive.  But the attraction is popular, and it stands to reason that satisfied customers overwhelmingly outnumber the people who are moved to litigate or agitate over the experience.

One the other hand, there are allegations that McKamey employees continue to torment visitors even after they cry uncle.  If that is a violation of the rules of the game, then the conduct is tortious.  But given the forty-page waiver, it seems likely that the visitors waive all claims, including claims arising out of intentional torts.  My learned colleague Barry Johnson, on whose shoulder I cry when I do not understand the world, analogized the situation to a boxing match -- that certainly involves an agreement to allow oneself to be punched.  

The cases are distinguishable in ways that I find concerning.   Of course, there are problems with boxing itself, and boxing is tame compared with its contemporary cousins.  But it seems unlikely to me that the typical boxer enters a match in the hope of getting beat up.  They intend to deliver the beating and they are trained to protect themselves.  By contrast, I assume that McKamey visitors do not get to respond to their tormentors with punches and kicks.  Moreover, boxing is heavily regulated, and there is a neutral official in the ring who enforces rules and intervenes when a combatant is injured.  The safeguards that are in place at McKamey's seem designed to protect Mr. McKamey from liability rather than to protect participants from injury.  So even if I were okay with boxing, I might not be okay with McKamey's.

As my students well know, I am not a fan of liability waivers.  I do not think that venues that host dangerous activities ought to be insulated against liability for their own negligence.  If you host a dangerous activity, you especially should not be negligent.  If you are negligent, you should be subject to lawsuit, and if you cannot get insurance to protect you against liability, you should be driven out of business, and then we will only have non-negligent venues hosting dangerous activities.  Does that mean that there will be fewer extreme haunted houses, paintball venues, and other sites of totally foreseeable life-altering injury?  I can live with that.  Will those that exist be more expensive?  Great!  People ought not to casually engage in activities that could result in serious injury.

Sid DeLong on Loan Forgiveness and Injunctions (Preliminary and Nationwide)

NATIONWIDE IS ON OUR SIDE: LESSONS FROM THE STUDENT DEBT INJUNCTION
Sidney W. DeLong

In Nebraska v Biden, several states sued the Biden Administration to enjoin the Secretary of Education from implementation of the impending student debt “forgiveness” program under the under the Higher Education Relief Opportunities for Students Act (HEROES Act). The grounds were that that it was unauthorized by the Act and unconstitutional.

Plaintiffs sought a nation-wide preliminary injunction blocking implementation of the plan in a Texas district court, which denied relief on jurisdictional grounds, finding that the plaintiffs lacked standing to sue. In the linked opinion, the Eighth Circuit Court of Appeals unanimously reversed and granted an “injunction pending appeal.”[1] The opinion has several features of interest relating to so-called “nationwide preliminary injunctions.”  

Last month, the Supreme Court heard oral argument on the standing issue.  The Circuit Court held that the state of Missouri had standing to sue because a Missouri governmental agency, the Missouri Higher Education Loan Authority (“MOHELA”), obtained revenue as a result of “servicing” student debt, i.e. collecting loan payments.

The Supreme Court will probably rule in a way that renders the Eighth Circuit’s holdings on the injunction issues moot. But the reasoning that court used is of interest on the matter of nationwide preliminary injunctions.

Irreparable Injury

“It is alleged MOHELA obtains revenue from the accounts it services, and the total revenue MOHELA recovers will decrease if a substantial portion of its accounts are no longer active under the Secretary’s plan.” The Circuit Court held that such harm to MOHELA would irreparably harm the state of Missouri, either directly if MOHELA is part of the state for these purposes or indirectly because of its potential effect on state revenues.

The concept of injury here seems questionable. Who is injured when the government “forgives” a federally guaranteed student loan? Because of the guarantee, lenders and their assignees will be fully paid by the government (the taxpayers) in accordance with the loan guaranty program. Insofar as MOHELA is an assignee of student loans, it will be paid in full.

What about collection agencies whose income comes from the fees they obtain in servicing student loans? Presumably, if the loans are forgiven and the debts are repaid by the government and not by individual payments, there would be no further need to “service” the loans. As was acknowledged in the Supreme Court argument, this loss of fees would give collection agencies enough of an interest to have standing to sue. But since when does a collection agent have a legally enforceable right to the continuation of a debt it services? It seems unlikely that the contract be the creditor and the collection agent gives the agent such a right. Only if the “collection agent” is actually an assignee of the debt, which is not alleged in this lawsuit, then the assignor’s cancellation of the debt would certainly violate the assignee’s rights. But settlement did not affect the holders of the debt because the federal guarantee assures against any loss.

Even if a collection agent had a legally protectable interest in the servicing fees from a debt, violation of that interest would not cause an irreparable injury, giving the agent a general power to enjoin the settlement. An award of money damages would completely compensate for such financial loss. For the same reason, a damages award would compensate any entities, such as the state of Missouri, who derive benefits from the collection of those fees.

There is nothing irreparable about the threatened loss.

The sliding scale test for a preliminary injunction.

Ever since the decision in Winter v Natural Resources Defense Counsel, Inc., 555 U.S. 7 (2008), the Circuits have split on the correct test to apply in ruling on a preliminary injunction. The Winter majority propounded a four-part test in which each element must be established. Justice Ginsburg in dissent argued that courts could continue to use a “sliding scale” test, in which a strong showing of risk of harm might outweigh a weaker showing of likelihood of success on the merits.  In the years following Winter, circuits have split over which test to use.

The Circuit court applied a version of the sliding scale test, finding that a federal preliminary injunction is warranted: “where the movant has raised a substantial question and the equities are otherwise strongly in his favor, the showing of success on the merits can be less.”

But Nebraska seems to be a case like Winter, in which the party seeking the preliminary injunction has a strong case on the merits (given the Supreme Court’s likely resolution of the loan forgiveness validity question) but a weak case on irreparable harm (speculative losses of servicing fees).

Nationwide Injunctions. In a nationwide injunction, a court orders the U.S. government defendant to abate a national program even though the claim at issue is brought on behalf of only a few plaintiffs. But for a court to issue a nationwide injunction upon a showing of only localized harm violates a fundamental equitable principle of injunctive relief: An injunction order must be narrowly tailored to address only the specific irreparable injuries that the plaintiffs have demonstrated will result to them and the injunction must be justified by the balancing of the particular equities of the parties in the case. See generally, Laycock and Hansen, Modern American Remedies (5^th Ed.) Absent a class action, an individual plaintiff should rarely or never be entitled to enjoin a governmental defendant’s actions relating to other parties.

Despite these criticisms, and rather like the storied bumblebee that scientists proved was incapable of flight, the nationwide injunction is now a fact of life and has become the go-to strategy of both the Team Blue (e.g., in actions to enjoin Trump’s immigration policies) and Team Red (in the actions to enjoin the Affordable Health Care Act).

That is not to say that nationwide injunctions are not problematic from a practical basis. Because any district court can issue a nationwide injunction, forum shopping is an essential litigation strategy. Progressives typically file in New York hoping for an Obama judge; Conservatives typically file in Texas hoping for a Federalist Society judge. And the chance always remains that different district courts will issue conflicting temporary restraining orders or preliminary injunctions against an agency, making it impossible to comply with them all.

Members of the DC Mafia as imagined by Justice Kagan
Image by DALL-E

Although such a suggestion is fraught, perhaps the Court should consider issuing a rule that all actions seeking to enjoin a federal agency must be temporarily transferred to a single forum, e.g., a court sitting in the District of Columbia. They could be retransferred after disposition to the court where filed.

The Circuit Court held that a nationwide injunction was appropriate in Nebraska v Biden because the plaintiff obtained loans from around the nation and because it would have been unfeasible to tailor the order to block forgiveness of the specific loans as to which the plaintiff needed relief. The opinion states that “MOHELA is purportedly one of the largest nonprofit student loan secondary markets in America. It services accounts nationwide and had $168.1 billion in student loan assets serviced as of June 30, 2022.”

Nebraska thus adds another factor to be considered in issuing a nationwide injunctions, which is that they are warranted when the plaintiff’s claims are so numerous and geographically widespread that it is unfeasible to disentangle them from the government’s other activities. This factor certainly seems to distinguish Nebraska v Biden from the immigration cases where the orders could be limited to the plaintiffs.

Of course, as the Legal Realists will point out, the resolution of this case will not turn on the law of injunctions or of nationwide injunctions but upon the Supreme Court’s view of the legality of the debt forgiveness order, a question about which there seems to be little dramatic uncertainty.

[1] While the court appears to have granted the preliminary injunction, the exact effect of the ruling is unclear: (“We GRANT the Emergency Motion for Injunction Pending Appeal. The injunction will remain in effect until further order of this court or the Supreme Court of the United States.”) It is unclear to this author whether this is a stay pending the Circuit Court resolution of the preliminary injunction appeal or an injunction pending resolution of an eventual appeal on the merits of the substantive claim.)

(Belated) Tuesday Top Ten - Contracts & Commercial Law Downloads for March 15, 2023

True, these are our Top Ten lists and not the Top Sixteen, but in honor of KCON XVI--the Sixteenth International Conference on Contracts--this week's graphic will be just a little off. This day-late post is a little off, too, but we won't talk about that part. The important point is that we at my beloved home institution of Texas A&M are looking forward to welcoming our global contracts community to Fort Worth this Friday for some excellent scholarship and fun (not always in that order). Now, let's check the SSRN charts!

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 14 Jan 2023 - 15 Mar 2023

Rank	Paper	Downloads
1.	Terms of Service and Fourth Amendment Rights Orin S. Kerr University of California, Berkeley School of Law	708
2.	Defeating the Empire of Forms David A. Hoffman University of Pennsylvania Carey Law School	621
3.	Transactional Drafting: Introduction to Contract Drafting and Transactional Practice Ben Fernandez University of Florida Levin College of Law	322
4.	Contract-Wrapped Property Danielle D'Onfro Washington University in St. Louis - School of Law	284
5.	Standardizing and Unbundling the Sub Rosa DIP Loan Kenneth Ayotte and Alex Zhicheng Huang University of California, Berkeley - School of Law and University of California, Berkeley - School of Law	208
6.	Algorithmic Harm in Consumer Markets Oren Bar-Gill, Cass R. Sunstein and Inbal Talgam-Cohen Harvard Law School, Harvard Law School and Technion-Israel Institute of Technology	180
7.	Contract Production in M&A Markets Stephen J. Choi, Mitu Gulati, Matthew Jennejohn and Robert E. Scott New York University School of Law, University of Virginia School of Law, Brigham Young University - J. Reuben Clark Law School and Columbia University - Law School	121
8.	Mistake in Contract Law Emily L. Sherwin Cornell University - Law School	111
9.	On Rawlsian Contractualism and the Private Law David Blankfein-Tabachnick and Kevin A. Kordana Michigan State University College of Law and University of Virginia School of Law	103
10.	Overcoming Contractual Incompleteness: The Role of Guiding Principles David Frydlinger and Oliver Hart Cirio Law Firm and Harvard University - Department of Economics	100

 

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Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 14 Jan 2023 - 15 Mar 2023

Rank	Paper	Downloads
1.	Choice of Law in the American Courts in 2022: Thirty-Sixth Annual Survey John F. Coyle, William S. Dodge and Aaron D. Simowitz University of North Carolina School of Law, University of California, Davis - School of Law and Willamette University College of Law	204
2.	Against Essentialism in Private Law Theory: Private Law as an Artifact Kind Thilo Kuntz Heinrich-Heine-University Düsseldorf	109
3.	On Rawlsian Contractualism and the Private Law David Blankfein-Tabachnick and Kevin A. Kordana Michigan State University College of Law and University of Virginia School of Law	103
4.	Do Firms Value Court Enforceability of Noncompete Agreements? A Revealed Preference Approach Takuya Hiraiwa, Michael Lipsitz and Evan Starr University of Maryland - Robert H. Smith School of Business, Federal Trade Commission Bureau of Economics and University of Maryland - Robert H. Smith School of Business	91
5.	Reliance Paul MacMahon London School of Economics - Law School	57
6.	How Reputational Nondisclosure Agreements Fail (Or, In Praise of Breach) Mark Fenster University of Florida Levin College of Law	51
7.	The Due Process Paranoia in International Arbitration Roshani Rathore O. P. Jindal Global University - Jindal Global Law School (JGLS)	30
8.	Binding Nonsignatories to Forum Selection Clauses Jeffrey A. Parness Northern Illinois University - College of Law	30
9.	Integrating Artificial Intelligence into the Mortgage Credit Market Rosa M. Garcia-Teruel Universitat de Barcelona	29
10.	Dispute Process Choices Among Chinese Companies in the United States: Some Preliminary Data and Analyses Ji Li and Carrie Menkel-Meadow University of California, Irvine School of Law and University of California, Irvine School of Law	26

Flo Rida Wins $82 Million Judgment Against Celsius Energy Drinks

As Marisa Dellatto reports in Forbes, rapper Flo Rida prevailed in a jury trial on his claims against energy drink company, Celsius.  Being a man who can now count his age in decades, I had never heard of or taken note of this line of beverages or of Flo Rida, but my daughter went to Flo Rida concert last year, and now I am seeing Celsius ads every time I stream content on services that have ads.  Live and learn.

The suit arises out of an endorsement deal that Flo Rida (Flo? Mr. Rida?) signed with with Celsius.  The deal was renewed in 2016 and terminated in 2018,  Flo Rida claimed that he was entitled to shares in the company, and a jury agreed.  Celsius argued that the statute of limitations had lapsed, but the jury found(!) that Celsius was equitably estopped from making such an argument.  

The verdict consists, in part, of 250,000 shares in the company, which at the time of the verdict were selling for $110/share.   That accounts for $27 million of the verdict.   I'm not sure where the rest comes from. 

Flo, I've never tasted the stuff, but my advice is: liquidate your shares in a hurry, because this stuff has fad written all over it.  It's already down to $84.50/share, but as recently as May 2020, it was below $5/share, and those times may well return. 

Sid DeLong on FTX Bankruptcy and Asset Forfeiture

CLASH OF THE TITANS: FEDERAL ASSET FORFEITURE VS. FTX BANKRUPTCY TRUSTEE
Sidney W. DeLong

This story may remind the older readers of classic movies involving Godzilla vs. Mothra or childhood discussions about whether Batman could beat Superman. In one corner, the Justice Department with all the weight of federal criminal law behind it. In the other corner, the federal bankruptcy trustee for FTX, representing the unpaid creditors of an $8 billion fraud. In the middle is former FTX officer Nishad Singh.

Image by DALL-E

On reflection forget Godzilla: The better metaphor is a lion and a hyena squaring off over the carcass of a wildebeest on the savannah. Singh is reported (through Bloomberg and The Seattle Times) to have forfeited a multi-million dollar home to the government as part of a plea bargain on charges including federal wire fraud. The federal government and the trustee seem likely to square off over the property. Like the wildebeest, Singh is probably indifferent as to which one prevails.

Civil asset forfeiture has long been a controversial weapon used to swell public coffers at the expense of criminal defendants and their sometimes-innocent families and friends. It is available in a civil action brought by the government against the owner of the property involved. Criminal asset forfeiture is available in a criminal proceeding as part of the sentence imposed upon conviction. Both kinds of forfeiture enrich the government at the expense of the owners of the forfeited property. The government may or may not elect to use the forfeited funds to compensate the victims of the fraud.

But what if there are other claims to the forfeited property? The Singh case reminds us that asset forfeiture can also infringe on the rights of unpaid creditors of the defendant.

Tug-of-War Image by DALL-E
Inspired in part by Squid Game

A bankruptcy trustee for FTX might have several claims against the property of its ex-officers such as Singh, including claims based on theories of negligence, misappropriation, fraudulent transfers, etc. The trustee represents the interests of the unsecured creditors of FTX, which includes all the innocent victims of its fraud. Any diminution of Singh’s assets reduces their potential ultimate recovery and increases their uncompensated loss.

The government’s asset forfeiture claim is, by contrast, not designed for compensation but as punishment. The report suggests that the government sees the forfeiture as a benefit to the victims of the fraud. If it simply turns the forfeited property over to the trustee, no problem results.

If it instead asserts an interest in the forfeited funds on behalf of the federal government, the trustee of FTX is likely to challenge the reported forfeiture. The results of the challenge will depend on bankruptcy law whose analysis is beyond the scope of this post. Such a case will likely raise issues involving priorities of distribution, preferential transfers, fraudulent transfers, and constructive trust theory.

 Stay tuned for more developments.

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(C): Response to Sid DeLong

Comment on Sidney DeLong’s Post on Relational Contracts
Melvin A. Eisenberg

Sidney DeLong’s post on relational contracts prompts me to expand the comments on relational contracts that I made on Ethan’s post on that subject.

Several unsuccessful attempts to define relational contracts were made in the past.

For example, Goetz (left) and Scott (right) proposed that a contract is relational to the extent that the parties are incapable of reducing important terms to well-defined obligations. This definition unsoundly omits any mention of a relation between the contracting parties. Furthermore, parties are often incapable of reducing all terms to well-defined obligations, instead leaving some terms to implication, as illustrated by Fritz Lieber’s famous hypothetical, “Fetch some soup meat.”

Vic Goldberg (right) defined a relational contract as a contract "in which no duties exist between the parties prior to the contract formation." This definition too omits any mention of a relation between the contracting parties. Moreover, in the case of almost all contracts no duties exist between the parties prior to contract formation.

Ian Macneil, who originated the concept of relational contracts, argued at one point that a contract is relational if it has more duration, more personal interaction, more future cooperative burdens and more units of exchange that are difficult to measure.  This definition is much too vague to serve as a basis for making legal rules or deciding cases.

What is striking about these unsound definitions of relational contracts is that a sound definition is ready at hand: A relational contract is one that involves not only an exchange but also a relationship between the contracting parties that bears on the exchange. Under this definition almost all contracts are relational because almost all contracts involve some sort of relationship between the contracting parties. By the same token, few or no contracts are discrete. Ian Macneil, who originated the concept of relational contracts, at one point adopted a comparable definition, formulated in the negative. “A discrete contract,” he said, is one in which “no relationship exists between the parties apart from a simple exchange of goods.” And, he accurately said, a discrete contract is “an impossibility” and discrete contracts are “entirely fictional.”

But if there are no discrete contracts then every contract is relational.

In contrast to my own view and that of Macneil, Sidney DeLong (left) believes there are discrete contracts, and endeavors to support that view by arguing that UCC Article 2 embodies a dramatic recognition of the differences between discrete and relational contracts This recognition is manifested, DeLong maintains, in the distinction between (1) UCC Section 2-601 contracts, which are discrete because they fall under the perfect tender rule, and (2) UCC Section 2-612 contracts, which are relational because relational contracts are subject to the doctrines of good faith, course of dealing, and course of conduct, and, presumably, those doctrines apply to Section 2-612 contracts but not to Section 2-601 contracts.

But just because a contract falls under the perfect tender rule doesn’t make it non-relational. Even parties to a Section 2-601 contract will normally have a relationship. Section 2-601 contracts are seldom made by strangers. Rather, Section 2-601 contracts are usually made between merchants who have dealt with each other in the past and, even where that’s not the case, between merchants who introduce themselves, get to know each other, negotiate, and are likely to be in contact after the contract is made -- in short, between parties do not merely make an exchange but also have, or form, a relationship. Furthermore Section 2-601 contracts are relational even under DeLong’s test. All contracts, including Section 2-601 contracts, must be performed in good faith, and all contracts include the parties’ course of dealing and course of performance. Finally, many Section 2-601 contracts involve the sale of a complex good, such as a machine, a plane, or a locomotive, which involve much relational interchange concerning the good before a contract is signed and, typically, further relational interchange thereafter.  

Previous posts in the Symposium:

Virtual Symposium: Mel Eisenberg and Contracts Law Scholarship

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part I: Shawn Bayern

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part II: Douglas Baird

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part III: Ethan Leib

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IV: Nancy Kim

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part V: Introducing the Second Week

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VI: Mark Gergen

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VII: Jennifer Martin

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VIII: Harris Hartz

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IX: Hila Keren

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(A): Response to Ethan Leib

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(B): Response to Nancy Kim

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(B): Response to Nancy Kim

Comments on Nancy Kim’s Post
Melvin A. Eisenberg

Nancy has perfectly captured my view of contract law, and adds two penetrating questions. I’m grateful for these questions because they have led me think about problems that I had not addressed.

To begin with, Nancy points out that my guiding principle is that the rules of contract law – indeed, the rules of all common law subjects – should be based on propositions of policy, morality, and experience, and that when these propositions conflict they should each be afforded appropriate weight given the issue at hand. She then asks, how should a court determine those weights? I don’t have a definitive answer, but I will make two comments.

First, moral and policy principles, and different policy principles, usually point in the same direction, so problems of weighting don’t often arise.

Second, legal rules should not be based on morality, policy, and experience simpiciter, that is, without a qualifier. Rather, they should be based on social morality, by which I mean moral standards that claim to be rooted in aspirations for the community as a whole and can fairly be said to have substantial support in the community, and on social policies, by which I mean  policies that claim to characterize a state of affairs as good for the community as a whole and can fairly be said to have substantial support in the community. As a result, when social propositions conflict a court should try to determine what weight society puts on the relevant moral and policy propositions. So, for example, in our society the proposition that lying is immoral will rarely if ever be overcome by a proposition of policy.

Arizona Home
Image by DALL-E

Admittedly, not every weighting problem is that easy. In those cases a court must use its best judgment. For example, in Zambrano v. M & RC IILLC, 254 Ariz. 53 (2022), a seller of homes disclaimed the implied warranty of workmanship and habitability, and substituted in its place  a complex express warranty that was much less generous than the implied warranty. The Court had to determine which was more weighty: the policy of freedom of contract or the policy reasons for the implied warranty. The Court carefully reviewed the policy reasons for the implied warranty, and the injuries that would be caused to home buyers if that warranty could be disclaimed, and concluded on the basis of those reasons that the policy reasons for the implied warranty outweighed the reasons for the policy of freedom of contract

Next, Nancy asks how does dynamic law, which I champion, fit into the contract world we live in today, where adhesive terms hijack persons who have no intention of agreeing to those terms entering into a transaction where courts hold those terms to be binding. The answer is, they don’t fit, because dynamic contract law is sound and the current treatment of form contracts is unsound, as Nancy convincingly demonstrates.

To begin with, it is well established, as Nancy points out, that consumers don’t read form contracts. (Neither do employees who sign contracts on behalf of their employer, although that’s much less of a problem due to UCC Section 2-207 and the knockout rule).  Form contract terms fall into two categories: individualized terms, such as price, and standardized terms, such as limitations on liability. Individualized terms are known to form-takers but it is well-established that standardized terms are not. That being so, standardized terms should either be unenforceable or unenforceable if unfair.

The Sky, Not Falling, Supported by Contracts
Image by DALL-E

As to the former alternative, under which standardized term would be unenforceable, some judges seem to think that the sky would fall if that was the law. However, UCC Section 2-207 and the knockout rule already go very far in that direction for business-to-business transactions, and the sky is still up there. If a contract is formed under Section 2-207(1), under the knockout rule conflicting terms will drop out. Since most standardized terms in a buyer’s and a seller’s forms will conflict, most or all standardized term will drop out. Alternatively, if a contract is formed under Section 2-207(3), every standardized term in both forms drop out even if they do not conflict, except where terms in the two forms match, which will seldom occur.

As to the latter alternative, under which standardized terms should be unenforceable if unfair, Restatement Second of Contracts Section 211(3) already takes that position:

   [Section] 211. Standardized Agreements.

(1)  Except as provided in Subsection (3), where a party to an agreement signs or otherwise manifests assents to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing. . . .

(3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew the writing contained a particular term, the term is not part of the agreement.

In other words, under Section 211(3) a term in a form contract is not enforceable against a form-taker if the form-giver had reason to believe the form-taker would not have agreed to the term if she knew the term was in the form. Since a form-taker would seldom or never agree to an unfair term, Section 211(3), which has been quoted or cited in close to twenty cases, effectively renders unfair form terms unenforceable.

Previous posts in the Symposium:

Virtual Symposium: Mel Eisenberg and Contracts Law Scholarship

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part I: Shawn Bayern

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part II: Douglas Baird

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part III: Ethan Leib

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IV: Nancy Kim

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part V: Introducing the Second Week

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VI: Mark Gergen

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VII: Jennifer Martin

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VIII: Harris Hartz

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IX: Hila Keren

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(A): Response to Ethan Leib

Subsequent posts in the series:

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(C): Response to Sid DeLong

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(A): Response to Ethan Leib

Mel Eisenberg on Ethan Leib

Ethan Leib has had a long and fruitful career – almost sixty articles! – and it’s gratifying to learn that I contributed to his approach to thinking about the academic pursuit in some small measure. Ethan and I disagree about relational contracts, but my strong guess is that we would agree on almost everything else in the law of contracts.  But to our disagreement:

 Ethan’s strong and lucid critique of my article, and later my chapter in Foundational Principles of Contract Law, on relational contracts, has not led me to change my position in a fundamental way, but has led me to expand and clarify my position, which I do here.

To begin with, I believe I’m less rigid about rules than Ethan thinks I am. At the center of my thinking about the common law is that the common law is rule-based and that legal standards and legal principles are legal rules. The dictionary defines a rule as an authoritative prescribed direction for conduct. Expanding that definition a bit, a legal rule is an authoritative prescribed direction that can be applied to determine whether conduct, like nonperformance of a contract, was right or wrong, and whether activity, such as a contract or a will, was legally enabled. Narrow garden-variety legal rules, legal principles, and legal standards are all legal rules, because they can all be applied to determine whether conduct was legally right or wrong and whether activity was legally enabled.

So, for example, the principle of expectation damages, that a promisor who breaches a bargain contract is required to pay the promisee the amount required to put her in the position she would have been in if the promisor had performed that can be and is applied to measure a promisee’s damages. Typically, that principle is expressed in more specific formulas that apply to different contexts – seller’s breach of a contract for the sale of goods, buyer’s breach of a contract for the sale of goods, and so forth -- but these formulas are merely instantiations of the principle, and in any event the principle can be applied directly rather than through a formula, as in the famous case of Hawkins v. McGee. Similarly, the standard of due care is typically expressed in the form of the more specific rule that a negligent actor is liable to a person he injures, but the standard can also be applied directly, as when it is said that a defendant did not exercise due care.

Ethan points out that I reject an approach to contract law rules that involve a spectrum running from discrete contracts to relational contracts. Such an approach requires definitions of the two ends of the spectrum. Ian Macneil, who created relational contract theory as a school of thought about contract law, characterized a discrete contract as having less of certain characteristics – for example, less duration, less personal interaction, and less future cooperative burdens – and a relational contract as having more of those characteristics. The problem is – there are few or no discrete contracts, because almost every contract has relational elements. For example, even buying a car usually involves protracted interactions with a salesman and a sales manager, perhaps more than one visit to the showroom, and repeated cooperative burdens to make repairs in the seller’s shop. 

A Viking and a Saxon
Image created by DALL-E

Indeed, trying to imagine a discrete contract Macneil was driven to a fantastic extreme: “[A]t noon two strangers come into town from opposite directions, one walking and one riding a horse. The walker offers to buy the horse, and after brief dickering a deal is struck under which the horse is to be delivered at sundown upon the handing over of $10. The two strangers expect to have nothing to do with each other between now and sundown, they expect never to see each other thereafter, and each has as much feeling for each other as a Viking trading with a Saxon.” OMG! There are no spectrums in contract law to speak of, because a spectrum has to have two end points, and since discrete contracts are imaginary creatures there are no end points for a spectrums running from discrete contracts to relational contracts.

Ethan thinks I would not accept multi-factor rules as rules. I would. A rule that has three, four, five or more factors is a rule. A court must go through the factors and conclude that a party is liable or not, or that the law did or did not enable certain activity, like whether a contract Is enforceable or a will is valid.

Ethan reads me to be skeptical of the acknowledgement that many  many real-world contracts involve dynamic and that relationships could do more than inform economics and sociology. Uh-uh. I regard contracts as dynamic. Tbey have a past, in the form of course of dealing, and a future, in the form of course of performance. Moreover, they are frequently modified, and under modern contract law modifications are enforceable if . . . . And the fact that parties have enjoyed a mutually advantageous business over the course of decades, as in Eastern Airlines, certainly may be relevant to interpreting their obligations. But that does not require a law that applies to, and only to, parties in a relationship that has lasted decades. The fact that parties have enjoyed a mutually advantageous relationship can be relevant to interpreting their contractual obligations even if that relationship has only lasted months. Again, my point is not that there are no relational contracts – my point is that there are no rules of contract law that apply to, and only to, relational contracts. Similarly, I don’t deny, as Ethan believes I do, that some rules can only be applied through a multi-factor test. First, such a rule is a legal rule, and second, such a rule can be applied to determine what category a relationship falls into even if the parties entered into their relationship two weeks or two days ago.

Finally, Ethan believes I am skeptical about spectrum approaches in the law. But I’m not.

So hip-hip hurray for relational contracts, but not for the proposition that there are rules of contract law that apply to relational contracts and no other contracts.

Previous posts in the Symposium:

Virtual Symposium: Mel Eisenberg and Contracts Law Scholarship

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part I: Shawn Bayern

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part II: Douglas Baird

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part III: Ethan Leib

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IV: Nancy Kim

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part V: Introducing the Second Week

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VI: Mark Gergen

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VII: Jennifer Martin

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VIII: Harris Hartz

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IX: Hila Keren

Subsequent posts in the series:

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(B): Response to Nancy Kim

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(C): Response to Sid DeLong

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IX: Hila Keren

Finding Morality in Contract Law
Hila Keren

When I was a (much) younger post-doctorate fellow at the Center of Law and Society in Berkeley, I was lucky to experience some of what Ethan Leib shared in his contribution to this symposium: Mel Eisenberg’s warmth and generosity. We shared a lovely lunch, for which I believe he paid, but that’s not my evidence of the previous point. Although we had so little in common in terms of stardom (I had none!), gender, age, or even country of origin, Mel learned about my Ph.D. thesis (a feminist one) and announced that we share something unique. I guess my jaw dropped because he hurried to explain that “nowadays” (read: almost two decades ago), only a few scholars are truly passionate about the good old law of contracts and sincerely focused on the role it plays in our lives. Until today, those words inspire my work. More importantly, they illuminate Mel’s lifetime insistence that morality is integral to contract law and moral behavior is expected from contractual parties who seek to enforce their agreements. To me, this theoretical vision is tightly linked to Mel’s interpersonal kindheartedness.

Frequent readers of contract law scholarship are usually exposed to variations of the argument that this field of law has, and should have, little to do with morality. As early as the end of the nineteenth century, Oliver Wendell Holmes made a strong claim against the integration of contract law and morality. In his Harvard Law Review article, The Path of the Law, Holmes wrote that “[n]owhere is the confusion between legal and moral ideas more manifest than in the law of contract.” He also cautioned that it would be “a gain if every word of moral significance could be banished from the law altogether.”

Fast-forward to 2008, Richard Posner echoed the message from the bench when he stated in Classic Cheesecake v JPMorgan Chase Bank: “it is a strength rather than a weakness of contract law that it generally eschews a moral conception of transactions.” Like Holmes, Posner added a normative warning. In his view, not without followers among contract theorists, it is better to discuss real contractual issues rather than “[r]uminating on the meaning of ‘unjust’ and ‘unconscionable.’” 

Much of the modern resistance to any incorporation of morality in contract law focused on the doctrine of unconscionability, perhaps because its very name reflects an aspiration to such integration. Commentators, many of whom leaders or followers of the law and economics approach, criticized the doctrine’s application in the watershed 1965 case of Williams v. Walker-Thomas Furniture Company. They argued that market actors should be left free and never be expected, as Posner put it in another decision, to be their “brother’s keeper.” Or, as Frank Easterbrook explained in Wilkow v. Forbes, Inc., “an allegation of greed is not defamatory” because “sedulous pursuit of self-interest is the engine that propels a market economy.” Moreover, many in this camp and outside of it also labeled the doctrine of unconscionability “paternalistic.” Many, including most famously Richard Epstein, added caution that excusing exploited promisees due to contracts’ unconscionability would end up harming the victims instead of offering them relief.

Given this dominant opposition, one is left puzzled: How should the law respond to exploitative market behaviors that yield predatory contracts? By and large, our legal system delegates the problem to the judiciary. Then, admittedly, many greed-born contracts slip under the legal radar because the exploited parties simply lack the means, monetary and otherwise, to seek legal help. Those who do manage to access courts request release from their promise, mainly in the name of unconscionability. On the other hand, exploiting parties frequently use their abundant means to turn to the law and demand enforcement of their contracts. Therefore, any time litigation ensues, courts must choose, respectively, between greed and conscience, exploiters and exploited, and enforcement and unconscionability. So, what should courts do? I think they should follow Mel’s analysis.

In the face of the loud attacks on morality in contract law in general and the use of unconscionability in particular, Mel has developed and shared with the world the opposite approach. He has brilliantly analyzed, demonstrated, and compellingly argued that insisting on moral behavior by contractual parties is an integral part of contract law and for all the right reasons. Nowhere is this approach more evident than in his celebration of unconscionability in his phenomenal book Foundational Principles of Contract Law, in which the third part is dedicated to “Moral Elements in Contract Law.” Opening this part is chapter seven, titled “The Unconscionability Principle,” thereby elevating the concept from a doctrine to a leading principle, claiming its centrality to the contractual legal system, and challenging its marginalization by others. To remove any possible doubt about this feature, the chapter starts by unapologetically crowning the principle as “one of the most important developments in modern contract law.”  Morality, Mel explains, is at the heart of this “fundamental principle,” reminding readers that “the term unconscionable suggests a significant degree of moral fault.” The beauty of the principle, he further illuminates, is its ability to connect rather than separate contract law and social morality (the latter eloquently defined as the “moral standards that are rooted in aspirations for the community as a whole”). As our social norms evolve, Mel writes, unconscionability “continues to unfold,” ensuring our law reflects and supports those norms.        

In a set of hypotheticals with lovely titles, the chapter illustrates how essential is the expectation of morality to the appropriate operation of contract law. For example, The Desperate Traveler hypo raises the problem of “immoral exploitation of [a] promisor’s distress.” Similarly, The Desperate Patient story focuses on a medical provider acting “in a morally improper way” when demanding an excessive price for a life-saving procedure that others cannot perform. Further, The Artless Heir example shows how exploiting an unsophisticated counterparty’s lack of understanding of a transaction sometimes “violates social morality” even if basic legal capacity exists. In the same vein, as if predicting COVID-19, Mel states that “price gouging is immoral” because “it is morally improper to significantly raise prices to exploit important needs resulting from a temporary disaster.” This is also his view of cases of sellers’ exploitation of price ignorance on the side of consumers and some door-to-door sales. Those and other compelling examples more generally show how unconscionability is the voice of conscience and morality within our contractual system. Or, in Mel’s words, “Whether a contract is unconscionable normally turns in significant part on whether the promisor engaged in morally improper conduct.”

Significantly, the chapter offers a forceful response to the loud outcry of “paternalism!” This part (which I had the privilege of reading in earlier drafts of the book) truly inspired much of how I think about the role of contract law, so please allow me to consume some more virtual space by presenting the entire idea. Mel writes: “It is not paternalistic to refuse to enforce a contract obtained through morally improper conduct.” He then emphasizes that even if some paternalism is involved, it is “a very diluted form of paternalism.” Why? Because in applying the unconscionability principle: “the government forbids nothing and commands nothing. It simply says to the promisee, ‘If you can accomplish your ends without our assistance, fine. But don’t ask us to help you recover a pound of flesh.’”

Touché! And also, how beautiful it is that Mel’s phrasing echoes not only Shakespeare’s The Merchant of  Venice but also Judge Story’s insistence that Courts of Equity “ought to interfere” because unconscionable contracts “shock the conscience.”

But what I find most thought-provoking in this forceful statement is that it can be read as going far beyond successfully replying to allegations of paternalism. Hidden here, but not too far from the surface, is a precious gem: a robust conceptualization of how a moral contract law should work. In Mel’s reply, I find not only a justification for the judicial invalidation of exploitative contracts but also a broader obligation of the state. Because courts support the contractual system by providing market actors with valuable enforcement services, they must be careful about how they do so. Accordingly, when market actors utilize contractual powers in an immoral manner, the judiciary should refrain from supporting their abuse of the system. As a matter of duty, the state ought to operate the foundational principle of unconscionability to prevent the enforcement of agreements that transgress society’s moral norms.

Recognizing the state’s ability and obligation to discourage the immoral use of contracts via the unconscionability principle is invaluable. Elsewhere, I explained why the way courts operate the principle is critical to how people choose to behave. As scientists have shown, “rightness and wrongness…are things we feel,” and moral emotions like guilt are designed to guide us to avoid what we believe is immoral. What courts say and do when facing the puzzle of contracts blemished by immoral conduct has a significant impact on this human process. Given the immense expressive power of the law, judicial decisions and their dissemination via the media shape what people consider a faulty behavior that should be avoided. For example, when the law defines the exploitation of distressed people as improper, it can induce in market actors the anticipation of guilt feelings if they so misbehave. In response, some actors may decide to escape this foreseeable unpleasant emotion by taking the course of more self-restraint. By contrast, the conventional insistence that contract law should focus merely on economic incentives and avert questions of morality suppresses this emotional incentive to refrain from exploitation.

And there is more. Fully understanding the power of the unconscionability principle carries an even broader meaning. It suggests that contract law’s principles should reflect and support the idea that contracts—as powerful private tools trusted in human hands—should be morally used. For instance, as I have recently written, much like unconscionability, the foundational principle of good faith should be operationalized to discourage market providers from humiliating their counterparties. On this view, employers act in bad faith (and not only discriminate as decided in Bostock v Clayton County) when they terminate contracts with LGBTQ+ employees after learning about their sexual orientation or gender identity. Likewise, MacDonald’s performs its contract with a Black diner in bad faith when its manager responds with horrible racial slurs to an ordinary request to replace cold fries with fresh ones.

Once more, it all goes back to Mel’s argument that the state should not accept and reward immoral abuses of the contractual system. Following this guidance, I would add that the state should secure market citizenship for all its members whenever its judiciary applies the law of contracts. That means that the foundational principles of contract law must be used to prevent those profiting from contracts from damaging the contractual experiences of others. Note that this broader point is again a matter of morality: free and equal citizens must respect each other, and the state ought to refuse to support their contractual endeavors when they intentionally and severely harm the human dignity of their counterparties. Because exploitation and humiliation both have this injurious effect, such behaviors should be handled via foundational principles like unconscionability and good faith.

Mel Receiving the KCON Award in 2012

All told, read as embedding morality in contract law’s leading principles, Mel’s chapter on unconscionability, and his entire notable body of work, inspires a deeper conversation regarding contracts, the people who use them, and the role of contract law. It invites us to imagine a world in which contracts are not battlefields wherein the winner takes it all but rather an essential type of relationship between humans. Those humans are not only rational and selfish but also equipped with good amounts of social and emotional intelligence. As such, they are much more amenable than the infamous homo economicus to moral cues, including those expressed by the law. Furthermore, under this view, contract law is not only a quintessential strain of private law designed to support the free market. Instead, it is also a unique social institution that can (and should) foster morally healthy relationships between market actors. So, in conclusion, I hope you can see how such a generous outlook on contracts, humans, and the law not only arises from Mel’s remarkable work but also ties in with the generosity and care he exhibited in that lovely lunch many years ago.

Previous posts in the Symposium:

Virtual Symposium: Mel Eisenberg and Contracts Law Scholarship

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part I: Shawn Bayern

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part II: Douglas Baird

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part III: Ethan Leib

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IV: Nancy Kim

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part V: Introducing the Second Week

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VI: Mark Gergen

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VII: Jennifer Martin

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VIII: Harris Hartz

Subsequent posts in the series:

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(A): Response to Ethan Leib

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(B): Response to Nancy Kim

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(C): Response to Sid DeLong

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VIII: Harris Hartz

Melvin Eisenberg
Harris Hartz

A few years ago I was interviewing a clerk applicant, not Shawn, when somehow the topic of contract law came up. I said that I had been surprised at how much insightful literature had been written on the subject and added that the fellow who taught my contracts class, a professor named Melvin Eisenberg, had the best legal mind I had encountered. The applicant's response stunned me. "He takes judges seriously," he said. I don't know if I said it out loud, but I hired the applicant on the spot.

This symposium has given me the opportunity to think further about what my clerk said about Mel. Perhaps the best example of his taking judges seriously is his wonderful little book: The Nature of the Common Law. The book is brilliant on several levels but one is that he masterfully lays out the theory behind what judges are grasping at intuitively–sometimes well, sometimes not so well—when they resolve common-law issues. In my experience, every appellate judge who has been around a little while agrees that the book captures and explains what they aspire to do in their own work. When I was on the New Mexico Court of Appeals, the state Supreme Court invited Prof. Eisenberg to speak to all the State's appellate judges about his book. Despite some significant ideological differences among us, all were convinced. For several years the Chief Justice directed that each new judge on either court should be presented with a copy of the book.

I do not mean to suggest that Mel works like a theoretical physicist trying to formulate doctrine that can explain all the data points provided by judicial opinions. Such a venture would be doomed to fail because of all the experimental errors. But he does take judicial opinions seriously because they often reflect the social propositions that underlie common-law rulemaking. Consider my favorite Eisenberg article, the very useful “Third-Party Beneficiaries.” When he writes that his third-party-beneficiary principle "explains the results of many or most of the modern cases" or that "the general trend of the cases" adopts his position regarding when a prospective heir can sue the estate lawyer for misdrafting a will, his point is not to announce that judges deserve a passing grade. Rather, he is confirming his doctrine by pointing out that it reaches results that appeal to thoughtful neutral observers trying to do justice. His accomplishment is to identify the underlying principles that can explain judicial intuition.

After reading some of the earlier contributions to this symposium, however, I realize that I need to modify my thesis. When Mel takes judges seriously, he's doing nothing peculiar to judges. He takes every serious person seriously. Over the years he has sent various writings for me to comment on. I can say with great confidence, nay certainty, that nothing I said or wrote in his contracts class 52 years ago would commend me for that task. But he has an apparently insatiable appetite for other perspectives. He seems to enjoy the challenge of finding more substance in my comments than I consciously put in. His time would be better spent thinking alone. But I don't think he can help himself. He fully engages his brain with everyone. Both of my sons had an opportunity to talk with him one-on-one when they were in college. Each of them came away from the conversation thinking better about himself. One who had been diligently working on trying to express himself more articulately told me proudly that Mel had understood everything he had said. I was pleased, but I knew that no one could listen (or read) more carefully and discern the meaning of something expressed inartfully than Mel could.   

Previous posts in the Symposium:

Virtual Symposium: Mel Eisenberg and Contracts Law Scholarship

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part I: Shawn Bayern

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part II: Douglas Baird

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part III: Ethan Leib

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IV: Nancy Kim

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part V: Introducing the Second Week

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VI: Mark Gergen

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VII: Jennifer Martin

Subsequent posts in the series:

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IX: Hila Keren

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(A): Response to Ethan Leib

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(B): Response to Nancy Kim

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(C): Response to Sid DeLong

Tuesday Top Ten - Contracts & Commercial Law Downloads for March 7, 2023

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 06 Jan 2023 - 07 Mar 2023

Rank	Paper	Downloads
1.	Terms of Service and Fourth Amendment Rights Orin S. Kerr University of California, Berkeley School of Law	681
2.	Transactional Drafting: Introduction to Contract Drafting and Transactional Practice Ben Fernandez University of Florida Levin College of Law	297
3.	Standardizing and Unbundling the Sub Rosa DIP Loan Kenneth Ayotte and Alex Zhicheng Huang University of California, Berkeley - School of Law and University of California, Berkeley - School of Law	195
4.	Algorithmic Harm in Consumer Markets Oren Bar-Gill, Cass R. Sunstein and Inbal Talgam-Cohen Harvard Law School, Harvard Law School and Technion-Israel Institute of Technology	164
5.	Metaverse and Its Regulation Omer Aamir Georgetown University Law Center	159
6.	Contract Production in M&A Markets Stephen J. Choi, Mitu Gulati, Matthew Jennejohn and Robert E. Scott New York University School of Law, University of Virginia School of Law, Brigham Young University - J. Reuben Clark Law School and Columbia University - Law School	118
7.	Mistake in Contract Law Emily L. Sherwin Cornell University - Law School	101
8.	An Overview of the Development of Maldivian Contract Law and its Sources Husnu Al Suood Maldives Law Institute	97
9.	Overcoming Contractual Incompleteness: The Role of Guiding Principles David Frydlinger and Oliver Hart Cirio Law Firm and Harvard University - Department of Economics	93
10.	Contract-Wrapped Property Danielle D'Onfro Washington University in St. Louis - School of Law	88

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 06 Jan 2023 - 07 Mar 2023

Rank	Paper	Downloads
1.	Choice of Law in the American Courts in 2022: Thirty-Sixth Annual Survey John F. Coyle, William S. Dodge and Aaron D. Simowitz University of North Carolina School of Law, University of California, Davis - School of Law and Willamette University College of Law	197
2.	Against Essentialism in Private Law Theory: Private Law as an Artifact Kind Thilo Kuntz Heinrich-Heine-University Düsseldorf	102
3.	On Rawlsian Contractualism and the Private Law David Blankfein-Tabachnick and Kevin A. Kordana Michigan State University College of Law and University of Virginia School of Law	85
4.	Nonconsensual Family Obligations Emily Stolzenberg Villanova University Charles Widger School of Law	71
5.	Regulating Plain Language Michael Blasie Seattle University School of Law	63
6.	How Reputational Nondisclosure Agreements Fail (Or, In Praise of Breach) Mark Fenster University of Florida Levin College of Law	50
7.	Reliance Paul MacMahon London School of Economics - Law School	48
8.	Integrating Artificial Intelligence into the Mortgage Credit Market Rosa M. Garcia-Teruel Universitat de Barcelona	26
9.	Distributive Consequences of Regulating Boilerplate: Between Price Effects and Socialization of Risk Przemysław Pałka Jagiellonian University in Krakow - Faculty of Law and Administration	21
10.	Binding Nonsignatories to Forum Selection Clauses Jeffrey A. Parness Northern Illinois University - College of Law	18

Great News for Libelous Bloggers Everywhere!

Over at the Volokh Conspiracy, the man himself, Eugene Volokh (left), reports on Arthaud v. Fuglie, a case in which plaintiff alleged that he had been defamed by a blog post that was published in 2018.  Plaintiff did not discover the post until 2021 and sued within weeks of discovery.  North Dakota's Supreme Court ruled that the two-year statute of limitations had lapsed.  The statute of limitations runs from the time of publication, not from the time of discovery.

This is a boon to all bloggers, especially those whose posts are rarely discovered.  We feel newly empowered to remove the gloves!

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VII: Jennifer Martin

Contracts Remedies and the Indifference Principle
Jennifer S. Martin

It is an honor to participate in this symposium on Professor Mel Eisenberg’s book, Foundational Principles of Contract Law (2018). I’ve long been a fan of Professor Eisenberg’s work on contract remedies, and, yes, I have my favorites to recommend, starting with Actual and Virtual Specific Performance, the Theory of Efficient Breach, and the Indifference Principle in Contract Law, 93 Cal. L. Rev. 975 (2005) (“Actual and Virtual Specific Performance”), and also Conflicting Formulas for Measuring Expectation Damages, 45 Ariz. St. L.J. 369 (2013) (“Conflicting Formulas”). In considering my personal approach to contract remedies, I am drawn to Professor Eisenberg’s articulation of an “indifference principle” underlying contract remedies. That is, “the remedial regime for breach of bargain contracts should make promisees indifferent between performance and legal relief.” (Actual and Virtual Specific Performance at 977). He cautions what is apparent in that expectation damages do not routinely award an amount that makes the non-breaching party indifferent to breach or performance by the breaching party. Accordingly, Professor Eisenberg recognizes the “shortfall” that arises with expectation interest as employed in practice such that parties do not expect performance “is fully or even substantially insured by the expectation measure.” (Id. at 983.) Ultimately, he argues in favor of a more liberal approach to specific performance (virtual or actual) to more effectively approach indifference. (Id. at 1018).

In Foundational Principles of Contract Law, Professor Eisenberg sets out the common building blocks for any approach to expectation damages that are framed by the indifference principle. (See also, Conflicting Formulas at 369-70).

1. Replacement Cost, being “the difference between the contract price and the actual or imputed cost of a replacement transaction.” (Foundational Principles, at 179).
2. Diminished Value, being “the difference between the value of the performance that a breaching seller rendered and the value of the performance that she promised to render.” (at 179).
3. Lost Profit, being “the difference between the contract price a breaching buyer agreed to pay and the seller’s variable costs.” (at 179).

Yet, these building blocks are challenged in contract law’s use of both expectation and reliance measures. Of course, an expectation measure of damages would more approach indifference as it permits the non-breaching party to obtain a position whereby the full contract performance can be obtained in some cases, albeit absent some losses that are not recoverable in contract (i.e., subjective values, attorneys’ fees). Eisenberg acknowledges that this would be true even if a contracting party has suffered no actual loss and requires no compensation per se, presumably because a non-breaching party is rarely indifferent to contractual breach.  Moreover, contractual rules most often use expectation as it achieves a fairer result in most cases, as compared to reliance.

Professor Eisenberg asserts, though, that due to known limitations on expectation damages, specific performance as a remedy better achieves indifference to breach as “it potentially gives the promisee the very performance bargained for.” (at 297). Of course, specific performance (actual or virtual) still neglects some losses that remain uncompensated, such as attorneys’ fees. Putting that aside, it is helpful to consider to what extent courts have considered in practice Eisenberg’s position on the merits of specific performance. Let’s take a look at two recent cases as illustrative of court positions on the provision of specific performance. Both of these are sales cases subject to UCC § 2-716, which is arguably more friendly to the provision of this relief (“[s]pecific performance may be decreed where the goods are unique or in other proper circumstances”). Not unusually, the results of the cases were split on the provision of specific performance, as the availability of this remedy is sometimes limited on practical grounds. However, as noted by Eisenberg, notwithstanding the pessimism expressed at times toward the traditional doctrine of specific performance, courts are open to granting this type of relief that more reflects the indifference principle. (at 296).

Ferrari F8 Tributo
Image by DALL-E

In the case of Cheng v. Continental Classic Motors, Inc., Continental Classic Motors (“Continental”) agreed on March 2, 2022, to sell a Ferrari F8 Tributo to Cheng for $475,994. (22 CV 2704 (N.D. Ill. Dec. 5, 2022)). Cheng argued that Ferrari was rare and unique, was the only one like it in the world, the only one in the Rosso Fiorano color, and Ferrari no longer makes this particular car.  On March 5, 2022, Continental sold the car to another buyer. Cheng brought suit for breach of contract against Continental, requesting relief that included specific performance and monetary relief. Continental moved to dismiss the claim for specific performance. The court noted that “[c]ourts generally disfavor granting specific performance unless monetary damages are inadequate.” (Id. at *2). Notwithstanding that position, the court was open to the remedy of specific performance, finding the car is unique and that specific performance might be available to Cheng. Ultimately, however, it seems that specific performance would not be available to Cheng if a bona fide purchaser had the car.

Airplane Transporting Organs in the Style of Francis Bacon, as rendered by DALL-E

This conclusion can be compared to the result in Jet Experts, LLC v. Asian Pac. Aviation Ltd., where Jet Experts, LLC (“Jet Experts”) contracted with Asian Pacific Aviation Limited (“Aviation”) to purchase a used aircraft that would be used for organ transplant transportation. (22 Civ. 02426 (LLS) (S.D.N.Y. May 4, 2022)). Aviation canceled the contract after it found a buyer willing to pay a higher price. Jet Experts filed suit for breach of contract and requested specific performance. The court observed that “[t]he law has been slow to order specific performance of a disowned contract in cases where the performance consisted in turning over an article which is mass-produced.” (Id. at *5). The court agreed with Jet Experts that there was not an available aircraft that served the organ transplant needs and that the general characteristics were unique with “low flight hours, overhauled engines, three-piece divan, already inspected APU, completion of all required inspections, including its 96-month inspection.” (Id. at *9). Moreover, Jet Experts worked with Aviation for significant restoration of the aircraft such that there were no other similar aircrafts and, therefore, Jet Experts was entitled to specific performance. (Id. at *6).

These cases reflect a judicial philosophy that is adverse to the award of specific performance, yet one that remains flexible to its award in a proper case. This may reflect, as Eisenberg notes, a judicial recognition of the limitations of expectation as a remedy. (Foundational Principles, at 295). While a higher standard is required to access specific performance, at least when we are referring to the actual type, these cases seem to suggest a recognition of the superiority of the specific performance remedy. For instance, the case of Jet Experts involved the need for an aircraft for organ transplant transportation. This case, and cases like it, demonstrate Professor Eisenberg’s observations about the adequacy of an expectation remedy where the buyer would not be indifferent to obtaining the aircraft when there was not a suitable replacement aircraft and significant time and effort had been put into restoring the plane for its intended use. While specific performance might be more compelling in a case involving organ transplant transportation, the Cheng court also displayed a willingness to consider the remedy. Though there is still a fact-intensive hurdle for actual specific performance, courts seem to acknowledge that the remedy is available and perhaps superior. While the courts did not cite Professor Eisenberg or mention indifference, the inadequacy of an expectation remedy is apparent when reading these cases. The indifference principle as a remedial goal is in practice, even if contractual remedies continue to fall short of achieving this.

Previous posts in the Symposium:

Virtual Symposium: Mel Eisenberg and Contracts Law Scholarship

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part I: Shawn Bayern

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part II: Douglas Baird

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part III: Ethan Leib

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IV: Nancy Kim

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part V: Introducing the Second Week

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VI: Mark Gergen

Subsequent posts:

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VIII: Harris Hartz

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IX: Hila Keren

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(A): Response to Ethan Leib

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(B): Response to Nancy Kim

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(C): Response to Sid DeLong