Thursday, October 10, 2024
Sixth Circuit Decides a Requirements Contract Case
Higuchi International Corporation (Higuchi) sells seatbelt parts to Autoliv ASP, Inc. (Autoliv), a seatbelt safety system manufacturer. Autoliv sends purchase orders specifying its needs when it comes time to order more parts from Higuchi. The purchase orders specify that the purpose of the contract is to cover Autoliv's "requirements" for the parts specified on the purchase order during the time period specified on the purchase order. So the relationship proceeded for some time, but it began to deteriorate in 2021, as Higuchi threatened to stop selling parts unless Autoliv agreed to price increases.
Autoliv claimed that the parties had agreed to fixed prices until “the termination of the vehicle platform” for which Autoliv makes seatbelt safety systems, but it agreed to pay higher prices, while reserving its rights. After attempts at mediation failed, Higuchi sought a declaratory judgment that it was not required to sell more parts to Autoliv. The latter responded with a counterclaim for breach of contract and sought a preliminary injunction requiring Higuchi to continue to supply parts. The district court ruled in Autoliv's favor, entering a preliminary injunction requiring Higuchi to continuing to supply parts at the agreed-upon price.
In Higuchi Int'l Corp. v. Autoliv ASP, Inc. the Sixth Circuit reversed and remanded. The legal analysis is very interesting. Higuchi claims that there is no contract between the parties enforceable under Michigan's statute of frauds because the purchase orders do not specify a quantity. Autoliv responds that UCC § 2-306(1) provides an exception for requirements contracts to the general rule that contracts for the sale of goods to be evidenced in a writing or writings that establish a quantity term.
In this case, the purchase orders were known as releases, and Higuchi claimed that the parties had a release-by-release agreement, which did not obligate Higuchi to send parts in response to each new release. The release-by-release agreement provides general terms that will apply to each sale but they do not amount to a requirements contract under Michigan law because the contract at no point specifies that Autoliv "will obtain a set share of its total need from the seller."
The Sixth Circuit found it unlikely that Autoliv could show that Higuchi had any obligation to provide Autoliv with a set share of its requirements. In fact, the purchase orders, while ambiguous, seem to limit Higuchi's obligations to supplying the parts specified in any particular purchase order. Just for good measure, the court also notes that Autoliv drafted the contract and so ambiguities will be construed in Higuchi's favor.
Having concluded that Autoliv was unlikely to succeed on the merits of its claim, the court spent little time on the remaining factors to be weighed when considering a preliminary injunction. The court reversed the district court's opinion granting a preliminary injunction in favor of Autoliv and remanded for further proceedings.
For my part, it seems like the Sixth Circuit got Michigan law right, but I'm not sure that Michigan law is right. I wonder if Michigan's is an idiosyncratic reading of what terms must be included in order to establish a requirements contract. The court is persuasive that the drafting seems shoddy and ambiguous, because it just says that Higuchi is to provide Autoliv with its "requirements" but does not specify whether Higuchi is obligated to meet all of Autoliv's requirements. However, that ambiguity arises only if the parties are assumed to be familiar with the Michigan Supreme Court's decision in MSSC, Inc. v. Airboss Flexible Prods. Co., which dates from 2023, while the parties' dispute began in 2021. Prior to the Airboss case, I'm not sure why "requirements" would have been ambiguous.
As the District Court put it in granting the preliminary injunction, “Common sense teaches that, when someone refers to their ‘requirements’ or ‘actual requirements’ without any further qualification, that person is referring to all of their requirements.” That would have been my instinct as well. Absent more information about Autoliv meeting its requirements from other suppliers, I would read "requirements" to mean "all the parts of that type required." My common sense and the District Court's common sense have little in common with the sense of the Sixth Circuit. Given the importance of the automobile industry to Michigan's economy and the national economy, people ought to get busy making sure that their requirements contracts are amended to satisfy the expectations of Airboss.
October 10, 2024 in Commentary, Recent Cases | Permalink | Comments (0)
Wednesday, October 9, 2024
Walmart Wins Right to Terminate Its Credit Card Deal with Capital One
Since 2018, Capital One has been the exclusive provider of credit cards for Walmart. The parties' agreement specified that Walmart could terminate their agreement if Capital One failed to meet certain customer service benchmarks. Walmart now claims that Capital One has not in fact met those benchmarks and desires to terminate the relationship. Capital One offers a different interpretation of the parties' agreement and claims that Walmart is not entitled to terminate. The parties made opposing motions for partial summary judgment seeking declaratory judgment.
In Walmart, Inc. v. Capital One, National Ass'n, the District Court for the Southern District of New York sided with Walmart. There is significant redaction in the case, but it seems that the case turns on one provision of the agreement, which provides that Walmart's right to terminate is triggered if Capital One fails to meet a critical "Service Level Agreement" (SLA) five times within a twelve-month period. Capital One had missed a total of five “Critical” SLAs in 2022, and Walmart sought to terminate the agreement in February 2023.
Capital One thought the termination unjustified. It's understanding was that Walmart's termination right was triggered only if it failed to meet the same critical SLA in a twelve-month period. In this case, two different critical SLA's were at issue, and Capital One had not failed to meet either of them five times. The court, finding the contract unambiguous, rejected this reading, noting, "the Court begins from the unremarkable premise that the article 'a,' when used prior to a countable noun, is most often understood to refer to a nonspecific thing." In this case, the contract references a critical SLA, and thus any failure to meet a critical SLA will do.
Although the opinion is 41-pages long, there's not much to add. The court goes through its paces, consulting dictionaries and distinguishing cases, but it never strays very far from the common-sense proposition with which it started. The court denied Capital One's motion for partial summary judgment and granted Walmart's, issuing a declaration that Walmart was legally entitled and legally did terminate the agreement between the parties.
October 9, 2024 in Recent Cases | Permalink | Comments (0)
Tuesday, October 8, 2024
Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for October 8, 2024
Top Downloads For:
Contracts & Commercial Law eJournalRecent Top Papers (60 days)
As of: 09 Aug 2024 - 08 Oct 2024| Rank | Paper | Downloads |
|---|---|---|
| 1. | 182 | |
| 2. | 178 | |
| 3. | 171 | |
| 4. | 127 | |
| 5. | 102 | |
| 6. | 94 | |
| 7. | 87 | |
| 8. | 67 | |
| 9. | 66 | |
| 10. | 65 |
Top Downloads For:
Law & Society: Private Law - Contracts eJournalRecent Top Papers (60 days)
As of: 09 Aug 2024 - 08 Oct 2024| Rank | Paper | Downloads |
|---|---|---|
| 1. | 127 | |
| 2. | 94 | |
| 3. | 87 | |
| 4. | 49 | |
| 5. | 47 | |
| 6. | 33 | |
| 7. | 33 | |
| 8. |
Cutthroat Business |
32 |
| 9. | 29 | |
| 10. | 27 |
October 8, 2024 | Permalink
Strike News
OCU 1L Megan Neaves could not chow down to her weekly pad thai dinner with boyfriend Zeke and cat Jiji (right), without sharing with me their curiosity about the International Longshoremen's Union strike on the East Coast. Would their supply of rice noodles and tamarind juice be affected should the ports shut down? Would Jiji have to make do with cheap domestic toys rather than the trinkets and baubles made redolent with the exotic catnip he orders imported from the dark web?
The threatened strike of the longshoremen could have caused major economic ripple effects on the eve of a Presidential election. A lengthy longshoremen's strike would have affected supply chains for perishable goods, like bananas. I hadn't realized just how crucial the banana supply is to our economy, but for some reason, all the reporting mentions bananas. The Daily Show reported that people responded to the strike by panic-buying toilet paper, perhaps just feeling nostalgia for the early days of the pandemic. But we produce our own toilet paper here in the USA, so there really is no reason to hoard it. I'm not judging, but I wish people would stop threatening to shiv me for just browsing in the paper-supply aisle at Costco.
I'm not sure how much of The Daily Show's reporting on this topic is accurate, but it does give a good taste of the issues, starting at around 1:30 in the clip below.
At the heart of the longshoremen's negotiations with management is the thing that might threaten our way of life more than the success of either candidate in the Presidential election: AI. Workers are concerned that their numbers will be reduced due to automation. Happily for us, as Peter Eavis reports in The New York Times, after a three-day work stoppage, the 45,000 union members have returned to the bargaining table, extending their existing contract through January 15th. So this may be one headache that the next President may inherit, or it may be another thing that the current President quietly attended to and for which he will get no credit.
I have seen people on Twitter likening dockworkers to elevator operators. The implication is that only corrupt union power is standing between us more cost-efficient ports. I doubt that the people who write such things know much about what it takes to unload a container ship, but then, neither do I. I do know that people on Twitter also suggest that professors can be replaced with automated learning and that all of education should move online with automated content, in the form of either AI-generated material or pre-recorded lectures that could have medium-to-long shelf lives. That day may come, but if our experience during COVID is any indication, it is still a long way off.
It looks like the parties have agreed to a 62 percent wage increase over the next six years. This would bring their wages more or less in line with those of West Coast longshoremen, who are represented by a different union. As indicated, automation is a key issue that still remains to be worked out. The union will not have won much of a victory if pay rises, but one-half to three-quarters of current workers are laid off due to automation. Industry-side advocates point out that union workers are already very well-paid, estimating that nearly 60% made over $100,000 in 2019-20, but I can't make the math work. The current high end of pay for the workers is $39/hour, so if they work 40-hour weeks that still has the top-paid workers making less than $80,000, assuming two weeks off. Perhaps they work a lot of overtime for higher pay, but if that is the case, we need more longshoremen, not fewer.
Meanwhile, as indicated in The Daily Show report above, the union has a colorful leader in Harold Daggett. As the prolific Peter Eavis reports in The New York Times here, Daggett has been dogged by allegations of ties to the mob but also by allegations that he has not gotten good results for the workers. Now aged 78, it seems like he wants to capstone his career with a big union victory, and it seems like he will manage to do so.
As The Daily Show's reporting indicates, Mr. Daggett seems to reside in a Tony Soprano-style McMansion in Tony Soprano's home state. However, The Times reports the source of his income, a lavish union salary. I am not a fan of paying executives many multiples of what ordinary workers get, but Mr. Daggett's salary is far closer to those of the workers he represents than is the compensation of the corporate CEOs with whom he is negotiating. As Roman Roy put it, "First they came for the pjs, and I said nothing . . . " But here it is the opposite. We do nothing about the obscene amount of pay that corporate executives earn. On the contrary, when a court recently called into question Elon Musk's $56 billion pay package from Tesla, stockholders voted to award him $45 billion, notwithstanding evidence that the association of the company with Musk has harmed the company's brand. Why do we get so bent out of shape that a union executive is also well compensated?
In other union news, OCU 1L Vanessa Mendoza (left) alerted me to a strike on the West Coast. As Bill Kaczaraba reports for MyNorthwest.com, 33,000 Boeing machinists have been on strike for nearly a month. It seems that workers were seeking a 40% wage increase over four years. Boeing has come up from 25% to 30%, but the talks have now stalled, it appears.
While the longshoremen have leverage in the form of the potential impact of their work-stoppage on the national economy, the effects of the machinists' strike may not be felt for some time. It may result in delays in the delivery of new aircraft, especially Boeing's strongest selling 737-MAX jets. But the impact on the workers is much more immediate. According to the work of Reuters reporters Allison Lampert and David Shepardson, available on USA Today, Boeing has cut off the workers' health insurance and benefits as of September 30. The union is trying to raise funds here to tide workers over until a new contract can be negotiated.
October 8, 2024 in Commentary, Current Affairs, In the News, Labor Contracts | Permalink | Comments (0)
Eleventh Circuit Upholds NLRB Decision Requiring Corporation to Hire Union Workers
TK Global (TK) was hired to provide pipefitting services in connection with the construction of a manufacturing facility in Commerce, Georgia. In March, 2020, a representative from the United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of the United States and Canada, AFL-CIO (the Union) approached TK to ask if the company needed more workers for the job. The initial answer was no, because the company had brought in its own work crews form Korea, but later in the project the company needed more workers.
A Union representative offered to provide workers in exchange for the company's agreement to be bound by a collective bargaining agreement (CBA). Among other things, the CBA provided that TK had the right to reject or terminate Union workers, but only with notice to the Union. The CBA was a 62-page document, and TK's principal expressed some discomfort, but he signed it and returned it to the Union representative. From there, the facts get complicated, but to sum it all up: TK hired some Union workers, terminated them due to language barriers between them and the Korean workers, and later hired some more Union workers. The Union workers were compensated as provided for in the CBA.
Troubles arose when TK hired a subcontractor to complete the job. The Union then reminded TK that it had agreed to only hire through the Union. TK claimed it had never agreed to any such thing. The sub-contractor then advised TK to simply withdraw from or terminate the CBA and drafted the termination letter. It did so and terminated all of the Union workers still on the site.
At that point the National Labor Relations Board (NLRB) got involved, charging TK with violations of the National Labor Relations Act (NLRA), specifically of 29 U.S.C. § 158(a)(1), (3), (5). An Administrative Law Judge (ALJ) concluded that TK had violated the NLRA by terminating the CBA, either because it was bound by having signed the CBA or by its conduct. Second, TK violated the NLRA by firing the workers on a discriminatory basis and without consultation with the Union. Third, TK's firing of the workers and refusing to rehire them violated the NLRA by conduct "inherently destructive of workers' rights" and by exhibiting an anti-union animus. A panel of the NLRB affirmed the ALJ's conclusions.
In TK Global, LLC v. Nat'l Lab. Rels. Bd., the Eleventh Circuit found that the NLRB's ruling was supported by substantial evidence, and it thus affirmed the NLRB's decision. The court first found that there was a binding agreement between the parties. TK argued that it had never agreed to hire Union employees exclusively. The facts could be viewed to support such a conclusion, but there was also substantial evidence going the other way, and that sufficed to satisfy the operative standard of review.
Much of TK's argument hinges on their principals' poor English language skills and allegations of "cultural differences." Courts routinely enforce contracts against ordinary employees and consumers who do not have the English language abilities or knowledge of the culture surrounding contracts of adhesion in the United States. I can't imagine why a court would take these arguments seriously in the context of a sophisticated business engaged in a large construction project. If its principals lack language skills, the corporation clearly has the means to hire attorneys who can explain the terms to them. Nonetheless, the court treats these arguments as colorable, just not enough to overcome the substantial support for arguments on the other side.
October 8, 2024 in Labor Contracts, Recent Cases | Permalink | Comments (0)
Monday, October 7, 2024
Guest Post: Tal Kastner on Coinbase, Inc. v. Suski
Contract Conflict in Coinbase
Tal Kastner, Rutgers Law School
This past spring, Coinbase, Inc. v Suski, prompted little notice amidst the headline-making Supreme Court cases at the end of the term. Coinbase involved two contracts between the cryptocurrency exchange platform and platform users. The first, a User Agreement, contained an arbitration provision specifically delegating disputes relating to arbitrability to an arbitrator “and not [to]… a court or judge.” The second agreement, establishing the official rules to a sweepstakes for a chance to win Dogecoin, contained a forum selection provision granting California courts “sole jurisdiction over any controversies regarding” the sweepstakes. When Coinbase users brought a class action suit claiming that the sweepstakes violated several California consumer protection laws, the conflict between the agreements became evident.
A district court in California held that the sweepstakes agreement superseded the user agreement, and the Ninth Circuit Court of Appeals affirmed. In an eight-page opinion penned by Justice Ketanji Brown Jackson, the Supreme Court affirmed the Ninth Circuit’s ruling, holding that, when multiple agreements conflict on the question of who decides arbitrability, it is for a court to determine who decides.
Pointing to “[b]asic legal principles,” Justice Jackson’s opinion stresses the paradigm of arbitration as a “matter of contract and consent.” In doing so, it emphasizes that “traditional contract principles” of consent apply to questions of the merits of arbitration disputes, of whether parties agreed to arbitrate, and of who decides arbitrability—what Justice Jackson termed the first-, second-, and third- order disputes, respectively. And, as such, the opinion explains, the same principles extend to the fourth-order question of “[w]hat happens if parties have multiple agreements that conflict as to the third-order question of who decides arbitrability.”
The characterization of arbitration disputes in Coinbase reads as, perhaps unusually, straightforwardly coherent as a matter of contract law. Prior cases involving contracts of adhesion with arbitration provisions, such as Lamps Plus, Inc. v. Varela, contorted the notion of consent to counter-intuitive ends. In that case, the Court construed an ambiguous employment agreement in favor of the drafter to hold that a company had not explicitly consented to class-wide arbitration in the arbitration agreement it imposed on its employees. In contrast, Justice Jackson’s opinion for the Court preserves a space for judicial review of what parties agreed to by contract.
Coinbase is also notable for addressing the issue of the uncertainty caused by the potential interaction among contracts. As I’ve analyzed, the potential for one contract to create ambiguity for other contracts has been an underappreciated risk for contract drafters, especially in sophisticated transactions involving multiple parties using different contracts to allocate risk and responsibility among various actors with respect to different aspects of a complex deal. Many courts have yet to articulate clear rules on how they evaluate the relationship between contracts that might relate to the same parties—a question that might be most salient in innovative complex transaction structures.
Yet, lest the lesson of Coinbase’s contract drafting mistake get lost on the drafters of contracts of adhesion who seek to insulate themselves from judgment, Justice Gorsuch’s concurrence, which insists that the Court does not endorse the Ninth Circuit’s reasoning, puts a fine point on it. In fact, Justice Gorsuch goes so far as to contemplate a provision to be included in “a master contract,” which he suggests, could be used in such circumstances. The provision would state that all disputes “related to this or future agreements between the parties, including questions concerning whether a dispute should be routed to arbitration, shall be decided by an arbitrator.” While this is an apt lesson for parties involved in sophisticated transactions (and, in fact, one I discuss in my article), the implications of this lesson, should courts ultimately accept that such a provision can bind parties’ future agreements in the context of contracts of adhesion, are troubling as a matter of contract and consent.
Indeed, given the difficulty courts face in policing the boundaries between doctrine designed for sophisticated parties on one hand, and for consumer contracts on the other (as Ethan Leib and I have discussed), Justice Gorsuch’s invitation to import a practice from complex transactions involving sophisticated parties into the context of consumer contracts further threatens whatever boundaries remain in the doctrine—and whatever protections remain for consumers from companies’ ability to strip them of rights through fine print. Most basically, Justice Gorsuch’s approach would further expand the scope of the arbitration clauses imposed on consumers by corporate entities. And, as Disney’s recent ugly attempt at arbitration-clause bootstrapping and similar cases suggest, companies are likely to continue to try to pursue this goal.
October 7, 2024 in Commentary, Contract Profs, Recent Cases, Recent Scholarship | Permalink | Comments (0)
Bright Data Wins Summary Judgment on Claims that It Scraped Data from Meta
This case makes a lot more sense not that I have read and commented on Woodrow Hartzog and Daniel Solove's smash SSRN download hit, The Great Scrape: The Clash Between Scraping and Privacy. Meta Platforms, Inc. (Meta) sued Bright Data, Ltd (Bright Data) alleging that it scraped data from Facebook and Instagram (the Sites) and then sold that data to its customers while also developing tools to allow others to engage in similar scape-shenanigans without detection. Meta alleged that this conduct violated the Sites' terms and policies and it sought damages and injunctive relief. Bright Data responded that it scraped only publicly available information and that the Sites' terms and policies do not apply, as it canceled its Meta accounts.
Bright Data concedes that between April 2021 and early December 2022, it had accounts on the Sites. In late November, Meta conducted a video conference and warned Bright Data that it was in breach of the Sites' terms. Bright Data had two responses: first, it terminated its accounts; second it claimed that its scraping activities were unrelated to those accounts.
In January, in Meta Platforms, Inc. v. Bright Data, Ltd., the District Court for the Northern District of California ruled on Meta's motion for partial summary judgment as to liability and on Bright Data's motion for summary judgment. The court first denied Meta's motion for summary judgment on the ground that Meta had not provided any evidence to support its claim that Bright Data had accessed non-public information on the Sites. Instead, Meta only alleged that Bright Data sold data containing 615 million records for $860,000, but that that data may well have been scraped from public records.
Here's were it gets messy. Meta alleged that Bright Data used automation to beat technology to circumvent Meta's access restrictions. I have long thought that a robot will be much more skilled than I am in passing a CAPTCHA test. It turns out I was right, as was Stevie Martin.
The court, citing a case relying on Orin Kerr, then chides, "But Meta surely understands the difference between defeating anti-automated scraping and piercing privacy walls." Professor Kerr argues, persuasively we are told, that using a bot to evade CAPTCHA is not "unauthorized access" to a website, as CAPTCHA is meant to slow access rather than a way to deny access. Shame on you, Meta! Obviously, using a bot to gain access to a website guarded by a device that is meant to exclude bots from the website is not unauthorized access. Sheesh.
Meta's other evidence that Bright Data scraped non-public data is that it advertises a tool, "Scraping Browser" that is compatible with "Puppeteer" which is “capable of automating into a website as well as simulating many other user actions, which would allow automated collection of information available only to users logged into Facebook or Instagram accounts.” Still, while Meta showed that Bright Data was capable of doing so, it has not shown that Bright Data did so.
Finally, the rest of the opinion on Meta's motion is devoted to a discussion of whether Bright Data violated a contractual agreement with Meta. In short, Meta argues that Bright Data violated its contract by engaging in data scraping whether it did so while logged onto its accounts on the Sites or while logged off. Bright Data insists that all of its scraping was done while logged off and thus did not violate Mata's terms and policies.
The court agreed with Bright Data. The terms and policies only cover "use" of the Sites, and while Bright Data was not logged on to the Sites it was not using them. The fact that Bright Data had accounts on the Site while it scraped is irrelevant because it scraped while logged off. Although the court acknowledged that both sides advanced reasonable arguments, it concluded that Meta's terms do not prohibit the scraping of publicly-available information from its Sites while logged off. Facebook's "survival clause," providing that its terms and policies continue to apply, as relevant, after one terminates one's account, does not change matters. If scraping public information while logged off was permissible when you have an account, it can't become impermissible after your delete your account.
The court thus denied Meta's motion for summary judgment as to liability and granted Bright Data's motion for summary judgment on Meta's breach of contract claim. Meta was given leave to amend its complaint. Meta chose not to do so. Bright Data dropped its tortious interference claim now that Meta could not longer interfere with its scraping business.
October 7, 2024 in Recent Cases, Recent Scholarship, Web/Tech | Permalink | Comments (0)
Friday, October 4, 2024
Securities Law Suit Against Winkelvoss NFT Entities Sent to Arbitration
In early 2021, John Hastings bought non-fungible tokens (NFTs), digital assets, in this case in the form of digital art works called "Nifties," from an entity called Nifty Gateway, LLC (Nifty). Nifty is owned by the Winkelvoss twins (right). In December 2022, apparently disappointed in the Nifties as investment vehicles, Mr. Hastings sought to bring a class action complaint against Nifty for violations of the 1933 Securities Act, deceptive practices under New York law, and unjust enrichment. Nifty moved to compel arbitration.
In Hastings v. Nifty Gateway, LLC, the District Court for the Southern District of New York granted Nifty's motion to compel arbitration. As usual, the question is whether a reasonable user would be put on notice that by creating an account with Nifty they were agreeing to Nifty's terms and conditions. The court provides an image of Nifty's sign-in page (reproduced below). As you can see, the page provides notice that by signing up for a Nifty account one is agreeing to Nifty's terms and conditions, and the page then provides a hyperlink to those terms and conditions. Those terms and conditions included, you guessed it, an arbitration provision.
The court found that Mr. Hastings had reasonable notice of Nifty's terms and that he had unambiguously assented to those terms when he created not one by three Nifty accounts. In addition, because the arbitration clause unambiguously delegated to the arbiter the authority to determine the scope of the arbitration clause, the court must allow the arbiter to decide whether Mr. Hastings' claims fall within the scope of the arbitration agreement.
Finally, Mr. Hastings argues that Congress, in passing the Private Securities Litigation Reform Act (the “PSLRA”) supersedes the Federal Arbitration Act (FAA) by guaranteeing that plaintiffs can pursue their securities claim in federal court, including by class action. This argument is foreclosed by many decisions finding that, absent some express statement indicating Congressional intent to override the FAA, courts should not "conjure conflicts" between it and other statutes. Although the court makes no mention of it, that the arbitration provision at issue does not seem to prohibit class arbitration. That means that there would seem to be less of a conflict between arbitration and the PSLRA in this instance. In some future case a plaintiffs might claim that the conflict is not between the FAA and the PSLRA but between a contractual term (a class-action waiver) and a federal statute. Absent some change in the Supreme Court's personnel, that argument would also likely fail.
In any case, in this case the court granted Nifty's motion and stayed the proceedings pending arbitration.
October 4, 2024 in Recent Cases, Web/Tech | Permalink | Comments (0)
Thursday, October 3, 2024
Second Circuit Upholds Time Charter Allowing for Viking River Cruises on the Mississippi
Viking River Cruises (Viking) is known for its excursions in Europe and Egypt. It wanted to expand operations into the United States, entering into an agreement through an American subsidiary for a charter though an American company, River 1, LLC (River 1). Viking worked with River 1 because provisions of the Jones Act prohibit Viking, a foreign corporation, from operating on its own. According to the Second Circuit, the deal with River 1 provided that "River 1 employees would manage the ship’s maritime activities, while Viking employees would manage the onboard entertainment operation." They applied to the United States Maritime Administration (MARAD) for approval of the time charter, which MARAD granted in March, 2022. The Viking Mississippi has been operating since September 2022, as you can see in the video below.
American Cruise Lines (ACL) challenged that decision, alleging that the agreement was a "bareboat charter," and that its approval would result in an impermissible transfer of control over the vessel to which the charter pertained to a non-citizen corporation.
The Administrative Procedures Act (APA) applied to ACL's petition for review. In American Cruise Lines v. United States, the Second Circuit first noted that, under the APA, the Court could only reverse MARAD's determination if it were "arbitrary and capricious." According to the Second Circuit, it was not.
The issue was whether the agreement between Viking and River 1 established a time charter. Under a time charter, “the charterer engages for a fixed period of time a vessel, which remains manned and navigated by the vessel owner, to carry cargo wherever the charterer instructs.” A bareboat charter, by contrast, shifts "exclusive possession and control of the chartered vessel from the owner to the charterer during the charter period." The Court found reasonable MARAD's construction of the charter between Viking and River 1 as a time charter.
Among the features of the charter supporting MARAD's conclusion are the following:
- River 1 provided the crew and the vessel master, who oversees the ship's operations;
- Viking retains power to replace the vessel master, but only in the case of unsatisfactory performance and has not power to name the replacement; and
- River 1 maintains primary responsibility for the ship's maintenance and care.
No aspects of the transaction run afoul of the Jones Act or regulations. The regulations prohibit a foreign corporation from absorbing "all of the costs and normal business risks associated with ownership and operation of” the vessel. But here, Viking has not done so. MARAD did not behave impermissibly in finding that an American Fishing Act regulation did not apply to the transaction, perhaps because the cruise ship was not engaged in fishing.
The rest of the opinion has to do with proper procedures under notice and comment provisions. Ultimately, the Second Circuit's decision was a narrow one. Future charters will require independent review, but MARAD's finding that this agreement created a time charter was not arbitrary and capricious.
Now I'm thinking of doing some follow-up research on the next available cruise.
October 3, 2024 in Legislation, Recent Cases, Travel | Permalink | Comments (0)
Wednesday, October 2, 2024
Just in Time for Rosh HaShanah 2024, an Update on Passover 2019
Thanks to the "good citizen" who prodded me to dig up the outcome of Greenwald Caterers LLC v. Lancaster Host LLC, which we previously covered here. I had boldly predicted that the parties would settle the case. But I failed to notice that the case had by then already proceeded to trial.
The case was about a community Passover gathering that went very badly. The hotel that was to host the event was under renovation and was in poor condition when the Passover celebrants arrived. The hotel scrambled to remediate, and apparently it did so quite successfully, as the judgment was more or less a wash.
An April judgment clarified in June resulted in $1,447.60 awarded to the plaintiffs for prevailing on Count I of their amended complaint, and $5,164.28 to defendant (the Hotel) against Greenwald for prevailing on its counterclaim. I could not find a link to the judgment from the bench trial. A Westlaw search turned up only a post-judgment memorandum on attorneys fees.
The District Court found that neither party had prevailed and so it denied the hotel's request for over $240,000 in attorneys' fees. I am surprised that the fees are so low after years of litigation that resulted in a trial.
But now is the season for atoning and forgiving. May all involved be inscribed and sealed in the book of life.
October 2, 2024 in About this Blog, Recent Cases, Religion | Permalink | Comments (0)
Massachusetts Supreme Judicial Court: One Cheer for Tenure!
Beginning in 2016, Tufts University School of Medicine (Tufts) instituted new policies for tenured faculty members. Faculty members were now required to cover fifty percent of their salary with external research funding. If they could not do so, their salaries would be cut and their employment status would be reduced from full time to part time. In addition, to maintain their existing lab space, the plaintiffs had to ensure a cost recovery rate equivalent to a that from a grant from the National Institute of Health (NIH).
Plaintiffs, tenured faculty members at Tufts, sued alleging breach of academic freedom and contractual rights granted through tenure. A trial court granted summary judgment to Tufts on all counts, and plaintiffs appealed. In Wortis v. Trustees of Tufts College, the Massachusetts Supreme Judicial Court noted that economic security and academic freedom are "important norms in the academic community." It therefore reversed the grant of summary judgment as to changes in salary and demotion from full-time to part-time (FTE) status. However, no such norms guarantee access to lab facilities, so the Supreme Judicial Court affirmed the grant of summary judgment on claims relating to Tufts' lab space commitments to plaintiffs.
Tufts was under budgetary pressure. As of 2018, it had a $6 million operating deficit. As of 2017, it found that it needed $20 million to support "basic science research infrastructure." As a result, it changed its policies regarding lab space commitments and full-time status in 2016, 2017, and 2019. Plaintiffs had their salaries cut dramatically and they were informed that they would have their lab space reduced or eliminated. That has not yet occurred.
The Court begins its analysis by noting that "[t]enure, and the benefits it confers, is defined by the contract between a university and a tenured professor." But the devil is in the details. What specific promises or guarantees does tenure provide? There is no single document that sets out the mutual obligations of the parties to a tenure agreement. In this case, there are tenure letters, a faculty handbooks, and various university policy documents. The court finds the language in the various documents ambiguous on many issues. Do they set out promises about lab space commitments going forward or do they simply describe the current state of affairs? Do expectations for tenured faculty members set out what one needs to do to get tenure or to retain it?
By LornaMCampbell - Own work, CC BY-SA 4.0
The Court repeatedly notes that economic security is a term of the agreement between the plaintiffs and Tufts and is not merely "prefatory or hortatory." Tenure, once granted is "permanent and continuous." However, "economic security" is also ambiguous. That being the case, the Court seems to want to determine what reasonable people would have understood as the parameters of economic security. The Court notes that, before 2009, when the most junior of plaintiffs was granted tenure, Tufts had never linked salaries to ability to attract outside funding, and so plaintiffs would not have known that their salaries could be reduced for that reason. However, Tufts did link salaries to grants in 2009, actually reducing some of plaintiffs' salaries at that time, and none objected. The more recent policies involve more drastic salary reductions, but still, the record is ambiguous.
The record on lab space commitments was less ambiguous. On that subject, the court was mindful that lab space is limited and expensive. It concluded that "even if economic security places limits on the ability of Tufts to reduce the plaintiffs' salary or FTE status, it does not preclude Tufts from allocating limited and expensive lab space based on a faculty member's ability to recover the costs incurred in building and operating lab infrastructure." Moreover, plaintiffs have not been deprived of lab space. Tufts continues to commit itself to providing appropriate space for faculty members to conduct research. It follows that plaintiffs' academic freedom and ability to apply for grants has not been curtailed.
And so, the Supreme Judical Court reversed the judgment of the Superior Court and remanded the case as to the plaintiffs' claims regarding the compensation policies their Wage Act claim. It affirmed the Superior Court's judgment as to the plaintiffs' lab space guidelines claims.
October 2, 2024 in Recent Cases, Teaching | Permalink | Comments (0)
Tuesday, October 1, 2024
Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for October 1, 2024
Top Downloads For:
Contracts & Commercial Law eJournalRecent Top Papers (60 days)
As of: 02 Aug 2024 - 01 Oct 2024| Rank | Paper | Downloads |
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| 1. | 216 | |
| 2. | 178 | |
| 3. | 167 | |
| 4. | 165 | |
| 5. | 124 | |
| 6. | 97 | |
| 7. | 90 | |
| 8. | 78 | |
| 9. | 64 | |
| 10. | 64 |
Top Downloads For:
Law & Society: Private Law - Contracts eJournalRecent Top Papers (60 days)
As of: 02 Aug 2024 - 01 Oct 2024| Rank | Paper | Downloads |
|---|---|---|
| 1. | 124 | |
| 2. | 90 | |
| 3. | 78 | |
| 4. | 48 | |
| 5. | 46 | |
| 6. |
Cutthroat Business |
31 |
| 7. | 29 | |
| 8. | 25 | |
| 9. | 23 | |
| 10. | 22 |
October 1, 2024 | Permalink
Matthew Sluka: More NILs; More TroubILs
I expect that college athletics contracts are going to be the single most popular topic for student notes for the next five years at least. Two students came to me with the same story. They are Nathan Vann (below left) and Ryan Collins (right). Both have allowed me to use their names and images in exchange for the glory of having their enthusiasm for contracts evidenced on this blog.
It's a refreshing story about how providing support for young athletes enable them to pursue their dreams of university education.
No, it's not that.
It's a refreshing story about how the NCAA's rules allowing student athletes to benefit from Name, Image, and Likeness (NIL) deals is facilitating support for the students who make college athletics so fun and exciting.
No, it's not that either.
According to Pete Thamel and Adam Rittenberg, writing on ESPN.com, UNLV quarterback Matthew Sluka has left his team after three games because the athletics supporters, also known as the "UNLV's collective," who made oral pledges of an NIL deal did not deliver. Mr. Sluka was allegedly promised $100,000, but the team's head coach refused to honor the promise, which was oral and did not come from him but from an assistant coach.
The news coverage of this story makes much of the fact that that promise was oral, but that is only relevant for evidentiary reasons. Contracts only have to be in writing if they are within the statute of frauds, and this contract was not. It would have to be in writing the parties were contemplating that Mr. Sluka would be UNLV's quarterback for many years, but he only has one year of eligibility remaining. And the team's head coach seems to have acknowledged that the promise was made by the offensive coordinator, so we don't really have an evidentiary problem.
We do have an agency problem. Likely the assistant coach would not have actual authority to bind the university, but he might have apparent authority. However, because players are paid by collectives rather than by universities, it may be that he lacked even that. I suppose it depends on what a college athlete in Mr. Sluka's position would be expected to know about the way these deals are structured. I suspect that they know a hell of lot more about this world than I do, and Mr. Sluka was represented by an agent. Would a reasonable agent know that an assistant coach can't promise $100,000 on behalf of the collective?
The collective paid Mr. Sluka $3000. UNLV paid Mr. Sluka $3000 for moving expenses. Mr. Sluka's agent for some reason acknowledges that the only "formal offer" from UNLV was $3000/month for four months. Believing he was entitled to more, Mr. Sluka threatened to quit if UNLV and its collective did not make good on their alleged promises. UNLV does not respond kindly to threats. According to ESPN, it "interpreted these demands as a violation of the NCAA pay-for-play rules, as well as Nevada state law."
Under NCAA rules, Mr. Sluka, having played only three games, can "redshirt" and thus preserve his eligibility for another season. According to an earlier ESPN.com report, he had already been at Holy Cross for four years before coming to UNLV. I guess it doesn't matter if it takes a quarterback six years to graduate college. [Update: an alert reader pointed out that Mr. Sluka already got his undergraduate degree from Holy Cross; he is now pursuing a graduate degree.] None of the reporting mentions Mr. Sluka's course of studies, his major, or what he would like to do with his college degree, assuming he does not become a professional athlete. He does not seem to be attending college with the primary aim of getting an education.
It's all very confusing. Where was Mr. Sluka's agent when it came time to formalize the promise? To make matters more confusing still, the NCAA, in an attempt to head off an antitrust suit, seems poised to allow colleges to pay their students directly, eliminating the need for "collectives." That's probably a good thing, because it seems very likely that the NIL agreements are really just means for allowing local boosters to pay student-athletes, disproportionately football players, it seems, to attend particular schools. That model, one can imagine, creates a complicated relationship among coaching staffs, players, and boosters, with the latter suddenly assuming a position similar to that of equity investors. For example, Kalan Hooks reports for ESPN that car dealerships are frequent sponsors of NIL deals. But at the University of Utah, eighty-five football players on scholarship received leases for pickup trucks.
OKCU 1L Nathan Vann shared with me the additional news that, as Mike McDaniel reports in Sports Illustrated, the CEO of a local resort and sportsbook offered to pay $100,000 to Sluka to keep him at UNLV. Consistent with its previous position that paying Mr. Sluka would violate NCAA rules and Nevada law, UNLV declined the offer, also noting that Mr. Sluka had already left the team. If a sportsbook is what I think it is, I can certainly imagine no negative externalities if such entities were placing bets in the form of NIL contracts on the players on whose performance they were also taking bets.
In its first game without its star quarterback, UNLV won by a score of 59-14. The backup quarterback completed 13 of 16 passes for 182 yards and three touchdowns. He also rushed for 119 yards and a touchdown. Rebel fans will have to hope that he doesn't start looking around for an NIL deal.
We wouldn't have this problem if we in the United States were just normal about sports and did not think of universities as bloated justifications for semi-pro leagues funded by boosters' donations. No other country in the world does sports this way, people! We want young athletes to have access to higher education, but if we had real development leagues, such young athletes could pursue their professional dreams and get paid sufficiently to also attend universities if that's what they wanted to do. They could do so either as part-time students or, after their careers, when they were older and better able to get the most out of the educational experience.
Universities could still adopt local teams as though they were their own. After all, many big-time college sports programs are based in small towns that would not be able to attract a sports team if they were not college towns. Here, in Oklahoma, the most popular teams are located in Norman and Stillwater. They could continue to be there, even if those teams were part of the "SEC Development League" or whatever. Just for starters, that would save Oklahoma taxpayers $15 million because they would no longer have to pay the salaries of the head coaches at those schools. Or perhaps that money could be put to some use at those universities in the form of scholarships for deserving students or resources to serve their educational needs.
I just had to say it. As you were.
October 1, 2024 in Commentary, Current Affairs, In the News, Sports | Permalink | Comments (1)
Divided Ninth Circuit Panel Sends Claims Against Airline to Arbitration
In 2019, Winifredo and Macaria Herrera (the Herreras) purchased international round-trip flights on Cathay Pacific Airways, Ltd. (Cathay Pacific) through a third-party booking website, ASAP Tickets (ASAP). In so doing the Herreras agreed to ASAP's terms, which included a $250/per ticket fee for refunds or exchanges and a clause providing for binding arbitration by the American Arbitration Association.
While they were traveling, Cathay Pacific canceled their return trip. A Cathay Pacific employee advised them to book with another carrier, assuring them that they would receive a refund, and they did so. Through ASAP, the Herreras requested their refund, but they were offered only travel vouchers valid for a limited time. By then, because of the COVID pandemic, it was clear that the Herreras would not be able to use the vouchers. Cathay Pacific maintains that it never received a refund request form the Herreras or ASAP.
The Herreras filed a class-action complaint alleging that Cathay Pacific was in breach of contract under the terms of its General Conditions of Carriage for Passengers and Baggage (GCC). The GCC provides for refunds in case of cancellations unless otherwise provided under the Montreal Convention or the GCC's Article 11. The GCC contained no arbitration clause.
In response to the Herreras' complaint, Cathay Pacific moved to compel arbitration based on equitable estoppel, relying on ASAP's terms and conditions. The District Court denied the motion, as the Herreras' claims did not arise under their agreement with ASAP. Cathay Pacific took an interlocutory appeal.
In a split decision in Herrera v. Cathay Pacific Airways, Ltd., the Ninth Circuit reversed the District Court's denial of Cathay Pacific's motion to compel arbitration and remanded the case with instructions to dismiss or stay proceedings pending arbitration. I believe that under a recent SCOTUS decision, Smith v. Spizzirri, discussed here, the District Court can only stay, not dismiss the case.
The Court first addressed plaintiffs' tardy argument that Cathay Pacific could not compel arbitration because 14 C.F.R. § 253.10 provides:
No carrier may impose any contract of carriage provision containing a choice-of forum clause that attempts to preclude a passenger, or a person who purchases a ticket for air transportation on behalf of a passenger, from bringing a claim against a carrier in any court of competent jurisdiction, including a court within the jurisdiction of that passenger’s residence in the United States (provided that the carrier does business within that jurisdiction).
The Majority rejected this argument because Cathay Pacific is not imposing a choice-of-forum clause on the Herrera's through the GCC. It is doing so through "applicable law," and the regulation doesn't say anything to prevent a carrier for doing so. That would really annoy me as exhibiting the sort of "lawyerly" reasoning that allows smarmy well-resourced parties to evade the purpose of regulation. However, the dissenting opinion points out that the Department of Transportation has interpreted the provision as applying only to domestic flights. Fair enough.
There is no arbitration agreement between the parties, so under California law, Cathay Pacific can only compel arbitration if the Herreras’ breach-of-contract claim against Cathay Pacific is “intimately founded in and intertwined with” ASAP’s Terms & Conditions containing the arbitration clause. The Majority reasoned that when Cathay Pacific directed the Herreras to make their refund request through ASAP, they made the latter a "middleman" for refund purposes. Cathay Pacific alleges that it never received a refund request from ASAP and thus never imposed any restrictions on the Herreras' refund. ASAP may have done so in violation of its terms and conditions, and that is why any claim against Cathay Pacific is intertwined with those terms and conditions.
Ultimately, estoppel comes down to fairness. The Herreras say it is not fair to compel arbitration in these circumstances, but the Majority disagrees. Article 11 of the GCC allows Cathay Pacific to reimburse ASAP and to direct the Herreras to recovery from ASAP. Cathay Pacific did indeed so direct the Herreras. The Herreras got discounted tickets through ASAP. In return they agreed to an arbitration clause. There is nothing unfair about giving them what they bargained for.
The Majority thus found that the Herreras were equitably estopped from resisting Cathay Pacific's motion to compel arbitration. There is a strong dissent, questioning whether there are undisputed facts establishing that all aspects of the Herreras' claims are intimately founded in and intertwined with its agreement with ASAP.
October 1, 2024 in Recent Cases, Travel | Permalink | Comments (0)
Monday, September 30, 2024
Troubling Case of an Anthropology Professor Fired for Pro-Palestinian Speech
Maura Finkelstein (left) was, until recently, a tenured anthropology professor at Muhlenberg College. She is Jewish, but she is also fierce critic of Israel and a supporter of Palestinians. Her Twitter and BlueSky accounts are about little else. As far as I can tell, her scholarship is about other things, but she taught courses at Muhlenberg College on Palestine, so her commitment to Palestine did not prevent her advancement, even at a college whose student body is 30% Jewish.
According to Ryan Quinn, writing for Inside Higher Education, in May, Professor Finkelstein became the first professor to be fired for pro-Palestinian speech since October 7th. She is appealing the decision and is still being paid by the College. The speech occurred on Professor Finkelstein's Instagram page in January. She reposted the following statement by a Palestinian poet:
Do not cower to Zionists. Shame them. Do not welcome them in your spaces. Why should these genocide loving fascists be treated any different than any other flat out racist. Don’t normalize Zionism. Don’t normalize Zionists taking up space.
There seems to have been a coordinated campaign against Professor Finkelstein. The College came under pressure from multiple directions. A complaint, referencing Professor Finkelstein, was filed against the College with the Department of Education. The College and media outlets were deluged with thousands of automated e-mails about Professor Finkelstein. What the reporting thus far does not reveal is any evidence of student dissatisfaction with Professor Finkelstein or her teaching. She awaits a hearing on her appeal. The College won't talk about personnel matters. nor will any of the faculty members who recommended firing Professor Finkelstein comment. None of that is surprising.
The AAUP is alarmed, and Graham Piro, the faculty legal defense fund fellow at the Foundation for Individual Rights and Expression, calls Professor Finkelstein's firing "extremely disturbing." So far, everyone is talking about academic freedom, but nobody is addressing the role of contracts in securing such freedom. We really have some work to do getting language into faculty handbooks that expressly acknowledges contractual elements of tenure and provides real-world protections for faculty members who speak their mind in ways that their colleagues find alarming or off-putting.
I am not a "I do not like what you say but I will fight to the death for the right to say it" person. I don't think it factually accurate to imply that all Zionists are genocide-loving fascists. I don't think responsible adults, let alone faculty members, should promote such views. I will not fight to the death for Professor Finkelstein's right to do so. But if having tenure confers on faculty members significant freedom to speak their minds, especially when one does so outside of the context of one's professional responsibilities, then those rights ought to be protected in the manner of any other rights that arise through private legislation.
September 30, 2024 in Commentary, Current Affairs, In the News, Labor Contracts | Permalink | Comments (0)
Michael Helfand on Contracts and the Right to Change Religions
I have been writing recently (here and here) on the intersection of contracts law and the First Amendment. In most cases, I argued, courts pay scant attention to contractual rights and obligations when they come up against First Amendment rights. It used to be otherwise, Michael Helfand (right) notes in his article, Contractual Commitments and the Right to Change Religion, forthcoming in the North Carolina Law Review. He considers cases in which people make binding contractual agreements relating to religion but then change their religious convictions.
People might enter into a divorce agreement in which each partner commits to raise the children in a certain set of religious beliefs of practices. Parties might agree to adjudicate disputes through religious arbitral bodies. A congregation might enter into an agreement with a member of the clergy, but one or the other party might conclude that the other no longer follows the orthodox version of the faith. Courts used to enforce such agreements, reasoning that the parties had entered into contracts voluntarily and thus assumed the risk that their religious convictions might shift. Recently, courts have been more rigorous in their protection of religious exercise, and they have been allowing religious interests to win out over contractual commitments. Professor Helfand thinks that a mistake.
Properly applied, contract law can ensure that religious contracts amplify religious freedom. Where such contractual obligations flow from the free and private choices of the parties, and not government coercion, enforcing religious contracts enhances authentic religious exercise. (5)
Contracts law defenses, such as impracticability and frustration of purpose, Professor Helfand argues, are up to the task of enforcing only those contractual commitments that promote the First Amendment principle of voluntarism. (5-6)
Tough cases abound. Professor Helfand recounts Weisberger v Weisberger. In that 2017 case, a divorced couple had agreed to raise their children in the Hasidic tradition. The father sought sole custody on the ground that the mother had come out as Lesbian and was introducing the children to other members of the LGBT community. The New York appellate court refused to enforce the agreement, on the ground that courts cannot compel people to adopt a certain religious tradition. Professor Helfand notes that such decisions may constitute a special case. Courts do not automatically enforce custody agreements but do so only when they further the best interests of the child. (15-16)
In cases involving the Jewish requirement that a husband provide a get before a couple can divorce, courts used to enforce Jewish marriage contracts (ketubot, illustrated at left) even after one party to the marriage had abandoned their faith on the ground that the law should hold them to their agreement. (20) Recently, however, courts have concluded that courts should not coerce people to behave in a way inconsistent with their religious beliefs and have refused to issue positive injunctions relating to gets. (20-21)
Religious arbitration has, until recently, been another special case. Because the Federal Arbitration Act permits only limited judicial oversight of arbitral decisions, courts have enforced parties' agreements to subject themselves to religious arbitration, even when one party is no longer an adherent of the relevant faith. But some legal scholars and courts are now subjecting that tradition to Free Exercise and statutory (RFRA) challenges. However, Professor Helfand cites only one case, which involved allegations of rape by a Church of Scientology member, a cover-up, and harassment by church authorities. The court recognized a Free Exercise right to leave a religion. (21-26) Hard cases make bad law? Seems like ordinary unconscionability doctrine could have done the trick, given that it seems pretty unlikely that a church arbitral body would be free from bias against a party suing the church.
Professor Helfand next turns his attention to changes in belief in the context of the ministerial exception to non-discrimination law when the employer is a religious institution. Some ministerial exception cases seem clearly absurd. A cantor at a synagogue claimed that he was fired without the contractually-guaranteed notice of three "strikes" that justified termination. The court dismissed the claim, citing the ministerial exception, notwithstanding the fact that the contractual claim at issue had nothing ministerial about it. (28-29) Other courts have been more careful, distinguishing breach of contract claims from employment discrimination claims in the ministerial context. (29-30)
With this caselaw as a backdrop, Professor Helfand then proceeds to his main argument: that the enforcement of religious contracts, notwithstanding changed beliefs, does not not undermine religious freedom. Free exercise of religion and the enforcement contractual obligations can be reconciled as emanating from the same principle: voluntarism. The Article deftly establishes the extent to which both legal scholars and courts have understood protections of religious freedom in voluntaristic terms. People should be free to choose their religions and exercise their religions free from government interference. (33-37) Where courts can apply neutral general principles of contract law, doing so does not violate a principle of voluntarism, so long as the assumption of contractual obligations was a product of free and private choices. Contracts law, Professor Helfand argues, helps us determine whether the obligations in question were voluntary. (37-43)
Professor Helfand regards the freedom of religion and the enforcement of contractual obligations as mutually supportive of the principle of voluntarism. Contracts excuses, such as frustration of purpose and impracticability, enable contract law to establish when that principle would be thwarted by enforcement of religious contracts when one party is no longer an adherent of the religion whose dictates will govern. (43-64)
At first blush, it might seem that contractual excuse undermines the sanctity of contracts and thus frustrates the voluntarism at the heart of contract formation. Not so, Professor Helfand argues, drawing on the scholarship of Hanoch Dagan. Rather, when we enter into contracts, we legislate for our future selves, and setting that private legislation aside is consistent with the voluntarism at the heart of Professor Helfand's understanding of contracts theory, only when some unforeseen event that goes to a basic assumption of the contract either renders performance impracticable or frustrates the purpose of the party seeking excuse. In such circumstances, enforcing the contract would not enact the parties' wills, because the parties never contemplated the unforeseen change negating their basic assumption. (52-54)
The problem with this analysis is that that the party seeking enforcement has a ready response. The change in the other party's beliefs was not unforeseen. The contractual provisions providing for resolution in accordance with the parties' shared religious beliefs would be unnecessary if the parties' continued adherence to those beliefs were guaranteed. The party seeking performance entered into an agreement assuming that the contract would be interpreted consistent with their religious beliefs, and they continue to operate on that assumption. From their perspective, not only was there nothing unforeseen, nothing has changed at all. Professor Helfand's discussion of the problem of foreseeability (60-64), which focuses on the general possibility that a person might change their faith, does not, in my view, adequately account for the fact that fact that a contract that provides for a religious adjudication is, as a matter of fact, acknowledging the foreseeability of a loss of faith by one or the other party.
Notwithstanding the broad embrace of the voluntarist model by courts and the scholarly literature, there is a danger of overstating it. The state is not the only entity that may coerce assent. Contracts of adhesion create an illusion of free and voluntary choice that is often wholly lacking, as discussed in our post on Andrea Boyack's work earlier this year. Religious choices may be a product of upbringing rather than considered choice. Or one might choose a religious community based on factors other than adherence to religious doctrine. The trouble with Professor Helfand's voluntarist model, it seems to me, arises most acutely when religious institutions impose form contracts on their adherents. In that context, one can argue that, both from a Free Exercise and from a freedom of contract perspective, the enforcement of religious contracts undermines the principle of voluntarism.
Professor Helfand's preferred doctrines are excuses. They arise when there has been an unforeseen change in circumstances after the contract has been formed. Impracticability and frustration of purpose do nothing to address failures of voluntarism in the formation of religious contracts. Moreover, it is hard to imagine that the party claiming excuse would not bear the risk of this unforeseen change of heart. This is especially so, as parties to such agreements could condition their performance obligations on continued adherence to the faith, as Professor Helfand acknowledges. (64) Finally, it is quite a stretch to think that a change in belief would render performance impracticable. Stretching the doctrine to allow excuse in cases where performance hinged on one party's subjective beliefs would risk rendering all religious contracts subject to an implied condition so broad as to render the contractual promise illusory.
And so, while Professor Helfand proposes that contracts law, in the form of excuses, could invalidate religious contracts in some circumstances based on an unforeseen change in one of the party's religious convictions, I think excuses would never provide a basis for non-enforcement of the contracts about which Professor Helfand writes. Professor Helfand does not disagree, as he notes that the excuses rarely succeed. (56) He provides no examples of these defenses working in connection with the cases he describes, and he notes the problem that the party seeking excuse must not be at fault for the occurrence of the unforeseen event. (58-60) Professor Helfand's earlier work, focusing on unconscionability and duress defenses to religious contracts might hold more promise.
However, contracts law could produce the results that Professor Helfand desires either through a more exacting inquiry into whether the parties had given meaningful assent to the agreement or through an adoption of the Jamal Greene's rights medication approach for which I have advocated in my scholarship. The latter would entail rejecting the rights absolutism in which our First Amendment jurisprudence abounds and instead weighing the contracts-based and religious-liberty-based interests in each individual case and giving effect to the intentions of the parties in light of those interests.
September 30, 2024 in Commentary, Contract Profs, Recent Cases, Recent Scholarship, Religion | Permalink | Comments (0)
Friday, September 27, 2024
Friday Frivolity: A Limerick for Wisconsin Knife Works
I am teaching Wisconsin Knife Works v. National Metal Crafters for the first time this year. It is hard to find good cases on modification under the UCC's Article 2, and I think I may stick with this one, even though it forces me to talk about the Statute of Frauds long before I am ready to talk about the Statute of Frauds. It is a fun case to teach because it is interesting to see Judge Posner and Judge Easterbrook (pictured, as ChatGPT and I imagine them dueling, at right) on different sides of a case when they were both quite new to the Seventh Circuit. They are trying to make sense of UCC § 2-209's provisions relating to oral modifications in the face of a no-oral-modifications clause.
Judge Posner begins with two thoughts that epitomize what I love about his writing. He dismisses the "reasoning" (scare quotes his) behind the common law's willingness to set aside no-oral-modification clauses through subsequent oral agreements as not reasoning but "a conclusion disguised as a metaphor." Second, he is willing to concede that perhaps the challenge of reconciling the provisions of § 2-209 is simply a product of a failure of foresight. The drafters of the UCC made a "big break" from the common law in eliminating the requirement for consideration. They did not imagine all of the "ramifications of the break." Article 9 underwent significant revisions soon after adoption. Revision of Article 2 could also use a tune-up. I wonder why nobody ever attempted to revise Article 2 . . . Even if Judge Posner is right about §2-209's blind spots, I don't think either he or Judge Easterbrook comes up with an entirely satisfactory solution grounded in the UCC's text.
Judge Posner correctly identifies the problem: while § 2-209(2) says that no-oral-modifications clauses will be enforced, and § 2-209(3) says that modifications within the Statue of Frauds are also within the statute of frauds, § 2-209(4) seems to undercut both. It says that "attempted" modifications may operate as waivers of the writing requirement. But if all attempted modifications count as waivers, we are back at the common law rule whereby parties can just ignore their own no-oral-modifications clauses.
Judge Posner's solution relies on the fact that § 2-209(4) does not say that all attempts are waivers; they only can operate as waivers. So far so good. But then Judge Posner adds a reliance requirement before an attempted modification transforms into a waiver. It comes out of nowhere. Worse still, UCC § 2-209(5) talks about reliance, so if the drafters wanted reliance to be a necessary element of waiver in §2-209(4), they certainly could have said that. Even worse still, as Judge Easterbrook points out in dissent, it is hard to imagine a scenario were there would not be reliance on a modification, so Judge Posner hasn't taken us far from the common-law conclusion disguised as a metaphor.
Judge Easterbrook's solution, which allows conduct to operate as a waiver, preserves some usefulness to § 2-209(2) and (3). They still prevent an oral modification of a contract that can only be modified through a signed writing, either because of a no-oral-modifications clause or because of the Statute of Frauds. The problem is that Judge Easterbrook provides no textual basis for why waiver through conduct should be favored over waiver through oral agreement. He praises the drafters of the UCC and calls it "one of the most carefully assembled statutes in American history." Seems like careful drafters could have distinguished modification by conduct from modification by oral agreement if that were their intention.
Moreover, I am not sure that there would be many more cases of attempted modification unaccompanied by conduct than there would be cases of attempted modification without reliance. Again, we seem not to have moved far from the common law rule. Perhaps no-oral-modifications clauses really are just standard boilerplate that nobody seriously intends and thus we should not be overly concerned if they are routinely ignored both by the parties and the courts.
The Limerick
Judge Easterbrook thought there was waiver,
While Judge Posner views with disfavor
Such nonchalant changes
To written exchanges
This case is one knife-fight to savor!
September 27, 2024 in Commentary, Famous Cases, Limericks, Teaching | Permalink | Comments (0)
Force Majeure, COVID, and a Win for Lizzo
I've long been on the hunt for a case that illustrates the interaction between a force majeure clause and the COVID-19 pandemic. This might be the one. It also makes use of the surplusage canon of construction, so if one has the time to work through a lengthy force majeure clause, it could be a useful teaching case.
In 2019, VFLA Eventco, LLC (VFLA) announced that there would be a two-day music festival, the Virgin Fest Los Angeles in June 2020. In February and March, 2020, VFLA entered into contracts with agencies representing Ellie Goulding, Kali Uchis, and Lizzo (collectively the Artists). William Morris Endeavor Entertainment, LLC (WME) acted as the agent for all three artists and negotiated the contracts on their behalf. The contract provided that WME should not be liable under the contract, and there was a force majeure clause. In this clause, VFLA is the "Purchaser" and the agencies representing the Artists are the "Producer":
A ‘Force Majeure Event’ means any act beyond the reasonable control of Producer, Artist, or Purchaser which makes any performance by Artist impossible, infeasible, or unsafe (including, but not limited to, acts of God, terrorism, failure or delay of transportation, death, illness, or injury of Artist or Artist’s immediate family (e.g., spouses, siblings, children, parents), and civil disorder). In the event of cancelation due to Force Majeure then all parties will be fully excused and there shall be no claim for damages, and subject to the terms set forth herein, Producer shall return any deposit amount(s) (i.e., any amount paid to Producer pursuant to the Performance Contract prior to payment of the Balance) previously received (unless otherwise agreed). However, if the Artist is otherwise ready, willing, and able to perform Purchaser will pay Producer the full Guarantee unless such cancellation is the result of Artist’s death, illness, or injury, or that of its immediate family, in which case Producer shall return such applicable pro-rata portion of the Guarantee previously received unless otherwise agreed.
[Italics added] This language was negotiated and had been updated based on a model used for another event. The language that I have italicized was new language inserted by WME and agreed to by VFLA.
VFLA transferred to WME’s trust account nonrefundable deposits of $400,000 for Kali Uchis, $600,000 for Goulding, and $5 million for Lizzo. The deposits were consideration for the artists’ performance at Virgin Fest, as well as for exclusivity and advertising rights, which allowed for the use of their images for Virgin Fest's marketing materials and subjected the Artists to certain restrictions on public performances in temporal or geographic proximity to the Virgin Fest.
And of course, the whole Virgin Fest was shut down because of COVID. VFLA sought the return of the deposits, and the parties disagreed as to the meaning of the force majeure clause. After discovery, the parties filed motions for summary judgment. The trial court granted summary judgment in favor of WME and the Artists and denied VFLA's motion. The language of the force majeure clause had been revised to favor the Artists.
By Library of Congress Life
In VFLA Eventco, LLC v. William Morris Endeavor Entertainment, LLC , a California appellate court affirmed. The appellate court broke down the force majeure clause according to its three sentences. The first sentence defines "force majeure," and the parties do not dispute that the pandemic was a force majeure event. The meaning of the second sentence was also not in dispute -- the Artists had to return the deposits in case of a force majeure event unless another performance term applies.
The dispute centers on the third sentence, which states that the Artists do not have to return the deposits if they are "otherwise ready, willing, and able to perform." The Artists contend that the best reading of this language is that, but for the force majeure event, they would perform, which is clearly the case. VFLA reads "otherwise" to mean something more like "notwithstanding." In the court's view, the Artists reading is the better one, as VFLA's reading would "deprive the third sentence of any meaning and render it surplusage." The Artists could never show that they were ready, willing, and able to perform notwithstanding a force majeure event, which is defined as any event that renders performance "impossible, infeasible, or unsafe."
VFLA argued that the performance in this case would be illegal, which is different from "impossible, infeasible, or unsafe," but the court did not buy it, as the force majeure clause doesn't mention illegality, and illegality could make performance impossible. The court also addresses the exceptions to the exceptions in the third sentence, which provides that the Artists do have to return the deposits if they or an immediate family member die, become ill, or are injured. The court concludes that VFLA's reading cannot be squared with this language, again relying on the surplusage canon.
Personally, I don't think there is a reading that would avoid rendering some part of this language surplusage. If one of he artists dies, she is definitely unable to perform and so the third sentence would not apply at all. VFLA instead argued that if it had intended to accept all risk of a force majeure event, unless it involved death, injury, or illness of an artist or a family member of an artist, it could have drafted a much shorter provision. The court conceded the point but the fact that the provision could have been better drafted is no reason not to give effect to its most likely meaning.
There is a lengthy section of the opinion dealing with parol evidence. The trial court determined that the parol evidence was more or less in equipoise and did not provide a basis for giving effect to VFLA's reading of the force majeure clause. As there were no factual disputes about the parol evidence that the trial court considered, there was no reason why the trial court could not decide the matter on summary judgment. If I were to use this as teaching case, leaving this stuff out would help shorten the case.
There are other parts of the opinion that I would also omit if I were to use this as a teaching case. The court addresses VFLA's claim that the Artists have not proved that they were ready, willing, and able to perform, even though that issue had not been preserved. VFLA alleges that a ruling in favor of the Artists would effect a forfeiture, but a forfeiture requires a breach, and because of the force majeure clause, the Artists are not in breach. VFLA's argument that allowing the Artists to keep the deposits would render the contract illegal provides an interesting hypo along the lines of Hanford v. Connecticut Fair Association, a case involving the Babyland Amusement Company (whose letterhead appears above). In deciding that the Artists can keep their deposits (the opposite result from Hanford), the court is not promoting illegality; it is merely giving effect to the parties' contractual allocation of risk.
And this really is a case that comes down to allocation of risk. Just as I think it absurd that a college football coach should be paid $75 million for not coaching (or for coaching, but that's another matter), I think it absurd that Lizzo should get $5 million for not performing. But apparently it was so important to VFLA to secure Lizzo as a performer so that it could generate an audience for its music festival that VFLA was willing to take the risk of losing that $5 million in case of cancellation. In the alternative, VFLA agreed to contractual language that forced it to take on more risk than it intended. Either way, it should be bound by its objective manifestations of assent.
Absent evidence that the allocation of risk was commercially unreasonable (another canon of construction), it seems like the court got it right. It does not seem that VFLA made a commercial unreasonableness argument. I lack the industry-specific knowledge to judge whether it is commercially unreasonable to pay a seven-figure, non-refundable deposit to an artist to secure their commitment to perform at a music festival.
September 27, 2024 in Celebrity Contracts, Recent Cases, Teaching | Permalink | Comments (2)
Thursday, September 26, 2024
Big CISG Case in Florida Involving Formation via WhatsApp
Fertilizantes Toncantins (FTO) is a Brazilian importer and distributor, specializing in fertilizer. TGO Agriculture (TGO) is a commodities trader, specializing in ammonium sulphate and other chemicals used in agriculture. The parties entered into three contracts for the sale of ammonium sulphate in 2017 prior to entering into the September 2020 contract at issue in the case.
In each of these prior contracts, the parties first negotiated the terms via calls, e-mails and WhatsApp, then drafted informal memoranda, and finally TGO issued a proposed written contract. While FTO claimed that the final written agreements merely memorialized terms already agreed upon, they actually contained many provisions and details not previously discussed. In each case, the shipment of the goods pre-dated the parties' signing of the contracts, but the goods, which had to be shipped from China to Brazil, arrived later.
There was a discrepancy between the bills of lading and invoices for the ammonium nitrate shipped, on the one hand, and the contracts. The former said that the shipments contained 21% nitrogen; the contract said 20,5%. FTO asked for a change in the contract to 21%, but TGO refused, saying that 20.5% was the best that the producer could guarantee. Ammonium sulfate that tis 20.5% nitrogen is called "steel grade"; ammonium sulfate that is 21% nitrogen is called "capro grade" and is significantly more expensive.
The September 2020 contract was for 20,000 metric tons of ammonium nitrate, later amended to 45,000 metric tons at a price of $145/metric ton. All of the negotiations were conducted, as before, via e-mail and text, and internal communications evidence TGO's knowledge of the terms of the transaction. However, this time, TGO never sent the final contract. TGO then refused to deliver the ammonium sulfate, claiming that the parties had never finalized the deal.
Two developments may explain TGO's unwillingness to deliver on the September 2020 contract. First, FTO complained about the quality of a shipment that it received in December 2020. TGO's agent sent pictures of the delivery to FTO, characterizing it as a "shit show." Second the price of ammonium nitrate rose dramatically. As a result, when FTO made cover purchases to make up for the 45,000 metric tons it did not receive from TGO, the cost over contracts price was more than $6.5 million.
The case is procedurally strange, but it's Florida, so . . . . The court held a bench trial in July 2023. There was then extensive post-trial briefing. The court then issued its finding of facts and conclusions of law in Fertilizantes Tocantins S.A. v. TGO Agriculture (USA) Inc. in March 2024. It found that the CISG applied and that, under the CISG, the WhatsApp messages sufficed to form a contract, even if a later written document was contemplated.
Based on the parties' prior dealings, the court found that there was a sufficiently definite offer followed by a clear acceptance of the offer. Yes, there were open terms, but those terms could be implied through prior dealings and industry custom. The CISG requires only price, product, and quantity as essential terms. All were specified in the parties' WhatsApp messages.
The court allowed FTO to recover all of its cover costs. It also allowed for the recovery of incidental damages. Finally, the court allowed for the recovery of pre-judgment interest, for a grand total of over $7.7 million, with post-judgment interest accruing as the case steams its way towards appeal.
September 26, 2024 in Recent Cases | Permalink | Comments (0)
Wednesday, September 25, 2024
Fifth Circuit Will Not Allow Insured's Gamesmanship to Defeat Insurers' Motion to Compel Arbitration
In May 2020, Bufkin Enterprises, L.L.C. (Bufkin) purchased insurance coverage from ten insurers—eight domestic and two foreign—to insure Bufkin’s property in Louisiana. There was one contract, but it stated that it should be treated as a series of separate contracts between Bufkin and each of the insurers. The contract included a provision calling for arbitration of disputes in New York.
In August 2020, Hurricane Laura damaged Bufkin's Louisiana property, and a dispute ensued over insurance coverage. Bufkin first sued the eight domestic insurers. It then amended its complaint to include the international insurers, but the amendment was filed, so says the court, for the sole purpose of then seeking dismissal with prejudice of the claims against the international insurers. That strategy was an attempt to avoid arbitration. It's a three-dimensional chess move worthy of Mr. Spock of blessed memory.
The District Court denied the insurers' motion to compel arbitration. In Bufkin Enterprises, L.L.C. v. Indian Harbor Ins. Co., the Fifth Circuit reversed. The reason for the multiple-dimensional chess is a bit obscure, but it seems to involve "reverse preemption" of the Federal Arbitration Act (FAA) facilitated by the McCarran-Ferguson Act and a Louisiana Statute.
The Fifth Circuit did not reach that issue because it decided the case on equitable estoppel grounds. The District Court opinion in the case spells out the reverse preemption gambit in basic checkers moves. McCarran-Ferguson provides that state law governs insurance contracts. Under the last-in-time doctrine, McCarran Ferguson supersedes the FAA. Louisiana state law prohibits the arbitration of insurance claims. Q.E.D. According to the District Court, this reverse preemption applies to the FAA but not to the New York Convention, which governs international arbitrations. The contracts with the international insurance carriers are important, as they are governed by the New York Convention, rather than the FAA.
But the District Court erred, said the Fifth Circuit, on the equitable estoppel argument. Equitable estoppel is about fairness. It applies, under relevant Fifth Circuit precedent, in two situations: when a signatory to an agreement containing an arbitration clause must rely on the terms of the written agreement in asserting its claims against the non-signatory; and when a signatory to a contract containing an arbitration clause raises allegations of substantially “interdependent and concerted misconduct by both the non-signatory and one or more of the signatories to the contract.”
The Fifth Circuit found that this case falls into the second situation, even if we treat the one contract as ten separate contracts, making the domestic insurers "non-signatories." In its amended complaint, Bufkin made the same allegations with respect to all defendants, in effect conceding that their conduct was "interdependent and concerted." Compelling arbitration would not, in this instance, violate Louisiana public policy, because neither the relevant statute nor reverse preemption apply to the New York Convention.
It seems like the right result, as a matter of law and as an application of precedent, but I wonder why Louisiana would not want to allow arbitration of insurance claims by domestic insurers but allow it for cases involving foreign insurers. It may be that some clever weighing of interests has occurred here -- Louisiana's interest in protecting insureds from the imagined horrors of arbitration versus the need to open Louisiana's insurance markets to foreign insurers who might not want to be homered in the Louisiana courts. It also might be that the legislators behind Louisiana's statute gave absolutely no thought to the effect of the New York Convention on their attempt to shield insureds from mandatory arbitration.
September 25, 2024 in Recent Cases | Permalink | Comments (0)
