Friday, April 16, 2021
The blog has discovered a Twitter feed devoted to cases involving New York's law of contracts. Going forward, readers can expect to be well-apprised of contracts developments from the Empire State.
Our first installment is very 21st-century and comes from the Federal District Court for the Eastern District of New York. In Allstate Vehicle and Property Ins. Co. v. Mars, a minor was using a computer in the home to send racist and threatening images to two classmates. Citing both federal statutory law and New York common law, the victims of this cyberbullying sued the parents, both individually and as parents to the child. Pursuant to a home insurance policy, Allstate defended the Mars family in the action, subject to a partial denial and disclaimer that the policy only covered two of the causes of action. When all claims but intentional infliction of emotional distress (IIED) were dismissed, Allstate denied coverage, alleging that the policy excluded claims arising out of intentional conduct and claiming that the plaintiffs in the underlying matter had not alleged bodily injury.
The court rejected Allstate's argument that IIED does not involve bodily injury, as emotional distress can and often does result in bodily harm. However, Allstate's policy covers only "occurrences," which are defined in the policy as "accidents." An intentional act is not an accident, but an intentional act may cause accidental injury. In this case, however, the purpose of the intentional cyberbullying was injury. As a result, the Eastern District concluded, there was no "occurrence" triggering coverage, and Allstate did not have to defend or indemnify the Mars family. In addition, the policy also excluded coverage for intentional acts. For that reason too, Allstate had no obligation to defend or indemnify here.
Allstate did not have to indemnify for punitive damages both because the policy affords no such coverage and because, under New York law, insurers are prohibited from doing so. Allstate's letter disclaiming coverage was timely because "timeliness of an insurer’s disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer of liability or denial of coverage." Allstate advised the Mars family that it was denying coverage as soon as it learned that the court had dismissed all but the IIED claim in the underlying action. The parents of the victims of the cyberbullying also argued that Allstate was obligated to provide coverage, but the court rejected their arguments in a few paragraphs.
Thursday, April 15, 2021
Last week, the Fourth Circuit upheld a district court's denial of a motion to compel arbitration in Rowland v. Sandy Morris Financial and Estate Planning Services, LLC. Judge Wilkinson, writing for the unanimous panel, first noted the public policy, embodied in the Federal Arbitration Act, in favor of arbitration. However, Judge Wilkinson noted, arbitration is available only if the parties agree to it. The Supreme Court has made clear that arbiters can decide the arbitrability of particular issues, but courts can decide whether or not a contract exists. In this case, the defendant financial planner (SMF) changed the documents at issue without notice or consent. There was no meeting of the minds because the parties had signed different documents.
The case is so simple that the District Court warned SMF that an appeal of its decision finding that there was no agreement between the parties could be considered frivolous. Judge Wilkinson's discussion of the merits of the case takes up two paragraphs. The parties signed different documents. The differences between the two documents were not minor. SMF added a new account and changed the Rowlands' selections for risk tolerance. Because of these material changes, no contract was formed between the parties.
And then, beginning on page 11 of the decision, Judge Wilkinson reviews some of our favorite scholarship on the world of boilerplate contracts, citing to Kar and Radin, on pseudo-contract and shared-meaning analysis, and to Ayres and Schwartz, on the no-reading problem in consumer contracting. He then references some of the recent cases relating to digital contracts but notes that we need to come back to first principles embodied in old chestnuts such as Lucy v. Zehmer and Holmes' The Path of the Law. The need to adhere to the formal requirements of contract formation will not go away. Just for good measure, he throws in a reference to Auden. At this point, I think I am the more loving one, Judge Wilkinson! 😘
Thanks to Stanley Hammer for alerting us to this opinion!
Wednesday, April 14, 2021
As many blog readers know, Coinbase went public today. Coinbase, of course, is the exchange where regular people can buy Bitcoin, Ethereum, and other cryptocurrency. There are so many different, interesting aspects of this listing (including the fact that it is a direct listing, meaning no I-bankers – and their overworked analysts – were harmed in the making of these billions….). Here at the contractsprofblog, we prefer to get into the nitty gritty of the fine print. As the NYT reported, Coinbase users accounts have been hacked and several have lost hundreds of thousands of dollars. A lawyer and former employee of Coinbase who lost over $400,000 worth of cryptocurrency is suing the company. Others have found themselves inexplicably locked out of their accounts. User have complained about the company’s lack of customer service when it comes to trying to retrieve their money or unlock their accounts. Unlike traditional financial institutions which are heavily regulated, Coinbase’s business is as-of-yet largely unregulated and governed by….you guessed it – TOS. As the NYT article notes, “legal recourse is limited” because the company’s terms of service require users to settle dispute through arbitration or small claims court, not a class action lawsuit. But after taking a look at Coinbase’s TOS, I’m not so sure.
There’s more trouble ahead for the TOS. The dispute resolution clause is nestled toward the bottom (I had to hit the “page down” key 29 times). Furthermore, they don’t make it easy to file an arbitration claim. The TOS requires the user to follow a rigid “formal complaint process” before filing a claim in arbitration or small claims. Their formal complaint process imposes a fair number of roadblocks in an effort to deter complaints. The user must fill out a “Complaint form,” and then someone will review and respond to the complaint “within 15 business days” of receipt – unless for unspecified “exceptional circumstances” they can’t for some reason in which case they will respond within 35 days. If after that, the dispute can’t be resolved, then the user has to go through “binding arbitration on an individual basis” (i.e. no class action). They generously agree that the user may elect local small claims court rather than arbitration “so long as your matter remains in small claims court and proceeds only on an individual (non-class and non-representative) basis.” Then, in the dreaded, useless all-caps, nestled at the very bottom of this very lengthy TOS, is the following class action waiver and a jury trial waiver:
CLASS ACTION WAIVER: TO THE EXTENT PERMISSIBLE BY LAW, ALL CLAIMS MUST BE BROUGHT IN A PARTY’S INDIVIDUAL CAPACITY, AND NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS, COLLECTIVE ACTION, OR REPRESENTATIVE PROCEEDING (COLLECTIVELY “CLASS ACTION WAIVER”). THE ARBITRATOR MAY NOT CONSOLIDATE MORE THAN ONE PERSON'S CLAIMS OR ENGAGE IN ANY CLASS ARBITRATION. YOU ACKNOWLEDGE THAT, BY AGREEING TO THESE TERMS, YOU AND COINBASE ARE EACH WAIVING THE RIGHT TO A TRIAL BY JURY AND THE RIGHT TO PARTICIPATE IN A CLASS ACTION.
The arbitration will be conducted by a single, neutral arbitrator and shall take place in the county or parish in which you reside, or another mutually agreeable location, in the English language. The arbitrator may award any relief that a court of competent jurisdiction could award and the arbitral decision may be enforced in any court. An arbitrator’s decision and judgment thereon will not have a precedential or collateral estoppel effect. At your request, hearings may be conducted in person or by telephone and the arbitrator may provide for submitting and determining motions on briefs, without oral hearings. To the extent permitted by law, the prevailing party in any action or proceeding to enforce this Agreement, any arbitration pursuant to this Agreement, or any small claims action shall be entitled to costs and attorneys' fees. If the arbitrator or arbitration administrator would impose filing fees or other administrative costs on you, we will reimburse you, upon request, to the extent such fees or costs would exceed those that you would otherwise have to pay if you were proceeding instead in a court. We will also pay additional fees or costs if required to do so by the arbitration administrator's rules or applicable law.
I’m not convinced that the dispute resolution clauses would be enforceable because I don't think there was reasonable notice of them. As I’ve noted in my annual review of wrap contracting cases for the ABA’s The Business Lawyer, courts have become more sophisticated about their analysis of what constitutes reasonable notice, often requiring notice of specific terms, such as arbitration. Based on this trend, the Coinbase agreement is lacking and there’s a good chance that a court would find the complaint process and arbitration clause unenforceable.
Last month, the Delaware Court of Chancery issued its letter opinion granting a motion to dismiss in Deluxe Entertainment Services Inc. v. DLX Acquisition Corporation and Deluxe Media Inc. The context is an acquisition, but the outcome is reminiscent of the Citibank case we discussed in February, drawing on Matt Levine's outstanding coverage, -- when big companies (or really big companies) make big mistakes (or really big mistakes) all the best lawyers and all the best men sometimes can't put the money back in their pockets again.
Deluxe Entertainment (Deluxe) sold a wholly-owned subsidiary to DLX Acquisition Corporation (DLX). At the time of the transaction, several million dollars remained in the subsidiary's bank accounts, and Deluxe somehow neglected to "sweep" those funds before the transaction. After the transaction, Deluxe asked DLX to return the money. ("Hey, give me back the money I left in my pants when I gave you my pants!"). DLX refused. It asked DLX's parent company to get the money back. ("If you don't give me back my money, I'll tell your mom!"). DLX refused. It asked its former employees, now DLX employees, to get its money back. ("If you don't give me my money back, I'm going to tell everybody how mean you are!"). DLX refused.
A law suit followed, alleging breach of contract, breach of the duty of good faith and fair dealing, and asking for the court to reform the agreement. The court sided with DLX. The agreement provided for a transfer of assets. Enumerated assets were not supposed to be transferred. There were "wrong pocket" provisions (lovely!) that required the return to Deluxe of enumerated assets mistakenly transferred. The funds that Deluxe neglected to sweep were not among the enumerated assets, so the "wrong pocket" provisions did not apply.
Deluxe argued that the parties had agreed that the transaction was to be "cash free, debt free" and thus that the cash transfer that accidentally occurred could not be construed as consistent with the parties' intent. The court adopted a more limited understanding of the "cash free, debt free," as simply intended to exclude consideration of cash as part of the calculation of the final purchase price. The parties knew how to exclude assets from the transaction. That's what the "wrong pocket" provisions were about. They did not do so with respect to the cash that Deluxe failed to sweep.
The court found no "gap" in the agreement into which a violation of the covenant of good faith and fair dealing could creep. There was a contractual provision (the "wrong pocket provision) that covered this scenario. DLX did not violate that provision, and since the alleged breach is covered by a provision, there is no gap of unanticipated conduct for the covenant of good faith and fair dealing to address.
Finally, the court denied Deluxe's argument that the court should reform the contract to address a mistake. Reformation is appropriate to address errors in drafting or transcription. The mistake at issue here was operational and thus not the sort of mistake that would empower the court to reform the agreement.
I can't dispute any portion of the opinion, but the whole thing just seems like an exercise in blinkered formalism. It appears to be undisputed that millions of dollars were accidentally transferred to DLX at closing. That seems like a simple case of unjust enrichment. DLX, don't be a putz! Return the money to that schlemiel that left it in the pockets. It's not your money. You have no right to it, and your mother would be ashamed of you for keeping it!
Thanks to Eric Chiappinelli for sharing the case with us!
Tuesday, April 13, 2021
Top Downloads For:Contracts & Commercial Law eJournal
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Monday, April 12, 2021
On Friday, I shared my standard response when students ask me for advice regarding outside material they can consult in preparing for exams. Today, I supplement that response with suggestions culled from the contracts prof listserv.
The most important suggestion was to point students to the Restatement, with its illustrations. The fact patterns provided therein are great illustrations of the rules. Up until now, I have always assigned an edited version of the R.2d, which does not include all of the comments and illustrations. If I can find a suitably-priced volume, I will assign a more comprehensive edition next year. Blog contributor Sid DeLong recommends James Byrne's book, which also includes Article 2 and the CISG, and I will certainly adopt that so long as students do not have to pay the official price for the volume, which is north of $500!
That said, some contracts profs warn that students must be introduced to the R.2d with caution. We are training them in common-law reasoning, which involves synthesizing rules from case law. The R.2d does that for them, and there is a danger that students will treat the R.2d as a statute without recognizing that it is an attempted synthesis and not a statement of uniform law.
The following study aids come recommended by contracts profs who know:
- Scott Burnham's Contracts Law for Dummies (I was an outside reviewer for the book and was surprised that it was not for Dummies at all -- it was a study guide for law students and a very good one;
- It follows that I am confident that Burnham's Q&A and Glannon Guide to Sales are also reliable;
- Others have recommended Bob Brain's Exam Pro;
- Like other profs, when I have a question, I reach for my single-volume Farnsworth treatise on contracts, but not every first-year student is ready for such strong medicine, and they would have to borrow it, as it is very expensive;
- Others recommend Perillo or Hillman;
- At least one prof recommended Chirelstein's hornbook, which brought back fond memories, as I read it as a 1L, attracted by the good ship Peerless on its cover. Unfortunately, Professor Chirelstein passed in 2015, so the book might not be best for recent developments, especially in the realm of electronic contracting.
Friday's post generated some discussion on Twitter. This much is clear: Quimbee is not reliable. I understand that many students find it helpful in preparing for Socratic exchanges, but it has subtle mistakes that can be very harmful if committed to memory and regurgitated in an exam context.
Friday, April 9, 2021
Every semester when I teach contracts, students come to me to ask me whether I can recommend outside materials that will: (a) help them understand the material ("no offense!") and (b) provide practice essay and multiple-choice questions. Every semester I am stumped. I use my own contracts materials rather than a casebook, but I already assign Brian Blum's Contracts: Examples and Explanations (now out in a spiffy new 8th edition!), which should certainly help explain the doctrine and provides practice essays. Beyond that, I don't regularly review such materials myself, so I have no idea which materials are good.
So, I put the question to our wonderful contracts listserv, and I can now share some of my colleagues' recommendations with my students and with the blog-following world. I started by sharing my usual response to students who ask me about study guides. It runs as follows:
If you have questions about doctrine, you should feel free to ask me. If you want sample essays and multiple choice questions, I give you some of both. Although I don't ask you to turn in your essays for a grade, you are welcome to turn them in for comments at any time. We also go over a lot of problems from the Blum book, so that's a lot more opportunity to get practice writing essays in the IRAC form that I prefer (subject of a separate speech).
If that's not enough, as far as I know, all of the outside materials available to you are pretty good. They tend to be written by people who know the law well, and if a book is in its fifth edition, that's a pretty good indication that it is not filled with glaring errors.
However, there is a danger in going to outside sources. First, those outside sources tend to be as comprehensive as possible. They are trying to survey the universe of contracts law, while I am focused on the topics that, as far as I know, you are most likely to encounter on the bar exam. They will cover topics that I don't cover or they will cover topics in more detail than I do. Also, they may organize the material differently or, more confusing still, use different terms than the ones I use.
But look, if you think that you will have a better understanding of the material if you consult outside sources, you should do so. Everybody learns their own way, and you have to do what works for you. If you come across materials in the secondary sources that seem different from what I have said, please talk to me about it. I'm interested to see other perspectives on the doctrine and perfectly willing to concede that there are other approaches that may be better than mine. That said, if you come across material that seems completely new to you, please don't panic. It may just be something that I don't cover. The best way to be sure is to show me the secondary sources that you are using, and we can figure out what's going on together.
I recommend the usual suspects for extra multiple choice questions. I know there are banks on CALI, and the Lexis Q&A series is reliably good. I have mixed feelings about the quiz banks available from venders like BarBri, Kaplan, and Themis. On the one hand, I have every reason to think that they have a better idea of what actual bar questions will look like than I do. On the other hand, I have found mistakes in their questions that suggest that their questions are not always written by people who really know the law of contracts. Again, the best approach is to use their questions -- I assume that most of them are good -- but if you come across a question that doesn't make sense, even after you have read the answer, show it to me and we can talk it through.
I shared this answer with my fellow contracts profs with some trepidation. To my relief, most of the responses indicated that a lot of my colleagues give similar answers to their students who ask for recommendations for outside materials. However, some of my colleagues also had more specific suggestions that seem like really great advice.
Since this post is already too long, I will share that advice in a second post on Monday.
Thursday, April 8, 2021
According to ESPN.com, the University of Kansas (KU) entered into a "lifetime contract" with Bill Self (pictured), the school's head basketball coach. The contract has an interesting structure, one I'd never heard of before. Its stated term is five years, but at the end of each year, another year is automatically added. On any given day, Coach Self has something less than five years remaining on his contract, and yet the contract never ends.
Unsurprisingly, there are no links to the contract. I suspect there are contractual outs on both sides. According to ESPN, there were rumors recently that Coach Self might move to the NBA. Would he thereby be breaching his lifetime contract? If so, what would be KU's measure of damages?
On the other side, KU has been disciplined following an FBI investigation into alleged payments to two former players from Adidas. What contractual outs does KU have should the NCAA decide to discipline Coach Self, given that there was a finding of violations for which Coach Self bears some responsibility? Can KU set aside the lifetime contract based on a morals clause? What if Kansas (known to the cognoscenti as "the Jayhawks") goes winless in conference for a year? For two years? Unlikely, but no doubt the Mets thought they were getting a sure thing when they signed Bobby Bonilla.
Wednesday, April 7, 2021
Amazon as a Seller of Marketplace Goods Under Article 2: Part II
Amazon has sought to avoid liability for dangerous and defective third party goods sold on its platform on the basis that it does not hold title to the goods in question. In yesterday’s blog post, I pushed back on Amazon’s title argument. Here, I want to make the following super-legal observation: “If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.” Amazon looks like a seller, acts like a seller, and convinces buyers it is a seller. Amazon probably is a seller and should be estopped from arguing otherwise.
At the outset, it bears mentioning that many (if not most) people do not realize that Amazon is both a seller and an online marketplace for third party sellers. Its very interface makes it exceedingly difficult for a user to understand that Amazon is sometimes a seller and sometimes not a seller. As one professor notes, “You’d have to be a genius to figure out what’s going on.” When someone buys goods on Amazon, they probably think they are buying from Amazon.
Not so, says Amazon. After all, Amazon “discloses” to buyers that it is sometimes not the seller of goods on its platform. Amazon does this through the use of two words: “Sold by.” These two words, which appear only after a buyer has already clicked on a product, are supposed to impart to a buyer the knowledge that they are not buying goods from Amazon—but instead buying directly from a third party seller. Many buyers, of course, don’t see or pay attention to the miniscule “Sold by” text which appears below the “Add to Cart” and “Buy Now” buttons. In fact, except for these two words, goods sold by Amazon look identical on the website to goods sold by a third party vendor, as illustrated below:
Let’s assume, however, that I am a savvy buyer and notice the “Sold by” line. Will I understand its meaning, or its legal significance? Will I know that if I buy goods “Sold by” Amazon, I will enjoy some form of consumer protection, but if I buy goods “Sold by” a third party seller on Amazon, I will not? A lot of good it does to “disclose” to a buyer something the significance of which they cannot comprehend. Unless you have a PhD in Amazonomics, it is difficult to understand what “Ships from Amazon,” “Sold by X” and “Prime Free Delivery and Free Returns” means as a factual matter, much less as a legal matter.
Amazon also claims that its Conditions of Use disclose to buyers that they may be purchasing directly goods from a third party seller. Buried in the middle of a 3,400-word, densely-written document, Amazon lets buyers know that “Parties other than Amazon operate stores, provide services or software, or sell product lines through the Amazon Services. In addition, we provide links to the sites of affiliated companies and certain other businesses. If you purchase any of the products or services offered by these businesses or individuals, you are purchasing directly from those third parties, not from Amazon.” I suppose we must ignore the fact that no rational human being would ever read the Conditions of Use—assuming they could even find them tucked away at the very bottom of the Amazon home page, next to the hyperlinks for “Privacy Notice” and “Internet Based Ads.”
The reality is that Amazon does everything it can to convince buyers that they are buying from Amazon and not just through Amazon. Most glaringly, Amazon commingles the listings where it is the seller and listings where third parties are the sellers. Goods sold by Amazon do not show up with a different background than third party goods. Goods sold by Amazon do not appear on a different section of webpage from goods sold by third parties. A buyer does not even have the ability to search only for goods sold only by Amazon, without pulling up third party vendor goods. And after a buyer has conducted a search, there is no way for a buyer to filter the results so that a buyer only sees goods sold by Amazon. Make no mistake: these choices by Amazon are deliberate. Amazon could easily operate two different websites—one website where it sells goods and one website where it operates as a marketplace for third party goods (much like Ebay or Etsy). Or, it could even operate one website and clearly delineate between goods that it is selling and goods that third parties are selling. This would not be difficult to do. Instead, Amazon purposely blurs the lines between which products it sells, and which products third parties sell. This is designed to capitalize on the trust and confidence that buyers have in the Amazon name.
Additionally, Amazon takes on almost all of the functions of a traditional seller with respect to third party goods, thus furthering the impression that buyers already have that they are buying from Amazon. This is particularly true with respect to goods sold through the Fulfillment by Amazon program. Under the Fulfillment by Amazon program, third parties ship goods to Amazon for Amazon to store in its warehouses. When a customer places an order, an Amazon employee will take the goods from its warehouse, put them in an Amazon box, pack them up with Amazon-branded tape, and ship them out to the customer. In many cases, Amazon packages its own goods together with third party goods in the same Amazon box. Amazon now even has its own delivery service, so there is a good chance that the goods will be delivered in an Amazon truck by an Amazon employee. When a customer places an order, Amazon processes the buyer’s payment, sends an email confirmation, and provides shipping information. The receipt inside the box will be from Amazon. The buyer’s credit card statement will show a charge from Amazon. If a customer wishes to return a product, he must return it to Amazon; he is not able to contact the “true seller” directly. Amazon handles all complaints, returns, replacements, exchanges and refunds. And, of course, for all of this, Amazon receives a hefty fee. It is hard to imagine a “non-seller” (Amazon) being more involved in a sales transaction and a “true seller” (the third party vendor) being less involved in a sales transaction. Under any reasonable construction, Amazon is the true seller of third party goods.
As the court stated in State Farm Fire & Cas. Co. v. Amazon.com Servs., Inc., “Amazon seeks to have all the benefits of the traditional brick and mortar storefront without any of the responsibilities.” Amazon wants to be a seller, but not take any on any of the responsibilities associated with being a seller. Fortunately, courts are beginning to see through this shell game. Amazon’s days of getting off “on a technicality” may be numbered.
Tuesday, April 6, 2021
Received the following e-mail over the weekend:
Welcome to this week's edition of the Tuesday Top Ten, where we check out what's happening with SSRN downloads in our favorite subject areas. So without further ado...
Top Downloads For:Contracts & Commercial Law eJournal
Recent Top Papers (60 days)As of: 05 Feb 2021 - 06 Apr 2021
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Amazon as a Seller of Marketplace Goods Under Article 2: Part I
Last fall, a student in my Sales class sent me the following email, “I hope you are having a wonderful weekend. I came across this article this morning and found it pretty interesting. I thought you may find it interesting as well.” The article dealt with Amazon’s liability for defective goods sold on its website. I was horrified to learn that goods sold on Amazon had caused serious personal injury, including blindness, severe burns, and death, and that Amazon was trying to escape liability. In one case, Amazon oh-so-generously offered a $12.30 refund to a customer after a laptop battery exploded, causing her to be hospitalized for several weeks with third degree burns.
I replied, “Very interesting, thanks for sending. Got me thinking about why there are not more UCC lawsuits against Amazon. Apparently, at least in some cases, Amazon is not considered a ‘seller’ because they never receive title to the goods. I’ll send you a case I found.” Over the next couple of months, I kept coming back to the idea that it was crazy that Amazon could avoid liability in products liability suits just by refraining from taking title to the goods it sells on its website, especially considering that a large number of these third party goods are warehoused in Amazon facilities. It seemed that Amazon was avoiding liability on what most people would consider “a technicality.” So was the genesis of my current article, Amazon as a Seller of Marketplace Goods Under Article 2, forthcoming in Cornell Law Review. In this post, I will briefly present the title arguments I explore in the Article. In a subsequent post, I will explore the argument made in the latter half of my paper: that Amazon should be estopped from claiming that it is not the seller of third party goods on its platform.
Amazon’s business model is unique in that it sells goods directly to buyers, and it provides a “marketplace” where other sellers can sell their goods on Amazon—all through the same online platform. In other words, Amazon wears two hats, even though it operates only one online interface. It wears a “seller” hat in some cases, and it wears (or claims to wear) a “service provider” hat in other cases. One publication refers to this unusual business set-up as “half-platform, half-store.” Interestingly, even in cases where Amazon is selling third-party goods, it often plays an outsized role in getting those goods into the hands of customers. Under its Fulfillment by Amazon program, third party sellers send their goods to be warehoused in Amazon facilities, and Amazon takes over from there. Amazon stores those goods, packages those goods, ships those goods, receives payment for those goods and provides all customer assistance for those goods. The third party seller never has any contact with “their” goods again.
When Amazon functions as the seller of goods in its own right, it is prima facie liable for selling unmerchantable goods under Article 2 (leaving aside any disclaimer issues). When Amazon provides a marketplace for third party sellers to sell their goods, however, Amazon has largely escaped liability. This is because Amazon purports to avoid taking title to third party goods in its Amazon Services Business Solutions Agreement, which governs its relationship with third party sellers. If Amazon does not have title, so the argument goes, it cannot be a “seller” under Article 2. Courts have largely bought Amazon’s title argument, hook, line and sinker. In my Article, I make two separate title-based arguments: one legal, one factual. First, I argue that Article 2 does not necessarily require a party to hold title to goods in order to be considered a seller. Second, I argue that who actually has title to goods sold on Amazon is less than clear.
Let’s start with the legal argument. Title may not be an absolute pre-requisite to “seller” status under Article 2. Amazon may be liable regardless of whether it technically held title to the third party goods sold on and through its platform. For instance, § 2-314 imposes a warranty of merchantability on a “seller” who is “a merchant with respect to goods of that kind.” The term “seller” is defined in § 2-103 as “a person who sells or contracts to sell goods.” Notably absent from this definition of “seller” is the mention of title. That is, § 2-103 does not define a “seller” as one who transfers or contacts to transfer title to goods to a buyer. Instead, the section refers generically to a “seller” as one who “sells.” The word “sells” is not defined. Without doing a deep dive on statutory interpretation, suffice it to say that there is some wiggle room for ascribing “seller” status to those who sell, but do not necessarily hold title to goods. This is particularly true given the comment to § 2-101 which makes it clear that Article 2 seeks to “avoid making practical issues between practical men turn upon the location of an intangible something [title], the passing of which no man can prove by evidence . . .” Or, as so eloquently stated by Karl Llewellyn: “Nobody ever saw a chattel’s Title. Its location in Sales cases is not discovered, but created, often ad hoc.”
Now for the factual argument: who has title to goods sold on Amazon is actually not so clear. Thus, even if title is required to ground “seller” status under Article 2, it may be that Amazon has title to some goods sold by third party sellers. Amazon claims that it avoids taking title to third party goods through the Amazon Services Business Solutions Agreement it forces upon its sellers. This document is over 17,000 words in length. To get more of a reference point, this amounts to approximately 34 single-spaced or 68 double-spaced pages. The word “title” appears a mere eight times in this agreement, only five of which are relevant for our purposes. It is never clearly laid out anywhere in this document that the third party seller retains title at all times and/or that Amazon does not take title to the goods in question. One would think that the biggest company in the world would be able to draft a clear and unambiguous title provision in its contract with third party sellers.
Be that as it may, Amazon’s title argument really falls apart when one considers a wholly under-the-radar clause in the Amazon Services Business Solutions Agreement. Per Section F-4 of this agreement, Amazon is permitted to “commingle” goods as long as they have the same SKU. If ten different sellers sell the same item, say a coffee machine, all those coffee machines can be stored together without distinguishing one seller’s coffee machine from the next. In other words, hundreds or thousands of coffee machines from multiple sellers will be stored together with no way to tell which coffee machine came from which seller. Importantly, since Amazon also sells goods in its own right, Amazon’s coffee machines are also lumped into the mix. The impact of this provision is huge. It means that even though I think I am purchasing a coffee machine from Amazon (the seller), I could in fact be getting a coffee machine from a third party seller from China. Conversely, I could think I am purchasing a coffee machine from a third party seller, but actually am getting a coffee machine owned by Amazon.
Amazon steadfastly holds to the argument that because it does not take title to third party goods, it cannot be a “seller” of those goods. But given the commingling provision, truly, who even knows what goods Amazon is sending to buyers? Goods, real and fake, Amazon-owned and third party-owned, are all lumped together in one large bin (literally and figuratively). It is hard to argue that you do not have title to goods when you have—by your own design—lost track of which goods belong to which seller.
Amazon’s title argument is a disingenuous attempt to avoid liability for goods it chooses to sell, and profit from, on its platform. And zooming out from the minutia of title, it is clear that Amazon casts itself in the role of seller with respect to all of its transactions. From a customer’s perspective, everything about the Amazon experience suggests that Amazon is the seller of the goods being purchased.
I will delve into this aspect of the Article in tomorrow's post.
Monday, April 5, 2021
This week, we are happy to introduce a guest blogger, Tanya Monestier from the Roger Williams University School of Law.
Tanya will be posting about her latest scholarship which is forthcoming in the Cornell Law Review. You can find it on SSRN here, but you can also tune in tomorrow and Wednesday and read a nice preview here.
After graduating first in her class from Osgoode Hall, Tanya clerked for the Honorable Justice Frank Iacobucci of the Supreme Court of Canada. She then earned her LL.M. from the University of Cambridge. She was a visiting professor at Queen’s University, where she taught Conflict of Laws, Commercial Law and Civil Procedure and won the Queen’s Law Students’ Society Award for Excellence in Teaching in 2009. She has been teaching at Roger Williams since 2009. The 2018 graduating class named her "Professor of the Year," and she was the honored as the Distinguished Research Professor of Law from 2018-2020.
Tanya worked as in-house counsel for the U.S. pharmaceutical company Purdue Pharma, specializing in product liability litigation. At Roger Williams, she teaches Contracts, Sales, Conflict of Laws, and Class Actions. Her early scholarship was mostly on civil procedure topics, but writing about choice-of-forum and choice-of-law clauses took her into the realm of contracts, and once one has known the warm embrace of contracts scholarship, is there any going back?
We are so grateful to Tanya for her willingness to pinch hit for us and share her scholarship with our readers!
The NYT reported that former President Donald Trump’s campaign used the bugaboos of this blog – fine print, wrap contracts, preset defaults, ALL-CAPS, all-bold, and overall inadequate notice – to charge their donors recurring amounts without their awareness.
As readers of this blog are well aware, I am not a big fan of wrap contracts. I am doubtful that most users intend to assent when they engage in acts that are construed by courts as “manifestations of assent.” It’s simply too easy to click without thinking and too burdensome to find – much less read – all the hidden fine print. Most of the time, the clicking is relatively innocuous until there is a dispute. While clicking to a mandatory arbitration clause results in waiving an important right, it is a right that most people won’t assert unless there is a problem with the primary consideration. If there is no problem with the transaction, then the user never even notices that the user waived the right to arbitration. It is only when there is a problem with the transaction and the user tries to sue, that the waiver becomes relevant to most users.
What is always relevant and important to users, however, is money. Even those in favor of digital wrap contracting are inclined to demand more in terms of notice and manifestation of consent when what is being extracted is money. Users care when companies deduct money from their accounts or charge their credit cards even if it takes them a while to notice that there is a recurring charge or deduction. Courts, too, have been more demanding, often requiring specific assent and actual notice where recurring charges are involved.
The Trump campaign went the opposite direction. It used a for-profit company – WinRed – to process its online donations which seemed to have made every wrong move in the online contract formation playbook. Not only did it not seek specific assent for recurring fees, it actually didn’t seek any active manifestation of assent at all for them. According to the article, one donor who was living on less than $1,000 a month made what he thought was a $500 one-time donation. Instead, he was charged $500 every week until his utilities bills bounced, his bank account was frozen, and a total of $3,000 was withdrawn from his account. The reason? He didn’t see the pre-checked box that stated in fine print that his donation was a recurring one. Another donor made a $1,000 donation only to find that they were charged for $6,000. (They were refunded the $5,000 after the election).
As Election Day neared, the Trump campaign doubled down on these boxes. In June 2020, the pre-checked box was for a monthly recurring donation, but in September that pre-checked box was for a weekly recurring donation, and then additional pre-checked boxes for certain urgent sounding special events referred to as a “Cash Blitz” where the donor was charged an additional $100. In October, the print in these rectangles which contained the pre-checked boxes were in bold and ALL CAPS (which as we know, is not an effective way to provide notice). As Harry Brignull, a user-experience designer, told the NYT, “It is very easy for the eye to skip over [pre-checked boxes]….The only really meaningful information in that box is buried.”
Pre-checked boxes for recurring charges are an all-too-familiar sight on all kinds of donation websites although the way they are presented varies which affects their noticeability. The Biden campaign’s online donation processing platform, ActBlue, also used them although it stated that it was phasing them out and claimed it only used them when “explicitly asking for recurring contributions,” (whatever that means). According to the NYT article, after the election, the Trump campaign refunded 10.7 percent of the money it raised on WinRed, and the Biden campaign refunded 2.2 percent of the money it raised on ActBlue.
Some may wonder – if the money was eventually refunded, what’s the harm? First, there were probably at least some donors who didn’t catch the recurring charge, which doesn’t mean it’s fair or right. Some who did, probably didn’t want to go through the hassle of seeking a refund. Finally, it allowed the Trump campaign to boast about a much greater percentage of funds raised than was warranted, which benefits the campaign’s momentum and marketing efforts.
I find pre-checked boxes, especially for recurring charges, objectionable and insufficient as notice regardless of the cause or the party. I think everyone – Democrats, Republicans, and non-profits – should just stop using it. It is a poor way to have users “manifest assent.”
According to the Business Insider, an arbitrator ordered Uber to pay $1.1 million in damages to Lisa Irving, a San Francisco Bay Area resident who is blind and relies on her guide dog, Bernie (pictured, as we imagine him), to help her get around. Irving alleged that Uber drivers either refused to give her rides or harassed her because they did not like Bernie. As a result of being left stranded by Uber drivers, Irving alleged that she was late for work, which contributed to her getting fired.
She complained to Uber, to no avail. Uber attempted to evade liability based on its drivers' status as independent contractors. The arbiter did not buy it. Nor did the arbitrator find convincing Uber's claims that it trains drivers to accommodate people with disabilities. Rather, the arbitrator found that Uber, in some instances, coached drivers "to find non-discriminatory reasons for ride denials," and kept using drivers despite complaints that they discriminated against people with disabilities.
The arbitrator found that Uber was responsible for its drivers' conduct and awarded Ms. Irving $1.1 million in damages relating to Uber's violation of the American with Disabilities Act.
Hat Tip to OCU Law 1L, Michael Turner
Friday, April 2, 2021
On Tuesday, SDNY Judge Paul Gardephe issued this opinion in Denson v. Donald J. Trump for President, Inc. (the Campaign) which challenged the enforceability of the non-disclosure agreements (NDAs) that campaign workers were required to enter into. Judge Gardephe granted plaintiff's motion for summary judgment and declared the NDA non-enforceable as to her. She brought her claim as a class action, so it remains to be seen whether this opinion will affect all others similarly situated.
People who work for the Trump Campaign were required to promise not to disclose any "confidential information," broadly defined to include anything Mr. Trump wanted to be remain private or confidential, relating to "Mr. Trump, any Family Member, any Trump Company or any Family Member Company." All these terms were defined to be as inclusive as possible. The NDA provides for a range of remedies for violations and, of course, includes a provision mandating arbitration in the state of New York.
Why would a loyal Trumpist violate the NDA? In Denson's case, it was because she wanted to sue the Campaign, alleging sex discrimination, harassment, and slander. The Campaign responded, filing an arbitration alleging that Denson had breached the NDA through disclosures made in connection with the lawsuit. Denson did not participate in the arbitration, and the outcome was a $25,000 judgment against Denson. From there, things got complicated, with motions in multiple venues, state and federal and aggressive actions by the Campaign, including restraining notices filed against Denson's attorney's escrow accounts. The Campaign had a series of wins, but ultimately New York's Appellate Division vacated the arbitral award on the ground that the Denson's allegedly defamatory comments were made in the context of a federal action and that punishing her for availing herself of her legal rights violated public policy.
In the current round of litigation, the Campaign alleged that Denson lacked standing on the ground that the Campaign had "no present intention to enforce the Employment Agreement’s non-disclosure and non-disparagement provisions against Denson." The court rejected this claim as inadequate to deprive Denson of standing. The Campaign's claim that Denson was collaterally estopped from challenging the NDA seems like a closer call. The arbitration had upheld the NDA's enforceability, and that finding was not reversed in the litigation over enforcement of the award. However, that failure to reverse had no collateral effects, Judge Gardephe held, as the courts reviewing the decision had no jurisdiction to review mistakes of law made in the arbitration.
On the merits, Judge Gardephe applied the Ashland standard and inquired into whether the NDA's non-disclosure provisions were “reasonable in time and area, necessary to protect the employer’s legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee." He concluded that it failed each prong of the Ashland test. The scope of the NDA was, as a practical matter, unlimited. While the Campaign has legitimate interests in protecting itself against certain disclosures, the NDA effectively prohibits campaign workers from discussing anything relating to the campaign and leaves them no way of knowing what actions would count as a violation.
Even if the court were to set aside the Ashland standard, Judge Gardephe noted, the NDA is unenforceable under basic principles of contracts law. Denson could not consent to an agreement under which it was impossible for her "to know what speech she has agreed to forego." The analysis as to the NDA's non-disparagement provisions was similar, and the court could find no "blue-pencil" approach that would enable it to excise offensive provisions. As a result, the court granted Denson's motion for summary judgment to the extent that it invalidated the Campaign's non-disclosure and non-disparagement provisions.
Thursday, April 1, 2021
Eric Goldman has posted on SSRN The Crisis of Online Contracts (As Told in 10 Memes). The manner of presentation is charming. I hope it catches on, and I hope I can find enough relevant memes (or figure out how to make memes) to tell the American legal academy why we need Hans Kelsen's positivist legal theory before the trend becomes passé.
In the meantime, I am definitely going to share this scholarship with my students, especially my back-of-the-ticket readers who echo Butters' line from the infamous South Park episode, "Why would anyone sign a contract without reading it?" Professor Goldman makes the arguments I have made repeatedly, but he makes them with memes, so maybe my students will listen to him. To wit:
- Consumers do not read terms;
- They couldn't understand them if they did;
- If they could understand the terms, they wouldn't like them or agree to them;
- But they have no choice, because vendors won't bargain with respect to boilerplate terms; and in any case,
- Vendors often adopt the same boilerplate terms
Professor Goldman then proceeds to run through some standard solutions to the crisis: noisy disclosures, third-party certifications (like good-housekeeping seals or fair trade labels), digital agents, and regulation that would establish limitations on the freedom of contract. None of these options address all of the practices that negate consent in consumer contracts. Some of them may simply be too difficult to implement, and even if they were implemented, new practices would emerge to evade them. Professor Goldman thus concludes, somewhat peremptorily in my view, that all may be for the best in this best of all possible worlds.
I think there's a different story to tell. It mostly tracks Professor Goldman's meme narrative, but supplements it with a discussion of some targeted regulation that suggests a path forward. Congress has adopted legislation that shielded veterans from predatory lending. The CFPB limited the ability of lenders to subject consumers to one-sided terms. Congress could solve a lot of problems with class action-waivers with a simple clarification that states can ban waivers on collective representation consistent with the Federal Arbitration Act. Representative arbitration is still arbitration. Congress could go further and ban class-action waivers or permit regulatory bodies to do so in certain contexts. That would be a game changer.
Wednesday, March 31, 2021
Episodes is easily on my list of top ten favorite sitcoms of all time. Perhaps top five, but it's crowded at the top. I was thinking about the show and regretting that I wasn't blogging while I was watching it, because there was a lot of blog fodder in that show.
I've got a bone to pick with the show runner who came up with all the material involving Sean's (Stephen Mangan, pictured far left) former writing partner, Tim (Bruce Mackinnon). I don't know about the intellectual property issues between Sean and Tim. Those seem pretty interesting, but the real mess involves Eileen (Andrea Rosen), who acts as agent for Sean and Berverly (Tamsin Greig, near left) but also represents Tim. I would think some sort of fiduciary duty and conflict of interest rules would apply, since their interests are clearly adverse.
But the main issue that I've been thinking about lately is mitigation of damages in a Parker-like context. Sean and Beverly come over from England because the delightfully slimy Merc Lapidus (John Pankow) entices them by promising to let them write an American version of their hit comedy, Lyman's Boys. That show stars a droll English headmaster at a boarding school. Merc represents that the actor who played Lyman in the English series would also star in the American version.
And then the changes roll in. The English bloke is rejected and replaced with Matt LeBlanc, who lacks the headmaster's reserve and urbanity. The boarding school becomes a public school, and the headmaster becomes a hockey coach, which is much more fitting for Matt LeBlanc's character, as played, with bottomless self-effacement, by Matt LeBlanc. Sean and Beverly ride it out, and it's a very bumpy five seasons, mostly because Sean really wants to make it in Hollywood. Beverly sours immediately. But the first season provides a great set of Parker-esque hypos. At what point can Sean and Beverly back out of their contract with the network? How can the network mitigate? Is a show (Pucks) about a crass hockey coach who is constantly hitting on the sexy school librarian a good substitute for a show (Lyman's Boys) about an erudite headmaster at a school with a significant librarian character who happens to be a lesbian?
Tuesday, March 30, 2021
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Whenever I teach Transatlantic Financing, I say something about insurance. Judge Skelly-Wright points out that, if he were to decide the allocation of risk in the case, he would likely find that Transatlantic bore the duty of insuring against the closing of the canal. I hypothesize that the U.S. likely would have insured the cargo, the wheat it was sending to Iran. I'm less certain about the insurance market for detours around the Cape.
The Business Standard provides some insights into the insurance squabbles that lie in the wake of the recently-freed container ship, the Ever Given. There could be some pretty big fights. A Taiwanese company chartered the ship; a Japanese company owns it. It was piloted through the canal by people employed by the canal, but the canal provides pilots subject to a disclaimer of liability. The owners of the cargo aboard the Ever Given likely insured their goods and can seek recovery for whatever costs incurred as a result of the one-week delay. Are such costs a given? Do they constitute a covered claim?
The article anticipates similar claims from the owners of goods aboard the vessels delayed by the bottleneck in Suez. I'm uncertain about those. My first guess was that the economic loss rule would bar recovery, but I suppose it is possible that there is a general insurance policy that covers all events that might delay delivery. Time will tell.
Hat tip, Victor Goldberg.