Friday, November 1, 2024
Friday Frivolity: Liquid Death News
We reported earlier this year on a promise by a beverage company, Liquid Death, to give away a jet in an advertising campaign piggy-backing off Leonard v. Pepsico. We then reported that there had been no announcement of the winner on September 20th, the date the company had designated as the date for the announcement. Today, we have two new bits of Liquid Death news.
First, Liquid Death has now announced the winner of the jet contest. Thanks to commenter Sasha for letting us know. The details are pretty thin. The winner is "Zac from North Carolina." It seems that he has opted to take the jet, the six months of free hangar space, and the year's supply of Liquid Death. It's a bit disappointing. Having one-upped PepsiCo., I was expecting a splashy event, with the winner, the jet, and -- I don't know -- colorful, loud displays that would appeal to Liquid Death's demographic. "Zac" seems to have a smaller appetite for publicity than he does for liquid refreshment. The company also boasts that it received over 30,000 entries. That actually seems like a pretty low response to me. The plane was worth something like $250,000. I would think the company was hoping to generate more than 30,000 sales through the contest, but perhaps I am thinking about this wrong. Maybe the point was the free advertising that the campaign generated.
Liquid Death has announced a new potential giveaway. This time you have to jump through some hoops. First you have to drink iced tea. Second you have to "chug" it. Third, you have to do so in less than eighteen seconds. Why eighteen? I am not enticed, but it does make it a better example of an offer to enter into a unilateral contract.
I would be worried that I have become a conduit for free advertising for this company, but I'm pretty confident that the overlap between readership of this blog and the intended targets of Liquid Death's promotions is the null set. But it is cute that the company featured some people my age or older chugging iced tea. My students are rooting for "the granny."
November 1, 2024 in About this Blog, Commentary, Current Affairs, Famous Cases, Food and Drink | Permalink | Comments (0)
Court Rejects "Obtuse" Defense in a Breach of Contract Claim Relating to a Cyberattack
This case begins with an odd flex, noting that the defendant Expeditors International of Washington, Inc. (Expeditors) “is one of the world’s largest Third Party Logistics (“3PL”) service providers[.]” The court then explains, for the benefit of those of us who do not know that 3PL services existed, that the parties entered into an Distributor Services Agreement (DSA) in 2016, under which Expeditors would receive products from plaintiff POC, USA, LLC (POC), warehouse them, and then distribute them to POC's customers. Expeditors had a computerized distributions management system for these purposes, which was supposed to provide POC with real-time visibility of its products.
In response to a cyberattack, Expeditors shut down its operations for 90 days. POC alleges that it suffered losses from failure to deliver products during those 90 days and that, as a result of this 90-day hiatus, it lost customers to competitors in the seasonal sporting-goods supply market. POC sued, alleging, breach of contract, breach of implied duty of good faith and fair dealing, negligence, gross negligence, unjust enrichment, and violations of the Washington Consumer Protection Act (“WCPA”). Expeditors moved to dismiss all claims other than the breach of contract claim.
The fun part of the district court's opinion in POC USA, LLC v. Expeditors International of Washington, Inc. relates to Expeditors argument that it had not breached the duty of good faith and fair dealing. POC alleged the Expeditors had breached the duty "by failing to implement standard industry practices and available cyber protections and an adequate business continuity plan to protect itself and customers from cyber-attacks and their effects." Expeditors responded that the contract made no mention of a duty to protect against cyberattacks. The court rejects this argument:
This is obtuse. Defendant chose and operated the computer systems the ransomware breached. Defendant presented itself as having competent security and networks for Plaintiff to rely on. Due to Defendant’s computer systems allegedly being vulnerable to a cyber-attack and Defendant’s subsequent shutdown, Plaintiff alleges economic harm from Defendant’s lacking security.
This is good, but I would have preferred "This is obtuse. Periodt!"
The court dismissed POC's negligence claims because it alleged no special relationship between the parties giving rise to a duty of care other than the one arising from the DSA. The DSA also did not create a bailment, so the court dismissed that claim as well. All other claims survived.
November 1, 2024 in Recent Cases, Web/Tech | Permalink | Comments (1)
Thursday, October 31, 2024
Liability Waiver on Charter Flight Unenforceable Under the Warsaw Convention
On January 5, 2022, Richard C. Murphy III boarded a Cessna as the plane's sole passenger on a charter flight to the Bahamas. Mr. Murphy was injured when the plane ran out of fuel and crash landed in the ocean. Not surprisingly, Mr. Murphy and his wife sued the aircraft owner, two charter companies, and the pilot. After removal to the District Court of the Southern District of Florida, two defendants, the pilot and one of the charter companies, moved to dismiss the fourth amended complaint based on a liability waiver.
In Murphy v. Airway Air Charter, Inc., the district court denied defendants' motion to dismiss. The charter agreement included the following liability waiver:
EE. LIMITATION OF LIABILITY: CHARTER COMPANY SHALL NOT BE LIABLE FOR ANY INJURY, DAMAGE, LOSS, EXPENSE, INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES . . . WHETHER IN CONTRACT OR TORT (INCLUDING STRICT LIABILITY OR NEGLIGENCE)
In denying defendants' motion to dismiss based on this affirmative defense, the court first noted that defendants had waived the defense by not pleading it in their Answer to the second amended complaint. But that's not very interesting. More interestingly, the court also found that the affirmative defense was barred by the 1929 Warsaw Convention, as amended by the 1999 Montreal Convention (collectively, the Convention). Although the Convention allows parties to negotiate liability limits different from those provided for in the Convention, that only means that parties can provide for liability in excess of the amounts guaranteed under the Convention. They may not go below the required minimum of $75,000.
As a result, defendants' liability waiver, even if not waived, was void. Defendants' motion to dismiss was denied.
October 31, 2024 in Recent Cases, Travel | Permalink | Comments (0)
Wednesday, October 30, 2024
Strike Averted in the Airline Food Industry
As Jerry Seinfeld (right, tapping on the window of the Oval Office) might ask, "What's the deal with airline food service workers?" Well, the deal is that they agreed at the end of August to a contract, narrowly avoiding a strike, after negotiations stretching back to the 2017. You can find the union's statement here.
Important excerpt:
Highlights include raising the minimum wage nationwide to $17 per hour, a new quality, affordable healthcare plan, a new wage structure that increases year to year and rewards both years of service and job skills. Workers will also receive additional sick time and better equipment to keep them safe when working in extreme temperatures, from refrigerated food prep rooms to hot airport tarmacs.
Sounds like a win.
October 30, 2024 in Current Affairs, Food and Drink, In the News, Labor Contracts, Travel, True Contracts | Permalink | Comments (0)
Tuesday, October 29, 2024
Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for October 29, 2024
Top Downloads For:
Contracts & Commercial Law eJournalRecent Top Papers (60 days)
As of: 30 Aug 2024 - 29 Oct 2024Rank | Paper | Downloads |
---|---|---|
1. | 336 | |
2. | 183 | |
3. | 143 | |
4. |
The Conceptual Foundation of Cross-Class Cramdown |
130 |
5. | 112 | |
6. | 103 | |
7. | 81 | |
8. | 80 | |
9. | 63 | |
10. | 63 |
Top Downloads For:
Law & Society: Private Law - Contracts eJournalRecent Top Papers (60 days)
As of: 30 Aug 2024 - 29 Oct 2024Rank | Paper | Downloads |
---|---|---|
1. | 143 | |
2. |
The Conceptual Foundation of Cross-Class Cramdown |
130 |
3. | 112 | |
4. | 106 | |
5. | 103 | |
6. | 63 | |
7. | 62 | |
8. | 59 | |
9. | 44 | |
10. | 43 |
October 29, 2024 in Recent Scholarship | Permalink
California District Court Grants Preliminary Injunction to Pepperidge Farm Distributor
This case illustrates what happens when COVID-19 and the need for ready access to Pepperidge Farm Goldfish crackers collide. Train wreck. You can't look away. Pepperidge Farm's behavior in this litigation certainly is fishy, and the District Court doesn't seem inclined to catch and release.
In August 2017, Vital Distributions, LLC (Vital) entered into an agreement with Pepperidge Farm, Incorporated (Pepperidge) to serve as its exclusive distribution agent for two California counties. At the time the parties entered into their agreement, Pepperidge also proffered an E-Commerce Acknowledgment (the Acknowledgment), which purported to put Vital on notice that the parties' agreement did not prevent Pepperidge from entering into separate distribution agreements through electronic means. At the time that the parties executed their agreement, Vital rejected the Acknowledgment and refused to sign it. Vital made clear its understanding that it was to serve as Pepperidge's exclusive distributor for all purposes in the two California counties.
Vital was aware of an Amazon distribution center in the region. It knew that its agreement with Pepperidge would be nearly worthless if it had to sign the Acknowledgment. Pepperidge's representative warned that Pepperidge might not agree to sign without the Acknowledgment, but in the end Pepperidge did sign. Under the agreement, Vital got paid for storage and delivery services, and it also received commissions on all distributions, whether through ordinary or e-commerce, within its territory.
The agreement included a carve-out for deliveries to chain stores that insisted on direct deliveries from Pepperidge to their warehouses, but only after Pepperidge attempted in good faith to persuade the chains to use Vital's services and those chains insisted on bypassing the agreement. Finally, Pepperidge was contractually obligated to provide amounts of its products to Vital sufficient to guarantee an adequate and fresh supply.
The parties worked together well until COVID hit. Then, product panics hit. Demand for Pepperidge products soared, especially Goldfish crackers, and Pepperidge started meeting that demand through Amazon. Even after shoppers stopped braining each other in pursuit of toilet paper, Pepperidge continue to meet demand through Amazon while providing Vital with half the product it had previously supplied, harming Vital's business relations with retail stores. Vital's customers took to ordering the product they so desperately needed through the Internet.
Vital sued alleging breach of contract and breach of the implied covenant of good faith and fair dealing. It sought an accounting and declaratory relief. Pepperidge's motion to dismiss was denied; Vital's motion for discovery was granted, as was its motion for a temporary restraining order. Back in April, in Vital Distribution, LLC v. Pepperidge Farm, Inc., the District Court granted Vital's motion for a preliminary injunction.
Soon after an unfavorable discovery ruling, Pepperidge Farm sought to exercise a buyback option provided for in Article 20 of the original agreement. Article 20 permitted Pepperidge Farm to buy back the distributorship for its market value plus 25%. Charmingly, it exercised this purported option through an e-mail sent by a paralegal providing Vital with thirty minutes notice. It then disabled technology essential to Vital's distribution services. These actions were then subject to a temporary restraining order. Pepperidge represented that the parties were working out a settlement that would effectuate the transfer of the distributorship back to Vital. In fact, Pepperidge continued to engage in shenanigans undermining Vital's relationships with distributors. Pepperidge attempted to characterize its conduct as business as usual. The parties' relationship had soured and so it was exercising its buyback option.
The Court had little difficulty concluding that Vital would likely succeed on the merits of its breach of contract claim. Pepperidge did itself no favors by refusing to respond to recovery requests, making it easy for the Court to side with Vital on all material facts that might otherwise be disputed. Similarly, the Court found that Vital would likely succeed on its claim that Pepperidge invoked the buyback provision in violation of the duty of good faith and fair dealing. Pepperidge presented no evidence of inadequate performance by Vital and thus had no justification for its invocation of the buyback provision or for its curious timing. Bad faith is an amorphous concept, the Court noted, but we know it when we see it. If something looks like a fish, crunches like a fish, and tastes of cheddar, well, it's probably a Pepperidge Farm Goldfish being sold through e-commerce distributors in violation of an exclusive distribution agreement.
As you can imagine, the irreparable harm analysis, balance of the equities, and public policy considerations all went Vital's way. The Court granted Vital's motion preliminarily enjoining Pepperidge from terminating or buying back Vital's distribution rights.
October 29, 2024 in E-commerce, Food and Drink, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)
Monday, October 28, 2024
Announcing the 2024 Leet Symposium at Case Western Reserve School of Law
George A. Leet Business Law Symposium on 11/08/2024
The Center for Business Law at Case Western Reserve University School of Law will host the George A. Leet Business Law full day, in-person symposium on 11/8/2024 entitled: Relational Contracting in the New Industrial Policy. |
The 20th century has witnessed the de-verticalization of production and the rise of collaborative agreements in both the biopharma and manufacturing sectors. Prior scholarship has led to a rich inquiry into these collaborations with many different explanations for their governance and contracts. Some highlight the agreements for their ability to build trust. Others emphasize the ability of these agreements to bring the efficient benefits of a hierarchy to agreements between firms. Still, others rationalize the agreements as a mechanism for institutionalizing learning. This symposium will bring together many of the key scholars in the field to address network contracts and new governance strategies for the innovation sphere. The symposium will also provide an examination into network failures.
Keynote speaker:
Professor Matthew Jennejohn will be the keynote speaker this year. Professor Jennejohn’s scholarship focuses on the impact of institutions on economic growth, with particular attention to “building equitable institutions for a complex economy.” He is currently the Deputy Director of Strategy in the Office of Strategic Capital at the U.S. Department of Defense, an analyst at Johns Hopkins University’s Applied Physics Laboratory, and the Marion and Rulon Earl Professor of Law at BYU Law School. Previously, he has served as the Justin W. D'Atri Visiting Professor of Law, Business & Society at Columbia Law School (Autumn 2019), practiced for five years at Shearman & Sterling in New York, and clerked for (then) Vice Chancellor Leo Strine of the Delaware Court of Chancery. He is a graduate of Columbia Law School, the London School of Economics, and Brigham Young University, and grew up attending public schools in Dousman, Wisconsin.
Invited Speakers Include:
Prof. Susan Helper, Case Western Reserve University Economics ([email protected])
Prof. Liza Vertinsky, University of Maryland Law School ([email protected])
Prof. Lisa Bernstein, University of Chicago Law School ([email protected])
Prof. Peter Lee, UC Davis School of Law ([email protected])
Geerte Hessen, Amsterdam General Counsel—Ferrovial Amsterdam
Professor Jorge Contreras, University of Utah School of Law ([email protected])
John Murray, Counsel at Abbvie ([email protected])
Josh Whitford, Professor Columbia University, Sociology Department ([email protected])
Juliet Kostritsky, Professor CWRU School of Law ([email protected])
Symposium Logistics:
The 2024 Leet Symposium will be an in-person, all-day symposium for all of the speakers. This will be a wonderful opportunity for collegial exchanges over these papers and other intellectual ideas, and to continue our discussions over dinner. Non-speakers may be able to attend in person or by remote participation.'
People who want to join need to pre-register at this link:
https://case.edu/law/our-school/events-lectures/relational-contracting-new-industrial-policy
Moderators:
In addition to planning the symposium, Professors Anat Alon-Beck, Eric Chaffee, Charles Korsmo, Juliet P. Kostritsky, and Robert Rapp from the Case Western Reserve University Law School Faculty will be moderating at the symposium.
CLE Credit and IT Information:
Patty Harbold (email: [email protected]), Director of our Academic Centers, and Martin Raska, of our IT department, will be contacting you about your presentation. Patty will handle the CLE process through the Ohio Supreme Court and Martin will handle any IT-related concerns and other information you may need.
Symposium Publication:
The Case Western Law Review often publishes the Leet symposium as an issue. You are not required to present a paper or to publish in our law review but it would be wonderful if you would be willing to consider that as a possibility.
October 28, 2024 in Conferences, Contract Profs, Current Affairs, Recent Scholarship | Permalink | Comments (0)
Amazon Workers Seeking to Organize in Coventry, UK
Richard Partington, reporting in The Guardian brings us news that 3000 workers at Amazon's warehouse in Coventry held a vote in early July on forming a union. If successful, it will be the first Amazon union in the UK. Conflicts between workers and management have been simmering for some time. There were strikes in 2022 and 2023, with workers demanding pay of £15 an hour. Workers currently start at somewhere between £12.30 and 13 an hour.
The new Labour government has pledged to improve work conditions, so it may be interesting to see if government action can move the parties to the bargaining table and forestall a strike.
Nimo Omer, in conversation with Heather Stewart, provides more details in The Guardian's Tuesday briefing from July 9th. In addition to seeking higher pay, workers would also prefer not to work in a panopticon environment (left) with a high injury rate. Their reporting highlights the huge boost in Amazon's profits since the COVID pandemic, as well as the shocking net worth of Amazon's CEO. According to Forbes, his net worth has increased by $44 billion so far this year. Just to put things in perspective, by my calculations, Mr. Bezos could personally afford to give each Amazon worker worldwide a 15,000 bonus, and he'd still be up over $20 billion for the year. And then the company might not have to spend $14 million on union-busting consultants.
It occurs to me that Elon Musk payed $44 billion for Twitter. Presumably, with his $44 billion increase in wealth, Jeff Bezos could take Twitter off Musk's hands. The company is now valued at less than $10 billion. The acquisition would be a good synergy with Bezos's ownership of the Washington Post, and then he could make it so that nobody could endorse a Presidential candidate either in the press or on social media. Also, we could just go back to calling the site Twitter.
Eshe Nelson, writing in The New York Times reported back on July 17th that the organization efforts in Coventry failed. Only 49.5% of the workers voted to unionize.
October 28, 2024 in Commentary, Current Affairs, In the News, Labor Contracts | Permalink | Comments (0)
Friday, October 25, 2024
Forthcoming Scholarship Responding to Kim Krawiec & Nate Oman
I posted a blog version of this response back in September. It has now gone through substantive edits and will be forthcoming in the Iowa Law Review Online soon. It hasn't even gone officially live on SSRN yet because . . . reasons. Lately, my submissions to SSRN don't go live until I ask them what the holdup is, and then it goes live almost immediately. The ways of the gods of SSRN are hidden to us. In any case, you can be the WORLD PREMIERE reader!
Anyway, the link is here, and here's the abstract:
This brief response to The Case for Specific Performance of Personal Service Contracts by Kim Krawiec and Nate Oman builds on their suggestions for a limited expansion of the availability of the specific performance remedy in contracts for personal services. The response quickly reviews Professor Krawiec and Oman's arguments and registers some skepticism as to the likelihood that parties would agree to specific performance as a remedy in the situations they discuss. They make the excellent point that a positive injunction can be a tool to bring about settlement. In addition, specific performance should also be available where the court can be confident that: (1) the party subject to such an order will perform to the best of their ability; and (2) the party that has to pay for such performance will not, if forced to pay, interfere with optimal performance.
I hope that my response will lead more people to have a look at Profssor Krawiec and Oman's work also available on SSRN, The Case for Specific Performance of Personal Service Contracts,
October 25, 2024 in About this Blog, Contract Profs, Recent Scholarship | Permalink | Comments (0)
Ninth Circuit Reverses Summary Judgment and Remands Case Alleging Privacy Violations by Google
Speaking of scraping, well this isn't exactly a scraping case, but it's definitely scraping-adjacent. Plaintiffs sought to certify a class consisting of Google Chrome users who sought to avoid data collection by choosing not to sync their browsers to the Google accounts. Their belief that Google would not collect their personal data was based on Google's "Chrome Privacy Notice."
The District Court denied Google's consent-based motion to dismiss, but after an evidentiary hearing, it granted summary judgment to Google based on its finding that data was shared with Google on a "browser-agnostic" basis. That is, data flowed to Google even if web browsers were not using Chrome. Plaintiffs, on notice of Google's general data-collection practices, could not complain that the same data collection occurred through their non-synced Chrome accounts.
In August, in Calhoun v. Google, LLC, the Ninth Circuit reversed. Google's general privacy policy pertains to IP addresses and cookies. The Chrome-specific privacy policy related to broader categories of data, including "browsing history, bookmarks, tabs, passwords and autofill information, and other browser settings." The Ninth Circuit chided the District Court for holding a 7.5 hour evidentiary hearing that got sidetracked on browser agnosticism and failed to ask the legally pertinent question: was a reasonably prudent web browser on notice that by using Chrome in the non-synced setting, they were consenting to the collect of their personal data. At this point in the proceedings, plaintiffs had sufficient alleged that the notices Google provided were insufficient.
The case was remanded to the District Court with instructions to apply the appropriate standard. Only then can the District Court make a determination of whether a class should be certified.
October 25, 2024 in E-commerce, Recent Cases, Web/Tech | Permalink | Comments (0)
Thursday, October 24, 2024
Fourth Circuit Dismisses COVID-Related Business Interruption Claims
The named plaintiff in a purported class action, Elegant Massage, LLC (Elegant), had an all risk commercial property insurance policy with State Farm Mutual Automobile Insurance Company (State Farm). On March 16, 2020, Elegant shut down its business in response to the COVID pandemic. An executive order by Virginia's governor followed one week later, ordering that all such businesses be shut down. Elegant filed its claim under its insurance policy on March 17th, and State Farm denied it on March 26th.
As in the other cases COVID we've discussed, most recently here, the policy covered losses caused by “accidental direct physical loss” to the covered property. In addition, the policy at issue had an exclusion for losses caused by virus. State Farm denied coverage because Elegant's closure had been "voluntary." It also cited the virus exclusion. Elegant responded by making attempting to transform its claim into a class action lawsuit. State Farm moved to dismiss. The District Court denied the motion and certified a class consisting of businesses that claimed losses under policies between March 23rd and June 30, 2020.
In Elegant Massage, LLC v. State Farm Mutual Automobile Ins. Co., the Fourth Circuit reversed the District Court's certification of the class and remanded with instructions to dismiss the case entirely. One judge dissented from the part of the opinion that dismissed the case. After some throat-clearing discussion of the court's jurisdiction, the opinion turns to the merits. The court found that Elegant's property had suffered no direct physical loss and thus could not recover under the policy. It thus found that the District Court had erred in certifying the class. Exercising its pendant appellate jurisdiction, it also found that the District Court had erred in denying State Farm's motion to dismiss. It saw no need to address the virus exclusion.
October 24, 2024 in Recent Cases | Permalink | Comments (0)
Wednesday, October 23, 2024
Breaking Terms of Service News: Musk Chooses Northern District of Texas as His Venue
According to Jon Brodkin, writing for Ars Technica, new terms of service for Twitter (a/k/a X) will take effect on November 15th. If you want to bring an action relating to the terms of service, you will have to do so in the Northern District of Texas, home to Judge Reed O'Connor (left), who has disclosed that he owns between $15,001 and 50,000 in Tesla stock. Judge O'Connor is currently presiding over a case brought by Twitter (X Corp.) and has refused to recuse himself. While Twitter did recently move its headquarters from San Francisco to Texas, those headquarters are not within the Northern District of Texas. Twitter likes having a jurisdictional mistress on the side while sticking with the wife, forty miles outside of Austin, the San Francisco of Texas.
Here is the relevant language of the revised Terms of Service:
All disputes related to these Terms or the Services, including without limitation disputes related to or arising from other users’ and third parties’ use of the Services and any Content made available by other users and third parties on the Services, will be brought exclusively in the U.S. District Court for the Northern District of Texas or state courts located in Tarrant County, Texas, United States, and you consent to personal jurisdiction in those forums and waive any objection as to inconvenient forum. Without prejudice to the foregoing, you agree that, in its sole discretion, X may bring any claim, cause of action, or dispute we have against you in any competent court in the country in which you reside that has jurisdiction and venue over the claim. To the extent permitted by law, you also waive the right to participate as a plaintiff or class member in any purported class action, collective action or representative action proceeding.
The Ars Technica report duly notes that courts will likely enforce the choice of forum, especially if users of Twitter are given notice of the new terms and have to click something to make that notice disappear from their screens. That will surely happen.
But I do wonder if there might not be an unconscionability problem. The choice-of-forum clause is decidedly one-sided. Users can only sue Twitter in the Northern District or in state courts in Tarrant County, Texas, but Twitter can sue users anywhere in the world. Blog Founder Frank Snyder points out that the one-sidedness makes sense here. Twitter may not be able to sue in Texas because the Texas courts might not have in personam jurisdictions of the defendants.
There is also a class-action waiver "to the extent permitted by law." We know that SCOTUS has upheld such class-action waivers in the context of arbitration clauses, even if there is contrary state law. But that is a product of the Federal Arbitration Act and the Supremacy Clause, which give priority to federal statutory law over state law to the extent of any contradiction.
It may be that Texas law throws up no impediments to class-action waivers, in which case this will not be an issue. Moreover, Twitter has wisely limited its class action waiver "to the extent permitted by law." Presumably, a court troubled by the waiver would simply sever it but enforce the rest of the choice of forum provision.
October 23, 2024 in Commentary, Current Affairs, In the News, Web/Tech | Permalink | Comments (0)
Buyer of Fake Rothko Given Leave to Amend Allegations of Fraud
In 2001, Ron Meyer, a film industry executive with no ability to distinguish an authentic Mark Rothko painting from a forgery, bought for $900,000 (plus commissions) what sellers, Susan Seidel and Jamie Frankfort, represented as an authentic Mark Rothko painting (not the one, "Untitled," pictured at right). Happy with his purchase, Mr. Meyer hung the painting in his home until 2019, when he discovered that the painting was a forgery. He came to believe that the defendants knew that it was a forgery. He sued, alleging fraud, breach of warranty, negligent misrepresentation, and seeking rescission based on mistake.
In Meyer v. Seidel, the main issue facing the Second Circuit was whether the statute of limitations had run on Mr. Meyer's claims. The relevant statute of limitations for the warranty claim was four years; for misrepresentation and rescission, it was six years. However, fraud claims can be brought within six years or within two years of when the plaintiff could have discovered the fraud in the exercise of reasonable diligence, whichever is later. Defendants argued that a 2011 phone call in which Ms. Seidel disclosed to Meyer that law enforcement was investigating allegations of counterfeit Rothko paintings put Meyer on notice in 2011 of the potential misrepresentation. Meyer countered that the call did not mention his painting and gave him no cause of concern once time passed and the authorities did not contact him.
The District Court dismissed all of Mr. Meyer's claims as untimely. It also found that his allegations of fraud did not meet the standard for alleging such a claim, and given that the claims were time-barred in any case, the District Court concluded that amendment of the complaint would be futile.
The Second Circuit affirmed the District Court's finding that the relevant statutes of limitations had run with respect to all but the fraud claim. The District Court found that Mr. Meyer was on notice of possible fraud through the combination of Ms. Seidel's 2011 telephone conversation with Mr. Meyer and news reports of fraud claims against New York art dealers in connection with the sale of artworks purportedly created by, among others, Mr. Rothko.
The Second Circuit found however that the District Court erred in considering evidence beyond that presented in the complaint on a motion to dismiss. While courts may take judicial notice of things like newspaper reports, the reports at issue were not closely-enough connected to the sale at issue to put Mr. Meyer on notice that his painting might be a forgery. The Second Circuit agreed with the District Court that Mr. Meyer had not adequately alleged fraud. However, because his fraud claim was not time barred, it would not be futile for him to amend his complaint, and the Second Circuit thus granted him leave to do so. Judge Sullivan concurred in part and dissented in part, as he would have affirmed the dismissal of Mr. Meyer's claims without leave to amend.
October 23, 2024 in Recent Cases | Permalink | Comments (0)
Tuesday, October 22, 2024
Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for October 22, 2024
Top Downloads For:
Contracts & Commercial Law eJournalRecent Top Papers (60 days)
As of: 23 Aug 2024 - 22 Oct 2024Rank | Paper | Downloads |
---|---|---|
1. | 312 | |
2. | 179 | |
3. | 138 | |
4. | 107 | |
5. | 99 | |
6. | 78 | |
7. | 78 | |
8. | 76 | |
9. | 74 | |
10. | 58 |
Top Downloads For:
Law & Society: Private Law - Contracts eJournalRecent Top Papers (60 days)
As of: 23 Aug 2024 - 22 Oct 2024Rank | Paper | Downloads |
---|---|---|
1. | 138 | |
2. | 107 | |
3. | 101 | |
4. | 99 | |
5. | 56 | |
6. | 56 | |
7. | 55 | |
8. | 47 | |
9. |
Cutthroat Business |
47 |
10. | 39 |
October 22, 2024 in Recent Scholarship | Permalink
Homeowners Insurance and the Case for Regulation
First, a confession. Four years into my residency in Oklahoma, I have never been to Enid, OK, which is just ninety miles from my home in Oklahoma City. For a small Oklahoma town, it has many claims to fame and attractions. However, as Christopher Flavelle reports in The New York Times, Enid also boasts the highest rates for home insurance in the country. That seems odd, as Enid is not prone to all-consuming forest fires. Hurricanes do not threaten Oklahoma shores, in part because we are landlocked (at least so far), and for the same reason, houses tend not to collapse into the sea here. Now that the fracking boomlet has abated, Oklahoma is not threatened by earthquakes either.
I think Enid has a branding problem. For example if you check out the town's Wikipedia page, you will find the image at right, depicting a tornado that hit Enid in 1966. The image became the cover photo for the National Weather Service's handbooks on tornadoes and severe weather. To make matters worse, being a public domain photo and therefore free, the image made its way into textbooks. So, for most people who, like me, have never been to Enid, you hear "Enid, Oklahoma," and you think "Yeah, I've heard of that place. I associate it with tornadoes."
Scroll down the Wikipedia entry on Enid a bit and you get the image at left of FEMA Director Joe M. Allbaugh talking with a disaster victim at the Red Cross Shelter in Enid during a tour of damage areas in Oklahoma.
Oh, come on! It's as if the Enid Tourism Board got together and said, "Hey people, Enid is not just a city threatened by killer tornadoes. We have ice storms too!"
By the way, Enid also holds the record for urban rainfall. During the Enid flood of 1973, it received 15.68" of rain, causing people to cut holes in their roofs to escape. Nine people died.
But honestly, since 2002, the weather has been great in Enid. Well, there was a tornado in 2009, but it only did property damage. Hardly worth mentioning.
The New York Times thinks the problems go beyond marketing. Rather, home insurance rates are higher where the industry sets rates relatively free from regulation:
Higher premiums are being charged in states where regulators apply less scrutiny to requests for rate increases, compared with states where officials question the justifications offered by companies and try to keep rates low.
While weather conditions certainly explain some disparities in home insurance rates, there is often a misalignment between risk and insurance costs. So, for example, the typical homeowner in McCurtain County, OK paid $2,837 for insurance, but if they were to move across state lines to Arkansas, they would pay only $1,673. The risk to property from weather seems to be the same in both locations, and the Times provides no reason to think that property values are significantly higher in Oklahoma than they are just over the state line in Arkansas. While people on average pay $500 in insurance for every $100,000 in real estate value (or 0.5%), in some states insurance rates can be as low as 0.05% or as high as 2%. In Enid, it is 3.5%. These rates seem to have nothing to do with risk factors, as Californians pay very low home insurance rates despite the high risk of forest fires, torrential rains, earthquakes, and Lex Luthor.
Regulation, of course, is not the only factor that explains these disparities. The Times reporters do a fabulous job explaining the factors that go into the different rates homeowners pay for insurance. It's worth a read.
October 22, 2024 in Commentary, Current Affairs, In the News | Permalink | Comments (0)
Monday, October 21, 2024
Massachusetts Court Upholds Liquidated Damages in Commercial Lease
On April 15, 2016, Cummings Properties, LLC (Cummings) entered into a five-year lease with a company controlled by Daryl Hines (Hines). The lease provided that should Mr. Hines's company miss a payment, after a ten-day grace period and notice to Mr. Hines, Cummings was permitted to collect, as liquidated damages, the entirety of the remaining rent due on the five-year lease. Mr. Hines also provided a personal guarantee.
The worst imaginable scenario played out. Mr. Hines' business lost a crucial contract and failed to pay rent one month into its five-year lease. One year later, Cummings found a new lessee for a four-year term. It nonetheless sought to collect the full amount of its liquidated damages. A trial court awarded Cummings $68,650 in damages. An intermediate appellate court reversed, finding that, because the liquidated damages provision failed to account for the possibility that Cummings would find a new tenant, it operated as an unenforceable penalty.
In Cummings Properties, LLC v. Hines, Massachusetts' Supreme Judicial Court reversed, reinstating the $68,650 judgment. The substance of the opinion begins, reasonably enough, with freedom of contract. The parties agreed to a liquidated damages provision, so they should be bound by it. However, if the court determines that the provision is actually a penalty, well then, not so much. Courts can evaluate the nature of the clause using the "single-look approach," which focuses on the state of play at the time of contracting or the "second-look approach," considering matters at the time of breach. Massachusetts opts for the former, as the second seems to the court an invitation to opportunistic litigation.
Applying its single-look approach, the court asks whether damages would be difficult to ascertain ex ante and whether the amount of liquidated damages was a reasonable estimate of actual damages. Hines failed the first prong because he failed to present any evidence in support of his argument that it was entirely foreseeable that Cummings, a high-volume commercial landlord, would find a new tenant. As to the second prong, Massachusetts has long allowed such liquidated damages provisions in lease agreements. Hines alleged a lack of sophistication, but the trial court found him to be sufficiently sophisticated to understand the liquidated damages provision, and the Supreme Court deferred to that determination.
I see no reason to enforce a liquidated damages provision in these circumstances. It either encourages landlords to leave their premises empty to no good purpose, taking real estate off the market and increasing prices for tenants generally, or it provides them with a windfall. The clause seems on its face a penalty, designed to discourage breach. The landlord gets paid the full lease amount, in advance and without any adjustment for the expenses associated with maintaining the property. The clause gives the landlord every incentive to encourage its tenants to breach, especially when the market is tight and the landlord is confident that they can find a new tenant. They can then collect rents from the new tenant and try their luck going after the former tenant. The duty to mitigate is there for a reason, and I see no reason for a special judicial carve-out designed to protect what, in almost every imaginable case, would be the dominant party.
Given the framing of the issue as a matter of freedom of contract and its limitations, it would be an interesting project to apply Rebecca Stone's and Hanoch Dagan's theories of freedom of contract to the problem of liquidated damages.
October 21, 2024 in Commentary, Recent Cases | Permalink | Comments (2)
Friday, October 18, 2024
Friday Frivolity: Did Liquid Death Give Away a Jet on the DL?
We posted last month about Liquid Death's promotion that offered a real, actual jet to the lucky winner. In case you missed it, here is the ad.
I forgot to check the news on September 2oth, the date on which Liquid Death was to proclaim the winner, to see who had won and whether they had chosen the jet or its cash equivalent. I checked this week. . .
Mostly this is just a frivolity post, but it is also a symptom of the death of journalism. Media outlet after media outlet promoted Liquid Death's jet giveaway, providing the company with an avalanche of free publicity. And yet none of the "journalists" who thought the story newsworthy thought to follow up. It falls to this blog, which is hardly Reuters or the Associated Press, to do so. Don't call yourselves news media. Call yourselves Mad Men.
If anybody has any information about what become of the contest, please share. If there is nothing to share, does the promotion violate some consumer protection statutes?
October 18, 2024 in About this Blog, Current Affairs, Food and Drink, In the News | Permalink | Comments (2)
Kentucky District Court Rejects Class Action Settlement in Papa John's Case
This happened last September, but I'm just catching up. Unfortunately, I could find no updates on the posture of the case.
A proposed class of Papa John's employees formed, alleging that its franchisors systematically restricted employee compensation and opportunities by agreeing that individual Papa John’s franchises would not seek to hire each other's employees. After protracted discovery, motion practice, and sending some class members to arbitration, the parties agreed to a $5 million settlement, which would come out to $33/class member, less attorneys' fees. In addition, Papa John's promised to stop using and enforcing such no-poach provisions for five years.
The question before the U.S. District Court for the Western District of Kentucky in In Re: Papa John’s Employee and Franchisee Employee Antitrust Litigation was whether to preliminarily certify the class and approve the class-wide settlement. In a decision that surprised the class-action community, the court refused to do so.
The applicable standard, from Fed. R. Civ. P. 23(e)(2), is that a court should approve a class-action settlement if it is "fair, reasonable, and adequate." The court found that standard likely met. Beyond that, the court also looked at the prerequisites under Rule 23(a): numerosity, commonality, typicality and adequacy of representation. The class, which boasted over 400,ooo members, was certainly numerous, and given the expenses incurred and the small per-person recovery, the class action vehicle was obviously superior to individual litigation of claims.
However, the court was not satisfied that the sole named plaintiff was an adequate representative of the class, nor was it satisfied that plaintiffs had made a showing that common issues predominated in the case. The court expressed reluctance to be the first to certify a class in a no-poach claim against a restaurant. Moreover, the court recognized possible adequacy issues in that the named plaintiff was a manager who may not be best-situated to represent the interests of non-managerial employees. There also might be a split between the interests of employees subject to arbitration agreements (which include class-action waivers) and those not subject to such agreements. The court's typicality concern simply sounded in the lack of evidence that the named plaintiff tried to move between Papa John's stores. We don't know whether she, as a manager, could have done so.
Perhaps most controversially, the court found that it could not address whether common issues predominate without some exploration of the merits of plaintiffs' anti-trust claims. The court expressed skepticism regarding plaintiffs' core claim. Yes, the no-poach rule would prevent a Papa John's employee from working at another Papa John's franchise. But why wouldn't they then just find another job in the vast fast-food industry?
The court invited plaintiffs to supplement their submission and refile their amended motion for class settlement or extension request within thirty days. The amended motion seems to have been filed in November 2023. I have been unable to find more any more rulings. The case dates from 2018.
October 18, 2024 in Food and Drink, Labor Contracts, Recent Cases | Permalink | Comments (0)
Thursday, October 17, 2024
Supreme Judicial Court of Massachusetts Weighs in on Handshake Agreement
In 2013, Wynn Resorts, Limited, through a Massachusetts subsidiary (collectively Wynn) sought to purchase a property in Massachusetts to set up a casino. The original purchase price for the property was $75 million. The seller was FBT Realty (FBT), in which Anthony Gattineri owned a 46.69% stake. The Massachusetts Gaming Commission (the Commission) held up the deal, apparently because the Commission was concerned that there were connections between FBT and organized crime.
The concerns related to Mr. Gattineri's claim that he purchased a 12% interest in FBT from one Charles Lightbody. Records suggested deception about when the purchase had occurred. Moreover, it seemed that Mr. Gattineri had not paid the full amount that he owed Mr. Lightbody, creating the possibility that Mr. Lightbody retained an interest in FBT. Mr. Lightbody was a convicted felon with ties to organized crime.
Under pressure from the Commission, the parties re-priced the property deal at $35 million, apparently representing the value of the property if it were not used as a casino. The three publicly-known members of FBT had to certify that they would be the exclusive recipients of the proceeds of the transaction.
Mr. Gattineri initially refused to sign the certification, but he was persuaded to do when Wynn vice-president Robert DeSilvio met with him in San Diego and orally agreed that Wynn would make Mr. Gattineri whole by paying him $19 million, representing his share of the $40 million difference between the original sale price and the reduced price (the San Diego Agreement). He signed the certification, but Wynn never paid him the $19 million allegedly promised, so he sued in federal court.
In Gattineri v. Wynn MA, LLC, the First Circuit certified the following two questions to the Supreme Judicial Court of Massachusetts
- "Is the San Diego Agreement unenforceable because it violates [§] 21 of the Gaming Act?"
- "If not, is the San Diego Agreement unenforceable for reasons of public policy of ensuring public confidence in the integrity of the gaming licensing process and in the strict oversight of all gaming establishments through a rigorous regulatory scheme?"
In another Gattineri v. Wynn MA, LLC, the Supreme Court held that the San Diego Agreement is unenforceable for reasons of public policy. The Commission was not informed of the San Diego Agreement, and that concealment prevented the Commission from performing its public function of ensuring that organized crime has no role in Massachusetts gaming establishments.
The court provides a detailed discussion of the balance it seeks to effect between principles of freedom of contract and the public policy interest at issue. Massachusetts legalized gambling with some reluctance, noting that there are pitfalls inherent in the introduction of large gambling establishments into the state. It thus empowered administrative agencies to strictly regulate the gaming industry. In order to fulfill its oversight function, the Commission had to be made aware of all transactions relating to the property deal between Wynn and GBT. It was not informed of the alleged side deal between Wynn and Mr. Gattineri. The enforcement of that deal would thus violate public policy, not only because it was concealed from the Commission but because the terms of the deal were "inconsistent with the publicly disclosed terms and conditions upon which the sale of the FBT property had been approved."
There was a side issue involving an allegation that the Commission had engaged in an unlawful taking by forcing the sale price down from $75 million to $35 million. That issue was not relevant to Mr. Gattineri's case for breach of contract. The taking affected FBT, and FBT had brought its own action alleging a taking.
Ultimately, the court saw no reason to answer the first certified question, finding that its answer to the second question decided the case: "An agreement, concealed from the commission empowered to review and approve casino licenses, and inconsistent with the terms presented to, and approved by, the commission to address its concerns about the possible involvement of organized crime, is unenforceable as a violation of public policy."
October 17, 2024 in Food and Drink, Games, Legislation, Recent Cases | Permalink | Comments (0)
Wednesday, October 16, 2024
The FTC Has Made Its Decision; Now Let It Enforce It
Today, the FTC announced a new "click-to-cancel rule," enacted after receiving 16,000 comments from the public. The rule requires sellers to make it as easy to cancel subscriptions as it is to start them. The vote to adopt the rule was 3-2. along party lines. The statement from dissenting Commissioner Holyoak makes clear that the rule, due to go into effect in 180 days, may never see the light of day. Like the FTC rule on non-competes, which we discussed here and here, this rule is likely to be challenged and enjoined before it can go into effect. The title of this post is a commentary on how much the world has changed since the days of Andrew Jackson. The FTC has made its decision, but the courts likely will enjoin its enforcement. Jacksonian autocracy has been displaced by juristocracy.
The stridency of the dissenting statement provides an augury of litigation strategies perhaps already in the works. Commissioner Holyoak challenges the FTC's authority to promulgate so broad a rule and characterizes it as encroaching on the legislative function in violation of Article I of the Constitution. Commissioner Holyoak then impugns the motives of her colleagues:
The likely unlawful character of the rule is compounded by the Majority’s race to cross the finish line. Why the rush? There is a simple explanation. Less than a month from election day, the Chair is hurrying to finish a rule that follows through on a campaign pledge made by the Chair’s favored presidential candidate.
I do not doubt that the rule accords with the policy preferences of the Democratic Party. However, agencies do not rush through rules that accord with campaign pledges. If there were actual coordination, the candidate would want the agency to wait until after inauguration so that the presumably successful candidate could take credit for actually fulfilling a campaign pledge. Rather, the Democratic Party appointees are likely trying to get rules passed while they can, in case their preferred candidate does not secure an election victory.
The dissenting statement gripes that the majority should have taken more time to work out compromises with the dissenters so as to promulgate a more limited rule that could have withstood legal challenges. Commissioner Holyoak indicates that Rules used to take ove 5 1/2 years to promulgate. This one is being rushed through in only three. I'm sorry, but it doesn't seem unreasonable to me that an administrative agency should be able to promulgate a rule during the course of a President's four-year term. Legislation, which can be vastly more impactful, happens much more quickly. Moreover, the separate statement of Commissioner Rebecca Kelly Slaughter suggests that at least some compromises were included in the final rule.
There follow about ten pages of tightly argued procedural objections and enumerations of the flaws of the final rule. This will make for very useful material for interested parties who will, I predict, file their challenges to the rule and motions for nationwide injunctions in the Northern District of Texas. Ultimately, I suspect that Commissioner Holyoak will be vindicated and the rule will not go into effect. She insists that she will support a narrower version of the rule, so I hope the Commissioners will continue their conversations in pursuit of that goal while the current rule is in limbo.
But Commissioner Holyoak does not close with a call for bipartisanship:
I am not reflexively opposed to rulemaking where Congress has delegated the Commission relevant authority, and we act consistent with that authority. Unfortunately, that is not what today’s Rule is. Instead, we have an ill-disguised political maneuver from the Majority in the form of a rule, one rushed to publication to advance the prospects of the Chair’s preferred presidential candidate.
Today's post was written with the assistance of Isabella (above left), one of the Blog's most reliable readers (or sniffers).
October 16, 2024 in Commentary, Current Affairs, In the News, Legislation | Permalink | Comments (0)