ContractsProf Blog

Weekend Frivolity: More Conceptual Art!

I have posted cranky things about conceptual art in this space before here and here.  Sid DeLong also commented less crankily on the "Take the Money and Run" piece that you thought was clever a few weeks ago but have already completely forgotten about.

But Banksy's conceptual art has legs.  So it is with his Girl with Balloon, which he sold at auction in 2018 for $1.4 million.  The work was run through a shredder concealed in the frame as soon as the gavel fell.  The assembled art lovers dropped their monocles in astonishment.  Some of the ladies present had to be revived with smelling salts and cut out of their whalebone corsets. 

I kid, but I think I am doing so in the spirit of Banksy, whose performance art has been joyously embraced as a "stunt" by the very people whose avidity for disposable art Banksy's piece ridicules.  Note in the video below how transfixed the auctioneer is to be there as a great work of art is created.  Just kidding.  He wants to sell another painting, and he might as was well be saying "Nothing to see here folks!"  The purchaser did not seek rescission but wisely sent the retitled Love Is in the Bin on a world tour.  The shredder "malfunctioned," leaving the work half shredded and roughly 18 times more valuable.  It just sold for $25 million.  

H/T John Wladis

Sid DeLong on Protecting IP Post-Mortem, Part II

“D” is for Dead Hand Control (Part 2)
Sidney DeLong

As discussed in yesterday's post, contract alone cannot achieve Grafton’s goal of post-mortem control of her copyrights. Suppose that students in their third year of law school were given the same problem:

“You are counsel to Sue Grafton. She wants to make sure that none of her alphabet series is ever adapted for the screen after her death. What solutions can you suggest and how confident are you that they will work?”

How would they advise Grafton to prevent post-mortem owners of her copyrights from licensing her books for dramatization in film? Copyright is intellectual property which, like real property, can be conceived as a bundle of rights, a bundle that can be disaggregated into separate “twigs” by its owner. Students who have studied copyright might suggest splitting off the screen rights from the rest of the copyright. To assure that those rights will be enforced against infringers, the rights could be assigned to an institutional owner who will have incentives to prevent unauthorized filming.  The owners of the balance of interests in the copyrights, whether her family or third parties, will be able to profit from the copyrights without violating Grafton’s injunction.

But even though Grafton has strong views about how her work is to be exploited, she may be reluctant to part with any of her control while she is alive. After all, she may change her mind. She may prefer to retain the potential to license screening while she is alive but wish to extinguish it only after death.

The attempt to control the post-death use of one’s property is a familiar objective in the law of trusts and estates, where lawyers are trained to devise ways to achieve dead hand control for their living clients but are also trained in the difficulties that such devices may raise.  Students who have studied trusts might suggest transferring Grafton’s copyrights to an inter vivos trust, administered by a trusted person or an institutional trustee who will be instructed exactly how to manage the copyrights, including the prohibition against ever licensing them for filming. The trustee would collect royalties and other income generated by the copyrights and disburse it to the income beneficiaries, presumably Grafton’s family. The trust would last for the statutory duration of the copyrights. There would seem to be no residual interest at the end of the trust.

But an immediate transfer of her copyrights to a trust might not be acceptable to Grafton. Most clients active in businesses want to retain complete control of their business property and are reluctant to transfer their property to a trust before they die. If sufficient control cannot be achieved by an inter vivos trust, the best trust solution might be a testamentary trust that arises only upon the death of the settlor but that would otherwise provide the same protection.

The trust seems to be the best solution to Grafton’s problem. An inferior option would be to make conditional testamentary gifts of the copyrights, subject to conditions that would effectively prevent the copyrights from being licensed for prohibited purposes. This strategy invokes some of the principles of future interests that are studied in property law. But conditional testamentary gifts are very difficult to enforce against disobedient heirs for a host of reasons, both practical and theoretical. Indeed, the chief advantage of trusts is to avoid such problems. This may lead most students of trust law to resent all the effort they expended memorizing the law of future interests in Property class.

All of the students who have studied decedents’ estates would warn Grafton that if she dies intestate having failed to dispose of her copyrights in life, the copyrights will simply descend to her heirs under the laws of intestate succession, and subject to any special provisions of The Copyright Act.

But contract, copyright, and trust law are not by any means the only relevant fields. Students who have taken family law would caution that any attempt by will to divest a spouse of an interest in a copyright might fail on two grounds. The copyrights may be community property in which the surviving spouse owns 50% regardless of the decedent’s will. In a non-community property state, then, depending on the value of the copyrights in relation to the rest of her estate, they may be property as to which the disinherited spouse has an elective share, e.g. of 33%. Elective share rights can usually be defeated only by inter vivos transfers. These rights may also complicate the attempt to transfer the copyrights to a testamentary trust.

As noted above, to transfer ownership of the copyrights directly to the family will also subject them to the claims of creditors of the family members and possibly result in their transfer to those creditors or to a bankruptcy trustee. Those new owners of the copyrights will of course be free to exploit them in any way they choose. This risk also argues for a trust solution to the problem, where creditors will be able to attach only the beneficial interests of the heirs and not the trust property itself.

The attempt to enforce promises relevant to a copyright might need to be secured by a security interest in the copyright, whose validity will be determined by Article 9 and the Copyright Act.

And always waiting in the wings are students who have studied tax law, especially estate and gift taxation. They will caution that all of these transactional solutions to Grafton’s problem may have favorable or unfavorable tax consequences to Grafton and her heirs. Both income and gift and estate tax considerations may be relevant. Failure to consider tax consequences is a common form of estate planning malpractice and might equally be malpractice even by the lawyer who never studied tax in law school because she thinks of herself as practicing contract law rather than estate planning.

Finally, class discussion of Grafton’s case should also invite comment from students of jurisprudence. I believe that it shows that law, like art, can sometimes permit a person to achieve a form of immortality, or at least to cheat death for a bit.  Ars may be longa, and vita may be brevis, but copyright lasts for vita+70 years.

Lessons of the Case for Law School Curricula: Students who are taught to take a client-centered, transactional approach to the practice of law will soon learn that a negotiated, contractual agreement is only one of many legal mechanisms or tools that can be used to achieve a client’s goals. Often it is not the best one. In the bloom and buzz of practice, client problems will usually not come neatly siloed in ways that conform to the law school curriculum divisions.

Creating the best solution for even the simplest client problem requires an understanding of many different legal domains. The ability to spot the myriad legal issues involved must come from knowledge the lawyer has when the problem is presented. At the issue spotting stage, there is no time to learn tax law or trust law when on an “as needed” or “just in time” basis. A lawyer unfamiliar with the entire gamut of private law will be unable to give good advice. In this age of “curriculum reform” in which students are studying less and less “doctrinal” law before graduation (sometimes with the misleading assurance that they can learn it later), that is particularly worrisome.

Post Script.

To a hammer everything looks like a nail. A lawyer engaged to resolve Grafton”s problem would naturally proffer a legal solution using one of the strategies mentioned above. But what if the lawyer went beyond a legal solution and asked Grafton why exactly she wanted to prevent the dramatization of her characters. The lawyer could remind her not only of the income that movies could generate but also of the vastly broader audience for her work and likely stimulus for her book sales.

And dramatization need not lead to disappointment with the product. Many great mystery writers have seen their characters brought to the screen with great success. The literary reputations of Agatha Christie, Erle Stanley Gardner and John Mortimer have only been enhanced by actors’ distinctive representations of Hercule Poirot, Jane Marple, Perry Mason, and Horace Rumpole. In some of these cases, the authors had significant input into the filming of their work.

Grafton’s experience as a screenwriter had taught her that a novel could be butchered by Hollywood ending up unrecognizable to the author. What if there was a way that she could supervise the video representation with approval not only of the script but the actors? Perhaps she could make a deal with someone she trusted to bring her work to life with fidelity to her conceptions.

Any lawyer who is asked to provide a legal solution to Grafton’s problem should have this discussion. But where in law school does a fledgling lawyer learn to ask such questions or to make such suggestions? Aside from courses in estate planning, where such interrogation of a testator may be common, law school rarely trains lawyers to look for non-legal solutions to client problems.  Perhaps, like medical schools, law schools should become more oriented toward representing the whole client. Law students should be taught not only to look for non-legal solutions to problems but to draw on their knowledge and experience in helping their clients.

And even when the solution to a client’s problem might be clear, there remains uncertainty. Before his death, Franz Kafka sent a letter to his friend and publisher Max Brod commanding him to burn all of his unpublished manuscripts when he died. Both men were lawyers. After Kafka died, Brod ignored his friend’s injunction and arranged for the completion and publication of The Trial and The Castle and other works that Kafka hoped would never see the light of day. Brod rationalized his disobedience by arguing that Kafka must surely have known that, as his greatest admirer, Brod would never be able to bring himself to burn any of Kafka’s work. Therefore, Brod reasoned, Kafka must not have really intended his order to be obeyed.

Whether this was a subtle and impressive interpretative strategy or a slick piece of self-justifying rhetoric, whether it was an act of fidelity or betrayal, the world seems not to care: we are all indebted to Brod for frustrating his friend’s last wish and so share in his guilt. The world of mystery fans may similarly profit from the frustration of Grafton’s wishes for dead hand control of her work.

A Two-Part Post from Sid Delong

“D” is for Dead Hand Control
Sidney W. DeLong

Art may be immortal, but artists must all die: ars longa, vita brevis. Yet, a little piece of the artist survives in immortal artwork, and an artist in contemplation of death might hope to preserve that little piece unchanged for as long as her art survives. Unfortunately, artists seeking to control the form and treatment of their art after their death have few options. Generally, the future owner will have complete control over the work, except to the extent they may be restrained by a droit moral from mutilating or changing it.  See Joachim Pierer, Authors’ Moral Rights after Death: The Monistic Model of German Law, Austrian Law and the Revised Berne Convention.  

Otherwise, artists must generally trust to the good faith of the owners of their work to preserve their creations. As an example of a failed attempt at dead hand control, consider the late Sue Grafton, wildly successful author of the alphabet series of mystery novels beginning with “A” is for Alibi.

Before writing the series, Grafton had seen one of her earlier novels made into a movie and, according January Magazine, she thought it “terrible.”  

She then had a brief career as a screenwriter, where she saw the damage that could be inflicted on a novel when it fell into the hands of screenwriters and directors: She was determined that her alphabet series would not suffer the same fate. Most especially she did not want any actor’s face to displace her readers’ images of her fictional protagonist Kinsey Millhone:

I will never sell [Kinsey] to Hollywood. And, I have made my children promise not to sell her. We've taken a blood oath, and if they do so I will come back from the grave: which they know I can do. They're going to have to pass the word on to my grandchildren: we do not sell out our grandma. I just will not let them touch her. I've trashed other writers, I'm not gonna let them have a crack at me.

Nice try. According to deadline.com, a mere two years after her death in 2017, her family cashed in, licensing her alphabet books in 2021 to A&E for a television series. 

Many Grafton fans are furious at the cold-blooded violation of her wishes. How would a first-year contracts class answer their question of whether the Grafton blood oaths are legally enforceable?

The class would first take the perspective of a litigator and from that perspective the answer is unclear. We do not know whether the family’s promises were enforceable as bargain contracts with consideration. She may have given consideration for the promises by saying: “I promise to leave my copyrights to you when I die but only if you promise me that you will never license any of the alphabet series for dramatization.” In the unlikely event that she had the foresight to make this deal, then she would have given consideration for their return promises.  

In the absence of such a bargain, it is unlikely that the promises are enforceable under a theory of promissory estoppel, which enforces non-bargain promises to the extent necessary to prevent injustice. Even if Grafton did foreseeably rely on them in some way in life, as e.g. by failing to make other provision for the administration of her copyrights, where is the “injustice” in breaching a promise that harms only a dead person? And to whom will reliance damages be awarded?

Finally, the broken promises may ground a claim in restitution, premised on the theory that it is unjust for the family to profit from their own wrongdoing by ownership of the copyrights, a gift they accepted on condition that they keep their promises. Unfortunately, if they must return the copyrights to the estate under this theory then the family will probably reacquire them as proceeds of Grafton’s estate that did not descend by her will.

Many would agree that Grafton’s husband and children were morally obligated to perform their blood oaths and to respect her wishes, but every first year law student knows that mere moral obligation does not constitute valid consideration in modern contract law.  “The Forum of Conscience” issues no enforceable writs.

Grafton’s fans might reasonably ask whether the family’s promises should not be legally enforceable as “blood oaths.” Sadly, very few promises are made legally enforceable by form or ceremony alone. However, although the blood oath theory has not yet been recognized as a legal basis of enforcement, perhaps it should be. A blood oath accompanied by the promisee’s threat to haunt the oath-giver if the oath is breached certainly seems to fit the cautionary, evidentiary, and “channeling” functions we seek from contractual formalities. Perhaps recognition of the blood oath awaits the next Restatement.

Taking the other perspective that we urge contracts students to take, suppose they looked at the problem from the other end, as a planning problem rather than as a litigation problem:

“You are counsel to Sue Grafton. She wants to make sure that none of her alphabet series is ever adapted for the screen after her death. What solutions can you suggest and how confident are you that they will work?”

Contracts students will naturally think of a contract solution: To a hammer, everything looks like a nail. Their first job is to create an enforceable promise by means of a bargain with consideration. In return for the family’s promises, Grafton might give consideration in the form of a cash payment or a promise to convey the copyrights. The exchange could be memorialized in a signed contract. Grafton could be assured that a bargain contract is more enforceable than a blood oath and that an order of specific performance enforceable by civil contempt is more threatening than a haunting.

But will the creation of an enforceable contract really solve Grafton’s problem of post-death control of her work? What will become of Grafton’s personal contract rights against her family when she dies? The class should be able to answer this one from having read the many canonical contract cases involving post-death claims and defenses.  Hint: Grafton’s inter vivos contracts will not become legally enforceable by her ghost. At death, all of a decedent’s executory contract rights will first become part of her estate to be administered by her executor. Then they will be distributed (along with the copyrights and other property) to her legatees, her husband and children. But these are the very people against whom the contract claims exist! Whether or not contract rights are extinguished by merger in such a case, the contracts will never be enforced unless one of the legatees has a financial or moral incentive to enforce Grafton’s rights against the others. Their behavior in the actual case suggests that their financial interests outweighed their moral ones.

A second problem with the contract solution also looms. Even if her legatees are all willing to perform their promises, the promises remain effective only for so long as the promisors continued to own the copyrights, which will continue for 70 years after Grafton’s death. The family’s promises would not bind any third parties who may acquire ownership of the copyrights, whether in a voluntary sale or an involuntary transfer, e.g. to a bankruptcy trustee or judgment lien creditor. Most especially, they will not bind their unborn grandchildren, who have never promised grandma anything. In the language of real property law, the covenant preventing filming will not “run with” the copyright.

A final problem with the contract solution lies in the insufficiency of the promise to achieve the desired result. A copyright must be enforced in order to be effective. The family’s promise not to sell the work is useless to Grafton if they will not also promise to enforce her copyright by preventing infringing movies.  

So the students in Contracts class must learn a bitter lesson. Sometimes a hammer is not the best tool for the job. This brief analysis suggests that Grafton does not have a contracts problem so much as a property problem whose solution may lie in the thinner curricular air above that breathed by mere One-Ls. By the time they graduate, students should have learned how critical these other doctrines can be to the solution of even the simplest planning problems, as will be seen in the next post.

Tuesday Top Ten - Contracts & Commercial Law Downloads for October 19, 2021

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 20 Aug 2021 - 19 Oct 2021

Rank	Paper	Downloads
1.	Discharging the Discharge for Value Defense Eric L. Talley Columbia University - School of Law	635
2.	The Property Law of Tokens Juliet M. Moringiello and Christopher K. Odinet Widener University - Commonwealth Law School and University of Iowa - College of Law	323
3.	The New Formalism in Private Law Paul B. Miller Notre Dame Law School	286
4.	Should Gatekeepers Be Allowed to Combine Data? - Ideas for Art. 5(a) of the Draft Digital Markets Act Rupprecht Podszun Heinrich Heine University Dusseldorf - Faculty of Law	265
5.	Contracts in Code? Dr Eliza Mik and Dr Eliza Mik The Chinese University of Hong Kong (CUHK) - Faculty of LawTILT	196
6.	High-End Bargaining Problems William W. Clayton Brigham Young University - J. Reuben Clark Law School	159
7.	Arthur Linton Corbin Gregory Klass Georgetown University Law Center	145
8.	Dark Contracts Samuel Becher and Uri Benoliel Victoria University of Wellington and College of Law and Business - Ramat Gan Law School	141
9.	Narrative Capacity James Toomey Harvard University - Harvard Law School	97
10.	The “Code Adjudicator” Model: The Pubs Code, Statutory Arbitration and the Tied Lease Jed Meers and Liz Hind University of York, York Law School and University of York	93

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 20 Aug 2021 - 19 Oct 2021

Rank	Paper	Downloads
1.	Discharging the Discharge for Value Defense Eric L. Talley Columbia University - School of Law	635
2.	Arthur Linton Corbin Gregory Klass Georgetown University Law Center	145
3.	Dark Contracts Samuel Becher and Uri Benoliel Victoria University of Wellington and College of Law and Business - Ramat Gan Law School	141
4.	Narrative Capacity James Toomey Harvard University - Harvard Law School	97
5.	The “Code Adjudicator” Model: The Pubs Code, Statutory Arbitration and the Tied Lease Jed Meers and Liz Hind University of York, York Law School and University of York	93
6.	Artificial Intelligence and Agents Daniel Kiat Boon Seng and Cheng Han Tan Director, Centre for Technology, Robotics, AI and the Law, Faculty of Law, National University of Singapore and City University of Hong Kong (CityU) – School of Law; Centre for Public Affairs and Law; Centre for Chinese and Comparative Law	69
7.	An Impending 'Avalanche': Debt Collection and Consumer Harm after COVID-19 Lucinda O'Brien, Vivien Chen, Ian Ramsay and Paul Ali Melbourne Law School, Monash University - Department of Business Law & Taxation, Melbourne Law School - University of Melbourne and University of Melbourne - Law School	57
8.	Diversity, ESG, and Latent Board Power Gregory H. Shill and Matthew Strand University of Iowa College of Law and affiliation not provided to SSRN	55
9.	Intelligent Legal Tech to Empower Self-Represented Litigants Amy J. Schmitz and John Zeleznikow University of Missouri School of Law and Victoria University - Victoria University of Technology	52
10.	Data Protection in the Big Data Era: The Broken Informed Consent Regime and the Way Forward Alex Yueh-Ping Yang National Taiwan University - College of Law	39

 

NBA Player Agent Cannot Sue as Third-Party Beneficiary

Image by Tdorante10 - CC BY-SA 4.0 

District Judge Jed Rakoff of the Southern District of New York recently decided a juicy third-party beneficiary claim.  The link is not publicly available yet, but look for it coming soon.  Plaintiff David Lee is a player agent certified by the National Basketball Players Association (NBPA), the NBA players’ union.  Lee had arranged to represent Mitchell Robinson (right), at the time a potential NBA draftee. Defendant Raymond Brothers is also a NBPA-certified agent.

All NBPA-certified agents must sign a "certification agreement," which states the agents agree to all NBPA’s regulations, including a rule against agents giving monetary incentives to induce a player to hire them.

Lee claimed that Brothers breached this NBPA regulation by enticing Robinson—with the inducement of a Chevrolet Silverado pickup truck—to end his contract with Lee and sign a new player agent contract with Brothers instead. Lee alleged that Brothers’ conduct put him in breach of his contract with the NBPA, and Lee sought damages as a third-party beneficiary. Robinson had signed a multi-year contract with the New York Knicks.  Lee claimed entitlement to the commission he would have received had the contract with Robinson not ended three months before the draft season.  I will resist the temptation to make jokes about the Knicks here.  I'm a Bulls fan.  Glass houses, etc.

Lee’s third-party beneficiary claim relied on language from Section 3.B.2 of the NBPA agreement, which he characterized as an anti-poaching provision intended to protect agents from unscrupulous behavior such as that alleged in the complaint.  Indeed, who is going to enforce the prohibition on monetary inducements if not jilted agents?

On October 6^th, in Lee v. Raymond Brothers, Judge Rakoff rejected Lee's third-party beneficiary argument and dismissed counts I and II of his complaint which were based on that alleged status. Quoting its prior ruling in In re George Washington Bridge Bus Station Dev. Venture LLC, Judge Rakoff reiterated that under New York law, a person is a third-party beneficiary of a contract where (1) there is a valid and binding contract between the contracting parties, (2) that contract "was intended for the third party's benefit," and (3) the benefit to that third party "is sufficiently immediate to indicate the assumption by the contracting party of a duty to compensate the third party if the benefit is lost."

In this instance, as in Piccoli A/S v. Calvin Klein Jeanswear Co., a plaintiff cannot recover as a third-party beneficiary where the contract showed that the parties’ intent was to limit the power of enforcement to themselves. Section 3.B.2 states an intent to protect players from agent abuse and contains no statement of intent to benefit agents. The players were the NBPA’s intended beneficiaries, and the NBPA, not agents, was the intended enforcer of the regulations.

Lee’s additional claims, for tortious interference with Lee’s contract and business relationship with Robinson, were dismissed because one cannot tortiously interfere with a contract terminable at will.  The contract between Lee and Robinson allowed either party to terminate with 15 days’ notice. Although Robinson did not provide the requisite notice, even if he had, the draft season was still months away and Lee’s prospects of a commission still would have been long gone had he given notice.  As a result, Lee failed to allege any harm as a result of Brothers’ alleged wrongful offer to Robinson.

Finding that Lee was not an intended third-party beneficiary of NBPA contracts with other agents, the Court granted Brothers' motion and dismissed Lee's amended complaint with prejudice.

H/T to Alyssa Cross, the ContractsProf Blog's research assistant!

Weekend Frivolity: Steve Vladeck Meme Caption Contest

Since the very idea for weekend frivolity came from Steve Vladeck and Bobby Chesney's wonderful National Security Law podcast, it seems highly appropriate to celebrate Steve's memification in this forum.  Please enter your proposed captions to the Steve Vladeck meme in the comments.  Thoughtful people be warned: the comments page refreshes frequently and will delete your comments.  Draft in Word and then cut and paste before posting!

If we get enough entries (i.e., more than one), we can do a Twitter poll and the winner will get bragging rights.

Here's the meme:

May the best caption win!

(Belated) Tuesday Top Ten - Contracts & Commercial Law Downloads for October 13, 2021

We may be a day late, but we're certainly not a dollar short, with appearances by formalism, bargaining, corporate governance, and even property in this week's SSRN top downloads! Take a look for yourself:

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 14 Aug 2021 - 13 Oct 2021

Rank	Paper	Downloads
1.	Discharging the Discharge for Value Defense Eric L. Talley Columbia University - School of Law	622
2.	The Property Law of Tokens Juliet M. Moringiello and Christopher K. Odinet Widener University - Commonwealth Law School and University of Iowa - College of Law	282
3.	The New Formalism in Private Law Paul B. Miller Notre Dame Law School	274
4.	Contracts in Code? Dr Eliza Mik and Dr Eliza Mik The Chinese University of Hong Kong (CUHK) - Faculty of LawTILT	183
5.	High-End Bargaining Problems William W. Clayton Brigham Young University - J. Reuben Clark Law School	148
6.	Arthur Linton Corbin Gregory Klass Georgetown University Law Cente	141
7.	Dark Contracts Samuel Becher and Uri Benoliel Victoria University of Wellington and College of Law and Business - Ramat Gan Law School	130
8.	Narrative Capacity James Toomey Harvard University - Harvard Law School	91
9.	The “Code Adjudicator” Model: The Pubs Code, Statutory Arbitration and the Tied Lease Jed Meers and Liz Hind University of York, York Law School and University of York	88
10.	An Economic Analysis of Restitution for Mistaken Payments Dhammika Dharmapala and Nuno Garoupa University of Chicago Law School and George Mason University - Antonin Scalia Law School, Faculty	78

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 14 Aug 2021 - 13 Oct 2021

Rank	Paper	Downloads
1.	Discharging the Discharge for Value Defense Eric L. Talley Columbia University - School of Law	622
2.	Arthur Linton Corbin Gregory Klass Georgetown University Law Center	141
3.	Dark Contracts Samuel Becher and Uri Benoliel Victoria University of Wellington and College of Law and Business - Ramat Gan Law School	130
4.	Narrative Capacity James Toomey Harvard University - Harvard Law School	91
5.	The “Code Adjudicator” Model: The Pubs Code, Statutory Arbitration and the Tied Lease Jed Meers and Liz Hind University of York, York Law School and University of York	88
6.	תום לב: עיון מושגי השוואתי Good Faith: A Comparative Conceptual Study Benjamin Porat Hebrew University of Jerusalem - Faculty of Law	72
7.	Artificial Intelligence and Agents Daniel Kiat Boon Seng and Cheng Han Tan Director, Centre for Technology, Robotics, AI and the Law, Faculty of Law, National University of Singapore and City University of Hong Kong (CityU) – School of Law; Centre for Public Affairs and Law; Centre for Chinese and Comparative Law	58
8.	An Impending 'Avalanche': Debt Collection and Consumer Harm after COVID-19 Lucinda O'Brien, Vivien Chen, Ian Ramsay and Paul Ali Melbourne Law School, Monash University - Department of Business Law & Taxation, Melbourne Law School - University of Melbourne and University of Melbourne - Law School	52
9.	Diversity, ESG, and Latent Board Power Gregory H. Shill and Matthew Strand University of Iowa College of Law and affiliation not provided to SSRN	49
10.	Intelligent Legal Tech to Empower Self-Represented Litigants Amy J. Schmitz and John Zeleznikow University of Missouri School of Law and Victoria University - Victoria University of Technology	39

Contracts Prof Blunders into Constitutional Law

We take a break from our usual programming to provide this bit of shameless self-promotion:

Jeremy Telman on Eric Segall's Supreme Myths Podcast 

Or if you would like the full video experience (cat cameo included), there this version

 

 

Guest Post from Ohad Somech: Incorporating Different Voices into Digital Platforms

Ohad Somech
Doctoral Student in the Zvi Meitar Center for Advanced Legal Studies in Tel-Aviv University

In a series of articles, Stephen Burgen of The Guardian reported on the struggle of chambermaids in Spanish hotels to encourage digital platforms, such as TripAdvisor and Booking.com, to factor working conditions into their hotel rankings. When the platforms ignored their appeals, the chambermaids resolved set up an independent booking platform. Work is already underway, with a crowdfunding campaign exceeding the €60,000 target.s

A Chambermaid

Reading of the chambermaids’ triumph I was delighted, not only for them, but also because this was a great instance of theory coming to life. In Voicing the Market, Roy Kreitner explores a new movement in contract theory. He begins with the observation that contract theory is divided into two bodies of scholarship that, as Judy Kraus has noted, “passed each other like ships in the night.” The first type of scholarship, associated with legal realism, is dedicated to the relation between contracts and markets. The second, originating with Charles Fried’s Contract as Promise, seeks to ground contract law in personal morality.

It is only recently, Kreitner suggests, that contract scholars began to envision the contract-markets-morality triangle as a single theory. Alan Brudner, Daniel Markovits, and Nathan Oman have each independently sought to incorporate both personal morality and markets into their theories of contracts. Kreitner identifies the common denominator in all three works to be markets, and the pricing mechanism in particular, as allowing contracting parties to enter into agreements without first having to discuss what makes the traded thing valuable. In Kreitner’s words “prices are the public, shared face of valuation, which can be conducted without discussion, without dissention, without politics.”

By aggregating information from dispersed transactions, markets represent the moral accomplishment of allowing mutual recognition and collaboration without requiring parties to share similar values and beliefs. But, Kreitner goes to ask, is bracketing our disagreement about values truly a virtue? His answer is that bracketing may be desirable in well-functioning, competitive, or ideal markets, but not in many real-world ones.

In bracketing values and fixating on price and quality, markets offer us the option of participating or exiting. But many market actors, such as the Spanish chambermaids, want their voices to be heard as well. Indeed, rather than bracket valuation of working conditions, the chambermaids want every tourist to be confronted by them. Some may shrug off the information, but for others – including, I suspect, many of the blog’s readers – staying at hotels that mistreat their staff would be a non-starter.

And there is an even bigger picture to consider. The relationship between platforms and their commercial users is notoriously complex, not least because of the multiple functions served by platforms. One such function, Rory Van Loo suggested, is as conscripted regulators of the market that they constitute (e.g., the hotel market). Thus, one lesson from the chambermaids’ story is that, at least when it comes to working conditions, platforms have dropped the ball (if not forgot all about it).

Guggenheim, Bilbao, image by PA

However, were the chambermaids to succeed, platform may be pressured to do what they initially refused to do and include working conditions in their ranking. Imagine Amazon requiring sellers on the platform to provide it with information on working conditions (or environmental impact) and incorporate that information into Amazon’s ranking system. Though this may seem like a pipedream at the moment, initiatives like that of the chambermaids in Spain may bring it closer to reality. The other lesson from the story, then, is that platforms are ideally placed to offer a voice to market actors who are rarely given one, and we should encourage the platforms to do so.  

So, whenever we can (safely) travel to Spain again, don’t forget to visit the chambermaids’ (forthcoming) website and make sure you are satisfied with the working conditions at the hotel where you are staying.

Weekend Frivolity: The Is-a-Taco-a-Sandwich Debate!

The following clip is full of things I hate:

1. Taco Bell
2. Formal debates
3. Popular culture parodying academic discourse
4. The debate over whether a taco (or a wrap or a reuben or an oreo cookie or an accordion or whatever) is a sandwich
5. TV commercials (unless they are GEICO commercials)

But when you combine all of these things, it somehow creates the ideal clip for frivolity!

By the way, the answer is that a sandwich has to be food, so sorry Taco Bell!

H/T Texas A&M School of Law Professor Wayne Barnes

At Last, A COVID-Related Breach Case that Might Succeed!

There have been innumerable force-majeure type suits brought on by COVID-19.  This one might have a shot, because of one-sided cancellation provisions.  Plaintiffs, Jasmine and Robert Nicholson, have filed a class action lawsuit in the Court of Common Pleas of Pennsylvania against Defendant Wurzak Hotel Group Mark LLC (Wurzak), which operates the Hilton Philadelphia City Avenue and the Sheraton Valley Forge.

Plaintiffs allege that  they paid a  $10,000.00 deposit two years in advance in order to reserve space at the Philadelphia Hilton in September 2020.  When Pennsylvania Gov. Tom Wolf declared an emergency due to the COVID-19 pandemic in March 2020, Plaintiffs’ wedding as envisioned could not legally take place. Wurzak remained hopeful that the Governor would ease restriction by September 2020 and urged Plaintiffs to reschedule their wedding in lieu of a refund. But the Governor did not ease restrictions until May 2021, and even then wedding venues were to operate  at 25% venue capacity, well below the Plaintiffs’ 175 minimum guest count.

Plaintiffs sought a refund of their deposit, relying on the following contractual provision:

After being denied a refund, Plaintiffs held a smaller wedding ceremony in Delaware, where there were fewer restrictions.

A Typical Philly Wedding

Plaintiffs’ complaint (register for free to view) alleges that the purported class may include more than 500 individuals who had events booked during the 15 months of pandemic closures from March 2020 to June 2021.  According to the complaint, Wurzak refused to offer refunds but instead assured class members that they could reschedule once COVID restrictions were lifted. 

Plaintiffs assert three claims: breach of contract, unjust enrichment, and violations of state unfair trade practices and consumer protection statutes.  Plaintiffs stress the unfairness and one-sidedness of the agreement.  The venue can cancel and offer a refund, but plaintiffs cannot cancel in similar circumstances. 

I admit, I don’t understand why the disparity is even an issue.  Plaintiffs wanted to have their wedding in September 2020 as planned, but the city’s ban on events made that impossible.  They couldn’t have their wedding; the venue couldn’t host the wedding.  This seems to be precisely the situation contemplated under Paragraph 6 of the agreement, and the venue seems obligated to offer a refund. 

I don’t know how else to read the paragraph. It is a sensible provision and is not actually one-sided.  People cancel their wedding plans all the time.  It is understandable that the venue would not want to refund deposits every time one party backs out, or a family death makes a wedding celebration ill-timed, or a car accident renders one or both celebrants unable to attend.  Contracts are risk allocation devices, and the people renting the venue bear the risk of cancellation.

But Paragraph 6 is about the venue being unavailable.  The venue was unavailable.   On a reading of the plain language of Paragraph 6, Wurzak should return the deposit.  I suspect that the plaintiffs did not notice Paragraph 6 until they had already sought to cancel and re-book, but the court should not allow unwitting plaintiffs to be victimized by such a trap for the unwary.  

H/T to @Hoffprof for alerting us to the case and to Alyssa Cross for her research assistance.

Squid Game, Contracts and Consent

I’ve been a bit negligent in my blogging duties as I’ve been busy with the start of classes (I’m teaching Torts this semester, hence my use of the word “negligent”).  So, when my daughter recommended that I watch Squid Game, I scoffed and self-importantly told her that I’m too busy to even post on the contractsprofblog let alone watch a scary Korean thriller (believe me, Koreans make some scary thrillers – it’s not all just Parasite and Train to Busan). For those of you who aren’t on Tik Tok (I know there are one or two of you out there), Squid Game is the insanely popular, meme-worthy, Korean thriller which is one of Netflix’s biggest hits ever.    But then she told me that Squid Game might be a scary-a** thriller but it’s also and more importantly for blogging purposes, a show about contracts and consent.  Contracts and consent?  My two favorite topics!  So, in the name of research, I pulled myself away from my course prep and forced myself to watch the first episode of Squid Game.  And lo and behold, my daughter was right.  It’s all about contracts and consent -- and also the role of money in bargaining power and “bodily integrity transactions” and a whole host of other things relevant to this blog.

(Some spoilers ahead)

The hapless protagonist is a loving father who is a mess of a human being (he steals money from his mother to bet on horse races and doesn’t seem to exhibit the traits of a rational actor – you know this will end in a bad contract for him as a result).  He loses then wins at the races, and then gets beaten up by thugs to whom he owes a lot of money who then force him under threat of physical injury to sign a waiver of his “physical rights,” meaning that they’ll take his kidney if he doesn’t pay up.  (Duress alert!  That contract is void).  He’s desperate for money and gets even more desperate when he learns that his daughter is going to move to the U.S. because her step-dad just got a job there and the only way to keep her in Korea is by making enough money to support her.  This is the “hard luck” bargaining situation that contracts scholars worry about – and one where I think it is hard to find robust consent.  He then meets a well-dressed stranger with whom he plays an even stranger game (it involves money for winning and getting slapped for losing), and then after a few twists and turns, he wakes up in a giant gym-like room in a jumpsuit with dozens of others dressed like him.  They are all made an “offer” to participate in a game, but they know nothing about what the game entails except that there is a very large prize for the winner.  The freakily masked game officials want to ensure that everyone plays the game of their own “free will” even though it is clear that the one thing they all have in common is that they are all suffering under the weight of crushing debt and being harassed by aggressive debt collectors. 

Before they can play the game, they must sign a ‘Player Consent Form” which is your standard adhesive contract offered on a take it or leave it basis.  But unlike the ubiquitous TOS, there are only 3 provisions on this form.  No hidden terms, so no problem, right?  WRONG -- Oh man, so wrong! The first clause says that the Player is not allowed to stop playing although the third clause says the Games may be terminated if the majority agrees.  The second clause says that the Player who refuses to play will be eliminated. But the terms are ambiguous, don’t you think?  Who is the “majority”?  Is it the majority of the participants or the freakily masked officials?  What happens if a Player stops playing?  Most importantly how will the Player be eliminated?  The protagonist hesitates but instead of listening to that voice of doubt (aka the voice of reason) and insisting on getting some clarity about what the terms actually mean (where’s the Definitions section?), he looks around, sees the folks around him sign the contract without a second thought, and then exhibits herd mentality when he signs on the dotted line  “Just because everyone else Clicks to Agree doesn’t mean you have to, does it?”  That scene demonstrates once again that the rational actor is a rare (non-existent) creature indeed, especially if you have money troubles, peer pressure, physical fatigue and optimism bias.  I won’t reveal what happens next, except to say that as with all contracts, the interpretation of the terms makes all the difference in the world and I think it’s fair to say, the contract did not meet the reasonable expectations of the parties.  Talk about unconscionable contracts.

My daughter tells me that Episode 2 has even more contract stuff in it.  But to be honest, I’m still recovering from the abuse of bargaining power and the rampant lack of robust consent in Episode 1. 

Tuesday Top Ten - Contracts & Commercial Law Downloads for October 5, 2021

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 06 Aug 2021 - 05 Oct 2021

Rank	Paper	Downloads
1.	Discharging the Discharge for Value Defense Eric L. Talley Columbia University - School of Law	609
2.	The New Formalism in Private Law Paul B. Miller Notre Dame Law School	264
3.	Arthur Linton Corbin Gregory Klass Georgetown University Law Center	136
4.	Dark Contracts Samuel Becher and Uri Benoliel Victoria University of Wellington and College of Law and Business - Ramat Gan Law School	115
5.	Narrative Capacity James Toomey Harvard University - Harvard Law School	82
6.	An Economic Analysis of Restitution for Mistaken Payments Dhammika Dharmapala and Nuno Garoupa University of Chicago Law School and George Mason University - Antonin Scalia Law School, Faculty	77
7.	Between Rights and Rites: The Ironies of Crisis and Contract Jeffrey M. Lipshaw Suffolk University Law School	73
8.	Too Long; Didn't Read: Finding Meaning in Platforms’ Terms of Service Agreements Michael Karanicolas UCLA Institute for Technology, Law & Policy	68
9.	Liberal Property and Just Markets Hanoch Dagan Tel Aviv University - Buchmann Faculty of Law	68
10.	The Corporate Contract and the Internal Affairs Doctrine Mohsen Manesh University of Oregon School of Law	61

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 06 Aug 2021 - 05 Oct 2021

Rank	Paper	Downloads
1.	Discharging the Discharge for Value Defense Eric L. Talley Columbia University - School of Law	609
2.	Arthur Linton Corbin Gregory Klass Georgetown University Law Center	136
3.	Dark Contracts Samuel Becher and Uri Benoliel Victoria University of Wellington and College of Law and Business - Ramat Gan Law School	115
4.	Narrative Capacity James Toomey Harvard University - Harvard Law School	82
5.	The Mysterious Market for Post-Settlement Litigant Finance Lynn A. Baker, Ronen Avraham and Anthony J. Sebok University of Texas School of Law, Tel Aviv University - Buchmann Faculty of Law and Yeshiva University - Benjamin N. Cardozo School of Law	78
6.	Between Rights and Rites: The Ironies of Crisis and Contract Jeffrey M. Lipshaw Suffolk University Law School	73
7.	תום לב: עיון מושגי השוואתי Good Faith: A Comparative Conceptual Study Benjamin Porat Hebrew University of Jerusalem - Faculty of Law	71
8.	Too Long; Didn't Read: Finding Meaning in Platforms’ Terms of Service Agreements Michael Karanicolas UCLA Institute for Technology, Law & Policy	68
9.	An Impending 'Avalanche': Debt Collection and Consumer Harm after COVID-19 Lucinda O'Brien, Vivien Chen, Ian Ramsay and Paul Ali Melbourne Law School, Monash University - Department of Business Law & Taxation, Melbourne Law School - University of Melbourne and University of Melbourne - Law School	40
10.	Diversity, ESG, and Latent Board Power Gregory H. Shill and Matthew Strand University of Iowa College of Law and affiliation not provided to SSRN	38

Scarlett Johansson Settles Black Widow Suit

As Sid Delong noted in his post about the case from August, Ms. Johannson's litigation strategy was unusual and a bit mysterious.  She sued Disney for tortiously interfering with her contractual relations with Marvel, a Disney subsidiary, without suing Marvel for breach of contract.  The case was catnip for law profs interested in contracts, torts, remedies, the Marvel movies, and Ms. Johansson.

Alas, as is so often the case, Ms. Johansson settled her claims against Disney.  The details of the settlement have not been made public.  However,  in separate statements, the parties seem to have decided to kiss and make up.      

As reported on the BBC, Disney's content chairman said of Ms. Johansson, "We appreciate her contributions to the Marvel Cinematic Universe and look forward to working together on a number of upcoming projects," and he proceeded to plug a forthcoming movie.  Even though the report is on the BBC, let's not forget that Disney owns ABC, so it never forgets to Always Be Celling.  

For her part, Ms. Johansson, whose Black widow character is a Russian assassin turned Avenger, said "I'm incredibly proud of the work we've done together over the years and have greatly enjoyed my creative relationship with the team."  More of a whimper than a bang.

Will the actor be haunted for sucking up so shamelessly in order to move on with her career, just as the Natasha Alianova character (the Black Widow) is haunted by the fact that in her attempt to assassinate General Dreykov, she gravely injured his daughter, Antonia Dreykov (Taskmaster)?  We're just asking questions here.

That Danish Museum and Joni Mitchell

On her concert album, Miles of Aisles, Joni Mitchell (right and below, petting Buddy in the Oval office) is tuning up, and people are shouting requests at her.  Joni (we've been on a first-name basis since the 70s) is also an accomplished painter and she muses: 

That's one thing that's always, like, been a difference between, like, the performing arts, and being a painter, you know. A painter does a painting, and he paints it, and that's it, you know. He has the joy of creating it, it hangs on a wall, and somebody buys it, and maybe somebody buys it again, or maybe nobody buys it and it sits up in a loft somewhere until he dies. [Joni tends to go to dark places.]  But he never, you know, nobody ever, nobody ever said to Van Gogh, "Paint a Starry Night again, man!" You know? He painted it and that was it. 

And then she proceeds to perform The Circle Game, which I hope she was planning to play regardless of fans' requests.

And yet, for some reason, the Danish Kunsten Museum at issue in Sid's post from earlier today essentially said to the artist, Jens Haaning, "Hey, paint A Starry Night again, man."  Except it wasn't an immortal painting that is etched in the consciousness of every sentient being who has ever had the pleasure of marveling at it, it was a piece of concept art that will be as ephemeral in our consciousness as the last one about which we commented on this blog.

According to the BBC, Haaning was asked to reproduce previous works of art in which he had framed currency representing the annual salary in Denmark and Austria (you can view his previous works here).  That seems like a risky request to make of a conceptual artist interested in the plight of the working man.  Joni Mitchell understood the difference between making fixed works of art and performance art.  She didn't necessarily appreciate people shouting requests at her as though she were some street corner musician playing For Free, but she recognized that it is socially acceptable to ask a musician to play a request but inappropriate to ask a painter or a sculptor to reproduce a work of art (unless the artist is Bob Ross, who re-created each painting thrice!).

Sid DeLong has already covered the legal issues in the Haaning case well.  I think the contract case and the restitution claim are easily separated.  The museum contracted for a conceptual work of art, and it got more than it bargained for.  Mr. Haaning's original work might have caused some sort of stir in the art world, but it was nowhere near as successful as Take the Money and Run, the art of breach of contract as performance.  The success of the work has garnered the museum and Mr. Haaning far more notoriety than they would have gotten from a reproduction of Mr. Haaning's work.  

However, it appears that he never contracted for the right to keep the 530,000 Danish kroner he was supposed to use to make the art.  The title of his blank canvases could be construed as an admission of liability.  Not having seen the documents relating to the deal between artist and museum one cannot be certain, but it is hard to imagine a legal argument for why Mr. Haaning should get to keep the money.

Friend of the blog Mitu Gulati has also published a discussion of The Cheekiest Artist of Modern Times over at Credit Slips.

 

Help Wanted: Widener Law

Widener University Commonwealth Law School in Harrisburg Pennsylvania is seeking an entry-level or lateral tenure-track professor to teach contracts, a two-semester, five-credit course, beginning with the  2022-23 academic year.   For more information about the position and other needs of the law school, please see our position description here at or contact Professor Jill Family, Appointments Committee Chair at jefamily@widener.edu

Sidney DeLong, The Art of the Steal

THE ART OF THE STEAL
Sidney W. DeLong

A recent contract dispute raises some amusing questions about the relationships between art and contract law: Can breach of a contract be a form of modern art? If so, can breach of a contract to provide a work of art itself constitute the promised work of art?

A Danish artist, Jens Haaning, was famous for imaginative art works intended as social commentary. Two of his previous works consisted of real currency pasted into a picture frame, each containing the average annual incomes of Danes and Austrians. The Kunsten Museum of Modern Art (below) commissioned him to recreate these two pieces as part of an exhibition about the labor market entitled “Work It Out.”  Its contract with Haaning provided that he was to receive the equivalent of around $7,000 in expenses plus a government-determined viewing fee. In addition, the Museum gave him the equivalent of $84,000, (534,000 kroner), which he was to attach to the art works as he had previously done. 

By KUNSTEN Museum of Modern Art Aalborg CC BY-SA 3.0,

Shortly afterward, he delivered two empty picture frames, entitled “Take the Money and Run.” As he later explained, he thereby fulfilled his promise of artwork: “The work is that I have taken their money…It’s not theft. It is a breach of contract, and breach of contract is part of the work.” 

If you are unfamiliar with modern art, it may surprise you that the director of the museum admitted that the production was art appropriate to the exhibit about the labor market (illustrating the artist’s labor situation): “I want to give Jens absolutely the right that a work has been created in its own right, which actually comments on the exhibition we have. But that is not the agreement we had.” In other words, it’s good art but it’s a breach of contract. Nevertheless, Kunsten Museum chose to display the empty frames with their title because they were thematic to the exhibit. “It’s a comment on how we all work and it’s probably also a comment on the value of what he creates,” the museum director said. (This post will not address the intellectual property issues raised by this case.)

Whether or not it ends up in court, the dispute prompts some familiar contracts questions in novel dress. The Museum’s claim for return of the money is a familiar claim for restitution, either as a remedy for conversion or for repudiation of the contract. It would argue that it retained ownership of the money that Haaning converted to his own use. The contract seems analogous to one in which a customer supplies gold to a jeweler to form into a necklace for the customer. The customer remains the owner of the gold and if the jeweler refuses to return it, it is liable for conversion.

Haaning argued that taking the money and ripping off the Museum (his “employer”) was “the work,” an artistic performance commissioned by the Museum. He might argue that his contract obligated him to create a work of art “using the cash” he was given and he did precisely that: by taking the cash and refusing to paste it into a frame and return it to the Museum, he converted his own work situation into an act of resistance in solidarity with workers everywhere. As he said, "I encourage other people who have just as miserable working conditions as me to do the same."

A third, more familiar, contracts issue of interest is whether the Museum, by displaying the empty frames, collecting revenue generated by them, and admitting that they make an artistic statement appropriate to the exhibition, thereby waived Haaning’s breach by accepting his performance. The director was quoted as saying "It wasn't what we had agreed on in the contract, but we got new and interesting art." In reply, the Museum may argue that its action was only a mitigation of its damages and in any event, does not eliminate its restitution claim for the missing cash.

Finally, Haaning presents the question whether breach of a contract can be its performance. The paradox of self-referentiality was one of the hallmarks of late 20^th century movements in art and literature, so why should law escape its force? How should a court apply the objective theory of contract meaning if both parties understand that to breach the contract is, in a sense, to perform it? For Haaning, to take the money and run fulfilled his contract obligation by engaging in the most dramatic form of performance art, confronting the Museum and its visitors with its complicity in the exploitative work situation its exhibition was intended to portray.

So we are left to ponder: Breach as art? Breach as performance? Breach as speech?

(For readers who are interested in questions about the nature of art, I recommend a delightful little book “Puzzles About Art: An Aesthetics Casebook” by Margaret P. Battin et. al. (St. Martins Press 1989). Although it is somewhat dated in the Age of Banksy, even a Philistine can enjoy it.)

Weekend Frivolity: No Stems, No Seeds that You Don't Need

It still teach Brookside Farms v. Mama Rizzo, even though I don't like it very much, for three reasons:

1. It's still the only case I can find that deals with modifications under the UCC.  ContractsProfs, if you know a better case, help me out!
2. It's got the reference to a basil sale carcinoma, and a student challenged me to work that into a Limerick.
3. The first modification in the case involves a request from the buyer that the seller remove the stems from the basil leafs.  Because childhood is so sticky, every time I read or think about the case, I am reminded of the Cheech and Chong song with the immortal lyric: "No stems no seeds that you don't need -- Acapulco Gold is some badass weed!"

I played a clip of this video for my students so that they would understand my attachment to the case.

Their response?  "Hey, the clip is three minutes long, but you only played about ten seconds of it!"  

Reminder: KCON Zoom Panel Today!

Post-employment restrictions are in the news. President Biden mentioned them in his July 9 executive order.  In July, the Uniform Law Commission approved a uniform act governing covenants not to compete.  Illinois, Nevada, and D.C. have recently enacted legislation.

Should competition law should play a role in regulating such terms?  This panel will generate wisdom in that regard.

Employment 2021: Contract v. Competition
Which Should Govern Freedom to Work?
A KCON Zoom Panel

Friday, October 1, 2021
2 p.m. to 4 p.m. Central Time

Unconscionability in Contracting for Worker Training
Jonathan F. Harris
Associate Professor of Law
Loyola Law School, Los Angeles
@LawProfJHarris

Bundling Postemployment Restrictive Covenants: When, Why, and How It Matters
Non-Disclosure Agreements and Externalities from Silence
Evan Starr
Associate Professor
Robert H. Smith School of Business, University of Maryland
https://sites.google.com/site/starrevan/home

Boilerplate Collusion: Clause Aggregation, Antitrust Law & Contract Governance
Orly Lobel
Warren Distinguished Professor of Law
University of San Diego School of Law
https://www.orlylobel.com/

Remarks

Eric A. Posner
Kirkland & Ellis Distinguished Service Professor of Law
Arthur and Esther Kane Research Chair
University of Chicago Law School
Author of How Antitrust Failed Workers (and a batch of related articles)

Questions and Comments from the Floor

Please direct questions to Val Ricks, South Texas College of Law Houston, organizer and moderator, at vricks@stcl.edu.

To reserve a spot, please register in advance:

https://stcl.zoom.us/meeting/register/tJElcuGqrjooHtKMInJraeWfyac7cuWsfDdh

After registering, you will receive a confirmation email containing information about joining the meeting.

Reality Television Star Wins Motion to Dismiss, Fraudulent Inducement, Fraud and RICO Claims

Nope.  Not that reality television star.

In Goureau v. Lemonis, Plaintiffs Nicolas Goureau and Stephanie Menkin contend that their business’s participation in CNBC’s TV show The Profit caused their company to go into crippling debt. The Profit is an American documentary-style reality television show broadcast on CNBC. In each episode, the show’s host, Marcus Lemonis (right), typically offers a capital investment and his expertise to an already-struggling small businesses in exchange for an ownership stake in the company. He revamps the company in hopes of making a profit for the business and himself.

Image by Samdpark, CC BY-SA 4.0 , via Wikimedia Commons

Plaintiffs ran an upscale women’s clothing brand through their Gooberry Corporation. It was successful overall and had several stores around the country. Plaintiffs sought outside investors and in early 2014, Plaintiffs interviewed and were selected to appear on The Profit. During the show, Plaintiffs and Mr. Lemonis came to the agreement that Mr. Lemonis would buy 30% of Gooberry for $800,000.  However, Mr. Lemonis allegedly began significant renovations of the Gooberry stores that cost upwards of $2,000,000 and told Plaintiffs they would be stuck with the bill if they decided to back out of the deal. Many of the experts appointed to assist in the changes to Gooberry were Mr. Lemonis’s employees from other companies, who charged Plaintiffs consulting fees. Knowing all this, after filming in 2014, the parties still entered a final operative Stock Purchase Agreement, which gave Lemonis 32 of 100 shares of Gooberry for $800,000, and a Shareholder Agreement, which placed Mr. Lemonis on a board of directors.

The relationship further soured when Loomis began operating the company under the Lemonis name, bought merchandise that made costs higher and work more difficult, and subsequently made it harder to compete with other boutiques and department stores. Mr. Lemonis tried to expand Plaintiffs' brand by investing in a new business, ML Fashion, LLC, that would be the umbrella entity for the parties’ various business ventures. ML Fashion was funded by credit agreements that it had with Defendant ML, LLC. Plaintiffs contend that whenever ML Fashion lent money to Gooberry, those funds were coming from Lemonis through ML, LLC, and that this action was increasing the debt position of both ML Fashion and Gooberry.

In short, Plaintiffs allege that Mr. Loomis engaged in a series of corporate restructurings that enabled him to take control of their business and deprive them of their controlling stake.  He did so in stages so that their stakes in the business shrunk as their business’s indebtedness to entities that he controlled grew.  At the same time, he mismanaged their business until their business’s indebtedness to the entities that Mr. Loomis controlled exceeded their equity in their own business.  One is left wondering both how they allowed themselves to be so effectively snookered and how exactly Mr. Loomis benefits from the transactions as described. 

Maybe there’s a lesson in this for all of us.  Reality TV stars may not be what they seem to be.

Plaintiffs filed suit and asserted thirteen claims. including three fraud-based claims against Defendants, Mr. Lemonis and his business entities, including Machete, the production company responsible for the Profit: 1) fraudulent inducement ; 2) fraud; and 3) mail and wire fraud under RICO. On September 2, the District Court for the Southern District of New York granted Defendants’ motion to dismiss those three claims, the only claims relevant to the court’s jurisdiction over the case. With those claims out of the case, Plaintiffs would have to either amend their complaint to address its deficiencies or refile a suit on their remaining claims in state court.

The court held that Plaintiffs did not plead their fraudulent inducement or fraud claims with the requisite specificity.  Without allegations sufficient to support their predicate claims, Plaintifs also could not make out a RICO claim.  The Complaint, taken as a whole, alleges that the real-world impact of the various investment schemes depicted on The Profit does not correspond to how that impact as portrayed on the reality television series.  The court found these representations on which Plaintiffs allegedly relied to be either inactionable puffery or forward-looking projections. 

Part of the problem is that the Defendants are well-advised.  They pepper their statements and documents with language that puts people in Plaintiffs’ position on real or constructive notice that they are taking a risk and that there are no guarantees that the venture will be profitable.  The other part of the problem is that Plaintiffs forged ahead with the deal, when they could have backed out, even after Mr. Loomis revealed that the partnership would require their business to take on an additional $2 million in debt.  They also seem to have willingly entered into the agreements that resulted in the corporate restructurings which they now characterize as fraudulent.

Because federal jurisdiction was predicated on Plaintiffs’ RICO claim—and the court found Plaintiffs’ complaint insufficient—the court declined to rule on the remaining claims. Plaintiffs have until October 05, 2021, to notify the court if they intend to amend their complaint to address its deficiencies.

H/T to Alyssa Cross and the ever-reliable @NY_Contracts