ContractsProf Blog

Reefer Brief: Illegality and Conditions Precedent in the Sale of Marijuana Business

J&J&D Holdings LLC (J&J&D) entered into an agreement to purchase a medical and adult-use marijuana cultivation business operated by Central Coast Horticultural, LLC (CCH) for $5 million. The transaction was subject to two conditions precedent. First, Donovan Wade, a party affiliated with J&J&D had to receive approval from the Michigan Cannabis Regulatory Agency (the “Agency”) for “prequalification status as a medical and adult use marihuana license holder in Michigan.” Second, J&J&D had to be satisfied after a due diligence review of the premises, the inventory, and the books. 

This is pretty exciting stuff.  I have struggled to make conditions interesting for my students. Here, we have a condition precedent and another condition precedent which is also a condition of satisfaction. And it’s about the sale of a pot farm. That all seems promising.

Unfortunately, in CCH Acquisitions, LLC v. J&J&D Holdings, LLC, U.S. Magistrate Judge Kimberly "Buzzkill" Jolson decided the case based on illegality.  The reasoning is straightforward, but the world of commerce in marijuana is confusing. CCH’s business was legal under Michigan law, but it was illegal under the federal Controlled Substances Act of 1970 (CSA). The only tough issue for the court was whether plaintiff could obtain any relief notwithstanding the agreement's fundamental illegality.

CCH first argued that the Court should order specific performance, but that avenue was foreclosed here. An order of specific performance would entail ordering J&J&D to purchase $500,000 worth of marijuana plants, which are a controlled substance, the sale of which would amount to a felony under federal law. In the alternative, CCH asked for damages, but the Court found that it could not disentangle any part of the transaction from the illegal business at its heart. This case is sort of the opposite of Carroll v. Beardon. There, the court treated the sale of a brothel as an on-going business as an ordinary and enforceable real estate deal. Here, the Court refused to disaggregate the lawful parts of the transaction from its core unlawful purpose.

CCH raised claims other than breach of contract, but it did not answer any of J&J&D’s arguments for why those claims should be dismissed and thus forfeited them. If it were to reach the merits, the Court noted, it still could not "order specific performance or otherwise get in the weeds of Plaintiffs’ marijuana business without transgressing the CSA.” I see what you did there, Judge Jolson. 

I suppose this means that people in the industry have to operate on the basis of gentlemen’s agreements. No court will enforce their agreements if they are not performed, so you want to operate at all times with the understanding that, if your counterparty breaches, courts will leave you where they find you. Imagine how bad things would look for CCH if J&J&D had insisted on taking possession of the inventory for the purposes of exercising due diligence before announcing that the entire contract was illegal and unenforceable. 

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for June 17, 2025

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 18 Apr 2025 - 17 Jun 2025

Rank	Paper	Downloads
1.	The Form Knows Best Tara Chowdhury, Faith Chudkowski and Mitu Gulati University of Virginia - School of Law, University of Virginia School of Law and University of Virginia School of Law	329
2.	INTERNATIONAL COMMERCIAL COURTS 'MADE IN GERMANY': ATTRACTIVE ALTERNATIVE FOR BIG BUSINESS? Giesela Ruhl and Nicolas Dewitte Langenfeld Humboldt University of Berlin and Humboldt University of Berlin - Faculty of Law	240
3.	Precedent Terms Vincent S.J. Buccola and David A. Hoffman University of Chicago - Law School and University of Pennsylvania Carey Law School	195
4.	The Public Policy Exception in Choice of Law: The American Version Symeon Symeonides Willamette University - School of Law	190
5.	Using Insurance for Natural Hazard Loss Prevention Franziska Arnold-Dwyer University College London	168
6.	The Protean Procurement Act Justin Van Orsdol Independent	134
7.	Should Statutory Interpretation and Contract Interpretation Be Harmonized? Ethan J. Leib Fordham University School of Law	128
8.	Consumer Vulnerability: A Genealogy Mateusz Grochowski Tulane University School of Law	122
9.	Bank Runs in the Digital Era: Technology, Psychology and Regulation Moran Ofir and Tal Elmakiess Reichman University (IDC Herzliya) and Reichman University - Interdisciplinary Center (IDC) Herzliyah	110
10.	Did Copyright Fail Music Artists? Rachel Landy Yeshiva University - Benjamin N. Cardozo School of Law	91

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 18 Apr 2025 - 17 Jun 2025

Rank	Paper	Downloads
1.	The Form Knows Best Tara Chowdhury, Faith Chudkowski and Mitu Gulati University of Virginia - School of Law, University of Virginia School of Law and University of Virginia School of Law	329
2.	Resolving Civil-Commercial Disputes through Mediation in Pakistan: Legal Framework, Sector-Specific Application, and Digital Trends Daniyal Shoukat Wakalat Online LLP	260
3.	Consumer Vulnerability: A Genealogy Mateusz Grochowski Tulane University School of Law	122
4.	Remoteness of Damage in Contract Nicholas McBride University of Cambridge - Faculty of Law	81
5.	Are We Forcing Companies to Be 'Fair'? Liubomir Nikiforov Vrije Universiteit Brussel (VUB) - LSTS, Interdisciplinary Research Group on Law Science Technology & Society	71
6.	The Contractualization of Disability Rights Law Yaron Covo Yale University - Solomon Center for Health Law and Policy	69
7.	Private Rights: Artificial but Not Instrumental Rebecca Stone University of California, Los Angeles (UCLA) - School of Law	68
8.	Why Should Contracts be Smart?  Eliza Mik The Chinese University of Hong Kong (CUHK) - Faculty of Law	57
9.	Climate Lies & Unjust Profits Vanessa Casado Pérez, Yotam Kaplan, Yael R. Lifshitz and Niv Meyerson Texas A&M University School of Law, Hebrew University of Jerusalem, King’s College London and Hebrew University of Jerusalem - Faculty of Law	57
10.	ENFORCING & ARBITRATING NIL FAIR-MARKET VALUE Josh Lens University of Iowa	52

District Court Grants Non-Party’s Motion to Compel Arbitration Two Years After Complaint Was Filed

Despite my attention-grabbing header, I think this case is likely correctly decided under our current system, where just about everything goes to arbitration. FCA (Fiat Chrysler Automobiles) likely could not have brought its motion to compel arbitration any earlier, and whether or not it has standing to bring its motion goes to the scope of arbitration, a matter that the parties delegated to the arbiter.

In February, 2023, plaintiffs bought FCA  vehicles and allege that the hybrid engines in the vehicles were faulty. Plaintiffs bought from dealerships, not from FCA directly. Each sales contract included arbitration provisions, but those arbitration provisions differed, except that they all provided that the arbiter would decide issues of arbitrability. In July, 2023, FCA moved to dismiss the action for failure to state a claim. It also moved to compel arbitration. The latter motion was not based on the sales contract but on the written warranties that came with plaintiffs’ vehicles. At a hearing on that motion, FCA represented that it did not yet have access to the dealers’ contracts with plaintiffs, contracts to which it was not a party.

Plaintiffs voluntarily dismissed their warranty claims. In February, 2024, FCA sought discovery from its dealers to establish the parameters of the arbitration clause in the sales agreements. Now in possession of those sales agreements, FCA moved to compel arbitration. Plaintiffs argued that FCA, through its delay, had waived its right to arbitration and that FCA had no standing to invoke the arbitration clause in sales agreements to which it was not a party.  In the alternative, plaintiffs asked the court to decide the issue of arbitrability and to answer it in the negative.

2021 Chrysler Pacifica Hybrid

In Fisher v. FCA US, LLC, the U.S. District Court for the Eastern District of Michigan rejected plaintiffs’ arguments and compelled arbitration. Ordinarily, a party would be held to have waived its right to arbitrate once it has filed a motion to dismiss. Here, however, FCA persuaded the Court that it brought its motion to compel based on the arbitration provisions in the sales agreements as soon as it got access to those agreements. Another court in the Eastern District had found otherwise, writing that it “taxe[d] credulity to posit that FCA was not aware of the standard sales documents [containing arbitration provisions] its dealers were using.” While the Court acknowledged the strength of the argument, in this case, it was persuaded that FCA could not have brought its motion earlier as it really did not know the terms of its dealers’ arbitration agreements. They are not uniform. In any case, nothing in FCA’s conduct suggested any intention to waive its right to compel arbitration.

As to standing, the Court forthrightly acknowledges that FCA’s standing to invoke an arbitration clause in an agreement to which it is not a party is a serious question. However, here, the arbitration provision delegates questions of arbitrability to the arbiter. The language at issue in these arbitration agreements has been construed before in the Sixth Circuit. The Court cites precedential opinions at length. The Court addresses each of plaintiffs’ counterarguments attentively, but it really just comes down to the fact that the relevant agreements clearly and unambiguously delegate questions of arbitrability to the arbiter, and our law sends such issues to the arbiter even when a party has a colorable argument that no arbitration agreement exists between the parties.

Students' COVID Claims Against Colorado State University Dismissed

After their university shut down its campus temporarily in March 2020, necessitating the completion of the semester through distance learning, students brought suit on behalf of a purported class against Colorado State University (CSU) for breach of contract and unjust enrichment. A state trial court dismissed the breach of contract claims, finding that CSU had statutory authority to shut down its campus in the event of unforeseen calamities. Moreover, because the students did have a contract with CSU, they could not sue for unjust enrichment in connection with a matter covered by the contract. An appeals court reversed the dismissal of the students' unjust enrichment claims.

In Board of Governors of the Colorado State University v. Alderman, the Colorado Supreme Court remanded with instructions to reinstate the judgment of the trial court dismissing all claims. In so doing, the Court clarified that there was an enforceable contract between the students and CSU. However, the contract incorporated CSU’s statutory authority to shut down its campus, and thus there was no breach. The substantive portion of the Court’s opinion is quite brief. There was no breach of contract because CSU did what it was statutorily permitted to do, and that statutory authority was part of its implied contract with its students. The unjust enrichment claim was barred because it covered the same subject matter as the contract.

This is just the latest in a long series of such cases that we have been covering from time to time. Their disposition often turns on the unique facts and on unique verbiage in the schools’ promotional materials. Two recent posts on the topic can be found here and here.

Friday Frivolity: A Use for Meme Coins?

As dedicated readers may recall, we posted last November about parody newspaper The Onion’s attempt to buy Alex Jones’ Infowars in an auction held in connection with Mr. Jones’ bankruptcy. That bankruptcy followed a $1.4 billion judgment against Mr. Jones in a suit brought by the families of victims of the mass shooting at the Sandy Hook Elementary School. Mr Jones promoted the theory that the event was a fabrication, and he defamed the families whose children had been killed as purveyors of a complex ruse designed to create anti-gun hysteria.

The idea behind The Onion’s purchase of the website and news source, previously devoted to crank, right-wing conspiracy theories, would be to run Infowars in a manner consistent with the wishes of the families who won the judgment that led to Mr. Jones’ bankruptcy. In short, Infowars would now promote the reasonable regulation of firearms. Alas, as  Geoff Weiss and Meghan Morris reported in The Business Insider,  the judge overseeing Mr. Jones’ bankruptcy proceedings would not enforce the results of the auction. There were improprieties with the original auction. However, as Tovia Smith reports for National Public Radio, the Bankruptcy judge also decided not to proceed with a new and improved auction, because Infowars' parent company is no longer in bankruptcy. An auction can proceed on the sale of Mr. Jones’ stake in that company. However, the judge cautioned, "If there's going to be a sale of assets, cash will be king."

Image  by Coingecko - Own work, CC0, 

Enter a highly atypical knight in shining armor: a meme coin may save the day. As Matt Levine reported in his “Money Stuff” column for Bloomberg back in February, an entity called WOW.AI is planning to bid on Mr. Jones’ stake, putting up $3.5 million plus a 51% stake in the $WARS meme coin. In order to establish a valuation for the coin, WOW.AI will sell 10% of the $WARS supply, and Matt Levine says that the trade in the available meme coins suggests that the value of the 51% stake in the coin will be around $11 million, well in excess of the $8 million bid put forward by Alex Jones himself (through his backers). The idea is that the 51% stake in the coin will then be transferred to the plaintiffs who put Mr. Jones in bankruptcy, and they can use their majority interest in the coin to dictate the direction that Infowars takes from here. 

It is a brilliant strategy. Matt Levine explains why. In the olden days, you could have financed this venture through launching a company, but then people would ask questions, like how does this venture make money? But with a memecoin, everybody knows that there is no value underlying the venture other than hype (see chart at left, which illustrates the price curve of a typical memecoin). In this case, there actually might be some value, depending on what happens with Infowars after the takeover. In addition, if the venture involved selling shares in a company, the SEC would definitely ask questions, because you are offering federally regulated securities. In short, Matt Levine concludes, "Crypto is a way to issue securities (stock) without following securities laws. (Not legal advice!)"

Twitter (X) Found Liable for Over $8 Million in Unpaid Rent for Office Space

We have had a series of posts now on attempts to “cancel” contracts. When NBC claimed to have “canceled” its contract with former Republican National Committee Chair, Ronna McDaniel, she sued for the value of her two-year, $600,000 contract. Elon Musk claimed to “cancel” a contract with Don Lemon to livestream the latter’s show on Twitter (a/k/a X). I don’t know if that resulted in a lawsuit. If it didn’t, perhaps there was no real contract in the first place.

Mr. Musk boasted about all of the contracts that he was canceling when he took over Twitter. He made similar boasts with respect to contracts “canceled” by the so-called Department of Government Efficiency. But contracts generally can’t be “cancelled;” that is, cancellation of a valid, enforceable agreement can give rise to a claim for breach.

That is what happened when Twitter attempted to cancel its lease on office space in Boulder, Colorado. The transaction is complicated — with Exhibits, it comes to 192 pages — but basically Lot 2 SBO, LLC (Lot 2) was to build office space to Twitter’s specifications in exchange for rent payments commencing in 2022. Twitter ceased rent payments in December 2022, claiming that it was entitled to a $5.76 million Tenant Improvement Allowance (TIA), and that it didn’t have to pay rent until that TIA was exhausted. Lot 2 responded that the conditions precedent to Twitter’s entitlement to the TIA had not been met and so it was obligated to continue to pay rent. Lot 2 sued for detainer and breach of the lease. Twitter counterclaimed for breach of contract, wrongful eviction, and breach of the covenant of good faith and fair dealing.

The dispute came down to two paragraphs in a Work Letter, Exhibit E to the lease. After a four-day bench trial, the Boulder trial court ruled in Lot 2’s favor in Lot 2 SBO, LLC v. Twitter, Inc. Both parties asserted that the relevant paragraphs were unambiguous. The Court agreed that the contract is unambiguous, and it found that it could only mean what Lot 2 understood it to mean. 

Boulder, Colorado, Circa 1900

Specifically, Paragraph 4b, which the Court found to be foundational, provides that Twitter would only be entitled to the TIA if it were to complete certain tenant work and that no event of default has occurred. Paragraph 4c sets out Twitter’s right to draw on the TIA to cover rent payments, but the Court, reasonably enough, found that Paragraph 4c cannot be decoupled from Paragraph 4b. Twitter cannot use the TIA to offset its rent obligations when it is not entitled to the TIA in the first place. That was the Court’s view on the plain meaning of the contract.

Evidence that was presented at trial and could be considered on appeal corroborated the Court’s understanding of the parties' intentions with respect to the TIA. Testimony from Twitter employees confirmed that their understanding of the contract was the same as the Court’s understanding. However, once Twitter made the transition to X Corp., it adopted a deliberate strategy of not paying rent as a negotiating strategy to save money. Ugh. 

The Court then establishes that, as a matter of fact, Twitter did not fulfill its obligations under Paragraph 4b and thus was not entitled to the TIA. It follows that it could not use the TIA to offset its rent obligations. The Court rejected testimony from an X Corp. witness setting out a contrary interpretation as not credible.

The Court found in favor of Lot 2 on all of its claims and rejected all of Twitter’s counterclaims. Lot 2 was entitled to just under $8 million in rent due, a small amount for repairs, damage, and marketing costs, and $350,000 in rent abatement. Twitter argued that Lot 2 had failed to mitigate its damages because it exclusively sought to replace Twitter with another tenant that would occupy the entire building. Considering the testimony of qualified real estate experts from both sides, the Court concluded that Lot 2’s strategy was not unreasonable, and thus it had not failed to mitigate damages.

The Short-Term Future of College Athletics

As Becky Sullivan reported for National Public Radio last week, a judge has now approved a $2.7 billion settlement in a class action, House v. NCAA. The class was certified back in 2023. The settlement provides that colleges and universities can now pay student athletes directly, subject to a salary cap of $20.5 million, rising to $33 million by 2035. The settlement also creates of a pool of $2.75 billion to be distributed among former college athletes who played before 2021 and could not be paid under then-existing rules. With 390,000 members in the class, the median payout would be just over $7000. 

Many questions remain. So many questions. The parties (or some parties) were apparently dissatisfied with the current regime for establishing Name, Image, and Likeness (NIL) deals with college athletes, which led to some athletes (almost exclusively male) earning millions of dollars to play mostly football and basketball. The new settlement is supposed to create a clearinghouse that will review licensing agreements to test whether they represent “fair market value.” What a concept! I have no idea how it would work, but why wouldn’t the price of the contract represent the fair market value? And as to the $2.75 billion, there is no information in the reporting I have seen that indicates how the money is to be allocated. Is a professional football player, who was drafted in the fourth round  bus has since has earned millions over a professional career entitled to more money than a star women’s soccer player who now gets paid $80,000 to coach a college team? 

The other question that lingers in my mind is what becomes of the collectives, about which we have written here and here and here? The settlement caps what colleges and universities can pay directly to students. Does it limit what the collectives can pay? We have been in terra incognita since 2021. I suspect there will be more bumps in the road. Colleges and universities are facing perhaps unprecedented financial challenges. Can they continue to support very expensive athletics programs while being forced to cut academic programs? Time will tell.

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for June 10, 2025

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 11 Apr 2025 - 10 Jun 2025

Rank	Paper	Downloads
1.	A Theory of Complexity Aversion Xavier Gabaix Harvard University - Department of Economics	587
2.	The Form Knows Best Tara Chowdhury, Faith Chudkowski and Mitu Gulati University of Virginia - School of Law, University of Virginia School of Law and University of Virginia School of Law	310
3.	Exit Consents in a Liability Management World Dennis Jenkins Willkie Farr & Gallagher LLP - Willkie Library	243
4.	INTERNATIONAL COMMERCIAL COURTS 'MADE IN GERMANY': ATTRACTIVE ALTERNATIVE FOR BIG BUSINESS? Giesela Ruhl and Nicolas Dewitte Langenfeld Humboldt University of Berlin and Humboldt University of Berlin - Faculty of Law	238
5.	The Hidden Nature of Regulation Sharon Yadin The Max Stern Yezreel Valley College	226
6.	The Public Policy Exception in Choice of Law: The American Version Symeon Symeonides Willamette University - School of Law	184
7.	Precedent Terms Vincent S.J. Buccola and David A. Hoffman University of Chicago - Law School and University of Pennsylvania Carey Law School	176
8.	Using Insurance for Natural Hazard Loss Prevention Franziska Arnold-Dwyer University College London	157
9.	The Protean Procurement Act Justin Van Orsdol Independent	133
10.	Should Statutory Interpretation and Contract Interpretation Be Harmonized? Ethan J. Leib Fordham University School of Law	120

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 11 Apr 2025 - 10 Jun 2025

Rank	Paper	Downloads
1.	The Form Knows Best Tara Chowdhury, Faith Chudkowski and Mitu Gulati University of Virginia - School of Law, University of Virginia School of Law and University of Virginia School of Law	310
2.	Resolving Civil-Commercial Disputes through Mediation in Pakistan: Legal Framework, Sector-Specific Application, and Digital Trends Daniyal Shoukat Wakalat Online LLP	235
3.	Consumer Vulnerability: A Genealogy Mateusz Grochowski Tulane University School of Law	117
4.	Remoteness of Damage in Contract Nicholas McBride University of Cambridge - Faculty of Law	77
5.	The Sense and Nonsense of Smart Contracts Eliza Mik The Chinese University of Hong Kong (CUHK) - Faculty of Law	75
6.	Are We Forcing Companies to Be 'Fair'? Liubomir Nikiforov Vrije Universiteit Brussel (VUB) - LSTS, Interdisciplinary Research Group on Law Science Technology & Society	70
7.	The Contractualization of Disability Rights Law Yaron Covo Yale University - Solomon Center for Health Law and Policy	68
8.	Regulating Contracts, Strictly Speaking Hanoch Dagan University of California, Berkeley - School of Law	68
9.	Private Rights: Artificial but Not Instrumental Rebecca Stone University of California, Los Angeles (UCLA) - School of Law	63
10.	Privately-Crafted Obligations James Toomey University of Iowa - College of Law	62

Law Suits over Mismanaged Administration of the California Bar Exam

Standardized Testing, Old School

Both recent law graduates and the California Bar (the Bar) have sued ProctorU, d/b/a Meazure Learning (Meazure), in connection with California's bar exam administered in February 2025. While past iterations of the bar exam were held in large convention centers, participants could take the February bar remotely, including from out-of-state. The new system was developed by Kaplan Exam Services, LLC and administered by Meazure.  

According to the law graduates' complaint, Meazure had one job, and it failed spectacularly.  Meazure forced graduates to purchase its software so that they could take the California bar exam, but that software malfunctioned and crashed, traumatizing students and forcing many to delay the start of their careers as attorneys. They claim that Meazure’s software "crashed because it had insufficient infrastructure and/or lack of servers and server space to process the foreseeable number of exam takers.” They seek class certification and damages in excess of $5 million. The claims range from breach of warranty to statutory violations to tort claims. There’s an unjust enrichment claim but no straight-up breach of contract claim. I’m not sure why not.

Among the problems with Meazure’s software identified by the law graduates in advance of the exam were:

• Cancellations of site reservations;
• Conflicting information about testing rules, deadlines, and procedures;
• Assignment to inconvenient sites; and
• Problems with accessing mock exam, including glitches, delays, and random terminations of sessions.

When it learned of the glitches in the run-up to the exam, the Bar offered to refund payments for the February bar and to allow law graduates to take the exam in July instead. That was not an attractive offer to graduates who had been preparing for the bar and were eager to launch their legal careers.

On the actual exam, the software failed in myriad ways, ranging from crashes to features like cut and paste or spell-check not functioning as promised.  Although experiencing tragedy, the bar takers did not lose their senses of humor. Some testimonials:

• Today felt like a bear attack;
• Yes I’m gonna cry nothing saved for me;
• WHAT IF ONLY PART OF MY ESSAY WAS SAVED/SUBMITTED? NOT THE FULL ESSAY??🤯🤯🤯 [I can’t replicate the emojis, but this is close]

Standardized Testing, Older School

There are lots more details, but you get the idea.

The Bar names the same defendant plus ten John Doe defendants and alleges fraud and negligent misrepresentation, in addition to breach of contract and breach of the implied covenant of good faith and fair dealing. The Bar’s complaint provides a lot more detail about the representations Meazure made as to its ability to provide the test-taking technology that the bar exam required. It lacks the pathos of the exam-takers complaint, but it details a lot of representations that Meazure made that it was clearly incapable of fulfilling. 

The Bar had some clear warning signs that Meazure was not up to the task. Problems arose in connection with scheduling and the mock bar, and so the Bar and Meazure renegotiated their Statement of Work. The Bar offered law graduates full refunds if they would put off the exam until July.  The Bar describes the February administration of the bar exam as “chaotic.” The Bar surveyed test takers, and a shockingly high percentage of test takers reported experiencing problems with the software, the support from proctors, or both.

After the fiasco, the Bar sought data from Meazure that it claims Meazure was contractually obligated to provide within two days of the exam. Meazure eventually provided some data on March 10th, but it was incomplete. 

On May 9th, the Bar announced that it was recommending the expansion of its Provisional Licensure Program to allow students to practice under the supervision of licensed attorneys. The must still pass the bar exam eventually, but they would have two years from the implementation of the expanded program or December 31, 2027, whichever is earlier. The recommendation must be approved by the State Supreme Court.

If I am reading this document correctly, it seems that other adjustments to the scoring of the exam were implemented with the result that the percentage of examinees passing the California bar in February shot up dramatically: 

Exam results across all applicant types and demographic groups showed notable increases. The overall pass rate for the General Bar Exam reached 55.9 percent—the highest for any February or spring administration since 1965.

I’m not sure how to square that outcome with all of the evidence that the glitches in the software prevented test takers from performing optimally on the bar. This might be evidence that other states should adopt a Squid Game approach to the bar exam in order to motivate test-takers to take the exam as though their lives depended on it.

What a Form Knows

Last year, we posted about Consequential Damages: Alien Vomit or Intelligent Design (Alien Vomit), by Tara Chowdhury, Faith Chudkowski, Amanda Dixon, Rishabh Sharma, Madison Sherrill, Hadar Tanne, Stephen J. Choi, and Mitu Gulati (the Authors) now published in the Washington Law Review. One of the most intelligent of intelligent designers, Glenn D. West, wrote a Response, also published in the Washington Law Review. There has now been a second exchange, forthcoming in the Miami Law Review, and so I would like to help readers catch up on the conversation.

Image by DALL-E

To recap, in Alien Vomit, the Authors address practitioners’ confusion over the meaning of “consequential damages.” The confusion might be the product of boilerplate language borrowed from a different contractual context. While the language might have made sense with respect to the original transaction, its application is unclear in the new context. This is the dread “alien vomit.” The Authors also present an alternative view. Skilled practitioners draft bespoke damages provisions because they do not like the default allocation of risk provided by Hadley v. Baxandale and its progeny. This is the “intelligent design” approach. As discussed here and here, Victor Goldberg has identified additional problems that arise when courts ignore such careful allocations of risk in favor of default rules that the parties sought to evade.

Mr. West’s Response to Alien Vomit begins with a lovely explanation for why “alien vomit,” a term used to describe the brainless remnants of sea squirts, is such a great analogy. Alien vomit is originally a product of intelligent design, but transactional lawyers follow the herd and make use of boilerplate language in ways that deviate from both design and intelligence. And there you have Mr. West’s critique: the Authors introduce a false dichotomy. Boilerplate provisions are both alien vomit and intelligent design. Transactional lawyers don’t have time to reinvent the wheel, and so they tinker quite intelligently with boilerplate language. Some borrowings render the clause unworkable and some tinkering can also go awry. Both processes can produce defects akin to alien vomit.

The Authors thus mistake language that is the product of negotiations among sophisticated parties for alien vomit. Mr. West (left) then parses some language that the Authors treated as alien vomit and explains what it was, however inartfully, trying to achieve. Mr. West agrees with the Authors, however, that things have improved since he started writing about the problem of excluded loss provisions in 2008. Others have now taken up Mr. West’s call for more care and precision in the drafting of such provisions. At Mr. West’s level, the world of M&A lawyers is a small clerisy, and it seems that a small group of evangelists can really move mountains. In Mr. West’s review of 58 recent M&A deals, he finds some alien vomit, but a great deal more simplicity and clarity. Many deals get by without excluded loss provisions. Many others exclude only punitive or exemplary damages. So progress is being made. It has been slow, and Mr. West closes with a plea to accelerate the process by offering courses in M&A drafting that specifically address the dangers attendant to careless adoption of boilerplate language.

Continuing the exchange, Tara Chowdhury, Faith Chudkowski, and Mitu Gulati (CC&G) have posted The Form Knows Best, as of this writing a rising star on both Top Ten lists, and forthcoming in the Miami Law Review. It draws on the research that informs a book that Mitu Gulati has co-authored with Robert Scott and Stephen Choi, forthcoming from Oxford University Press, “The Hazardous World of Contract: Lawyers and Their Landmines.” Tara Chowdhury and Faith Chudkowski provided research assistance for parts of the book as well.

I summarize CC&G's points in the new article as follows:

• We teach student to think that precise drafting matters more than it does in the transactional world, where deals seldom turn on legal niceties and lawyers’ time is better devoted to things more likely to have an impact than a missing Oxford comma;
• Transactional lawyers do not consult case law, preferring instead to model contractual language on prior contracts;
• Contracts provisions have a history, and knowing that history can matter, because each tweak of an oft-used provision has a story to tell about some anticipated or actual harm that the tweak is designed to avoid;
• Contract terms are rarely bargained for; they are generated, often with the assistance of programs;
• Deal terms can be a product of custom and inertia;
• Because of the time pressure under which deals are negotiated, there is no time to customize standard contractual language.

Glenn West’s response, The Form Doesn’t Know Anything, will also appear in the Miami Law Review. Mr. West does not regard any of the “myths” that CC&G have identified as myths within the world of M&A lawyering. This is no surprise, as the CC&G are contrasting the transactional world from the world of the legal academy. Mr. West is attuned to differences between transactional lawyers who do M&A and those who handle sovereign bonds or leveraged loans. M&A lawyers, he argues, pay more attention to case law that might expose standard language to challenge, as they can be more flexible in their approach. Unlike bonds and loans, M&A transactions do not require absolute uniformity.

It is somewhat cheering to have the experienced transactional lawyer responding to the academic by stressing the need for lawyers to know the relevant caselaw. Mr. West concedes that transactional lawyers may not take the time to read the cases. It’s not an efficient way for them to get the information they need, but they do need to be up-to-date on developments in the relevant caselaw. They just get the information from CLEs or secondary sources. "After all,” Mr. West chides, "the form doesn’t know anything, but the transactional lawyer must.”

M&A lawyers use boilerplate forms, but they do so because the deal conditions (e.g., the partner running the deal or opposing counsel or a client) dictate that a particular form be used. The lawyers may have the opportunity to make up a form contract, but in an auction context, they may do so selectively so as to avoid giving the impression that the deal will be difficult to negotiate. Mr. West acknowledges the pull of forms containing “market terms” — that is, terms that are unlikely to be challenged.  Yet he cautions that because each deal is different, what is “market” with respect to one transaction might be problematic in another. He emphasizes the need for transactional attorneys to learn the market and also the limitations of the market.

The exchange is intriguing and illuminating. I shared the following thoughts with Mitu Gulati (right) when he shared a draft of The Form Knows Best with me.

Because contracts are about private legislation, it makes perfect sense that transactional lawyers are more interested in precedential forms than in precedential cases. But one theme I took from Vic Goldberg’s work (noted above) is that courts may well ignore the niceties of such private legislation. Even if the parties carefully draft around default damages schemes, the courts may impose the defaults. As Mr. West notes, transactional lawyers thus operate in ignorance of case law at their peril. 

It may be that the distance between the official story and the unofficial story is not as stark as CC&G paint it to be. I teach Judge Posner’s opinion in Morin Building Products Company, Inc. v. Baystone Construction, Inc.  There, the parties used a boilerplate provision with a condition of satisfaction that spoke of “artistic effects” when the construction in question had to do with a utilitarian wall. Judge Posner reasoned, correctly in my view, that he need not leave the construction company at the mercy of its counterparty’s aesthetic whims. The parties had just unthinkingly imported some “alien vomit” from a different kind of contract. The language about “artistic effect” did not reflect their actual intentions. So I think the official story and the unofficial story may converge. History can matter, at least if the judge is someone of Judge Posner’s discernment.

More generally, the exchange set me thinking about the movement for plain-language contracting. We have entertained guest posts on the subject here before, e.g. here and here. Advocates for plain-language contracting complain about the naïve belief that “magic words” will protect a provision from legal challenge and blame the attorneys for their attachment to boilerplate language. I am no advocate of complexity for complexity’s sake, but I don’t regard plain language as a solution to the most important problems that arise from form contracting, as I discuss here. I was happy to read similar thoughts from the estimable Shawn Bayern, commenting on the work of Yonathan Arbel. But the exchange under discussion here suggests that it is often clients, not lawyers, who insist on retaining "magic words." They do so not because they believe in magic but because they just want to get the deal done. The language has never caused them problems before, so it seems a safer bet than trying to come up with new language, which might cause a deal-cratering fight.

CC&G also strikes me as making a unique contribution to relational contracts theory. Traditionally, relational contracts theory focuses on the relations between or among the parties. The exchange discussed here suggests that there is also an important relationship involving the transactional attorneys and the drafting norms and practices of their jurisdiction. In my litigation career and in my teaching, I have mostly avoided working with the sorts of highly complex transactions that arise in the M&A, sovereign debt, or leveraged lending contexts. Still, there is common ground in the disconnect between the law on the books and the law in action in both types of contracts. Most situations are handled through business norms rather than through litigation. The odds of any particular deal leading to litigation are small enough that it is not always worth people’s time to scrutinize a contract’s provisions. It seems odd, given the size of the transactions at issue here, but I imagine the risk ratio of litigation versus costs of cratering the deal through over-lawyering end up the same as they are in the sorts of face-to-face transactions that I mostly litigated and now teach.

Thanks to the multiple authors on the one side and to Glenn West on the other for this highly engaging and edifying exchange!

Teaching Assistants: David Hoffman on Consumers’ Expectations

Expect some posts about the newish Restatement of Consumer Contracts Law, as there was a symposium on that subject, and it is useful to get a sense of the early assessments of the successes and challenges to the success of that work. We start today with David Hoffman’s contribution, Consumers’ Unreasonable Textual Expectations, which is forthcoming the the Harvard Business Law Review but is available for download on SSRN now.

Professor Hoffman’s article epitomizes something that is true of a lot of really useful scholarship. He problematizes language in the Restatement that at first glance seems solid. Once he has called your attention to the problem, you can never see that language in the same light again. In this case, Professor Hoffman casts his gimlet eye upon Restatement of Consumer Contracts (the RCC), at § 4(d), which provides that “standard contract terms are interpreted in a manner that effectuates the reasonable expectations of the consumer.”

Professor Hoffman begins by noting that our usual methods for contract interpretation, which attempt to reconstruct the intention of the parties, are not of much use when it comes to consumer contracts. The language is boilerplate, often adopted from other contracts, and consumers do not read or understand the language. They intend to buy stuff and know that there are terms attached, but they have no intentions with respect to those terms.

There seem to have been two sources for § 4(d): the Restatement 2d’s “notoriously unsuccessful” and largely unmourned § 211 and some insurance cases. One might at this point rejoice that the Reporters of the RCC were boldly suggesting that contra proferentem should apply to consumer contracts of adhesion. That is, so long as a consumer could establish the ambiguity of a contract, the consumer’s reading should prevail against the drafter. However, Professor Hoffman’s reference to “the usual contra proferentem pablum” suggests that he is not on board. Rather, this tale of Hoffman proceeds through a series of questions.

First, how should courts determine that a contract is ambiguous? As indicated above,  because consumer contracts are not read by consumers either before or after formation, the usual contextual approach to interpretation is not available. There is no context in which to place the text. RCC Reporter Omri Ben-Shahar and Lior Strahileveitz have argued that survey data might be helpful, but that technique is likely too expensive and unwieldy. It also collapses the two-step interpretive process (identifying ambiguity; choosing meaning) into one. Professor Hoffman, with his co-author, Yonathan Arbel (left), in their article, Generative Interpretation (reviewed on the Blog here), have suggested that large language models (LLMs) might aid in interpretation.  The LLM approach remains a two-step process. The LLM can establish the existence of ambiguity; it would still be up to the trier of fact to determine which of the possible meanings should prevail.

Professor Hoffman next asks how we should measure reasonable expectations. Here again, Professor Hoffman starts with the survey-based approach but thinks it can be profitably supplemented with the generative interpretation technique that he and Yonathan Arbel have developed, and which is in a consant state of improvement. 

Next, Professor Hoffman asks whether reasonable expectations can operate as a defense to obligations. The RCC comments suggest that reasonable expectations, which might arise from pre-contractual promises or affirmations or from the general commercial environment, can effect construction even without textual ambiguity.* I wonder if the Reporters have in mind something like the Shellenberger and Mathews cases discussed earlier this week. In the former, a purchaser of a dishwasher expected that her warranty guaranteed that she could get her appliance repaired. She got that impression from some contractual language that included some caveats the significance of which a consumer might not appreciate (“covered repairs,” “where applicable”). In the latter, the case foundered on the consumer’s failure to contest charges in writing within 25 days of receipt of the final invoice. Might a reasonable consumer conclude that phone conversations suffice as notice of contestation? Professor Hoffman reiterates his skepticism regarding the possibility of reconstructing consumers’ reasonable expectations with respect to documents they do not read.

Finally, Professor Hoffman asks whether we should ignore consumers’ unreasonable expectations. We tend to assume that consumers will offer self-serving interpretations of legal texts, but research suggests that consumers often take a textualist approach when their ox is not the one that is gored. Scholars may prefer a more normative account of what “reasonable” means — something like what consumers should be entitled to expect, regardless of their actual expectations. The RCC does not go down that path, and Professor Hoffman congratulates them on their commitment to empiricism. Professor Hoffman concludes with the challenge to scholars to "develop a vision of 'reasonable expectations' that harmonizes consumer agency and consumer protection."

* Program note: later this month, we will have a post on the RCC Reporters’ Guide to the RCC. They think that interpretive matters should be informed by the concept of salience. That is, courts should give weight to the sort of information that registers with consumers, much of which is communicated orally. However, dutiful Reporters that they are, the RCC reflects caselaw, and caselaw does not make much use of the concept of salience. The Reporters advocate for its usefulness in their Reporters’ Notes.

New York’s Attorney General Forces Doordash to Pay Workers for Stolen Tips

NY Attorney General Letitia James

According to Andy Newman, writing last February in The New York Times, in the earlier years of Doordash, the company encouraged customers to tip and assured them, “Dashers will always receive 100 percent of the tip.” For two years, Doordash guaranteed its delivery people (“Dashers”) $7/delivery. But if a customer tipped $3, the company would still pay the Dasher $7 and keep the tip for itself. It’s so petty and cruel, it’s hard to imagine the mindset that hatched this plot. 

Mr. Newman first reported on the practice back in 2019 when Doordash discontinued it in the face of wholly understandable customer outrage. At the time, Doordash had a market valuation of $7.1 billion. Stealing $3 tips from the workers at the core of its business model is just disgusting. Instacart, Mr. Newman reported, had a similar policy.

In February, Doordash settled with New York’s Attorney General’s office and agreed to distribute $16.8 million to 63,000 workers, some of whom could received as much as $14,000. This follows similar settlements in Illinois and Washington D.C.  Doordash was non-committal when asked if it would enter into voluntary settlements in other states.

I wish I used Doordash so that I could stop using Doordash. Punitive damages seem appropriate here. I’m not outraged only on behalf of the employees from whom a multi-billion dollar business stole tips. I would be outraged as a customer to know that tip money I wanted to give to a delivery person when to a multi-billion dollar business instead. In addition to thinking that the money should be transferred from the business to the workers, I also want restitution. Doordash has had that money to play with for six or eight years. New York’s Attorney General’s office estimates that New Yorkers placed over 11 million orders while the policy was in effect. Unless New Yorkers are very skimpy tippers, and I don’t believe that they are, $16.8 million is a very low estimate of the amount of money the company misappropriated. 

And it’s not as if there is a simple solution, like just use UberEats. As discussed here, one order from UberEats may subject you to their terms of service with respect to all related companies indefinitely.

Court Certifies Class of Detainees to Challenge PrePaid Debit Cards

Governments increasingly seem to favor pre-paid debit cards. I’m sure there are reasons, but I once received my state tax refund in the form of such a debit card, and it was highly inconvenient. Stores do not issue receipts letting you know how much credit remains on the card after purchase, so one has to keep careful accounts. Not all stores were equipped to process the cards, and it was hard to zero them out. Here’s an idea. Just send me a check or deposit the money in my bank account. I get it. Some people don’t have bank accounts. Still, they can use check-cashing services, or if they prefer the cards, send them a card.

Plaintiff Samuel Rutherford was incarcerated. Upon his release, he was issued a pre-paid debit card provided by defendant, Central Bank of Kansas City (CBKC). The card was funded with money taken from him upon his incarceration, plus additional funds deposited during his detention. Mr. Rutherford did not apply for or request the card, and his use of the card subjected him to fees, including a $5.95 monthly fee after a thirty-day grace period and ATM fees. Mr. Rutherford sought to certify both a nationwide class alleging violations of the Electronic Funds Transfer Act (EFTA) and a Washington state class alleging conversion, unjust enrichment, and violations of the Washington Consumer Protection Act (WCPA). The national class was to include people who did not already file a claim and receive monetary recovery from a prior case called Brown.

In Rutherford v. Central Bank of Kansas City, the District Court for the Western District of Washington certified two classes. There were no significant issues as to: the numerosity of the class; the commonality of the claims, the adequacy of the named plaintiff; the predominance of common issues, or the superiority of the class mechanism over individualized litigation. The Court found that Mr. Rutherford was typical of a class of users whose cards were pre-activated when they received them. He is not typical of users whose cards were activated upon first use. The motion for class certification was granted with respect to both proposed classes, with the amendment that class members must have gotten cards on the same terms as Mr. Rutherford.

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for June 3, 2025

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 04 Apr 2025 - 03 Jun 2025

Rank	Paper	Downloads
1.	A Theory of Complexity Aversion Xavier Gabaix Harvard University - Department of Economics	518
2.	The Form Knows Best Tara Chowdhury, Faith Chudkowski and Mitu Gulati University of Virginia - School of Law, University of Virginia School of Law and University of Virginia School of Law	296
3.	Exit Consents in a Liability Management World Dennis Jenkins Willkie Farr & Gallagher LLP - Willkie Library	236
4.	INTERNATIONAL COMMERCIAL COURTS 'MADE IN GERMANY': ATTRACTIVE ALTERNATIVE FOR BIG BUSINESS? Giesela Ruhl and Nicolas Dewitte Langenfeld Humboldt University of Berlin and Humboldt University of Berlin - Faculty of Law	222
5.	The Hidden Nature of Regulation Sharon Yadin The Max Stern Yezreel Valley College	220
6.	The Public Policy Exception in Choice of Law: The American Version Symeon Symeonides Willamette University - School of Law	176
7.	Precedent Terms Vincent S.J. Buccola and David A. Hoffman University of Chicago - Law School and University of Pennsylvania Carey Law School	162
8.	Using Insurance for Natural Hazard Loss Prevention Franziska Arnold-Dwyer University College London5	144
9.	Sustainable Bankruptcy G. Ray Warner St. John's University - School of Law	137
10.	The Protean Procurement Act Justin Van Orsdol Independent	133

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 04 Apr 2025 - 03 Jun 2025

Rank	Paper	Downloads
1.	The Form Knows Best Tara Chowdhury, Faith Chudkowski and Mitu Gulati University of Virginia - School of Law, University of Virginia School of Law and University of Virginia School of Law	296
2.	Resolving Civil-Commercial Disputes through Mediation in Pakistan: Legal Framework, Sector-Specific Application, and Digital Trends Daniyal Shoukat Wakalat Online LLP	174
3.	Consumer Vulnerability: A Genealogy Mateusz Grochowski Tulane University School of Law	112
4.	Fiduciary Standards James Toomey University of Iowa - College of Law	76
5.	Remoteness of Damage in Contract Nicholas McBride University of Cambridge - Faculty of Law	74
6.	Consumers' Unreasonable Textual Expectations David A. Hoffman University of Pennsylvania Carey Law School	72
7.	The Sense and Nonsense of Smart Contracts Eliza Mik The Chinese University of Hong Kong (CUHK) - Faculty of Law	67
8.	Are We Forcing Companies to Be 'Fair'? Liubomir Nikiforov Vrije Universiteit Brussel (VUB) - LSTS, Interdisciplinary Research Group on Law Science Technology & Society	66
9.	Regulating Contracts, Strictly Speaking Hanoch Dagan University of California, Berkeley - School of Law	66
10.	The Contractualization of Disability Rights Law Yaron Covo Yale University - Solomon Center for Health Law and Policy	64

An Almost Too-American Story About the Pope’s Childhood Home

Step 1: On May 9th, Nicholas Bogel-Burroughs and Debra Kamin reported for The New York Times that Pope Leo XIV’s childhood home was up for sale. The current owner purchased the house in Dolton, a South-Chicago suburb, just last year for $66,000 and renovated it. It went on the market for $199,000, but the market was tepid. That changed once news of its papal heritage got out. The offers, many above asking price, started rolling in. In response, the owner pulled the house from the market, the broker for the deal stated, hoping to do more research on the house to learn of the extent of the Pope’s connection to the property.

I’m not sure I quite get the attraction of owning such a home. I fear that the appeal might be commercial, like that you could turn the home into a museum and charge admission, but I would think zoning laws would have something to say about that. As the Times report cited above notes, celebrity homes do not always hold their value. Someone paid $2.14 million to purchase Donald Trump’s childhood home in Queens in 2017, but it fell into disrepair and was resold in March for $835,000. Somehow, I think if the owner had turned over the property to the Trump family, they would have gotten a lot more for it. it would be a meme coin by now.

Step 2: Ms. Kamin returned to the story a week later to report that the house was now to be sold via auction. Perhaps learning from Ms. Kamin’s reporting with Mr. Bogel-Burroughs from the week before, the realtor teamed up with the same auction house that sold Mr. Trump’s childhood home. As the realtor explained, “This is the best chance for selling it for top dollar and also getting the most amount of exposure.” A representative from that auction house was gleeful: “We can call this the pope premium. Within one week this is going to be the most famous home on the planet. What the highest and best bid will be, or who it will be from, is anyone’s guess.” Poor Leo. It’s not quite the message that I think his Papacy was shooting for.

Step 3: Not even a week later, Ms. Kamin and Matt Yan had new information to share. They reported that the Village of Dolton is now going to purchase the property, perhaps exercising the power of eminent domain. “The Village intends to work with the Chicago Archdiocese and other agencies to allow the home to be viewed and visited by the public as a historic site.”  It seems that the auction is still open, and the Village of Dolton is hoping to have the high bid so that it does not have to exercise its powers of eminent domain.

Predicted Step 4: We’ll see how this goes, but I foresee litigation. If the auction price becomes unreasonable, Dolton will resort to eminent domain. The seller, the realtor, and the auction house will then sue, claiming that that the auction establishes the market price for the property, and anything below that is a taking.

Home Depot Wins Summary Judgment on Class Action Relating to Rented Tools

Plaintiffs rented tools from Home Depot and then sought to bring two claims on behalf of a purported class of similarly-situated individuals. First, plaintiffs alleged that Home Depot overcharged them for late rental returns. Second, plaintiffs allege that when Home Depot charged them for 15% of the rental price as a “damage protection fee” that fee should reflect the original rental price, not the rental price adjusted upward to reflect late rental returns.

Darin Mathews rented a piece of equipment. The contract provided that Home Depot could impose a “daily recurring charge” of $119 for late return of the equipment or $476 per week. Mr. Mathews returned the equipment eleven days late, and Home Depot imposed two weekly fees, charting him $952. Mr. Mathews argued that he should have been charged $119 for the first late day but then at the weekly rate, which comes out to $68/day multiplied by eleven days.  If the fees had been so calculated, he should have been charged $867. Jesus wept.

Mr. Mathews also rented a drain camera for $139 hours, and he agreed to pay the 15% damage protection fee, which came out to just over $20. However, while Mr. Mathews rented the camera for four hours, he returned it three days and five hours later. The rental fee was adjusted upward, as was the 15% damages protection fee. Mr. Mathews, on behalf of a class of people lacking common sense, maintained that the 15% should relate only to the original rental fee and not the rental fee plus the late fees.

That all seems pretty lame. But the case doesn’t even turn on any of that. Rather, the contract provides that the customer must provide written notice of any fee dispute within 25 days of receipt of the invoice. Mr. Mathews disputed the costs in telephone calls, but he did not send written notice within 25 days, and that decided the case.

In Mathews v. Home Depot, Inc., the District Court for the Northern District of Georgia granted summary judgment because Mr. Mathews failed to dispute the charges in writing. That is, the only part of the case that makes me sympathetic to the class is what doomed the class. I can understand a consumer not paying attention to the requirement of written notice of a dispute. The substantive part of the claim seems like a good example of what David Hoffman has identified as consumers’ unrealistic expectations, a topic on which I will have a post on Friday.

The key language that decided the case runs as follows:

Renter must notify The Home Depot in writing of any disputed amounts, including credit card charges, within twenty-five (25) days after the receipt of The Home Depot rental contract/invoice, or Renter will be deemed to have irrevocably waived its right to dispute such amounts.

Plaintiff first argued that the language applied only to the customer’s right to “audit” charges, but it plainly doesn’t. The key word is “any.” Plaintiff next argued that the language in question is an “exculpatory clause” and such clauses must be prominent, but it plainly isn’t. Exculpatory clauses relieve a party from liability; this language only sets a timeline for notice. Third, plaintiff argued that the language was vague. How is the customer to know where to send the notice? The first page of the contract provides the address. From when does the 25 days run? From the date of receipt of the final invoice, which the Court says is "the only sensical [sic] reading of the provision.”

Finally, Plaintiff argued that the 25-day notice provision is unconscionable. Georgia law does not seem to be particularly welcoming to unconscionability claims, seeing them as a rare exception to the principle of freedom of contract. According to the Supreme Court of Georgia, unconscionable contracts are contracts that “no sane man not acting under a delusion would make and that no honest man would take advantage of[.]” They “shock the conscience” and are “abhorrent to good morals.” Yikes. That’s a hard standard to meet. If the first part of the test is met, we would seem to have a mental incapacity defense, and if the second part is met, the contract should be avoided on public policy grounds.

As to substantive unconscionability, a Georgia court upheld a 30-day written notice provision, so it was hard to say that 25 days was substantially different. Given the standard for unconscionability, it would have been a stretch for the District Court to accept the argument for substantive unconscionability in this case. And so the claim was dismissed for failure to give written notice. I’m not crazy about courts being sticklers for such technical requirements when the company was clearly on notice of the dispute. If the court is going to treat the writing requirement as a condition precedent to suit, it could at least consider whether enforcing the condition leads to a forfeiture and whether the defendant is prejudiced by the lack of written notice. In this case, it’s just as well, as both claims were rather silly and not a great use of court resources.

Teaching Assistants: Brian McCall’s “Learning from Mistakes"

As we transition into summer, I am planning to do some writing on contracts law, and not just on the Blog. Writing involves reading, and I have a pile of recent scholarship to work through on my way to finalizing my own thoughts. As I do so, I hope to post some “Teaching Assistants” columns more often than I usually do on the Blog. “Teaching Assistants” posts usually focus on scholarship that readers might find useful to spur new approaches to the doctrinal matters that we regularly cover in Contracts and Sale courses.

Today’s post is about Brian McCall’s Learning from Mistakes: A Quantitative Comparative Study of Court Decisions Involving the Excuse* of Contractual Mistake, forthcoming in the Florida State University Law Review and available for download from SSRN here. I have had my own struggles with teaching the doctrine of mistake. One challenge is that students become fixated on the test from beloved, older cases, Sherwood v. Walker and Wood v. Boynton, which I think are wrongly decided, as discussed here. Those old cases applied a different and, in my view, faulty test, which gets stuck in the students’ heads, and some then refuse to apply the Restatement 2d test.

Professor McCall (above left) teaches at the University of Oklahoma, and I am happy to give a shout-out to a fellow Oklahoman. Professor McCall’s research is empirical. He analyzes two sets of cases. The first set is comprised of 97 mistake cases decided between 1977 and 1979; that is, just before the completion of the Restatement 2d (R.2d). These are Professor McCall’s “Older Cases.” The second set is comprised of 235 mistake cases decided between 2017 and 2019 (the “Newer Cases”). He first reviews scholarship and treatises on the subject of mistake. Much of the older scholarship on the subject is despairing. In 2004, James Gordley provided the following learned gloss: “[S]ometimes a party who has made a mistake will obtain relief, and sometimes he will not.”

The R.2d seemed to make it easier for parties to claim mutual mistake, so long as they did not bear the risk of the mistake. The R.2d also added a section allowing for unilateral mistake, but the test for unilateral mistake is difficult to satisfy. Parties almost always bear the risk of their own mistake, so a party can only avail itself of a unilateral mistake defense when the facts are quite extreme. Either the mistake was so palpable that the other party must have been aware of it or the other party must have somehow been responsible for the mistake. In either case, the equities must also favor the mistaken party. 

Commentators on the R.2d seem generally to applaud the abandonment of attempts, based on the older common-law line of mistake cases, to distinguish between mistakes that go to the “essence" of the consideration those that pertain to its “value.” But we still have the difficulty of determining whether mistakes relate to “a basic assumption” of the contract. And the R.2d offers relatively little guidance on how to allocate risk where the parties have not done so, but I have never found that problem all that vexing, as I explained last week.

The big finding from the data is that, notwithstanding the seeming liberalization of mistake doctrine in the R.2d, the likelihood of success of a mistake claim declined by roughly 50% in the cases considered. While a mistake defense won out in 37.4% of the Older Cases, it succeeded in only 16.6% of the Newer Cases. The success rate of unilateral mistake claims fell by over 80%. The defense worked in only three of 42 cases in which it was adjudicated. My non-empirical conclusion is that those three cases are outliers. Unilateral mistake is a terrible defense; it should almost never work.

Professor McCall’s ultimate conclusions are modest but valuable. The doctrine is a mess. Different courts look at different factors. But the defense rarely works, it works far less often than it used to, and it almost never works when the mistake is unilateral. The change in courts’ willingness to allow mistake defenses in the fifty years between Professor McCall’s two sets of cases is, by far, the most significant factor in explaining why mistake defenses succeed. Beyond that, it is hard to generalize, but courts that look into allocation of risk are more likely to reject the defense, and pairing a mistake defense with a fraud defense doesn’t help the party win its mistake defense. This is, to me, wholly unsurprising for a number of reasons, but there are undoubtedly reasons for adding a fraud defense, if you can, that have nothing to do with winning on the mistake defense.

Image by Microsoft Copilot

Only about 10% of the newer cases reference the R.2d, a fact that I find deplorable. I hope that judges are not still trying to distinguish mistakes that go to the essence of the consideration from those that go to its value. Might as well decide cases based on which side is more convincing on the subject of how many angels can dance on the head of a pin (right).

In my experience teaching contracts for over twenty years, one not infrequently comes across judges, including state supreme court justices, who are reluctant to adopt new tests provided in the R.2d or in neighboring jurisdictions. Such changes should be left to the legislature, say these minimalist adjudicators. That’s rubbish. Judges make law. Judges made the common law. It is folly to think that legislators are going to reconsider the common law of mistake when the issue arises in, at most, a handful of cases per year in their jurisdiction. Doing so will not get them re-elected; their constituents don’t care, and they will likely muck it up.

However, the state of the law being as it is, it is exceedingly valuable to have scholarship such as that undertaken by Professor McCall. We, as law teachers, should be mindful that our students need to know the R.2d test, because that is what they will be tested on when it comes time for the bar exam. However, once our students are practicing, they should make no assumptions about the how the doctrine operates in their jurisdiction. And given all of the doctrinal confusion, this is one of many areas of contracts doctrine where having a lawyer who is well-versed in contracts law can really help a client. The judges need to be educated, and the doctrine provides a lot of different avenues that one can pursue in finding the proper path to a decision that is both good for the client and sound as a matter of legal principle.

*Professor McCall treats mistake as an excuse rather than a defense. He is not alone, but I can’t quite follow the reasoning for treating mistake as an excuse. The way I approach the subject matter, defenses pertain to matters extant at the time of formation; excuses pertain to matters that arise after formation. Professor McCall cites to Tracey E. George and Russell Korobkin as authority for treating mistake as an excuse because it gives rise to a “constructive condition,” that the parties are free to contract around. Mistake is thus distinct from infancy, public policy, or unconscionability. I find the analysis illuminating, but I’m not sure why we cannot allow that not all mistakes operate in the same way while preserving the, to me at least, very important distinction between problems with formation and problems that arise during performance.

Professor McCall thinks that little turns on the distinction, because the effect of defense and excuse are the same, and I generally agree. However, treating mistake as an excuse leads to certain muddles. At one point, Professor McCall writes that mistake cannot relate to formation because it arises in cases where there is clearly offer and acceptance. But consideration is also part of formation, and Val Ricks persuaded me many years ago that defenses (but not excuses) arise from failures of consideration. If one or both parties are mistaken as to the subject matter of the contract, that is a failure of consideration.

In addition, Professor McCall notes that very few cases in his dataset discuss force majeure clauses in connection with mistake. He has various possible explanations for the silence on force majeure, but my explanation is that any court that treats a force majeure as relevant to mistake has made a category error. Force majeure clauses allocate risks for hazards that arise post-formation, and mistakes are about facts in existence at the time of formation. This distinction is usefully illustrated in the coronation cases.

Woman Claims to Have Bought an Unknown Van Gogh for $215 at Auction

This case fits in with our series on the contracts doctrine of mistake, addressed most recently here and here, but it is perhaps still more bizarre. On October 5, 2019, defendant Clearing House Estate Sales (CHES) opened bidding through Auction Ninja, an online platform, on an item identified as “Very Well Done Painting of Ships in Port - Signed ‘Vincent’ - Circa 1880-90 (painting). Emily Roy placed the last bid of $215, but then at 5:50 PM, the painting was withdrawn.

Ms. Roy is convinced that the painting is a previously unknown Van Gogh original, the value of which she estimates at up to $180 million.  I don’t know on what basis Ms. Roy thinks that she bought a Van Gogh for $215, but you have to admit, it looks pretty sus that CHES removed the item from the auction just when she was on the brink of buying it. I can’t think of any reason why they would do that other than the painting being a previously known Van Gogh worth up to $180 million.

Alas, the law was not on her side. Worse, the only version I can find of the court’s memorandum of decision is behind a paywall, but those of you with Lexis access can find Roy v. Clearing House Estate Sales here. Disappointingly, the case turns on the basic question of whether a contract was formed. Under Connecticut law, auctions are presumptively “with reserve.” CHES was thus allowed to remove the painting from the auction and thus decline Ms. Roy’s offer to become the proud owner a genuine VINCENT.

Ms. Roy’s counterarguments were unavailing. Both CHES and Auction Ninja represent that their auctions create binding contracts. True enough, says the court, but that requires that a contract be formed, and no contract is formed when an item is removed from auction before the final bid is accepted. Ms. Roy was similarly confused by the advertisement that most of the auctions hosted by CHES and Auction Ninja are “absolute auctions.” That is a term of art that signifies an auction without reserve. However, the website does not guarantee that all auctions are “absolute,” and CHES and Auction Nina nowhere indicated that the auction at issue was “absolute.”  

The whereabouts of the very well done painting are currently unknown.

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for May 27, 2025

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 28 Mar 2025 - 27 May 2025

Rank	Paper	Downloads
1.	A Theory of Complexity Aversion Xavier Gabaix Harvard University - Department of Economics	483
2.	Are Equitable Remedies Discretionary? Timothy Liau and Alexander Georgiou London School of Economics - Law School and affiliation not provided to SSRN	400
3.	The Form Knows Best Tara Chowdhury, Faith Chudkowski and Mitu Gulati University of Virginia - School of Law, University of Virginia School of Law and University of Virginia School of Law	259
4.	Exit Consents in a Liability Management World Dennis Jenkins Willkie Farr & Gallagher LLP - Willkie Library	232
5.	The Hidden Nature of Regulation Sharon Yadin The Max Stern Yezreel Valley College	216
6.	INTERNATIONAL COMMERCIAL COURTS 'MADE IN GERMANY': ATTRACTIVE ALTERNATIVE FOR BIG BUSINESS? Giesela Ruhl and Nicolas Dewitte Langenfeld Humboldt University of Berlin and Humboldt University of Berlin - Faculty of Law	197
7.	The Public Policy Exception in Choice of Law: The American Version Symeon Symeonides Willamette University - School of Law	172
8.	Recommender Systems as Commercial Speech: A Framing for US Legislation Andrew West, Claudio Novelli, Mariarosaria Taddeo and Luciano Floridi Yale University - Digital Ethics Center, Yale University - Digital Ethics Center, University of Oxford - Oxford Internet Institute and Yale University - Digital Ethics Center	165
9.	An Overview of Agency Doctrine Deborah DeMott and Tan Cheng Han Duke University School of Law and National University of Singapore Faculty of Law	140
10.	Using Insurance for Natural Hazard Loss Prevention Franziska Arnold-Dwyer University College London	136

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 28 Mar 2025 - 27 May 2025

Rank	Paper	Downloads
1.	Are Equitable Remedies Discretionary? Timothy Liau and Alexander Georgiou London School of Economics - Law School and affiliation not provided to SSRN	400
2.	The Form Knows Best Tara Chowdhury, Faith Chudkowski and Mitu Gulati University of Virginia - School of Law, University of Virginia School of Law and University of Virginia School of Law	262
3.	Consumer Vulnerability: A Genealogy Mateusz Grochowski Tulane University School of Law	107
4.	Liberal Contract Theory -- Part 1 of Freedom of Contract Michael Heller and Hanoch Dagan Columbia University - Columbia Law School and University of California, Berkeley - School of Law	100
5.	Resolving Civil-Commercial Disputes through Mediation in Pakistan: Legal Framework, Sector-Specific Application, and Digital Trends Daniyal Shoukat Wakalat Online LLP	89
6.	Bankruptcy as a National Security Risk Jason Jia-Xi Wu Harvard University, Harvard Law School	83
7.	Fiduciary Standards James Toomey University of Iowa - College of Law	75
8.	Remoteness of Damage in Contract Nicholas McBride University of Cambridge - Faculty of Law	69
9.	Consumers' Unreasonable Textual Expectations David A. Hoffman University of Pennsylvania Carey Law School	68
10.	Contracting with Artificial Intelligence: A Comparative Analysis of the Intent to Contract Maarten Herbosch KU Leuven - Faculty of Law	65

District Court Dismisses Class Action Against Amazon Prime for Making Us Pay

I admit it. Streaming has improved my life. Part of me is somewhat nostalgic for the days when Netflix DVDs showed up in the mailbox, but it took some pretty careful planning to keep the flow of watchable material coming. These days, television screens have improved, and one can have a cinema-like experience without having to leave the comfort of home. Crucial to that experience is that when you pay for subscription streaming services, you don’t have to sit through commercials. Right? Right? Right?

Actually, not so much anymore. I think streaming services ought to choose a lane. Make me pay for a subscription or make me sit through commercials. Don’t make me do both. A putative class agreed and sued Amazon Prime for making members fork over an extra $3/month to watch commercial-free movies. Because the pay increase happened mid-contract, they alleged breach of contract, breach of the duty of good faith and fair dealing, and breach of Washington Consumer Protection Act (CPA).  The District Court for the Western District of Washington dismissed the action in In re Amazon Prime Video Litigation in February.

Plaintiffs' breach of contract claim looks promising. After all, according to Section 6.e. of Amazon Prime’s Video Terms of Use (the Video Terms), "any increase in subscription fee will not apply until your subscription is renewed.” However, Amazon responds, the Video Terms must be treated separately from the terms of Amazon Prime membership (the Prime Terms). The Court concluded that both Terms apply.

The problem is that neither the Video Terms nor the Prime Terms contain any promises that members will not be subjected to ads. So the question is whether adding ads is a permissible change in membership benefits or an impermissible price increase. The court chose the former, reasoning that Plaintiffs did not purchase access to “ad-free Prime Video.” They purchased Prime Video. It happened to be ad-free when they bought it, but there were no representations that it would remain so. I guess the Court did not witness my jaw dropping with incredulity when ads suddenly started popping up in my Prime video streams.

There are lots of features of a streaming service that are not in its name. They are just assumed; they are part of the point of streaming services. People who chose to avoid commercials paid an extra $3/month for the privilege. That means they are paying $3/month more than previously to have the same viewing experience. In my world, that’s called a price increase. If Amazon were to suddenly make all of its offerings pay per view, I suppose this Court would also view that as a change in membership benefits. That’s some real lawyerly thinking there. It has little to do with consumers’ experience or expectations.

There is also some caselaw that has allowed Amazon to remove a benefit that was promised to subscribers when they signed up. Those precedents relate to Amazon’s decision to make subscribers pay $10 for Whole Foods Markets deliveries which had previously been free and to its decision early in the COVID pandemic to suspend it rapid delivery service. Plaintiffs attempted to distinguish this case from those because plaintiffs in the earlier cases did not characterize the changes as price hikes. Well, said the Court, this isn’t a price hike either; it’s just a change in services.

Plaintiffs’ claim for breach of the duty of good faith and fair dealing also fails because this was not a price hike. Plaintiffs claim that Section 6.e. limits Amazon’s discretion to change services by listing five conditions under which Amazon might modify services, none of which are applicable here. The Court emphasizes the word “may” in Section 6.3. and reads the list as non-exhaustive. it points to the last sentence of the Section, which provides that "Amazon reserves the right to suspend, or discontinue the Service, or any part of the Service, at any time and without notice.” Well, great, that sentence would render Amazon’s entire agreement with Plaintiffs illusory but for the duty of good faith and fair dealing. The Court ends its inquiry at the very point at which it ought to have begun.

Plaintiffs' CPA claim also fails. Because they failed to persuade the Court that Amazon had engaged in an unauthorized price increase, they failed to allege any deception that could give rise to a claim. Plaintiffs were given thirty days from the Court’s February 7th ruling to amend their complaint.

Bad news, Amazon and your advertisers. I’m not paying $3/month, and I’m not watching any commercials. I have something more powerful than your terms of service. I have a mute button (above left), and I’m not afraid to use it. And I keep my phone on my end table next to our loveseat so that I can doom scroll until the commercials end.