ContractsProf Blog

The New Yorker, Blackmail & Contract

The October 19, 2009 issue of The New Yorker had an interesting little “Talk of the Town” item by Lizzie Widdicombe on the whole David Letterman blackmail issue.   Northwestern Law School’s James Lindgren (unfortunately not a ContractsProf) wonders why blackmail is a crime.  I think the Letterman version of Lindgren's hypothetical would run something like this: Suppose Joel Halderman, the alleged Letterman blackmailer, had written a screenplay that would have exposed Letterman’s penchant for sexual liaisons with his employees.  Suppose Letterman had learned of the screenplay, perhaps because Halderman arranged for him to see it, and offered Halderman $2 million to destroy all copies.  Lindgren suggests that, had Halderman accepted such an offer, we would have had an enforceable contract and no crime.  So if the offer runs in the other direction, why is this a crime?

Widdicombe’s piece offers some situations that we might consider akin to blackmail: all commercial transactions, if you are a “Marxist”; divorce proceedings; and consumers who press for settlement by threatening adverse publicity for the corporate defendant.  The offense we take at blackmail is mere evidence of our penchant to wax sanctimonious over other people’s conduct when we engage in similar or worse conduct under color of law and call it virtue, Saul Smilansky seems to suggest.

Richard Epstein rides to the rescue, explaining that we don’t want to live in a world that permits blackmail, because blackmail leads to fraud, “and lying to the world is wrong.”  Of course, I don't know if the world we live in now, in which Letterman voluntarily catalogues his own faults, is any better.  Others acknowledge what Widdicombe calls “the ick factor,” but tie that factor to the fact that Halderman allegedly sought money.  If he had threatened to ruin Letterman’s reputation by going public with the news, there would be no crime.  Libertarian economist Walter Block goes further, arguing that blackmail, even if “yucky” should not be a crime, any more than smoking is a crime. 

I am more interested in the contracts law issue.  I think it is possible that we could use contracts doctrines, such as duress, undue influence and unconscionability to distinguish between enforceable agreements and acts of extortion.  Thoughts?

[Jeremy Telman]

Cosmic Contracts: Forever and Throughout the Universe

 
Great article in today's WSJ titled "Lawyerese Goes Galactic as Contracts Try to Master the Universe."  Read it.  Here's a taste:

Decked out in sequined black and gold dresses, Anne Harrison and the other women in her Bulgarian folk-singing group were lined up to try out for NBC's "America's Got Talent" TV show when they noticed peculiar wording in the release papers they were asked to sign.

Any of their actions that day last February, the contract said, could be "edited, in all media, throughout the universe, in perpetuity."

She and the other singers, many of whom are librarians in the Washington, D.C., area, briefly contemplated whether thy should give away the rights to hurtling their images and voices across the galaxies forever. Then, like thousands of other contestants, they signed their names.

Ms. Harrison figured the lawyers for the show were trying to hammer home the point that contestants have no rights to their performances, "but I think they're just lazy and don't want to write a real contract," she says.

Lawyers for years have added language to some contracts that stretches beyond the Earth's atmosphere. But more and more people are encountering such everywhere-and-forever language as entertainment companies tap into amateur talent and try to anticipate every possible future stream of revenue.

Experts in contract drafting say lawyers are trying to ensure that with the proliferation of new outlets -- including mobile-phone screens, Twitter, online video sites and the like -- they cover all possible venues from which their clients can derive income, even those in outer space. FremantleMedia, one of the producers of NBC's "America's Got Talent," declined to comment on its contracts.

The article provides Prof. Eric Goldman's view of these intergalactic contracts clauses:

[Goldman] says the language could be "a stroke of brilliant foresight." Referring to geographical limits loosely can be dangerous, he says. For instance, "the United States is an ambiguous term...American Samoa, yes or no?"

"Throughout the world" would be one alternative, but that excludes possible future markets, he says. Some day, Mr. Goldman adds, people might ask, "What were they thinking? Why didn't they get the Mars rights?"

Cosmic. 

[Meredith R. Miller]

Wow: Does the UCC List Kidnapping and Murder as Buyer’s Remedies?

This gets filed in “Whacky Stories” and/or “Chutzpah!”  Apparently, buyer and N.Y. seller have a contract for the construction and sale of an ice cream truck for a price of $18,000.  Buyer requests a refund; seller refuses.  Buyer makes the trip to New York and kidnaps seller and murders seller's friend.  Buyer pleads guilty in exchange for KFC and ice cream.  Now, presumably from prison, buyer sues seller for (1) refund and (2) reimbursement of travel expenses to New York.  We just can't make this stuff up.

[Meredith R. Miller][h/t Isaac Samuels]

Important Consumer Alert: Baby Einstein DVDs Might Not Make Kids Smarter

Disney, which makes the Baby Einstein series of children’s DVDs, has “set the record straight” with an announcement that it does not advertise the videos as “educational.” Consumer rights groups had accused the company of deceptive advertising because there is no proof that the videos make kids smarter.  The company is actually offering a refund to buyers who purchased a DVD between June 5, 2004, and Sept. 4, 2009.  Here’s the story from Newsday: 

Beth Kichel and Lisa Kobel are expecting a Baby Einstein windfall - between them the Long Island moms own half a dozen of the DVDs, and the Walt Disney Co. is now refunding $15.99 per video.

A throw-down between The Baby Einstein Company and a Boston child advocacy group has resulted in the bonus for consumers.

"The Campaign for a Commercial-Free Childhood" has been fighting the Einstein division of Disney for years, saying the company's advertising was "deceptive." The advocacy group's position: There's no proof watching the videos, which feature classical music and art for babies and toddlers, makes a child any smarter.

Baby Einstein countered by posting a "set the record straight" announcement on its Web site, saying it doesn't advertise the videos as "educational," and that it has expanded its refund policy, not because it's guilty, but as a show of confidence in the product and to end the fight. "We decided it to leave it up to those consumers," wrote general manager Susan McLain.

Kichel and Kobel are among the consumers ready to cash in. Kichel got her tapes when her daughter, Tali, now 2, was born. "I tried to make her watch them, having heard the hype about how intellectually stimulating they are for the newborns," said Kichel, who lives in Bellmore. "She had no interest in them. I will look for them now to return and get the refund."

Kobel, who lives in Huntington and has a 22-month-old named Jillian, echoed Kichel as the moms played with their children at the indoor playground Once Upon a Treetop in Plainview. "I didn't buy them thinking, 'Oh, it's going to make her smarter,' " Kobel said. "They're a little boring."

[Meredith R. Miller]

Alan White on In-Class Exercises

The Fifth in a Series of Posts by Guest Blogger, Alan White:

Two of my favorite in-class exercises, one on unconscionability and one on remedies, highlight one of the fundamental difficulties of thinking like a lawyer.  Law is incredibly frustrating for first-year students, because it calls simultaneously or alternately for rigorous logical precision and wildly creative indeterminacy. 

After reading Williams vs. Walker-Thomas Furniture and eliciting Judge Skelly Wright’s famous two-part formulation, I ask students to spend fifteen minutes in small groups coming up with a list of facts that either party might wish to prove at the trial on remand.  To organize their thinking, I draw four columns on the whiteboard, two for the merchant and two for the consumer, one each to prove or disprove 1) the absence of meaningful choice and 2) terms unreasonably favorable to the drafter, i.e. procedural and substantive unconscionability.  We then populate the columns with ideas from each of the groups, until the class time runs out.

Before the groups began their work, one student raised her hand and asked me what was meant by “absence of meaningful choice.” One sensed that she was craving the precision we found in remedies calculations.  The requested definition is, of course, the elusive object of the exercise.

This is useful practice, inter alia, in understanding factors and elements.  The two major categories, procedural and substantive unconscionability, are required elements, for mostbut not all courts.  The wide variety of facts one could use to prove either element are factors, necessary but perhaps not sufficient in any case to persuade the judge.  Some students argue that any adhesion contract suffers from absence of meaningful choice, while others will assert equally persuasively that a consumer always has a choice, if only not to contract at all, unless perhaps the contract is for absolutely necessary goods.  The discussion of meaningful choice also provides a rare occasion in Contracts class (compared to say, Criminal or Constitutional Law) to discuss race, gender and class.  This exercise is always mentioned favorably in course evaluations.

On the other end of the determinacy spectrum is a remedies problem supplied by the Macaulay casebook that involves a breach of a contract to sell a violin (see mug-shot at right) and the seller’s damages after resale.  The problem includes incidental damages, consequential damages, expenses saved, and a variety of other confusing numbers.  In the end, a careful application of the rules of U.C.C. §2-706 should result in a single, correct answer, in the form of a numeric damage award.  I ask students to perform this exercise individually, usually at the end of one class to prepare for the next.  I then call on students and ask for their bottom line answer, and continue asking for numbers until I have exhausted the alternatives they have arrived at.  This year there were more than twenty answers in a class of about fifty.  The result of the exercise is dismaying to teacher as well as student, but forces us both to understand that law is not just a matter of endlessly inventing arguments, but also requires careful logic and critical thinking. 

Both exercises force me to remember that learning the law is a long journey, on which first year students are just embarking.  They also remind me that I did learn a few things at the AALS new law teachers’ conference. 

[Posted, on Alan's behalf by Jeremy Telman]

Contracts Limerick of the Week: Dunnebacke v. Pittman

As I told my students, this Limerick makes history.  It is the first time that a famous line of iambic pentameter has been slipped into a Limerick.  The case to which it relates is a fairly simple one.  Mr. Pittman and Mrs. Gilligan engaged in discussions about putting up a wall behind her beach-front property to protect it against erosion.  The parties' accounts of these discussions differ.  Mr. Pittman emerged with the belief that he had marching orders,so he constructed a large V-shaped barrier behind Mrs. Gillegan's Wisconsin property while she was in Chicago.  Mrs. Gilligan was distracted because her husband kept yelling "SKIPPER!"  Well, perhaps not.  But in any case, she did not regard their conversation as resulting in an agreement, and she considered the new retaining wall a monstrosity.  

The trial court chided Mr. Pittman for his careless way of doing business and found no meeting of the minds, but it granted Mr. Pittman leave to amend his complaint and to seek recovery based on unjust enrichment.  The Supreme Court of Wisconsin was even less sympathetic, finding that there could be no recovery because Mrs. Gilligan did not in fact benefit from having a hideous concrete wall erected on her property.  Mr. Pittman was simply going to have to absorb his labor and material costs. 

This simple case inspired the following unprecedented legal Limerick:

Dunnebacke v. Pittman

Mrs. Gilligan was not in thrall;
No agreement could she recall.
Pittman may lose his biz,
But something there is
That doesn't love a wall.

After I recited this historic Limerick and informed my students that the last line two lines repeated a line from Robert Frost, one of my students uttered an incredulous, "That's it?!?"  It was the first time one of my Limericks has been heckled.  I have half a mind to go heckle her while she is studying.  

I'll come upon her in the library, and say, "You call that reading?  Come on, turn the page already!  Pink highlighter, eh?  You sure you got the right passages?"  

Yeah.  We stand-up law professors ought to give as good as we get.

[Jeremy Telman]

Marcus Jordan: A Pair of Shoes, Family Ties and a University's Exclusive Contract

The Orlando Sentinel reports this interesting contracts story, involving Michael Jordan's son:

A pair of shoes could end up costing the University of Central Florida nearly $3 million.

UCF promised Marcus Jordan, son of NBA legend Michael Jordan, that he could wear his father's Nike Air Jordan brand for the Knights' basketball team this season.

The problem? UCF has an exclusive $3 million, six-year contract with adidas that requires all coaches and athletes to use the company's shoes, apparel and game equipment.

And now UCF and adidas are at an impasse, leaving an 18-year-old freshman with a famous father caught in the middle.

"When I was being recruited, we talked about it," Marcus Jordan said. "They said they had talked to the adidas people, and it wasn't going to be a problem. I think everybody understands how big of a deal it is for my family."

The deal has strained the relationship between UCF and one of its most important business partners, complicating current contract-renewal negotiations. The university's agreement with the company expires in 2010.

Contrary to a report last week by AOL Fanhouse, adidas officials told the Orlando Sentinel they have not reached an agreement with UCF yet about Jordan's shoes.

"There is no compromise, and the contract is currently under review," adidas spokeswoman Andrea Corso said. "We are in negotiations for a future relationship regarding the broader UCF athletic program. What I can say is that these relationships are based upon agreed deliverables for both parties."

UCF Athletics Association released a statement indicating it hopes to extend its 5-year-old relationship with adidas.

"At this time, we are working with adidas in determining how this unique set of circumstances will work for both parties," the statement said. "We made adidas aware of this unique situation during contract-renewal discussions. There is a great deal of respect for the adidas brand and the partnership."

UCF's contract with adidas represents about 1.4 percent of the UCF Athletics Association's projected income this year.

UCF is negotiating a new deal with adidas that is tentatively expected to be worth $3million and last up to six years. UCF would receive all its merchandise from adidas free under the new proposed contract, a change from the current deal that calls for UCF to buy some items from adidas at wholesale prices.

Nike has not expressed interest in taking over the UCF shoe contract, with the company well-represented in the Florida market thanks to agreements with the University of Florida, Florida State and Miami.

In the worst-possible scenario, UCF risks losing its current adidas contract's worth and being forced to buy its own clothing, shoes and equipment at full price for all 15 of its sports.

Marcus Jordan, the young man in the middle of this controversy, said he never meant to offend anyone.

"It's a level of importance with the Jordan brand and my family," he said. "It's no disrespect to adidas. I have a high level of respect for adidas, but I'm going to be wearing Jordan shoes. I'm wearing the adidas uniform, and all my other UCF gear is adidas, but the shoes are going to be Jordan brand."

Dan Drane, an assistant professor of sports management at the University of Southern Mississippi, said it's hard to imagine Marcus Jordan would be able to wear anything besides Nikes.

"Whether it's right or wrong, Michael Jordan's sons will always be compared to and associated with him," Drane said. "It would be very difficult for them to be associated with a company other than the one that was so supportive of their father's career."

Drane said the shoe controversy goes beyond adidas simply wanting UCF to honor its contract.

"It's a pretty deep issue that touches on a student's legal right to wear whatever they feel is best for them," Drane said. "In the end, this might end up being bigger than just a battle between adidas and Nike."

[Meredith R. Miller]

Update on Franken Amendment: Jamie Leigh Jones interview

We previously mentioned the "Franken Amendment" to the 2010 Defense Appropriations bill, which would withhold defense contracts from companies like Halliburton if their contracts restrict employees from suing in court for claims such as sexual assault, battery and discrimination. 

Jamie Leigh Jones and her attorney appeared on the Rachel Maddow Show last night to tell ther story, and speak in support of the amendment.  If you are interested in this development, it is worth watching:

[Meredith R. Miller]

Was Carrie Prejean Unjustly Enriched? (Nudge Nudge Wink Wink)

You'll undoubtedly recall that, back in May, we mentioned that Miss California USA (aka Donald Trump) might terminate then-Miss California Carrie Prejean for breach of contract.  Prejean was in fact de-crowned, and she sued the pageant organizers for a whole host of things, including discrimination based on her anti-gay marriage stance and violation of her privacy when a representative acknowledged publicly that she had breast implants.  The franchise wasted no time with a countersuit and, according to CNN, one of the claims seeks to recover some $5000 the pageant organizers loaned Prejean for the breast implant surgery - pursuant to an oral agreement between the parties. 

Some stories, even contracts profs can't make up.  This ugly tale of caution is one of them. 

[Meredith R. Miller]

Executive Compensation Mystery at Sotheby's

The New York Times reports that the Sotheby's auction house has refused to provide government regulators with information on bonuses paid to Sotheby's executives.  Sotheby's justifies this refusal by pointing out that if that information were to become public, its arch-rival Christie's, could use it to lure executives away from Sotheby's by offering still more lucrative compensation.  In correspondence with the SEC, posted here, Sotheby's pointed out that its "chief competitor" -- i.e., Christie's -- is a private corporation not subject to disclosure rules.  

This news fascinates me for three reasons:

1. Sotheby's and Christie's are undoubtedly at the top of the heap in the art dealing industry.  Based on my circle of acquaintances, which includes many unemployed or underemployed artists, art curators and art experts, it seems likely to me that Sotheby's and Christie's benefit from being in a buyer's market when it comes to hiring executives.  If both companies under-compensated their executives, where would those executives go?  And if they left, so what?  Couldn't Sotheby's and Christie's easily find highly competent replacements who would work on paint fumes just for the honor of getting those great auction houses on their resumes?

2. But even if I'm wrong about that, if Christie's were really interested in luring executives away from Sotheby's, couldn't they just ask the executives about what sort of compensation package it would take to motivate them to move?  Is there a number one rule of Sotheby's Club that you don't talk about Sotheby's Club?

3. In any case, didn't Sotheby's waive its right to whine about the hassles of disclosure when it went public?

[Jeremy Telman]

Contracts Limerick of the Week: Market Street Associates v. Frey

There has been a lot of interest on the blog lately in the topic of contracts law and morality, e.g. here and here.  Our comments section has been unusually active, which is terrific.  A recent comment got me to thinking about Market Street Associates v. Frey.  

That case involved a lease agreement between GE Pension Trust (GE) and Market Street Associates (MSA) as the assignee of JC Penny.   The lease had a provision that allowed MSA to seek a loan from GE for the purpose of improving the property.  If GE refused, MSA had an option to buy the property for the original purchase price plus 6% annual interest. 

MSA offered to repurchase the property from GE, but GE demanded $3 million, which MSA thought was too much.  MSA then requested financing, and when GE refused on the ground that it was not offering loans in amounts less than $7 million, MSA demanded the sale of the property pursuant to the lease provision.  Under the terms of the lease, MSA would have been entitled to buy the property for about $1 million.  GE claimed that because MSA had failed to remind it of the option in the lease, MSA had acted in bad faith. 

The district court granted summary judgment to GE, finding that under the doctrine of good faith or simply as a matter of contract interpretation, MSA had a duty to remind GE of the option provision.  This led Judge Posner to a lengthy rumination on the nature of terms such as “good faith” in contract law.  Not surprisingly, Judge Posner does not find these terms very useful.  However, he was able to explain the value of the doctrine of good faith in economic terms, and that permitted him to find that in fact MSA's conduct might well have violated the duty to act in good faith.

For Posner, what we call the duty of good faith is really just about reducing transactions costs by creating a disincentive to sharp practices in the course of performance.  Sharp practices, says Judge Posner, are perfectly fine when negotiating a deal, but once the parties enter into an agreement, they are now in a “cooperative relationship” in which each lowers her guard.  The doctrine of good faith thus protects against opportunistic behavior that can arise in the context of the sort of bilateral monopoly that can develop after the parties have committed themselves to a contractual relationship.

As many commentators on the blog have pointed out, there are many reasons to doubt that the moralizing tone underlying terms such as “good faith” could or should be eliminated from contracts law.   But even assuming we were to attempt to understand contracts law entirely in terms of transactions costs, Posner’s position remains highly dubious. 

First, at least since the Restatement (2d) and the UCC, contracts law has been sensitive to the difficulty of attempting to pinpoint the moment at which a threshold from a pre-contractual to a post-contractual relationship has been crossed.  Parties continue to negotiate and change deals as they go.  There is thus little reason to suspect that parties immediately let down their guards once they have entered into a cooperative relationship.

Second, if sharp practices increase transactions costs, then they do so regardless of when they occur.  A party that engages in sharp practices will get a reputation for doing so.  Other parties dealing with that party will be cautious and will engage in extra diligence that will complicate negotiations and may ultimately prevent many deals from occurring because a fundamental mistrust cannot be overcome satisfactorily.  

Finally, if one is really interested in reducing transactions costs, then hold sophisticated, well-resourced parties to the terms of the agreements they sign.  If GE wants a provision requiring notice before its contractual partner triggers its option to purchase, it can very easily write that duty to notify into the contract.  A party like GE should have no recourse to a doctrine like good faith when it had the means and the ability to protect its own interests in both the pre- and the post-contractual moments.

Still, Posner opinions are always stimulating and thus Limerickworthy:

Market Street Associates v. Frey

“Don’t get moralistic with me,”
 Said Judge Posner to trustee, GE.
 “Though when I hear ‘good faith,’
 I reach for my . . . Wraith.
 Opportunists ain’t my cup o’ tea.”

[Jeremy Telman]

Jon & Kate Plus Attorneys

Many regular readers have written to complain about the blog's non-existent coverage of the greatest drama of the 21st century thus far, the War of the Gosselins.  The truth is, we were barred from writing about "other reality television programs" under the terms of various letters of intent that we had entered into with reality television production companies interested in pitching shows that centered on our blog and our rivalries with other law blogs.  Sadly enough, television viewers will now never see that drama.  

We were able to overcome the initial obstacle that the camera crews kept on falling asleep while filming the "action shots," which consisted of us eating ding dongs, sipping coffee and Mountain Dew while composing blog posts and chortling as we flamed our various nemeses.  But when the focus groups that viewed the pilot for our show also fell asleep, each production company in turn told us "we should do lunch some time."  Whatever that means.  

So, to get you up to speed.  CNN.com reports the following: Jon and Kate are separated.  TLC, the channel that brought us "Jon & Kate Plus 8," decided to continue with a show that focused on Kate's "journey as a single mother."  Jon pulled the plug on that by denying TLC access to his home, expressing concern [get this!] for his children.  You can watch Jon and his central-casting-provided attorney on Larry King Live here.  It will really be a shame if "Kate Plus 8" never appears.  As the advance publicity shot provided here indicates, Kate will inspire other mothers of multiples with her tips on keeping in shape while pregnant through hoola hoop exercises and rhythmic gymnastics.

TLC is fighting back, alleging that Jon has violated his contract with the network by giving unauthorized television interviews.  TLC alleges damages of $30,000, but Jon, through his attorney, challenges the enforceability of the contract and also argues that the contract was terminated when TLC decided to replace "Jon & Kate Plus 8" with "Kate Plus 8."  

Both Jon and Kate intend to continue their television careers, and I think the title of this post provides a name for their next reality television series.

[Jeremy Telman]

The Benefits of Teaching Across the Curriculum

This year, for the first time since I have been teaching at the VU School of Law, my colleague JoEllen Lind gave her students a contracts-based hypothetical in the pleading exercise she does with them every year for Civil Procedure.  The result has been a steady stream of sheepish 1Ls apologetically trying to "confirm" that they are headed in the right directions with their projects.  It is a great educational experience -- especially for me.  I have learned which doctrines they have firmly in their grasp -- they really seem to understand the concept of promissory estoppel, and some of them know the statute of frauds so well, they think that all contracts must be in writing -- and which doctrines still elude them.  

The exercise has provided me with a great opportunity to review the materials for my course with my students.  There is nothing like an assignment -- I don't even know if it is graded -- to focus the mind.  It helps that JoEllen describes her teaching persona as "Cruella de Vil."  Students flee from her smoke-filled cabinet of horrors into the cozy book-lined study of the avuncular contracts prof.  

[Jeremy Telman]

Just in Time for Halloween: Stambovsky v. Ackley revisited?

Previously on this blog, Eric Goldman provided a wonderful compilation of resources for Stambovsky v. Ackley -- the haunted house case.  Maybe the West Village will get a haunted house case all of its own.  The Daily News Reports:

A West Village house with a resident ghost is back on the market - just in time for Halloween.

The historic Gay St. property, on the corner of Waverly Place, is rumored to be inhabited by a restless spirit who walks the creaking floorboards at night.

Legend has it a man in top hat and tails has been spotted in the building; some local historians say it is former Mayor Jimmy Walker, who once owned it.

"I wouldn't go in there right now - it's legendary that ghosts live there," said Randy Credico, 54, who has rented an apartment across the street from the haunted house for two decades. "That place would be like moving into 'The Shining.' "

The property, recently put on the market by realtors Corcoran, comes with a $4.2 million price tag - ghosts included.

It was built in 1827 and housed a speakeasy before Walker bought it for his mistress, Betty Compton, in the 1920s.

Puppeteer Frank Paris, who designed the original Howdy Doody, also lived there. Most recently it was home to Scientific Americaneditor Dennis Flanagan and his wife, Barbara.

Records show the Flanagans sold it in 2007. It has been gutted and is now an empty shell.

"I never saw him, I never heard him," Barbara Flanagan said of the ghost. "I never smelled anything - except onions. The stairs were creaky, but you know what? It was a 200-year-old house. Now it really looks like a haunted house - I guess it's a self-fulfilling prophesy." 

Other longtime Gay St. residents say the rumors about the street's uninvited houseguests go with the territory.

"There are ghosts in all of these buildings," said Celeste Martin, who owns and manages the next-door townhouse. "They talk; they're living things these buildings."

Martin said that over the years, she has seen mysterious faces in windows and heard inexplicable noises. "It just happens, it's very spiritual," she said.

A Corcoran real estate agent said the company wasn't aware of the home's storied past.

West Village ghost tour guide and historian Phil Schoenburg doesn't expect a prospective buyer to be deterred by the spirits. 

"Whoever moves in will be creative," he said. "Some people like ghosts. They think it keeps the burglars away."

[Meredith R. Miller]

Nobel Prize in Economics goes to Academics Who Pay Attention to “What Happens in the Real World” and Contracts

Elinor Ostrom and Oliver Williamson were awarded the Nobel Prize in economics earlier this week.  The WSJ describes both of their work has “highlight[ing] areas where standard approaches of economics are inadequate at explaining what actually occurs.”  Further, the WSJ explains (subscription required):

Mr. Williamson's work is driven by two key ideas. The first is that a contractual agreement can never be complete; there are always contingencies that haven't been accounted for. The other is that people act opportunistically within the gray area of contracts to make sure they benefit the most, and that can lead to problems.

Congrats to both economists.

[Meredith R. Miller]

Twelve Year Old Girl Bests Phillies' Slugger

In order to try to pump some energy into their dull sport, baseball announcers are constantly reminding their viewers that they are witnessing history: 

"You saw it here first, folks! That is the first time a third baseman has thrown two balls into the stands in the same inning!  Wow, some lucky fan has a valuable souvenir. . . . Wait a minute, folks.  Our statistician is telling me that this is not the first time that has happened. . . .  Has it ever happened in this ball park?  Oh.  In the third inning? . . .  Un-huh, but was it a day game?. . .  So there you have it folks, we have confirmed that this is the first time in baseball history that a National League third baseman has thrown two balls into the stands in the same inning during an inter-league day game played in an American League park in the year that he is due to become a free agent!  Wow!  Imagine that!"

And so, according to this view of history, Phillies' Slugger Ryan Howard (pictured) made history, as reported on CNN.com, when he hit his 200^th home run in his 658^th major league game, making him the fastest player to reach the milestone, besting the previous record by 48 games.  It is a great achievement, but I’m not sure if it is really one for the history books, even if CNN says it is.  The lucky fan to retrieve the ball was 12-year-old Jennifer Valdivia, who apparently bested her 17-year-old brother in the treasure hunt. 

An official from the home team, the Florida Marlins, then reportedly escorted Jennifer and her brother to the Phillies’ dugout.  There, CNN reports that the following transaction occurred:

A Phillies employee, Jennifer says, told her if she handed over the ball, she could come back after the game, meet the slugger and get him to autograph it. She gave the ball up. In exchange, she got cotton candy and a soda.

Alas, after the game, she and her family went to the Philllies’ clubhouse as directed, but Ryan Howard never showed up.  A security guard gave her a signed ball, but it wasn’t the ball.  Jennifer testified that she was, “like, really sad.”  Jennifer’s mother was more than sad, she was “steamed.”  Eventually, she was also represented by an attorney who, through the alchemical processes in which attorneys specialize, metamorphosed anger and disappointment into a legal claim for $15,000.  The Phillies’ and Howard’s resistance were thereby overcome.  They returned the home run ball to Jennifer and also paid her attorney's fees. 

Jennifer says that she intends to keep the ball and to show it to her kids.  I hope she does, rather than selling it.  As CNN notes, letting fans keep balls is a way of letting them connect with their baseball heroes.  We ought not to put a price tag on being a part of history.

[Jeremy Telman]

A Narrow Proposal Aimed at Mandatory Arbitration in the Contracts of Employees of Government Contractors

The broadly drawn Arbitration Fairness Act, which would invalidate pre-dispute arbitration clauses in employment, franchise and consumer contracts, has been milling about Congress.  Supporters of the Act have often pointed to the unbelievably grim story of Jamie Leigh Jones, an employee of Halliburton who was gang raped by fellow employees and detained in a shipping container while working oversees in Iraq.  Apparently she is not the only female employee of a government contractor to have endured such an unspeakable experience. 

Halliburton fought tooth-and-nail to invoke the arbitration clause in Ms. Jones’ employment contract and to thereby keep her claims against it out of court.  Ultimately, after four years of fighting for her right to sue in court, the Fifth Circuit recently construed the scope of Ms. Jones' arbitration clause narrowly, and held that Ms. Jones should not be compelled to arbitrate her claims.  But the Fifth Circuit’s holding, of course, is limited to that particular contract and that particular jurisdiction, and its reach and influence is as yet unknown. 

 Ms. Jones’ case is undoubtedly an egregious and extreme example of the potential injustices occasioned by pre-dispute (or “mandatory”) arbitration clauses in the employment context.  Those who support the Arbitration Fairness Act have told her story in support of its passage – leaving one to wonder whether the story, while a compelling one, was sui generis, and not a basis on which to paint a broad policy against pre-dispute arbitration in all employment contracts, as well as consumer and franchise contracts.

But, Stuart Smalley Sen. Al Franken has found bipartisan support in a narrower piece of legislation that would directly address cases like that of Ms. Jones.  He has proposed an amendment to the 2010 Defense Appropriations bill that would withhold defense contracts from companies like Halliburton if their contracts with their employees restrict employees from suing in court for claims such as sexual assault, battery and discrimination. 

Franken spoke eloquently and persuasively of the need for this legislation, which is so narrow in scope it seems hardly objectionable:

Though, some Republicans remained unwilling to walk across the aisle to meet Franken on this legislation; Sen. Jeff Sessions described the amendment as a “political attack on Halliburton.” 

Wait a second, who was attacked here?

[Meredith R.  Miller] [h/t Emily Small]

Alan White on Public Policy and Pedagogy:

The Fourth in a Series of Posts by

Guest Blogger, Alan White

One of the things I took away from Elizabeth Mertz’s

interesting book The Language of Law School was that Contracts professors have a tendency to squelch their students’ moral intuitions in the process of teaching critical thinking and legal rules.  After reading this I resolved to hear students out when they react with “it’s not right” or “it’s not fair”, while at the same time engaging with their moral sense and challenging them to consider the dialectical tensions that are ever-present in seemingly simple questions of right and wrong.

Yesterday a session on illegal contracts provided my students with an opportunity to wander in this territory.  The case at issue, Carroll v. Beardon, involves a contract for one madam to sell her house of ill repute to another.  The court enforces the note and mortgage obliging the buyer topay the remainder of the sale price (we don’t know if the buyer madam was eventually foreclosed on) based on the notion that the seller was not an active participant in the business, at least not after she sold it.

The first question students raised was why the parties did not end up in criminal court as a result of airing their dirty laundry (so to speak) in the civil case, as happened to the two partners in the Highwaymen’s case.  One can only assume that the judge and other citizens of the county all found the business at issue distasteful but tolerable, and the parties and their lawyers regarded the risk as minimal.  This thought raises a number of interesting questions about malumprohibitum and whether the legal system can occasionally look the other way when legal rules are perceived either as illegitimate or at least not worthy of strict enforcement.

This thread then led to several equally interesting questions, such as whether merely selling an illegal business would constitute a crime, and whether it made a difference that the seller received payments over time on her Note, and thus continued profiting in some sense from the trade.  These questions provided a useful opportunity to point out the seamless nature of law practice, and the need to be on the lookout for issues that clients may not have considered, most especially the prospect of jail time. 

Also interesting was the question of the lawyer’s duty when her client seeks legal advice about the sale of an illegal business.  This provided me with yet another opportunity to venture into a subject ordinarily taught by one of my colleagues.  Many students approach this question with the intuition that if a client is guilty of a crime, assisting them in any way is wrong, and perhaps we should even report them to the authorities.  Here is a nice example that might be viewed simplistically and incorrectly as differentiating between what is moral and what is legal.  The presumption of innocence, the unequal burden of proof placed on the awesome power of the state, and the freedom from self-incrimination are all moral as well as legal principles, that obviously come into tension with the basic moral notion of wanting to see wrongdoers punished.  A lawyer’s role in advising an admitted criminal to my mind is profoundly moral, as well as instrumentally legal.  Nevertheless, the idea of counseling a client who confesses past sins is troubling to students, for reasons we should not too hastily dismiss.

[Posted, on Alan's behalf, by Jeremy Telman]

Can Mad Men Bring Sexy Back to Contracts?

I am late to the hit AMC series Mad Men; just last week, I started watching the first season on DVD.  I am enjoying the show, and tolerating the unrelenting misogyny as a representation of the period.  That aside, the show definitely has an alluring and sexy aesthetic – partly attributable to the constant smoking and cocktail drinking in well-tailored suits.

I’d love to bring some of this allure into the contracts classroom – without the sex, sexism, smoking and drinking.  And, I just might be able to.  I have it on reliable information that there is an employment contract issue that arises as a sub-plot late in Season 2 and has carried over to Season 3 of the show.  Apparently the story line involves Don Draper refusing to sign an employment contract because it contains a non-compete clause.  When I heard this, I went from liking the show to loving it.

But, this is as informative as my post can be – because I have not yet reached these episodes of the show.  That is why I am asking those of you who read this blog and watch Mad Men to explain in the comments the non-compete sub-plot and name the episodes in which it receives treatment.  We will address non-competes in my class in a few weeks, and I am thinking I just might be able to bring sexy back to Contracts.

[Meredith R. Miller]

Affirmative Defenses in Arkansas

NB: An earlier version of this post identified the case as coming from Alabama rather than Arkansas.  Many thanks to the attentive reader who caught the error.

The Eighth Circuit decided a contracts issue last week in All-Ways Logistics, Inc. v. USA Truck, Inc., No. 08-1054 (Oct. 1, 2009).   The District Court awarded All-Ways about $3 million in breach of contract damages on a commission agreement.  The interesting issue was USA Truck’s argument that the District Court erred in failing to instruct the jury properly on its affirmative defense that All-Ways had waived the breach by continuing to accept benefits from the contract after discovery of the breach.

In 1999 the parties entered into an agreement under which USA Truck was to pay All-Ways a five percent commission on all freight that All-Ways solicited and USA Truck transported.  In 2002, USA Truck informed All-Ways that it was terminating the agreement and that commissions would no longer be paid with respect to an account with Rheem Manufacturing, one of the largest accounts that USA Truck had gotten through All-Ways’ efforts.  All-Ways complained, but the parties continued their relationship with respect to other accounts.  In 2005, USA Truck began negotiating with the other large account it had gotten through All-Ways so that USA Truck could bypass All-Ways on that account as well.   In August of 2005, USA Truck gave notice that it was terminating its commission agreement with All-Ways, and that termination became effective in October.

In May 2006, All-Ways brought suit seeking recovery under the commission agreement for commissions earned but not paid on freight solicited by All-Ways and shipped by USA Truck through October 2005.  After a jury trial, All-Ways won a verdict in excess of $3 million, plus prejudgment interest and attorneys’ fees.

USA Truck contended that All-Ways had waived the breach by continuing to accept benefits under the agreement.  The district court refused to instruct the jury on that affirmative defense, finding that it did not apply to the facts of the case.  The Eighth Circuit found the question a close one, but found no abuse of discretion.  The district court reasoned that the agreement between the parties was structured to give rise “to a separate and unilateral contract between the parties [with respect to each account] and that All-Ways’[s] performance as to one account did not entitle it to a commission on another, nor did USA’s breach by nonpayment as to one account create a cause of action for breach as to the others.”

USA Truck contended that the question of whether the commission agreement at issue was severable in this manner should have been submitted to the jury.   However, the district court found – and the Court of Appeals agreed – that the severability of the agreement could in this case be established as a matter of law based on its clear and unambiguous terms.

In addition, the Eighth Circuit noted that there was no unambiguous waiver in this case because All-Ways had protested the termination of its commissions.  Here the Eighth Circuit reasoning seems a bit shaky to me.  The affirmative defense of acceptance of benefits exists because such acceptance is itself evidence of waiver.  The Eighth Circuit distinguished cases establishing that proposition on the ground that those cases did not apply to severable contracts.   Still, that leaves the court with one ground for its decision (the agreement was severable) and not two (severability and waiver).

Obsessive readers of the blog (and comments on the blog) might also note with interest that Arkansas law permits recovery of “reasonable attorneys fees” in contracts cases.  The horrors!  To make the Death of Contract theme even more apparent, in this case plaintiff’s attorneys sought recovery of a one-third contingency fee (which came to just over $1 million) when recovery by the lodestar method would have yielded just over $217,000.  The Eighth Circuit found no abuse of discretion in the district court’s award of fees under Arkansas law.

[Jeremy Telman]