ContractsProf Blog

One Happy Meal™, Hold the Cadmium

Friday, the Consumer Product Safety Commission(CPSC), in conjunction with fast-food giant McDonald’s®, voluntarily recalled about 12 million Shrek Forever After™ collectible drinking glasses (photo courtesy of the CPSC) sold or awaiting sale at McDonald’s® locations throughout the U.S. after someone in Representative Jackie Speier's(D-CA) office alerted the CPSC that the movie-character illustrations on the glasses contained cadmium, prolonged exposure to which may pose a serious long-term health risk.

Millville, NJ-based Durand Glass Manufacturing Co.(DGMC), a subsidiary of Arques, France-based Arc International, manufactured the movie-themed glasses, which another Arc International subsidiary, Millville-based Arc International North America, distributed exclusively to McDonald's. McDonald's locations nationwide sold the glasses in May and early June 2010.

McDonald's web site addresses the recall through a series of FAQs (and answers). (For the benefit of those with short attention spans, every answer to which the statement would be germane includes the statement "the CPSC has said the glassware is not toxic.") Arc International deployed a press release. Representative Speier posted a statement on her web site, which also includes a link to a Los Angeles Times article about the recall. Only DreamWorks™ appears to be mum on the subject -- so far, at least. (Perhaps the Shrek-iverse's creators didn't retain all of the product licensing-rights like George Lucas did, not so long ago and not so far away, with the original Star Wars™ trilogy or they made McDonald's pay a non-refundable lump sum to market the glassware.) Rumors of a replacement glass featuring an image of McDonald's CEO Jim Skinnerthat transmogrifies into a Shrek-alike when filled with any non-Coca-Cola® brand soft or sport drink appear to be completely unfounded.

So, what's the contract law angle on collectible glassware manufactured for and sold to McDonald's for resale to McDonald's retail customers?

It should go without saying that the most interesting legal issues arising out of this scenario involve (1) what express and implied UCC Article 2 warrantieseach seller in the chain from DGMC (or DGMC's ingredient supplier) to McDonald's made to anyone who purchased or used the glassware; (2) to what extent, if any, each seller in that chain may have disclaimed some or all of its warranty liability, limited the remedies available to the buyer, user, or other person affected by the glassware's use, or both; (3) whether one or more warranty-making sellers breached one or more warranties to one or more buyer, user, or other person affected by the glassware's use; and (4) what remedies Article 2 affords any person to whom any seller is liable for breach of warranty.

For those wanting to add some international flavor to the mix, the CBC reports here that the recall has spread to include all Canadian McDonald's restaurants. Information from the Associated Press and Reuters, reported here, indicates that recalling the glassware sent to Canadian McDonald's restaurants raises the total number of recalled glasses to 13.4 million. Both the U.S. and Canada are partiesto the U.N. Convention on Contracts for the International Sale of Goods (CISG). To the extent that the Canadian McDonald's restaurants purchased their Shrek Forever After™ collectible glassware from New Jersey-based DGMC or New Jersey-based Arc International North America, that transaction constituted a sale of specially-manufactured goods (CISG art. 3(1)), purchased for resale, rather than personal, family, or household use (CISG art. 2(a)), by a buyer located in one CISG "contracting state" from a seller located in a different "contracting state" (CISG art. 1(1)(a)). Therefore, unless the Canadian McDonald's buyers and New Jersey-based DGMC or New Jersey-based Arc International North America effectively opted out of the CISG (CISG art. 6), any breach of warranty claim the Canadian buyers might have (CISG art. 35), the extent to which any U.S. seller disclaimed any warranty or limited its liability for breaching any warranty (CISG arts. 6 & 35), and the available remedies (CISG arts. 45-52 & 74-78), will be matters for the CISG to resolve.

[Keith A. Rowley] (partially cross-posted on the Commercial Law blog)

Albert H. Kritzer: 1928-2010

Albert H. Kritzer, who founded Pace Law School's Institute of International Commercial Lawand its immensely helpful online CISG Database, passed away June 1, while in Egypt to receive the 2010 Arab Conference for Commercial and Maritime Law Career Achievement Award.  The Institute's home page bears the sad news and provides links to an external site for photos and tributes.  Pace Law School's notice, including comments from Dean Michelle Simon, is available here.

I met Al Kritzer only once, and briefly, in person, while attending the November 2007 conferenceat Pace Law School that his colleague Jim Fishman hosted commemorating Wood v. Lucy, Lady Duff-Gordon. However, Al and I corresponded (mostly by e-mail) and he was kind enough to introduce much of the domestic and international CISG community (via the CISG Database) to my analysis of the then-entire corpus of published U.S. CISG case law in the chapter on the CISG that I comprehensively revised and greatly expanded a few years ago for Howard O. Hunter's Modern Law of Contracts. Al subsequently invited me to contribute substantive case commentaries to the CISG Database -- at task at which I have been largely remiss for a variety of reasons, none having anything to do with my enthusiasm for the project or my desire to work with Al. I hope that his successor will allow me to honor Al's invitation and his work of the past quarter-century.

[Keith A. Rowley] (partially cross-posted at the Commercial Law blog)

UCC Legislative Update

Since my last update, Mississippi and Wisconsin have enacted Revised Article 1, Mississippi has enacted the 2002 Articles 3 and 4 amendments, and Florida and Georgia have enacted Revised Article 7. Most of these enactments will take effect on July 1; all of them will be in effect by August 1.

Revised Article 1

As of June 1, 2010, Revised Article 1 was in effect in thirty-seven states: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, and West Virginia.

Mississippi SB 2419 and Wisconsin SB 472, enacted this spring, will take effect on July 1 and August 1, respectively.  Pending bills in Massachusetts (HB 89) and Ohio (HB 490) have shown some signs of life; but both have many hurdles to clear to achieve enactment this year.

What constitutes "good faith" remains a bone of contention. Twenty-six of the 37 states in which Revised Article 1 is already in effect enacted the uniform § R1-201(b)(20) "honesty in fact and the observance of reasonable commercial standards of fair dealing" definition, while 11 retained the pre-revised 1-201(19) "honesty in fact" default standard and the heightened standard §§ 2-103(1)(b) & 2A-103(3) impose on merchants. Mississippi SB 2419 adopts uniform § R1-201(b)(20); Wisconsin SB 472 retains the bifurcated standard; and Indiana SB 501 replaces the bifurcated standard Indiana enacted in 2007 with the uniform § R1-201(b)(20) standard. As of August 1, twenty-eight states will require all parties to act honestly and observe reasonable commercial standards of fair dealing; while twenty-three (including DC and the 11 states that have not yet acted on Revised Article 1) will require mere honesty from non-merchants, reserving for merchants the further obligation to observe reasonable commercial standards of fair dealing.

Article 2 & 2A Amendments 

Oklahoma's 2005 amendments to its versions of Sections 2-105, 2-106, and 2A-103 (about which I previously reported here) represent the only successful effort to amend any state's enactment in a manner consistent with any of the 2003 amendments.  There has been no reported action on this year's Oklahoma HB 3104 (detailed in my last update), which would have enacted more of the 2003 amendments, since it was referred to committee on February 2, 2010 -- the day following its introduction.

Article 3 & 4 Amendments 

As of June 1, 2010, the 2002 amendments to Articles 3 and 4 were in effect in eight states: Arkansas, Kentucky, Minnesota, Nevada, New Mexico, Oklahoma, South Carolina, and Texas.  Indiana SB 501, enacted in May 2009, and Mississippi SB 2419, enacted in April 2010, each take effect on July 1, 2010.

The only reported pending Articles 3 and 4 bill is Massachusetts HB 90, which has been languishing for nearly seventeen months in the Joint Committee on Financial Services, to which it was referred on January 10, 2009.

Revised Article 7

As of June 1, 2010, Revised UCC Article 7 was in effect in thirty-six states: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Virginia, and West Virginia.

Florida HB 731 and Georgia HB 451, both enacted in May, will take effect on July 1.  Pending bills in Massachusetts HB 89 (see above) and Ohio HB 490 (ditto) have shown some signs of life; but both have many hurdles to clear to achieve enactment this year.  Two other Revised Article 7 bills introduced or reintroduced this year -- Washington SB 5154 and Wisconsin AB 688 -- are, to borrow a line from Mike Myers's quotable Stuart Mackenzie, "teats up" for the time being (although the odds are good that one or both legislatures will revive Revised Article 7 in a future legislative session).

[Keith A. Rowley]

Now in Print

Benito Arruñada, Leaky Title Syndrome?, [2010] New Zealand L.J.1195 (discussing electronic documentation of realty title and conveyances).

Erin Burrows & F. John Podvin, Jr., Revisiting the FDIC's "Superpowers": Contract Repudiation and D'Oench Duhme, 127 Banking L.J. 395 (2010).

J.W. Carter & Yihan Goh, Concurrent and Independent Rights to Terminate for Breach of Contract, 26 J. Contract L. 103 (2010).

Charles Y.C. Chew, The Application of the Defence of Non Est Factum: An Exploration of its Limits and Boundaries, 13 U.W. Sydney L. Rev. 83 (2009).

Kevin E. Davis,* Case Comment, Penalty Clauses through the Lens of Unconscionability Doctrine: Birch v. Union of Taxation Employees, Local 70030, 55 McGill L.J. 151 (2010).

Robert W. Emerson, Franchise Encroachment, 47 Am. Bus. L.J. 191 (2010).

Stephen J. Leacock, Echoes of the Impact of Webb v. McGowin on the Doctrine of Consideration Under Contract Law: Some Reflections on the Decision on the Approach of its 75th Anniversary, 1 Faulkner L. Rev. 1 (2009).

Eliza Mik, "Updating" the Electronic Transactions Act? — Australia’s Accession to the UN Convention on the Use of Electronic Communications in International Contracts 2005, 26 J. Contract L. 184 (2010).

Catherine Mitchell, Contract Interpretation: Pragmatism, Principle and the Prior Negotiations Rule, 26 J. Contract L. 134 (2010).

Nicholas F. Pompelio, Note, Restitution in Favor of the Party-in-Breach: Contract Law in Massachusetts Remains a Breeding Ground for Unjust Enrichment, 43 New Eng. L. Rev. 617 (2009).

Mark R. Shulman & Lachmi Singh, China's Implementation of the UN Sales Convention Through Arbitral Tribunals, 48 Colum. J. Transnat'l L. 242 (2010).

Marcia J. Staff, United Nations Convention on Contracts for the International Sale of Goods: Lessons Learned from Five Years of Cases, 6 S.C. J. Int'l L. & Bus. 1 (2009).

Robert Steinbuch, Why Doctors Shouldn't Practice Law: The American Medical Association's Misdiagnosis of Physician Non-Compete Clauses, 74 Mo. L. Rev. 1051 (2009).

Charles A. Sullivan, The Puzzling Persistence of Unenforceable Contract Terms, 70 Ohio St. L.J. 1127 (2009).

Christopher W. Weller, Enforcing Non-Compete Agreements in Alabama, 1 Faulkner L. Rev. 135 (2009).

* - Yes.  That's my friend, and Beller Family Professor of Business Law at NYU, Kevin Davis.  As the 20th anniversary of receiving his B.A. in Economics from McGill draws near, Kevin -- or at least his work -- has ventured back to k.d. lang's homeland to publish a case comment (normally the province -- pun intended -- of law students South of the 49th parallel), as well as an article on legal universalism that's forthcoming in the Spring 2010 University of Toronto Law Journal symposium issue hono[u]ring Michael Trebilcock, whose The Limits of Freedom of Contract (Harvard 1993) is but one of his several "must reads" for those interested in contract theory and, more particularly, economic perspectives on contract law.

[Keith A. Rowley]

Class Action Waiver Roundup

Businesses love arbitration because they use it to manage litigation costs with pre-dispute limits on plaintiffs' procedural rights -– foremost of which is the ability to contract around plaintiff collective action, whether in the form of the class action or class arbitration.  (I’ve written about this here).  Class action waivers are now a common staple in form arbitration clauses. Consumers and employees have challenged these waivers, with varying results, on unconscionability grounds.  There are two notable recent developments on this front.

Early last month, a divided en banc U.S. Third Circuit Court of Appeals held, by a 6-4 margin, that the enforceability of a class action waiver provision is a question of “arbitrability” for a court (not an arbitrator) to decide. Puleo v. Chase Bank USA, No. 08-3837 (3d Cir. May 10, 2010).  Attorneys at Pepper Hamilton provide a nice synopsis of the decision here. 

Last week, the U.S. Supreme Court granted certiorari in AT&T Mobility LLC v. Concepcion, No. 09-893 (cert. granted May 24, 2010).  The question presented is:

Whether the Federal Arbitration Act preempts States from conditioning the enforcement of an arbitration agreement on the availability of particular procedures -- here, class-wide arbitration -- when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims.

AT&T Mobility sought certiorari after the U.S. Ninth Circuit Court of Appeals, affirming the court below, held that AT&T Mobility's standard-form mandatory no-class-action arbitration provision was unconscionable under California law, which the FAA did not preempt.  Laster v. AT&T Mobility LLC, No. 08-56394 (9th Cir. Oct. 27, 2009).  In its certiorari petition, AT&T Mobility argues that the FAA preempts California decisions holding that class action waivers are unconscionable because the state courts are applying unconscionability law more rigorously to arbitral class action prohibitions than to other kinds of contracts.  Professor Jean Sternlight provides a good summary at Today’s Workplace.

[Meredith R. Miller (with an assist from Keith A. Rowley)]