ContractsProf Blog

Interesting Attorneys' Fees Case from California

Last week, California's 6th District Court of Appeals issued its decision in Smith v. First Principle Church.  The problem facing the court was somewhat messy.  Plaintiff Russell Smith and his brother, I.M. Nome, founded the Church in the 1970's.  Smith served as the Church's minister until he retired in 1995.  The following year, it appears that he entered into an agreement with his brother, purportedly acting on behalf of the Church, to provide Smith and his wife Helga with a pension.  The Church paid pension benefits until 2003 and then stopped, after having paid over $260,000, arguing that there was no consideration for the payments. The Smiths sued for breach of contract and promissory estoppel, and the Church cross-claimed for recovery of its earlier payments.  

The trial court rejected Smith's claims, agreeing with the Church that there was no consideration for the payments and finding that Nome had no authority to authorize the pension agreement.  The court found that reliance on such a promise to pay was unreasonable and thus also rejected Smith's promissory estoppel claim.  The trial court found the counterclaims time-barred, a ruling that was reversed in part on appeal.

But here's where it gets interesting.  The written agreement relating to the pension contained the following clause that was at issue in the case:

If the Church refuses to honor the terms of this contract at any time and Russell Smith must take legal action to enforce this contract, all reasonable court and attorney’s fees incurred by him shall be borne by the Church. 

That clause caught my eye, because I litigated a similar clause in an executive compensation case a few years back.  Such clauses seem a bad idea to me, as they are an invitation to a law suit, but it appears that they are -- or once were -- quite common.  However, as both my own experience and this case indicate, they don't always work.  But when they don't work, they are even worse, because they entice people to sue and then saddle them with double costs.

After trial, the Church filed a motion for over $500,000 in attorneys' fees.  California has a statute, Civil Code Section 1717, that makes one-sided attorneys' fees provisions reciprocal.  Just an aside here -- the amount of the attorneys' fees in relation to the amount in controversy suggests more than a bit of hard feelings on both sides.  The trial court gave the Church a bit of a haircut, but still awarded fees in excess of $400,000.  

There were lots of difficult issues on appeal.  The appellate court focused on the issue of whether there was a prevailing party in the litigation and whether the counterclaims at issue were contracts claims within the ambit of the agreement.  The court concluded that, as the Church had prevailed on the contract issue, it was entitled to its fees, even if those fees were incurred prosecuting claims that the trial court found to be time-barred and which the appellate court found not be contracts claims.  The court did not address the question of why it should enforce an attorneys' fees provision in a contract that has been found to be unenforceable, and it does not seem that the parties focused on that issue.  Perhaps that point is already settled in California.

[JT]

A Heroic Breach of Contract

As the New York Times reports today, Gil Meche (pictured), until recently a pitcher for the Kansas City Royals, has breached his contract.  He was due to be paid $12 million for the 2011 season, but he has a bum shoulder, and he has chosen to retire rather than to be paid what he called "a crazy amount of money for not even pitching."  As the Times points out, Meche's decision is not entirely without precedent, but in most cases, injured players go through the motions of surgeries and rehab even when they have little hope of returning to the game.  Baseball management does not expect them to retire -- career-ending injury is simply a risk assumed by management when it enters into guaranteed contracts with ball players.  

Why did Meche do it?  He says he did it because he didn't feel right taking more money from a team that had already given him over $40 million.  The Royals had signed Meche in 2007 to a five- year, $55 million contract, and they were widely criticized for having done so.  Meche seems to be very grateful to a team that believed in him when others did not.  He wants to retain his dignity, free up some cash for the organization, and (this is inevitable) spend more time with his family.

It's a wonderful story.  I wonder what other professional athletes think of this.  After all, although the players are well paid, they are still the employees of fabulously wealthy professional sports franchise owners.  Meche's decision could become a precedent that the Steinbrenners of the world could wield to exert pressure on their aging stars to go gently into the good night of minor league coaching or whatever.

[JT]

It's the Pits: Dennis Kucinich Sues Cafeteria for Breach of Implied Warranty

Ohio Congressman and former presidential candidate Dennis Kucinich bit into a sandwich wrap containing an olive pit and now he is suing a congressional cafeteria for $150,000.  He claims negligence and breach of the implied warranty of merchantability.  Paragraph 10 of the complaint:

Said sandwich wrap was unwholesome and unfit for human consumption, in that it was represented to contain pitted olives, yet unknown to plaintiff contained an unpitted olive or olives which plaintiff did not reasonably expect to be present in the food prepared for him, and could not have visually detected prior to consumption.

Apparently, he bit into the olive pit and incurred dental and medical expenses, and suffered loss of enjoyment and other damages.

Sounds like Webster v. Blue Ship Tea Room, 347 Mass. 421 (1964), all over again.  Does an olive pit make a sandwich wrap unfit for human consumption?  Does it matter what kind of wrap it was?  (I imagine Kucinich is vegetarian, if not vegan).

[Meredith R. Miller] 

New York Times Editorial Weighs in on General Dynamics and Boeing

In yesterday's post, Neil O'Donnell pointed out that there is some precedent for Justice Scalia's "go away" jurisprudence in the realm of government contracting.  It remains to be seen if that is the direction the court will go or if this new exercise of the Court's power to fashion equitable remedies can be reconciled with the views of Justice Scalia expressed in his recent concurrence, that the Court ought not to be inviting litigants to come to the Court so that it can tailor new remedies to meet the needs of each fact pattern that arrives before it.

However, The New York Times, in an editorial published on Tuesday, January 25, 2011, focused on the jurisprudence of the state secrets privilege (the SSP) rather than on that of government contracting.  The Times editorial board expresses concern that the government can derive tactical advantages from its ability to invoke the SSP, a topic explored through the Herculean research efforts of our guest blogger Laura Donohue in The Shadow of State Secrets.  Rather than simply telling the litigants to go away, the Times exhorts the Court to use this opportunity to rein in government use of the SSP:

The court should narrow the privilege to what it was in Reynolds, a limited basis for the government not to disclose a piece of evidence so it can’t be invoked to dismiss entire claims or cases. The court should also rule that trial judges faced with claims of privilege must examine the evidence to ensure they are convinced about the risk to national security from disclosure.

Indeed, as Justice Kagan noted during oral argument, the SSP is a coin flip in which the government wins either way.  Whether the SSP prevents a plaintiff from making out a prima facie case or prevents the government (or its contractors on whose behalf it intervenes) from establishing an affirmative defense, the government often couples its invocation of the SSP with a motion to dismiss -- often prior to discovery.  

But it seems pretty clear that the Court has no interest in taking up the SSP in earnest at this juncture, and that's unfortunate, because the posture of this case makes for an ideal opportunity for the Court to do so.  In most SSP cases, Scalia's "go away" jurisprudence means a complete and utter victory for the government.  But this time the government has some skin in the game and so this is a perfect occasion for the Court to explore the ramifications of an evidentiary privilege that the government uses both to prevent plaintiffs from making out their case and to excuse itself from its obligations to establish its defenses.  It has done both in these cases, and that should make manifest the imbalances created by the current iteration of the SSP.

 [Related posts listed below]

General introduction to the Roundtable

Professor Laura Donohue's comments

Some footnotes to Laura Donohue's comments

Links to additional comments on the case

Neil O'Donnell's Comments, Part I

Neil O'Donnell's Comments, Part II

[JT]

Seinfeld on Collision Damage Waivers & Adhesion Contracts

For anyone  who teaches Lauvetz v. Alaska Sales and Service d/b/a National Car Rental (or any of the issues addressed therein, including enforceability of adhesion contracts, hidden/unknown terms that go beyond one's reasonable expectation, etc.), this short Seinfeld clip is useful (and of course, entertaining).  It aligns with the facts of Lauvetz because Jerry, like the plaintiff in Lauvetz, ends up purchasing "the insurance" and/or collision damage waiver that rental car companies offer.  In the clip, Jerry--like Lauvetz--likely assumes that the insurance/waiver covers far more than it actually covers.  I suppose it also could be used to discuss implied promises or contractual formation, given that the car rental company does not treat Jerry's reservation as a promise or contract.  As Jerry says to the rental company rep, "You know how to take the reservation; you just don't know how to hold the reservation."  

 

[HRA]

Guest Blogger Neil O'Donnell on General Dynamics and Boeing, Part II

 [This is a continuation of yesterday's post about oral argument in the consolidated cases of General Dynamics and Boeing. v. United States]

Although the Justices' questions suggested quite different takes on the case, there seemed to be a couple of common underpinnings for many of their inquiries.  First, there was considerable skepticism as to whether Reynolds' moving party test provided a usable standard for deciding this case.  The Court in Reynolds permitted the Government to invoke the state secrets privilege in defending a wrongful death action by the widows of civilian scientists killed in the crash of a military experimental flight.  That was at least in part because, unlike in a criminal case where the government was prosecuting  the matter, in Reynolds the government was the defendant, not the "moving party."  Although each of the litigants in General Dynamics claimed the other was the moving party, the Justices seemed to find the distinction, which had been clear enough in the tort context, distinctly unhelpful in this contract case.  In fact, in advocating the government's view of the moving party rule, General Katyal found himself in the uncomfortable position of arguing that the government would not be the moving party whether its invocation of the state secrets privilege kept the contractors from having the information necessary to prove a defense or the government from having the information to prove a default.  Not unreasonably, Justice Kagan responded "that really does sound like a tails you win, heads you win, whatever."

Second, the Justices appeared reluctant to move to constitutional law to resolve this dispute.  The contractors' argument that the government's treatment of them was a due process violation did not seem to have any obvious adherents among the eight Justices asking questions.  Rather they struggled to find a way to apply contract law in a situation in which, because of the invocation of the state secrets privilege, several seemed to think that we would never know who was right and who was wrong.

That led to what was in some ways the most interesting feature of the argument.  Justice Scalia appeared strongly motivated to find a way that the parties could be left where they are now, the contractors keeping the $1.35 billion they have been paid but not recovering the additional $1.2 billion that they incurred but had not yet received.  Other  Justices, including Chief Justice Roberts and Justice Sotomayor, seemed to share that interest.  General Katyal argued strongly that there was no principled way to reach that result.  Rather, in his view under the terms of the contract and the applicable law, there were only two choices.  Either the termination for default was upheld and the government was entitled to recover the $1.35 billion in unliquidated payments, plus interest, from the contractors.  Or the termination for default was converted into a termination for convenience and the contractors would be entitled to payment of all of their costs, including not only the unliquidated $1.35 billion in progress payments but also the additional $1.2 billion in costs, plus interest. 

Carter Phillips, arguing for the contractors, initially seemed to avoid the question of whether there was a middle ground, leaving at least some with the impression that he did not think that there was a mechanism available under the applicable law.  But in his rebuttal argument he was clear that he believed that under federal common law contract principles the Court could fashion a way of letting the contractors keep the $1.35 billion at the same time that it found that the government did not need to pay them another $1.2 billion.   He was not specific as to what that way was.

If the Court does decide that it wants to adopt this approach of leaving the parties where they were immediately before the termination took place – what Justice Scalia characterized as the "'go away' principle of our jurisprudence" – government contract law provides solid precedent.  In its often cited decision in Dynalectron Corporation v. United States, 518 F.2d 594 (Ct.Cl. 1975), the Court of Claims, a predecessor of the Court of Appeals for the Federal Circuit, did essentially that.  The Air Force had terminated for default a contract for jamming antennas to be used on the B-52.  The court found that the Air Force’s specifications were defective in that they were impossible to perform in several respects.  But it also found that the contractor had waived the impossibility as to some, but not all, of those elements and had made serous errors in its own administration of the contract.  In these circumstances in which the court found that both parties were at fault, it relied on equitable powers of the court in actions at law to fashion a remedy in which the parties shared the costs of the contractor’s performance.  The court reformed the contract to provide that  the contractor recovered half of its costs of performance but paid the other half itself.

That same kind of approach would support the middle ground that several of the Justices seemed to be seeking.  Rather than dividing the costs precisely, the Court could leave the parties in the near split in which they had started the litigation, the contractors having been paid $1.35 billion but still being owed another $1.2 billion they would not recover.  The result would be peculiar to these particular facts.  The only precedent would be that when the state secrets privilege is invoked a rough attempt at equity should follow.  While dictating such a result might seem an unusual role for the Supreme Court, this case has gone on for 19 years already.  Perhaps this is the time for the Court to apply Justice Scalia’s “go away” jurisprudence and fashion a Dynalectron like result.  

 [Related posts listed below]

General introduction to the Roundtable

Professor Laura Donohue's comments

Some footnotes to Laura Donohue's comments

Links to additional comments on the case

Neil O'Donnell's Comments, Part I

[posted on Neil O'Donnell's behalf, by JT]

Guest Blogger Neil O'Donnell on General Dynamics and Boeing, Part I

The Supreme Court argument in the General Dynamics case was a little surreal for someone who has spent a career practicing government contract law.  Very early on Justice Breyer referred to the appellants as "sophisticated contractors … perfectly capable of negotiating their own contract," and suggested that if the Court provided the contractors a remedy when the Government invoked the state secrets privilege "we are not just throwing a monkey wrench into the gears of government contracting, we're throwing the whole monkey."   In his argument Acting Solicitor General Katyal (pictured below, right) returned repeatedly to the idea that these sophisticated  contractors could have written a contract provision providing the remedy that they now seek, namely that a termination for default would be converted into a termination for convenience if the Government invoked the state secrets doctrine in response to a contractor challenge.  And several of the Justices engaged him in discussions that seemed to accept that the parties' negotiation of the contract was a matter of importance.

It is certainly true that the contractors here, General Dynamics and McDonnell Douglas, since purchased by Boeing, were sophisticated and experienced government contractors.  But for that reason they understood what for the most part the Justices and even those arguing the case did not seem to.  A government contract is in most respects a classic contract of adhesion, about as negotiated as the policy that we all get from our insurance companies.  The government has standard mandatory clauses, set out in the Federal Acquisition Regulation ("FAR"), for virtually any aspect of any type of contract.  Particularly where, as here, the underlying contract award is made competitively, there simply is not any negotiation of the terms of the contract.  The Government dictates the contract terms to which any competing party must bid. 

General Katyal claimed that the contractors could have written into the contract that "if the government invoked the state secrets privilege, it would automatically terminate the contract's default and convert it to – the default termination into a termination for convenience.”  But the A-12 contract contained, as it had to by regulation, a standard default clause set out in  FAR 52.249.  The contractors, General Dynamics and McDonnell Douglas, as well as the unsuccessful competing team, understood when they submitted their competitive offers for this contract that any attempt to condition their proposals on changing that or any of the other mandated government contract provisions would have made their offers non-responsive and subject to rejection.  Negotiating a standard terminations clause is simply not the way that government contracts work, no matter how sophisticated the contractor.

Justice Roberts’ questions came closest to this fundamental point.  He asked the Acting Solicitor General whether he thought that the government would accept a provision requiring an automatic conversion to a termination for convenience if the government invoked the state secrets privilege when a contractor challenged its termination for default.  General Katyal conceded that such a provision would be "very unusual."  When pressed by the Chief Justice as to how contractors were supposed to protect themselves from the effect of the state-secret privilege if the provision Katyal had suggested would solve the problem would not be accepted, Katyal replied "Well – well, I think there are other ways."  But he never was specific as to what they might be, in my view for good reason.

[Part II will come tomorrow; related posts listed below]

General introduction to the Roundtable

Professor Laura Donohue's comments

Some footnotes to Laura Donohue's comments

Links to additional comments on the case

[posted on Neil O'Donnell's behalf, by JT]

Welcome to the General Dynamics/Boeing Roundtable, Neil O'Donnell

Today we continue our discussion of the oral arguments at the Supreme Court in the consolidated cases of General Dynamics v. United States and Boeing v. United States.  We heard from Laura Donohue last week, today Neil O'Donnell will share his thoughts on how the arguments went.

Mr. O'Donnell is a shareholder in Rogers Joseph O'Donnell, a San Francisco law firm and co-author, with his partner, Dennis Callahan, of a recent article on the case.

Here is Mr. O'Donnell's bio, lifted from his firm's website:

In over thirty-five years of practice, Mr. O’Donnell has specialized in public contract and construction law at the federal, state and local levels. He has litigated cases in federal and state trial and appellate courts, the boards of contract appeals and the Government Accountability Office. Representative cases include: restructure of a multibillion dollar classified contract on behalf of a major defense contractor; defense of a national construction contractor and its pipe supplier against latent defect claims on a significant aqueduct project; trial of a termination dispute between the prime and subcontractor on a major state IT systems development contract; successful resolution of a multimillion dollar cost accounting standards dispute with the government on behalf of an aerospace material contractor; pursuing actions relating to power plant and water treatment plant construction projects on behalf of general contractors, subcontractors and the suppliers and fabricators of principal components; federal and state false claim act actions and federal, state and local bid protests relating to equipment, software and service contracts, including the $35 billion Air Force Air Tanker procurement. 

Mr. O’Donnell has been named one of the leading government contract lawyers in the country in every edition of Chambers USA, America's Leading Lawyers for Business, since 2005. He is also included in the annual list of “Best Lawyers in America” and is recognized as one of California’s outstanding construction lawyers in Who’s Who Legal: California 2009. He has served as chairman and vice-chairman of several committees of the ABA Public Contract Law Section as well as on the Executive Committee of the California State Bar’s Public Law Section. Mr. O’Donnell has written and lectured on a wide variety of government contract and construction issues. He is presently on the Advisory Committee for The Government Contractor and the Associated General Contractors of California Legal Advisory Committee and is a member of the ABA Forum Committee on the Construction Industry. He is a former president and continues to serve on the Board of Directors of the Bay Area Video Coalition and is on the Board of the San Francisco Sinfonietta. He also was Co-Chair of the Lawyers Committee for Civil Rights of the Bay Area

[JT]

Weekly Top Ten from the Social Science Research Network

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of Contracts & Commercial Law eJournal 
November 25, 2010 to January 24, 2011

Rank	Downloads	Paper Title
1	660	Mortgage Servicing  Adam J. Levitin, Tara Twomey,  Georgetown University - Law Center, National Consumer Law Center,  Date posted to database: December 18, 2010  Last Revised: January 20, 2011
2	378	Choice of Law in the American Courts in 2010: Twenty-Fourth Annual Survey  Symeon C. Symeonides,  Willamette University - College of Law,  Date posted to database: January 11, 2011  Last Revised: January 11, 2011
3	169	Divided Loyalties: The Attorney’s Role in Bankruptcy Reaffirmations  Gregory M. Duhl,  William Mitchell College of Law,  Date posted to database: November 17, 2010  Last Revised: November 17, 2010
4	150	Regulating Systemic Risk: Towards an Analytical Framework  Iman Anabtawi, Steven L. Schwarcz,  University of California, Los Angeles (UCLA) - School of Law, Duke University - School of Law,  Date posted to database: January 6, 2011  Last Revised: January 7, 2011
5	116	The Uncorporation and the Unraveling of 'Nexus of Contracts' Theory  Grant M. Hayden, Matthew T. Bodie,  Hofstra University - School of Law, Saint Louis University School of Law,  Date posted to database: December 10, 2010  Last Revised: December 15, 2010
6	115	Does Disclosure Matter?  Florencia Marotta-Wurgler,  New York University (NYU) - School of Law,  Date posted to database: November 24, 2010  Last Revised: December 7, 2010
7	107	Pregnant Man?: A Conversation  Darren Rosenblum, Noa Ben-Asher, Mary Anne Case, Elizabeth F. Emens, Berta E. Hernández-Truyol, Vivian M. Gutierrez, Lisa Chiyemi Ikemoto, Angela Onwuachi-Willig, Jacob Willig-Onwuachi, Kimberly Mutcherson, Peter Siegelman,Beth Jones,  Pace Law School, Pace University - School of Law, University of Chicago Law School, Columbia Law School, University of Florida Levin College of Law, Unaffiliated Authors - affiliation not provided to SSRN, University of California, Davis - School of Law, University of Iowa College of Law, Unaffiliated Authors -affiliation not provided to SSRN, Rutgers School of Law-Camden, University of Connecticut - School of Law, Unaffiliated Authors - affiliation not provided to SSRN, Date posted to database: December 17, 2010  Last Revised: January 5, 2011
8	102	The Role of Dynamic Renegotiation and Asymmetric Information in Financial Contracting  Michael R. Roberts,  University of Pennsylvania - The Wharton School - Finance Department,  Date posted to database: December 31, 2010  Last Revised: December 31, 2010
9	93	The English vs. The American Rule on Attorneys Fees: An Empirical Study of Attorney Fee Clauses in Publicly-Held Companies’ Contracts  Theodore Eisenberg, Geoffrey P. Miller,  Cornell University - School of Law, New York University (NYU) - School of Law,  Date posted to database: November 11, 2010  Last Revised: November 15, 2010
10	92	Avatar Experimentation: Human Subjects Research in Virtual Worlds  Joshua Fairfield,  Washington and Lee University - School of Law,  Date posted to database: December 2, 2010  Last Revised: December 15, 2010

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of LSN: Contracts (Topic)  
November 26, 2010 to January 25, 2011

Rank	Downloads	Paper Title
1	378	Choice of Law in the American Courts in 2010: Twenty-Fourth Annual Survey  Symeon C. Symeonides,  Willamette University - College of Law,  Date posted to database: January 11, 2011  Last Revised: January 11, 2011
2	107	Pregnant Man?: A Conversation  Darren Rosenblum, Noa Ben-Asher, Mary Anne Case, Elizabeth F. Emens, Berta E. Hernández-Truyol, Vivian M. Gutierrez, Lisa Chiyemi Ikemoto, Angela Onwuachi-Willig, Jacob Willig-Onwuachi, Kimberly Mutcherson, Peter Siegelman,Beth Jones,  Pace Law School, Pace University - School of Law, University of Chicago Law School, Columbia Law School, University of Florida Levin College of Law, Unaffiliated Authors - affiliation not provided to SSRN, University of California, Davis - School of Law, University of Iowa College of Law, Unaffiliated Authors -affiliation not provided to SSRN, Rutgers School of Law-Camden, University of Connecticut - School of Law, Unaffiliated Authors - affiliation not provided to SSRN, Date posted to database: December 17, 2010  Last Revised: January 5, 2011
3	105	The Role of Dynamic Renegotiation and Asymmetric Information in Financial Contracting  Michael R. Roberts,  University of Pennsylvania - The Wharton School - Finance Department,  Date posted to database: December 31, 2010  Last Revised: December 31, 2010
4	93	The English vs. The American Rule on Attorneys Fees: An Empirical Study of Attorney Fee Clauses in Publicly-Held Companies’ Contracts  Theodore Eisenberg, Geoffrey P. Miller,  Cornell University - School of Law, New York University (NYU) - School of Law,  Date posted to database: November 11, 2010  Last Revised: November 15, 2010
5	62	An Optional Contract Law for Europe? (Rote Karte oder grünes Licht für den Blue Button) (German)  Walter Doralt,  Max Planck Institute for Comparative and International Private Law,  Date posted to database: November 11, 2010  Last Revised: November 11, 2010
6	49	Contract as Convention  F. H. Buckley,  George Mason University - School of Law, Faculty,  Date posted to database: January 16, 2011  Last Revised: January 23, 2011
7	42	The Double Soul of Promissory Estoppel - A Comparative View  Paolo Pardolesi,  Università degli Studi di Bari - Faculty of Law,  Date posted to database: November 5, 2010  Last Revised: December 8, 2010
8	41	How Organisational and Structural Weaknesses Impacted the Harmonisation Process and What it Implies for European Private Law (Strukturelle Schwächen in der Europäisierung des Privatrechts – Eine Prozessanalyse der jüngeren Entwicklungen) (German)  Walter Doralt,  Max Planck Institute for Comparative and International Private Law,  Date posted to database: November 11, 2010  Last Revised: November 11, 2010
9	34	A Toolbox for European Judges  Martijn W. Hesselink,  University of Amsterdam - Centre for the Study of European Contract Law (CSECL),  Date posted to database: December 17, 2010  Last Revised: December 17, 2010
10	30	Arbitration's Suspect Status  Hiro N. Aragaki,  Fordham University - Fordham University Schools of Business,  Date posted to database: November 29, 2010  Last Revised: December 28, 2010

[JT]

Match.com Under Fire

Match.com faces fraud and breach of contract claims based on the allegation that more than half of the profiles on the site are fake or inactive, to give the impression that there are more fish in the dating sea.  Here’s the story from the Dallas Morning News:

Dallas-based online dating site Match.com is facing a federal lawsuit alleging that more than half of its profiles belong to inactive members or scammers.

The complaint, filed Dec. 30 in U.S. District Court in Dallas, alleges that the company does not remove profiles of customers who cancel subscriptions or vet profiles that may be fake.

The complaint also alleges that Match.com encourages members to renew subscriptions by sending them a message from an inactive or fake profile expressing romantic interest.

Five men and women, none from Texas, are asking for class action status. They accuse the company of breach of contract, breach of implied covenant of good faith and fair dealing, and negligent misrepresentation.

"The claims have no merit and Match.com will defend the lawsuit vigorously," Match.com said in a prepared statement.

Match.com, founded in 1995, is among the top online dating websites. In 2010, the dating site saw an increase in subscriptions and revenue. According to the most recent earnings report for parent company IAC, Match.com brought in $38.1 million and had about 1.82 million paid subscribers.

The plaintiffs are seeking unspecified damages and repayment of subscription fees. A subscription costs $34.99 for one month, $19.99 per month for three months, or $16.99 per month for six months.

The complaint comes at a peak time for the industry, the weeks leading up to Valentine's Day, said Julie Spira, who owns cyberdatingexpert.com and helps clients write profiles for dating sites.

Match.com is no stranger to lawsuits. In 2005, Match.com was sued in California over allegations that the company hired employees to create profiles and entice members to keep their subscriptions going. The case was dropped. Another case, filed in 2009, also was dropped.

But this time will be different, said Jeffrey Norton, lead attorney on the lawsuit and lawyer at New York-based Harwood Feffer LLP.

"We have a strong complaint based on strong investigations," he said.

Norton says that he and others researched and spoke to Match.com subscribers, employees and subcontractors.

Spira said that online dating sites often count all types of members - even those without a paid membership - to make their sites seem more promising.

For example, she said, a member may join for a free weekend or free month but then not sign up for a premium membership - making them unable to see messages from other members or causing a profile to be inactive for months at a time.

"It would be great if the site had some kind of notice that not all members can receive e-mails or if there was a box you could check for only premium, paying members," she said.

"But that might also show the world that it's a few million less members and maybe they don't want to show the world that," she said.

[Meredith R. Miller]

Keith Olbermann and MSNBC Part Ways

Two years ago, we asked where Keith Olbermann would go if MSNBC did not offer him a juicy contract.  As we put it back in 2008:

No offense to Keith; I enjoy a slightly unhinged political rant as much as anybody, but it's as if MSNBC believed that viewers became hooked on "Countdown" during the election season and will be unable to shake the addiction. I started watching the show occasionally during the last weeks of the campaign and I haven't thought about going back there since election day. $7.5 million a year! That's extraordinary! Where do they think Keith Olbermann will go if they don't pay him more than the $4 million a year they agreed to in February 2007? CNN? Fox News?

Well, it appears we will now get an answer.  As CBS News reports here, Keith Olbermann announced on Friday that he was calling it quits.  Quotemeister Robert Thompson of Syracuse University is quoted as stressing Olbermann's importance to MSNBC's brand, but how much of that brand is a product of Olbermann himself and how much was it the product of, well, branding?  It seems we'll find out.  In any case, Rachel Maddow seems to have taken over as the face of MSNBC some time ago.

Reports say that it is unclear why Olbermann left in the middle of a four-year, $30 million contract, but are the reasons really that unclear?  CBS News raises the question of whether Olbermann's contract included a non-compete clause.  If it did, we would expect that Olbermann negotiated that away before he left MSNBC.

In the meantime, happy trails and thanks for the memories.

 

[JT]

What Darth Vader wants in the contract, he gets in the contract

For anyone looking for a clip to accompany the teaching of modification, the pre-existing legal duty rule, duress, negotiations or The Law of Star Wars, I offer this 1-minute excerpt from Robot Chicken, a show in the Adult Swim block on Comedy Central, which often parodies pop culture. This particular parody focuses on a deal between Darth Vader and Lando Calrissian that Darth Vader repeatedly "modifies."  

Two important warnings before you watch: (i) the clip includes a few bleeped-out expletives, and (ii) you may find yourself unable to stop repeating Vader's catch phrase for at least two hours after viewing.  

Hat tip to my TA for passing this along to me (I am way too old busy to be watching shows like this one.)

[HRA]

 

Travel Advisory: Prostitution Is Illegal in Las Vegas

Breaking news from the New York Daily News, which now seems to be little more than a front organization for the Onion News Network.  According to the Daily News, New York college student Hubert Blackman is suing an escort service for $1.8 million.  He was unhappy because the stripper who performed a lap dance and a sex act for him left after half an hour and he had paid for an hour.  Here we have a dramatic reconstruction of their interactions [please note, the actors have substituted the word "argument" for an unspecified sex act in order to retain our PG-13 rating]:

Mr. Blackman was traumatized by the incident, especially since, when he called the police to complain about this breach of contract, they threatened to have him arrested and insisted on calling him "John" even though his name is Hubert. 

[JT]

SCOTUS on the Right to Informational Privacy for Government Contractors

The U.S. Supreme Court issued a unanimous verdict yesterday in NASA v. Nelson, a case in which some employees of government contractors challenged background checks that they were required to undergo in order to retain their positions.  The plaintiffs, scientists and engineers at Jet Propulsion Laboratories, alleged that the new, expanded background checks violated their rights to informational privacy.  Many of them had worked at the lab for decades and had never previously been subjected to such background checks.  The forms asked employees to state whether or not they had used illegal drugs in the past year, provide details regarding that drug use and state whether they had sought counseling for such drug use.  The form also required the employee to list all prior schools, employers and residences so that each of those entities could be sent a form on which they could note any positive or negative reflections on the employee's character.  The Ninth Circuit found these aspects of the background check constitutionally problematic. 

Justice Alito, writing for six Justices, assumed without deciding that a right to informational privacy exists but found that the background checks did not violate any such right.  Justice Kagan, who had had a hand in designing the new background checks, did not participate in the case.

Justice Scalia wrote separately to scold his fellow Justices for being so obtuse as to even entertain the possibility that a right to informational privacy might exist.  Justice Thomas joined Justice Scalia and also added his own two cents in which he pointed to prior opinions in which he had stated that no general right to privacy exists and that the Due Process Clause cannot be a wellspring of unenumerated rights.  Justice Alito had assumed arguendo that a right to informational privacy exists only because the Supreme Court had referenced such a right in two prior cases. Moreover, Justice Alito pointed out in a footnote, as neither party to the case questioned the existence of a right to informational privacy, the issue had not been briefed and it would thus have been inappropriate for the Court to address it.

[JT]

Civil Recourse Theory in the Sunshine State

The Florida State University College of Law will host a "Symposium on Civil Recourse Theory" on February 11-12 in Tallahassee.  Civil Recourse Theory (CRT) is hot new theory in the private law area, and FSU has lined up an impressive panel of speakers.  Here's the sitch:

Civil recourse theory is an account of private law (property, contract and especially tort) according to which the primary purpose of private law is to empower victims to confront publicly those who have wronged them and enlist the state’s help in addressing those wrongs. This event brings together some of the world’s top scholars in private law to discuss this emerging area of legal philosophy.

The proceedings will be published in the FSU Law Review.  Attendance at the conference in free.  And even better (if you've blown your travel budget) is that the school will provide live streaming video of the whole bean feed.  Full details here.

If you're not familiar with CRT, a good introduction from a contract law perspective is Nate Oman's (Wm. & Mary) Consent to Retaliation: A Civil Recourse Theory of Contractual Liability.

FGS (via Curtis Bridgeman)

More Links on General Dynamics and Boeing

Yesterday, Laura Donohue posted for us on the two consolidated state secrets cases on which the Supreme Court heard argument.  Those looking for further commentary can find several links on the SCOTUSblog here.  

Both Dahlia LIthick on Slate and Adam Liptak in the New York Times, focus on Justice Scalia's suggestion that the Court's approach in state secrets cases has been to tell the parties to "go away."  "You say potato, I say state secrets, let's call the whole thing off," seems to be the basic idea.  As is often the case, Scalia's reasoning is as catchy and wry as it is without foundation.  Unless he is conflating the Totten doctrine with the state secrets privilege, as the courts are now wont to do and as the government is irresponsibly encouraging them to do, Scalia is completely wrong about what the state secrets privilege requires.  

Unfortunately, Justice Kagan's "heads I win; tails you lose" remark is more on point.  For all the debates in oral argument over which entity is the "moving party" in this case, that has never mattered in the state secrets privilege context, because the government never loses when it asserts the privilege.  Either it wins and gets the case dismissed or it wins and the case proceeds without the evidence subject to the privilege -- which is to say without evidence vital to some part of plaintiffs' claims.  Other options remain largely unexplored in recent case law.

But courts have not treated the state secrets privilege like the public policy rule relating to illegal contracts by leaving the parties as they find them.  While these two cases have been likened to Dickens' Jarndyce and Jarndyce, it would be not Dickensian but Kafkaesque if the Court would say to the parties after 20 years of litigation that their claims are non-justiciable.

[JT]

A Few Footnotes on Laura Donohue's Post

Professor Donohue makes reference to two cases and a statute with which our readers might not be familiar but which are important to an understanding of the General Dynamics and Boeing cases on which the Court heard argument yesterday.  

First, she mentions Totten, about which we have blogged in the past, and mentioned in another post here.  

In Totten, the administrator for the estate of William A. Lloyd broght a claim against the government seeking to recover for the breach of an espionage contract.  Lloyd allegedly entered into an agreement with President Abraham Lincoln in which Lloyd infiltrated enemy territory during the Civil War in order to provide the U.S. Government with information relating to the military forces and fortifications of the Confederacy.   For these services, Lloyd was to be paid $200/month plus expenses, but he received only his expenses.

Justice Field, writing in 1875, found that the subject matter of the contract was a secret and that both parties must have known at the time of their agreement that their lips would be “for ever sealed respecting the relation of either to the matter.”  In order to protect the public interest in having an effective arm of the government that could engage in secret services, the Court ruled that there could be no claim for breach of a secret contract because the existence of the contract was itself a secret that could not be disclosed.

As Professor Donohue points out, Acting Solicitor General Neal Katyal invoked Totten in arguing that plaintiffs' suits in General Dynamics and Boeing should be dismissed.  If the Court were to bite on that one, it would be an extraordinary -- and dare we say outrageous -- development.  Totten is a justiciability doctrine, and it as these cases have been in the courts for the better part of two decades, it's a bit absurd for the government to now assert that both parties understood when they entered the agreement that its very essence was a state secret which neither party could disclose.

Professor Donohue also mentions Reynolds, the locus classicus of the modern state secrets privilege.  That case was brought by the widows of three civilians who were killed when an Air Force B-29 crashed while testing out new equipment.  The plaintiffs sought the Air Force's official Accident Investigation Report so that they could pursue their theory that the crash had been the result of negligence either in maintenance or in piloting the aircraft.  The Air Force refused to produce the report and eventually claimed that it would not do so because doing so would result in the disclosure of national security secrets.  The Supreme Court ruled that the Air Force did not have to produce the report because it had properly asserted the state secrets privilege by producing a declaration from the head of the agency involved setting forth the dangers that would follow from disclosure.  The standard established by the Reynolds court is that the state secrets privilege is absolute and prevents discovery of information subject to the privilege whenever the privilege is properly asserted by the government and the court is persuaded that “there is a reasonable danger that compulsion of the evidence will expose military matters which, in the interest of national security, should not be divulged.”  Pace Katyal, the cases on which the Court heard argument yesterday are about the state secrets privilege and not about Totten.  More particularly, it is about whether the U.S. can make an administrative finding that a contractor is in default and then invoke the privilege to prevent any challenge to that determination.

Professor Donohue invokes the Classified Information Procedures Act (CIPA) as a possible solution, and we agree that this is a promising avenue to pursue.  CIPA was enacted to address the danger that a criminal defendant might threaten to reveal state secrets if prosecuted and thus use "graymail" to escape such prosecution.  CIPA provides procedures that enable a court to determine what disclosures are relevant to the criminal proceedings and also to proceed in camera or to have documents sealed so that the criminal prosecution can occur without the public dissemination of state secrets.  

But here's the key to CIPA: if the court is convinced that the criminal defendant must rely on classified information and that there is no way to proceed without risking disclosure, the government must forego prosecution.  The state secrets privilege has no analogue.  It is never the case that if the government cannot assert an affirmative defense without reliance on secret information, it must suffer the consequences.  Rather, as Justice Kagan noted, the state secrets privilege has developed into a pro-government game of heads, I win; tails, you lose.

The result, as many, many scholars have pointed out, is the government's abuse of the privilege.  This should not be surprising since the privilege was clearly abused in Reynolds itself, since the Accident Report at issue in that case contained lots of evidence of negligence and very little (if any) classified information that posed a reasonable danger to national security.  What is surprising is that courts continue to allow the government to assert the state secrets privilege and to grant government motions to dismiss claims based on the state secrets privilege before discovery has even begun.  That's one heckuv an evidentiary privilege!

[JT]

Laura Donohue on General Dynamics

Heads or tails, the government wins, Justice Kagan noted during oral argument this morning in the consolidated case of General Dynamics v. U.S. and Boeing v. US (Nos. 09-1298 & 09-1302).  

The issue before the Court is whether the government can invoke state secrets privilege to prevent a superior knowledge defense in a civil suit.

Plaintiffs argue that their 1988 contract to develop stealth technology for the A-12 Avenger (artist's conception, below right) relied on the government subsequently providing classified, technical information. The government’s failure to do so resulted in the companies’ inability to meet their development schedule.

The government’s contracting officer found default termination of the contract and demanded the return of unliquidated damages—defined broadly by the Acting Solicitor General during oral argument as claims not approved by the government, in this case, some $1.35 billion.

The key problem with the plaintiffs’ position is that there is no language in the contract indicating that the contractors were to receive specialized information from the government.  To the contrary, the government set up a competitive situation, awarding pre-contracts to two teams, to see who could develop the most impressive stealth technology.  As Acting Solicitor General Neal Katyal noted, the contract was to acquire technology, not to provide it.  

Katyal asserted that the courts should not be in the business of interfering in contract law, where sophisticated parties had the obligation to include any unwritten assumptions into the contract itself.

He further stated that plaintiffs’ failure to perform, explicitly contemplated in the language of the agreement, established the contracting officer’s right to determine default.  In light of Totten, plaintiffs had been on notice that state secrets may be asserted in subsequent suits.

Herein lies the rub:  Mr. Carter Philips, who argued for General Dynamics and Boeing, suggested that the government could not claim default termination and then hide behind state secrets when the contractors attempted to bring a superior knowledge defense.  As the moving party, the government was in a position akin to that of a prosecutor in a criminal case—indeed, the money at stake was substantial:  between $1.35 billion and $5 billion, depending upon the immediate calculus employed.  Reynolds did contemplate such a situationand recognized that the government could not have it both ways.

The Acting Solicitor General disagreed:  it was the plaintiffs, not the government, who brought suit.  The plaintiffs, not the government, were thus the moving party.

Justice Scalia offered some well-founded skepticism:  just because the legal action (here, default termination) did not occur in court did not mean that the government was not the moving party.   

Justice Ginsberg went further:  didn’t the plaintiffs’ claim that the government had a duty to provide information make plaintiffs the moving party?

Indeed, as Justice Roberts asked, could the government ever be the moving party?

Apparently not.  A rather convenient rule, indeed.

According to the Acting Solicitor General, under the language of this contract, the government has an absolute right to unliquidated damages at the time the contracting officer determines default termination.  Any plaintiff who brings suit will be the moving party.  And if the suit moves forward, the plaintiff is on notice that state secrets may result in dismissal.  If the contractors don’t like it, they can simply contract around the state secrets privilege.

But would the government accept language in a contract, Justice Roberts asked, that sets aside a state secrets claim?  

Perhaps not, conceded Katyal – but there may be other options, such as alternative dispute resolution within the military, or a classified panel, or setting aside a certain sum of money.  None of these, though, in the immediate suit, was of issue.

The case points to a much larger issue in state secrets, which is the utter inadequacy of the doctrine to take account of how deeply private industry has become involved in national defense.  

In December,Penn Law Review carried an article I wrote detailing the use of the doctrine over the past decade.

The big surprise?  State secrets has become a form of private indemnity – it is the contractors, in civil suits that range from breach of contract and patent infringement to personal injury and wrongful death, who often assert state secrets as an affirmative defense.  They may then lobby the government to become involved.

The Boeing case is thus somewhat unusual, in that contractors are generally arguing for use of the privilege.  They can’t have it both ways.  But then again, neither can the government.

What is needed is a far-reaching solution that takes account of the degree to which U.S. national security has become dependent on private industry.  Failure to come up with a civil solution—akin to the Classified Information Procedures Act (PL 96-456, 18 USC App. III, Secs 1-16) in criminal matters—will mean the continued miscarriage of justice and breach of fundamental fairness that inevitably occurs when parties are categorically denied their day in court.

[Posted on Professor Donohue's behalf, by JT]

Court of Federal Claims to Armour of America: The "u" is for U Lose

In an opinion unsealed on January 10, 2011, the Court of Federal Claims rejected Armour of America's breach of contract claims and granted judgement to the United States on its counterclaims in Armour of America v. United States.  The opinion is lengthy, so those in need of greater detail will have to consult the full opinion, linked to above.  

The case has some similarities with the General Dynamics and Boeing cases, relating to the cancelled contracts to build the A-12 stealth aircraft, on which argument in the Supreme Court is scheduled for this week.  As in those cases, this is a case about the Navy terminating a contract because the contractor had filed to make progress towards the completion of the contract in accordance with its terms.  

On June 10, 2004, the Navy had awarded Armour of America (AOA) a contract to replace existing metallic armor on the CH-46E helicopter (pictured being trained to heal).  The value of the contract was in excess of $6 million.   One month later, the Navy realized that AOA's armor was insufficient for its purposes.  The Navy sent AOA a letter advising AOA that it had about a month to develop a product that would serve the Navy's purposes or the contract would be terminated.  One day before the deadline established in the letter, the parties met and AOA asked for three or four more weeks. One day after the deadline established in the letter, having received no satisfactory response from AOA, the Navy terminated the contract.  The Navy then awarded the contract to ArmorWorks and sought in its counterclaim to recover $1.5 million in re-procurement costs plus over $45,000 in administrative costs

AOA challenged the termination arguing first that the Navy awarded the contract knowing of a ambiguity in AOA's bid and second that the termination was not for default but for the convenience of the government.

The court found no ambiguity in the minimum contract requirements and, allowing the contracting officer to terminate the contract if he reasonably believed AOA was not reasonably likely to complete the contract on time, found that AOA, given opportunity to cure any deficiencies, failed to alleviate the Navy's concerns in a timely manner.  Even four weeks after the termination, although AOA continued ballistics testing, it still could not meet the Navy's specifications for its armor in terms of its ability to withstand impacts.  The court thus concluded that there was no reasonable likelihood that AOA could complete the contract on time.  

As a result, the court found that the Navy had acted reasonably in terminating the contract for default.

On the government's counterclaims, the court determined that the armor provided by ArmorWorks was substantially similar to that specified in the terminated contract with AOA.  The court also found that the government had acted reasonably to minimize its re-procurement costs.  As a result the court awarded the government the full damages sought on its counterclaim, including its administrative costs.

[JT]

 

Introducing Laura Donohue and the General Dynamics Roundtable

We have previously posted about Laura Donohue's scholarship, now available, by the way, via the University of Pennsylvania Law Review.  Today, we are happy to welcome her as a guest poster on the blog.  Professor Donohue will be holding forth on a case being argued today in the U.S. Supreme Court, General Dynamics v. United States, consolidated with Boeing v. United States.

We look forward to a lively discussion of the case here on the blog, and we thank Professor Donohue for starting us off.

[JT]