ContractsProf Blog

Heidi Anderson, Neal Katyal and the Contracts Angle in the Obamacare Decision

Yesterday, our co-blogger, Heidi Anderson (pictured left), was ahead of the curve, writing about the Court's decision on the Medicaid provision of the Affordable Care Act (Obamacare) when everyone else was writing about the individual mandante.  Heidi noted that Chief Justice Roberts, joined by Justices Breyer and Kagan, voted to strike the provision of Obamacare that would deprive states of all Medicaid funding if they rejected Obamacare's Medicaid expansion.  The four dissenters rejected Medicaid expansion in its entirety.  In so doing, both sides relied on contracts law concepts, which they understood in terms of undue influence but which Heidi described as more akin to an argument based in economic duress.  Given Chief Justice Roberts' characterization of the financial inducement in the Medicaid Provision as "a gun to the head" (Slip Op. at 51), we do seem to be in the realm of duress.

Today's New York Times contains an op-ed by Neal Katyal (pictured right), that continues Heidi's line of reasoning and illustrates the uncomfortable fit of contracts concepts in the constitutional context. As Katyal puts it:

The health care decision also contains the seeds for a potential restructuring of federal-state relations. For example, until now, it had been understood that when the federal government gave money to a state in exchange for the state’s doing something, the federal government was free to do so as long as a reasonable relationship existed between the federal funds and the act the federal government wanted the state to perform.

In potentially ominous language, the decision says, for the first time, that such a threat is coercive and that the states cannot be penalized for not expanding their Medicaid coverage after receiving funds. And it does so in the context of Medicaid, which Congress created and can alter, amend or abolish at any time. The states knew the terms of the deal when they joined — and those terms continue to be enshrined in the federal code.

Katyal proceeds to identify other landmark federal legislation that could also be found unconstitutional based on the reasoning applied to the Medicaid expansion.  

In any case, Katyal makes clear that traditional contracts law concepts do not apply here. If they did, it would constitute duress or undue influence every time Google or other such internet service providers included provisions in their Terms of Service that permit them to "add or remove functionalities or features," "suspend or stop a Service altogether" or "stop providing Services to you, or add or create new limits to our Services at any time."  

Chief Justice Roberts' opinion is premised on the notion that the Federal Government knows that the states have grown dependent on Medicaid funding and that the threat to eliminate all such funding if the states do not accept Medicaid expansion is thus coercive.  As a matter of constitutional law, that may be right, but since one could not positively enjoin Google from changing its services based on the (highly plausible) argument that one had come to depend on those services, contracts law is not particularly helpful here.  

[JT]

Markets on the Mekong

I have returned from an enriching 5 weeks in Southeast Asia, mostly in frenetic Ho Chi Minh City, where I taught a class titled "Workplace Law in Global Context." I blogged about my travels at Saigoner, which would be of interest only to those readers with curiosity about what I ate (e.g., spider).

I'll be back in the contracts blogging saddle next week.  In the meantime, I wanted to share some thoughts and pictures that might be of interest to ContractsProf readers.

We stayed in a government owned hotel in Ho Chi Minh City.  I was amazed by its efficiency - in the U.S., a hotel run by the government would operate like the post office.

I've shared a few pictures of a floating market in Can Tho on the Mekong Delta. The floating markets are the main tourist attraction in Can Tho and they start up early in the morning.  A guide took us to see the boats; from the boats, people were all selling fruit wholesale.  To the masts of their boats, the sellers tie the fruit they have for sale.  Pineapples, watermellons and bananas were the main offering that day.  There was a little boat that went around like a convenience store for the sellers, in it a lady offered the sellers coffee and hot bowls of pho.

The floating market was very interesting, but the postcards in town all show a much more bustling scene.  There was a lot of activity, just not as much as pictured in those postcards.  It turns out that recent road and bridge construction has significantly reduced the amount of commerce done on the waterway in this fashion.  In fact, we were told that, in Thailand, there is a floating market that exists only for tourists; no real commerce is actually done there anymore.  I can’t help but wonder if that is eventually the fate of the floating market in Can Tho.

Along the banks of the Mekong, people live in clapboard houses made of whatever they can find – mostly pieces of shipping containers and plastic tarps.  The houses are on log stilts.  One of the houses was partly constructed with a plastic advertisement for Kaplan University.  

In Can Tho we also stopped at a factory where they process rice grains.  The big machines at the rice
processing factory were wooden and dusty and it seemed improbable that they still functioned the way they did.  We were told that Vietnam is second to Thailand as the world's largest rice producer. 

The Vietnamese have a refreshing lack of anxiety about heavy machinery.  In the U.S., we would not have been able to get that close to those rickety rice machines, and certainly not without a helmet and a waiver form.  Same goes for firing automatic weapons (I fired an AK-47 and an M-16 at the Cu Chi tunnels) and renting or hitching a ride on a moto-bike.

Another eye-opening field trip was a garment factory
tour I arranged for my class.  After a presentation on the company, we were toured around the factory.  It had over 1000 workers in the Ho Chi Minh outpost. You really cannot picture a room of 600 people making jackets for Columbia and Izod in assembly lines until you see it.  After the tour, we asked a million questions through an interpreter.  Most of the factory's buyers are U.S. and European companies.  I found it interesting that (at least thelast time I checked), Vietnam is not a signatory to the CISG.  This is especially so given that their garment exports apparrently rose 14% in the first 4 months of 2012 (and their claim as the world's second largest rice producer).

Finally, I thought readers would appreciate this picture from outside the Ho Chi Minh Stock Exchange (oh, the irony).  Their statue (as compared to this) is arguably a more honest depiction of markets.

[Meredith R. Miller]

 

How the Supreme Court's Decision on the Affordable Care Act Was All About Contracts After All

Other blogs will tell you that the Supreme Court's healthcare decision was all about the commerce clause, Congress's taxing authority, and John Roberts's identity.  But we here at ContractsProf Blog look past all of that and dig deeper.  We dig all the way to page 46.  Yes, I'm talking about the Medicaid expansion, the part of the Affordable Care Act ("ACA") that says, "it's my turn now, people!" when everyone already has walked away.  Buried there is a discussion of an oft-covered Contract law defense to formation known as undue influence.  

In case you never heard of are not as familiar with the Medicaid expansion as you are with the individual mandate (or, as I like to call it, the "anti-freeloader provision"), allow me to refresh your memory. (Or, allow me to point you to a great podcast.) Before the ACA, one qualified for Medicaid in most states only if she was a "needy individual" (Roberts's words, not mine), such as a pregnant woman, a child, a member of a needy family, or a blind, elderly, or disabled person.  In the ACA, Congress required states to expand Medicaid to cover many allegedly "less needy" people, i.e., childless, non-disabled adults with incomes below a certain level.  Actually, Congress didn't require such an expansion.  It just said (and I'm paraphrasing), "You, state, can choose not to expand coverage to these other people.  But, if you don't cover them, we're taking away ALL of your Medicaid funding, even if that federal money is ten percent of your state's entire revenue stream."  In his opinion (which may or may not be the "majority" on this issue, depending on whom you ask), Chief Justice Roberts analyzed whether this directive from the federal government was a proper exercise of its Spending Clause powers. And that's where Contract law takes center stage (or, at least center-left).  

The excerpt begins as follows (citations omitted):

"At the same time, our cases have recognized limits on Congress's power under the Spending Clause to secure state compliance with federal objectives. 'We have repeatedly characterized...Spending Clause legislation as "much in the nature of a contract."'  The legitimacy of Congress's exercise of the spending power 'thus rests on whether the State voluntarily and knowingly accepts the terms of the "contract."'

And how would one allege that the State did not voluntarily accept the terms of the contract?  Undue influence, that's how!  The next portion of the opinion continues:

"[This insight regarding contracts] has led us to scrutinize Spending Clause legislation to ensure that Congress is not using financial inducements to exert a 'power akin to undue influence.'  Congress may use its spending power to create incentives for States to act in accordance with federal policies.  But when 'pressure turns into compulsion,' the legislation runs contrary to our system of federalism.'"

Roberts ultimately agrees with the states that the federal government's "take it or leave it" offer rose to the level of coercion.  I have not read the rest of the opinion or the other opinions to determine how many votes there were for this holding.  It looks like only Breyer and Kagan agreed with Roberts on this point.*  However, even if I can't give you certainty, I hope I've at least given you enough ammunition to use in your debates with Con Law professors who think today's decision is all about them.

[Heidi R. Anderson]

* Update: There were 7 votes to toss the Medicaid expansion--Roberts, Breyer and Kagan via the Roberts opinion and Scalia, Thomas, Kennedy and Alito via Scalia's dissent.  Scalia's dissent discusses the Spending Clause issue using the same coercion-based Contracts rationale that Roberts used.  The dissent's Contract-based discussion begins in earnest on page 33.  The most direct excerpt states:

"When federal legislation gives the States a real choice whether to accept or decline a federal aid package, the federal-state relationship is in the nature of a contractual relationship.  And just as a contract is voidable if coerced, 'the legitimacy of Congress' power to legislate under the spending power...rests on whether the state voluntarily and knowingly accepts the terms of the "contract."' If a federal spending program coerces participation the States have not 'exercised their choice'--let alone made an 'informed choice.'" 

Based on this excerpt and the points that follow, it appears that the anti-expansion argument is better characterized as economic duress than as undue influence. 

United States Found in Breach of Contracts with Indian Tribes; Ordered to Pay in Full

Pursuant to the Indian Self-Determination and Education Assistance Act (ISDA), the Secretary of the Interior enters into contracts with Indian tribes.  The tribes the provide services that would otherwise be provided by the Federal Government.  ISDA requires that the Secretary (pictured) pay "contract support costs" incurred by tribes in connection with the contracts, subject to the availability of appropriations.  However, between 1994 and 2001, Congress appropriated funds sufficient to cover only between 77% and 92% of the aggregate contract support costs.  It instead paid portions of the contracts on a pro rata basis.  The tribes sued for breach of contract prusuant to the Contract Disputes Act.

The issue decided June 18th by the U.S. Supreme Court in Salazar v. Ramah Navajo Chapter was whether the U.S. government must pay those contracts in full when Congress fails to appropriate sufficient funds.  The District Court had granted summary judgment to the Government, but the 10th Circuit Court of Appeals reversed, because Congress had made sufficient funds "legally available."  Judge Sotomayor, writing for the 5-3 majority, uphled the 10th Circuit.  

Just seven years ago, in Cherokee Nation of Oklahoma v. Leivitt, 543 U.S. 631, the Court faced a similar situation and ruled that the Government was not excused from its contractual obligations where Congress has appropriated sufficient funds to pay the tribes but the Indian Health Service, but the agency had decided to allocate the money elsewhere.  Here, Congress appropriated sufficient money to Bureau of Indian Affairs (BIA) but that agency had not allocated sufficient funds to pay the contracts at issue here.  The Majority also relied on Ferris v. United States, which provides that the Government is responsible to a contractor for the full amount due under a contract even if the agency exhausts is appropriation in the service of other permissible ends.  

Chief Justice Roberts, joined by Justices Ginsburg, Breyer and Alito, dissented, noting that the Government's obligation to pay was made expressly contingent on the availability of appropriations and that payments under the contracts were not to exceed a set amount, which will be exceeded as a result of the Majority's ruling, nor can the Secretary be required to reduce funding for aother programs in order to make funds available under the contracts.  For the dissenting Justices, ISDA creates a triply whammy that the Majority ignores.  It provides that the Government's obligations are (1) subject to the availability of appropriations; (2) not to exceed a set amount; and (3) limited because the Secretary is relieved from any oblgiation to make funds available to one contractor by reducing payments to others.

The Majority responds by noting that this confuses appropriations by Congress, which were adequate to cover all the conracts at issue, and the allocation of those funds by the BIA.

[JT]

Weekly Top Tens 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 
April 26, 2012 to June 25, 2012

Rank	Downloads	Paper Title
1	185	Reforming the Short-Term Funding Markets  Morgan Ricks,  Harvard University Law School
2	172	The Irony of Privacy Class Action Litigation  Eric Goldman,  Santa Clara University - School of Law
3	164	Party Choice and the Common European Sales Law, or: How to Prevent the CESL from Becoming a Lemon on the Law Market  Jan M. Smits,  Maastricht University Faculty of Law - Maastricht European Private Law Institute (M-EPLI)
4	153	A Minor Problem with Arbitration: A Proposal for Arbitration Agreements Contained in Employment Contracts of Minors  Matthew Miller-Novak, Richard A. Bales,  Unaffiliated Authors - affiliation not provided to SSRN, Northern Kentucky University - Salmon P. Chase College of Law
5	153	The Litigation Finance Contract  Maya Steinitz,  University of Iowa - College of Law
6	136	The Antitrust/Consumer Protection Paradox: Two Policies at War with Each Other  Joshua D. Wright,  George Mason University - School of Law, Faculty
7	128	The Optional Instrument of European Contract Law: Opting-in through Standard Terms – A Reply to Simon Whittaker  Jürgen Basedow,  Max Planck Institute for Comparative and International Private Law
8	125	Conceptualizing Contractual Interpretation  Alan Schwartz, Joel Watson,  Yale Law School, University of California, San Diego (UCSD) - Department of Economics
9	110	Regulatory Techniques in Consumer Protection: A Critique of European Consumer Contract Law  Oren Bar-Gill, Omri Ben-Shahar,  New York University (NYU) - School of Law, University of Chicago Law School
10	94	An Empirical Study of Predispute Mandatory Arbitration Clauses in Social Media Terms of Service Agreements  Michael L. Rustad, Richard Buckingham, Diane D'Angelo, Katherine Durlacher,  Suffolk University Law School, Suffolk University - Law School, Suffolk University - Law School, Suffolk University - Law School

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of LSN: Contracts (Topic)  
April 26, 2012 to June 25, 2012

Rank	Downloads	Paper Title
1	218	The Questionable Basis of the Common European Sales Law: The Role of an Optional Instrument in Jurisdictional Competition  Eric A. Posner,  University of Chicago - Law School
2	128	The Optional Instrument of European Contract Law: Opting-in through Standard Terms – A Reply to Simon Whittaker  Jürgen Basedow,  Max Planck Institute for Comparative and International Private Law\
3	94	An Empirical Study of Predispute Mandatory Arbitration Clauses in Social Media Terms of Service Agreements  Michael L. Rustad, Richard Buckingham, Diane D'Angelo, Katherine Durlacher,  Suffolk University Law School, Suffolk University - Law School, Suffolk University - Law School, Suffolk University - Law School
4	91	How Many Systems of Private Law are There in Europe? On Plural Legal Sources, Multiple Identities and the Unity of Law  Martijn W. Hesselink,  University of Amsterdam - Centre for the Study of European Contract Law (CSECL)\
5	86	A Tea Party at the Hague?  Stephen B. Burbank,  University of Pennsylvania Law School
6	84	Market Conditions and Contract Design: Variations in Debt Covenants and Collateral  George G. Triantis, Albert H. Choi,  Stanford University - Law School, University of Virginia School of Law
7	66	Mandatory Arbitration of Internal Trust Disputes: Improving Arbitrability and Enforceability Through Proper Procedural Choices  S.I. Strong,  University of Missouri School of Law
8	58	Letting Go of Binary Thinking and Too-Big-To-Fail: Preserving a Continuum Approach to Systemic Risk  Cheryl D. Block,  Washington University in Saint Louis - School of Law
9	29	AT&T Mobility v. Concepcion and the Antidiscrimination Theory of Federal Arbitration Act Preemption  Hiro N. Aragaki,  Loyola Law School (Los Angeles)
10	26	Law and the Stable Self  Rebecca E. Hollander-Blumoff,  Washington University in Saint Louis - School of Law

[JT]

Call for Submissions for the 2013 AALS Annual Meeting

CALL FOR SUBMISSIONS 

AALS Section on Contracts, 2013 Annual Meeting Program

The Executive Committee of the AALS Contracts Section solicits proposals for presentations at the Section’s Annual Meeting program, The Law of Contracts or Laws of Contracts?, to be held in New Orleans, Louisiana on Saturday, January 5, 2013.

             In The Path of the Law, Oliver Wendell Holmes wrote,

"There is a story of a Vermont justice of the peace before whom a suit was brought by one farmer against another for breaking a churn. The justice took time to consider, and then said that he had looked through the statutes and could find nothing about churns, and gave judgment for the defendant."

This story was meant to ridicule the Vermont justice, but he may have been ahead of his time.  This year’s Section Meeting will revisit perennial and fundamental questions about “contract law” as a legal rubric.  Is it preferable to analyze “contracts” as a category, or to disperse contracts into “churn–like” categories, such as sales, consumer protection, employment, family relations, intellectual property, securities, and so on?  To what extent does the experience of one type of contract justify generalizations about “contract law”? Conversely, what kinds of contracts implicate context-specific practices, markets, or policy concerns justifying specialized analysis and/or doctrine? 

The Section seeks three to five presentations that address these and related questions.  We welcome papers that address these questions broadly as well as those that more narrowly discuss the doctrinal, transactional, or policy characteristics of a specific contractual context.

Submissions:

Full-time faculty members of AALS member law schools are eligible to submit proposals.  Please e-mail an abstract or proposal (500 words or fewer) to section chair Thomas Joo ([email protected]) by 5:00 p.m. (Pacific Time) September 7, 2012.  Drafts and completed papers are welcome (though not required), but must be accompanied by an abstract.  Please indicate whether the paper has been published or accepted for publication (and if so, provide the anticipated or actual date of publication).  There is no publication requirement, but preference will be given to papers that will not have been published by the date of the Annual Meeting.

We particularly encourage submissions from contracts scholars who have been active in the field for ten years or less, especially those who are pre-tenured, as well as more senior scholars whose work may not be widely known to members of the Contracts Section.  We will give some preference to those who have not recently participated in the Section’s annual meeting program. 

Thank you for your consideration.  Please contact Thomas Joo or any other Executive Committee Member if you have any questions.

 

AALS Section on Contracts Executive Committee

Curtis Bridgeman

Danielle Hart

Thomas Joo (Chair)

Larry Garvin (Chair-Elect)

Emily Houh

Nancy Kim (Secretary)

[JT]

Jury Awards $6.08 Million to Developers in Suit Against San Jose

As reported here by the San Jose Mercury News, a Santa Clara County jury has awarded Silicon Valley developer Carl Berg $6.08 million in a breach of contract dispute against the City of San Jose for its failure to enact a timely planning process that would allow up to 5,200 homes to be built in the Evergreen area.  

Berg’s suit alleged that city officials let him and other Evergreen property owners to believe for four years that rezoning of their industrial property to residential property would be approved.  As a result, the owners agreed to pay the city $8.8 million to conduct a community planning process as part of their development applications.  However, in 2006, when Chuck Reed ran for mayor, Reed argued that the council should not approve the rezoning.  Reed wanted to preserve the land for potential industrial uses that would generate jobs and taxes for the city.  Ultimately, Reed won this argument, and in 2007 San Jose rejected the Evergreen zoning.  As reported by mercurynews.com, Berg commented that “there are inherent risks in getting development agreements processed by municipal agencies.”  According to Berg “the City of San Jose took the unique approach of creating a contract with us, asking for money up front, in exchange for expediting our applications.”  However, according to Berg, the City never even created a process for review of Berg's application, and on that basis the jury found that the City breached its agreement with Berg and thus should refund money paid by him and the other Evergreen property owners 

Mayor Reed likened the verdict to buying a car, driving it for a while, then asking to return it for a full refund.  Here, the City says it is being asked to return money for many services it already rendered through the Planning Department and consultants.  The City plans an appeal.

[JT and Christina Phillips]

 

Contracts and Pension Reform

I'm a little late with this post but I'm going to open up a political can of worms here on the blog and talk about pension reform.  In California, two cities (including my hometown, San Diego) have voted to approve changes to their city's pension plans. The San Jose measure seems to make changes to plans for retired workers. I can understand how changes to plans for new employees might be legal, but I'm not sure how changes to existing plans and vested benefits can be considered legal.  The contract law issues boggle the mind.  Not surprisingly, the proposed changes to the San Jose plan are being legally challenged.  It's going to get messy....

 

[Nancy Kim]

 

 

 

Former Napster CEO Sues Best Buy in Connection with Sale to Rhapsody

As reported in the Minneapolis/St. Paul Business Journal, former CEO of Napster, Christopher Gorog, filed suit May 31, 2012 against Best Buy in the U.S. District Court in Minneapolis alleging breach of contract, unjust enrichment and breach of good faith and fair dealing, claiming the electronics chain has failed to honor his 2008 employment agreement.  Gorog claims that Best Buy did not honor the terms of his severance agreement and short-changed him when it sold off Napster to Rhapsody in 2011.

Gorog was chief executive of Roxio when it acquired the music sharing service, Napster, which the Business Journal characterizes as "copyright violating" until Gorog turned it into a "legitimiate business" with annual music sales of over $100 million (we are shocked, shocked to learn that there were copyright violations associated with Napster). 

Best Buy bought Roxio/Napster in 2008 for $121 million, and Gorog became a Best Buy employee. Gorog now alleges that he was to be paid up to $5.8 million if Best Buy sold or shuttered Napster before March 2012.   Gorog left the company in 2009 after unsuccessfully trying to convince execs to continue investing in Napster. He now claims that the sale of Napster to Rhapsody was designed to prevent him from getting his fair share from the deal.

We have not been able to locate the complaint, but we think it looks something like this:

 

[JT & Christina Phillips]

 

Weekly Top Tens 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 
April 19, 2012 to June 18, 2012

Rank	Downloads	Paper Title
1	190	The Common European Sales Law (CESL) Beyond Party Choice  Jan M. Smits,  Maastricht University Faculty of Law - Maastricht European Private Law Institute (M-EPLI)
2	180	Reforming the Short-Term Funding Markets  Morgan Ricks,  Harvard University Law School
3	169	The Irony of Privacy Class Action Litigation  Eric Goldman,  Santa Clara University - School of Law
4	149	A Minor Problem with Arbitration: A Proposal for Arbitration Agreements Contained in Employment Contracts of Minors  Matthew Miller-Novak, Richard A. Bales,  Unaffiliated Authors - affiliation not provided to SSRN, Northern Kentucky University - Salmon P. Chase College of Law
5	142	Transaction Simplicity  Stephen J. Lubben,  Seton Hall University - School of Law
6	140	The Litigation Finance Contract  Maya Steinitz,  University of Iowa - College of Law
7	114	Conceptualizing Contractual Interpretation  Alan Schwartz, Joel Watson,  Yale Law School, University of California, San Diego (UCSD) - Department of Economics
8	86	An Empirical Study of Predispute Mandatory Arbitration Clauses in Social Media Terms of Service Agreements  Michael L. Rustad, Richard Buckingham, Diane D'Angelo, Katherine Durlacher,  Suffolk University Law School, Suffolk University - Law School, Suffolk University - Law School, Suffolk University - Law School
9	82	Legal Epistemology in the Restatement (3d) of Restitution and Unjust Enrichment  Lionel Smith,  McGill University - Faculty of Law - Quebec Research Centre of Private and Comparative Law
10	82	How Many Systems of Private Law are There in Europe? On Plural Legal Sources, Multiple Identities and the Unity of Law  Martijn W. Hesselink,  University of Amsterdam - Centre for the Study of European Contract Law (CSECL)

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of LSN: Contracts (Topic)  
April 19, 2012 to June 18, 2012

Rank	Downloads	Paper Title
1	213	The Questionable Basis of the Common European Sales Law: The Role of an Optional Instrument in Jurisdictional Competition  Eric A. Posner,  University of Chicago - Law School
2	166	Modern Chinese Real Estate Law: Property Development in an Evolving Legal System (Chapter 1)  Gregory M. Stein,  University of Tennessee College of Law
3	86	An Empirical Study of Predispute Mandatory Arbitration Clauses in Social Media Terms of Service Agreements  Michael L. Rustad, Richard Buckingham, Diane D'Angelo, Katherine Durlacher,  Suffolk University Law School, Suffolk University - Law School, Suffolk University - Law School, Suffolk University - Law School
4	83	A Tea Party at the Hague?  Stephen B. Burbank,  University of Pennsylvania Law School
5	82	How Many Systems of Private Law are There in Europe? On Plural Legal Sources, Multiple Identities and the Unity of Law  Martijn W. Hesselink,  University of Amsterdam - Centre for the Study of European Contract Law (CSECL)
6	78	Market Conditions and Contract Design: Variations in Debt Covenants and Collateral  George G. Triantis, Albert H. Choi,  Stanford University - Law School, University of Virginia School of Law,
7	70	Remedial Consilience  Marco Jimenez,  Stetson University College of Law
8	63	Mandatory Arbitration of Internal Trust Disputes: Improving Arbitrability and Enforceability Through Proper Procedural Choices  S.I. Strong,  University of Missouri School of Law
9	47	Letting Go of Binary Thinking and Too-Big-To-Fail: Preserving a Continuum Approach to Systemic Risk  Cheryl D. Block,  Washington University in Saint Louis - School of Law
10	46	Navigating the Borders Between International Commercial Arbitration and U.S. Federal Courts: A Jurisprudential GPS  S.I. Strong,  University of Missouri School of Law

[JT]

Terrell Owens' Threatens to Sue His Former Indoor Football League Team

According to this article on tmz.com, Terrell Owens (pictured) has given the Indoor Football League Allen Wranglers an ultimatum—issue a public apology and pay him the $160,000 that he claims they owe him (for four games) plus his 50% share of merchandise, tickest and concessions from his time with the team.  

The team claimed that Owens was cut on May 29, 2012 for not intending to play in two upcoming road games with playoff implications and for missing a team event at a local children’s hospital.  He is asking the Allen Wranglers for a public retraction of the statement that he intentionally missed the visit. As reported by Yahoo!sports, Owens claims his contract stated he did not have to play in away games and that the team privately acknowledged that an Allen Wranglers publicist gave him the wrong date concerning the hospital visit.  

TMZ.com had earlier reported that Owens was not only cut, he was evicted from the house provided for him by the team, was ordered to turn over the keys to the 2012 Jeep Chrokee that the team had loaned him, and he was given $50 in payment for his stake in the team.  According to TMZ.com's latest report on the subject, the Allen Wranglers are standing firm, reportedly telling Owens, "You ain't getting a penny."

[JT and Christina Phillips]

Update on Golden Globes Contract Dispute

I previously blogged about the parol evidence rule and interpretation issues at the heart of a dispute between Dick Clark Productions ("DCP") and the Hollywood Foreign Press Association ("HFPA") over broadcast rights for the Golden Globes.  I now have two updates.  

First, the District Court has ruled in favor of DCP in a 89-page opinion posted here by the Hollywood Reporter. Pages 65-78 contain the arguments and holdings regarding the "plain meaning" of the modified contract and the use of extrinsic evidence (citing the commonly-used PG&E case).  Pages 79-81 review HFPA's argument that there was no consideration for the modified contract.  The opinion even contains a helpful discussion of mistake at pages 81-83.   

The second update is that Dick Clark Productions reportedly is up for sale (less than two months after Dick Clark's passing).  It would be interesting to see the DCP-HFPA contract provisions regarding assignment and change of control.  Perhaps there will be a post-sale lawsuit as well.  

Ultimately, I predict that this case appears in Contracts casebooks very soon.  The combination of issues, the high profile nature of the dispute, and the short contractual provision itself, all make it a great candidate. As one lawyer said to the LA Times,"So much litigation over 12 words...."  

Stay tuned (pun intended).

[Heidi R. Anderson]

The Return of the Big Bang Theory

 

The Big Bang Theory, CBS's critical and commercial success, also is a Contracts professor's dream. This is due to the show's frequent references to "The Roommate Agreement" between the two main characters, Sheldon and Leonard.  I previously blogged about using the show to illustrate anticipatory repudiation and contractual interpretation.  I am now back with another clip, this time to illustrate duress and possible lack of consideration for an agreement modification.  In this latest clip, Sheldon gets Leonard to agree to modify the roommate agreement by threatening to notify Leonard's girlfriend's parents about their relationship.  The threat has meaning because the girlfriend, Priya, believes her parents in India would not approve of her relationship with the non-Indian Leonard.  I'm not sure, however, if the threat is "wrongful" in the traditional duress scenario.  The clip also features two key Star Trek references for all the Trekkies out there (someone should do a study, illustrated via Venn diagram, on the overlap between the "law professor" and "Trekkie" categories--I predict significant overlap).  I hope to use the clip as a supplement the traditional duress cases of Loral and Totem Marine.  Given that Sheldon appears not to give Leonard anything in exchange for the modification, it also could be used in the pre-existing legal duty rule context.   

[Heidi R. Anderson]

 

Weekly Top Tens 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 
April 12, 2012 to June 11, 2012

Rank	Downloads	Paper Title
1	580	The Perils of Social Reading  Neil M. Richards,  Washington University in Saint Louis - School of Law
2	177	The Common European Sales Law (CESL) Beyond Party Choice  Jan M. Smits,  Maastricht University Faculty of Law - Maastricht European Private Law Institute (M-EPLI)
3	146	A Minor Problem with Arbitration: A Proposal for Arbitration Agreements Contained in Employment Contracts of Minors  Matthew Miller-Novak, Richard A. Bales,  Unaffiliated Authors - affiliation not provided to SSRN, Northern Kentucky University - Salmon P. Chase College of Law
4	143	The Irony of Privacy Class Action Litigation  Eric Goldman,  Santa Clara University - School of Law
5	137	Transaction Simplicity  Stephen J. Lubben,  Seton Hall University - School of Law
6	109	The Litigation Finance Contract  Maya Steinitz,  University of Iowa - College of Law
7	101	'Offer to Sell' as a Policy Tool  Lucas Osborn,  Campbell University Law School
8	101	Conceptualizing Contractual Interpretation  Alan Schwartz, Joel Watson,  Yale Law School, University of California, San Diego (UCSD) - Department of Economics
9	81	An Empirical Study of Predispute Mandatory Arbitration Clauses in Social Media Terms of Service Agreements  Michael L. Rustad, Richard Buckingham, Diane D'Angelo, Katherine Durlacher,  Suffolk University Law School, Suffolk University - Law School, Suffolk University - Law School, Suffolk University - Law School
10	79	Legal Epistemology in the Restatement (3d) of Restitution and Unjust Enrichment  Lionel Smith,  McGill University - Faculty of Law - Quebec Research Centre of Private and Comparative Law

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of LSN: Contracts (Topic)  
April 12, 2012 to June 11, 2012

Rank	Downloads	Paper Title
1	580	The Perils of Social Reading  Neil M. Richards,  Washington University in Saint Louis - School of Law
2	200	The Questionable Basis of the Common European Sales Law: The Role of an Optional Instrument in Jurisdictional Competition  Eric A. Posner,  University of Chicago - Law School
3	164	Modern Chinese Real Estate Law: Property Development in an Evolving Legal System (Chapter 1)  Gregory M. Stein,  University of Tennessee College of Law
4	83	A Tea Party at the Hague?  Stephen B. Burbank,  University of Pennsylvania Law School
5	81	An Empirical Study of Predispute Mandatory Arbitration Clauses in Social Media Terms of Service Agreements  Michael L. Rustad, Richard Buckingham, Diane D'Angelo, Katherine Durlacher,  Suffolk University Law School, Suffolk University - Law School, Suffolk University - Law School, Suffolk University - Law School
6	72	How Many Systems of Private Law are There in Europe? On Plural Legal Sources, Multiple Identities and the Unity of Law  Martijn W. Hesselink,  University of Amsterdam - Centre for the Study of European Contract Law (CSECL)
7	69	Remedial Consilience  Marco Jimenez,  Stetson University College of Law
8	63	Market Conditions and Contract Design: Variations in Debt Covenants and Collateral  George G. Triantis, Albert H. Choi,  Stanford University - Law School, University of Virginia School of Law
9	57	Mandatory Arbitration of Internal Trust Disputes: Improving Arbitrability and Enforceability Through Proper Procedural Choices  S.I. Strong,  University of Missouri School of Law
10	44	Navigating the Borders Between International Commercial Arbitration and U.S. Federal Courts: A Jurisprudential GPS  S.I. Strong,  University of Missouri School of Law

[JT]

'Wrap Cases Yet to Hit NZ

Since much of my research tends to at least recognize that we live in a multicultural, global, interconnected world, I was a bit embarrassed to discover how U.S. -centric I am with some of my assumptions about contract law. During one class, I told my bright and engaging students at VUW how contract law theory might help them address some novel contracting issues that will likely arise in their practice. My "war story" was working at a software company in the early nineties and trying to figure out whether shrinkwrap and clickwrap licenses were enforceable (although we didn't call them that then). My students were too kind to tell me that there are no cases on this topic either in New Zealand or Australia. No New Zealand equivalent of ProCD v. Zeidenberg? No subversion of the rules of offer and acceptance? No replacing consent with reasonable notice? It may be that other laws (consumer protective legislation and the unique tort system) make such issues less relevant.  In any event, it's possible that in the southern hemisphere at least there's still time to establish logical and doctrinally coherent precedent with respect to digital contracts. One can always hope...

[Nancy Kim]

2d Circuit Denies Rehearing En Banc in an Arbitration Case

On May 29th, a fractured Second Circuit denied rehearing en banc in In re: America Express Merchants' Litigiation, a case decided by a Second Circuit panel on February 1st after its earlier decisions were succesively vacated by the US Supreme Court in light of its decisions in Stolt-Nielsen & Concepction.  After each of these decisions, the case was remanded to the Second Circuit.  Each time, the Second Circuit found that the recent Supreme Court decisions do not necessitate a different outcome.  Its most recent en banc decision leaves its prior rulings undisturbed.

The underlying facts are complicated and relate to the difference betweeen credit cards and charge cards.  Under the latter, American Express (Amex) traditionally charged fees at least 35% higher than it did under ordinary credit cards. Plaintiffs allege that Amex is now using its market power to force merchants that accept Amex to pay higher fees on both credit cards and charge cards.

Unfortunately for the merchant plaintiffs, their card acceptance agreement with Amex included an arbitration clause and a class-action wavier.  Back in 2006, based on these provisions, the District Court granted Amex's motion to compel arbitration.  The Second Circuit found as an initial matter that the compulsory arbitration combined with the class action waiver effectively deprived plaintiffs of any mechanism for pursuing their anti-trust claims.  As a result, the Second Circuit declared the arbitration clause unenforceable and reversed the Distirct Court's order compelling arbitration.  

Judge Pooler was part of the panel that decided the case.  As she explained in her concurring opinion to the denial of rehearing en banc, the Supreme Court's recent decisions holding that the Federal Arbitration Act (FAA) trumps state laws that might otherwise defeat compulsory arbitration or class-action waivers do not apply to challenges to arbitration based on federal statutes:  

Because its analysis focused wholly on the issue of preemption of state law by federal law, Concepcion is silent on the holdings of the Court's earlier cases which enforce arbitration clauses only when those clauses permit parties to effectively vindicate their federal statutory rights.

Chief Judge Jacobs, along with Judges Cabranes and Livingston, dissented from the denial of rehearing based on previous holdings permitting compulsory arbitration of anti-trust claims.  According to the dissenters, the panel opnion (Amex III) turns on the court's determination that anti-trust claims are not economically feasible because of the class-action waiver, but the dissenters do not regard it as the proper role for courts to determine the economic feasibility of a category of potential claims.  Amex III thus subverts the policy goals informing the FAA by requiring a trial on the merits (more or less) in federal court to determine whether or not the claim is suitable for arbitration.  The FAA requires that such deterinations be made by the arbiter.  

The case has been relied on by several District Courts.  Given its influence, it ought to be reviewed en banc, say the dissenters especially since Amex III is inconsistent with a 9th Circuit case, Coneff v. AT&T. which upheld an abitration clause and class action waiver despite the fact that plaintiffs brought claims under the Federal Communications Act.  

The dissenters express some incredulity at the majority's reasoning.  State laws that expressly make class-action waivers unenforceable are swept aside by Concepcion's logic but somehow federal claims that make no reference ot class actions surivive it.  They also expressed some skepticism about whether or not arbitration really would be economically infeasible in this case.  

 Judge Cabranes wrote separately to flag the case for Supreme Court review.  Judges Raggi and Wesley dissented from the denial of rehearing mainly on the ground that they view the case as inconsistent with Coneff.  Before creating a Circuit split, one really ought to hear reargument, reason these dissening judges.

[JT] 

Television Without Commercials?!? Say It Ain't So, Dish

In its Complaint filed against Dish Network (“Dish”), Fox Broadcasting Company (“Fox”) (along with ABC, NBC, and CBS, all separately) alleged Dish’s new AutoHop service, which allows customers to skip television ads, violates the license granted to Dish for video-on-demand service to consumers.  According to Fox, the license to Dish was granted under certain conditions, apparently including provisions that prohibited any form of rebroadcast of Fox programming that would enable viewers to skip commercials.  

In case the Court has been living in cave for the past seventy years or so, Fox points out that commercial advertising is vital to broadcast television.  If it weren't for its advertisers, Fox would be unable to bring us the hit shows without which life would not be worth living.  

Nonetheless, Dish has recently launched its own video-on-demand service called PrimeTime Anytime that is available to top-tier Dish subscribers who lease the Hopper set top box from Dish.  PrimeTime Anytime makes available to subscribers the entire primetime broadcast schedule for all four major networks every night and commercial free.  According to Fox’s Complaint, “unlike traditional DVR, the Primetime service was specifically and deliberately designed by Dish so that Dish can record, and/or encourage and facilitate unauthorized recording of hundreds of hours of copyrighted television programs and distribute those copies in a revised format so they can be viewed commercial-free.”

In addition to the DVR-like aspects of Dish's new service, Dish will also redistribute and stream Fox’s programming over the Internet.  Fox claims that this too constitutes a violation of copyright law and Dish’s agreements with Fox.  Fox points out that this aspect of Dish's new services also constitutes unlawful competition with iTunes and Amazon who must pay for the right to offer commercial-free versions of Fox’s programming. 

Further information is available through this report on hollywoodreporter.com.

[Christina Phillips & JT]

 

Space Suit

Spacenews.com reports that satellite fleet operator MEASAT Satellite Systems of Malaysia (MEASAT) is suing fleet operator Intelsat Corporation (Intelsat) for at least $29 million in a U.S. District Court, alleging breach of contract and collusion in Intelsat’s handling of the launch of a Measat satellite in 2009. 

The lawsuit, filed on April 27, 2012, in the United States District Court, Central District of California, is really two lawsuits in one.  MEASAT is after Intelsat for breach of contract in connection with two different planned launches of the same MEASAT sattelite. MEASAT contends that the parties entered in to an agreement on March 9, 2006, in which MEASAT agreed to pay over $40 million, and Intelsat agreed to launch MEASAT's satellite between November 1, 2007 and Janury 29, 2008.  For reasons that are unclear from the complaint, the parties agreed to delay the launch until August 2008.

The scheduled launch on August 21, 2008, was allegedly delayed due to Intelsat's repeated mishandling of the satellite -- first by hitting it with a crane and then by dropping it while it was being loaded onto a cargo plane.  In order to secure a second launch date, MEASAT alleges that it had to pay additional fees and also agree to waive any claims associated with the aforementioned breaches and/or negligence on Intelsat's part.  MEASAT alleges that the delays caused by Intelsat's mishandling of its satellite it "was fast losing millions of dollars and valuable good will" and was "teetering on financial disaster." 

The parties agreed to a June 2009 launch date, but Intelsat contniued to seek additional compensation, now reducing its demand to $7.5 million.  Intelsat also allegedly demanded that MEASAT sign a release, abandoning all claims associated with the earlier launch date and also threatened to use the launch to send up one of its own satellites instead of MEASAT's satellite, if its demands were not met.  At that point, it would have cost MEASAT between $80 and $90 million to negotiate an alternative launch.  As MEASAT would not have survived had it chosen to do so, it capitulated to Intelsat's demands.  The MEASAT Satellite was launched on June 21, 2009, over ten months from the previously scheduled launch date and eighteen to twenty months from the first promised launch period.          

MEASAT now alleges that Intelsat conspired with other entities to "facilitate the coercive and wrongful conduct" alleged in the complaint.  MEASAT is claiming that Intelsat breached its contract w/ MEASAT by demanding payments for launch in addition to the agreed-upon $40 million fee and through failures to exercise care that resulted in dealys in the launch. 

In addition, MEASAT has alleged claims for economic duress, unjust enrichment, breach of the convent of good faith and fair dealing, and a violation of California Business and Professions Code §17200.  MEASAT seeks damages in the amount of $29,000,000 as well as punitive damages and attorneys fees.

[Christina Phillips and JT]

 

 

Arbitration Award Upheld in Atlanta District Court

As reported in prnewswire.com, an arbitrator awarded Fox Insurance Company (“Fox”) over $3.3 million, in an arbitration Fox and ProCare, its former pharmacy benefit manager.   On May 21, 2012, the U.S. District Court for the Northern District of Georgia, Atlanta Division, issued its decision confirming the arbitration award.

ProCare is a pharmacy benefit manager (“PBM”) that provides such services to over 290 insurance companies, including Fox.  Pursuant to a client services agreement (“the Agreement”), ProCare acts as Fox’s attorney-in-fact by making payments to pharmacies.  The Agreement provides:   Fox “shall have the right to request that ProCare conduct an audit of a specific participating Pharmacy Provider if it believes such pharmacy is not accurately administering Client’s benefit plans or the terms of this Agreement”.  “Any identified overpayments to a participating Pharmacy Provider relating to Fox’s Covered Persons, shall be returned to Fox by ProCare minus any administrative fees associated with this service”.  Such a refund “may be accomplished ... through application of a credit against future claim invoices” Also included in the Agreement was a provision stipulating that any controversy related to the Agreement or breach thereof was to be settled by binding arbitration governed by the commercial rules of the American Arbitration Association.

In May 2010 ProCare initiated an arbitration proceeding seeking to recover money allegedly owed by Fox.  Fox filed an answer and counterclaim, and requested an audit, as premitted under the Agreement.  The audit authorized by the arbitration panel identified $1,949,063.68 associated with approximately 165 pharmacies that was subject to reclaim based on waste or abuse, and awarded Fox $1,658,739.17 in additional damages.  The panel ordered ProCare to collect the $1,949,063.68 identified in the audit and return that sum to Fox. 

While ProCare did not contest the damage award, it filed a motion to vacate the arbitration award, contending the $1.9 million sum constituted an award against the non-party pharmacies and that the arbitration panel thereby overstepping its authority.  The District Court rejected this challenge.  To the extent that the non-party pharmacies believe they are entitled to any portion of the $1.9 million, they may seek those funds from Fox, ProCare, or both.  The Agreement allowed for the collection of overpayments through application of a credit against future invoices, and this is exactly what the arbitration panel ordered.  Although ProCare’s obligations under the Agreement may conflict with its obligations under contracts with certain pharmacies, that conflict does not mean that the arbitration panel exceeded its authority.  Indeed, the Agreement states that ProCare must return overpayments without mention of ProCare’s contracts with participating pharmacies. 

The District Court also rejected ProCare's argument that the arbitration panel improperly ordered a setoff against funds that ProCare held in trust, in violation of Georgia law.The District Court noted taht Fox’s claim to funds held by ProCare arises from the Agreement, not from a Georgia statute.  In any case, even if the arbitrator incorrectly interpreted Georgia law with respect to setoff, a “panel’s incorrect legal conclusion is not grounds for vacating or modifying the award.” 

Thus, ProCare’s Motion to Vacate the Arbitration Award was denied.

[Chistina Phillips & JT]

 

Weekly Top Tens from the Social Science Research Network

In an uprecedented development our second Top Ten list is only a Top Eight.  Apparently, there is a shortage of fresh contracts scholarship showing up on SSRN this summer.  Those of you out there eager to break into the big time with a top-ten hit, this is the time to post.

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of Contracts & Commercial Law eJournal 
April 5, 2012 to June 4, 2012

Rank	Downloads	Paper Title
1	561	The Perils of Social Reading  Neil M. Richards,  Washington University in Saint Louis - School of Law
2	162	The Common European Sales Law (CESL) Beyond Party Choice  Jan M. Smits,  Maastricht University Faculty of Law - Maastricht European Private Law Institute (M-EPLI)
3	143	A Minor Problem with Arbitration: A Proposal for Arbitration Agreements Contained in Employment Contracts of Minors  Matthew Miller-Novak, Richard A. Bales,  Unaffiliated Authors - affiliation not provided to SSRN, Northern Kentucky University - Salmon P. Chase College of Law
4	130	Transaction Simplicity  Stephen J. Lubben,  Seton Hall University - School of Law
5	128	The Private Equity Contract  Steven M. Davidoff,  Ohio State University (OSU) - Michael E. Moritz College of Law
6	101	The Draft Common Frame of Reference (DCFR) - The Most Interesting Development in Contract Law Since the Code Civil and the BGB  Frank Emmert,  Indiana University Robert H. McKinney School of Law
7	101	'Offer to Sell' as a Policy Tool  Lucas Osborn,  Campbell University Law School
8	80	Conceptualizing Contractual Interpretation  Alan Schwartz, Joel Watson,  Yale Law School, University of California, San Diego (UCSD) - Department of Economics
9	74	Legal Epistemology in the Restatement (3d) of Restitution and Unjust Enrichment  Lionel Smith,  McGill University - Faculty of Law - Quebec Research Centre of Private and Comparative Law
10	67	A Framework for Analyzing Financial Market Transformation  Steven L. Schwarcz,  Duke University - School of Law

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of LSN: Contracts (Topic)  
April 5, 2012 to June 4, 2012

Rank	Downloads	Paper Title
1	561	The Perils of Social Reading  Neil M. Richards,  Washington University in Saint Louis - School of Law
2	150	Modern Chinese Real Estate Law: Property Development in an Evolving Legal System (Chapter 1)  Gregory M. Stein,  University of Tennessee College of Law
3	78	A Tea Party at the Hague?  Stephen B. Burbank,  University of Pennsylvania Law School
4	65	Europe-Building Through Private Law: Lessons from Constitutional Theory  Chantal Mak,  University of Amsterdam - Centre for the Study of European Contract Law (CSECL)
5	65	Remedial Consilience  Marco Jimenez,  Stetson University College of Law
6	64	An Empirical Study of Predispute Mandatory Arbitration Clauses in Social Media Terms of Service Agreements  Michael L. Rustad, Richard Buckingham, Diane D'Angelo, Katherine Durlacher,  Suffolk University Law School, Suffolk University - Law School, Suffolk University - Law School, Suffolk University - Law School
7	62	Instructing Juries on Noneconomic Contract Damages  David A. Hoffman, Alexander Radus,  Temple University - James E. Beasley School of Law, Temple University James E. Beasley School of Law
8	36	Against Liability for Private Risk-Exposure  Sheila B. Scheuerman,  Charleston School of Law

[JT]