ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Wednesday, June 12, 2013

Steven Feldman Reviews Boilerplate

For those of you who cannot get enough input on Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law, we have yet another review.  This one is from friend of the blog Steven Feldman.  Links to other contributions from our online symposium on the book can be found here.  

FeldmanIn her book, Boilerplate:  The Fine Print, Vanishing Rights, and The Rule of Law, Professor Margaret Jane Radin suggests the expansion of tort law as the centerpiece remedy for what she terms abusive mass market contract boilerplate. (Radin, p. 216).  As a complement to existing contract remedies, she posits a new tort, i.e., “intentional deprivation of basic legal rights.” (Radin, pp. 198, 211, 216). According to Radin, this intentional tort would cover abusive boilerplate, i.e., “a firm that imposed severe remedy deletions of rights that are at least partially market-inalienable, under circumstances of non-consent and mass market distribution . . . .” (Radin, p. 211).This intentional tort would be a companion to another new tort reconceptualizing abusive boilerplate as a defective “product” under the law of product liability. (Radin, pp. 198, 222-23).

BoilerplateRadin’s proposal to use the tort law system to remedy boilerplate abuse has attracted support from respected academic commentators.  Professor Omri Ben-Shahar in his review of the book calls Radin’s suggestion a “welcome new framework” and “an immensely creative idea, surely to become a legacy of the book, and it deserves careful attention . . . .”  Omri Ben-Shahar, Regulation Through Boilerplate: An Apologia, ___ Mich. L. Rev. ___ (2013) (forthcoming) (available at the SSRN Electronic Library).  Because I believe that Radin’s suggested tort remedies contradict numerous legal principles, my critique will explain why the chances are minimal that any U.S jurisdiction would accept her proposals to make a tort out of a contract dispute.

Radin: Precedent exists for the creation of new torts by common law courts, such as the torts involving invasion of privacy.  (Radin, p. 198).

Response: Radin is correct that the torts involving invasion of privacy were judicially created. What Radin omits is that although some courts claim the common law authority to create new torts, they characteristically “tread cautiously” in this area, Rees v. Smith, 301 S.W.3d 467, 471 (Ark. 2009), as they balance numerous legal and substantive considerations,  Burns v. Neiman Marcus Group, Inc., 93 Cal. Rptr. 3d 130, 136 (Cal. Dist. App. 2009)(listing considerations). Thus, for example, courts considering a new tort must balance the need to meet society's changing needs against the prospect of boundless claims in an already crowded judicial system. Rees, 301 S.W.3d at 471. In another policy, courts “[w]ill decline to recognize a new cause of action if there are sufficient other avenues, short of creating a new cause of action, that serve to remedy the situation for a plaintiff.”  Id.

 Radin fails to point out that the usual outcome is “countless refusals” by judges to create new torts. Anita Bernstein, How To Make A New Tort: Three Paradoxes, 75 Tex. L. Rev. 1539, 1546 n.38 (1997)(citing decisions).   Indeed, some courts decline altogether to create new actions in tort. Their rationale is that legislatures have better institutional capability to balance the competing public policy considerations attendant with new forms of liability.  Murphy v. American Home Products Corp., 448 N.E.2d 86, 89-90 (N.Y. 1983); Accent Store Design, Inc. v. Marathon House, Inc., 674 A.2d 1223, 1226 (R.I. 1996)(“We have long held … that the creation of new causes of action is a legislative function.”).  Radin does not mention this split of authority and does not make a convincing case that existing contract remedies, such as contract invalidation based on unconscionability, are inadequate to address meritorious consumer claims.

Estimates are that ninety-nine percent of all contracts are standard form adhesion contracts. Wayne R. Barnes, Toward A Fairer Model of Consumer Consent To Standard Form Contracts: In Defense Of Restatement Section 211(3), 82 Wash. L. Rev. 227, 233 (2007).  Because Radin’s new torts would conceivably cover a high percentage of these standardized mass distribution contracts nationwide, courts should think twice before hampering the use of a business tool that “[i]s essential to the functioning of the economy.”  See 1-1 Corbin on Contracts § 1.4. (Rev. ed. 1993). A real possibility also exists that Radin’s proposals would incite boundless claims in an already crowded judicial system. Thus, it is highly unlikely that any court would approve Radin’s proposals for expansive new tort liability. Also improbable is whether any state legislature--with many dominated by conservative representatives--would expand consumer rights beyond existing consumer protection statutes.

Radin: A tort remedy for intentional deprivation of basic legal rights is a better conceptual fit than contract law to address boilerplate abuse. (Radin, pp. 198, 222, 248, 253 n.11)

Response: Radin barely acknowledges settled doctrine (see Radin, p. 209) that, as a matter of policy, the law disallows parties from using tort law to alter or avoid their contractual obligations. In re Consolidated Vista Hills Retaining Wall Litigation, 893 P.2d 438, 446 (N.M. 1995). “A contractual obligation, by itself, does not create a tort duty.” Jones v. Hyatt Ins. Agency, Inc., 741 A.2d 1099, 1106 (Md. 1999). The reasons stem from the substantive differences between tort and contract. Tort actions stem from the breach of duties imposed as a matter of public policy whereas contract actions stem from the breach of duties imposed by mutual consent. E.g., Goldstein v. Elk Lighting, Inc., 2013 WL 790765 at *3 (M.D. Pa. 2013). This standard preserves the “important” boundary between tort and contract. See Ashall Homes Ltd. v. ROK Entertainment Group Inc., 992 A.2d 1239, 1253 (Del. Ch. 2010); Deli v. University of Minnesota, 578 N.W.2d 779, 782 (Minn. Ct. App. 1998).

Radin also never discusses the established line of authority that the gist or gravamen of the cause of action is determinative for deciding whether the action lies in contract or tort. 1A C.J.S. Actions § 136 (2013). Put another way, the prevailing test for tort liability when the parties have a contract is whether the wrongdoer also breaches an independent duty to the injured party owed separately from the contract. Textron Fin. Corp. v. Nationwide Mut. Ins. Co., 684 N.E.2d 1261, 1270 (Ohio Ct. App. 1996). Thus, where the defendant has harmed the person or property of the plaintiff, but where these parties also have a contract, the contract must be collateral to support a tort liability. Goldstein, 2013 WL 790765 at *3.

With the proposed cause of action in tort for intentional deprivation of basic legal rights, the contract is not collateral. The supposed tort liability arises solely from the contractual relationship between the parties and the alleged duties breached are grounded in the contract itself. Id. at **3-4. Another important consequence of Radin’s aggressive merger of contract and tort is that the consumer suing in tort would be entitled to seek extensive relief not generally available under contract, namely, expanded consequential damages along with punitive and emotional distress damages. (See Radin, p. 206).  Courts should not allow plaintiffs to obtain such a windfall.  See also Kailin v. Armstrong, 643 N.W.2d 132, 144 n.19 (Wis. Ct.  App. 2002) (“If a [contracting party] is permitted to sue in tort when a transaction does not work out as expected, that party is in effect rewriting the agreement to obtain a benefit that was not part of the bargain.”). Granting plaintiffs greater common law rights and remedies against defendants is the exception, and not the rule, in the current conservative judicial climate.

Regarding the distinction between tort and contract, Radin merely comments that (1) she disagrees with the above standard, (2) several torts, such as fraud or misrepresentation, constitute an independent duty from the contract, (3) the line between tort and contract is not hard and fast, and (4) an abusive boilerplate contract  is only a “purported contract”  (even though no court subscribes to this last assertion) (Radin, pp. 9-11, 14-15, 197-209). While she has a point that a defendant’s tortious conduct may arise in contract cases, Radin’s proposed new tort of intentional deprivation of basic legal rights consistently disregards the fundamental principle that contracts, by themselves, do not create duties in tort.

Radin: Tort law has a developed infrastructure for dealing with mass torts whereas contract law has no such infrastructure for dealing with mass contracts. (Radin, p. 198)

Response: Radin overlooks that courts routinely certify class actions involving consumers claims on form contracts.   See, e.g., Sacred Heart Health Systems, Inc. v. Humana Military Healthcare, 601 F.3d 1159, 1171 (11th Cir. 2010) (“It is the form contract, executed under like conditions by all class members, that best facilitates class treatment”); Dupler v. Costco Wholesale Corp., 249 F.R.D. 29, 37 (E.D.N.Y.2008) (collecting cases for the proposition that class certification is typically appropriate in cases involving form contracts). Because contract law is just as adaptable as tort law in accommodating collective lawsuits, Radin’s critique is not persuasive.

Radin: Unfair boilerplate contracts qualify as a defective product under the law of product liability. (Radin, pp. 101, 198)

Response:  Under the law of product liability, a “product” is “tangible personal property distributed commercially for use or consumption.” Restatement (Third) of Torts: Products Liability, § 19(a) (1998).  A written contract does not meet this definition; it is only a document that memorializes an intangible, which is the agreement of the parties. Although a document delivers the information, the plaintiff's grievance in such case is with the content of the document, not with the tangible medium itself.  See id. at cmt. d.

Even if a contract with unfair boilerplate were a “product” for the above purposes, it is not “defective” as a basis for tort liability.  “A product is defective when, at the time of sale or distribution, it contains a manufacturing defect, is defective in design, or is defective because of inadequate instructions or warnings.”  Restatement (Third) of Torts: Prod. Liab. § 2 (1998). See also Birmingham v. Fodor's Travel Publications, Inc., 833 P.2d 70, 76, 79 (Haw. 1992)(no cause of action in product liability for defective ideas) . Abusive contract boilerplate is not defective under the Restatement definition.  Because Radin’s new tort cannot meet these important pre-requisites of product liability law—“product” and “defect”—her proposal must be found wanting.

Radin: Abusive boilerplate terms support the proposed intentional tort of deprivation of basic legal rights because they improperly deprive consumers of numerous rights granted by the polity, for example (1) waivers of the right to a jury trial with a substitution of mandatory arbitration, (Radin, pp. 16, 108, 131), and (2) imposition of overly inclusive exculpatory clauses for seller negligence.  (Radin, pp. xiv, 138-140, 184-85).  

Response: Radin is correct that many boilerplate contracts broadly favor the seller in the cited areas. On the first point, what Radin leaves out is that a contractual jury trial waiver must be knowing and voluntary; therefore, it is strictly construed. Debra T. Landis, Annot., Contractual jury trial waivers in federal civil cases, 92 A.L.R. Fed. 688 (1989). See also United States v. Cal. Mobile Home Park Mgmt. Co., 107 F.3d 1374, 1378 (9th Cir.1997)(noting the “strong presumption” against the waiver of this fundamental right).

Courts assessing these jury trial waivers focus on the conspicuousness of the provision, the parties' relative bargaining power, the sophistication of the party challenging the waiver, and whether the terms of the contract were negotiable. Martorella v. Deutsche Bank Nat. Trust Co., 2013 WL 1136444 at *2 (S.D. Fla. 2013)(citing decisions).  No single factor is conclusive and the court is not bound by the number of factors that have been satisfied. Rather, the court asks whether, in light of all the circumstances, is the waiver unconscionable, contrary to public policy, or simply unfair. Martorella,  2013 WL 1136444 at *2 (citing cases). Two circuits even hold that agreements to resolve disputes by bench trials are enforceable only if extra evidence of negotiation or consent supports that clause.  See National Equipment Rental, Ltd. v. Hendrix, 565 F.2d 255, 257-58 (2d Cir.1977); K.M.C. Co. v. Irving Trust Co., 757 F.2d 752, 755-57 (6th Cir.1985).  Based on the above guidelines, courts are not as unduly disposed toward approving contractual jury waivers as Radin would have the reader believe. (See Radin, pp. xiv, 131).

On the second point, Radin contends that broad exculpatory clauses for seller negligence should be outlawed unless consumers are given a choice to tradeoff rights for a lower price. (Radin, pp. 184-85). Radin fails to point out that contracts exonerating one party from acts of future negligence are disfavored and strictly construed against the benefiting party. Additionally, the courts say that clear, unambiguous, unmistakable, and conspicuous language is required to release a party from his or her future negligence. There must be “no doubt” that a reasonable person agreeing to an exculpatory clause actually understands what future claims he or she is waiving. Indeed, the word “negligence” must be clearly stated in a release of future negligence. E.g., Guthrie v. Hidden Valley Golf and Ski, Inc., --- S.W.3d ---, 2013 WL 2181247 at *4 (Mo. Ct. App. 2013); see also Aviation Eng'g Co. v. Bd. of Clark Cnty. Comm'rs, 794 P.2d 710, 712–13 (Nev.1990). Another important consideration in some jurisdictions is that “[e]ach party must be a free bargaining agent to the agreement so that the contract is not one of adhesion.”  Topp Copy Products, Inc. v. Singletary, 626 A.2d 98, 99 (Pa. 1993). As can be seen, the actual state of the law on exculpatory clauses differs materially from the law Radin depicts on the supposed inadequate judicial oversight of these provisions.

Radin: The persons who draw up and deploy offensive boilerplate are parties to the tort of intentional deprivation of basic legal rights and specifically intend adverse effects. (Radin, p. 215)

Response: Radin would automatically impute the supposed bad intent of the drafter of abusive boilerplate to the seller of goods or services who uses those boilerplate contracts. Radin does not appreciate that the alleged bad intent of the drafter and the seller using those forms is a factual question and that such persons do not necessarily act in concert. See Jordan v. Wilson, 5 So. 2d 442, 451 (Miss. Ct. App. 2008)(intent in law of torts is a question of fact). In many cases, the proof would undoubtedly show that the drafter, the seller, or both act in good faith as they seek to advance what are perceived to be valid business interests.   

In the end, Radin’s proposal to transform abusive mass market boilerplate contracts into a fount of tort liability in favor of the consumer is actually counterproductive. Her proposal can have adverse consequences for the same individuals that Radin strives mightily to protect. The expanded liability of sellers arising from Radin’s suggested reforms would only cause price increases to account for this added seller legal exposure, all to the detriment of consumers and to the general economy with a corresponding likely reduction in sales activity.  In Original Great American Chocolate Chip Cookie Co. v. River Valley Cookies, Ltd., 970 F.2d 273, 282 (7th Cir. 1992), the court observed:

The idea that favoring one side or the other in a class of contract disputes can redistribute wealth is one of the most persistent illusions of judicial power. It comes from failing to consider the full consequences of legal decisions. Courts deciding contract cases cannot durably shift the balance of advantages to the weaker side of the market; they can only make contracts more costly to that side in the future, because [the other side] will demand compensation for bearing onerous terms.

For all the above reasons, I respectfully contend that Radin’s radical expansion of tort law into the realm of contract is without merit.

[Posted, on Steven Feldman's behalf, by JT]

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