ContractsProf Blog

Internet Contracting Mayhem

Modelmayhem.com (“Modelmayhem”) is a nationwide modeling industry website.  Shana Edme (“Edme”) joined the site to further her modeling career.  After several photographs of Edme modeling lingerie were disseminated and viewed without her permission, Edme commenced an action in the Federal District Court for the Eastern District of New York (“EDNY”) against Modelmayhem (among others).  Edme claimed that the site violated her right to privacy under New York State statutes.

Modelmayhem moved to dismiss, arguing that Edme agreed to resolve any and all disputes in California. Specifically, Modelmayhem claimed that the "Terms of Use" found on its website contains a forum selection clause.  The EDNY (Judge Hurley) denied Modelmayhem’s motion because it failed to explain how Edme bound herself to the Terms of Use, including how users of its website were advised of the terms.

The court began with a discussion of contracting and the Internets:

The conclusory statement by Modelmayhem that "New York law specifically recognizes 'Terms and Conditions' posted on a website as a binding contract" (Modelmayhem's Mem. at 6) completely ignores the developing discussion within this Circuit (and courts nationwide) regarding what actions by an internet user manifests one's asset to contractual terms found on a website. "While new commerce on the Internet has exposed courts to many new situations, it has not fundamentally changed the principles of contract." Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 403 (2d Cir. 2004). "Mutual manifestation of assent, whether by written or spoken word or by conduct" is one such principle. Specht v. Netscape Commc'ns Corp., 306 F.3d 17, 29 (2d Cir. 2002). As Judge Johnson of this District previously explained:

On the internet, the primary means of forming a contract are the so-called "clickwrap" (or "click-through") agreements, in which website users typically click an "I agree" box after being presented with a list of terms and conditions of use, and the "browsewrap" agreements, where website terms and conditions of use are posted on the website typically as a hyperlink at the bottom of the screen.  Hines v. Overstock.com, Inc., 668 F. Supp. 2d 362, 366 (E.D.N.Y. 2009). A browsewrap agreement "usually involves a disclaimer that by visiting the website — something that the user has already done — the user agrees to the Terms of Use not listed on the site itself but available only be clicking a hyperlink." Fteja v. Facebook, Inc., 841 F. Supp. 2d 829, 837 (S.D.N.Y. 2012). Thus, in deciding the validity of browsewrap agreements, "courts consider primarily whether a website user has actual or constructive knowledge of a site's terms and conditions prior to using the site." Hines, 668 F. Supp. 2d at 367 (internal quotation marks and citation omitted).

The Court then discussed Modelmayhem’s failure to explain how Edme became bound to the terms on the website.  Modelmayhem could have presented Edme with the terms in a number of ways:

For example, (1) a user could have agreed to the Terms of Use by clicking an "I agree" box before creating an account and gaining access to the website's services; (2) the Terms of Use could have
appeared on the website's homepage; (3) the Terms of Use could have been accessible from a hyperlink located on the homepage; (4) the Terms of Use could have been buried somewhere else on the website; or (5) some other combination or scenario not otherwise contemplated by the Court.

Modelmayhem did not, however, provide any evidence of how the Terms of Use were made available to users of the site:

The only evidence presented on this issue is a screenshot of the Terms of Use. The Court, however, cannot glean solely from this screenshot how the Terms of Use were presented to users of the Modelmayhem website.

The circumstances surrounding how Modelmayhem's Terms of Use were exhibited to its users is determinative on the issue of whether Edme had actual or constructive notice of the terms and condition, including whether the forum selection clause was reasonably communicated to her. Compare Specht, 306 F.3d at 32 (concluding that a provision that a website user would not encounter until he scrolled down multiple screens was not enforceable because "a reference to the existence of license terms on a submerged screen is not sufficient to place consumers on inquiry or constructive notice of those terms") and Hines, 668 F. Supp. 2d at 368 (holding that forum selection clause was not reasonably communicated where "Defendant failed to explain how Plaintiff and its other customers were 'advised' of the Terms and Conditions, or to cite a single case that suggests that merely posting such terms on a different part of a website constitutes reasonable communication of a forum selection clause") with Zaltz v. JDate, --- F. Supp. 2d ----, 2013 WL 3369073, at *7-8 (E.D.N.Y. 2013) (finding that "plaintiff assented to Jdate.com's Terms and Conditions of Service, meaning that the forum selection clause contained therein was, in fact, reasonably communicated to her since plaintiff "did not need to scroll or change screens in order to be advised of the Terms and Conditions; the existence of, and need to accept and consent to, the Terms and Conditions of Service was readily visible") and Fteja, 841 F. Supp. 2d at 840-41 (concluding that because plaintiff was "informed of the consequences of his assenting click and he was shown, immediately below, where to click to understand those consequences," defendant's Terms of Use were "reasonably communicated"). Without such information and evidence, the Court is unable to conclude that the Terms of Use were binding on plaintiff and that the forum selection clause — contained within the Terms of Use — were reasonably communicated to plaintiff. Accordingly, the Court denies Modelmayhem's motion to dismiss on the basis that the forum selection clause contained in its Terms of Use is enforceable.

Internet companies, it is not enough to go into court and point to a forum selection clause in your terms of use.  To enforce that clause, you also have to establish where that clause is on your site and how you pointed users to that clause… and better yet, how you obtained the user's assent to the terms.

Edme v. Internet Brands, 12 CV 3306 (E.D.N.Y. Sept. 23, 2013)(Hurley, J.).

[Meredith R. Miller]

Protagoras's Paradox (The Paradox of the Court)

My student, Sam Henderson (who blogs here), alerted me to this cartoon which references the Paradox of the Court, of which I was previously unaware.  We have a summary here from Joshua J. Mark on the Ancient History Encyclopedia.  Here are the basics:

The Sophist Protagoras (pictured at left with his homie, Democritus) offered to teach a young man, Euthalos (or Euathlus), to argue in court.  Departing from the Sophists' custom of demanding pay for sharing their wisdom, Protagoras offered the lessons for free, allowing Euthalos to pay him once he won his first case.  Protagoras taught Euthalos, but Euthalos escaped indebtedness by avoiding taking any cases.  Protagoras got fed up and sued Euthalos for his fee, but Euthalos claimed that either way the case came out, he still would not have to pay.  If the court found in Euthalos' favor, the original agreement was unenforceable, and if it found in Protagoras's favor, Euthalos still would not have to pay because he still would not have won a case. 

Sam was curious how a modern court would rule, and I think there is no answer that is clearly correct, and that's why it's such a great paradox.  I think a court could reach different conclusions depending on how it ruled on implied terms and Euthalos's good faith (or lack thereof).  Leaving aside the possibility that Euthalos could hire a Sophist to represent him and avoid any possible debt, I have a few takes:

1. A court could find that the parties assumed that Euthalos would pursue a career in the law and that such a career would entail arguing in court.  If that was a reasonable implied term, Euthalos might have accepted Protagoras's lessons in bad faith (if he never intended to argue a case) and should have to pay the value of the lessons either as a matter of contract or in quantum meruit.

2. But perhaps it is not reasonable to imply the term.  Is it really the case that all who are trained in the law practice?  Some data on industry custom would be useful here.  We in the legal eduaction business have been saying for years that job placement data can be misleading because not all who attend law school do so in order to practice law.  Moreover, it may be arguable that a student of even the great Protagoras may never win a case.  And so, even if both parties expected that one day Euthalos would have to pay for the lessons, Protagoras was assuming some risk.

3. Or perhaps Euthalos did not act in bad faith.  Perhaps he entered into the agreement expecting to have a fabulous career as an advocate.  He had agreed to study with Protagoras in the hopes of overcoming a speech impediment, but he found that trying to speak with pebbles in his mouth (Protagoras's proposed cure) only triggered his gag reflex.  As a result, after completing his studies with Protagoras, Euthalos felt that he had learned nothing of value and owed Protagoras nothing.  Protagoras should have thought twice before making an offer that could take the form: "You'll win a case or you don't have to pay!"  Protagoras should have taken some lessons from Pufferitus.

4. Or a court could find in Euthalos's favor by finding against him as the paradox suggests.  The court could rule that Euthalos will owe Protagoras his fee as soon as Euthalos wins a case, and as he has not yet done so, Euthalos need pay nothing for now.  Of course, all of this turns on what one means by "winning" a case.  If Protagoras seeks only a declaration that the parties have a contract, he loses by winning.  If Protagoras seeks money damages, he wins by losing.  

[JT]

Whistleblower Complaint Dismissed in Texas

Yusuf Farran, Executive Director of Facilities and Transportation with the Canutillo Independent School District, claims that he observed employee theft and falsification of time cars.  He also claimed that the School District overpaid a contractor, Henry's Cesspool Services (kudos to you Henry for an honest description fo your business!).  Farran complained to his supervisors about the contractor's failures to properly dispose of grease-trap waste.  He allegedly was told to stop making any more complaints relating to the grease trap.

In March 2009, the School District first suspended and then fired Farran for unrelated reasons.   While suspsended and while his termination was pending, Farran contacted the FBI to complain about Henry's Cesspool Services.  When his termination was finalized, Farran brought a claim for breach of contract and wrongful termination in violation of Texas's Whistleblower Act.  

On August 3oth, the Supreme Court of Texas dismissed Farran's complaint in Canutillo Independent School District v. Farran. "To establish a Whistleblower Act claim, the plaintiff must show that his report to a law enforcement authority caused him to suffer the complained-of adverse personnel action."  Unfortunately for Farran, he contacted the FBI after he had already been warned to stop complaining about the grease trap and after he had been suspended and was due to be terminated.  Farran bore the burden of showing that, but for the FBI report, the School District would have reversed course and reinstated him, but he could not do so.  There was no evidence that the FBI report played a role in his termination.  

The Texas Supreme Court also affirmed dismissal of Farran's breach of contract claim for failure to exhaust administrative remedies. Farran thought he did not need to do so because his breach of contract claim related to his Whistleblower act claim.

[JT]

Halftime Show: Is the wholesomeness of the NFL M.I.A?

NFL v. MIA: we've mentioned issues related to this incident on this blog in the past.  But, if you ask me, it just got good.

Here's the background: at the 2012 Superbowl, this little flip of the bird happened during the halftime show:

The NFL has since sued (in arbitration) M.I.A. (the bird-flipping artist in the video above) for $1.5 million.  The NFL’s claim?  It claims that M.I.A. breached her contract because the “offensive gesture” was “in flagrant disregard for the values that form the cornerstone of the NFL brand and the Super Bowl."  In the contract, she apparently acknowledged “the great value of the goodwill associated with the NFL and the tremendous public respect and reputation for wholesomeness enjoyed by the NFL."

The case, it sounds, comes down to what is “offensive” and what exactly are the “wholesome” values of the NFL.  This FoxSports column does a great job explaining why the lawsuit is “laughable” – with video footage as evidence of just how wholesome the NFL is.

A video of M.I.A. has recently surfaced.  In the video, she (rather articulately) explains the absurdity of the lawsuit.  As 411Mania.com describes:

[M.I.A.] says the NFL is "scapegoating me into trying to set the goalpost for what is offensive in America." She notes that the picture in which she is seen giving the middle finger also has a group of sixteen year-old girls who were selected from a high school in Indianapolis who are in cheerleader outfits with their "hips thrusted in the air, legs wide open, in this very sexual...sexually provocative position."

Here’s M.I.A. regarding the lawsuit, which she describes as  "a massive display of... powerful corporation dick shaking."  In light of the 16-year-old cheerleaders on stage behind her, she frames the issue in the lawsuit as whether female sexual exploitation or empowerment is more offensive.  Interesting stuff:

[Meredith R. Miller]

There Is Hope: Battle Creek

 

Vince Gilligan by Gage Skidmore

It's not as if I thought the world was going to end on Sunday, when AMC shows the absolutely, positively last episode of Breaking Bad, I just thought I would never again have anything to which I could look foward.  I did just turn 50, so there is AARP membership and a colonoscopy, but I thought there would be nothing in my future that I would anticipate enjoying.  

 

But then came this in today's New York Times.  Vince Gilligan, the creator of Breaking Bad just sigend an agreement for a new show on CBS.  The timing of the announcement speaks well of both Mr. Gilligan and CBS, capitalizing on the current fan feeding frenzy surrounding the end of the series.  But the fact that CBS is belatedly pouncing on a Gilligan script originally offered to CBS ten years ago speaks less well of that party to the deal.  

Mr. Gilligan has an exclusive deal with Sony Pictures Television, which negotiated for him an unsual deal in which CBS agreed up front to air 13 episodes of Mr. Gilligan's series, Battle Creek.  There's a lot of money involved, but who cares?  If Battle Creek is anything like Breaking Bad, I will forgive CBS for not airing a single show that I have wanted to watch in the last 25 years.

Or am I forgetting something?  Has CBS had any good comedies or dramas in prime time?

[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 
July 25, 2013 to September 23, 2013

Rank	Downloads	Paper Title
1	4023	Multimodal Bill of Lading: The Problem of Party Liability  Nadezda Alexandrovna Butakova,  Russian Presidential Academy of National Economy and Public Administration (RANEPA),
2	136	Improving Contract Quality: Modularity, Technology, and Innovation in Contract Design  George G. Triantis,  Stanford University - Law School
3	106	'Sticky' Arbitration Clauses?: The Use of Arbitration Clauses after Concepcion and Amex  Christopher R. Drahozal, Peter B. Rutledge,  University of Georgia - School of Law, University of Kansas School of Law
4	90	Indescendibility  David Horton,  University of California, Davis - School of Law
5	83	Catalyzing Fans  Howard M. Wasserman, Dan Markel, Michael McCann,  Florida State University College of Law, University of New Hampshire School of Law, Florida International University (FIU) - College of Law
6	71	Justice and Harsh Results: Beyond Individualism and Collectivism in Contracts  Kenneth K. Ching,  Regent University - School of Law
7	71	A Model Litigation Finance Contract  Maya Steinitz, Abigail Field,  University of Iowa - College of Law, Unaffiliated Authors - Independent
8	68	A Theory of Contract Formation  Allan Beever,  School of Law, University of South Australia
9	61	A Presumptively Better Approach to Arbitrability  John A. E. Pottow, Jacob Brege, Tara J. Hawley,  University of Michigan Law School, University of MIchigan Law School, University of Michigan Law School,
10	60	The Challenge of Boilerplate  Robin Bradley Kar,  University of Illinois at Urbana-Champaign - College of Law

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of LSN: Contracts (Topic)  
July 26, 2013 to September 24, 2013

Rank	Downloads	Paper Title
1	4024	Multimodal Bill of Lading: The Problem of Party Liability  Nadezda Alexandrovna Butakova,  Russian Presidential Academy of National Economy and Public Administration (RANEPA)
2	143	Lex Mercatoria, International Arbitration and Independent Guarantees: Transnational Law and How Nation States Lost the Monopoly of Legitimate Enforcement  Cristián Gimenez-Corte,  United Nations
3	106	'Sticky' Arbitration Clauses?: The Use of Arbitration Clauses after Concepcion and Amex  Christopher R. Drahozal, Peter B. Rutledge,  University of Georgia - School of Law, University of Kansas School of Law,
4	82	Freedom of Contracts  Michael A. Heller, Hanoch Dagan,  Tel Aviv University - Buchmann Faculty of Law, Columbia University - Columbia Law School
5	72	A Model Litigation Finance Contract  Maya Steinitz, Abigail Field,  University of Iowa - College of Law, Unaffiliated Authors - Independent
6	71	Justice and Harsh Results: Beyond Individualism and Collectivism in Contracts  Kenneth K. Ching,  Regent University - School of Law
7	68	A Theory of Contract Formation  Allan Beever,  School of Law, University of South Australia
8	61	The Challenge of Boilerplate  Robin Bradley Kar,  University of Illinois at Urbana-Champaign - College of Law
9	45	Trust v. Law (In a Box): Do Organizational Forms Make a Difference?  Jeffrey M. Lipshaw,  Suffolk University - Law School
10	39	The Interpretation and Fairness of Standardized Terms: Certainty and Predictability Under the CESL and the CISG Compared  Nicole Kornet,  Maastricht University - European Private Law Institute (M-EPLI), Maastricht University - METRO Institute

[JT]

A Painting for Peerless

I get to teach Raffles v. Wichelhaus today, which is always a pleasure, as it is one of my favorite cases.  I am not alone.  One of my students, Justin Vining, was inspired by the case to make a representation of the case in the painting below:

I afraid my photo of the painting does not do it justice (because I have it under glass), but I hope you can see that Justin has captured the ship's voyage from India to Liverpool, and he has used as his model for the ship, the image of a ship called Peerless (right) that often accompanies the case, even though (I recently learned) that the Peerless in the picture is neither the October Peerless or the December Peerless featured in the case.  But I actually love the fact that there were (at least) three ships called Peerless.  That's what makes this case such a truth-is-stranger-than-fiction bonanza.

[JT]

Worst "The Ethicist" Column Ever?

In Sunday's New York Times Magazine, a reader posed the Wood v. Boynton dilemma for the Times "The Ethicist." Chuck Klosterman, as an ethical rather than a legal question.  The context is a bit different because we are dealing with a garage sale rather than a jeweler, but still we have a seller who is unaware of the value of the object being sold.  The reader's question is simple and straightforward: does a buyer who is aware of the value of the the thing being sold (a first-edition comic book worth $2000) have an ethical duty to tell the seller. 

For those of us who have been around the Wood v. Boynton, Laidlaw v. Organ block, this is familiar territory.  As a typical survey of students' responses to the cases indicates, it is a territory in which ethcial and legal duties do not coincide.  One might think that there is an obvious injustice when a person with superior knowledge takes advantage of a seller who unwittingly sells something of great value.  Wood v. Boynton comes out as it did precisely because the buyer did not know and had no reason to know that the stone at issue was an uncut diamond, as he had never seen one before.  If he knowingly took advantage of the seller, that would be grounds for rescision.  

This result in Wood is not so surprising.  Normally, a seller is in a better position to know the value of the thing she possesses than is the buyer, unless the buyer is an expert appraiser, and it makes sense to put the burden of discovery on the person better positioned to discover the item's worth.  One might think that a professional jeweler would be an expert appraiser, but in this case he wasn't.  I think it is reasonable for the law to place the burden on the seller at a garage sale to know the value of the things she sells.  People come to these things in search of surprises and bargains, so it stands to reason that, from a legal perspective, all sales are final.  Laidlaw v. Organ is similar and brings home the important point that sometimes we want to reward people for having taken the trouble to inform themselves of market conditions and spot a bargain.  

But the ethical perspective on these matters is potentially quite different.  It may be a common practice for people to pounce on garage sales in search of items significantly undervalued by the sellers, but that doesn't mean that it is an ethical practice.  The reader poses the hypothetical as taking place at a garage sale or a flea market.  I think the cases are different, because I do think a proprietor at a flea market (if, for example, she has a regular stall and or sells items regularly) can be charged with a duty to research the value of the items she sells.  Still, fleecing even merchants is not what I would call an ethical practice.  

I once unloaded about 200 books in advance of a move from Charleston, South Carolina to New York City.  A bookdealer came by to look at the books and kindly informed me that one of the books I was offering for sale was a first edition, likely worth fifty times as much as I was asking for it.  Perhaps he was not much of a businessman, but he did the right thing in telling me.  I later donated the book for a silent auction, which seemed a good way out of my ethical dilemma since I had unwittingly bought the book at a huge discount from some equally unwitting (and long forgotten) seller.  

I realize that the ethical standard I am proposing here is exacting, and Chuck Klosterman doesn't disagree in cases where an aggressive buyer initiates a sale from an unknowledgeble seller.  But what is irksome about his column is that he pretends that the word "value" has no conventional meaning.  

There is no “true value” for any object: it’s always a construct, provisionally defined by a capricious market and the locality of the transaction.

Well, thanks for the theoretical discourse, but that's all quite beside the point in this context.  The value of a thing is easily determinable if there is any market for it.  If two people are interested in buying it, then it is worth at least what the person who made the second highest bid for it is willing to pay.  When a reader says that a comic book is worth thousands of dollars, that is because there is an existing, stable market in which the comic can be sold for thousands of dollars.  Klosterman follows up with a silly hypothetical about a buyer who is willing to pay far in excess of a given price because an item has sentimental value to the buyer.  There is no ethical obligation on the part of the buyer to disclose the extent to which she values the item, but even if there were, it would make no difference.  The buyer could pull out $2000 to buy the item and remark to the seller, "I would have paid $5000 for this item, I want it so badly."  The seller could refuse to sell at $2000, mark the item up to $5000 and risk going home with no money at all, because there is only one person willing to buy the item at that price and that person has just been alienated by grasping sales tactics.

But if the marked price of an item is 25 cents and the market values it at $2000, there will be plenty of buyers, and the seller really is wronged if someone who knows of the item's true worth does not disclose that fact.  And such disclosure may not in the end preclude the transaction.  You can approach a seller at a garage sale and say, "You know, this comic book is a first edition worth much, much more than you are selling it for."  I think that, in most instances, the seller will say, "Well, that's a good find for you.  I've marked it 25 cents, so you can have it for 25 cents.  I wouldn't know where to sell it for more anyway."  

Thus commerce proceeds without unnecessary soul-soiling.

[JT]

 

Job Postings from the Government Contracting Group at GW Law

1. Assistant General Counsel Job
Date: Sep 5, 2013
Location: Mclean, VA, US

JOB DESCRIPTION:

Reporting to the General Counsel and responsible for handling legal projects or issues for the organization, with particular focus on government contracts-related issues, including compliance with U.S. federal, state, local, and international government contracting laws, rules and regulations such as the Federal Acquisition Regulations and the Defense Federal Acquisition Regulations Supplement. Candidate will work directly with the business, providing day-to-day advice for senior executives and other business members and respond to internal and government audits and managing outside law firms and their project costs.

***

2. Sikorsky Aircraft is looking to hire 3Ls or recent grads to fill two positions in their International Trade Compliance Group. Click on the links below:

Position 1: 
Position 2:

 

***

3. INTERESTED IN WORKING WITH SENIOR PROCUREMENT LAWYERS ON A RESEARCH PROJECT?

Senior members of the ABA Public Contract Law Section are looking for research assistance on discrete topics for an upcoming educational program, including in cybersecurity. If you're interested in assisting, please contact:

Annejanette Heckman Pickens
Assistant General Counsel
General Dynamics Advanced Information Systems
12450 Fair Lakes Circle
Fairfax, Virginia 22033\
Telephone: (703) 251-7349
Fax: (703) 251-7377
[email protected]

[JT]

New in Print, Wendy Netter Epstein

Professor Epstein (pictured) recently joined the faculty at the DePaul University School of Law.  Her article, Contract Theory and the Failures of Public-Private Contracting, has just been published in 34 Cardozo L. Rev. 2211 (2013).  

Her article is all the more timely as, in the wake of this week’s tragic Navy shooting, government contracting failures are again in the news. The U.S. Department of Defense audit just released includes a scathing report confirming that the Navy’s efforts to reduce costs through contractors ended up not only weakening security but also increasing long-term costs.

She has provided a little summary below

In the Article, she discusses why certain types of government outsourcing contracts are systematically biased to cut cost at the expense of service quality.  Approaching the problem through a law and economics lens, her theory is that particularly where there is a limited competitive market for services, tasks are difficult to specify and monitor, and the service is intended to benefit disenfranchised portions of the population, the contracting parties will often impose a negative externality on service recipients in the form of poor service that the contracting parties are not forced to internalize.  Essentially, then, the cost of such contracts is higher than it would appear (if one figures in the negative externality, the added cost of the poor service).  The Article suggests that because these contracts really reflect market failures, that a mandatory contract rule might be justified to protect non-parties to the contract who cannot adequately protect themselves.  The mandatory rule would force the transacting parties to bear the cost of the negative externality.

[JT]

Retired Multiple-Choice Exam Questions

As I've mentioned before, my final exams in contracts are part multiple choice and part essay.  I feel a bit guilty about multiple choice questions, but since the bar exam includes multiple choice questions on contracts, students really do need practice on those.  There is thus no reason for me to feel guilty unless I feel guilty because I am preparing students to take the bar exam rather than preparing them to be lawyers or teaching them the law of contracts.  

Because we are doing more interim assessments these days and because I have 140 students in two sections of contracts,  I have also been giving multiple choice quizzes throughout the course.  I am getting fairly practiced at writing multiple choice questions that work.  

I have two criteria by which I judge whether or not a multiple choice question works.  First, with respect to at least 90% of the questions, I would like the correct answer to also be the most popular answer.  Since I order my questions from easiest to hardest, I am not too troubled if the last few are so hard that only the strongest students can get them.  But on the whole, if too many of the questions are that hard, I worry that the distinction between a student who knows the material fairly well and a student who doesn't know the material at all might be too hard to discern.  Second, with respect to every question, the strongest students (top quartile) must do better than the weakest students (bottom quartile).  If that is not the case, I either worry that I have created a trap that somehow captures the wary but not the unwary or that again random guessing plays too great a role in explaining the result.  In any case, the question must be tweaked or retired.

But a failed multiple choice question is really a question that needed to be used as an essay instead.  Multiple choice questions fail because there is not one, right answer.  There may be an ambiguity in the fact pattern that could lead to differing reasonable conclusions or there might be a hidden issue in the fact pattern that students could follow down an alternative path.  I just finished going over with my students a practice multiple-choice exam that included failed questions culled from past exams.  I think such questions are a good way to work on both the skills needed to do well on multiple-choice exams and the skills needed to do well on essay exams.  

I would call on one student for each question, and that student had to give me a defense of her answer.  We then voted by clicker and discussed whey the reasons one could give in defense of the popular answers.  Some answers that got some clicker votes were clearly wrong -- e.g. applying UCC rules to a service contract, but sometimes students could come up with good reasons for their choices (even if those choices were not the one I was hoping for) that would garner a lot of points on an exam designed to measure abilities to spot issues and engage in legal reasoning.

[JT]

Carnival Cruise and the Contracting of Everything

"By now, you’ve heard the stories of passengers urinating in bags, slipping on sewage, and eating stale cereal aboard the Carnival Cruise ship that was stranded in the Gulf of Mexico — not exactly the fun-filled cruise for which the passengers had signed up and paid."   My post on "Carnival Cruise and the Contracting of Everything" is available here.

 

[Nancy Kim]

New in Print, Hanoch Dagan and Michael Heller

Hanoch Dagan (Tel Aviv, pictured left) and Michael Heller (Columbia, pictured right)  just posted to SSRN their new contract theory paper, "Freedom of Contracts." 

Here is the abstract:

“Freedom of contracts” has two components: (1) the familiar freedom to bargain for terms within a contract and (2) the long-neglected freedom to choose from among contract types. Theories built on the first freedom have reached an impasse; attention to the second points toward a long-elusive goal, a liberal and general theory of contract law. This theory is liberal because it develops an appealing conception of contractual autonomy grounded in the actual diversity of contract types. It is general because it explains how contract values – utility, community, and autonomy – properly relate to each other across contract types. Finally, it is a theory of contract law because it covers the field as a whole, including for example marriage, employment, and consumer contracts, not just arm’s length widget sales. 

“Freedom of contracts” illuminates numerous puzzles in contract doctrines from liquidated damages to promissory estoppel and across the ABCs of contract types – agency, bailment, consumer transactions, etc. Our approach also generates a range of novel theoretical propositions. For example, it explains how sticky defaults and even mandatory terms within a contract type can actually increase freedom, so long as law offers sufficient choice among types. Finally, it offers law-and-economics contract scholars a way to situate efficiency analysis within a normatively appealing liberal framework. In sum, “freedom of contracts” suggests a refocus of how contract theory should be pursued – and how contract law should be designed and taught.

[JT]

Contracts Conundrum in Breaking Bad?

*******

SPOILER ALERT

IF YOU ARE NOT UP-TO-DATE ON BREAKING BAD EPISODES,

READ NO FURTHER

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New Member of the LPBN: Gender and the Law Prof Blog

As announced here on the TaxProf Blog, the Mother Ship of the Law Professor Blog Network, of which this blog is a proud member,  John Kang and Tracy Thomas have just launched the Gender and the Law Prof Blog.  Here's the intro:

Welcome to the new Gender and the Law Blog.  Your coeditors are John Kang and Tracy Thomas.  John is Professor of Law at St. Thomas and he offers his perspective on masculinities and constitutional analysis.  He is presently finishing a book called Manliness and the Constitution. In his spare time, he runs, reads nonfiction and argues with his children.  Tracy is the Aileen McMurray Professor of Law at Akron and brings her feminist and litigator perspectives.  Her work includes the annual edition of West’s Women and the Law, the book Feminist Legal History (with T.J. Boisseau), and her recent article on the misuse of women’s history in the pro-life movement.  She spends her spare time chauffeuring. Let the blogging begin.

[JT]

 

Linda Rusch to Be Honored at KCON 9

At the annual International Conference on Contracts coming up in February in Miami, the assembled contracts profs will be be honoring Linda Rusch.  

Linda J. Rusch is a retired  professor of law as of August 2012.  She was the inaugural holder of the Frederick N. and Barbara T. Curley Professor in Commercial Law at the Gonzaga University School fo Law from 2005-2010.   She was also a co-director of the Law School’s Commercial Law Center. She graduated from the University of Iowa College of Law with highest distinction and was elected to the Order of the Coif.

Prior to joining Gonzaga, she was a professor of law teaching in the area of commercial law at Hamline University School of Law in St. Paul, Minnesota. Prior to joining the Hamline faculty in 1992, she practiced commercial law and bankruptcy as an associate with the Minneapolis firm of Faegre & Benson, and clerked for the Honorable Milton I. Shadur, United States District Court, Northern District of Illinois.

Over the course of several years, Professor Rusch has been involved in the revision of the Uniform Commercial Code. From 1996-99, she served as the Associate Reporter for the Uniform Law Commission and the American Law Institute Drafting Committee to Revise Article 2 of the UCC. From 2000 to 2003, she served as a co-reporter for and member of the ULC-ALI Drafting Committee to revise UCC Article 7.  She also was the Reporter for the ULC Study Committee on Payment Issues from 2008 to 2011.  She currently serves as a member of the Permanent Editorial Board of the UCC, and is on the Executive Committee for the PEB,

Professor Rusch is actively involved in many national and local bar groups. She has filled many leadership roles in the American Bar Association Business Law Section, including as a Chair of the Section from 2011-12, as a chair of the Committee on the UCC from 1999-2003.  In addition, Prof. Rusch is a past President of the American College of Commercial Finance Lawyers. She is also a member of the American Law Institute and the American College of Bankruptcy. As a member of the American Law Institute, she has participated in the Members Consultative Groups on the development of the Restatement of Restitution, the Principles of Software Contracting, and the Restatement of Torts (Third): Economic Losses. 

Prof. Rusch has published numerous articles and books on the Uniform Commercial Code and bankruptcy, and is a frequent lecturer on those topics. 

We are looking forward to joining our colleagues in honoring Linda Rusch.

[JT] 

 

A Win for Homeowners in the Ninth Circuit

In Corvello v. Wells Fargo Bank, the issue before the Ninth Circuit was whether Wells Fargo was contractually obligated under the Federal Home Affordable Modification Program (HAMP) to offer plaintiffs a permanent mortgage modification after they had complied with the requirements of the trial period plan (TPP).  

The Treasury set out procedures that mortgage servicers were to follow under HAMP in order to qualify for payments of $1000 per mortgage modification.  HAMP required that servicers provide permanent modifications to borrowers to made all their payements under the TPP and whose representations provided as part of the TPP process remained accurate.  If the servicers were to deny modifications, they are obligated to inform borrowers in writing.  

Plaintiffs alleged that they complied with all requirements of their TPPs but that Wells Fargo neither notified them of their ineligibility nor modified their mortgage loans.  Plaintiffs sued seeking permanent modifications and other relief.  The District Court granted Wells Fargo's motion to dismiss  based on language in the TPP suggesting that Wells Fargo's obligation to grant a modification was conditioned on its provision of a "fully executed copy of a Modification Agreement." Since Wells Fargo provided no such Modification Agreement, the District Court reasoned, the condition was not met. 

Subsequent to the District Court's decision, the Seventh Circuit decied Wigod v. Wells Fargo Bank, which held that bank are required to offer permanent modifications to borrowers who complete their obligations under the TPPs unless the banks timely notify those borrowers that they do not qualify for a HAMP modification.  The Ninth Circuit followed Wigod and reversed the District Court.  Both Circuit Courts rejected Wells Fargo's position "because it made teh existence of any obligation conditional solely on action of the bank and conflicted with other provisions of the TPP," including the bank's obligation to send a Modification Agreement if the borrower qualified for a modification.  Although Wigod was decided under Illinois law and California law applied in Corvello, the Ninth Circuit found "no material difference" in the laws of the two jurisdictions.  

Plaintiffs thereby survived a motion to dismiss, with the Ninth Circuit accepting as true all of the allegations of the complaints.  The Court remanded the case for further proceedings. 

Judge Noonan concurred.  The money quote:

No purpose was served by the document Wells Fargo prepared except the fraudulent purpose of inducing Corvello to make the paymetns while the bank retained the option of modifying the loan or stiffing him.

[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 
July 18, 2013 to September 16, 2013

Rank	Downloads	Paper Title
1	4021	Multimodal Bill of Lading: The Problem of Party Liability  Nadezda Alexandrovna Butakova,  Russian Presidential Academy of National Economy and Public Administration (RANEPA)
2	128	Improving Contract Quality: Modularity, Technology, and Innovation in Contract Design  George G. Triantis,  Stanford University - Law School
3	100	'Sticky' Arbitration Clauses?: The Use of Arbitration Clauses after Concepcion and Amex  Christopher R. Drahozal, Peter B. Rutledge,  University of Georgia - School of Law, University of Kansas School of Law
4	88	Indescendibility  David Horton,  University of California, Davis - School of Law
5	80	Catalyzing Fans  Howard M. Wasserman, Dan Markel, Michael McCann,  Florida State University College of Law, University of New Hampshire School of Law, Florida International University (FIU) - College of Law
6	64	A Theory of Contract Formation  Allan Beever,  School of Law, University of South Australia
7	57	A Presumptively Better Approach to Arbitrability  John A. E. Pottow, Jacob Brege, Tara J. Hawley,  University of Michigan Law School, University of MIchigan Law School, University of Michigan Law School
8	51	Managing Our Money: The Law of Financial Fiduciaries as a Private Law Institution  Hanoch Dagan, Sharon Hannes,  Tel Aviv University - Buchmann Faculty of Law, Tel Aviv University - Buchmann Faculty of Law
9	47	Justice and Harsh Results: Beyond Individualism and Collectivism in Contracts  Kenneth K. Ching,  Regent University - School of Law
10	46	Law Wars: Australian Contract Law Reform vs CISG vs CESL  Lisa Spagnolo,  Monash University - Faculty of Law

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of LSN: Contracts (Topic)  
July 18, 2013 to September 16, 2013

Rank	Downloads	Paper Title
1	4021	Multimodal Bill of Lading: The Problem of Party Liability  Nadezda Alexandrovna Butakova,  Russian Presidential Academy of National Economy and Public Administration (RANEPA)
2	138	Lex Mercatoria, International Arbitration and Independent Guarantees: Transnational Law and How Nation States Lost the Monopoly of Legitimate Enforcement  Cristián Gimenez-Corte,  United Nations
3	100	'Sticky' Arbitration Clauses?: The Use of Arbitration Clauses after Concepcion and Amex  Christopher R. Drahozal, Peter B. Rutledge,  University of Georgia - School of Law, University of Kansas School of Law
4	64	A Theory of Contract Formation  Allan Beever,  School of Law, University of South Australia
5	47	Justice and Harsh Results: Beyond Individualism and Collectivism in Contracts  Kenneth K. Ching,  Regent University - School of Law
6	43	Trust v. Law (In a Box): Do Organizational Forms Make a Difference?  Jeffrey M. Lipshaw,  Suffolk University - Law School
7	42	A Model Litigation Finance Contract  Maya Steinitz, Abigail Field,  University of Iowa - College of Law, Unaffiliated Authors - Independent
8	39	The Challenge of Boilerplate  Robin Bradley Kar,  University of Illinois at Urbana-Champaign - College of Law
9	39	The Interpretation and Fairness of Standardized Terms: Certainty and Predictability Under the CESL and the CISG Compared  Nicole Kornet,  Maastricht University - European Private Law Institute (M-EPLI), Maastricht University - METRO Institute
10	38	An Introduction to the Law of Unjust Enrichment  Alvin W-L See,  Singapore Management University - School of Law

[JT]

Plaintiffs Catch a Break in Murphy v. DirecTV

The Ninth Circuit's opinion in Murphy v. DirecTV starts in the manner to which we have been accustomed in the past few years.  Although Plaintiffs state claims under California consumer protection statutes, and although another California statute declares unenforceable arbitration clauses in consumer contracts that preclude collective or class action proceedings, the Ninth Circuit must uphold DirecTV's arbitration agreement with the plaintiff class and compel arbitration.  The Supreme Court's 2011 decision in Concepcion compels this result.   

The arbitration provision with its class action waiver also contained a "jettison clause,"  which reads:  “If, however, the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire [section on dispute resolution] is unenforceable.”  Originally, the Distirct Court relied on the jettison clause in denyingDirecTV's motion to compel arbitration, and the Ninth Circuit affirmed.  Post-Concepcion, however, the District Court reversed itself and granted the motion to compel and the Ninth Circuit affirmed that grant of the motion to compel.  

This confuses me, and I must confess that I do not find the Ninth Circuit's explanation enlightening, despite several pages devoted to distinguishing cases that Plaintiffs thought supported their claim.  The Ninth Circuit treats the issue of one of retroactivity.  When the Supreme Court interpreted in Federal Arbitration Act (FAA) in Concepcion, it told us what the FAA meant, and it has always meant what it meant in Concepcion.  If the FAA preempts state law, then it has always done so, and it can do so with respect to claims that arose before Concepcion was decided.  As the Court explains.

A contract cannot be unenforceable under state law if federal law requires its enforcement, because federal law is “the supreme Law of the Land . . . , any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” U.S. Const. art. VI, cl. 2. Section 9 of the Customer Agreement provides only that the arbitration agreement will be unenforceable if the “law of your state” disallows class waivers, which California law does not—and could not—under the FAA as interpreted in Concepcion.

Fair enough.

But the Ninth Circuit also quotes the Supreme Court as saying that the FAA “places arbitration agreements on an equal footing with other contracts, and requires courts to enforce them according to their terms.”  Here, the parties have stipulated that their agreement to arbitrate is unenforceable if state law would prohibit it, and there seems to be no doubt that the law of California at the time of the contract prohibited class action waivers in arbitration provisions.  If the courts are aiming at giving effect to the intent of the parties, it seems to me that the "jettison clause," rather than Concepcion governs.  The FAA is about enforcing arbitration agreements, and here the parties have agreed that, to the extent California law governs, claims cannot be arbitrated.  Concepcion should not be construed so broadly as to compel arbitrations to which the parties have not agreed.

But fortunately for Plaintiffs, they also have claims against Best Buy, where they acquired their DirecTV equipment and which is neither a party to the arbitration clause nor a third-party beneficiary of it, according to the Ninth Circuit.  The nature of that acquisition is at the heart of Plaintiffs' claims.  They allege that Best Buy misled them into thinking that they were purchasing DirecTV equipment when in fact the two companies consider the transaction a lease.  Plaintiffs also allege that the lease terms are oppressive and unfair.  

The District Court granted Best Buy's motion to compel arbitration based on equitable estoppel.  Plaintiffs are suing alleging that the two parties colluded in imposing on them unfair and oppressive terms in a Customer Agreement and Lease Addendum.  If it is suing based on that document, the arbitration provision should be in with respect to both defendants.  The District Court held that Plaintiffs were estopped to deny Best Buy the benefits of the arbitration provision.  

The Ninth Circuit reversed on estoppel.  Plaintiffs are suing DirecTV because of unfair and oppressive terms in a lease agreement.  They are suing Best Buy because its conduct in the transaction misled Plaintiffs into thinking they were buying equipment when they were in fact only leasing it.  In short, the Ninth Circuit concludes that "Plaintiffs’ claims against Best Buy do not rely on, and are not intertwined with, the substance of the DirecTV Customer Agreement or Lease Addendum."  In addition, while alleged collusion is another ground for equitable estoppel, and Pliantiffs have alleged collusion, the alleged collusion is unrelated to the contract on which Best Buy would rely in order to compel arbitration.

The Ninth Circuit also rejected Best Buy's claims that it was entitled to benefit from the arbitration provision either under an agency theory or as a third-party beneficiary.

[JT]

International Conference on Contracts, 2014 Edition in MIAMI!!

All the details can be found here.  Here's the main information:

Join us Winter 2014 in the Sunshine State for 

KCON9

The 9th Annual Conference on Contracts

February 21-22, 2014

 The 2014 conclave will be hosted by 

St. Thomas University School of Law 

and will be chaired by Professor Jennifer S. Martin (pictured).  

 

The Ninth International Conference on Contracts will bring together scholars who teach and work in the areas of contract law and practice for two days of panels and scholarly presentations. The Conference is unique in the breadth of its coverage of contract-related issues and its mix of senior and junior scholars. 

One of its chief goals is to foster and encourage dialogue and relationships among scholars at all levels, and to bring together those whose work comes from different perspectives. 

For more information about the Conference contact lead conference organizer:

Professor Jennifer S. Martin at (305) 474-2420, or via email at [email protected]

[JT]