ContractsProf Blog

Arbitration Provisions and Exotic Dancers

Are arbitration provisions binding against exotic dancers? Well, if you're wondering, in this Connecticut case, Horrocks v. Keepers, Inc., CV156054684S (behind a paywall), the answer is yes. 

The plaintiffs here filed the lawsuit alleging that they were employees, not independent contractors as the gentleman's club maintained, and as such the club had violated plaintiffs' legal rights as employees, including failing to pay minimum wage. The club moved to stay the proceedings arguing that it had signed an entertainment lease agreement with all of the dancers that required binding arbitration to resolve disputes. 

The plaintiffs' main argument was that the entire entertainment lease agreement was void because it had an illegal purpose in seeking to implement the club's violation of labor laws as alleged in the plaintiffs' complaint. Because the entire agreement was void, the argument went, the arbitration clause wasn't enforceable. In the alternative, the plaintiffs argued that the arbitration provision was unconscionable. 

On the plaintiffs' first point, the court concluded that the legality of the overall entertainment lease agreement was a matter for the arbitrator to decide. According to Connecticut precedent, the courts' job is only to determine if the arbitration clause is valid; every other issue is left to the arbitrator. Therefore, all of the arguments about the illegality of the entertainment lease agreement were left to the arbitrator, and the court focused its analysis on the alleged unconscionability of the arbitration provision. 

We've seen this story before. And, in fact, courts have seemed pretty determined to find arbitration provisions enforceable, even when other parts of the contract were unconscionable (or, as here, where it was questionable whether the contract was enforceable at all). There was actually Connecticut precedent about another set of exotic dancers suing another gentlemen's club with similar allegations, and in that case, D'Antuono v. Service Road Corp, 789 F. Supp. 2d 308 (D. Conn. 2011), the court upheld the arbitration provision against attacks of unconscionability. The court in this case follows the precedent, finding this case indistinguishable from D'Antuono.  

The court here allows for the possibility that this arbitration clause was part of an unenforceable adhesion contract presented in bad faith with a knowing illegal purpose, but says that alone isn't enough to deny enforcement of the arbitration clause, because that would only be procedural unconscionability. As far as substantive unconscionability went, the cost and fee shifting provisions provided in the arbitration clause weren't unreasonable, and the class action waiver included in the arbitration provision was also not unconscionable according to precedent: "Requiring the plaintiffs to pursue their claims individually is not an ineffective vindication of their rights." 

I admit that I'd never really given a lot of thought to class action waivers, but it does seem odd to assert that class action waivers do not harm the plaintiffs' ability to vindicate their rights. After all, class actions are frequently understood to exist to correct the problem that, sometimes, individual pursuit of claims isn't effective. 

At any right, individual pursuit through arbitration is what these plaintiffs are left with. 

KCON XI Panel Recordings Forthcoming

While there may be no substitute for being there, we'll do the best that we can.  The many excellent KCON XI panels here at St. Mary's University are being recorded, and I hope for us to have a series of posts making available and highlighting those panels in the future.

Stay tuned for content and comment as it becomes available in upcoming days!

The Most Interesting Profs in the World: KCON XI Begins Today

Today marks the beginning of the Eleventh International Conference on Contracts, and I'm pleased to be in attendance. KCON XI is being held at St. Mary's University School of Law in San Antonio, Texas, and many of us are staying at the conference hotel, The Menger, which I have now learned is "the oldest continuously operating hotel west of the Mississippi," having been established in 1859.  The setting here in the Alamo City seems fitting for what, under any reasonable-person standard, is a gathering of the Most Interesting Profs in the World^TM, one member of whom is pictured at the left.

Conference highlights are scheduled to include the presentation of a Lifetime Achievement Award to Professor Peter Linzer of the University of Houston Law Center.  Professor Linzer is an appropriate recipient of this year's award, having had a distinguished career that includes work with E. Allan Farnsworth on the Restatement (Second) of Contracts and a role as a significant participant in the decade-plus history of this conference.

A difficulty with any event like this one is the inability to attend all of the concurrently scheduled panels. Both concurrent panels kicking things off look excellent, with one being Professorial Professions: Creating a Student-centered Contracts Classroom, which will be moderated by Hazel Beh of the University of Hawai'i, and is set to include Charles Calleros (Arizona State University), our esteemed blog editor Myanna Dellinger (University of South Dakota), my colleague Frank Snyder (Texas A&M University), and Deborah Post (Touro Law Center).

I will be at the other (and equally excellent panel) during that first session, and that panel turns out to be an easy choice for me as I (Mark Burge - Texas A&M University) will be the moderator. The session is titled What You Thought You Knew About Remedies in Sales Transactions May Not Be True: Highlights in Article 2 Remedies and Contracting for Limitations, and the UCC goodness therein will be delivered by Sid DeLong (Seattle University), Nancy Kim (California Western), conference organizer Colin Marks (St. Mary's University), and Jennifer Martin (St. Thomas University - Florida).  I look forward to spending the morning with such a wonderful group of colleagues.

If you are attending KCON and have any comments, observations, or non-incriminating photos that you would like to share, drop me an e-mail at the bot-decoded version of the following address: markburge "at" law "dot" tamu "dot" edu.

 

Weekly Top Ten SSRN Contracts Downloads (February 25, 2016)

SSRN Top Downloads For
Contracts & Commercial Law eJournal

Rank	Downloads	Paper Title
1	537	Simplification of Privacy Disclosures: An Experimental Test Omri Ben-Shahar and Adam S. Chilton University of Chicago Law School and University of Chicago - Law School
2	488	Choice of Law in the American Courts in 2015: Twenty-Ninth Annual Survey Symeon C. Symeonides Willamette University - College of Law
3	323	Contract Law and Ukraine's $3 Billion Debt to Russia Mark C. Weidemaier University of North Carolina (UNC) at Chapel Hill - School of Law
4	166	Singling Out People Without Knowing Their Names – Behavioural Targeting, Pseudonymous Data, and the New Data Protection Regulation Frederik J. Zuiderveen Borgesius University of Amsterdam - IViR Institute for Information Law (IViR)
5	123	From Promise to Form: How Contracting Online Changes Consumers David A. Hoffman Temple University - James E. Beasley School of Law
6	119	Contracting for the ‘Internet of Things’: Looking into the Nest Guido Noto La Diega and Ian Walden Buckinghamshire New University, Department of Law and Queen Mary University of London, School of Law
7	116	The Nature of Vitiating Factors in Contract Law Mindy Chen-Wishart University of Oxford – Faculty of Law
8	116	Beyond Relational Contracts: Social Capital and Network Governance in Procurement Contracts Lisa Bernstein University of Chicago - Law School
9	88	Contract Meta-Interpretation Shawn J. Bayern Florida State University - College of Law
10	82	Global Commercial Law between Unity, Pluralism, and Competition: The Case of the CISG Gralf-Peter Calliess and Insa Buchmann University of Bremen - Faculty of Law and Max Planck Institute for European Legal History

 

SSRN Top Downloads For
LSN: Contracts (Topic)

Rank	Downloads	Paper Title
1	537	Simplification of Privacy Disclosures: An Experimental Test Omri Ben-Shahar and Adam S. Chilton University of Chicago Law School and University of Chicago - Law School
2	488	Choice of Law in the American Courts in 2015: Twenty-Ninth Annual Survey Symeon C. Symeonides Willamette University - College of Law
3	323	Contract Law and Ukraine's $3 Billion Debt to Russia Mark C. Weidemaier University of North Carolina (UNC) at Chapel Hill - School of Law
4	123	From Promise to Form: How Contracting Online Changes Consumers David A. Hoffman Temple University - James E. Beasley School of Law
5	117	Contracting for the ‘Internet of Things’: Looking into the Nest Guido Noto La Diega and Ian Walden Buckinghamshire New University, Department of Law and Queen Mary University of London, School of Law
6	116	The Nature of Vitiating Factors in Contract Law Mindy Chen-Wishart University of Oxford – Faculty of Law
7	116	Beyond Relational Contracts: Social Capital and Network Governance in Procurement Contracts Lisa Bernstein University of Chicago - Law School
8	88	Contract Meta-Interpretation Shawn J. Bayern Florida State University - College of Law
9	86	Disgorgement of Profits in Canada Lionel Smith and Jeff Berryman McGill University, Faculty of Law, Paul-André Crépeau Centre for Private and Comparative Law and University of Windsor - Faculty of Law
10	82	Global Commercial Law between Unity, Pluralism, and Competition: The Case of the CISG Gralf-Peter Calliess and Insa Buchmann University of Bremen - Faculty of Law and Max Planck Institute for European Legal History

Arbitration Provisions, Unconscionability, and Employment Contracts

We've looked at arbitration provisions and unconscionability before. In this recent case out of California, Yeotis v. Warner Pacific Insurance Services Inc., No. B245770, the agreement in question was found to be unconscionable in places, but that didn't doom the arbitration provision contained within it. 

There was an element of procedural unconscionability to the contract. The court concluded that the contract was an adhesion contract, because the plaintiff was required to sign it in order to keep her job. There was, therefore, some procedural unconscionability attached to the formation of the contract. Additionally, there was some substantive unconscionability in the contract's provisions that gave the court pause. The wording of the contract required the plaintiff to pay fees in arbitration that she wouldn't have had to pay in a court of law. The defendant tried to argue that that was only the impression given and that the plaintiff would never have had to pay those fees in reality, but the court was concerned that the plaintiff would assume, under the contract's language, that she would be responsible for the fees and therefore might hesitate to pursue her remedy against the employer. 

So the court directed the costs provision to be severed from the contract, but it found that the rest of the contract was enforceable. The procedural unconscionability was slight, it thought, and did not permeate the whole contract. The plaintiff's allegation that she had never been provided with the relevant arbitration rules prior to signing the contract was unpersuasive to the court as a more serious procedural unconscionability problem because the court thought she could have found the rules herself very easily and there was no contention otherwise. As for the rest of the arbitration procedures as explained in the contract, the court found that they were not substantively unconscionable and so could be enforced. 

 

Contract Interpretation by Market Muscle: Gogo Caves and American Airlines Nonsuits

Well THAT was fast--apparently faster than Gogo's in-flight internet service.

American Airlines has nonsuited (i.e., dismissed without prejudice to refilling the lawsuit) its declaratory judgment claim against Gogo. American had recently asked a Texas state court to determine whether the provision of the availability of "better service" (or some similar term) in its 2012 contract had been triggered such that American could force Gogo to submit a competitive bid to retain its service.

As discussed in a previous post, American's negotiating leverage arose as much from the publicity surrounding it filing of a lawsuit as it did from the actual contract term.  The term was apparently vague enough that Gogo could (and did) take the position that its rights as American's exclusive in-flight service provider had not been called into question by American's request for a new proposal. Upon American's filing of a declaratory judgment lawsuit in Texas state court, however, Gogo's stock price dropped 27 percent.

Today, the word is out that Gogo has changed its position and accepted American's interpretation of the contract. The Fort Worth Star-Telegram reports:

[American Airlines had said] that its contract with Gogo allowed it to renegotiate or terminate its agreement if another company offered a better service. Gogo had disputed that clause in the contract, but Friday agreed to the contract provision and said it would provide a competitive bid within 45 days.

 

“American is a valued customer of Gogo, and Gogo looks forward to presenting a proposal to install 2Ku, our latest satellite technology, on the aircraft that are the subject of the AA Letter,” Gogo said in a government filing Friday. “We acknowledge the adequacy of the AA Letter and that our receipt of the AA Letter triggered the 45 day deadline under the agreement for submission of our competitive proposal.”

*   *   *

Once American reviews Gogo’s proposal, if it does not beat out a competitor’s proposal, American can terminate Gogo’s contract with 60 days’ notice.

Shares of Gogo [ticker: GOGO] jumped on the news of the dropped lawsuit, up almost 10 percent....

The swift manner in which this episode had played out emphasizes the extent to which contract doctrine and interpretation it frequently not the principal driver of business relationships. Gogo could have marshalled a team of lawyers and stood on its interpretation of the contract up to final judgment--likely a summary judgment based on a question of law.  But what would be the reputational and business cost? Eventually, the marketplace won't allow contract rights to serve as a substitute for proof of the quality of a product.

A challenge I find in teaching future transactional lawyers is to ensure that they do not become enamored with legal rights as being the be-all and end-all of deal making. Law is important, but a business lawyer must employ practical wisdom, as well. That wisdom includes the fact that law itself is only one part of practicing law... and it sometimes isn't even the most important part.

Read more here: http://www.star-telegram.com/news/business/aviation/sky-talk-blog/article61775272.html#storylink=cpy

 

Contract Issues in "Willy Wonka and the Chocolate Factory"

Last weekend I watched, for the first time in my adulthood, "Willy Wonka and the Chocolate Factory." The 1971 version with Gene Wilder. I've never seen the more recent version with Johnny Depp, but, after reacquainting myself with Gene Wilder's Willy Wonka, I ask you why you would ever need another Willy Wonka. Wilder is perfect. 

~~SPOILERS FOR THE MOVIE BELOW~~(IF YOU HAVEN'T SEEN IT, GO WATCH IT NOW, IMMEDIATELY. YOU HAVE SO MUCH TIME AND SO LITTLE TO DO. WAIT. STOP. REVERSE THAT.)

Because it was the first time I'd seen it since going to law school, it was also the first time I'd thought about it from the legal perspective. And, weirdly, contract law actually plays a central role in the movie. As soon as the children enter the factory, Wonka has them sign a contract.

 

Just the children, not their accompanying guardians, which is interesting to me, as I would have had everyone sign it. You'd think Wonka would be just as worried about the adults handing over Everlasting Gob-Stoppers to the competition, but then again, since the whole thing was just an elaborate set-up, I guess he didn't care. The only clause we can really see in the contract is a gigantic release from liability provision. The adult characters are instantly suspicious of the contract. They raise the argument that they need to read it before they sign it (an act which appears to be actually impossible, given the vanishing print at the bottom). Wonka sort of shrugs and says, "Eh, if you don't sign it, you can't come in." It seems to me like there's a good argument that there's procedural unconscionability showing up, given that Wonka's made it impossible to actually read the contract and is dismissive of their desire to know what they're signing before they enter the factory. Of course, the flipside to that is the flipside that almost always comes up when you talk about unconscionability: No one is forcing these people to tour the factory. They can walk out if they like. They don't have to enter the crazy Willy Wonka contract. 

The other issue raised by this scene is that the children are all minors, so this contract is voidable. 

(This scene also gives you the timeless assessment that contracts are "for suckers.")

The children all sign the contract, of course. (That would make for an interesting movie: Responsible Legal Decisions in Response to Willy Wonka's Craziness. Everyone turns and walks out instead of entering the factory run by the creepy guy no one's seen in years.) (Wonka really should be so much creepier than he is. I'm telling you, Wilder is genius in this role.)

Having signed the contract, they are let loose in the wonders of the factory, where they immediately proceed to get themselves grievously injured one by one, all taken in casual stride by Wonka, perhaps buoyed by his release from liability provision: 

 

The conclusion of the movie, once again, revolves around contract law. Charlie inquires as to the lifetime supply of chocolate he's supposed to receive, and Wonka points out that he's no longer entitled to it because he breached the contract he signed at the beginning. Wonka quotes the contract, and my main reaction to it is to shake my head and say, "All those Latin words! All those hereinbefores!" It's an excellent example of an incomprehensible contract. I propose we start calling all contracts filled to the brim with Latin and hereinbefores "Wonka contracts." And my second reaction is: That's another movie I'd watch: Willy Wonka in Law School.

 

(Random fact, but the actor playing Charlie apparently did not know that Wilder was going to yell so furiously in that scene. His startled reaction is genuine.)

Don't worry, if you haven't seen the movie, there's a happy ending.

 

One closing thought on Willy Wonka and contracts. I figure that there are two choices when it comes to Contracts classes: You're either the room of Pure Imagination...

 

...or you're the tunnel scene...

 

Algorithmic Contracts by Lauren Henry Scholz

Recently, I had the good fortune to interact with Lauren Henry Scholz, currently Resident Fellow and Knight Law and Media Scholar at the Information Society Project at Yale Law School. Scholz’s in-progress article, Algorithmic Contracts, addresses topics that will be of great interest to many readers of this blog. She not only tackles the fiscally important development of technological automation of contracting processes, but she also wades into the significant implications of computer-facilitated formation for traditional contract doctrine. The draft is not yet available on SSRN, but Lauren graciously granted me permission to share her current abstract:

Algorithmic contracts are an important part of today's society. Areas where algorithmic contracts are already common are high speed trading of financial products and dynamic pricing. However, contract law doctrine does not currently have an approach to evaluating and enforcing algorithmic contracts. This Article fills this significant gap in doctrinal law and legal literature.

There are two types of algorithmic contracts. Agent algorithmic contracts are contracts in which one or both parties use an algorithm as an agent to determine terms in a contract, that is, to choose which terms to offer or accept. Term algorithmic contract are contracts in which all parties agree to the results of an algorithm as a contractual term, prior to knowing exactly what the algorithm will yield.

The classical interpretation of contract doctrine, which justifies contract as an expression of human will, finds that some algorithmic contracts are not properly formed at law and thus cannot be enforced in contract. This is because where algorithms serve as quasi-agents to principals in making decisions the principals have not manifested the intent to be bound at the level of specificity that contract law requires. Algorithms are not persons, and so cannot consent beyond the scope of the principal’s manifested objectives, as true agents can. Furthermore, policy considerations of efficiency and fairness in light of technological trends also supports relaxing the contract law’s presumption against considering evidence of intent outside the contract in the interpretation of and provision of remedies for algorithmic contracts.

I propose that approaching algorithmic contracts as implied-in-fact contracts in contract law, supported by restitution law and tort law where a contract cannot be implied in fact, offers a predictable approach to the enforcement of algorithmic contracts at law while promoting efficiency and fairness concerns in a manner traditional contract law cannot.

Common law courts and state legislatures should update their approach to algorithmic contracts accordingly. The American Law Institute and other groups that seek to promote best practices in state private law should update tort, contract, and commercial law statements to expressly address algorithmic contracts. Businesses should strengthen their positions in negotiations as well as in court by clarifying their objectives in using algorithms. Giving businesses the incentive to make their objectives clear will aid in ascribing liability in all areas of law and promote responsible use of algorithms.

Personally, I’m very sympathetic to the suggestion that the computer-enhanced contracts addressed by Scholz are ripe for their own variations on standard interpretive rules. Traditional doctrine did not contemplate and is not necessarily adaptable to the technological possibilities that are now upon us. This looks to be an exciting and relevant topic, so I look forward to seeing the final product. Although Algorithmic Contracts is itself still in development, you can in the meantime view Lauren Scholz’s other scholarship here.

FTC Settlement with Bitcoin Mining Rig Company

Speaking of contract law and Bitcoin, my colleague William Byrnes over at our sister blog, International Financial Law Prof Blog, reports on recent activity by the Federal Trade Commission in this area:

Butterfly Labs and two of its operators have agreed to settle Federal Trade Commission charges that they deceived thousands of consumers about the availability, profitability, and newness of machines designed to mine the virtual currency known as Bitcoin, and that they unfairly kept consumers’ up-front payments despite failing to deliver the machines as promised.

*   *   *

“Even in the fast-moving world of virtual currencies like Bitcoin, companies can’t deceive people about their products,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “These settlements will prevent the defendants from misleading consumers.”

Read the entire post here. While the federal interest in regulating in the virtual currency space has most prominently been in the area of financial crimes, consumer protection is certainly not off the table as agencies like the FTC and (potentially more prominently) the Consumer Financial Protection Bureau explore their reach.

Regulation of Virtual Currency Businesses Act

At any given time, the Uniform Law Commission/NCCUSL is engaged in many important and useful state-law drafting projects, but one of the more interesting ones for me is its current work in drafting a proposed Regulation of Virtual Currency Businesses Act. I have had the fantastic opportunity to act as an observer to the drafting committee and watch the stakeholders and commissioners navigate disparate policy perspectives and try find as-common-as-possible ground, while Chair Fred Miller keeps the group on task and Reporter Sarah Jane Hughes assimilates an incredible amount of debate into a rapidly evolving draft. The experience is a wonder that I would recommend to anyone with a serious interest in legislative policymaking. It also, for present purposes, helps illustrate both the benefits and limits of contract law in a nascent market-space.

The current drafting project arose out of the phenomenon of Bitcoin, the first technologically viable means of electronically transmitting value without the possibility of double spending or the need for a financial intermediary, like a bank. While the use cases for virtual currency technology are still in their relative infancy, states began to consider and enact disparate regulatory schemes, with New York's BitLicense regulatory framework being the most prominent example. While federal regulators and law enforcement have understandably focused on preventing the use of pseudonymous cryptocurrency to advance criminal enterprises and finance international terrorism, the state concerns have tended more toward protection of consumers and other users engaged in perfectly legal transactions. While Bitcoin does not require an intermediary any more than paper cash requires use of a bank, intermediaries--like digital wallet services--have arisen to fill the convenience role analogous to bank accounts. These virtual currency intermediaries are, for the most part, the principal target of state-law regulation and current work of the Uniform Law Commission.

What is the contract law angle here? It's this: In the absence of specially-crafted law of the sort now under consideration, the common law of contracts fills the void to enable some degree of enforceable private ordering. The flexibility of contract law is such that it can allow for the birth of business models no one contemplated as recently as the eve of Bitcoin's creation in 2008. The flexibility of such a legal regime is amazing. Contract law can, nonetheless, only facilitate business so far. Public-protective regulation is necessary to achieve widespread market acceptance beyond the universe of early-adopters and risk takers. Regulation carries its own risks, however, as a heavy-handed approach can stifle innovation and create anti-competitive barriers to market entry.

That--in many different flavors--is the policy question being grappled with in the Regulation of Virtual Currency Businesses Act, and the question is relevant in any other space where rapidly developing technology exceeds the capacity of existing law. Where do we apply protective public law, and what do we keep within the realm of private contracts?

 

Weekly Top Ten SSRN Contracts Downloads (February 18, 2016)

SSRN Top Downloads For
Contracts & Commercial Law eJournal

Rank	Downloads	Paper Title
1	526	Simplification of Privacy Disclosures: An Experimental Test Omri Ben-Shahar and Adam S. Chilton University of Chicago Law School and University of Chicago - Law School
2	461	Choice of Law in the American Courts in 2015: Twenty-Ninth Annual Survey Symeon C. Symeonides Willamette University - College of Law
3	253	Contract Law and Ukraine's $3 Billion Debt to Russia Mark C. Weidemaier University of North Carolina (UNC) at Chapel Hill - School of Law
4	110	The Nature of Vitiating Factors in Contract Law Mindy Chen-Wishart University of Oxford – Faculty of Law
5	108	From Promise to Form: How Contracting Online Changes Consumers David A. Hoffman Temple University - James E. Beasley School of Law
6	102	Beyond Relational Contracts: Social Capital and Network Governance in Procurement Contracts Lisa Bernstein University of Chicago - Law School
7	84	Contract Meta-Interpretation Shawn J. Bayern Florida State University - College of Law
8	79	Contracting for the ‘Internet of Things’: Looking into the Nest Guido Noto La Diega and Ian Walden Buckinghamshire New University, Department of Law and Queen Mary University of London, School of Law
9	78	Global Commercial Law between Unity, Pluralism, and Competition: The Case of the CISG Gralf-Peter Calliess and Insa Buchmann University of Bremen - Faculty of Law and Max Planck Institute for European Legal History
10	69	Contracting Out of Fiduciary Duties Ernest Lim University of Hong Kong - Faculty of Law

 

SSRN Top Downloads For
LSN: Contracts (Topic)

Rank	Downloads	Paper Title
1	526	Simplification of Privacy Disclosures: An Experimental Test Omri Ben-Shahar and Adam S. Chilton University of Chicago Law School and University of Chicago - Law School
2	461	Choice of Law in the American Courts in 2015: Twenty-Ninth Annual Survey Symeon C. Symeonides Willamette University - College of Law
3	251	Contract Law and Ukraine's $3 Billion Debt to Russia Mark C. Weidemaier University of North Carolina (UNC) at Chapel Hill - School of Law
4	110	The Nature of Vitiating Factors in Contract Law Mindy Chen-Wishart University of Oxford – Faculty of Law
5	108	From Promise to Form: How Contracting Online Changes Consumers David A. Hoffman Temple University - James E. Beasley School of Law
6	102	Beyond Relational Contracts: Social Capital and Network Governance in Procurement Contracts Lisa Bernstein University of Chicago - Law School
7	84	Contract Meta-Interpretation Shawn J. Bayern Florida State University - College of Law
8	83	Disgorgement of Profits in Canada Lionel Smith and Jeff Berryman McGill University, Faculty of Law, Paul-André Crépeau Centre for Private and Comparative Law and University of Windsor - Faculty of Law
9	79	Contracting for the ‘Internet of Things’: Looking into the Nest Guido Noto La Diega and Ian Walden Buckinghamshire New University, Department of Law and Queen Mary University of London, School of Law
10	78	Global Commercial Law between Unity, Pluralism, and Competition: The Case of the CISG Gralf-Peter Calliess and Insa Buchmann University of Bremen - Faculty of Law and Max Planck Institute for European Legal History

Contracts Humor: It's Not Just for Law Schools

A cautionary tale:

American Airlines v. Gogo: A Contract Litigation Object Lesson?

American Airlines wants out of its 2012 contract with Gogo to provide internet service for about 200 of American's planes.  The Fort Worth Star-Telegram reports on the airline's use of a declaratory judgment claim to construe the contract:

In the lawsuit, American says its contract with Gogo allows it to renegotiate or terminate its agreement if another company offers a better service. The airline is asking a judge to declare that it provided proper notice under its contract and that Gogo’s rejection is without basis.

“After carefully evaluating the new technology and services in the marketplace, American has decided to exercise its rights under the Agreement and recently notified Gogo that ViaSat offers an in-flight connectivity system that materially improves on Gogo’s air-to-ground system,” the suit says.

American says ViaSat offers a faster service that is currently installed on United Airlines, Jet Blue and Virgin America planes. American uses Gogo for its regional aircraft and on domestic flights, primarily Boeing 737s. The carrier uses Panasonic to provide satellite-based Internet services for international flights on its wide-body fleet, including Boeing Dreamliners and 777s.

The story is an interesting object lesson on several fronts. First, the use of an indeterminate term like "better service" or its ilk as the trigger for termination of the original agreement was probably a dispute waiting to happen at its inception. Still, could a 2012 transactional lawyer have really done any better?  The most forward-thinking contract lawyer for American Airlines in 2012 could not have known what the state of in-flight wireless technology would be in 2016 beyond what actually happened--something "better" might come along.

A second lesson is that the litigation and attendant publicity may already have accomplished more for American Airlines than the legal system ultimately will. News of the litigation "sent shares of Chicago-based Gogo plummeting on Wall Street. Gogo stock [ticker: GOGO] declined 27 percent, or $3.81 to close at $10.08 on Tuesday." Gogo is now at the bargaining table in a way that apparently was not going to happen before the litigation. Contract law is important to the operation of commerce, but market forces are much more important.

Finally, the publicity also speaks to the wisdom of not including arbitration clauses and confidentiality provisions in certain commercial contracts--at least not without carefully weighing the costs and benefits. Would American be better off if it did not have the court system (Texas state courts, at the moment) available as a forum? The answer is obvious, but certainly not the same one Gogo would reach at the moment. Transactional lawyers have a great deal to consider when judging the mists of an uncertain future. (H/T to my colleague Wayne Barnes for the story).

Read more here: http://www.star-telegram.com/news/business/aviation/sky-talk-blog/article60577901.html#storylink=cpy

Read more here: http://www.star-telegram.com/news/business/aviation/sky-talk-blog/article60577901.html#storylink=cpy

 

Can Tenure Be Denied Based on Financial Considerations?

It's not a secret that some colleges and universities out there are really struggling. At Lake Superior State University in Michigan, where enrollment has been declining, two professors were recently denied tenure, as Josh Logue reported for InsideHigherEd. As required by the faculty association's agreement with the university, the denials set forth the reason tenure had been denied, and the reason given was the need for the university to reduce staffing in the face of the declining enrollment. The professors took issue with this reason for denial, however, because the agreement contained the following clause: 

Recommendations for tenure shall be based on:

a) Careful review of the Tenure Application File [letters of support, CV, and evaluations].

b) Consideration of the faculty member’s collegiality in their relation to faculty, students, staff, and administration.

The professors are saying that that doesn't allow for denial of tenure based on another consideration, such as financial. 

It's unclear whether there was a communication with the candidates beforehand that institutional need might impact the tenure decision. The contract doesn't seem to ever mention financial considerations impacting the faculty, or institutional need, or indeed any kind of catch-all, at first glance. It does, however, provide for an appeal of a tenure decision, so I'm curious if the denied candidates will take advantage of this, and what the eventual outcome will be. 

 

 

No Contract Contingency Left Behind: Zombies in Amazon's "Lumberyard"

Forward-thinking deal lawyers draft contracts addressing contingencies that clients might not perceive or address if left to their own devices. Amazon has, however, now taken contingency planning--if I may borrow from esteemed legal scholar Buzz Lightyear---to infinity and beyond.

One of Amazon's many businesses is Amazon Web Services, and one of the available services from AWS is Lumberyard, a game development system which, according to Amazon, "consists of an engine, integrated development environment, and related assets and tools we make available at aws.amazon.com/lumberyard/downloads or otherwise designate as Lumberyard materials (collectively, 'Lumberyard Materials')." See AWS Service Term 57.1. 

So far so good. But then, perhaps recognizing the possibility of dire emergencies requiring use of a video-game development engine, we reach section 57.10 (with emphasis added):

57.10 Acceptable Use; Safety-Critical Systems. Your use of the Lumberyard Materials must comply with the AWS Acceptable Use Policy. The Lumberyard Materials are not intended for use with life-critical or safety-critical systems, such as use in operation of medical equipment, automated transportation systems, autonomous vehicles, aircraft or air traffic control, nuclear facilities, manned spacecraft, or military use in connection with live combat. However, this restriction will not apply in the event of the occurrence (certified by the United States Centers for Disease Control or successor body) of a widespread viral infection transmitted via bites or contact with bodily fluids that causes human corpses to reanimate and seek to consume living human flesh, blood, brain or nerve tissue and is likely to result in the fall of organized civilization.

Here at Texas A&M, my colleague (and Blog Editor Emeritus) Frank Snyder raised some quibbles with this provision's drafting: "First, why does it apply only to a viral infection and not to bacterial infections, mutation-causing chemicals, or (as in Night of the Comet) weird alien space rays?   And is the last clause ('likely to result in the fall of organized civilization') modified by the clause that requires CDC certification, or is that an independent determination that can be made by the judge?"  

All good questions. I'll also note that the answer to whether a zombie outbreak would constitute commercial impracticability in a sale-of-goods case has just edged a closer to "no." Apparently, this is precisely the sort of contingency that parties can foresee and should contract around with appropriate force majeure clauses.

What are your thoughts on this significant outbreak of zombie-contingency contracting? Leave your answer in the comments below. H/T to Henry Gabriel via Bill Henning for highlighting this provision.

 

Negligence Liability Releases, Pennsylvania Gold's Gym Edition

As a companion piece to the Delaware Planet Fitness case I discussed a few days ago, here's another case about negligence liability releases and gyms, this one involving a Gold's Gym in Pennsylvania: Hinkal v. Pardoe, No. 165 MDA 2014 (behind paywall).

In this case, the plaintiff was a member of Gold's Gym who used the personal trainer services offered by the gym. She was injured while working with weights under the direction of her Gold's Gym personal trainer. (Here, unlike in the Planet Fitness case, we get some details about her injury. It was a serious neck injury and required two separate surgeries, and it was alleged the injury resulted from there being too much weight on the equipment she was instructed to use and that she was told to continue using even after she complained of injury, because the personal trainer, it was alleged, didn't recognize the seriousness of the injury.) As in the Planet Fitness case, the Gold's Gym membership agreement that the plaintiff signed contained a release from liability for negligence. 

The court went through an analysis of whether this release was enforceable, noting that in Pennsylvania such releases are enforceable where they do not contravene public policy, they entirely concern two private individuals and their private affairs, and both parties bargain freely and the contract is not one of adhesion. Here, the court found that this contract was between a private individual and an entity concerning the individual's private affairs, and it was not against public policy because it did not concern any matter of public interest, which the court defined as "employer-employee relationship, public service, public utilities, common carrier, and hospitals." In addition, the court found that the plaintiff was not required to enter into a membership with Gold's Gym, so the plaintiff could not complain that she did not have bargaining power, because her decision to sign the membership agreement was purely voluntary and she could have walked away. 

Interestingly, the plaintiff didn't really seem to argue against any of those conclusions on the part of the court. What the plaintiff seemed to argue was that the release wasn't valid because she never read it and Gold's Gym never mentioned it to her or explained to her that she was exposing herself to the risk of being unable to sue based on negligence. She asserted that she signed the contract without reading it (as, let's face it, we almost all do) and without any in-depth discussion of it with Gold's Gym and that therefore the clause couldn't be enforced against her. The court, however, was unsympathetic. It pointed out that she had a duty to read the contract before she signed it and that her signature not only indicated that she knew she should have read it but also appeared directly after a line directing her to make sure she read both sides of the agreement. The release was written in ambiguous and straightforward language and she would have understood it had she read it, according to the court. 

There was, however, a dissent in this case, and while that dissent wasn't on the plaintiff's side with regard to not reading the contract, it did believe that allowing a release of liability for negligence in this situation was against public policy. As far as the dissent was concerned, gyms "implicate health and safety concerns," and so should therefore be a matter of public concern in the same way hospitals are. In fact, there was precedent that Pennsylvania had refused to allow a waiver of negligence liability in a case involving health treatments at a spa under the reasoning that it involved health and safety, and the dissent thought this case should fall under the same umbrella. Because Gold's Gym purported to provide for the physical health of its members, the dissent thought the public had an interest in ensuring that the services offered by Gold's Gym were qualified and held to a duty of care. The dissent also pointed out that other states would reach this same public policy conclusion, pointing specifically to New York as a state that would have held this release invalid, which we just saw in the trampoline park case. 

So there you have it: Another gym case, and another opinion supporting the release of liability for negligence, but this one with a dissent raising the question that such releases might be against public policy. 

Solar Contracts - Still Trouble on the Horizon

Change is coming to the energy field, finally. As the realization is broadening that fossil fuels have to be left in the ground, solar and wind energy are becoming more popular to investors and private households alike.

The problem is still the types of contracts and financing options available. An average solar system costs $14,700. If paying that in cash, homeowners would typically save around $50 a month on their electric bills. However, most people cannot afford to pay that in cash. Financing options will reduce the monthly savings to about $20-30 a month. “Net metering,” which allows homeowners to sell electricity back to the utilities, may result in bigger savings.

Problems still loom on the horizon with contracts in this area. A new financing program known as the “Property Assessed Clean Energy” financing program (“PACE”) allows solar panel buyers to finance the system and add the loan to the property as a tax assessment. Some are criticizing that for making it difficult or sell the homes or refinance mortgages.

More importantly, utility companies are complaining that the electric grids were designed to send electricity to consumers, but not receive it back. The utility industry is even referring to individually owned power systems as “disruptive technologies.” This new interaction will force changes in the market and infrastructure. But so what? Utilities have had a chance to make quite a lot of money for years on end, often in pure or monopoly-like situations. Now the market is changing. Utilities must adapt to necessary societal changes. This is clearly one of them. The resentment towards new technological change by parties in an industry that is per se technological is inexpedient and childish. Yes, utilities have invested much money in the existing electricity infrastructure, but they have surely never been promised that the market wouldn’t change and that users won’t demand other product sources than what has been the case for, now, more than a hundred years. Time has come to innovate.

The industry is also complaining that in the future, new rules are going to force the industry to provide more services, which will cost more money and thus result in fewer savings via alternative energy sources. Yeah, let’s see about that one. That still sounds like a contrarian, outmoded argument against inevitable progress.

What could be more troublesome is the expected erosion of benefits such as solar credits. For example, the existing 30% federal solar tax credit will end in 2019 unless, of course, Congress renews it. Hopefully under the new Paris Agreement on climate change and with the looming risks, financial and otherwise, on continually rising global temperatures (2015 was yet another hottest year on record), such and other benefits will be increased, not decreased.

For anyone wishing to buy a solar system, the best deal on the market still seems to be buying outright, even if via a property tax assessment. Many of the still-typical 20-year lease contracts are still too lengthy in nature. Too many things could change in this marketplace to make them seem like a viable option.

It is too bad that with as many hours of sunshine as many parts of this nation has, there still is not a really good, viable option for solar energy contracts for middle- or low-income private homeowners.

Weekly Top Ten SSRN Contracts Downloads (February 11, 2016)

 
SSRN Top Downloads For
Contracts & Commercial Law eJournal

Rank	Downloads	Paper Title
1	515	Simplification of Privacy Disclosures: An Experimental Test Omri Ben-Shahar and Adam S. Chilton University of Chicago Law School and University of Chicago - Law School
2	447	Choice of Law in the American Courts in 2015: Twenty-Ninth Annual Survey Symeon C. Symeonides Willamette University - College of Law
3	214	Contract Law and Ukraine's $3 Billion Debt to Russia Mark C. Weidemaier University of North Carolina (UNC) at Chapel Hill - School of Law
4	100	The Nature of Vitiating Factors in Contract Law Mindy Chen-Wishart University of Oxford – Faculty of Law
5	83	More Behavioral vs. More Economic Approach: Explaining the Behavioral Divide between the US and the EU Philipp Hacker Humboldt University of Berlin
6	82	Apple Pay, Bitcoin, and Consumers: The ABCs of Future Public Payments Law Mark Edwin Burge Texas A&M University School of Law
7	78	Beyond Relational Contracts: Social Capital and Network Governance in Procurement Contracts Lisa Bernstein University of Chicago - Law School
8	78	From Promise to Form: How Contracting Online Changes Consumers David A. Hoffman Temple University - James E. Beasley School of Law
9	73	Interpreting the Rules of Insurance Contract Interpretation Mark Geistfeld New York University School of Law
10	71	Contract Meta-Interpretation Shawn J. Bayern Florida State University - College of Law

SSRN Top Downloads For
LSN: Contracts (Topic)

Rank	Downloads	Paper Title
1	515	Simplification of Privacy Disclosures: An Experimental Test Omri Ben-Shahar and Adam S. Chilton University of Chicago Law School and University of Chicago - Law School
2	447	Choice of Law in the American Courts in 2015: Twenty-Ninth Annual Survey Symeon C. Symeonides Willamette University - College of Law
3	214	Contract Law and Ukraine's $3 Billion Debt to Russia Mark C. Weidemaier University of North Carolina (UNC) at Chapel Hill - School of Law
4	100	The Nature of Vitiating Factors in Contract Law Mindy Chen-Wishart University of Oxford – Faculty of Law
5	83	Disgorgement of Profits in Canada Lionel Smith and Jeff Berryman McGill University, Faculty of Law, Paul-André Crépeau Centre for Private and Comparative Law and University of Windsor - Faculty of Law
6	78	Beyond Relational Contracts: Social Capital and Network Governance in Procurement Contracts Lisa Bernstein University of Chicago - Law School
7	78	From Promise to Form: How Contracting Online Changes Consumers David A. Hoffman Temple University - James E. Beasley School of Law
8	71	Contract Meta-Interpretation Shawn J. Bayern Florida State University - College of Law
9	70	Global Commercial Law between Unity, Pluralism, and Competition: The Case of the CISG Gralf-Peter Calliess and Insa Buchmann University of Bremen - Faculty of Law and Max Planck Institute for European Legal History
10	63	Contracting Out of Fiduciary Duties Ernest Lim University of Hong Kong - Faculty of Law

Emerging Payment Systems and the Primacy of Private (Contract) Law

Is the public commercial law of payment systems being displaced by private contract law? The short answer is "yes." Recently, I had the opportunity to write an invited post for the CLS Blue Sky Blog, Columbia Law School's Blog on Corporations and the Capital Markets, and I hope you'll indulge me a moment to share about it here.

Emerging Payment Systems and the Primacy of Private Law is a synopsis of a larger project on how the public law and Uniform Commercial Code aspects of the regulation of payments have become marginalized over the last few decades--and how the marginalization isn't necessarily a bad thing.  Contract law is presumptively a better organizing instrumentality, but there still remains a significant and robust role for public regulation. Or, as I state in part of the longer post:

Payment systems have now clearly exceeded the regulatory capacity of public legal institutions to govern them via a comprehensive code like the UCC. Public law protection of the end user, however, has proven so successful and facilitated such industry growth that complete privatization of payments law is not the best response either. Emerging payment systems should be subject to a division between private law and public law in which private law is predominant, but not exclusive.

Private contract law is best equipped to deal with both current and future developments as the primary governance mechanism for emerging systems of payment. This market-friendly primacy of private law is only assured, nonetheless, by ceding to public law specific protections for payment system end users against oppression, fraud, and mistake.

If this particular intersection of contract law and commercial law is of interest to you, read the complete post. Or, if you are a particular glutton for punishment, the draft article on which the CLS Blue Sky Blog piece is based is here. 

 

Negligence Liability Releases, Delaware Planet Fitness Edition

 

On the subject of, again, releases for liability for negligence, a recent Delaware case, Ketler v. PFPA, LLC, No. 319 2015, examined one in the context of a Planet Fitness gym. The plaintiff was a member at Planet Fitness and had signed a membership agreement that contained a release for liability from negligence. The plaintiff was later injured while working out at Planet Fitness when the rowing machine he was using broke. He tired to argue that the release from liability for negligence was unenforceable. The court disagreed. 

Under Delaware law, a release is enforceable if it is unambiguous, not unconscionable, and not against public policy. Here, the language of the release was straightforward and unambiguous. Furthermore, the court found the release wasn't unconscionable. It was true that the plaintiff had no opportunity to negotiate the terms of the contract but that wasn't enough on its own to find unconscionability. The court noted that the plaintiff was free to not join Planet Fitness so the release wasn't unconscionable. Finally, the release wasn't against public policy because the Delaware legislature has never spoken on the issue of releases of liability and it is the legislature that establishes public policy. So the release was enforceable and the plaintiff's claims were barred.