Thursday, June 30, 2016
Judge Easterbrook’s Interpretation of “Reimburse”
In Walker v. Trailer Transit, Judge Easterbrook finds that in addition to “recover costs,” the word “reimburse” could just as easily mean to broadly “compensate” (at a profit) or “pay” even given a seemingly contradictory context.
In the case, one thousand truck drivers filed a class action lawsuit against their “gig” employer, Trailer Transit. The drivers contracted to earn 71% of Trailer Transit’s contracts with its end clients. Trailer Transit owned the trucks; the drivers drove them. Among other things, the contract between the drivers and Trailer Transit stated that
[t]he parties mutually agree that [Trailer Transit] shall pay to [Driver] … a sum equal to seventy one percent (71%) of the gross revenues derived from use of the equipment leased herein (less any insurance related surcharge and all items intended to reimburse [Trailer Transit] for special services, such as permits, escort service and other special administrative costs including, but not limited to, Item 889).
The drivers (perhaps inartfully) claimed that Trailer Transit cheated them out of earnings by labeling income “special services” whereby Trailer Transit could claim it was simply getting “reimbursed” and thus deduct certain amounts from the equation before compensating its drivers. Trailer Transit claimed that the drivers were only entitled to 71% of whatever was listed as the “gross charges” for the driving services, end of story.
How would you interpret the provision in question?
The most obvious and reasonable reading of the contract seems to me to be as follows: If, for example, Trailer Transit enters into a contract with an end client for $1,000 plus $100 for also arranging for special services in the form of, for example, an escort vehicle (e.g. a “Wide Load” car), its drivers would earn $710, Trailer transit $290 in profits ($1,000 – 71% to the drivers), but bill the end client $1,100.
But what if, hypothetically speaking, the company was to seek to maximize its profits out of the total sum of $1,100 to be billed to the end client? It could then, for example, label $600 as “special services” to be “reimbursed” to it, thus reducing the amount to be paid to the drivers to $355 (71% of ($1,100-600)). That would increase its profits from the above $290 to $645 (($500-355) plus $500 (with the escort service at $100). Do you think that the contract was meant to be interpreted that way? Judge Easterbook (yes, of “bubble wrap fame”) does. Among other things, he found that
[d]rivers are entitled to 71% of the gross charge for “use of the equipment” (that is, the Drivers’ rigs), but the contract does not provide for a share of Trailer Transit’s net profit on any other part of the bill. It would be possible to write such a contract, but the parties didn’t … [T]he Drivers do not invoke any principle of [] law that turns “71% of gross on X and nothing on Y” into “71% of gross on X plus 71% of net on Y.”
Judge Easterbook also makes the unpersuasive and, in my opionion, ill-thought out example that if
Trailer Transit paid someone $1,000 to accompany an over-wide shipment and display a “WIDE LOAD” banner, and billed the shipper $1,250, then the Driver would be entitled to $887.50 for that escort service—and Trailer Transit would lose $637.50 ($1,250 less $1,000 less $887.50 equals $637.50).
This is unpersuasive as Trailer Transit would presumably not be as large and profitable as it is if it were so incompetent as to systematically incur the losses that Judge Easterbrook concocts here. Further, in his example, if the charge of $1,000 truly was for a cost of that amount, Trailer Transit would, per its own contract and intent, get to deduct that cost in full first. Nothing in the case indicates otherwise.
The meaning seems to hinge on two things: the meaning of “reimburse” and whether or not this was an example of the company taking opportunistic advantage of its contractual commitments, which the drivers had, for some reason, not argued (Easterbrook recognizes that such an argument might have changed the outcome of the case – note to our students: always consider that). As regards the meaning of “reimburse, Judge Easterbook argues
True enough, one standard meaning of “reimburse” is to recover costs. Someone who submits a voucher for expenses incurred on a business trip seeks reimbursement of actual outlays rather than a profit. But this is not the only possible meaning of “reimburse.” The word also is used to mean “compensate” or “pay.” If the contract had said “reimburse the expense of special services,” that would limit the word’s meaning to recovery of actual costs. But those italicized words aren’t in the contract.
No, but that intent seems to be clear here. Contracts are usually interpreted in accordance with both the plain meaning of the contract and the intent of the parties (not after-the-fact intent of one party).
What do you think the word “reimburse” means here? The word is defined by various sources as follows (my emphasis):
Black’s Law Dictionary:
- Repayment
- Indemnification
- to pay someone an amount of money equal to an amount that person has spent;
- to pay someone back;
- to make restoration or payment of an equivalent to an amount that person has spent
- to make repayment to for expense or loss incurred;
- to pay back; refund; repay.
- pay someone back for some expense incurred;
- reimburse or compensate (someone) as for a loss
Third Circuit Court of Appeals:
"To pay back, to make restoration, to repay that expended; to indemnify, or make whole." United States v. Konrad, 730 F.3d 343, 353 ( 3d Cir. 2013).
To me, all these sources indicate that the word means what we probably all think it means: money back for an outlay. But apparently, that is not the case in the Seventh Circuit.
June 30, 2016 in Commentary, Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)
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June 30, 2016 in Recent Scholarship | Permalink | Comments (0)
Wednesday, June 29, 2016
If You Sign a Lease, You Should Get a Habitable Apartment
This seems like it should be obvious but a recent case out of Indiana, Pinnacle Properties Development Group, LLC v. Gales, Court of Appeals Case No. 10A01-1512-SC-2271, was still being fought at the appellate court phase.
Gales rented an apartment from Pinnacle. She was told that she could not view the apartment until the day of her move-in. On the date of the move-in, Gales signed the lease and was then shown the apartment. At that point, Gales realized that the apartment had a shattered sliding door, a toilet that flooded and soaked the carpet, and no electricity (and apparently could not be made to get electricity because the meter had been removed). Gales told the leasing agent that the apartment was unacceptable and, as there was no other apartment of that floor plan available and as there was going to be a delay of at least several days before the apartment could be inhabited, she wanted the lease canceled and her money back.
Pinnacle's main argument was that Gales signed the lease, it was binding, and so Gales shouldn't be let out of it. The court, however, disagreed. Gales signed the lease, it found, with the understanding that she would received a habitable apartment. Since she didn't receive that habitable apartment, the lease was unenforceable, and she was entitled to her money back.
This seems like it should be a straightforward case. I can't imagine why it would be worth the money to continue fighting this.
June 29, 2016 in Commentary, Recent Cases, True Contracts | Permalink | Comments (3)
Monday, June 27, 2016
A Text Message Is a Writing, Too (Albeit with More Emojis)
As technology continues to evolve, so does the law, and a recent case out of Massachusetts, St. John's Holdings, LLC v. Two Electronics, LLC, MISC 16-000090, proves it. Addressing what the court termed a "novel" question in the Commonwealth of Massachusetts, the court concluded that the text messages at issue in the case constituted writings for statutes of frauds purposes.
I have often thought that we communicate much more in writing these days than people did, say, twenty years ago. I know that it is now much more common for me to text the people I want to speak with than actually call them to speak orally. It will be interesting to see how the statute of frauds continues to develop.
(Thanks to Ben Cooper for sending this case my way!)
June 27, 2016 in Commentary, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)
Thursday, June 23, 2016
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June 23, 2016 in Recent Scholarship | Permalink | Comments (0)
A Modern-day “Hamer v. Sidway-”like Case with an International Twist
Looking for an interesting new case on the statute of frauds, breach of contract, promissory estoppel, and constructive trust by a son against his father? Here’s one for you:
It is California. The year is 1994. Father Sardul allegedly promises son Paul that if he if he “stayed in school, was a good son, continued to work on the [family] ranches, and married an Indian girl, i.e., a Sikh girl, Sardul and [mother] Jitendra would take care of him financially.”
According to the court, this happened next: “In 1996, Sardul and Jitendra were looking for a wife for Paul. The family traveled to India for this purpose. While in India they conducted numerous interviews of the parents of potential brides. In the Sikh culture, the boy’s parents take responsibility for finding a suitable wife. If both sets of parents think a match looks promising, the boy and girl spend some time alone together. Thereafter, if the boy and girl are interested, the match will be pursued. Paul’s family and Rajneet’s family first met on February 21, 1996 and Paul and Rajneet were married on March 16, 1996.”
The couple lived in one of the family’s ranch houses without ever paying rent, never making a mortgage, and with father Sardul making certain other payments for the young couple. Paul did, however, work on the family grape ranches until 1999. At that time, he got a full-time job for other employers.
In 2002, grape growers in California encountered hard times financially. Sardul tells Paul that he (Sardul) needed to sell the ranch on which Paul and his wife lived as they risked otherwise being foreclosed on both on the ranch in question as well as others. One of the family’s properties had a “little bit of equity” on it. Paul and his wife sign a deed for that property. The couple later stated that the father had promised “to give them” the ranch on which they previously lived when “things got better financially.” The father never did so, but instead offered the couple a 99-year lease on the property in 2012. Paul subsequently filed suit, claiming breach of three separate contracts: 1) To be a good son and stay in school, work on the ranches, and marry an Indian girl, 2) to take care of his father, and 3) the transfer of the above-mentioned ranch.
The court concluded that it did not matter how many contracts were alleged because it was questionable whether “any contract was formed at any time.” The alleged promises to “be a good son and stay in school” were vague, the promise “to continue to work on the ranches” was unsupported by the evidence, and the “marry an Indian girl” term was illegal as a restraint on marriage. The alleged oral promise to transfer a ranch violated the statute of frauds.
Paul and his wife also argued equitable estoppel and that, accordingly, the contract was not barred by the statute of frauds. The appellate court upheld the trial court’s finding that neither Paul nor his wife Rajneet detrimentally relied on the alleged contract to transfer the ranch to them or suffered unconscionable injury. The court concluded that Paul did not forbear all other employment opportunities to work on the ranches. Rather, Paul began working full time for other employers in 1999 and was permitted to live rent free on the Elkhorn Ranch until 2012. The court noted that in 2012, Paul and wife Rajneet were able to purchase a $650,000 house and had saved enough money to make a $200,000 down payment.
But wait!! What about the wife? Did she not have any arguments? You bet: Rajneet appeared to claim unconscionable injury or detrimental reliance based on marrying Paul and moving to the United States in part because of Sardul's promise that they would be given a ranch. The court concluded that Rajneet did not prove her claims noting that Rajneet was still married to Paul, they both were employed with good jobs, and they were able to purchase a home after living rent free for many years.
Finally, Paul and Rajneet claimed that they partially performed when they bought the one ranch from the father in reliance on Sardul's promise to transfer another to them in exchange. Part performance of an oral agreement for the transfer of an interest in real property may, under certain circumstances, except the agreement from the statute of frauds. (Sutton v. Warner (1993) 12 Cal.App.4th 415, 422.) However, the trial court found that no Sardul’s testimony that no such promise was ever made to be credible. The appellate court supported this as issues of credibility are for the trial courts to decide.
Talk about a family relationship gone sour, and then only over money. What a shame!
June 23, 2016 in Recent Cases, True Contracts | Permalink | Comments (2)
Wednesday, June 22, 2016
The Contractual Side of Going for the Gold
The Olympics are almost here, and as we all know, they're big business: lots of television ratings, lots of advertising, lots of endorsements.
Today the District of Oregon is hearing an argument on a preliminary injunction in a contract case with Olympic implications (or an Olympic case with contract implications), Nike USA, Inc. v. Berian, Docket No. 3:16-cv-00743 (behind paywall).
The dispute, which has been widely reported online, is based on Nike's endorsement contract with Boris Berian, a track and field competitor with Olympic hopes. The contract, according to the complaint, gave Nike the right to match any offers made to Berian during a particular period of time. During that time, Berian received an endorsement offer from New Balance. Nike claims in its complaint to have matched the offer, and that Berian breached his contract with Nike when he refused to continue his relationship with Nike.
Berian kept racing. And kept winning. While wearing New Balance gear. So Nike, to keep Berian from furthering his relationship with Nike's competitor New Balance, sued him, serving him with the lawsuit during a big track meet.
Nike's allegations have been countered by Berian, who claims that New Balance's offer to him did not contain a number of restrictions that Nike's offer did contain. However, Nike has countered that by arguing that Berian did not make that clear to Nike and that Nike would have dropped its restrictions if necessary. (Nike seems to have just assumed there had to be restrictions and that any statement otherwise couldn't possibly be true.)
Endorsements are big money, of course. The Nike and New Balance offers are $125,000 for the year. While he's embroiled in the legal dispute, Berian's agent asked for donations to Berian's legal fund.
The judge has already approved a TRO in the case, prohibiting Berian from racing with any equipment other than Nike's. The hearing for the preliminary injunction is today.
June 22, 2016 in Games, In the News, Recent Cases, True Contracts | Permalink | Comments (0)
Is that Starbucks Grande Really Grande?..
Here’s a case that shows you that size really does matter… in contract law at least.
In Strumlauf et al. v. Starbucks Corp., No. 16-01306, a federal district court judge based in San Francisco just ruled that a class action lawsuit against Starbucks.The complaint alleges breach of express and implied warranties, unjust enrichment, negligent misrepresentation, fraud and violations of California's Consumer Legal Remedies Act, the California Unfair Competition Law, and the California False Advertising Law.
The company allegedly overcharged its customers by “systematically serving lattes that are 25% too small” in order to save milk. Baristas were allegedly required to use pitchers for heating milk with etched “fill to” lines that are too low. Further, they were told to leave ¼ inch of free space in drink cups. Said U.S. District Judge Thelton Henderson: "This is not a case where the alleged deception is simply implausible as a matter of law. The court finds it probable that a significant portion of the latte-consuming public could believe that a 'Grande' contains 16 ounces of fluid." Starbucks’ cups for “tall,” “grande,” and “venti” lattes are designed to hold exactly 12, 16 and 20 ounces.
Starbucks so far counters that “if a customer is not satisfied with how a beverage is prepared, we will gladly remake it.” Right, but how many customers would really complain that their drink is .25 inch (6 mm) too small?... And does it really matter? Much of what one pays for with a Starbucks drinks is, arguably, the knowledge of what the retail outlets offer, the ambience, convenience, “free” wifi, etc. Having said that, I am certainly not one to promote consumer fraud and recognize that little by little, the alleged milk-saving scheme could, of course, bring even more money into the coffers of already highly profitable Starbucks.
June 22, 2016 in Current Affairs, Famous Cases, Food and Drink, In the News, Recent Cases, True Contracts | Permalink | Comments (2)
Tuesday, June 21, 2016
Classic Case Corner: Wood v. Lucy, Lady-Duff Gordon
Today's dive into the long and storied ContractsProf Blog archives takes us to December 4, 2005. Enjoy this post from Emeritus Editor-in-Chief Frank Snyder about everyone's favorite fashion case:
On this date, December 4, 1917, the New York Court of Appeals handed down its decision in Wood v. Lucy, Lady Duff Gordon, 222 N.Y. 88 (1917). The opinion by Judge Cardozo is a milestone for several areas of contract law, including consideration, implied terms, and the duty of good faith. And the personality of the defendant, Lady Duff Gordon (the Martha Stewart of her day) hasn't hurt its popularity. Here's an interesting take on the case from Victor Goldberg (Columbia) and some info and pictures involving Lady Duff Gordon from Jim Fishman (Pace). (Image: Lady Duff Gordon, courtesy Randy Bryan Bigham.)
Not so well-known as Cardozo's innovation, however, is the that the reasoning for which the opinion is famous -- that an exclusive license contains an implied clause that the licensee will use its best efforts -- wasn't Cardozo's idea. That theory, and the key cases that Cardozo cites in the opinion, were provided for him in the brief of the plaintiff's lawyer, John Jerome Rooney (1866-1934).
Rooney was a minor celebrity in his own right. He was born in Broome County, New York. His father, a small merchant in Binghamton, died when John was a child, and the family moved to Philadelphia. He attended Mount Saint Mary's College in Emmitsburg, Maryland, graduating in 1884. After service as a Naval officer, he became a lawyer in New York City. A staunch Democrat, he became a leader of the Catholic bar and a power behind the scenes in city politics. He served as President of the Catholic Club of New York, received considerable attention for his work on behalf of the persecuted Armenians in Turkey, and for his pro-Irish nationalist writing. His political service was later rewarded with a job as Presiding Judge of the New York Court of Claims. His wife was president of the Civic Education League and was active in the battle against narcotics in New York City.
But Rooney is best remembered today not for his legal work, but for his poetry. An ardent patriot, his poems about America's military and the Irish struggle for independence earned him great popularity. He was best known for such works as The Men Behind the Guns, Joined the Blues, and Ave Maria.
June 21, 2016 in Famous Cases | Permalink | Comments (0)
Monday, June 20, 2016
Have You Designated a Legacy Contact on Facebook?
Source: facebook.com
It isn't something we typically think about but as our world shifts to digital and as more and more of us leave behind large social media footprints, what happens to those accounts when we die? I have thought about it briefly, mostly in thinking that I should give my passwords to someone, so that, if something happens to me unexpectedly, someone will be able to get onto my social media to let my followers know. I have had social media friends vanish with no explanation, and it's always haunted me that maybe something happened to them and I had no way of knowing.
Despite the fact that I'm a lawyer, it honestly never occurred to me that what happens to my social media accounts after my death might be governed by their terms of use...until I saw this story reported widely on the local news. There was a recent tragedy in a nearby town that resulted in the unexpected, untimely death of George Heath. George's widow, Rosemary, was accessing his Facebook account to send photos and videos to family and friends and share older memories. Given how long Facebook has been around now, there are potentially years' worth of memories built up on Facebook pages, and one could see how they would be of some comfort in a time of grief.
However, Facebook's terms of use prohibited what Rosemary was doing. Someone notified Facebook that George had died and Facebook basically locked the account down. They call it "memorializing the page," but the effect of it is that it's locked and no one can access it, not even someone who has the password. Now, this makes sense in a way: People could do malicious and terrible things to a deceased person's Facebook page, theoretically, if Facebook didn't lock it down. But it's a harsh outcome when applied to people in Rosemary's situation.
Facebook's terms of use inform you that you should designate a legacy contact. This was actually difficult for me to find in Facebook's policies and I eventually only found it by Googling "Facebook memorialized page," so it's not like this is very obvious on the website itself. And, anyway, not many of us think a whole lot about our unexpected deaths. And, if we do, not many of us think that we should read our social media terms of use about it. I looked it up, and Twitter also has a policy where you can lock down a Twitter account if the user dies, but Twitter seems to require a lot more proof than Facebook does.
Also of concern to me is that, even if someone is designated as a legacy contact, it still might not allow the kind of access that Rosemary was looking for, or that you might want to grant to someone. Facebook limits what a legacy contact can do, meaning that your power over what happens to your Facebook account really ultimately lies with Facebook, not you or your wishes. Which is a reminder, of course, that our control over our Facebook accounts is limited to begin with and pretty much at the whim of Facebook.
We tend not to read the terms of use of sites, as we all know. And we talk about that a lot in the context of agreeing to arbitration clauses and stuff like that. We don't often think about how that can have consequences for our loved ones after our deaths. I understand, of course, that Facebook and Twitter don't want to hand out log-in information, but if the user has given the log-in information to someone else--and, as I could foresee, if the user has given the log-in information to someone specifically for the purpose of managing the social media account if/when they die--it seems odd for Facebook to then react as if that person's actions are prohibited. On the other hand, I suppose, how would Facebook know otherwise? A conundrum.
June 20, 2016 in Commentary, Current Affairs, In the News, True Contracts, Web/Tech | Permalink | Comments (4)
Saturday, June 18, 2016
Gender Bias and Ageism in Hollywood
OK, so this post is more about employment law than pure contract law, but for me at least, the issues overlap. Besides, the following is just plain interesting “summer Hollywood” news… who doesn’t need a tiny dose of that from time to time!
Racial bias in Hollywood hiring practices has been discussed widely recently. Now, the U.S. Equal Employment Opportunities Commission (“EEOS”) is expanding its investigations into gender discrimination in Hollywood entertainment contracts. http://www.latimes.com/entertainment/movies/la-et-mn-0512-aclu-women-directors-update-20160509-snap-story.html If the EEOS finds out that there is indeed a pattern of discrimination, it could take legal action or seek mediation. However, the highly complex Hollywood hiring processes make it very difficult to identify any deliberate wrongdoing.
The problem:
Of the top-grossing 100 films of 2013 and 2014, only 1.9% of the directors were women.
Of 25 Paramount Pictures films that have been announced through 2018, not a single one has a women director. The same is true of the 22 Twentieth Century Fox films that have been announced.
Some women directors have taken action against this problem, but have noticed a backlash for their activism. Says one source: “There has been much lip-service paid to furthering opportunities for women, but few definitive steps and no serious movement in the number of women directors hired. We are confident that the government will corroborate our work and push industry leaders to address the ongoing violations of the legal and civil rights of these directors and of all women in the film and television industries."
This adds to the problem of ageism against women. In 1962, two women over 50 were still able to topline a major studio film. That does not happen today. According to a 2015 USC study, not one of 2014's 100 highest-grossing films featured women over 45 in a leading role. Between 2007 and 2014, women made up less than a quarter of film characters between ages 40 and 64.
June 18, 2016 in Commentary | Permalink | Comments (0)
Friday, June 17, 2016
Scholarship Spotlight: Noncompete Agreements as Thirteenth Amendment Violations (Ayesha Bell Hardaway - Case Western)
Covenants not to compete have long been recognized as a species of contract raising a host of public policy concerns, but at what point do these concerns rise from being issues of policy to being constitutional concerns? The Thirteenth Amendment often makes a brief appearance in the contracts curriculum in discussions of why specific performance is usually not available for personal services or employment contracts. That is, the notion of an employee being compelled by law to work in a job from which she has resigned raises uncomfortable analogues to slavery and other forced labor. In her recent article, "The Paradox of the Right to Contract: Noncompete Agreements as Thirteenth Amendment Violations," Ayesha Bell Hardaway (Case Western) raises the Thirteenth Amendment in a different setting, the enforcement of noncompetition agreements against at-will low-skilled employees. Here is her abstract:
There is a growing trend across the nation for employers to require low-level, unskilled workers to execute noncompete agreements as a condition of being hired to work as an at-will employee. The application of noncompete agreements in low-wage positions occupied by unskilled workers is outside of the original scope and purpose of such agreements. These individuals lack both bargaining power and protection from being terminated without cause. Moreover, upon termination of their employment, the executed noncompete agreement can legally prevent these workers from securing employment with another company.
The enforcement of noncompete agreements in these circumstances may require low-level, unskilled workers to choose between lengthy bouts of unemployment or what would essentially amount to “wage slavery.” The Reconstruction Era debates reveal that the Thirteenth Amendment’s prohibition against slavery and indentured servitude was intended to prevent such injustices. Though Section 1 of the amendment contains only thirty-two words, the debates held before, during and after the ratification of the amendment provide a full illustration as to what Congress deemed to be “fair and just labor relations” in America. That original notion of “fair and just labor relations” provides timeless and substantive guidance on how to identify and rectify power imbalances in employer-employee relationships.
This paper will argue that contemporary noncompete agreements between employers and unskilled, low-wage workers is a violation of the Thirteenth Amendment. Part I discusses the original intent of the Thirteenth Amendment to protect both African Americans and working-class white Americans. Part II identifies the types of imbalanced work conditions denounced by the Reconstruction Era Congress as “perpetuations of slavery” as well as benefits of free, or non-enslaved, labor identified by Congress and illustrates why contemporary noncompete agreements between employers and unskilled workers is outside of that original purpose. Part III discusses Bailey v. Alabama and Ford v. Jermon to illustrate that, at one point, the judiciary correctly interpreted and applied the laws to employment-related disputes as the legislature intended. The paper concludes by suggesting that courts should re-examine the Thirteenth Amendment and its historical context to void noncompete agreements for low-wage, at-will unskilled employees.
Contracts professors are not the most frequent residents ofthe realm of Constitutional Law, so an article like Professor Hardaway's that successfully occupies space in both areas is well worth noting. "The Paradox of the Right to Contract: Noncompete Agreements as Thirteenth Amendment Violations" is available at 39 Seattle U. L. Rev. 957 (2016) and is available for SSRN download here.
June 17, 2016 in Recent Scholarship | Permalink
Thursday, June 16, 2016
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June 16, 2016 in Recent Scholarship | Permalink
Wednesday, June 15, 2016
Using Your Insurance Policy's Appraisal Process? You May Still Have Tort Claims Left
I've seen a few cases now come across with people trying to sue their insurance companies after using the appraisal process in their policies to resolve a dispute, so I thought I'd blog about one of them. This one is Clark v. Pekin Insurance Co., Case No. 3:15CV2272 (behind paywall), out of the Northern District of Ohio.
The fact patterns for all these cases is basically the same: Plaintiff makes a claim under an insurance policy. The insurance policy pays less than the plaintiff desires. Plaintiff utilizes the appraisal process found in the insurance policy, in which each side chooses an appraiser and, if they can't agree, an independent umpire then makes a finding. Plaintiff wins the appraisal process and the insurance company promptly pays plaintiff the extra money owed.
However, plaintiff is not pleased--probably because of having had to go through a whole song-and-dance to get the money--and sues anyway. That's what happened in this case.
Breach of contract claims are tricky after the appraisal process has been invoked. Most insurance policies prohibit the insured from recovering damages beyond that awarded through the appraisal process, as the policy did here. Because Clark received what the umpire stated she was entitled to, exactly as required under the policy, the court found there was no breach of the contract.
However, the appraisal process doesn't bar tort claims, and Clark was still alleging that the insurance company had acted in bad faith toward her insurance claim. However, the court found that the insurance company had behaved in a timely fashion and that disagreement over the amount to be paid didn't constitute bad faith on its own, and there was no other evidence on the question, so Clark lost that claim as well. So the appraisal process might still leave you with tort claims, but they would be challenging to establish, I think.
June 15, 2016 in Recent Cases, True Contracts | Permalink
Tuesday, June 14, 2016
Non-Disparagement Clauses in Employment Termination Agreements
A few days ago, I blogged here about a German employee’s national origin discrimination lawsuit against Abbott Laboratories. The company also made legal headlines for firing its American workers in order to farm out the work to cheaper labor overseas. This article describes an interesting argument advanced by some of the terminated workers: national origin discrimination for being … American!
A less juicy, but no less legally interesting, issue is whether non-disparagement clauses are desirable for public policy and other reasons. Disparagement clauses are very commonly used as a tool for preventing former employees for criticizing their former employers after the discontinuation of employment (whether voluntary or not.) “’It’s a very, very common practice,’ said Sheena R. Hamilton, an employment lawyer at Dowd Bennett in St. Louis who represents companies in workplace cases. ‘I’ve never recommended a settlement that didn’t have a clause like that.’”
So what’s the problem with these clauses? “’It is very frustrating that you can’t share your story with the public,’ said one former Abbott manager, who had worked for the company for 13 years, rising to an important supervisory position. He had prepared a 90-page manual for his foreign replacements showing how to perform every detail of his work. With a disabled child who requires medical care, he said he had to take his severance and its nondisparagement clause, since it extended his medical benefits.”
Leading members of Congress from both major parties have questioned the nondisparagement agreements, which are commonly used by corporations but can prohibit ousted workers from raising complaints about what they see as a misuse of the temporary visas known as H-1Bs for foreigners with “a body of specialized knowledge” not readily available in the American labor market. “I have heard from workers who are fearful of retaliation,” said Senator Richard Blumenthal, Democrat of Connecticut. “They are told they can say whatever they want, except they can’t say anything negative about being fired.” This raises the ugly, yet to us familiar, question of whether the American educational system is becoming so mediocre that foreigners simply have better skills than American professionals. (For full disclosure, I should note that I myself was born, raised and educated overseas with a J.D. from this country, so I see these issues from both an American and a “foreign” angle).
From a contract law point of view, the case raised an interesting debate on the AALS Contracts Law listserv. For example, are these kinds of in terrorem clauses unconscionable under § 208 of the Restatement (Second) of Contracts (which, ironically, is said to be derived from German law)? If so, wouldn’t severance packages simply be discontinued, arguably leaving employees even worse off? Is unfairness a tolerable tradeoff for the benefits of severance pay? Are these types of clauses simply thrown in for good measure on the “what can it hurt” principle as employers will almost never be able to prove damages from an alleged breach? Even recovery of the severance in restitution is, it has been noted, a game not worth the candle for the vast bulk of American employers.
Thanks to my colleagues for interesting comments. I invite them and other readers to comment more below.
June 14, 2016 in Commentary | Permalink | Comments (0)
Monday, June 13, 2016
Airlines Not Required to Honor Pricing Glitches
Stories such as this [https://www.washingtonpost.com/lifestyle/travel/i-flew-to-abu-dhabi-for-265-round-trip-heres-how-you-can-do-the-same/2016/06/07/fc33cbea-29a3-11e6-b989-4e5479715b54_story.html] about finding incredibly cheap airlines to both national and international destinations because of airline computer pricing mistakes (real or otherwise…) have become commonplace. In 2012, the Department of Transportation established clear rules against changing the price of a ticket after purchase. But in a new decision by the U.S. Department of Transportation, that rule will no longer be enforced:
“As a matter of prosecutorial discretion, the Enforcement Office will not enforce the requirement of section 399.88 with regard to mistaken fares occurring on or after the date of this notice so long as the airline or seller of air transportation: (1) demonstrates that the fare was a mistaken fare; and (2) reimburses all consumers who purchased a mistaken fare ticket for any reasonable, actual, and verifiable out-of-pocket expenses that were made in reliance upon the ticket purchase, in addition to refunding the purchase price of the ticket.
Travelers’ websites thus now recommend that people hold off making further travel plans until a ticket and confirmation number have actually been issued. Some have further said about the glitch fares that “[t]ravel is not something that is only for the elite or [people] from certain economic brackets.” Of course, it shouldn’t be, but with the deregulation of the airline industry and steadily increasing prices and fees, history seems to be repeating itself: air travel is, for many, becoming unaffordable. This in spite of record-breaking profits for the airline industry benefiting from low oil prices and, I want to say of course, fares increasing, holding steady or certainly not decreasing very much. Airline executives say they are sharing the wealth with passengers by investing some of their windfalls into new planes, better amenities and remodeled terminals. They're also giving raises to employees and dividends to investors. Right… And whereas some years have been marked by bust, many more have been booming for the airlines.
Given that, why would the DOT be amenable to help out the airlines, and not passengers? Under contract law, mistakes that are not easily “spottable” have, traditionally, not been grounds for contract revocation. If one considers the contract to have been executed when the airline accepts one’s online offer, why should the airline, absent a clear error or other mitigating factors, not be expected to follow the common law of contracts as other parties will, depending on the circumstances, of course, likely have to? That beats me.
Some airlines are, however, choosing the honoring the mistake fares. Others don’t. Bad PR, you say? That also does not seem to matter. The most hated airline in the U.S. a few years back – Spirit Airlines – was also (at least then) the most profitable.
Hat tip to Matt Bruckner of Howard University School of Law for bringing this story to my attention.
June 13, 2016 in Current Affairs, E-commerce, Legislation, True Contracts, Web/Tech | Permalink | Comments (0)
Standard Contract Advice, Of Course: Be Careful What You Agree To
Why? Because a court is probably going to hold you to it.
This case, Frick Joint Venture v. Village Super Market, Inc., Docket No. A-1441-15T1, out of New Jersey, is a complicated case with a lot of history between the parties which no doubt colors the court's decision but it's also a case that just makes logical sense.
Village Super Market was the anchor tenant of Frick Joint Venture's shopping center. By the terms of the lease, Village had the right to approve certain changes to the shopping center. One of the changes involved a gas station that had gone out of business. Frick desired to set up a Starbucks in the footprint that had been occupied by the gas station; Village refused to provide its consent.
The parties went back and forth trying to resolve the issue, but eventually Frick requested AAA arbitration pursuant to the lease agreement. Through respective counsel, Village responded requesting the choosing of a private arbitrator instead, to avoid AAA fees. The parties agreed on a succession of private arbitrators, and, eventually, to a mediator instead, over the course of several months. However, Village never provided Frick with any dates for the arbitration (later mediation), despite repeated requests on Frick's part to get the thing scheduled. Eventually, ten months after first discussing arbitration with Village, Frick contacted AAA to demand arbitration. AAA contacted Village to set dates, and at that point Village contended that it was not required to go to arbitration under the terms of the lease and thus rejected the arbitration demand.
The court thought that the relevant portion of the contract was "not a model of clarity" but was also comfortable in making its decision regardless of what the lease agreement required, because there had been multiple communications over the course of many months in which Village agreed to arbitration. Therefore, the lease agreement's terms was unimportant in the fact of this ongoing agreement by Village. Even if these communications didn't rise to the level of a contract, Village was estopped from arguing otherwise because Frick had relied on Village's representations about arbitration to its detriment: During the delay in making the arbitration demand, the gas station portion of the shopping center continued to sit vacant.
The court finally concluded that Village's behavior from the very beginning appeared to indicate that it understood the matter should be arbitrated, and so Frick was permitted to demand arbitration.
June 13, 2016 in Recent Cases, True Contracts | Permalink | Comments (0)
Friday, June 10, 2016
Scholarship Spotlight: "Is Rule of Law an Equilibrium Without Private Ordering?" (Gillian K. Hadfield, USC & Barry R. Weingast, Stanford)
Enforceability of promises by ultimate resort to governmental power is a cornerstone of contract doctrine. If you don't believe that statement, go re-read section 1 of the Restatement (Second) of Contracts. Nonetheless, Professors Gillian Hadfield (University of Southern California, Law) and Barry Weingast (Stanford, Political Science) take a different approach to theorizing about law generally, an approach suggesting--among other things--that the law of contracts does not hinge first and foremost upon the role of government at all. Hadfield and Weingast instead assert that a "legal system cannot achieve rule of law . . . unless there is an essential role for private, decentralized, enforcement of law." Here is the authors' abstract:
Almost all theorizing about law begins with government. In a series of papers we challenge this orthodoxy. Our “what-is-law” approach places private enforcement at the center of a theory of law. The critical public component that distinguishes legal from social order is not public enforcement but rather a public, common knowledge, and stewarded normative classification institution that designates what is and what is not acceptable conduct in a community. Law emerges, we argue, to better coordinate and incentivize decentralized collective punishment (that is, private ordering: sanctions imposed by individuals not in an official capacity.)
Our work to date shows that the social order produced by a centralized classification institution supported exclusively by decentralized enforcement is characterized by several normatively attractive features. We call these features legal attributes. They include features routinely understood in the legal philosophical literature as characteristic of the rule of law: generality, published, clear, prospective, and stable.
Importantly, the legal attributes we identify do not arise from normative claims about law. Rather, they arise from our positive analysis sustaining an equilibrium based on centralized classification when enforcement requires the voluntary participation of ordinary citizens. These legal attributes are necessary to secure coordination and incentive compatibility in a regime of fully decentralized enforcement. Without them, the effort to sustain an equilibrium based on centralized classification fails. A regime characterized by rule of law is only an equilibrium, we argue, when enforcement of public classifications includes an important component of private enforcement. Without the discipline imposed by the need to incentivize and coordinate private enforcers, a government cannot succeed in sustaining law.
"Is Rule of Law and Equilibrium Without Private Ordering?" is a fascinating piece of interdisciplinary scholarship addressing both political science and legal philosophy perspectives on a topic of immense interest to contracts scholars (among many others). Hadfield and Weingast's article is available for SSRN download here.
June 10, 2016 in Recent Scholarship | Permalink | Comments (0)
Thursday, June 9, 2016
Unilateral Contracts: “… Never Pay for Gas Again!”
Relying on the win-a-car-for-a-hole-in-one case where a Pennsylvania court found that a car dealership was obligated to honor its offer for a unilateral contract posted at the ninth tee when a golfer finally aced a hole-in-one despite the dealership’s subjective intent to end the promotional offer two days earlier, a Third Circuit Court of Appeals court found a unilateral contract to exist under the following circumstances.
A brochure distributed to the customers of Giant Eagle – a chain of retail supermarkets, gas stations, etc. – promised its customers that they could “Earn free gas – it’s easy!” and “You may never pay for gas again!” as long as they spent $50 on supermarket purchases. (See the true images posted here in this blog). The brochure, however, also included fine print provided, among other things, that “discounted fuel cannot exceed 30 gallons and discounts must be used in full on one vehicle in one transaction,” “the promotion is valid for a limited time and may end at any time without prior notice,” and “fuelperks! discounts expire 3 months after the last day of the month in which they’re earned.” However, the court found that none of the published program parameters suggested that Giant Eagle reserved the right to retract rewards that customers had already accrued. In fact, in the entire history of the Giant Eagle fuel program, no such retroactive termination ever occurred.
Said the court, “[l]ike the golfer who teed off with a promise of reward in mind, a customer anticipated the promised fuel discounts when deciding to shop at Giant Eagle in the first place—and thus deciding not to shop at a different store. Because she was then aware that she could apply the discounts as advertised if she spent fifty dollars on supermarket purchases using her Advantage Card, she was indeed a party to a unilateral contract with Giant Eagle. Liability therefore attached upon her performance, i.e., at checkout.”
A fair win for consumers, it seems.
June 9, 2016 in Current Affairs, Miscellaneous, Recent Cases, Travel, True Contracts | Permalink | Comments (3)
Weekly Top Ten SSRN Contracts Downloads (June 9, 2016)
SSRN Top Downloads For
Contracts & Commercial Law eJournal
SSRN Top Downloads For
LSN: Contracts (Topic)
| Rank | Downloads | Paper Title |
|---|---|---|
| 1 | 412 | Major League Soccer as a Case Study in Complexity Theory Steven A. Bank University of California, Los Angeles (UCLA) - School of Law |
| 2 | 147 | Algorithmic Contracts Lauren Henry Scholz Yale University - Information Society Project |
| 3 | 136 | The Logic of Contract in a World of Treaties Julian Arato Brooklyn Law School |
| 4 | 125 | Contracts Without Terms Tess Wilkinson‐Ryan University of Pennsylvania Law School |
| 5 | 115 | (Mis)perceptions of Law in Consumer Markets Oren Bar-Gill and Kevin E. Davis Harvard Law School and New York University School of Law |
| 6 | 114 | Contract as Empowerment Robin Bradley Kar University of Illinois College of Law |
| 7 | 111 | Illegality as a Defence in Contract Andrew Burrows University of Oxford - Faculty of Law |
| 8 | 89 | The Rise of the Platform Economy: A New Challenge for EU Consumer Law? Christoph Busch, Hans Schulte-Nölke, Aneta Wiewiórowska-Domagalska and Fryderyk Zoll University of Osnabrück - European Legal Studies Institute, European Legal Studies Institute Osnabrueck / Radboud University Nijmegen, Universität Osnabrück - European Legal Studies Institute and Universität Osnabruck |
| 9 | 76 | Farewell to Unjustified Enrichment? Nils Jansen University of Muenster |
| 10 | 75 | The Common Law of Contract and the Default Rule Project Alan Schwartz and Robert E. Scott Yale Law School and Columbia University - Law School |
June 9, 2016 in Recent Scholarship | Permalink
