ContractsProf Blog

A ruling that claims are outside the scope of an arbitration provision isn't hostile to arbitration

In this recent case out of California, Darien Ephram, Inc. v. Yashar, B279827, the lower court denied a motion to compel arbitration, finding that the plaintiff's claims were outside the scope of the arbitration provision. The defendant took issue with that determination, arguing on appeal that the lower court should have required the plaintiff to prove its claims, instead of merely relying on the allegations made in the complaint. This ruling, according to the defendant, showed a "hostility" to arbitration in violation of the policy favoring it. 

The appellate court, however, disagreed, nothing that the defendant was "misunderstanding" the lower court's rulings. There was no reason for the lower court to take evidence because there were no factual disputes that the arbitration provision depended upon: None of the parties disputed the interpretation of the scope of the arbitration provision, and there was no factual defense that would have altered the character of the plaintiff's claims or the scope of the arbitration provision. Therefore, the court was entitled to legally determine that the claims in the complaint were not within that scope; no factual determination was necessary. The proving of the allegations in the complaint were for the next phase in the litigation, not for the motion to compel arbitration stage. 

Waiver of consequential damages is not unconscionable

A recent case out of the Northern District of Illinois, Talcott Communications Corp. v. Quad/Graphics Printing Corp., Case No. 17 C 2278, deals with the enforceability of contract provisions prohibiting consequential damages. 

Talcott sued Quad/Graphics for breach of contract and sought losses in advertising revenue when its advertisers left it because of Quad/Graphics's alleged breach. Quad/Graphics contended that consequential damages were waived under the contract and so Talcott could not seek the loss in advertising revenues. Talcott countered that the provision was unconscionable. 

The court found the provision was not unconscionable. Talcott provided no evidence that Quad/Graphics did anything questionable during the negotiation of the contract. Talcott argued that it was "outgunned" because Quad/Graphics was a bigger company, but Talcott itself was a sophisticated business and there were no allegations of high-pressure negotiating tactics by Quad/Graphics. There was simply not enough bargaining disparity between the parties, nor enough evidence of coercive behavior to raise the court's concern procedurally. 

Nor was the waiver of consequential damages substantively unconscionable. The court noted that Quad/Graphics would still be liable for any compensatory damages, and the waiver of consequential damages is routinely enforced by courts. 

The court therefore granted summary judgment in favor of Quad/Graphics on Talcott's claim. (However, it denied Quad/Graphics's motion for summary judgment on its counterclaim as there was not a sufficient showing to justify summary judgment.)

Broken net has Canadian company swimming with the fish

The largest U.S. producer of farmed salmon has lost a contract on a lease site in Puget Sound. The decision came after multi-agency state investigation in connection with a broken holding pen. The investigation said that the net collapsed due to Cooke Aquaculture Pacific’s failure to adequately clean their nets per the contract. The extra weight of mussels and other debris caused the net to fail and allowed thousands of non-native fish to escape into the Sound. Cooke has disputed the state’s findings about the amount and size of the fish that weren’t recovered. 

The blowback from the pen failure has resulted in Washington state voting to phase out net pen salmon farming in Puget Sound. While Cooke argues there is no scientific basis for claiming the farmed Atlantic salmon are a threat to Pacific salmon, but the new regulations could endanger their other operations in Washington. Cooke maintains four facilities in western Washington, with two being closed for violations in the last two months.

The legislation against net pens could spell the end of aquaculture in 1,020 sq. mi. Puget Sound. It is too early to measure the economic impact that these phase-outs will have, but Cooke employees could be out of a job. Cooke’s violations of their lease agreement not only include improperly maintaining their nets, but also anchor lines outside the lease zone, and an unapproved feed barge. The Washington Department of Natural Resources cited that remaining net pen groupings were in danger of catastrophic failure. The repercussions of the net breakage has already created a massive ripple in the Washington aquaculture industry. This simply goes to show the importance of following the rules established when parties enter into a contract.

Another lawsuit against Weinstein that they can bear-ly afford

The Weinstein Co. has had yet another lawsuit filed against it for breach of contract over the Canadian distribution rights of “Paddington 2.” Prior to the allegations against co-founder Harvey Weinstein, the company had an agreement with Toronto-based EOne to distribute the film throughout Canada. In their lawsuit, EOne is seeking to recover $7.8 million that it advanced to Weinstein to obtain the rights to distribute the film throughout Canada. Amidst the controversy surrounding Harvey Weinstein, the company sold the rights to Warner Bros. After Weinstein broke the agreement, EOne terminated the distribution deal. The original contract provided for post-termination repayment of the advance.

Beyond the $7.8 million advance that EOne paid the Weinstein group, an action for lost profits may be available. The movie has so far grossed $192 million. The U.S. and Canadian box offices opened at $11 million.  However, if EOne does decide to try to recover lost profits, it had better act fast. Since the allegations of misconduct were levied against Harvey Weinstein, the company has been on the verge of bankruptcy. The sale of “Paddington 2” to Warner Bros was enough to keep the company afloat until January. According to Reuters, the company is $375 million in debt. Killer Content and Abigail Disney have said that bankruptcy may be the best option for Weinstein Co.

Also found in the complaint is an allegation that Bob Weinstein telephoned the EOne division president to apologize for the sale to Warner Bros and to acknowledge that they would have to compensate EOne. It will be interesting to see if this argument is permitted. Further, the term “compensate” could be construed to include further damages. While only time will tell what the fallout will be from the ongoing Weinstein court battles, it is clear that the bucket is draining quickly.

Conference announcement

CALL FOR PRESENTATION PROPOSALS

Institute for Law Teaching and Learning—Summer 2018 Conference Exploring the Use of Technology in the Law School Classroom June 18-20
Gonzaga University School of Law
Spokane, Washington

The Institute for Law Teaching and Learning invites proposals for conference workshops addressing the many ways that law teachers are utilizing technology in their classrooms across the curriculum. With the rising demands for teachers who are educated on active learning techniques and with technology changing so rapidly, this topic has taken on increased urgency in recent years. The Institute is interested in proposals that deal with all types of technology, and the technology demonstrated should be focused on helping students learn actively in areas such as legal theory and knowledge, practice skills, and guided reflection, etc. Accordingly, we welcome proposals for workshops on incorporating technology in the classrooms of doctrinal, clinical, externship, writing, seminar, hybrid, and interdisciplinary courses.

The Institute invites proposals for 60-minute workshops consistent with a broad interpretation of the conference theme. The workshops can address the use of technology in first-year courses, upper-level courses, required courses, electives, or academic support roles. Each workshop should include materials that participants can use during the workshop and when they return to their campuses. Presenters should model effective teaching methods by actively engaging the workshop participants. The Institute Co-Directors are glad to work with anyone who would like advice on designing their presentations to be interactive.

To be considered for the conference, proposals should be one page (maximum), single-spaced, and include the following information:

•   The title of the workshop;

•   The name, address, telephone number, and email address of the presenter(s); and

•   A summary of the contents of the workshop, including its goals and methods.

  The Institute must receive proposals by February 15, 2018. Submit proposals via email to Professor Sandra Simpson, Co-Director, Institute for Law Teaching and Learning, at [email protected].

  The conference is self-supporting. The conference fee for participants is $450, which includes materials, meals during the conference (two breakfasts and two lunches), and a welcome reception on Monday evening, June 18, 2018. The conference fee for presenters is $350. Presenters and participants must cover their own travel and accommodation expenses.

 

The conference workshops will take place all day on Tuesday, June 19, and until the early afternoon on Wednesday, June 20. Gonzaga University School of Law is hosting a welcome reception on the evening of June 18, 2018, from 5 p.m. to 7 p.m. at Barrister Winery, located in the downtown area, www.barristerwinery.com.

For more information, please contact:

Professor Sandra Simpson ILTL Co-Director [email protected] 509-313-3809

Professor Emily Grant
ILTL Co-Director [email protected] 785-670-1677

Professor Kelly Terry ILTL Co-Director [email protected] 501-324-9946

Conference announcement

Conference Announcement

Law Teaching for Adjunct Faculty and New Professors is a one-day conference for new and experienced adjunct faculty, new full-time professors, and others who are interested in developing and supporting those colleagues. The conference will take place on Saturday, April 28, 2018, at Texas A&M University School of Law, Fort Worth, Texas, and is co-sponsored by the Institute for Law Teaching and Learning and Texas A&M University School of Law.

Sessions will include:

•   Course Design and Learning Outcomes – Michael Hunter Schwartz

•   Assessment – Sandra Simpson

•   Active Learning – Sophie Sparrow

•   Team-based Learning – Lindsey Gustafson

•   Technology and Teaching – Anastasia Boles

  Additionally, master teacher Gerry Hess, Professor Emeritus, Gonzaga University School of Law, will be on hand for one-on-one mentoring sessions throughout the day for a limited number of participants. Indicate your interest on the registration form, slots will be filled on a first-come-first-served basis, and we will notify you prior to the conference if you have been assigned a meeting time.

  By the end of the conference, all participants will have concrete ideas to bring back to their students, colleagues, and institutions. And each participant will receive a copy of Teaching Law by Design for Adjuncts or Teaching Law by Design.

Click here for the registration link

Click here for the hotel link

Sheraton Fort Worth Downtown Hotel 1701 Commerce Street
Fort Worth, TX 76102
(817) 335-7000

For more information, contact ILTL Co-Directors:
Sandra Simpson Emily Grant [email protected] [email protected]

Kelly Terry

[email protected]

The Met Can Keep Picasso Sold During Nazi Flight

A U.S. judge on Wednesday dismissed a lawsuit seeking the return by the Metropolitan Museum of Art in Manhattan of a Pablo Picasso masterpiece that a German Jewish businessman was allegedly forced to sell at a low price in order to fund an escape from the Nazis and fascism.

Paul and Alice Leffmann fled Germany for Italy in 1937. Paul Leffmann sold “The Actor” the next year to two art dealers for $12,000 to fund an escape to Switzerland from the Fascist regime of Benito Mussolini, a Hitler ally.

The Met acquired “The Actor” in a 1952 donation, but did not acknowledge Leffmann’s ownership until 2011, after decades of incorrect cataloguing. Leffman’s great-grand niece, who handles the estate of the Leffmans, claimed that the circumstances of the 1938 sale meant that her family never lost title. The Met disagreed, while expressing sympathy for the Leffmanns’ plight.

The judge found that the sale “occurred between private individuals, not at the command of the Fascist or Nazi governments,” and not because of a “wrongful threat” by the buyers that took away Leffmann’s free will.

“Although the Leffmanns felt economic pressure during the undeniably horrific circumstances of the Nazi and Fascist regimes,” the judge wrote, “that pressure, when not caused by the counterparties to the transaction (or the defendant) where the duress is alleged, is insufficient to prove duress with respect to the transaction.”

It is both sad and interesting that so many years after the fascist rise to and fall from power, these types of cases are still heard in courts in this country and beyond.

Monetizing Sexual Harassment Contractually

Monetizing Sexual Harassment Contractually

In the Harvey Weinstein scandals, investigations have resulted in further almost incredible instances of alleged misconduct including:

• Verbal threats, such as telling employees "I will kill you" or "I will kill your family"
• Employing female staff as "wing women" to "accompany [Mr Weinstein] to events and facilitate [his] sexual conquests"
• Demanding sexual favors in return for career promotion at the studio
• Requiring his drivers to "keep condoms and erectile dysfunction injections in the car at all times"
• The requirement for his assistants to schedule "personals for sexual activity" both during office hours and after work
• Belittling female members of staff with insults about their periods, and shouting at one member of staff that she should leave the company and make babies as that was all she was good for.

Apparently, contracts for Mr. Weinstein contained the proviso that mistreatment claims would result in financial penalties imposed upon the accusers rather than be outright prohibited contractually. This, says some sources, “effectively monetized” sexual harassment.

Surely, no court of law would uphold a contractual clause penalizing an employee merely for making accusations of criminal conduct so long as this was done in good faith (which, as we now know, the accusations against Mr. Weinstein were). It is your legal right and arguably moral duty to call out criminal conduct when it happens. However, whether such an argument would ever be heard in court is questionable, for most employees working for famous, influential companies such as that of Mr. Weinstein and Mr. Weinstein himself are probably loath to stand up contractually against Mr. Weinstein. He clearly knew that. Many women didn’t even dare speak out against him for his criminal conduct or if they did, were not believed or helped. But these contractual clauses still show the gall, sickness, and immorality of Mr. Weinstein.

On a happier note: Happy Valentine’s Day! (I swear that the timing of this post is mere coincidence.)

Attorneys general request legislation to protect sexual harassment claims from arbitration clauses

By my count, 56 attorneys general have sent a letter to Congress asking for legislation that would exempt sexual harassment claims from the ubiquitous arbitration clauses found in employment contracts. The letter is succinct and eloquent on the damaging effects arbitration has on these victims and society as a whole. 

Beyonce faces a breach of contract suit over Formation

I teach many Beyonce cases in entertainment law, but usually in an intellectual property context. The New Orleans Advocate reports that Beyonce has been sued in connection with her single Formation, but the lawsuit is contractual in nature. The plaintiff, Kimberly Roberts, is alleging that she entered into a contract with Beyonce to use footage from her documentary in exchange for a lump-sum payment and royalties. Roberts is alleging that Beyonce has breached the contract by failing to pay royalties. Roberts also alleges that Beyonce has exceeded the scope of the license that Roberts granted. 

“Whenever That Might be” is Illusory Promise

Toll Processing, LLC, plans to have Kastalon, Inc., fix some very large industrial machinery for it at some point in time. Kastalon stores the machinery in the meantime, thinking that it will only be a few months until Toll Processing can issue a purchase order for the repair. However, Toll Processing never does so. Kastalon eventually sells the machinery for its scrap value; $6,380. About two years later, Toll Processing contacts Kastalon to have the machinery fixed. “What machinery?,” asks Kastalon. “My $417,000 machinery,” is the answer.   Lawsuit is filed for breach of contract.

Is storing items for a party without any definite timeframe being agreed upon an illusory promise? Both the district court and the Seventh Circuit Court of Appeals found that Toll Processing’s argument that Kastalon had promised to store the machinery until the issuance of a purchase order, “whenever that might be,” was indeed an illusory promise rendering the contract unenforceable. Perhaps, said the courts, the parties attempted to formulate a contract and were comfortable with somewhat informal proceedings, but parties cannot expect courts to complete the negotiation process and arrive at material terms on their behalf.

That makes sense, but the opinion also states that no less than two years had gone by between any contacts between the two companies. You would think that a simple email asking, “hey, what do you want us to do with your equipment, we can’t store it for free anymore?,” would have been possible and might have resolved this matter. The opinion does not mention bad faith, which seems to be at issue as well.

The case is Toll Processing Services, LLC, v. Kastalon, Inc., 2018 WL 505338.

Yale Fellowship in Private Law

The Yale Law School Center for Private Law is now accepting applications for the 2018-19 Fellow in Private Law. The Fellowship in Private Law is a full-time, one-year residential appointment, with the possibility of reappointment. The Fellowship is designed for graduates of law or related Ph.D. programs who are interested in pursuing an academic career and whose research is related to any of the Center for Private Law's research areas, which include contracts (including commercial law, corporate finance, bankruptcy, and dispute resolution), property (including intellectual property), and torts. More information is available here.

Contract law and doll designs

I am late to the party on this, but I still thought I would point you to Jill Lepore's recent review in the New Yorker of (among other books) Orly Lobel's You Don't Own Me: How Mattel v. MGA Entertainment Exposed Barbie's Dark Side. The book is about the epic showdown between Mattel, makers of Barbie, and MGA, maker of rival dolls Bratz, and it has a contract law angle: The designer who created Bratz worked for Mattel and allegedly arrived at the design for Bratz while under an employment contract with Mattel that would have entitled Mattel to the copyright for the design. 

The review relays testimony from Mattel's CEO regarding his understanding of the scope of such clauses in employment contracts, namely that they are broad enough to entitle Mattel to claim ownership of designs created decades before the employee in question was hired. Unsurprisingly, in my experience, corporations frequently believe that clauses in employment contracts are indeed very broad; it's unclear how much the assertions of such broad readings affect employees' understandings of their rights.