ContractsProf Blog

Pseudo-Contract?

Pseudo-Contract in the Harvard Law Review

The Harvard Law Review has committed to publishing an article on contract law theory for the first time since 2007.

The piece is Pseudo-Contract and Shared Meaning Analysis by Robin Bradley Kar (Illinois) and Margaret Jane Radin (Toronto), which appeared our Top Ten lists earlier this year.  Here is key thesis from the abstract:

Over the last several decades, courts and legal scholars have struggled with whether or when to consider boilerplate text as contract …. [C]ontract law has been shifting away from its traditional focus on enforcing parties’ actual agreements. This shift has been transforming the meanings of central contract law concepts. We view the shift as an untheorized paradigm slip, inviting a generalized theory of contract as assumption of risk and allowing private obligations to be created unilaterally without actual agreement. This sort of obligation is still called “contract.” But it is pseudo-contract.

It’s sure to generate lively debate.  Jeff Lipshaw (Suffolk) has already posted a response, Conversation, Convention, or Conversion?  in which he “caution[s] against rushing into shared meaning analysis as a broader basis for understanding contract formation or interpretation.”

The Stormy Daniels liquidated damages provision

Slate has a piece analyzing the enforceability of the liquidated damages provision in Stormy Daniels's contract with Donald Trump, quoting several very keen legal minds. (Disclaimer: including mine ;-))

Teaching Transactional Law and Skills

CALL FOR PROPOSALS AND REGISTRATION INFORMATION

Emory’s Center for Transactional Law and Practice is delighted to announce its sixth biennial conference on the teaching of transactional law and skills. The conference, entitled “To Teach is to Learn Twice: Fostering Excellence in Transactional Law and Skills Education,” will be held at Emory Law, beginning at 1:00 p.m. on Friday, June 1, 2018, and ending at 3:45 p.m. on Saturday, June 2, 2018.

Four New and Different Things about the Conference:

• Presentation of the inaugural Tina L. Stark Award for Excellence in the Teaching of Transactional Law and Skills. Note: For information about how to nominate yourself or someone else for this award, please visit http://bit.ly/2EVdFou.

• New 45-minute “Try-This” time slots for individual presenters to demonstrate in-class activities.

• Reduced registration fee for new transactional law and skills educators.

• Reduced registration fee for adjunct professors.

CALL FOR PROPOSALS

We are accepting proposals immediately, but in no event later than 5 p.m. on Friday, March 30, 2018. We welcome you to present on any aspect of transactional law and skills education as long as you view it through the lens of our theme. We expect to receive proposals about theories, programs, curricula, courses, approaches, methods, and specific assignments or exercises that foster excellence in transactional law and skills education. In other words, what works best (excellence in teaching) to achieve particular student outcomes (excellence in learning)? If it’s true that “to teach is to learn twice,” what wisdom can you impart to others who may want to replicate or imitate what you are doing? How have you made yourself a better teacher? And how have you assured that you are achieving the best student outcomes?

Try-This Sessions. Each Friday afternoon “Try-This Session” will be 45-minutes long and will feature one classroom activity and one individual presenter.

Panels. Each Saturday session will be approximately 90 minutes long and feature a panel presenting two or more topics grouped together for synergy.

Please submit the proposal form electronically via the Emory Law website at http://bit.ly/2BTD7pr before 5 p.m. on March 30, 2018.

PUBLICATION OF SELECTED MATERIALS

As in prior years, some of the conference proceedings as well as the materials distributed by the speakers will be published in Transactions: The Tennessee Journal o f Business La w , a publication of the Clayton Center for Entrepreneurial Law of The University of Tennessee, a cosponsor of the conference.

CONFERENCE REGISTRATION

Both attendees and presenters must register for the Conference and pay the appropriate registration fee: $220 (general); $200 (adjunct professor); or $185 (new teacher). Note: A new teacher is someone in their first three years of teaching. The registration fee includes a pre-conference lunch beginning at 11:30 a.m., snacks, and a reception on June 1, and breakfast, lunch, and snacks on June 2. We are planning an optional dinner for attendees and presenters on Friday evening, June 1, at an additional cost of $50 per person. Registration is now open for the Conference and the optional Friday night dinner at our Emory Law website at http://bit.ly/2BpTQVc.

TRAVEL ARRANGEMENTS AND HOTEL ACCOMMODATIONS

Attendees and presenters are responsible for their own travel arrangements and hotel accommodations. Special hotel rates for conference participants are available at the Emory Conference Center Hotel, less than one mile from the conference site at Emory Law. Subject to availability, rates are $149 per night. Free shuttle transportation will be provided between the Emory Conference Center Hotel and Emory Law. To make a reservation at the special conference rate, call the Emory Conference Center Hotel at 800.933.6679 and mention “The Emory Law Transactional Conference.” Note: The hotel’s special conference rate expires at the end of the day on May 18, 2018. If you encounter any technical difficulties in submitting your proposal or in registering online, please contact Kelli Pittman, Program Coordinator, at [email protected] or 404.727.3382. We look forward to seeing you in June!

Sue Payne- Executive Director

Katherine Koops- Assistant Director

Kelli Pittman- Program Coordinator

 

IMPORTANT

The deadline to register has been extended to Friday, March 30th. 

See the original flyer at http://law.emory.edu/academics/academic-programs/center-for-transactional-law-and-practice/conferences.html

Teaching Transactional Law and Skills

CALL FOR PROPOSALS AND REGISTRATION INFORMATION

Emory’s Center for Transactional Law and Practice is delighted to announce its sixth biennial conference on the teaching of transactional law and skills. The conference, entitled “To Teach is to Learn Twice: Fostering Excellence in Transactional Law and Skills Education,” will be held at Emory Law, beginning at 1:00 p.m. on Friday, June 1, 2018, and ending at 3:45 p.m. on Saturday, June 2, 2018.

Four New and Different Things about the Conference:

• Presentation of the inaugural Tina L. Stark Award for Excellence in the Teaching of Transactional Law and Skills. Note: For information about how to nominate yourself or someone else for this award, please visit http://bit.ly/2EVdFou.

• New 45-minute “Try-This” time slots for individual presenters to demonstrate in-class activities.

• Reduced registration fee for new transactional law and skills educators.

• Reduced registration fee for adjunct professors.

CALL FOR PROPOSALS

We are accepting proposals immediately, but in no event later than 5 p.m. on Friday, March 30, 2018. We welcome you to present on any aspect of transactional law and skills education as long as you view it through the lens of our theme. We expect to receive proposals about theories, programs, curricula, courses, approaches, methods, and specific assignments or exercises that foster excellence in transactional law and skills education. In other words, what works best (excellence in teaching) to achieve particular student outcomes (excellence in learning)? If it’s true that “to teach is to learn twice,” what wisdom can you impart to others who may want to replicate or imitate what you are doing? How have you made yourself a better teacher? And how have you assured that you are achieving the best student outcomes?

Try-This Sessions. Each Friday afternoon “Try-This Session” will be 45-minutes long and will feature one classroom activity and one individual presenter.

Panels. Each Saturday session will be approximately 90 minutes long and feature a panel presenting two or more topics grouped together for synergy.

Please submit the proposal form electronically via the Emory Law website at http://bit.ly/2BTD7pr before 5 p.m. on March 30, 2018.

PUBLICATION OF SELECTED MATERIALS

As in prior years, some of the conference proceedings as well as the materials distributed by the speakers will be published in Transactions: The Tennessee Journal o f Business La w , a publication of the Clayton Center for Entrepreneurial Law of The University of Tennessee, a cosponsor of the conference.

CONFERENCE REGISTRATION

Both attendees and presenters must register for the Conference and pay the appropriate registration fee: $220 (general); $200 (adjunct professor); or $185 (new teacher). Note: A new teacher is someone in their first three years of teaching. The registration fee includes a pre-conference lunch beginning at 11:30 a.m., snacks, and a reception on June 1, and breakfast, lunch, and snacks on June 2. We are planning an optional dinner for attendees and presenters on Friday evening, June 1, at an additional cost of $50 per person. Registration is now open for the Conference and the optional Friday night dinner at our Emory Law website at http://bit.ly/2BpTQVc.

TRAVEL ARRANGEMENTS AND HOTEL ACCOMMODATIONS

Attendees and presenters are responsible for their own travel arrangements and hotel accommodations. Special hotel rates for conference participants are available at the Emory Conference Center Hotel, less than one mile from the conference site at Emory Law. Subject to availability, rates are $149 per night. Free shuttle transportation will be provided between the Emory Conference Center Hotel and Emory Law. To make a reservation at the special conference rate, call the Emory Conference Center Hotel at 800.933.6679 and mention “The Emory Law Transactional Conference.” Note: The hotel’s special conference rate expires at the end of the day on May 18, 2018. If you encounter any technical difficulties in submitting your proposal or in registering online, please contact Kelli Pittman, Program Coordinator, at [email protected] or 404.727.3382. We look forward to seeing you in June!

Sue Payne- Executive Director

Katherine Koops- Assistant Director

Kelli Pittman- Program Coordinator

 

IMPORTANT

The deadline to register has been extended to Friday, March 30th. 

See the original flyer at http://law.emory.edu/academics/academic-programs/center-for-transactional-law-and-practice/conferences.html

A termination provision that goes both ways isn't illusory

A recent case out of the Southern District of Texas, Henderson v. A & D Interests, Inc., Civil Action No. 3:17-CV-096, deals with arguments regarding illusory promises and unconscionability. 

The plaintiffs were exotic dancers at the defendant's adult entertainment club. They sued and the defendant moved to compel arbitration pursuant to the agreement between the parties. The plaintiffs argued that the agreement was unenforceable because it was illusory. The relevant termination provision allowed either party to terminate "at any time with or without notice." Because the termination provision provided such rights to both parties, the court found it wasn't illusory and the agreement was enforceable. 

The plaintiffs also argued that the arbitration provision in the agreement was unconscionable because it required the parties to split the cost of the arbitration, which the plaintiffs argued would be prohibitive. However, the court found unpersuasive the plaintiffs' evidence on the estimate of the cost of the arbitration, and there was no evidence of the plaintiffs' ability to pay for an arbitration at the time they agreed to the provision, which to the court was the relevant moment. 

Yahoo!'s damages limitation provision in its terms of service might be unconscionable

There's a class action going on over data breaches at Yahoo! between 2013 and 2016, and a recent decision in the case in the Northern District of California, In re: Yahoo! Inc. Customer Data Security Breach Litigation, Case No. 16-MD-02752-LHK (behind paywall), finds that Yahoo!'s limitation-of-liability provisions have been adequately pled to be unconscionable. 

The provision at issue was found in Yahoo!'s terms of service and attempted to limit Yahoo!'s liability. The class action sought consequential damages, and Yahoo! moved to dismiss the claims for those damages, citing the provision. However, the plaintiffs argued that the provision was unconscionable, and the court agreed that they had sufficiently pled their argument to survive the motion to dismiss. 

In terms of procedural unconscionability, Yahoo!'s terms of service were a non-negotiable adhesion contract, and the limitation-of-liability provision was found near the end of its twelve pages. The fact that the plaintiffs could have chosen other email services did not bar a finding of procedural unconscionability. 

As far as substantive unconscionability goes, the plaintiffs alleged that the limitation-of-liability provision was one-sided and acted to block the plaintiffs from achieving adequate relief. The provision prohibited nearly every type of damages claim, virtually guaranteeing that the plaintiffs would not be able to be made whole in the event of a breach. In this case, consequential damages generally follow from data breaches, so the plaintiffs argued that consequential damages were necessary for their case. Finally, the plaintiffs argued that the only party in a position to guard against data breaches was Yahoo!, yet the limitation-of-liability provision placed the risk on the plaintiffs should Yahoo! fail to maintain adequate security. 

Being true to the spirit of "To Kill a Mockingbird"

The New York Times reports that an upcoming Broadway production of "To Kill a Mockingbird" is embroiled in a contract dispute. The new production features a script by Aaron Sorkin, governed by a contract that requires it to keep to "the spirit of the Novel." Author Harper Lee's estate believes the play's new script has breached this contract provision. 

The crux of the disagreement seems to be that Sorkin's script apparently updates the novel's depiction of racial politics and shifts Atticus Finch's developmental arc. Atticus, well-known as the crusading heroic lawyer at the center of the novel, apparently begins the play "as a naive apologist for the racial status quo" who eventually develops into the Atticus familiar from the novel. Sorkin in an interview described Atticus as evolving in part through interactions with a black character, Calpurnia, whose role Sorkin had expanded in the play as compared to the book. 

Lee's estate is objecting to the "massive alteration" of the novel, but the play's producers contend that, although the play is "different" from the novel, it is still true to the novel's spirit, pointing out that Lee's novel's universe was itself expanded and complicated by the recent publication of "Go Set a Watchman," in which an older Atticus is portrayed as a racist and segregationist. 

As anyone who's sat in an English class might agree, "the spirit of a novel" is rather vague and can be the source of much contentious disagreement. Literature can be a very personal experience, and what stands out as the vitally important part of a novel to one person can barely register to another. We could probably as a society reach a consensus on what "the spirit" of "To Kill a Mockingbird" might be, but I still don't think that would be of much assistance in resolving this dispute. There are, I think, two approaches to adapting a novel, and one is a requirement to be faithful to the letter, and the other is to be faithful in a more abstract way. I suspect that both parties here actually agree about what the spirit of "To Kill a Mockinbird" is but that Lee's estate believes the former approach to adaptation to be the only acceptable one, and that the producers of the play believe the latter to be acceptable. This reminds me of a recent New Yorker article on the proper role of translators. 

(As an unabashed fan of Sorkin's writing, as soon as I read the first paragraph of the article, I have to admit my reaction was: "Let me guess, the script sounds like Aaron Sorkin instead of Harper Lee." I haven't seen the script, of course, but there are few writers in my experience whose style is as instantly recognizable as Sorkin's.)

Using Contract Law to Address Climate Change

I have the great honor and pleasure of posting the below guest blog written by noted environmental scholar Dan Farber, the Sho Sato Professor Of Law and the Faculty Director of the Center For Law, Energy, & The Environment at UC Berkeley.

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There has been increasing interest in the environmental law community in the role that private firms can play in sustainability. For example, many major corporations bemoaned Trump’s withdrawal from the Paris Agreement and pledged to continue their own environmental efforts. In fact, as a recent book by Michael Vandenbergh and Jonathan Gillian documents, these firms already have their own programs to cut emissions. It’s worth thinking about the ways in which contracts between these companies could serve some of the same functions as government action.

Group action, based on contracting, could be a way of amplifying these efforts by individual firms. One possibility would stick pretty close to the structure of the Paris Climate Agreement. Under the Paris Agreement, nations agree to engage in certain types of monitoring and to implement emissions cuts that they set themselves. There are already ways that corporations can publicly register their climate commitments. The next step would be to
enter into contracts to engage in specified monitoring activities and report on emissions. The goal would be to make commitments more credible and discourage companies from advertising more emissions efforts than they actually undertake.

The contracts could be structured in different ways. One possibility is for each company to contract separately with a nonprofit running a register of climate commitments. The consideration would be the nonprofit’s agreement to include the company in the register and require the same monitoring from other registered companies. An alternative structure would be for the companies making the pledge to contract with each other, ensuring that there would be multiple entities with incentives to enforce the agreement against noncompliant firms. The biggest contract law issue is probably remedial. It would be difficult to prove damages, so a liquidated damage clause might be useful, assuming the court could be persuaded that significant liquidated damages are reasonable. An alternative set up would be to require representations by the company about compliance with monitoring protocols at they make their reports, providing a basis for a misrepresentation action.

We can also imagine something like a private carbon tax in which companies pledge to pay a nonprofit a fixed amount based on their carbon emissions. The nonprofit would use the funds to finance renewable energy projects, promote sustainability research, or fund energy efficiency projects such as helping to weatherize houses. Such pledges would probably be enforceable even without consideration under Cardozo’s opinion in Allegheny College. Damages would presumably be based simply on the amount of unpaid “taxes.”

It’s also possible to think in terms of a private cap-and-trade scheme, something like the ones used by California and by the Northeastern states. In these markets, governments set caps on total emissions and auction or otherwise distribution allowances, each one giving the owner the right to emit a single ton of carbon. In the contractual version, firms would agree to create a market in carbon allowances and to buy as many allowances as they need to cover their emissions. For instance, firms could agree to cut their emissions on a schedule of, say, 2% per year for five years. Every year, they would get allowances equal to their current target, which could be traded. Firms that were able to cut their emissions more than 2% could recoup the cost by selling permits to firms that found it too expensive to make their own cuts. Each firm would have to be bound contractually to pay for purchased allowances coupled with an enforceable obligation to achieve the target. If firms fail to buy the needed allowances, the measure of expectation damages seems to be the market price of the allowances the contract required them to purchase from other firms.

One advantage of government regulation is that the government can assess penalties, while contract law does not enforce penalties. For that reason, arguments for substantial compensatory damages will be crucial to provide an incentive for compliance. There will also be questions about how to structure the contracts (between firms or only between each firm and the nonprofit administering the scheme). And of course, all the usual issues of contract interpretation, materiality of breach, etc., will surface. (If nothing else, this could be the basis for an interesting exam question.)

Whether any of this is practical remains to be seen. There are also potential antitrust problems to contend with. But it is intriguing to think about ways that private contracting could be used to address societal issues such as climate change, particularly in situations where the government seems unlikely to act. There might be real gains from using private-law tools like contract to address public-law problems.

Trump’s Sexual History; a Cause for Concern?

Donald Trump is famous, or maybe infamous, for his candor and seeming lack of filter when speaking. Recently, a story about the president and a pornographic actress, who uses the moniker Stormy Daniels, having an affair surfaced. While Trump and his staff denied the affair ever occurred, Trump’s lawyer did admit to paying Ms. Daniels $130,000 of his own money. Trump’s lawyer stated that he only paid Ms. Daniels to “protect Mr. Trump” and that “just because something isn’t true doesn’t mean it can’t cause harm.” And while that story has since gone cold, another woman has come forward alleging a similar affair with Mr. Trump.

Former Playboy playmate Karren McDougal has come forward alleging that she had a nine-month long affair with Mr. Trump, shortly after the birth of his son Barron. And while Mr. Trump and his administration have denied this affair, there is another suspect money trail attached. In 2016 American Media, Inc., the parent company of the National Enquirer, paid to acquire the rights in that story. AMI contracted with Ms. McDougal for an undisclosed amount of money and an agreement to publish columns, provide her a publicist, assist in the development of a skin care line, and assist her in a documentary on a medical issue. Ms. McDougal asserts that for the most part, AMI did not follow through on their end, but once the Stormy Daniels story came out, they were much more receptive to her.

By releasing the story, the former playmate and model has breached the contract she signed with AMI. While arguments can be made about Ms. McDougal’s understanding of the contract and the vague language used in it, they are unlikely to get her off the hook for the breach. However, barring a massive liquidated damages clause, Ms. McDougal is likely to only lose out on the money that AMI paid her. Should the Trump administration seek legal action, it would be tantamount to admitting that there is something that needs to stay private. As for AMI, they only have the contract to fall back on in seeking damages from Ms. McDougal, which will limit their ability to recover. Ms. McDougal seems to have the President in the palm of her hand, which should create concern by the American public.

More than fifteen women have accused Mr. Trump of sexual misconduct. While I can’t make any claims as to Mr. Trump’s sexual history, if the last month is any indication, more women are likely to come forward with claims. This presents an issue for the national security of the country. If the president can be blackmailed into paying to keep certain stories quiet, whether true or not, then where does it end? If, as Mr. Trump’s lawyer asserts, they will pay to keep false stories quiet, what will stop legitimate or false claims from coming forward?

https://www.cnn.com/2018/02/13/politics/michael-cohen-stormy-daniels-payment/index.html

https://www.salon.com/2018/02/16/playboy-playmates-alleged-9-month-affair-with-trump-raises-serious-security-concerns/

Where There's a Will There's a Way

Disney and Redbox are the subjects of a recent legal dispute involving the sale of Disney’s movies. Redbox - the video rental kiosk you see at virtually every Wal-Mart and 7-Eleven around the nation - found a unique way to work around Disney’s waiting period regarding the release of Disney movies to the rental giant. Back in 2013, Redbox tried to work out a vendor deal with the movie-making giant. However, with Redbox seeing a drop in sales of physical movies and offering movies at such discounted prices, the terms were not great for Redbox. Disney stated that it would not make movies available to Redbox until 28 days after the initial release date. With Disney having some of the biggest blockbuster films almost every year, Redbox needed to be able to capitalize on these movies to remain relevant.

Enter Redbox’s lawyers and a copyright principle known as the “first sale doctrine.” Under this doctrine, Redbox is allowed to resell the copyrighted movies as long as they don’t make a copy. So, when the movies hit store shelves, Redbox buys up the bundled copies and puts the DVDs and Blu-Rays in their kiosks. However, it is the digital copies that come in most bundle packs on which the Disney complaint focuses. Redbox, in an effort to undercut the competition, sells the digital movie copies for less than other retailers who do have a vendor agreement with Disney. Disney’s claim is that this resale of digital movies is different than renting the movies because it makes a new copy and is not reselling an existing copy. According to Disney, Redbox is facilitating illegal duplication of its films.

Giants wiggling around contractual terms or fair dealing… time will tell!  As of Tuesday February 21, 2018, the Ninth Circuit has denied Disney’s request for a preliminary injunction.

http://www.latimes.com/business/hollywood/la-fi-ct-redbox-disney-lawsuit-20180123-story.html

https://www.courthousenews.com/disney-loses-bid-to-block-redbox-from-selling-download-codes/

Contract law: cool enough to be included in an Oscar acceptance speech

That's going to be the blog's new slogan. 

Frances McDormand briefly made contract law trend on Twitter by using "inclusion rider" as her important two-word closing. At the time, there was only one result for "inclusion rider" when you Googled it. Now, if you Google it, you get a million results of articles explaining what an "inclusion rider" is. But here's the original video from Stacy Smith which was the one result before McDormand made it a cultural conversation.

I've had a series of blog posts over the past few years discussing the ways in which private contract law has been used to obscure systemic discrimination and abuse and harassment (a bunch of them are linked in this post). This is a nice suggestion for a way to use private contract law to try to correct some of the problems we've now exposed. 

What does an Uber ride worth over $1,600 look like?

To the New Jersey native it happened to, well, a very costly mistake through several states. 

According to this article, the man called an Uber after going out with friends in West Virginia. He was staying near West Virginia University, but he apparently requested an Uber to drive him to his home...which is in New Jersey. The drive was 300 miles, and problematically the man was drunk and so passed out upon getting into the car. He didn't wake up until two hours into the drive.

The news article is unclear as to the status of the trip. Uber claims the man has agreed to pay the fare; the man says he's contesting the fare because he never requested the Uber drive him to his home. It is true that Uber allows you to store a home address and also pulls up recent destinations when you request a ride, so one could foresee how such a mistake could happen. 

It seems to me from the story that this was more likely user error, as the man was admittedly fairly drunk at the time he ordered the Uber. This also means that the man was probably too intoxicated to comprehend what he was doing as he entered into the agreement with Uber to order the car to take him home, but how was the anonymous Uber app to know? One could, however, foresee a separate confirmation page being necessary if the ride is going to cost more than, say, a thousand dollars (at least), but it's unclear that would have avoided the mistake, as the man may have been too drunk to grasp the import of the message. What should Uber do to try to avoid this sort of mishap? Anyone else have similar Uber mistakes? 

h/t to reader Timothy Murray of Murray, Hogue & Lannis for sending this story to our attention!

The conclusion of the thrilling non-compete trilogy!

Completing the trilogy of non-compete cases this week, here's one out of the District of Maryland: Premier Rides, Inc. v. Stepanian, Civil Action No. MJG-17-3443. The industry this time is amusement park rides. The defendant is a structural engineer who worked for the plaintiff, mainly on roller coasters. He signed an employment agreement that contained a non-competition provision. When he decided that he wanted to resign his employment, he asked to be released from the non-competition provision. The plaintiff refused to release him. Subsequently, the defendant sought jobs that were non-competitive in nature, while apparently turning down a couple of employment offers from the plaintiff's competitors. He did, however, keep in touch with the plaintiff's customers, including interviewing for a job with at least one of them, before eventually accepting employment with DreamCraft. In his capacity at DreamCraft, the defendant worked on a project for one of the plaintiff's competitors and attended meetings with many of the plaintiff's customers. The plaintiff sued for breach of the non-compete. 

The defendant first tried to argue that the agreement did not have adequate consideration, but the court noted that Maryland law is clear that "continued employment of an at-will employee" is sufficient consideration for a non-compete, as long as there is no other evidence of bad faith. The defendant continued to work for the plaintiff for three years after signing the agreement, receiving raises and bonuses throughout that time. So the court found that there was adequate consideration to enforce the non-compete. 

The court also concluded that the non-compete had a valid corporate interest in that it prevented the defendant from exploiting the customer contacts he made while working for the plaintiff for the benefit of one of the plaintiff's competitors. The defendant, however, argued that the provision was not narrowly tailored to that interest. The time restriction of twelve months is routinely upheld in Maryland so the court focused on the fact that the non-compete was not limited in scope geographically. The court found that the plaintiff's market was global in scope, so the lack of geographic limitation was permissible. 

The court did, though, find that the non-compete prohibited more activity than necessary. The defendant was an engineer, not a salesman, so the plaintiff's concerns about the defendant's customer relationships seemed misplaced. The defendant necessarily had to meet the plaintiff's customers to perform his job, but the plaintiff admitted that this kind of personal relationship was not important for the customers, who made their purchasing decisions based on price and "impact"of the amusement park ride. The agreement in separate provisions prohibited the defendant from soliciting the plaintiff's customers on behalf of his new employer and from disclosing the plaintiff's confidential information. The plaintiff did not allege the defendant had violated these provisions; rather, the plaintiff focused on just the fact of the defendant's employment by DreamCraft being enough to violate the agreement. But since the plaintiff's non-compete interests had been solicitation of customers or disclosure of trade secrets, to the court it was telling that neither of those was at issue in this case. 

Accordingly, the court found the non-compete overbroad and unenforceable. It noted that it could rewrite the non-compete to be enforceable but it didn't know enough to edit it effectively at the moment. 

More potential non-compete shenanigans

Yesterday I wrote about a non-compete clause, and here's another one out of New York: Cogint, Inc. v. Moraes, 159597/2017. Yesterday's concerned auction houses, this one concerns digital marketing and advertising, in which Moraes was prohibited from competing for one year after his employment. The non-compete here seems to be worded as broadly in scope as the one that yesterday's court found to be overbroad, but there is no discussion about janitorial capacity in this case. Rather, the court concluded that the non-compete here was necessary to protect the plaintiff's interest because Moraes was a key employee in possession of trade secrets. 

Not only was Moraes potentially in violation of the non-compete, but the court found that he potentially breached his employment agreement by terminating his employment before the term of the agreement concluded. The court found that the agreement did not provide him the right to terminate his employment at will. 

New York court rewrites auction house non-compete provision, applying Texas law

A recent case out of New York, Heritage Auctioneers & Galleries, Inc. v. Christie's, Inc., 651806/2014, deals with the world of luxury auctions. The plaintiff alleged, inter alia, that the defendant Rubinger breached the non-compete provision of his employment agreement when he resigned his position and went to work for Christie's Hong Kong office. The opinion is behind a paywall but the many points of contention between these companies has been documented in several places, including here, here, and here.

The employment agreement was governed by Texas law, so the court applied Texas law to determine that the non-compete provision was overly broad. The non-compete prohibited Rubinger from providing services for any business that participated, either directly or indirectly, in auctioning collectibles in North America in a manner competitive to the plaintiff's auction business. The problem was that the non-compete tried to prohibit Rubinger from providing any services for such business. As the court noted, Rubinger could have violated the agreement by working as a janitor at Sotheby's or in the mailroom at Christie's. The court therefore concluded that the non-compete was unreasonable. 

However, under Texas law, the court reformed the provision to be enforceable, rewriting the provision to prevent Rubinger from providing services to competitors identical to those he provided to the plaintiff. Because that was exactly what Rubinger was doing, he was in violation of this rewritten non-compete provision. 

The court found the time and geographic scope of the non-compete to be reasonable, and then found that the question of whether Rubinger's activities in Hong Kong violated it was a factual determination that could not be resolved. 

Rubinger's employment agreement also contained a non solicitation covenant. When Rubinger resigned from the plaintiff to move to Christie's, two of Rubinger's staff resigned on the same day to make the identical move. The court found the non solicitation covenant enforceable, but nevertheless dismissed the claim because the non solicitation covenant, by its terms, prohibited Rubinger from soliciting the plaintiff's employees after termination of his employment. Because Rubinger's solicitation of his staff took place prior to termination of his employment, it was not prohibited by the terms of the contract. 

There were many other claims in this complaint, including trade secret allegations and unjust enrichment. I focused on Rubinger's alleged breach of contract in this blog entry, but there were other aspects to the court's decision.