ContractsProf Blog

Temperatures Affecting Test Scores - Bar Results Too?

Although this post does not have anything to do with contracts law, it is hopefully interesting to many of you law professors anyway.

Scientific research shows that in years with warmer temperatures, students score worse on tests.  The link is "significant."  Researchers calculated that for every 0.55° C increase in average temperature over the year, there was a 1% fall in learning.  

Colder days did not seem to damage achievement - but the negative impact began to be measurable as temperatures rose above 21° degrees C.  The reduction in learning accelerated once temperatures rose above 32° C and even more so above 38° C.

A simple solution could be to use more airconditioning on test days.  The more complex, but necessary, solution is to curb climate change.  The world is still not doing enough in that respect despite the 2015 Paris Agreement.  In particular, it is problematic that the USA has announced its withdrawal from the climate change agreement.

Could increasing temperatures also be part of the reason for our students' worse and worse bar performances?  Apparently so.  

Professor's retaliation claims mostly survive motion to dismiss

A professor at Columbia sued the university, alleging various contract-based claims. In a recent decision, Joshi v. The Trustees of Columbia University in the City of New York, 17-cv-4112 (JGK), the Southern District of New York permitted the claims to survive the university's motion to dismiss. 

The university argued that various employment policies did not constitute binding contracts between the parties. However, the court disagreed. The university had in place a Reservation of Rights that stated the employment handbook should not be treated as a contract. But there were factual disputes as to whether this Reservation of Rights applied to the other employment policies at issue, which did not seem to be found in the employment handbook. The parties disputed how clearly the Reservation of Rights was incorporated into the policies, and whether the Reservation of Rights was conspicuous. Therefore, the court allowed the breach of contract claim to survive the motion to dismiss (it also found that there were factual disputes about whether the university's actions were a breach of the policy). 

The court also allowed the plaintiff's claim of breach of the covenant of good faith and fair dealing to survive, because it was about different conduct than the breach of contract claim (regarding the university's failure to investigate and stop the retaliation at issue, rather than the retaliation itself). 

And the plaintiff's promissory estoppel claim also survived. The university argued that promissory estoppel claims do not apply to employment relationships, but the court disagreed and refused to dismiss the claim based on that alone, stating that the plaintiff was not seeking reinstatement of employment. The plaintiff's allegations, taken in the light most favorable to them, adequately pleaded promissory estoppel, so the court allowed the claim to survive. 

The court did, however, dismiss the plaintiff's claim for fraud in the inducement, finding that the plaintiff had not adequately pleaded that the university acted with an intent to deceive. 

When Hugs and Signatures Lead to Binding Contracts Despite Disputes over Terms

The Supreme Court of Delaware just issued a contracts law case suitable for teaching purposes in relation to several different issues including contract formation, the parol evidence rule and forum selection clauses.  It also raises some puzzling questions regarding the Court’s own analyses and conclusions.

The Court first analyzes whether three investment and tech companies displayed sufficient overt manifestation of assent – not subjective intent - to be bound by any contract at all. Referring to Professor Williston, the Court found this to be the case when a signature is present because it “naturally indicates assent, at least in the absence of an invalidating cause such as fraud, duress, mutual mistake, or unconscionability....”  Because both parties here signed the contract and hugged each other after doing so (!), there was an objective manifestation of assent.

The Court then stated that “a contract must contain all material terms in order to be enforceable … Until it is reasonable to conclude, in light of all of the[ ] surrounding circumstances, that all of the points that the parties themselves regard as essential have been expressly or (through prior practice or commercial custom) implicitly resolved, the parties have not finished their negotiations and have not formed a contract.” Common sense, found the Court, “suggests that parties to a sophisticated commercial agreement …  would not intend to be bound by an agreement that does not addressall terms that they considered material and essential to that agreement.”  Consequently,“all essential or material terms must be agreed upon before a court can find that the parties intended to be bound by it and, thus, enforce an agreement as a binding contract.”  In the case, the precise consideration under the contract was highly material to the parties.  One of the documents addressed the consideration to be exchanged, although not in a concise manner.  The recordregarding other terms was also “woefully undeveloped.”  Some key terms were missing.  Others were contested by the parties.

Nonetheless, the Court somewhat strangely did not find this to be a major problem.  The real dispute was, per the Court, whether the terms relating to that consideration were sufficiently definite.  The majority found this to be the case under the Restatement (Second) of Contracts § 33(2). Said the Court: “A contract is sufficiently definite and certain to be enforceable if the court can—based upon the agreement's terms and applying proper rules of construction and principles of equity—ascertain what the parties have agreed to do.  Indeed, as Corbin has stated, “[i]f the parties have concluded a transaction in which it appears that they intend to make a contract, the court should not frustrate their intention if it is possible to reach a fair and just result, even though this requires a choice among conflicting meanings and the filling of some gaps that the parties have left.”  Because the agreement's recitals summarized that technology company owner was to contribute to the holding company all his rights in certain intellectual property and technology company securities in exchange for units in holding company, technology company owner warranted that he could deliver all securities as promised, and agreement provided for situation of employees making successful claims for technology company securities, the Court found the consideration to be sufficiently definite.  Fair enough, but what about several terms either having been omitted or “differing in reality from the parties’ statements”?  The Court relied on parol evidence to resolve these issues. 

The Court remanded for the lower court to make explicit findings as to whether or not the parties agreed to be bound.

The dissenting justices raise some good questions.  Among other things, they identify valid issues regarding the missing material terms, whether the parties even agreed on the contract at all given its short-lived nature, and whether it was a waste of judicial and party resources to remand the case when the Supreme Court found it to be sufficiently specific.  Most importantly and for good reason, the dissenters focus on the contract formation issue that the majority did away with for, it seems, the somewhat simplistic reasons that the parties had signed the documents and hugged each other.  If our students concluded their analyses of contract formation on this ground, we would probably also point out the problem in so doing.

Of course, the parties may also consider reaching a solution amongst themselves at this point.  Said Justice Strine:  One hopes that before the parties engage in remand proceedings of great expense, they exhale and consider a sensible solution so that they can move on, with [one party] receiving fair compensation for his investments, but without harming themselves or others by continuing a bitter battle over whether they should be declared to have had a brief, loveless marriage, only to then commence immediate divorce proceedings.

The case is Eagle Force Holdings, LLC and EF Investments, LLC v. Stanley V. Campbell, C.A. No. 10803-VCMR.  H/t to Professor Chiappinelli for bringing this case to my attention, and congratulations to Professor Stark for being cited to by the Delaware Supreme Court.

Contracts under the GDPR

As you probably know from all the privacy policy updates cluttering your inbox, the EU General Data Protection Regulation (GDPR) is now effective and businesses must comply or face heavy penalties.  One of the requirements is that in order to obtain consent to data collection, contract terms must be "clear and concise" and consent must be opt-in rather than opt-out (meaning no pre-ticked boxes).  The website XKCD has a version of what to expect in updated privacy policies from businesses seeking to comply with the GDPR - stay informed and take a look.

Trump Seeks to Alter Post Office Contracts with Amazon

As widely reported in, for example, the Washington Post, whose owner founded Amazon, President Trump has pushed Postmaster General Megan Brennan to double the rate that the post office charges Amazon.com and some, but not all, similar online retailers.  

The contracts between the Postal Service and Amazon are secret out of concerns for the company's delivery systems.  They must additionally be reviewed by a regulatory commission before being changed.  That, perhaps unsurprisingly, does not seem to phase President Trump who appears to be upset at both Amazon and the Washington Post.   The dislike of the latter needs no explanation, but why Amazon?  Trump has accused it of pushing brick-and-mortar stores out of business.  Others point out that if it weren't for Amazon, it is the post office which may be out of business.

Aside from the political aspects of this, does Trump have a point?  Is Amazon to blame for regular stores going out of business?  I am no business historian, but it seems that Amazon and others are taking advantage of what the marketplace wants: easy online shopping.  Yes, it is very sad that smaller, "regular" stores are closing down, most of us probably agree on that.  But retail shopping and other types of business contracting will evolve over time as it has in this context.  That's hardly because Amazon was founded; surely, the situation is vice versa.  Such delivery services are fulfilling a need that arose because of other developments.

From an environmental point of view, less private vehicle driving (for shopping, etc.) is better.  Concentrating the driving among fewer vehicles (FedEx, UPS, USPS, etc.) is probably better, although I have done researched this statement very recently.  One fear may be the additional and perhaps nonexistent/overly urgent need for stuff that is created when it becomes very easy to buy, e.g., toilet paper and cat litter online even though that may in and of itself create more driving rather than just shopping for these items when one is out and about anyway, but that is another discussion.

Suffice it to say that Trump should respect the federal laws governing the Postal Service _and_ existing contracts. What a concept!  If the pricing structure should be changed, it clearly should not be done almost single-handedly by a president.  

Meanwhile, the rest of us could consider if it is really necessary to, for example, get Saturday snail mail deliveries and to pay only about 42 cents to send a letter when the price of such service is easily quadruple that in other Western nations (Denmark, for example, where national postal service has been cut back to twice a week only and where virtually all post offices have been closed).  Fairly simple changes could help the post office towards better financial health.  This, in turn, would help both businesses and private parties.  

 

In which we are cited as evidence in a case

The life of a blogger can sometimes feel like toiling sometimes in relative obscurity. And then there's the moment when you get cited as evidence in a case!

A recent decision out of the District of Columbia in Mawakana v. Board of Trustees of the University of the District of Columbia, 14-cv-02069-ABJ, referenced ContractsProf Blog. The case was a tenure dispute between the plaintiff professor and the defendant university. The plaintiff alleged he was denied tenure because of racial discrimination. The defendant moved for summary judgment, which was granted. 

Part of the plaintiff's evidence was a number of favorable comments on his scholarship, including "honorable mention from ContractsProf Blog." The court cites to the plaintiff's opposition, which is sealed, so I can't see exactly what was stated about the entry. I found the school's write-up of it, but the link the school provides to the blog entry doesn't work for me (maybe my computer is just being fickle and you'll have better luck). 

Despite the favorable comments, including the ContractsProf Blog entry, the court noted that there were also less favorable comments about the plaintiff's scholarship (the court actually noted in a footnote that one of the reviewers did not give the ContractsProf Blog honorable mention "any weight"). The court also found that the favorable comments did not mean that the plaintiff's denial of tenure must have been based on racial discrimination. The court eventually concluded, after much analysis (a great deal of it redacted), that the plaintiff wished for the court "to weigh in on the merits of the University's academic judgments in a manner that is contrary to the legal principles governing these disputes." 

The court also found the plaintiff's contract claims to be time-barred, but, even if not time-barred, not supported by evidence. 

(This is not, btw, the first time we blogged about this case.)

h/t to Prof. Eric Goldman at Santa Clara for sending this case to our attention!

 

Banks Violating Federally Mandated Contract Law Provisions

PNC Bank, Wells Fargo and U.S. Bank have been sued for charging interest from homeowners paying off their mortgages early without disclosing how to avoid the charges in spite of HUD rules requiring the latter (and, in the case of one California plaintiff, the California Unfair Competition Law).  When do they ever learn, you ask yourself? - Not soon enough, seems to be the answer. 

This is how the most recent scandal went down (and might still be, so anyone wishing to pay off their mortgages before time, be aware): Homeowners paying off their mortgages ahead of schedule were charged “post-payment interest charges” for the entire month in which the loan was otherwise paid off.  What’s the big deal, you ask yourself?  Consider this: Lead California plaintiff Sandi Vare alleged that she asked PNC for a payoff statement when refinancing her home in July 2016.  She was charged $1,227.16 in interest for the entire month, despite the fact that her loan was paid off on July 16; roughly $600 too much.  Even for you and I, that’s a good chunk of change.

Banks, it seems, try whatever they can to fog and outright cheat their own clients in many contexts and certainly in the home financing/refinancing ones.  I am personally altering my home loan with Wells Fargo to 1) pay a chunk extra into the principal and 2) pay the loan off in a shorter timeframe than the current one.  The amount of fogging and, in effect, secret “code talk” one has to be subject to or use to achieve such a simple objective is amazing.  For example, if one does not mention the word “recast,” the bank representative may not mention this or may not outline the otherwise relatively advantageous terms of obtaining such a contractual amendment. If one does not very specifically ask for the interest rates and amounts per month, total loan period and interest vs. principal amount, etc. (you get it), the bank – at least Wells Fargo – does not seem to lay out all the details that could work in the borrower’s favor.  Granted, they do if one asks them to do so, but is this this amount of fogging, secrecy, and, in the case of the above-mentioned lawsuit, outright disregard of not only contractual ethics, but also state and federal law what we wish to accept as society just so that banks, who have repeated proved to not follow the law, ethics or even sound market-based risk principles, can continue to make money on services that their customers actively seek to avoid?  One would hope not, but as this case shows, more litigation is apparently needed to continue reigning in overly greedy banks.

The case is Vare et. al v. PNC Bank, U.S. District Court for the Northern District of California, 18-2988. The lawsuit is asking for a nationwide class for breach of contract.  Wells Fargo and U.S. Bank defeated nationwide class status last year as too many state-specific rules were involved in that case. 

When Law Schools Sue to Continue Questionable Practices

The dream of becoming a practicing attorney still attracts many students to law school.  As we know, many will make it in the legal industry, but many will never get a chance as they will either be attrited from their law schools or, yet worse, never be able to pass the bar.  Still, many law schools continue contracting with students they know have a poor chance of ever making it.  From a contracts point of view, this is arguably at least bad faith in contracting if not worse.  See well-known bar passage analyst David Frakt's blog on the issue here.

 

Update: In Which Arbitration Reigns Supreme (Supreme Court Kind-Of Pun Intended)

I just blogged about the Ninth Circuit case of Morris v. Ernst & Young, and the Supreme Court has now come out with its decision, reversing the Ninth Circuit (shorter analysis here). Where the Ninth Circuit found that arbitration clauses prohibiting concerted actions by employees violated the National Labor Relations Act, the Supreme Court found that permitting concerted actions by employees where arbitration clauses existed would violate the Federal Arbitration Act. Justice Ginsburg wrote a long dissent; the majority opinion was written by Justice Gorsuch. The trend out of the Supreme Court has been that arbitration trumps every other policy. The Federal Arbitration Act is like the royal flush of statutes.

In a world where contracts with arbitration clauses govern almost every imaginable transaction, courts are forced into interesting decisions to press against the primacy of arbitration. So, for instance, on the same day the Supreme Court handed down its decision, the Western District of Pennsylvania declined to enforce an arbitration provision in Jones v. Samsung Electronics America, Case No. 2:17-cv-00571-MAP (behind paywall). Jones sought to bring a class action against Samsung based on alleged defects in its S3 cell phones. Samsung sought to arbitrate, citing the contract allegedly contained in the instruction booklet included with the phone. But the court disagreed that the arbitration clause was enforceable. It found that the clause was "tucked away" in a section entitled "Manufacturer's Warranty" contained in a 64-page booklet. The court agreed that the clause might possibly have been more inconspicuous, but found that

the degree of prominence of the Arbitration Agreement here seems calibrated with dual goals: on the one hand, just enough to persuade a court to smother potential litigation; on the other hand, not enough to make it likely that a consumer will actually notice the Agreement and perhaps hesitate to buy. It is one thing to hold consumers to agreements they have not read; it is another to hold them to agreements that, perhaps by design, they will probably never know about.

The court's decision here makes some sense, but it seems rooted in a somewhat fictional hypothetical. I don't know but I feel like Samsung could sell its phones with an instruction booklet with "ARBITRATION CLAUSE" in big, bold, red letters with exclamation points on the front of it, and I'm not sure it would in fact cause most consumers to "hesitate to buy," especially not if the majority of other cell phones contain similar arbitration clauses (the major cell phone carriers do).

But the bigger fiction at issue here is the idea that we're all "voluntarily" entering into these contracts. I mean, we are, to the extent that it's "voluntary" to have a cell phone in today's world. The answer to that question is: It is, to some extent, but not to the extent that we're willing to forego one entirely based on the mere possibility we might want to sue someday and can't. We all take risks, and maybe the court's view is this a risk that doesn't pay off for the consumer, oh, well, but it seems like the consumer has almost no power to take any other kind of risk. (This is, of course, not limited to cell phone contracts. So the real question is: is it "voluntary" to be a consumer in our capitalist society?) Likewise, is it "voluntary" to accept a job that require arbitrations, if you need a job to survive and jobs without arbitration clauses might be tough to come by?

There are statutory ways to shift the supremacy of arbitration, of course, as the Supreme Court's decision acknowledges. And at one point the FCC was contemplating doing something about the type of arbitration clause the court looked at in Jones. Maybe add it to your list of things to contact your representatives about, if you so desire.  

The interplay between arbitration clauses in employment contracts and labor laws

A recent case out of the Southern District of California, Davis v. Red Eye Jack's Sports Bar, Inc., Case No.: 3-17-cv-01111-BEN-JMA (behind paywall), found an arbitration clause in an employment contract unenforceable because it contained a concerted action waiver. Such a waiver violates labor law policy protecting employees' right to concerted legal claims. The court found that the waiver rendered the entire arbitration agreement unenforceable. 

However, the Supreme Court has granted review in the Ninth Circuit case of Morris v. Ernst & Young, LLP, whose precedent this court followed in its ruling. Therefore, the court stayed the action pending the Supreme Court's decision in Morris, as a reversal of Morris would dictate a different outcome to this case. 

 

Secondary-market ticket brokers, "derivative works," and preliminary injunctions

In a copyright-ish case falling under the contract umbrella, Broker Genius, Inc. v. Volpone, 17-cv-8627 (SHS), a recent case out of the Southern District of New York, is a contract case where the likelihood of irreparable harm leads to the court granting a preliminary injunction. 

The case involves software used by secondary-market ticket brokers. Broker Genius owns a particular application, and those who use the application agree to terms of use that prohibited them from creating and distributing "derivative works" of the application. 

The court found that the defendants in this case agreed to be bound by the terms of use: They were required to expressly consent to the terms, which were readily viewable by hyperlink, in order to use the website. The defendants might not have had any memory of clicking their assent, but Broker Genius's evidence was sufficient to establish that the parties had entered into a contract. 

The parties agreed that the "derivative work" clause in the terms of use was not a noncompetition clause. Broker Genius's customers were allowed to compete against Broker Genius; they just couldn't develop a "derivative" software application. The parties agreed to use the dictionary definition of "derive" to interpret the contract: "something that originates from something else." 

The court concluded this meant that the products would be similar and that the similarities in the second product would be traceable to the first. The court found the defendants' software to be "extraordinarily similar" to Broker Genius's software, and those similarities were traceable to Broker Genius, due to the defendants' access to Broker Genius's software and the fact that the defendants' creation of their software happened "immediately" after accessing Broker Genius's software. The court acknowledged that some of the similarities predated Broker Genius's software, or were "logical or obvious," and that defendants had prior knowledge and experience in the industry. However, the weight of the evidence led to a finding that Broker Genius was likely to succeed on its breach of contract claim. 

The court also found that defendants' derivative product was causing Broker Genius to suffer a loss of reputation and good will, which could not be compensated with monetary damages. Therefore, the court issued a preliminary injunction. 

Just to reiterate, fraudulent inducement claims go to arbitration, too

A recent case out of the Eastern District of Missouri, Schoemehl v. Unwin, No. 4:18-cv-00031-JAR, underlines the fact that arbitration is favored in this country, including to decide claims of fraudulent inducement to enter into the contract in the first place. The plaintiff tried to argue that he would not have agreed to the arbitration clause were it not for the alleged fraud committed by the defendant. However, the court noted that the Federal Arbitration Act requires fraud in the inducement of a contract to be submitted to arbitration. Fraud in the inducement of the arbitration clause specifically would be a different question, but the plaintiff was not alleging that. The fraud in plaintiff's allegations went to the substance of the entire contract, and there was nothing about the validity of the arbitration clause itself as separate from the rest of the contract. Therefore, the court stayed the action pending arbitration. 

When gyms are hazardous to your health

It's been a while since I blogged about release of liability clauses in the context of gyms. In case you were missing them, here's a recent one, again out of Pennsylvania, Vinson v. Fitness & Sports Clubs, LLC, No. 2875 EDA 2016. 

Vinson was a member of an L.A. Fitness gym. While using the gym, she tripped and fell on a wet floor mat and suffered injuries. She sued L.A. Fitness for negligence. L.A. Fitness pointed to its clause in its membership agreement releasing it from liability for, inter alia, "accidental injuries." The trial court granted L.A. Fitness's motion for summary judgment on the basis of this clause, and Vinson appealed, arguing that the clause was invalid as against public policy because her claims involved the maintenance of gym facilities, which was "a vital matter of public health and safety." L.A. Fitness argued that the membership agreement was merely a contract between two private parties and did not implicate public policy. 

The court sided with L.A. Fitness. The court noted that, in other cases, courts had upheld the identical clause in L.A. Fitness's membership agreement. There were no factual differences in Vinson's case that set it apart from these other cases. Vinson joined the gym voluntarily and went to the gym voluntarily. She chose to subject herself to the provisions of the membership agreement. Public policy did not point against its enforcement. 

Minor's disaffirmance of a contract frees them from the arbitration provision, too

I never spend a lot of time on minors and contracts, because I teach a one-semester Contracts course and it just has to keep moving, but this is an interesting case delving into the issue in much more detail than I can get around to, recently out of the Northern District of California, T.K. v. Adobe Systems Inc., Case No. 17-CV-04595-LHK (behind paywall). 

T.K. was a minor who was given a license to access Adobe's Creative Cloud Platform. In order to access the platform, T.K. agreed to the terms of service. The license auto-renewed after a year, and T.K. contacted Adobe to disaffirm renewal of the license. Adobe eventually (although apparently not immediately) refunded T.K.'s money for the renewal, but T.K. sued alleging injury because she was deprived for some time of use of the funds auto-debited by Adobe. T.K. alleged that Adobe initially refused to allow T.K. to disaffirm the auto-renewal, in contravention of law. (T.K. also alleged that Adobe's terms of service implied that users still had to pay even after cancellation, also in contravention of law. I'm not going to focus on that, but the allegation did survive the motion to dismiss.)

Adobe argued that T.K. was relying on the choice of law provision in the disaffirmed contract and so should also be held to the arbitration provision of that contract, because minors cannot cherry-pick which portions of a contract they disaffirm. The court, however, said that T.K. was not cherry-picking. Rather, T.K. had disaffirmed the entire contract. The reference to the choice of law provision was only to buttress her independent choice of California law to resolve the dispute between the parties. Therefore, T.K. was not bound by the arbitration provision. 

The opinion discusses lots more causes of action, if you're curious.