ContractsProf Blog

A Messy – but Fashionable – Dispute Among (Former) Friends

The New York Time’s Style Section had an article about André Leon Talley’s legal troubles with George Malkemus, the former head of Manolo Blahnik USA, and Anthony Yurgaitis, his business partner and husband.  According to the article, the couple bought a house in 2004 for $1million and agreed that Mr. Talley would occupy it and pay a certain amount each month.  They said that the monthly payment was “rent” and the three signed a two-year lease agreement which was renewable for up to eight more years.  The lease expired in 2014 and was not re-signed.  Talley continued paying monthly, but the amount varied “widely depending on his income.  In November 2020, Malkemus and Yurgaitis filed to evict their (former) friend.  But in January, Talley filed a counterclaim which claims that Malkemus and Yurgaitis bought the house and held the mortgage as “proxies” for him.  They did this, according to Talley, because his ability to get a mortgage was “complicated” by several previous personal bankruptcies.  Talley further claimed that the monthly payments by him were an “equity investment” which was intended to allow him to own the house.  His petition claims that he has paid nearly $1million ($955,558), and requests that the house be placed in trust until he can prove his ownership.  Malkemus, on the other hand, argues that it is his house, and that Talley owes him nearly half a million dollars (presumably in back rent).  To make this an even better final exam fact pattern more complex situation, Talley claims that he spent $12,000 on a new boiler and $30,000 on a new roof for the property.  He also claims that, back in 1999, Malkemus bought a car for Talley who, for unspecified reasons, was “unable” to do it for himself.  At that time, Talley wired the money to Malkemus who then went to the dealership to purchase the vehicle for Talley.  Talley is claiming this is “precedent” for the current situation.

What a mess – and one that is absolutely bursting with contract issues!  The Statute of Frauds rears its head as does the parol evidence rule. There is also the issue of consideration – what was Malkemus getting in return for going through all this trouble for Talley?  There are also interesting restitution and implied contracts questions.  Of course, there are interpretation and contractual intent discussions to be had.  Alas, in the end, I think – at least based on the article and a quick skipping through of the contract issues – Talley has a tough case to prove without anything in writing to evidence the arrangement existed.  Perhaps more facts will come to light, but without more, it looks to me like a gift that, over time, created expectations of entitlement.

Hey There, Wood v. Boynton Fans!

As CNN reports here, a man, who seems to have chosen anonymity, bought a small floral bowl at a garage sale for $35.  It turns out to be a 15th-century antique commissioned by the Ming dynasty's imperial court and worth around $300-500,000.  The buyer must have suspected that the bowl was valuable, as he sent photographs to specialists shortly after the purchase.

Unilateral or mutual mistake?

Between buyer and seller, who ought to bear the risk of this mistake?

Crazy Stuff in the World of Law Reviews

I recently learned that the top law reviews submit articles that they are considering publishing for outside review.  I do not know the details.  Based on reports on Twitter, the people who do such reviews often do not know the extent to which the student editors rely on such outside reviews.  Nobody asked my opinion, but I think this, coupled with exclusive review and the separate submission model to which the top student-edited journals have moved, is a terrible development.   The playing field tilts towards the people with the best letterhead, and exclusive review and peer review that is not blind review (because it can't be) just make matters worse.

I have written in praise of student-edited journals before, and so it seems time to dust off this post from 2013 (edited a bit).  In short, the system was imperfect, but it was never broken, so there was no need for a fix.  The hundreds of student-edited journals are not the only game in town, so if you prefer peer review, there are venues for that.

My post from 2013 starts with a discussion of the Peer Review Scholarship Marketplace, which seems to be defunct or it may be the basis for today's practice -- I don't know.  

For years, there has been a movement to replace student-edited law reviews with a more professional model.  Judge Posner threw his support behind an operation called PRSM -- the Peer Reviewed Scholarship Marketplace.  But the idea has not caught on (judging by the stagnating PRSM membership).  In my view, it is a fine thing to have different models out there, so it is fine with me that some student-edited journals are experimenting with peer review (and I hear anecdotally that many student-edited journals have been doing so informally all along).  But my main point here is to stress how we all benefit from student-edited journals, and law professors should stop griping and realize how lucky they are to have the current arrangement.  

I have written on this subject before here, emphasizing the benefits students derive from their work on law journals.  . . .

In this post, I would like to address some of the advantages of student-edited journals from the author's perspective.  The main advantages of student-edited journals is that they are plentiful and rely on free labor.  Since as I explained above, the labor is a valuable component of legal education, I don't feel too badly for the students who are not paid for their editorial work.  But their efforts are responsible for raising the level of legal scholarship well above that of other humanities and social sciences.  

When I was a historian, I submitted articles for peer review.  I waited 3-6 months for readers' reports.  Sometimes the readers' reports were positive, and my article got published without further editing beyond typesetting.  Other times, I was told to revise and re-submit.  In general, I would say that the suggested revisions were recommendations that I recast my own research to satisfy the reviewer, and I was not always convinced that doing so would enhance the quality of the piece.  But I would do my best to revise, and there were times when my attempts to satisfy the reviewer were unsuccessful.  I could move on to the next journal, but I don't think I ever did.  I published in a specialized field, and there were usually only a couple of journals where it made sense for me to publish.  The universe of qualified reviewers was also limited.  Two of my historical writings, to which I devoted months of work were never published, and one of them should have been.  

Without a doubt, legal scholars benefit from being able to submit simultaneously to scores of publications.  If none of those publications bite, we wait six months for the next round and try our luck with a fresh crop of editors who may not have the benefit of a meaningful institutional memory.  At some point, worthwhile scholarship finds its way into print, and as long as the publication is included on a database, and most journals are, students, attorneys, and scholars can find it regardless of the prestige of the publication.  

Okay, so what is the downside?

One potential downside is that a lot of useless nonsense gets published.  I would be very interested to see evidence that peer review prevents the publication of useless nonsense.  People bandy about the statistic that 40% of law review articles are never cited.  Okay, is a higher percentage of peer reviewed material cited?  In any case, as I wrote in another post:

As for scholarship itself, Brian Leiter was here a few weeks ago to deliver our annual Seegers Lecture on Jurisprudence.  In response to a question about the value of scholarship, he said something very close to my view.  Most of what gets published is a dead end.  But a certain percentage of it is very valuable, and there is no way of telling ex ante which scholarship is going to move the ball in a meaningful way.  That's why we need lots of people doing their best to move the ball and why we need to continue to support faculty scholarship. 

The other downside is that students are incompetent as editors not only in selection but also in the way they deal with the text.  This, I say, is nonsense.  Peer review may be more rigorous but peer editing clearly is not.  Whenever I have submitted essays for peer review, the final product is almost identical to the original, except for formatting and the repair of the odd typo.  Student editors work hard to improve the quality and clarity of the writing, and they also find authority where it is lacking.  They make us seem much more lucid, knowledgeable, and careful than we really are -- or than we are when we first submit our offerings up for publication.  

The last time I published in a peer-review, peer-edited journal, my piece was: 1) accepted, 2) rejected following a coup on the editorial board, and 3) re-accepted after the coup unraveled.  The re-acceptance was conditional on revisions.  The readers' reports came to me nearly two years after the original submission, but I received many vague missives from the journal suggesting that I had very little time to make the necessary changes or the journal would pass on publication.  I made the requisite changes (which were idiotic and necessitated a new research project) and re-submitted.  For months, I heard nothing.  My inquiries received no response until I received the page proofs.  The page proofs corresponded to my original draft.  That's right, the "professional editors" who insisted that I revise my article were then prepared to publish my article without the revisions.  Publication followed some months later, well over two years after the article was first accepted for publication.  I know we all have horror stories about student editors, but could they really have done much worse than that?

I have been storing these thoughts up for a while, hoping that I would one day have the time to publish them in a student-edited law journal.  For now, a blog post will have to do.

I am eight years down the road and still grateful that I can simultaneously submit to as many student-edited journals as I like, confident that one will take them, and then I will have six months (at least) to revise, at which point the student editors will get to work and make certain that my piece is sufficiently clear and that my claims are adequately supported.

That said, I wonder what problem we think we are solving through by supplementing student review with peer review.  From what I hear the peer review is not double-blind, nor could it be in the typical case.  The * note on the typical law review article in a top journal often names 15-30 people who have already read and commented on drafts, along with a smattering of conferences and workshops at which the article has already been presented.  People at top law schools often workshop their pieces for months before they submit them for publication.  By that time, the people most eligible to serve as reviewers have already provided their feedback.  They already like or dislike the project, so having people who already have formed opinions about the authors and their work does not really tell the journals whether or not the article is suitable.  And there is the huge danger on the other side.  If the eligible reviewers have never previously seen a piece, might they not be inclined to think, "Who is this person writing in my field?  Why haven't I seen it?"  And if those thoughts run through the reviewers' heads, might they not be inclined to more skepticism that they might have when reviewing a known quantity?  Isn't that why we have double-blind review in the first place?

The system is rigged in ways that cannot change, and given other variables, beyond the control of student editors, I don't think they should.  Top 20 law review have to publish people from top law schools because if untenured people from top law schools cannot place their pieces in the top 20, they won't get tenure.  Moreover, people at top law schools have all sorts of advantages in preparing their scholarship for publication.  They have the workshopping opportunities, the colleagues devoted to scholarship with whom they can bat about ideas, colleagues in other departments with whom they can collaborate, more money for research assistants and are more likely to have research assistants who have strong research skills, better access to libraries, databases and support staff, and a better shot that the people they want to interview will take their calls.  They have lighter teaching loads, more teaching assistants, and often a pre-tenure sabbatical.  They have more opportunities to take visiting positions at other law schools and benefit from lighter administrative duties and new colleagues and stimuli.  All of these things enhance the quality of scholarship coming from top law schools, and so the system would be rigged in their favor, even where it not the case, as I believe it is, that the faculty at top law schools are generally excellent scholars, who often have advanced degrees, and have done fellowships before starting full-time teaching that helped them to shape their research agendas. 

None of this is the fault of the student editors.  On the contrary, all of this provides background for why, all else being equal, student editors at top journals would be more likley to accept submissions from faculty members at top schools.  It is irksome that they feel compelled to add a form of peer review to their selection process.  It creates another barrier to entry where the barriers to entry are already high enough.  

More on Robinhood's Customer Agreement

Former contracts prof and presidential candidate (note the order), Sen. Elizabeth Warren slammed Robinhood in a statement released February 17^th for hiding its forced arbitration clause “behind dozens of pages of legalese.”  The statement was in response to the trading app’s response to an earlier letter where Sen. Warren questioned the reason for abruptly halting trading of GameStop shares.  In that letter, dated February 2, Sen. Warren raised concerns about the relationship that Robinhood had to “large hedge funds and other financial institutions” and questioned whether it was treating its investors "honestly and fairly." 

As I noted in an earlier post, despite claiming to “democratize finance,” Robinhood’s fine print looks just like that of large brokerage and banking firms.  Given the lawsuits that have been filed against the company, Sen. Warren is particularly concerned about the forced arbitration clauses.  There are at least thirty class-action lawsuits that have been filed against Robinhood. 

Interestingly, just last week, a California federal judge refused to dismiss a proposed class action alleging that Robinhood’s repeated service outages harmed investors.  The litigation was filed last year before the Game Stop excitement.  I’m not sure why the case didn't get shunted into arbitration, but did notice that Robinhood’s current Customer Agreement was updated December 30, 2020.  Did the prior agreement not contain an arbitration clause?  Robinhood doesn’t seem to post its prior agreements on its website so without doing more digging, I don’t know…

As noted in a previous post, in addition to forced arbitration, other clauses buried in the fine print will make it tough for plaintiffs.  Of particular relevance, Paragraph 16 – Restrictions on Trading – on page 10 of its Customer Agreement, states that Robinhood “may, in its discretion, prohibit or restrict the trading of securities…in any of My Accounts.”  Certainly, this provision is subject to the duty of good faith.  Yet, even if, for the sake of argument, it did breach its duty of good faith (by halting trading to protect its hedge fund friends), there is an extensive limitation of liability clause that protects Robinhood from, well, pretty much anything.  A court might find that this broad limitation of liability clause hidden in the fine print is unconscionable or against public policy but that would only be if the case actually made it before a court, which might be unlikely if the forced arbitration clause is upheld.

Tuesday Top Ten - Contracts & Commercial Law Downloads for February 23, 2021

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 25 Dec 2020 - 23 Feb 2021

Rank	Paper	Downloads
1.	New Zealand's Unfair Contract Terms Law Fails to Incentivise Businesses to Remove Potentially Unfair Terms from Standard Form Contracts Victoria Stace, Emily Chan and Alexandra Sims Victoria University of Wellington - Faculty of Law, Victoria University of Wellington and The University of Auckland	270
2.	Smart Legal Contracts: A Model for the Integration of Machine Capabilities Into Contracts Natasha Blycha and Ariane Garside Herbert Smith Freehills and affiliation not provided to SSRN	193
3.	Whiteness as Contract Marissa Jackson Sow Open Society Foundations (OSF)	159
4.	Does Voter Fraud Pay? Texas Lt. Gov. Dan Patrick’s $1 Million Voter Fraud Offer Michael Conklin Angelo State University	158
5.	General Principles of EU Corporate and Insolvency Law Federico M. Mucciarelli Università degli studi di Modena e Reggio Emilia (UNIMORE) - Dipartimento di Economia Marco Biagi, Modena	138
6.	Mandatory Arbitration and the Boundaries of Corporate Law Asaf Raz University of Pennsylvania Law School	125
7.	Trust and Contracts: Empirical Evidence Francesco D'Acunto, Jin Xie and Jiaquan YAO Boston College, The Chinese University of Hong Kong (CUHK) and affiliation not provided to SSRN	109
8.	Freedom to (Smart) Contract: The Myth of Code and Blockchain Governance Law Tiffany Sillanpaa New York University School of Law Law School	102
9.	Rules of Medical Necessity Amy Monahan and Daniel Schwarcz University of Minnesota - Twin Cities - School of Law and University of Minnesota Law School	101
10.	Non-Competes and Other Contracts of Dispossession Sandeep Vaheesan and Matthew Buck Open Markets Institute and affiliation not provided to SSRN	95

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 25 Dec 2020 - 23 Feb 2021

Rank	Paper	Downloads
1.	New Zealand's Unfair Contract Terms Law Fails to Incentivise Businesses to Remove Potentially Unfair Terms from Standard Form Contracts Victoria Stace, Emily Chan and Alexandra Sims Victoria University of Wellington - Faculty of Law, Victoria University of Wellington and The University of Auckland	270
2.	Six Levels of Contract Automation: Evolution to Digitalised Smart (and Legal) Contracts Susannah Wilkinson Herbert Smith Freehills	216
3.	Does Voter Fraud Pay? Texas Lt. Gov. Dan Patrick’s $1 Million Voter Fraud Offer Michael Conklin Angelo State University	158
4.	Mandatory Arbitration and the Boundaries of Corporate Law Asaf Raz University of Pennsylvania Law School	125
5.	Trust and Contracts: Empirical Evidence Francesco D'Acunto, Jin Xie and Jiaquan YAO Boston College, The Chinese University of Hong Kong (CUHK) and affiliation not provided to SSRN	109
6.	Freedom to (Smart) Contract: The Myth of Code and Blockchain Governance Law Tiffany Sillanpaa New York University School of Law Law School	102
7.	Non-Competes and Other Contracts of Dispossession Sandeep Vaheesan and Matthew Buck Open Markets Institute and affiliation not provided to SSRN	95
8.	Ending the License to Exploit: Administrative Oversight of Consumer Contracts Yehuda Adar and Shmuel I. Becher University of Haifa and Victoria University of Wellington	89
9.	Seductive Oral Deals Shmuel I. Becher, Yuval Feldman and Meirav Furth Victoria University of Wellington, Bar-Ilan University - Faculty of Law and UCLA School of Law	79
10.	Justice in Transactions: A Public Basis for Justifying Contract Law? Martijn W. Hesselink European University Institute	73

Judge Shaves the Foam off the Cold Brew Served up at Red Robin

I guess this is a breach of contract case.  As reported here (and elsewhere), a bunch of Stella Artois enthusiasts filed a nationwide class action against Red Robin, alleging that they had paid for sixteen-ounce beers but were served in fourteen-ounce glasses. If you multiply those two ounces by all the sales at the franchise-owned stores, you get yourself to the $5 million amount in controversy requirement and qualify to make a claim under the Class Action Fairness Act.  Or so Red Robin Claimed in trying to move the case to federal court.  U.S. District Judge Jennifer Dorsey rejected Red Robin's math and remanded back to state court.  Red Robin's calculations left out the inconvenient fact that  the issue was only two ounces of beer per each sixteen-ounce sale and that not all beer sales were for sixteen-ounce beer sales.

Judge Dorsey then lit up Red Robin with beer puns:

• Red Robin's figures are mostly foam 
• [Plaintiff's] remand motion takes the fizz out of those numbers
• Red Robin distills this number down further
• [T]emperance must be exercised
• Red Robin tries to tap into sales 
• Nor has Red Robin shown that a fee award will get it to the fill line
• Red Robin attempts to satisfy [its] burden with a strange brew
• Red Robin makes no effort to address that stout disparity

I'm generally not a fan of jokey legal opinions, as it denigrates the parties' claims.  But as this is only a ruling on a procedural motion in a case where not much seems to be at stake, I raise my glass to Judge Dorsey.

[h/t to OCU 1L Howard Hennessey]

 

Court Refuses Citibank's Request for a $900 Million Mulligan

Matt Levine provides on Bloomberg the tl;dr version of Judge Furman's 105 page ruling in In re Citibank August 2020 Wire Transfers. I will simplify even further.  

Citibank mistakenly sent $900 million in wire transfers to a bunch of entities that were lenders on a Revlon loan that Citibank was administering.  That loan was about to be aggressively restructured, and the lenders that Citibank paid were going to end up with subordinated debt.  They were just about to file suit to challenge the restructuring when the payments came.  Some lenders returned the money.  Others were happy, and they were only happier when Citibank told them that the payments were erroneous and asked that they be returned.  "Go pound sand" or words to that effect. 

Matt Levine's article delights in the hilarious details of the nightmarishly counter-intuitive software system that caused Citibank's mistake:

Citi’s software will only let you pay principal to some lenders if you pretend to pay it to every lender, and it will only let you pretend to pay principal to every lender if you check the “just pretend” box next to “PRINCIPAL” (fine!) and “FUND” (what?) and “FRONT” (what even?). What a terrifying thing. 

It should surprise nobody that, as a general matter, if you send money to the wrong person, you can get it back.  However, under the discharge-for-value rule, typically illustrated in the Banque Worms case, the recipient can keep money it was actually owed, even if the sender did not intend to pay or did not intend to pay yet.  If the recipient knew of the mistake, the discharge-for-value rule will not apply, but the lenders here had no reason to suspect a mistake.

When Citibank asked for its money back, the lenders clearly were put on notice of the mistake, and they chortled and sent each other witticisms about how somebody at Citibank was going to have to update their resume.  The timing of that response was telling, however, and fatal for Citibank.  We know exactly when the lenders learned of the mistake, and it was too late for Citibank to avail itself of the exception to the discharge for value rule.

It seems that Citibank accidentally loaned Revlon $500 million, and Matt Levine's research suggests that the debt is currently valued at 42 cents on the dollar.  It's not a great day for Citibank, but it's also not the end of the world.  It's had worse days.  And perhaps it got off easy.  Now it knows that it has an impossible problem with its software system.  Perhaps it can address that, but before it does so, I've got to figure out a way to lend some money to a company whose loan is administered by Citibank.  

Weekend Frivolity: Sarah Dooley Explains Infancy Doctrine in "Stupid Things"

Readers of this blog are probably tired of me taking every possible opportunity to encourage people to download Sarah Dooley's new album, Is This Heartbreak?   I know.  It's tiresome.  But Sarah is the daughter of my fabulous former colleague, Laura Dooley, and I can honestly say that Sarah is to music what Laura is to Civil Procedure.  I can also honestly say that I don't know what that means.

I've decided to turn over a new leaf.  Today, I'm pushing people to buy Sarah's first album, Stupid Things. And the infancy doctrine has given me a reason to do so.  Readers of this blog are familiar with the infancy doctrine, which lets people under age 18 disaffirm their contracts, often without any adjustment for depreciation or damage (unless caused by the infant's tortious conduct).  Seems nuts, especially if the contracts are basically fair and the infant gets to enjoy whatever was bought without having to compensate the seller for depreciation.  Sarah's lyrics on the title track explain why this might make sense from a policy perspective:

You're allowed to do stupid things
When you're young
People look the other way
It's okay
At least that's what people say
You're allowed to try pot
You're allowed to get shot
You're allowed to do anything once
Cause you're young
Yeah you're young
Yeah you're young

Public policy analysis you can dance to.

Danielle Kie Hart on Changed Circumstances and Covid-19

In the past year, much has been written on whether force majeure clauses and changed circumstances doctrines would – and should – be used to excuse contractual performance affected by Covid-19.  Danielle Kie Hart of Southwestern Law School has just posted to SSRN an interesting article on this very topic.  In her article, “If Past is Prologue, Then the Future is Bleak:  Contracts, Covid-19 and the Changed Circumstances Doctrines,” Hart conducts an empirical study that demonstrates that changed circumstances doctrines have not been particularly successful in the past.  She argues, however, that they should be more widely used in order to address some of the systemic problems caused by private contracts – problems which have been exposed so clearly as a result of the pandemic.  The abstract follows:

At the heart of most of the systemic problems currently confronting individuals and businesses as a result of the COVID-19 pandemic is quite literally a contract. Housing. Insurance. Food. Health Care. Child Care. Employment. Manufacturing. Construction. Supply Chains. You name it. Contracts are implicated everywhere. So, make no mistake, how contract law addresses these ostensibly private contracts will have profound social consequences. If the past really is prologue, then the future is indeed bleak. The empirical study conducted for this Article establishes what the conventional wisdom has claimed for the last 70 years. More specifically, the empirical study here shows that the common law’s changed circumstances doctrines [“CCDs”] (i.e., impossibility, impracticability of performance and frustration of purpose) will generally not excuse a party from performing his contract, regardless of the changed circumstance being alleged. Contrary to all of the CCD literature that addresses this issue, this Article makes the unconventional argument that the CCDs should be more broadly available, meaning they should be more successful in excusing contract performance when triggered by catastrophic circumstances. And, unlike the rest of the field which focuses on the CCDs themselves, this Article argues that to effectively address the allocation of unforeseen risks, in general, and catastrophic risks like a pandemic, in particular, we must reframe the legal approach to contract formation. If contract formation is reframed to more accurately reflect contracting in the real world, and given that the solution to the changed circumstances problem preferred by courts and commentators is an explicit risk allocation term in the parties’ contract, then the solution proposed in this Article to the risk allocation problem literally suggests itself. A risk allocation clause should be mandated in most contracts as part of contract formation. The type of risk allocation and loss clause and the way the clause would work would depend on whether the contract is co-drafted or adhesive. The inclusion of a risk and loss allocation clause would facilitate transactions and encourage contracting in general by ensuring that contracts remain efficient and predictable. The main difference between the risk and loss allocation clause proposed here and existing contract law, of course, is who ends up bearing all of the risk and loss occasioned by the catastrophic changed circumstance. To be clear, if nothing changes and our approach to contract formation remains the same as it is right now, then all of the risk and all of the attendant loss will generally be left to lie where it falls, namely, on the party trying to get out of the contract because of the changed circumstances; and this will be result regardless of the legal theory used to justify (or demonize) the CCDs or any changes made to the doctrines themselves. But, If we finally acknowledge the public aspects of contracts and contract law, namely, that they do in fact produce social consequences that extend beyond the individual contract and contracting parties, then contracts and contract law may well be part of the solutions to some of the most pressing problems currently confronting American society now and into the future.

More on William Perdue's Legacy at Duke: Willful Breach in M&A Contracts

Earlier this week, we posted about "Lipstick on a Pig": Specific Performance Clauses in Action, by Theresa Arnold, Amanda Dixon, Madison Sherrill, Hadar Tanne, and Mitu Gulati.  The same authors have another article, Damages as a Function of Fault: Willful Breach in M&A Contracts.   Both articles, as well as The Myth of Optimal Expectation Damages, about which we blogged in September, were made possible by a grant to the Duke University School of Law from the family of William Perdue.  The fund was meant to encourage collaborations in the vein of Lon Fuller and William Perdue from the 1930s.  At the time they wrote their pathbreaking works on the reliance interest, Lon Fuller was on the Duke faculty, and William Perdue was a 3L! 

Here's the abstract for the latest, free from SSRN

The traditional framework of U.S. private law that every first-year student learns is that contracts and torts are different realms: contracts is the realm of strict liability and tort, of fault. Contracts, we learn from the writings of Holmes and Posner, are best viewed as options: they give parties the option to perform or pay damages. The question we ask is whether, in the real world, that is indeed how contracting parties view things. Using a dataset made up of a thousand M&A contracts and thirty in-depth interviews with M&A lawyers, we find that there is at least one significant area of transactional practice that rejects the “fault is irrelevant to contract breach” perspective.

Ten years ago, Omri-Ben-Shahar and Ariel Porat published a book on the subject of Fault in American Contract Law.  The book is the product of a conference that I attended.  That conference included one of the most memorable moments I have experienced in the academy.  Richard Posner delivered a paper called "Let Us Never Blame a Contract Breaker."  George M. Cohen (pictured) presented a paper arguing, more or less, the opposite, which was entitled "The Fault that Lies Within Our Contract Law."  As he started his paper, Professor Cohen noted that it had occurred to him that Judge Posner's title was trochaic pentameter, while his was iambic pentameter.  The difference between the two papers, Professor Cohen observed, was really just a matter of emphasis.

Magnifique!

Guest Post: Furth-Matzkin, Feldman, & Becher, Uprooting Seductive Oral Deals

Uprooting Seductive Oral Deals

* By Meirav Furth-Matzkin, Yuval Feldman & Samuel Becher

The law generally assumes that contracting parties assent to a contract’s terms after reading and understanding them. However, the proliferation of standard form contracts in transactions between consumers and businesses has challenged this assumption.

Navigating their lives in an increasingly complex world, consumers must often resort to the oral representations of salespeople to gain a basic understanding of the transactions they contemplate. While these oral representations may be persuasive, they are regularly disclaimed or qualified in the fine print of standard form contracts that most consumers sign without reading.

There are legitimate reasons for enforcing the written terms of contracts, even when they contradict previous oral representations. However, unique behavioral forces and contracting realities render consumers particularly vulnerable to misleading oral statements made by salespeople and challenge the rationale behind enforcing the written terms.

Various social and psychological forces lead consumers to trust salespeople. Consumers expect salespeople to have a good familiarity with the product or service at stake and the company’s attendant policies. Consumers also tend to believe that legal liability provides a strong deterrent against misrepresenting the terms of the transaction. Furthermore, a host of cognitive biases–such as optimism, motivated reasoning, and confirmation bias–may prompt consumers to interpret pre-contractual oral exchanges in ways that reinforce their decision to enter the transaction. In the process, consumers are likely to ignore useful information that would complicate this decision, a phenomenon that is also known as the “ostrich effect.”

Meirav Furth-Matzkin

In addition, behavioral ethics provides insight into why salespeople might be prone to misrepresent a deal to consumers. Indeed, recent studies demonstrate that “ordinary unethicality”–behaviors such as stealing office supplies from work, misreporting tax benefits, or double parking–is far more pervasive than previously assumed. Such misconduct occurs regularly, yet has received scant attention.

In the context of seductive oral deals, salespeople may convince themselves that oral misrepresentations constitute a legitimate marketing technique. They may also believe that aggressive marketing is prevalent and acceptable in consumer markets. In addition, there is evidence that people are more likely to lie when communicating orally. Salespeople may convince themselves that “everyone does it,” and that “this is the only way to survive in this business.”  

Moreover, salespeople may redirect the blame of making such statements onto consumers, finding them “guilty” of misinterpreting ambiguous statements. In a similar vein, salespeople may scold consumers for relying on oral statements that contradict the terms of the written contract. After all, salespeople may believe that consumers should read the contract before accepting it.

Even more disturbingly, salespeople are more likely to justify unethical behavior when interacting with consumers with dissimilar demographic characteristics due to an “in-group” (or “homophily”) bias. For example, a white middle-class male seller may be more likely to mislead a poor African-American female customer.

Misleading oral deals generate considerable social costs. Consumers are harmed when they enter into transactions based on inaccurate information. Worryingly, they are often also deterred from asserting their rights after realizing they were misled. This is because consumers typically feel legally and morally bound by the written contract, even if it contains terms that are void, unconscionable, or otherwise unfair.

Yuval Feldman

Thus, a form contract that negates an oral statement is likely to have a substantial impact on consumers’ legal perceptions. Furthermore, many consumers will forgo any legal action since they cannot afford the potentially high costs associated with litigation. Alas, these harmful effects fall disproportionately on the least assertive and most vulnerable consumers, who tend to lack the resources or confidence in the legal system to vindicate their rights.

Furthermore, society as a whole is harmed when firms engage in dishonest behavior. First, when dishonesty prevails, it is more difficult for honest firms to compete in consumer markets. Scrupulous firms may be driven out of the market or pressed to engage in unethical behavior to survive competition. Second, when dishonesty is legitimized and trivialized, consumer trust—a key virtue in thriving economies and flourishing societies—is gradually eroded.

The protections that the law currently provides against misleading oral deals do not adequately safeguard consumers because they are based on three false assumptions.

First, the law assumes that misleading oral interactions are the rare exception, not the norm. This, we argue, is not the case: empirical evidence and insights from behavioral ethics suggest that misleading oral deals are considerably more common than has been previously assumed.

Second, the law unrealistically expects consumers to read and understand contracts, and to refrain from relying on misleading information and inaccurate promises made by sellers and their agents. However, consumers cannot be expected to read form contracts because they are often too difficult to read and understand. Besides, people are trusting creatures, and consumers cannot realistically be expected to ignore or discount salespeople’s oral assertions.

Samuel Becher

Third, the law overestimates the degree to which consumers will effectively challenge misleading statements. In practice, many consumers are unaware of their rights, unable to assert them, or dissuaded by the fine print.

Preventive measures should primarily focus on businesses, as they are the least-cost avoiders. Firms could be encouraged (or required) to provide strict, detailed guidance on appropriate sales tactics and to prohibit any oral misrepresentations (perhaps even puffery). Businesses should then monitor agents’ statements and penalize those who transgress. Another path to consider is imposing liability on marketing executives who fail to ensure that their personnel does not engage in fraudulent representations.

To supplement these preventive measures, policymakers and consumer organizations could embark on informational campaigns. These campaigns could educate consumers about the prevalence of misleading oral interactions and the risk of trust exploitation. Using a variety of smart tools, educational campaigns may endeavor to make related complaints and legal cases more salient to consumers.

With the understanding that consumers are unlikely to take legal action against deceptive sellers, regulators should facilitate consumer litigation efforts. One recommendation is to allow public agencies and consumer organizations to litigate on behalf of defrauded consumers. These entities could use recordings and mystery shopping to overcome the evidentiary hurdles that misleading oral deals inevitably impose. Additionally, the use of merger, integration, and no-reliance clauses could be limited, and the parol evidence rule could be restricted or eliminated in this context.

Finally, we recommend adjusting corporate social responsibility standards to include a commitment to uproot misleading oral deals. Combined, such measures could assist in combating fraud in the marketplace.

This blogpost is based on our recent article, Seductive Oral Deals.

Tuesday Top Ten - Contracts & Commercial Law Downloads for February 16, 2021

Greetings to you from the, er, UNUSALLY frigid state of Texas where we aren't familiar with this "single digits" or "below zero" terminology that the local weathercasters have been using. Let's try to warm up with the hottest in new contracts and commercial law scholarship:

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 18 Dec 2020 - 16 Feb 2021

Rank	Paper	Downloads
1.	New Zealand's Unfair Contract Terms Law Fails to Incentivise Businesses to Remove Potentially Unfair Terms from Standard Form Contracts Victoria Stace, Emily Chan and Alexandra Sims Victoria University of Wellington - Faculty of Law, Victoria University of Wellington and The University of Auckland	230
2.	Smart Legal Contracts: A Model for the Integration of Machine Capabilities Into Contracts Natasha Blycha and Ariane Garside Herbert Smith Freehills and affiliation not provided to SSRN	171
3.	Does Voter Fraud Pay? Texas Lt. Gov. Dan Patrick’s $1 Million Voter Fraud Offer Michael Conklin Angelo State University	157
4.	Whiteness as Contract Marissa Jackson Sow Open Society Foundations (OSF)	149
5.	Mandatory Arbitration and the Boundaries of Corporate Law Asaf Raz University of Pennsylvania Law School	121
6.	Trust and Contracts: Empirical Evidence Francesco D'Acunto, Jin Xie and Jiaquan YAO Boston College, The Chinese University of Hong Kong (CUHK) and affiliation not provided to SSRN	104
7.	Freedom to (Smart) Contract: The Myth of Code and Blockchain Governance Law Tiffany Sillanpaa New York University School of Law Law School	99
8.	Non-Competes and Other Contracts of Dispossession Sandeep Vaheesan and Matthew Buck Open Markets Institute and affiliation not provided to SSRN	87
9.	Ending the License to Exploit: Administrative Oversight of Consumer Contracts Yehuda Adar and Shmuel I. Becher University of Haifa and Victoria University of Wellington	83
10.	Regulating Digital Currencies: Towards an Analytical Framework Steven L. Schwarcz Duke University School of Law	74

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 18 Dec 2020 - 16 Feb 2021

Rank	Paper	Downloads
1.	New Zealand's Unfair Contract Terms Law Fails to Incentivise Businesses to Remove Potentially Unfair Terms from Standard Form Contracts Victoria Stace, Emily Chan and Alexandra Sims Victoria University of Wellington - Faculty of Law, Victoria University of Wellington and The University of Auckland	230
2.	Six Levels of Contract Automation: Evolution to Digitalised Smart (and Legal) Contracts Susannah Wilkinson Herbert Smith Freehills	209
3.	Does Voter Fraud Pay? Texas Lt. Gov. Dan Patrick’s $1 Million Voter Fraud Offer Michael Conklin Angelo State University	157
4.	Mandatory Arbitration and the Boundaries of Corporate Law Asaf Raz University of Pennsylvania Law School	121
5.	Trust and Contracts: Empirical Evidence Francesco D'Acunto, Jin Xie and Jiaquan YAO Boston College, The Chinese University of Hong Kong (CUHK) and affiliation not provided to SSRN	104
6.	Freedom to (Smart) Contract: The Myth of Code and Blockchain Governance Law Tiffany Sillanpaa New York University School of Law Law School	99
7.	Non-Competes and Other Contracts of Dispossession Sandeep Vaheesan and Matthew Buck Open Markets Institute and affiliation not provided to SSRN	87
8.	Ending the License to Exploit: Administrative Oversight of Consumer Contracts Yehuda Adar and Shmuel I. Becher University of Haifa and Victoria University of Wellington	83
9.	Justice in Transactions: A Public Basis for Justifying Contract Law? Martijn W. Hesselink European University Institute	72
10.	Seductive Oral Deals Shmuel I. Becher, Yuval Feldman and Meirav Furth Victoria University of Wellington, Bar-Ilan University - Faculty of Law and UCLA School of Law	64

William Perdue's Legacy Lives on at Duke Law: Specific Performance Clauses in Action

Last September, we blogged about a paper by Theresa Arnold, Amanda Dixon, Madison Whalen, and Mitu Gulati on The Myth of Optimal Expectation Damages.  I have subsequently learned that the research for that paper was funded by a grant to the Duke University School of Law from the family of William Perdue.  The fund was meant to encourage collaborations in the vein of Lon Fuller and William Perdue from the 1930s.  At the time they wrote their pathbreaking works on the reliance interest, Lon Fuller was on the Duke faculty, and William Perdue was a 3L!   

When I was a 3L, I was fortunate to contribute to a book project organized and overseen by Thomas M. Franck (pictured).  The experience of working closely with a faculty member and seeing a project through to completion with him was a great supplement to the note-writing experience.  My chapter was not as successful as William Perdue's 3L writings, but it initiated me into the world of legal scholarship.  Another student contributor to that project, Kristen Boon, also joined the legal academy and teaches, among other things, international business transactions.  I benefitted tremendously from working with Tom Franck, Kristen, and the other fellows.  Each year, Professor Franck would work with a different group of students and international law scholars on a conference that would yield an edited collection of essays.  The students who participated in these projects were known as Franck fellows and, over the years, dozens became law professors.  That hidden legacy is a vibrant part of Tom Franck's contribution to the scholarly community.

The papers in the Duke Law series appropriately focus on damages.  A new paper in the series is forthcoming in the Wisconsin Law Review This one is authored by Theresa Arnold, Amanda Dixon, Madison Sherrill, Hadar Tanne, and Mitu Gulati and is entitled "Lipstick on a Pig": Specific Performance Clauses in Action. Here is the abstract from SSRN: 

The black letter law says that money damages are the preferred remedy for contract breach under US law. Specific performance is reserved for extraordinary circumstances. Contract theory tells us that default rules generally reflect what a majority of contracting parties would agree to, had they considered the matter. But do contracting parties agree with the law’s preference for money damages over specific performance? In a data set of more than 1000 M&A contracts, we find that in over 80% of transactions, parties choose specific performance as their preferred remedy. Using interviews with senior M&A lawyers we seek to unpack the reasons why parties are contracting around the law’s distaste for specific performance and default rule of money damages.

You may discern a pattern.  Both papers discussed in this space challenge our assumption that expectation damages, the default measure of contract damages, are what the parties would agree to if left to their own devices.  

Guest Post: Should We Stop Worrying and Learn to Love Smart Readers?

Should We Stop Worrying and Learn to Love Smart Readers? Contracts in the Age of Real-Life Babel Fish

By Yonathan Arbel & Samuel Becher

Famously, the Hitchhiker’s Guide to the Galaxy features a Babel fish, which is a fictional “small, bright yellow fish, which can be placed in someone's ear in order for them to be able to hear any language translated into their first language.”

Yonathan Arbel

Much of consumer contract law rests on the assumptions that consumer form contracts are unreadable, that consumers in fact do not read such contracts, and that consumers are unable to properly assess the content of these complex forms. This reality facilitates a market failure in the form of information asymmetry, which allows sellers to offer low-quality non-salient contract terms.

Interestingly, however, this troubling equilibrium is now facing disruption. Advances in language models, a branch of artificial intelligence, have given rise to a new type of technology – one we dub “Smart Readers.” As we note in Contracts in the Age of Smart Readers, smart readers are a real-life version of Babel fish. In essence, they are capable of no less than simplifying, personalizing, constructing, and even benchmarking contracts.

Smart readers can effectively read contracts and explain their content to ordinary people, employing plain language. Using a Smart Reader, a prospective consumer can pull out her phone, scan any contractual clause, and click ‘explain.’ The smart reader will respond by providing a summary that is succinct, personalized, and direct.

In our article, we consider a few interesting illustrations. One of them is the following standardized clause, which is packed with legalese:

12. Controlling Law and Severability. This License will be governed by and construed in accordance with the laws of the State of California, excluding its conflict of law principles. This License shall not be governed by the United Nations Convention on Contracts for the International Sale of Goods, the application of which is expressly excluded. If you are a consumer based in the United Kingdom, this License will be governed by the laws of the jurisdiction of your residence. If for any reason a court of competent jurisdiction finds any provision, or portion thereof, to be unenforceable, the remainder of this License shall continue in full force and effect.

By clicking ‘explain’, the smart readers produces the following:

[The clause] means that if there are any disputes about the contract, the courts will rely on the law of the state of California to make their decision.

If the reader is young, the smart reader will tailor its explanation to the reader’s age, by clarifying that: 

The parties want the law that will apply to this contract to be California law. This is where the company is located. If there is a problem with the contract, the judge will look to California law to solve it.

 

At the same time, for users who think better in terms of examples, tapping on the ‘example’ function of the smart reader produces the following illustration:

Lets [sic] say you and the record company disagree about something to do with this contract . . . So the judge will rely on California state law when deciding what the contract means.

We did not write these examples. It is GPT-3, a recently released version of a language model, that produced these outputs. Remarkably, we used a weak version of this model, and we did not use any fine-tuning.

Samuel Becher

Some readers may nevertheless think that consumers would be unwilling to read even such simplified terms or able to understand them. Here comes handy the capability of smart readers to benchmark; that is, to mark the contract at stake and compare with other contracts offered in the market. Smart readers can even suggest specific alternative contracts that have a better overall score.

An app’s ability to respond intelligently to queries about an unfamiliar legal text, score it and suggest seemingly superior alternatives, represents a technological breakthrough. What would such innovation entail for the law of consumer contracts?

Ideally, smart readers would be affordable (if not free of charge) and accessible. Used by many consumers, these readers will make consumers more aware of their contracts and the risks in accepting them. Smart readers will also empower consumers to compare various contracts, so to choose the ones that best suit their preferences. This, in turn, will pressure firms to compete over contract terms and offer contracts that better serve consumers.

But if this optimistic scenario materializes, what remains from the case for pro-consumer regulation? If consumers can easily read, understand, compare, and shop among contracts, the fundamental market failure of information asymmetry will cease to exist. If consumers are well-informed about their contracts, consumer protection tools and justifications ought to be revisited and refined.

That said, smart readers are not a panacea and it would be imprudent to adopt Dr. Strangelove’s advice and stop worrying. For starters, there are also less optimistic scenarios that require attention. For instance, what if consumers are reluctant to adopt such apps, even if they are cheap, quick, and user-friendly? Surely, low consumer uptake will undermine the potential to improve the market for contract terms. But would that also entail that, contrary to what many consumer protection proponents believe, consumers truly don’t care about their contracts? And if consumers are not concerned about their contracts, to what extent should the law nevertheless strive to protect them?

There are also various risks involved in the emergence of smart readers. One risk is that courts and policymakers will over-rely on such apps, hastily relaxing consumer protection principles. Some consumers may not be able to afford smartphones, or not use such app for other legitimate reasons. Furthermore, these apps are black boxes that can be attacked by sophisticated parties. Smart readers may as well make innocent mistakes, or just oversimplify legal text and thus mislead users.

Either way, smart readers can have broad implications on the law of contracts, and they should get us all thinking about the future of contract law. As the cliché goes, the future is already here.

This post is based on Yonathan Arbel & Shmuel I. Becher, Contracts in the Age of Smart Readers, available here. Comments and criticism are most welcome; please email [email protected] or [email protected].

Privacy Legislation and Contractual Authority

Contracts and data governance go hand-in-hand.  In the absence of regulation, parties engage in private ordering – at least in theory.  But even when there is regulation, contracts often play a pivotal role.  In most cases, data governance laws are essentially laws regulating contracts.  California recently passed the country’s first real sweeping privacy law.  Although it is a giant step in the right direction, it would be better if the opt-out had been an opt-in to the sale of personal information.  I was delighted and surprised when blogmeister Jeremy Telman passed along information about another state that may pass legislation that may be even more proactive and protective of consumers privacy than California’s sweeping new law.  That state?  Oklahoma.  The bi-partisan House Technology Committee unanimously passed the Oklahoma Computer Data Privacy Act, House Bill 1602, which requires technology companies to obtain “explicit” permission to collect and sell consumer data.  The bill now goes to the House floor.

The bill is promising because it presumes privacy protections rather than forcing the consumer to opt-out.  As I know from experience, some companies make it rather difficulty to opt-out by having you mail in written forms rather than clicking a box (contrast that to how easy they make it to enter into a wrap contract in the first place).  Some companies make it hard to figure out how to even opt-out.  Clearly more needs to be done here.

What I particularly like about the Okalahoma bill is that it provides that “contracts or other agreements purporting to waive or limit a right, remedy or means of enforcement are contrary to public policy and are void.”  This provision recognizes what all readers of this blog know by now – nobody reads wrap contracts. 

But in addition to the no-reading problem, there is another reason that this provision makes sense.  Certain issues relating to privacy and data collection should not fall within the purview of individual authority and private ordering.  As I have noted elsewhere, individuals should not be able to consent to everything – some things aren’t, and shouldn’t be, within their authority.  Certain data collecting practices have harms that reverberate throughout society.  As Salome Viljoen argues in this article, which is reviewed by Ari Waldman here ) many current data governance efforts miss the “population-level relations among individuals for how data collection produces both social value and social harm.” 

An individual might consent to a company using that individual’s digital images for a broad range of uses but the use of those images is not limited to that individual.  Those images may be used to create a database that is used to discriminate against someone who did not consent.  Same with many types of data – an individual’s data is aggregated with those of many others and used to make predictions and create algorithms that affect many others.  Furthermore, the more people who participate, the harder it becomes for any one individual to “opt-out” – and the mere fact of refusing may be incriminating. 

Much like a virus, certain data collection practices create harms that spread beyond the individual contracting parties and these harms often mutate. Legislation that doesn't recognize the limits of contracts and consent will always be insufficient to prevent societal harms.

Tuesday Top Ten - Contracts & Commercial Law Downloads for February 9, 2021

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 11 Dec 2020 - 09 Feb 2021

Rank	Paper	Downloads
1.	Contractual Allocation of Risks in Times of Crises: Computational and Normative Analyses of Force Majeure Clauses Farshad Ghodoosi Nazarian School of Business & Economics, California State University, Northridge	321
2.	Economic Challenges for the Law of Contract Alan Schwartz and Simone M. Sepe Yale Law School and University of Arizona - James E. Rogers College of Law	154
3.	Smart Legal Contracts: A Model for the Integration of Machine Capabilities Into Contracts Natasha Blycha and Ariane Garside Herbert Smith Freehills and affiliation not provided to SSRN	151
4.	Does Voter Fraud Pay? Texas Lt. Gov. Dan Patrick’s $1 Million Voter Fraud Offer Michael Conklin Angelo State University	149
5.	Whiteness as Contract Marissa Jackson Sow Open Society Foundations (OSF)	140
6.	Introduction: The Oxford Handbook of the New Private Law Andrew S. Gold, John C. P. Goldberg, Daniel B. Kelly, Emily L. Sherwin and Henry E. Smith Brooklyn Law School, Harvard Law School, Notre Dame Law School, Cornell University - Law School and Harvard Law School	122
7.	Mandatory Arbitration and the Boundaries of Corporate Law Asaf Raz University of Pennsylvania Law School	117
8.	AI Governance in Canadian Banking: Fairness, Credit Models, and Equality Rights Virginia Torrie and Dominique Payette University of Manitoba and affiliation not provided to SSRN	116
9.	Freedom to (Smart) Contract: The Myth of Code and Blockchain Governance Law Tiffany Sillanpaa New York University School of Law Law School	98
10.	Trust and Contracts: Empirical Evidence Francesco D'Acunto, Jin Xie and Jiaquan YAO Boston College, The Chinese University of Hong Kong (CUHK) and affiliation not provided to SSRN	92

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 11 Dec 2020 - 09 Feb 2021

Rank	Paper	Downloads
1.	Contractual Allocation of Risks in Times of Crises: Computational and Normative Analyses of Force Majeure Clauses Farshad Ghodoosi Nazarian School of Business & Economics, California State University, Northridge	321
2.	Six Levels of Contract Automation: Evolution to Digitalised Smart (and Legal) Contracts Susannah Wilkinson Herbert Smith Freehills	198
3.	Does Voter Fraud Pay? Texas Lt. Gov. Dan Patrick’s $1 Million Voter Fraud Offer Michael Conklin Angelo State University	149
4.	Mandatory Arbitration and the Boundaries of Corporate Law Asaf Raz University of Pennsylvania Law School	117
5.	Freedom to (Smart) Contract: The Myth of Code and Blockchain Governance Law Tiffany Sillanpaa New York University School of Law Law School	98
6.	Trust and Contracts: Empirical Evidence Francesco D'Acunto, Jin Xie and Jiaquan YAO Boston College, The Chinese University of Hong Kong (CUHK) and affiliation not provided to SSRN	92
7.	Non-Competes and Other Contracts of Dispossession Sandeep Vaheesan and Matthew Buck Open Markets Institute and affiliation not provided to SSRN	82
8.	Ending the License to Exploit: Administrative Oversight of Consumer Contracts Yehuda Adar and Shmuel I. Becher University of Haifa and Victoria University of Wellington	77
9.	Justice in Transactions: A Public Basis for Justifying Contract Law? Martijn W. Hesselink European University Institute	71
10.	Seductive Oral Deals Shmuel I. Becher, Yuval Feldman and Meirav Furth Victoria University of Wellington, Bar-Ilan University - Faculty of Law and UCLA School of Law	59

Teaching Assistants: I Love Teaching Blaisdell; Teaching Blaisdell Does Not Love Me

The title of this post is an example of chiasmus on the sentence level.  My experience of chiasmus in teaching Blaisdell occurs on the more dramatic level.  Imagine a two-person theatrical scene in which one character enters in a buoyant mood while the other is in despair.  They have some exchange which results in a reversal of mood.  The first character is now in despair while the other's outlook has brightened.  First George is down, and Elaine is up.  Then George is up, and Elaine is down.  Jerry is Even-Steven.  

When I set out to teach Blaisdell this week, I was down.  The more I taught it, the more excited I got about it.  My students on the other hand, may have entered the week buoyed by my assurances that defenses and excuses are easy.  By the end of my attempt to teach Blaisdell, they were at their lowest level of enthusiasm for contracts since the battle of the forms.  Maybe it's not worth the bother, but it seems odd not to teach the Contracts Clause in Contracts, given that the students are unlikely to learn about it in Constitutional Law, except in a passing reference to the now largely-discredited doctrine of economic substantive due process.

For those who have not taught Blaisdell and find it daunting, as I did, I recommend Samuel Olken's Charles Evans Hughs and the Blaisdell Decision: A Historical Study of Contract Clause Jurisprudence, 72 Or. L. Rev. 513 (1993).  The piece is longish, but it is an easy read.  It quickly lays out the background as to why the Constitution includes a Contracts Clause.  It then outlines two traditions of interpreting the Clause, which respectively foreshadow the majority and the dissenting positions in Blaisdell.  

The Blaisdell dissent offers a strict construction of the Contracts Clause.  After all, the Clause expressly prohibits states from impairing any obligation of contracts.   The language was adopted to prevent states from forgiving debts, as they were doing in the aftermath of the Revolutionary War.  The dissent bolsters its textualism with an original expected application originalist approach and broad readings of the Contracts Clause from the Marshall Court in contexts as varied as legislative land grants and corporate charters.  That strict reading of the Contracts Clause informed the conservatives' approach to the Clause during the Lochner Era, bolstered by their embrace of economic substantive due process.

The majority draws on three traditions of cabining the Contracts Clause which also date back to the Early Republic and the Marshall Court.  That Court permitted state insolvency laws notwithstanding the Contracts Clause by distinguishing impairment of a contractual right and adjustments to available remedial schemes.  Later in the nineteenth century, the Court read the Contracts Clause against the background of terms implied into every agreement, which recognized the states' reserved powers, including its powers to grant corporate charters and issue licenses, and its general police powers.  The Blaisdell majority, relying on that jurisprudence, read the Contracts Clauses as requiring a balancing of interests: on the one hand we have the individual right to freedom of contract; on the other we have the states power to act in the public interest.

If you read this post excited about the Contracts Clause but are now deflated, you have experienced one half of the chiasmus.  I, on the other hand, having overcome my anxiety brought on by the empty (web)page, am now elated to have shared my enthusiasm for Samuel Olken's article with you. 

Unjust Enrichment and Misappropriation of Trade Secrets under Delaware Law

In 250ok, Inc. v. Message Systems, Inc., plaintiff alleged breach of contract, unjust enrichment, and misappropriation of trade secrets.  The issue addressed in the opinion is straightforward, and it doesn't seem like a hard case.  Delaware's Uniform Trade Secrets Act (DUTSA) "displaces conflicting tort, restitutionary and other law of this State providing civil remedies for misappropriation of a trade secret."  Message Systems operates under the name of SparkPost, so I will call them that here.  SparkPost sought to dismiss 250ok's unjust enrichment claim on the ground that it was prohibited from bringing both a claim for a DUTSA violation and an unjust enrichment claim.  That is clearly correct, and so the court dismissed the unjust enrichment claim.

The enterprise of these companies is interesting, and the case raises some interesting policy questions.  Based on the opinion, it seems that 250ok developed a "sensor network" called MailboxPark that helps advertisers evade spam filters.  It may be that this is a socially-useful product.  For example, if you are a non-profit sending out your newsletter to donors and supporters, that newsletter may get caught up in spam filters, notwithstanding your donors' and supporters' genuine interest in receiving and perhaps even perusing your newsletters.  But I fear that MailboxPark may have the more nefarious purpose of sending me ads for things I really, really am not interested in.  In any case, SparkPost entered into a "Reseller Agreement" with 250ok, pursuant to which SparkPost helped distribute 250ok's product to its customers.  250ok alleges that SparkPost violated the Reseller Agreement by creating a rival product through reverse engineering so that it could compete with 250ok.  

The policy question has to do with the relationship of common-law and statutory causes of action.  In 250ok, the Delaware Chancery Court followed other courts in holding that the quoted language from DUTSA precludes other claims arising from an allegation of misappropriation of a trade secret even if the statutory claim fails.  250ok tried to argue that DUTSA only displaces tort-based claims but could not reach contract-based claims like unjust enrichment.  The court properly rejected that argument, because an unjust enrichment is certainly a "restitutionary" claim, and it is not contract-based.  Here, the court was satisfied that 250ok's unjust enrichment claim arose from the same set of factual allegations as is DUTSA claim.  The clear language of the statute thus mandated its dismissal.

So the case is easy -- the Chancery Court was just following well-established case law, but it still has me scratching my head.  Certainly we would not want double recovery, but plaintiff could not get double recovery even if DUTSA were silent about its interaction with common-law remedies. Still, I don't understand why the legislature would want to prohibit plaintiffs from pleading in the alternative.  They can't know for certain at the pleading stage that they will win on their DUTSA claim.  Why shouldn't they be permitted to allege unjust enrichment as a fall-back in the alternative?  It's not even clear to me that the courts that have interpreted DUTSA's language have gotten it right.  After all it only says that DUTSA displaces "conflicting tort, restitutionary and other law. . . ."  But an unjust enrichment claim arising out of the same factual circumstances is a complementary claim, not a conflicting claim.  Just sayin'.

Hat tip: Stefan Padfield.

Tuesday Top Ten - Contracts & Commercial Law Downloads for February 2, 2021

Welcome, and let's get right to what's happening with our favorite scholarship areas and who is hitting the charts on this fine Groundhog Day!

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 04 Dec 2020 - 02 Feb 2021

Rank	Paper	Downloads
1.	Contractual Allocation of Risks in Times of Crises: Computational and Normative Analyses of Force Majeure Clauses Farshad Ghodoosi Nazarian School of Business & Economics, California State University, Northridge	251
2.	Equity as Meta-Law Henry E. Smith Harvard Law School	168
3.	Economic Challenges for the Law of Contract Alan Schwartz and Simone M. Sepe Yale Law School and University of Arizona - James E. Rogers College of Law	147
4.	Does Voter Fraud Pay? Texas Lt. Gov. Dan Patrick’s $1 Million Voter Fraud Offer Michael Conklin Angelo State University	147
5.	Smart Legal Contracts: A Model for the Integration of Machine Capabilities Into Contracts Natasha Blycha and Ariane Garside Herbert Smith Freehills and affiliation not provided to SSRN	132
6.	Whiteness as Contract Marissa Jackson Sow Open Society Foundations (OSF)	130
7.	Financial Terms in License Agreements Jorge L. Contreras University of Utah - S.J. Quinney College of Law	129
8.	Introduction: The Oxford Handbook of the New Private Law Andrew S. Gold, John C. P. Goldberg, Daniel B. Kelly, Emily L. Sherwin and Henry E. Smith Brooklyn Law School, Harvard Law School, Notre Dame Law School, Cornell University - Law School and Harvard Law School	120
9.	AI Governance in Canadian Banking: Fairness, Credit Models, and Equality Rights Virginia Torrie and Dominique Payette University of Manitoba and affiliation not provided to SSRN	114
10.	Mandatory Arbitration and the Boundaries of Corporate Law Asaf Raz University of Pennsylvania Law School	107

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 04 Dec 2020 - 02 Feb 2021

Rank	Paper	Downloads
1.	Contractual Allocation of Risks in Times of Crises: Computational and Normative Analyses of Force Majeure Clauses Farshad Ghodoosi Nazarian School of Business & Economics, California State University, Northridge	251
2.	Six Levels of Contract Automation: Evolution to Digitalised Smart (and Legal) Contracts Susannah Wilkinson Herbert Smith Freehills	180
3.	Does Voter Fraud Pay? Texas Lt. Gov. Dan Patrick’s $1 Million Voter Fraud Offer Michael Conklin Angelo State University	147
4.	Mandatory Arbitration and the Boundaries of Corporate Law Asaf Raz University of Pennsylvania Law School	107
5.	Freedom to (Smart) Contract: The Myth of Code and Blockchain Governance Law Tiffany Sillanpaa New York University School of Law Law School	93
6.	Trust and Contracts: Empirical Evidence Francesco D'Acunto, Jin Xie and Jiaquan YAO Boston College, The Chinese University of Hong Kong (CUHK) and affiliation not provided to SSRN	83
7.	Non-Competes and Other Contracts of Dispossession Sandeep Vaheesan and Matthew Buck Open Markets Institute and affiliation not provided to SSRN	81
8.	Taking Boilerplate Seriously: Tackling Exploitation in Consumer Contracts Yehuda Adar and Shmuel I. Becher University of Haifa and Victoria University of Wellington	67
9.	Justice in Transactions: A Public Basis for Justifying Contract Law? Martijn W. Hesselink European University Institute	65
10.	Seductive Oral Deals Shmuel I. Becher, Yuval Feldman and Meirav Furth Victoria University of Wellington, Bar-Ilan University - Faculty of Law and UCLA School of Law	52

Get Ur Hydroxychloroquine Here! Fresh Hydroxychloroquine (or Slightly Used)!

Ugh.  As The Frontier reports here, Oklahoma (my home state!) is trying to unload $2 million worth of hydroxychloroquine that it bought in April 2020.  Our Governor (the first governor to contract COVID-19), bought the drugs based on an insider tip that it could be used to prevent COVID or minimize its symptoms.  Funny thing.  That very tipster contracted COVID and got a very aggressive course of treatment that, as far as we know, did not include hydroxychloroquine, probably because the drug is ineffective and can have dangerous side-effects.  
The drugs would not go to waste, Governor Stitt assured skeptics, because it can be used for its intended purpose, as an anti-malarial treatment, even if it turns out it is not helpful for treating COVID.  Well, it isn't, and now the state is trying to return the surplus to its supplier.  Hard to imagine what possible basis it can have for returning the goods.  Will OK argue that its entire purpose was frustrated when it learned that the drugs did not work as they were NOT advertised to work?  Detrimental reliance on the President's representations?  Mental incapacity caused by magical thinking?  Creative minds are at work here in the state capital.  The Governor was speculating, based on anecdotal evidence, that the drug would be effective.  That makes about as much sense as playing the lottery with public funds.  

If the attempt to return the goods fails, perhaps climate change will bring catastrophic floods to Oklahoma, creating a malarial swamp.  Best to hold on to the stockpile of hyroxychloroquine just in case.