ContractsProf Blog

The Dropout and Blawgs

Photo by Glenn Francis (Toglenn, CC BY-SA 4.0, via Wikimedia Commons)

Hulu's The Dropout tells an amazing story.  I do not know if it is fair to the main characters or an accurate representation of how easy it is to scam angel investors and the Katy Perry and Angry Birds addicted aging executives who run corporate dinosaurs like Walgreens.  It's also hard to imagine getting top science and technology graduates from top programs to sign non-disclosure agreement after non-disclosure agreement and to work under 24-hour surveillance and conditions where they are prohibited from speaking to colleagues from other parts of the enterprise. But perhaps I am naive about work conditions in start-ups, or perhaps young graduates are naive about contracts.  Both are possible.

But I do know that it features stunning performances by great actors, including Amanda Seyfried (right), who does for Elizabeth Holmes what Johnny Depp did for Willy Wonka, and William H. Macy.  How many iconic roles can one actor create?  If I were Richard Fuisz, I don't know if being played by William H. Macy (left) would take the sting out of being portrayed as an obsessive, jealous, greedy, glorified patent troll.  

Which brings me to the justification for this post.  In episode 6 of The Dropout, about three minutes in, Fuisz is making his first contact with Wall Street Journal reporter John Kerryrou (played wonderfully by Ebon Moss-Bachrach -- every scene with him and LisaGay Hamilton as his editor Judith Baker is priceless).  Fuisz says that he read something by Adam Clapper who writes something called the Pathology Blawg and then he furrows his brown and mutters "I don't know why he spells it like that."  Well we do!

Contracts at the NRA Convention

As reported here in The New York Times, a number of musicians who were slated to perform at the National Rifle Association (NRA) convention this weekend in Houston have pulled out.  The musicians include Don McLean (pictured. in 1976), best known for the iconic songs, "American Pie" and "Vincent," both from the early 1970s; Larry Gatlin, known, according to his Wikipedia entry, for country songs written in the 1970s and 80s; and Larry Stewart, who (also according to Wikipedia) had 18 top 40 hits with Restless Heart in the 80s and 90s.   Lee Greenwood (the singer-songwriter of “God Bless the U.S.A.”, also known as “Proud to Be an American”) and T. Graham Brown also cancelled appearances.

According to the CMT website, Mr. McLean issued the following statement:

[I]n light of the recent events in Texas, I have decided it would be disrespectful and hurtful for me to perform for the NRA at their convention in Houston this week.

Mr. Gatlin explained his decision to pull out as follows: 

I cannot, in good conscience, perform at the NRA convention in Houston this weekend.  While I agree with most of the positions held by the NRA, I have come to believe that, while background checks would not stop every madman with a gun, it is at the very least a step in the right direction toward trying to prevent the kind of tragedy we saw this week in Uvalde — in my beloved, weeping TEXAS.

Mr. Stewart posted the following on Facebook:

Due to the tragedy in Uvalde with the horrific school shooting and children who died, I want to honor the victims, families, the town and our friends in the great state of Texas the best I know how. So I have made the decision to pull out as a performer for the NRA convention this weekend, especially given the event is just down the road. I just believe this is best for me at this time. God Bless everyone involved!

Here on the ContractsProf Blog, our question is, what are the contractual consequences of doing so?  We have not seen the contracts, but it seems unlikely that the musicians had clauses allowing them to pull out in case of mass shootings on the eve of the convention.  Given that there have already been 27 school shootings and over 200 mass shootings in the U.S. this year, the event was hardly unforeseeable.  Nor did the Uvalde massacre render the musicians' performance commercially impracticable. 

However, it seems unlikely that the NRA would want to risk negative publicity and harm relationships that likely will soon return to normal by going after musicians for breach of contract.  Presumably the musicians will not be paid, and so, absent some argument that people flocked to Houston to hear performances by people they remember from their childhood rather than for the main attraction of an NRA convention, the damages from the breaches would likely be limited to inconsequential costs and unrecoverable deposits and the like.  Can the NRA book alternative acts on short notice?  Are other contracts affected (promoters, sound technicians, roadies, etc.)?  All interesting matters.  All likely to resolved through quiet negotiation and private settlement.

Of course, there is another option available to the NRA.  They could take a page out of David Kopel's book, as set out in this post over at the Volokh Conspiracy.  According to Kopel, those who link the NRA to mass shootings are hate groups carrying out a blood libel.  He denounced the "cowardly politicians" who canceled their appearances at the NRA convention held in Denver shortly after the Colombine shootings.  He concludes:

We say to each and every hate group, we reject your sick and twisted lies against us, for exactly the same reason we reject the blood libels against every race, every religion, and every other group: We reject Satan and all his works.

That sounds like a great conclusion to the NRA's opening brief in its case against the Satanic musicians.  And why not throw in suits against the cowardly politicians who once again pulled out from the convention this year?  Likely there are no damages when politicians fail to show up, but you can certainly hit them in the solar plexus of endorsements and campaign fund by alleging in court documents that they have abandoned the NRA in favor of Satan.

Ted Cruz, Donald Trump, and Kristi Noem need not worry.  They will not be sued.  They showed up.  As described here (with video), Mr. Trump enacted a scene from The Hunger Games, reading out the names of the dead as a bell tolled for each murdered child.  One hopes that the allusion was inadvertent, but given Mr. Trump's adoration of Hungarian strongman Viktor Orban, and his love affair with Kim Jong Un, who knows? 

Hat tip: Peter Gulia.

Weekend Frivolity: I Love the Kidzes!

I don't know what this is, but I think it is my students' generation celebrating their talents, their obsessions, and their linguistic inventiveness.  Also laughing at themselves.

 

Social Media Platforms Fare Better in the Eleventh Circuit than the Fifth

Last week, with some help from Eric Goldman, we reported on the Fifth Circuit's decision, lifting a stay on Texas's HB 20, which subjects social media platforms with more than 50 million monthly users (Platforms) to a highly intrusive and potentially punitive disclosure regime.  This week, in NetChoice, LLC v. Attorney General, an 11th Circuit panel preliminary enjoined portions of a similar Florida law.  If you follow such things, all three judges on the panel are Republican appointees.  Two are senior judges who were on the 11th Circuit when I clerked there.  I did not get to know Judge Tjoflat, but Judge Carnes (right) was my favorite judge on the court, other than my own Judge Barkett, of course.  Sometimes, we had to draft dissents to Judge Carnes's opinions.  I learned a lot from proximity to my Judge's exchanges with Judge Carnes.  I am happy to see that he and Judge Tjoflat are still on the bench.  The opinion comes from Judge Kevin Newsom, who has been on the Court only five years.  

The Court begins by quoting from the language that prompted the law, citing the absurdly hyperbolic rhetoric that poisons political action today. The law was created to punish “the ‘big tech’ oligarchs in Silicon Valley” who “silenc[e]” “conservative” speech in favor of a “radical leftist” agenda.  I know a radical leftist agenda when I see one, and it ain't Twitter or Facebook or YouTube, but whatever.

The holding comes on page 4 of the opinion

We hold that it is substantially likely that social-media companies—even the biggest ones—are “private actors” whose rights the First Amendment protects . . . , that their so-called “content-moderation” decisions constitute protected exercises of editorial judgment, and that the provisions of the new Florida law that restrict large platforms’ ability to engage in content moderation unconstitutionally burden that prerogative. We further conclude that it is substantially likely that one of the law’s particularly onerous disclosure provisions—which would require covered platforms to provide a “thorough rationale” for each and every content-moderation decision they make—violates the First Amendment. Accordingly, we hold that the companies are entitled to a preliminary injunction prohibiting enforcement of those provisions. 

The court declined to enjoin the law's less burdensome disclosure provisions.

Radical Leftist Oligarch Yachtsman

Judge Newsom begins with three basic points about the Platforms.  First, they are private; second, they do not produce the content on their sites; and third, they are not "dumb pipes."  Rather, they are successful because of their curatorial and editorial processes, which are a form of protected speech.

The Florida law is not identical to Texas HB 20.  For one thing, it only applies to platforms with more than 100 million monthly users.  That's still a low enough threshold to capture not only Twitter and Facebook but also Wikipedia, Etsy, and after the legislature changed its attitude towards one of the state's largest employers, Disney's website. 

However, like HB 20, Florida seeks to regulate Platforms as "common carriers."  The 11th Circuit demolishes this argument in two delightful steps.  First, the court demonstrates that, as a matter of law, Platforms are not common carriers.  Second, Florida (and Texas for that matter) may not strip the Platforms of the First Amendment protections to which they are entitled by labeling them common carriers.  

The 11th Circuit reviewed a sweeping District Court injunction.  In the District Court's rivew strict strutiny applied to the entire law because "was motivated by the state’s viewpoint-based purpose to defend conservatives’ speech from perceived liberal 'big tech' bias."  The law came "nowhere close" to surviving such scrutiny.   I like that approach, so it is worth exploring why the 11th Circuit pulled back from the District Court's  sweeping injunction.  

But first, a summary of the 11th Circuit's holdings:

The court found that the law's user-data access requirement and some of its less onerous disclosure provisions did not trigger First Amendment protections.  The user-data access provision, which "requires social-media platforms to allow de-platformed users to access their own data stored on the platform’s servers for at least 60 days," neither burdens editorial judgment nor compels disclosure.  Given the language quoted at the top of the opinion evidencing the clear political animus behind the legislation, why not affirm the District Court's injunction of the law in toto?  Because 11th Circuit precedent prohibits a court from looking behind the neutral language in a statute to discern legislative purpose.  

I can see the need for judicial caution in this area.  And yet, as Justice Gorsuch recently pointed out in dissenting from yet another absurd government invocation of the state secrets privilege, "There comes a point where we should not be ignorant as judges of what we know to be true as citizens."  Laws like HB 20 and this one, which particularly target "big tech" while excusing "small tech" rivals that cater to the political adherents of the governing party, are not content-neutral. Courts can take judicial notice of public statements explaining the purposes of such laws and strike them down as the politically-motivated attacks on speech and political process that they are.

Hila Keren on Luguri & Strahilevitz on JOTWELL

From time to time, JOTWELL provides reviews by contracts profs on recent contracts law scholarship.   A recent example is an essay by Hila Keren (left), Vast Scale Undue Influence, reviewing Jamie Luguri & Lior Strahilevitz, Shining a Light on Dark Patterns, 13 J. Legal Analysis 43 (2021).  

As Professor Keren presents the article, Luguri (below, right) and Strahilevitz (below left; together, "the Authors") show the following: you do not want cookies, and yet web sites are designed ("dark patterns") to manipulate you into accepting intrusions on your privacy that you would not agree to but for the manipulation.  The Authors show that dark pattern manipulations are most likely to be effective when they are subtle and that better-educated consumers more successfully resist the dark patterns' siren song.  This is not particularly surprising, but the authors' proposed solution is very surprising.

The Authors suggests that undue influence might be the best legal tool for rendering unenforceable the promises extracted through the manipulative techniques that authors see embodied in the dark patterns.  The Authors duly acknowledge that the doctrine, traditionally conceived, is quite narrow, and some of the usual components of undue influence seem to be lacking.  Most obviously, undue influence usually involves special relationships between or among the parties, and here we are dealing with an individual's encounter with a website.  The nefarious designer of that website is a stranger to the consumer.  Nonetheless, the doctrine's basic purpose is to defeat contracts formed where a combination of one party's dominance and the other party's vulnerability leads to a contract whose terms effect harms to the vulnerable party.  So conceived, the doctrine serves nicely to tame the effects of dark patterns.

Professor Keren helpfully supplements the Authors' perspective with a dose of Martha Fineman's vulnerability theory.  Undue influence doctrine is narrow precisely because courts require an extreme level of vulnerability.  Vulnerability theory helps us to understand that all of us are on a path toward vulnerability, if we have not already arrived there.  Fineman's broad view of human vulnerability informs her understanding of the role of the state in safeguarding its vulnerable citizens.  In this instance, Professor Keren uses Fineman to support the Authors' narrower claim that courts are justified in intervening to protect the typical, vulnerable consumers without having to demonstrate a pathology.

Good News from SCOTUS in an Arbitration Case

You read that right!  The U.S. Supreme Court today handed down a unanimous seven-page opinion authored by Justice Kagan.  The Court vacated an Eighth Circuit opinion that had granted defendant's late motion to compel arbitration.  The case is Morgan v. Sundance, Inc.

Plaintiff Robyn Morgan was an employee at Taco Bell, owned by defendant Sundance, Inc.  Her employment agreement included an arbitration provision, because we live in the 21st century.  Notwithstanding that provision, she sought to bring a nationwide class-action suit against Sundance for violating the Fair Labor Standards Act.  There was another action pending at the time, and so Sundance used a motion to dismiss to try to pressure Morgan to drop her suit and join the other plaintiffs.  She declined.  Sundance settled the other case, but Morgan proceeded with hers.  And then, eight months after the suit was filed and after it had filed its answer asserting fourteen affirmative defenses but not mentioning the arbitration provision, Sundance moved to compel arbitration.

Under Eighth Circuit precedent, in order to waive of an arbitration claim a party must knowingly relinquish the right and act inconsistently with the exercise of that right and the other party must be prejudiced by its reliance on that conduct.   The Eighth Circuit found that the prejudice requirement was not met in this instance.  While waivers are generally effective even without a showing of prejudice, the Eighth Circuit has held that a prejudice requirement is necessary to protect the general public policy favoring arbitration.  Eight other Circuit Courts adopted the same prejudice requirement; two rejected it.  

The Supreme Court sided with the minority view.  In a ruling consistent with its prior Federal Arbitration Act (FAA) jurisprudence, the Court insisted that there are no special rules that apply to arbitration provisions.  In the recent past, the Court has applied that rule to protect arbitration provisions from the operation of state laws that preserved legal rights notwithstanding arbitration provisions or class-action waivers.  Justice Kagan's opinion makes no reference to the Court's recent arbitration decisions.  Rather the most recent SCOTUS arbitration case to which she cites dates from 1985.  Returning to such ancient principles, the Court uses the FAA's neutrality principle to prevent enforcement of an arbitration provision in circumstances where it would be otherwise unenforceable.  As Justice Kagan explains, "[A] court must hold a party to its arbitration contract just as the court would to any other kind. But a court may not devise novel rules to favor arbitration over litigation."

This approach follows from Section 6 of the FAA: 

The text of the FAA makes clear that courts are not to create arbitration-specific procedural rules like the one we address here. Section 6 of the FAA provides that any application under the statute—including an application to stay litigation or compel arbitration—“shall be made and heard in the manner provided by law for the making and hearing of motions” (unless the statute says otherwise).

The holding is a very narrow one.  The case is remanded, and the Eighth Circuit now has to determine whether what Sundance did was a waiver or if waiver analysis (rather than forfeiture, estoppel, laches, etc.) should apply.  

Still, today is a good day to party like it's 1985!

Is Elon Musk's Twitter Acquisition "On Hold"?

Every once in a while, there is a contract that almost nobody wants to read but almost everyone wants the tl;dr on.  So it is with Elon Musk's agreement to buy Twitter.  One needs to look at the actual language of the deal, however, to know whether or not Musk's recent claim that the acquisition is "on hold" has any legs.  

Well, it doesn't, and this is why Matt Levine is a national treasure.  He explains what's going on in this column (for which you need a subscription to Bloomberg, but you can just subscribe to Matt Levine's column, which is what you really want anyway, and that is free).  

Apparently, if you are really rich, you feel no need to tolerate minor annoyances, like seemingly robotic responses to your Tweets.  Thus, in an early Tweet regarding his attempted acquisition of Twitter, Musk (right) pledged, "If our twitter bid succeeds, we will defeat the spam bots or die trying!”   His bid succeeded; Musk committed to paying $44 billion to buy Twitter on April 25th.  Then, last week, as NPR reported here, he announced that the transaction was "on hold" because he does not believe Twitter's estimate that fewer than 5% of its accounts are bots or spam.

But of course, as the quotation above makes clear, Musk was well aware of the bot problem on Twitter before he agreed to buy Twitter.  Moreover, he has given no reason for rejecting Twitter's assurances that, as best it can tell, its estimate of the percentage of accounts that are bots or spam is accurate.  The best Musk could offer in response was a poop emoji, which is a wonderful little thing, but not exactly an argument. 

As this interview with Columbia University Law School's Eric Talley (left) makes clear, Musk is now making unavailing attempts to translate his poop emoji into a legal argument by characterizing the bot problem as having a "material adverse effect" on the transaction.  It's nice to see him using his words, but again, since the bot problem was something that he already knew about, was in fact a reason that he cited in his announcement of his desire to purchase Twitter, it can't be used to justify his attempts to back out of the deal.  To make matters worse for Musk, as Eric Talley also points out, Twitter never said anything like "we guarantee that no more than 5% of our accounts are bots."  They said something much more guarded and lawyered, and what they have said hasn't changed in the weeks since Musk agreed to purchase Twitter, bots and all, for $44 billion.

As Matt Levine points out, Musk isn't interested in hearing arguments or making arguments.  He is interested in playing the victim so that he can negotiate a better price for the company, as his $44 billion bid, which seemed low when me made it, now obviously seems too high, especially as the value of the Tesla stock is also currently in free fall.  Musk is pledging that stock as collateral for the financing he is counting on to provide the funds for the acquisition.  If he has to put up more stock as collateral, the deal becomes more expensive for him.  

Twitter has no great options available.  If Musk walks away in bad faith, that would trigger a $1 billion penalty clause, which Musk obviously doesn't want to pay, but the harm to Twitter of the deal cratering would be well in excess of $1 billion.  There is some chance that Delaware's Chancery Court could order specific performance of the deal, and Matt Levine presents the pros and cons of that option with his usual mordant humor.  In short, letting Musk walk away is bad for Twitter and for the rule of law.  Forcing Musk to control Twitter could also be bad for Twitter and all of us, and Musk could defy the order, which would be really bad for the rule of law and especially for the Chancery Court.

Eric Talley wisely predicts more drama ahead.  Musk may come up with some alternative material adverse effect argument or some other reason to back out of the deal.  It may be that the entities that are financing the deal might back out, perhaps because Musk encourages them to back out.   According to Yahoo, Musk's net worth has declined by nearly $49 billion since he announced his intention to acquire Twitter.  That probably makes him grumpy.  A contracts prof happy with his low six-figure salary might be advise, "Why not pay the $1 billion penalty and make it an even $50 billion?"  But I suspect that you don't get to a net worth north of $200 billion by succumbing to such public defeats.

Weekend Frivolity: Contracts Prof Publishes Two Sonnets

I am happy to share that I have published two sonnets in Light.  These are my first published poems, unless Limericks count, and they don't.  

The setting is fitting for frivolity, as Light publishes humorous verse, and at least one of the poems is truly frivolous.  My poems are in good company; links to some highlights below.

Frigaliment fans might also want to have a look at Bruce Bennett's, A Vulture Is a Vulture Isn't a Vulture.

Andrew Frisardi contributes a lovely Ballade for the late Tim Murphy, one my favorite contemporary poets, whose unrivaled ability to write love poems for hunting dogs is on diaplay here.

The issue includes a Limerick-loving lawyer as well, and Stephen Gold's biographical note  is almost as charming as his poem.

Chris O'Carroll's Life Is Better with Cannibals is a great slice of life, especially if like me, you currently live in Oklahoma.  

The issue also includes two new poems from Wendy Videlock, along with the wonderful news that she has both a new book and a collection of essays forthcoming.

American Law Institute Approves Restatement of Consumer Contracts Law

After an eleven year process, the American Law Institute (ALI) approved the Restatement of Consumer Contracts Law.  Congratulations to Reporters, Oren Bar-Gill, Omri Ben-Shahar, Florencia Marotta-Wurgler for their success in shepherding the document through the process.

I was not at the meeting, so I cannot give an account of what went on, nor do I have access to the final draft.  The best I can do is share this podcast, sponsored by the Ballard Spahr law firm, hosted by Alan Kaplinsky, Ballard Spahr Senior Counsel, and featuring an interview with Steven O. Weise (above), a member of the ALI council.

If we have readers with perspectives, please feel free to share, in comments or as a guest post!

Congratulations to Bobby Chesney!

Word broke last week that Bobby Chesney (right) has been appointed the incoming Dean of UT Austin School of Law.  Dean Chesney is one of the nicest people you will ever meet in the academy.  That is one reason why I have been hesitant to congratulate Dean Chesney on his new position.  But he is currently UT Austin's Associate Dean, so maybe the new position will be somewhat less onerous.  I wish him luck.

Dean Chesney is also a highly capable scholar, with some notable administrative and entrepreneurial skills that will no doubt serve him well in his new capacity.  I met him early in my career as a law professor when I was writing about the state secrets privilege.  He wrote a seminal article on the topic, which guided me into the literature.  My views on the proper scope of the privilege were and continue to be far different from his, but he invited me to participate in a fabulous gathering of academics, JAG officers, and representatives from the International Committee of the Red Cross.  I had the opportunity to participate in a couple of these gatherings, and they proved very valuable as I was able to supplement my public international  courses with the materials participants shared on the law of armed conflict.  That in turn enabled me to develop some courses on the law of armed conflict, including one of my favorite teaching experiences, a two-week study-abroad course on the law of armed conflict in Israel and Palestine.

My real concern upon hearing the news, however, was that Bobby Chesney as Dean Chesney would have even less time than he had a Associate Dean Chesney to record his incomparable National Security Law podcasts with his phenomenal friend, colleague, and sparring partner, Steve Vladeck.  Happy news!  A new episode dropped this week, and the hosts predict that they will have more time to record than they have had during the past academic year.  

This blog is indebted to that podcast for our occasional weekend frivolity feature, so I at least am relieved to know that the original frivolity, as well as very high-level discussions of national security law, will continue to flow.

Heartfelt congratulations all around!

Tuesday Top Ten - Contracts & Commercial Law Downloads for May 17, 2022

What's hot in recent contract and contract-adjacent scholarship as we settle into the summer months? So glad you asked! Check out this week's Tuesday Top Ten:

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 18 Mar 2022 - 17 May 2022

Rank	Paper	Downloads
1.	The Limitations of Privacy Rights Daniel J. Solove George Washington University Law School	1,101
2.	An Overview of Privacy Law in 2022 Daniel J. Solove and Paul M. Schwartz George Washington University Law School and University of California, Berkeley - School of Law	483
3.	Where Nonprofits Incorporate and Why It Matters Peter Molk University of Florida Levin College of Law	312
4.	Digital Assets: A Call To Action Johan David Michels, Sharon Hartung and Christopher Millard Queen Mary University of London, School of Law - Centre for Commercial Law Studies, affiliation not provided to SSRN and Queen Mary University of London, School of Law - Centre for Commercial Law Studies	299
5.	The Law and Macroeconomics of Custody and Asset Segregation Rules: Defining the Perimeters of Crypto-Banking Hossein Nabilou University of Amsterdam, Amsterdam Law School	218
6.	Liability for Non-Disclosure in Equity Financing Albert H. Choi and Kathryn E. Spier University of Michigan Law School and Harvard University - Law School - Faculty	192
7.	A Theory of Frustration and Its Effect Sagi Peari and Zamir Golestani The University of Western Australia and University of Western Australia Law School, Perth, Australia	158
8.	Current Issues in Unjust Enrichment 2022: Failure of Basis, Contractual Rights to Enrichment, Mistake of Law and Limitation Periods Charles Mitchell University College London - Faculty of Laws	153
9.	Towards a Harmonized Theory of the Law Governing the Arbitration Agreement Prof Maxi Scherer and Ole Jensen Queen Mary, University of London, Centre for Commercial Law Studies and Independent	145
10.	Contract Remedies for New Economy Collaborations Alan Schwartz and Simone Sepe Yale Law School and Yale Law School	141

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 18 Mar 2022 - 17 May 2022

Rank	Paper	Downloads
1.	A Theory of Frustration and Its Effect Sagi Peari and Zamir Golestani The University of Western Australia and University of Western Australia Law School, Perth, Australia	158
2.	Current Issues in Unjust Enrichment 2022: Failure of Basis, Contractual Rights to Enrichment, Mistake of Law and Limitation Periods Charles Mitchell University College London - Faculty of Laws	153
3.	Towards a Harmonized Theory of the Law Governing the Arbitration Agreement Prof Maxi Scherer and Ole Jensen Queen Mary, University of London, Centre for Commercial Law Studies and Independent	145
4.	Contract Remedies for New Economy Collaborations Alan Schwartz and Simone Sepe Yale Law School and Yale Law School	141
5.	The Maze of Contemporary Contract Theory and a Way Out James Gordley and Hao Jiang Tulane University Law School and Bocconi University - Department of Law	116
6.	The Right to Regulate in International Investment Law (Revisited) Catharine Titi CNRS	96
7.	Rules vs. Standards in Private Ordering Tomer Stein Stetson University College of Law	92
8.	Reconstituting the Code of Capital: Could a Progressive European Code of Private Law Help Us Reduce Inequality and Regain Democratic Control? Martijn W. Hesselink European University Institute	78
9.	Proprietary Restitution Timothy Liau and Rachel Leow National University of Singapore (NUS) - Faculty of Law and National University of Singapore (NUS) - Faculty of Law	71
10.	B2B Artificial Intelligence Transactions: A Framework for Assessing Commercial Liability Ernest Lim National University of Singapore (NUS) - Faculty of Law	61

 

Introducing: the Ladies Who Law School Podcast (LWLS)

Ever since I listened to the first season of Serial, I have thought it would be great to do a podcast called 1L.  It would track the experience of a group of law students through their first year of law school.  Not Harvard.  Not Yale.  Ordinary law students at an ordinary law school, experiencing what all law students experience, but not stepping into the same river twice.  

The podcast exists!  And it has been shockingly close for the past two years.  Two recent graduates of my law school, the Oklahoma City University School of Law, started podcasting about their experiences in January 2020.  The podcast is called Ladies Who Law School (LWLS), and it is even better than I imagined it would be.  I have yet to meet the two hosts, Samantha Lemke (left) and Haylie Davis (below, right).  I only learned of the podcast at their graduation, but I have started listening, and there is so much of value here!  I am five episodes in, and I want to share some of what I have learned.  I will post occasionally as I come across more content of interest to followers of this blog.   

I want to stress is that this blog is so very useful:

• for students considering law school;
• for students just starting law school;
• for students who are in law school but want to hear from people who are sharing some of their experiences; and
• for law professors, who so rarely get to hear honest conversations about what law school is like for our students

They launched the podcast just after having received their first-year grades.  They relate some experiences that, I have to admit, highlight some problematic features of legal education.  They amaze me with their complete lack of bitterness.  In the first episode, we learn that neither of them had any graded assessments in any of their doctrinal courses before the final exams.  In addition, they report that one of their exams had a skills component that caught them by surprise.  Their take-away: anything covered in the course is fair game for the final.  We as law professors should be grateful for students like Samantha and Haylie who  accept that challenges we throw at them.  

I am not a fan of winner-take-all final exams, especially not in the first semester of law school. That said, I also know that there are a lot of different ways to be an effective law professor.  I just think it is unfortunate if students are only exposed to one approach, and I feel like we let down our first-year students if none of them got any graded, substantive feedback in their first semester of law school until they got their grades back in January.  I commend Haylie and Samantha for the maturity with which they responded to a pedagogical experience that they might have thought less than ideal.

In Episode 2, they come to terms a little bit more with their first-semester grades.  The reality of their grades begins to sink in, and they are a bit more deflated.  Fortunately, they already know what I think I have to tell my students: their law school grades do not define them, and they will find plenty of ways to distinguish themselves and find suitable careers regardless of their class rank.  They also address the stress of cold calling and the Socratic method.  Once again, LWLS demonstrates that my students often understand law school pedagogy better than I give them credit for doing.  They really understand why we teach the way we do, and they buy into it, which really helps them get the most out of their legal education.  They know that the pressure of cold calling keeps them on top of the material, and they know that they have to keep on top of the material, because law school requires that students step up their game compared to their previous educational experiences.  

Episode 3 has useful tips about how to apply and prepare for law school. Along the way, once again the LWLS hosts understand things that students need to know: law school is not like college.  It's like a really demanding, full-time job.  Your family and loved-ones need to know that and know that you cannot be available for them as you were before.  "This is something I'm doing for me," they repeat, and I hope their classmates and peers hear it!  Episode 4 addresses the pros and cons of transferring after your first year.  I have never before heard how this calculus looks from the student perspective, other than conversations with individual students contemplating transfer.  Those conversations focus on the individual student's reasons for transferring, which are sui generis.  LWLS provides a macro perspective on transferring that I had never heard before. 

I'll admit that I skipped a lot of Episode 5, which was a Valentine's Day episode dedicated to dating while in law school, but what I heard was pretty enlightening.  I was already married when I went to law school, so dating was not an issue.  But the LWLS hosts have interesting insights and experiences to share.  One is in a long-distance relationship; the other is dating a classmate.  You can imagine the challenges. 

I approached the podcast with some trepidation.  Do I really want to hear law students talking about their experiences?  Do I want to hear commentary on my colleagues' professional performances?  So far, I have been pleasantly surprised.  LWLS refrains from picking the low-hanging fruit.  They are extremely reluctant to say anything negative about the classroom experience.  The farthest they will go is to say something like, "Let's just say, it's not my favorite course."  And as to particular professors, they recognize that an ineffective professor might just be ineffective for you.  They give us the benefit of the doubt, whether or not we deserve it.  

It's not that I don't think the legal academy would benefit from a more jaundiced perspective on our methods.  I'm just glad this podcast is not the vehicle for that.  It nevertheless manages to convey a very clear-eyed, realistic perspective on the life of law students, told as it is experienced, in something approaching real time.  

I recommend this podcast to my colleagues who want to hear what this experience looks like from the other side of the lectern.  I look forward to listening to the remaining episodes, and I will share highlights as I come across them over the summer.

Texas HB 20, Contracts, and the First Amendment (Again)

If you follow this blog closely, thank you!  Also, you may have noticed that I have been gathering cases in which the law of contracts intersects with the First Amendment.  The most recent such post is here (linking to earlier posts in the series).  The other three cases all made it to the Supreme Court.   Today, we visit the Fifth Circuit Court of Appeals.

Let me illustrate the situation with an analogy.  Let's say you open your house to guests so that people can come and talk to one another.  You have great snacks, flattering lighting, and an attractive ambience.  People eagerly sign your user agreement and flock to your house, so you move to a bigger venue.  More people come.  Eventually, you move to an abandoned shopping mall.  People gravitate towards groups with common interests, and they chat.  They move around the mall from venue to venue and engage in conversation.  Great snacks, flattering lighting, attractive ambience. 

Sometimes people come and shout obscenities.  You warn them.  Some spread conspiracy theories, but eventually those people find each other and leave everyone else to enjoy each other's company.  But some of those people won't let it go.  They are hostile to those who don't share their views.  They scream; they make noise.  They question your snackage.  They lobby for less flattering lighting because they're Emo.  They violate the user agreement that the signed.  They threaten to make the space uncomfortable for everyone.  So you warn them, remind them of the user agreement, specifying how they have violated it, but they double down, saying that you are "censoring" them.  After several warnings, you ban them.  They can't come to your space anymore.  

But they argue that you are infringing their First Amendment rights and that you are discriminating against them based on their politics.  There appears to be no empirical basis for such claims.  They are being banned for being obnoxious and for not abiding by the rules that they agreed to when they came to the venue.

They could go elsewhere, but your space is the best space.  The other spaces are filled with obnoxious people.  They only have Bit O'Honey and Circus Peanuts, the lighting is provided by those fluorescent tubes that buzz, and the decor consists of posters from science-fiction/fantasy movies that never got made.  Think Argo.  However, you know who else is obnoxious?  Politicians.  So the politicians pass a law forbidding you from banning obnoxious people from your space. 

You may think I'm oversimplifying a bit.  But if you replace my hypothetical abandoned shopping mall with the Internet, this is the story of Texas HB 20. 

It is styled (rather ponderously) as "AN ACT relating to censorship of or certain other interference with digital expression, including expression on social media platforms [Platforms] or through electronic mail messages."  HB 20 defines Platforms as common carriers if they have over 50 million users per calendar month.   Subchapter B of Section 2 of that Act has some notably broad disclosure requirements.  In short, Platforms (the big ones, not Parlor or Gab) must provide biannual reports to Texas detailing their use policies, their methods for prioritizing content, and any disciplinary actions they have take against user accounts.  But it's just a disclosure requirement.  What could be wrong with that?  Don't ask me.  Ask Eric Goldman (below, left).  In his draft article, The Constitutionality of Mandating Editorial Transparency, Professor Goldman explains why the disclosure mandates that Texas and Florida are seeking to impose on Platforms are every bit as problematic as direct bans on speech.  These are state governments trying to control private websites.

After providing useful background on more mundane disclosure mechanisms and on the breadth of the new Texas and Florida disclosure regimes, Professor Goldman proceeds to make three substantive arguments.  First, mandatory editorial transparency regimes such as these "would be unconstitutional if imposed on traditional publishers, such as print newspapers."  Why? 

"Mandatory editorial transparency restrictions affect the substance of the published content, similar to the effects of outright speech restrictions. This indicates that the laws should be categorized as content-based restrictions and trigger strict scrutiny." 

Second, the same principles should apply to Platforms.  In this part, Professor Goldman responds to five arguments found in an amicus brief filed by Columbia University's Knight First Amendment Institute.  Although the brief opposes the proposed legislation, it argues for according Platforms less constitutional protection than traditional publishers like newspapers.  Third, mandatory editorial transparency regimes facilitate illegal enforcement actions.  He illustrates this part by discussing an attempt by Texas's Attorney General Ken Paxton to retaliate against Twitter for terminating former President Donald Trump's account by opening an investigation and issuing a civil investigation demand, in which Paxton sought disclosures from Twitter similar to those that would become mandatory under HB 20.  

In the final section of Professor Goldman's paper, he introduces alternative mechanisms for regulating Platforms.  These alternatives would be equally effective and would not compromise First Amendment principles.  They involve third-party, non-governmental auditing of the Platforms and the empowerment of independent researchers.

Still not convinced?  Consider this article from Mark Joseph Stern on Slate.  He writes:

The intrusive disclosure requirements are almost comically impractical: They oblige companies to give Texas heaps of information about their algorithms, curation, and search functions, as well as a “biannual transparency report” with information about every single “action” taken against “content.” . . .  Platforms must also establish a complex process of notice and appeal any time it “removes content.”

It would be impossible for any target of H.B. 20 to comply with these standards. Platforms like Facebook use automated editorial tools to remove billions of posts and comments every year. They lack the resources, by orders to magnitude, to review and resolve each appeal, especially not within the 14-day limit that H.B. 20 provides. The only solution would be to stop monitoring content. Yet the law forces companies to assess complaints of “illegal content” within 48 hours, so they cannot adopt a true laissez-faire policy either.

But disclosure mandates are not the only mechanism that HB 20 provides. Subchapter D of Section 2 empowers Texas's Attorney General to enjoin any measures that a Platform undertakes to enforce its own disciplinary rules in a manner inconsistent with HB 20.  The Platform would bear the costs incurred by the AG in any enforcement proceeding.  

Neither Professor Goldman nor Mark Joseph Stern address this, but I also wonder about the intellectual property ramifications of laws like HB 20.  The laws require the Platforms to disclose information about the algorithms they use to rank content.  That strikes me as a demand to surrender proprietary information that goes to the heart of what makes these Platforms successful.

Section 6 imposes fines on the Platforms of $25,000 for each day that the Platforms "unlawfully impede" a message.  Section 7 creates a private right of action against "censorship" by Platforms.  Aware that people who inhabit the virtual space that the Platforms create agree to terms and conditions, Section 7 specifically nullifies contractual protections that the Platforms create: 

A waiver or purported waiver of the protections provided by this chapter is void as unlawful and against public policy, and a court or arbitrator may not enforce or give effect to the waiver. . . .

The waiver prohibition described by Subsection (a) is a public-policy limitation on contractual and other waivers of the highest importance and interest to this state, and this state is exercising and enforcing this limitation to the full extent permitted by the United States Constitution and Texas Constitution.

Thus the state tramples private legislation.

Any Platform that engages in "censorship" in violation of Section 7 can be subject to contempt charges.  A user may bring such an action and a court can impose contempt fines even if the law has been enjoined by another court.  

A user may bring an action under this section regardless of whether another court has enjoined the attorney general from enforcing this chapter or declared any provision of this chapter unconstitutional unless that court decision is binding on the court in which the action is brought.

Nonmutual issue preclusion and nonmutual claim preclusion are not defenses to an action brought under this section.

Judge Pitman (right) of the District Court for the Western District of Texas enjoined the enforcement of HB 20 in a 30-page opinion.  Among other things, as Professor Goldman notes, Judge Pitman rejected arguments proffered by the Knight First Amendment Institute and others who argued that Platforms deserve lesser constitutional protections than traditional publishers.  Predicting the result on the merits, Judge Pitman found that: (1) Platforms exercise editorial discretion protected by the First Amendment; (2) HB 20 compels Platforms to disseminate objectionable content and impermissibly restricts their editorial discretion; (3) HB 20’s disclosure and operational requirements burden Platforms’ editorial discretion; (4) HB 20 discriminates based on content and speaker; (5) HB 20 is unconstitutionally vague; (6) Texas has alleged no interest in regulation sufficient to enable HB 20 to overcome intermediate or strict scrutiny; (7) HB 20 is so constitutionally unsound that its severability provisions cannot save it; and (8) the irreparable harm Platforms would suffer under HB 20 outweighs any harm to the state.

Last week, the Fifth Circuit lifted that injunction, in a 2-1 panel decision without opinion.   An opinion is to follow.  According to Vox, the decisions consists of one sentence: “IT IS ORDERED that the appellant’s opposed motion to stay preliminary injunction pending appeal is GRANTED.”  

The great thing about courts of law is that they provide reasoning for their decisions.  Unless and until the Fifth Circuit addresses the eight reasons given by the District Court for enjoining HB 20, the Fifth Circuit is not acting as a court of law in this case.  It is hard to imagine what the written version of this opinion will look like.  In order to overturn the injunction, the Fifth Circuit has to find that Texas has a strong likelihood of prevailing on the merits and that it will suffer irreparable injury if HB 20 is enjoined.  Under current law, neither of those things seems to be true.  SCOTUS might come along and change such matters, but the Fifth Circuit is supposed to rule based on lex lata, not lex ferenda.

Lindenwood University Pays $1.65 Million to Settle COVID-based Claims

It's been a few months since we had anything new to report on the cases brought by students claiming that their universities breached a contract or were unjustly enriched when they went online in Spring 2020.  

This week, the St. Louis Post Dispatch reports that a federal district court has approved a $1.65 million  settlement between Lindenwood University and a class of students who claim that they received a "subpar" online education when the campus closed due to COVID.  The Post Dispatch reports that each student will receive $185, and the attorneys will receive $55o,000.  The suit originally sought $5 million.  A court dismissed a similar suit brought against Washington University.  

H/T John Wladis and the Mother Ship.

This American Life's The Reluctant Explorer (of NFT's and the Human Psyche)

This American Life (TAL) is to podcasts what the U.S. Constitution is to modern constitutions.  It's the mother of invention.  Actually, that comparison is a little unfair to TAL.  TAL is still fresh and new.  Perhaps that's because its James Madison is Ira Glass (whose high school senior picture is shown below right because that's the only public domain picture I could find, and it's pretty funny).   Ira is still in charge, and he makes sure every episode is consistent with the shows original premise.  

So what group is better situated than TAL to tell the story of one of the earliest NFT's? 

Episode 769, The Reluctant Explorer, features Ken, who created a website called PixelMap.  People could go on PixelMap, buy one or more of the 4000 16 x 16 tiles, and decorate them.  Twenty or thirty people did so, and then, after a few years, Ken shut down PixelMap and moved on to another project, like his 3D printer that he used to create  . . .  a better 3D printer.  

Along comes a mysterious stranger named Adam who persuades Ken to revive the site and to sell the tiles, which are actually some of the oldest NFTs in existence.  There are NFT enthusiasts, who call themselves "Apes" for reasons that are  perhaps obvious if you have dipped a toe in the NFT world, who will pay a lot of money for vintage (circa 2015) NFTs.  

The tiles are a huge hit.  Adam persuaded Ken to drop the price of each tile, but they very quickly began selling for prices in excess of their original price, which was 2 Ethereum, then worth about $6000.  Originally Adam told Ken he could make perhaps $100,000.  In the end, Ken made several million, and he held onto 900 tiles.  He sent Adam a $500,000 tip.

Enter human nature, illustrated below:

Ken had been living his life, working for Amazon, making little inventions for his own enjoyment.  He was, to use the Capuchin monkey analogy, happily eating his cucumbers.  Now, two days after he first interacted with Adam, he became a millionaire.  He immediately became obsessed with the idea that Adam was eating grapes and he was still eating cucumbers.  Why had Adam convinced him to lower the price of his tiles?  Who was behind the bot that had bought 1000 tiles?  Was Adam engaged in a massive pump and dump operation?

Listen to the episode to get all the answers.  In the end, NFT traders are not as evil as Ken originally thinks.  Indeed, Ken goes from thinking NFTs are evil to devoting all of his time to trading in them.  Ken has quit his job, but now he works harder than ever on PixelMap.  As this exchange with TAL's host Ira Glass illustrates, NFTs have not only brought Ken fabulous wealth; they have also given him something priceless: self-knowledge:

Ira Glass

I feel like you're in this weird situation where most of your working life, you were actually doing things and developing code for big companies, Amazon and Snapchat, and people would use the code, like, it would do stuff all over the world. And then this thing that you build that's completely useless--

Ken Erwin

I hate you. I'm just playing

Ira Glass

--that doesn't contribute to society really--

Ken Erwin

No, what you don't realize is I have been contributing to pointless causes my entire career. So when I worked at Salesforce, it was to help make sure that on Black Friday, you get spam emails from like, Best Buy and every other company. And that's like--

Ira Glass

So are you saying this idea of before you were a productive, contributing member of society is ridiculous[]?

Ken Erwin

I'm saying I was never a productive member.

My wife once opened a fortune cookie, and the message read, "One day you will realize how futile your life has been."  That insight seemed unearned coming from a cookie.  But Ken seems to have gained a real perspective on his own life.  Upside, he got to say "I hate you" to Ira Glass.  Who does that?  What's next on your bucket list, Ken?  Saying "I hate you" to Dolly Parton?

Ken now views the world of NFTs as a casino in which everybody knows that there are no rules and so it's a level play field.  Ken estimates that 99% of NFTs are worthless junk.  Even NFT enthusiasts basically concur, with estimates of the junk NFT percentage ranging from 90-99+%.  Interest in NFTs can explode and then dissipate.  Few retain any value, but so long as everybody knows the rules, what's the harm?  So says Ken, who didn't know the rules when he started. 

There's a new Ken born every minute, and so NFT trading will continue.  

Teaching Assistants: Victor Goldberg on the Bid Cases

This is the eleventh in a series of posts on Victor Goldberg's work.  Today's post is about Chapter 15 of his book, Rethinking Contract Law and Contract Design (RCL), and this will be the last post about that book.  The book includes a conclusion, but I will hold off on commenting on Professor Goldberg's conclusions until I am ready to draw some of my own, following blog posts on his Rethinking the Law of Contract Damages.  Stay tuned.  Links to related posts follow this one.

The bid cases are made for teaching.  First we have the opinion of Learned Hand (below, left) in James Baird v. Gimbel Brothers from 1933.  A generation later, Justice Roger Traynor (below, right) authored the opinion in Drennan v. Star Paving.  The facts are close-enough to identical.  A sub-contractor (sub) makes an error in placing its bid.  The general contractor (GC) uses the bid and wins the contract.  The sub then attempts to pull out.  Judge Hand allowed the withdrawal of the bid.  If the GC wants an option, it can make that a condition of putting in a bid.  Justice Traynor went the other way, noting the GC's reliance on the sub's bid.  The Restatement (s. 87(2)) follows Drennan.  

Professor Goldberg makes a number of points, showcasing his knowledge of the bid context and highlighting once again the ability of the parties to allocate risks in a manner that makes sense without the assistance of courts.  First, cases like James Baird and Drennan arise only the context of public contracts, which have sealed bidding procedures. Second, there is rarely a need for courts to decide a public bid case, because the rules are laid out in statutes or ordinances.  Moreover, Drennan just creates a default rule around which the parties can and do contract.  We don't need the common law to fill in gaps (RCL, 232-34).  Third, in the private context, the Drennan rule does not apply, and it need not apply.  Parties engage in the very practices that legislators worry about (bid shopping, bid chopping, bid peddling and chiseling), but things work out all right (RCL 234-38).  Disputes between GCs and subs on projects for private owners are rarely litigated, but it seems like the GCs haggle with both owners and subs throughout the process (RCL, 245-47). 

But even courts that follow Drennan do not always find in favor of the GCs.  Sometimes they favor the sub because the sub's bid specifically provided for revocability or called itself an "estimate," not a bid (RCL 239-40).  Other courts find for subs because: (1) the sub's mistake was too obvious to induce reliance; (2) the GC proposed new terms to the sub after its bid was accepted ; or (3) the GC bid shopped. Justice Traynor addressed the first issue directly in his  Drennan opinion and left the determination of whether there was a mistake to the court's discretion.  The second issue seems the trickiest, because there are always details to work out in a post-bid contract.  Two questions arise with respect to bid shopping: was big shopping a common practice and did this particular GC bid shop?  If the answer to either question is yes, it ought to rebut the presumption that GC's rely on bids and that subs therefore must be bound by them (RCL 240-45).  In any case, Drennan is a default rule, and as such, it seems to serve its purposes, with the sub on occasion contracting around it by specifying that their bids are revocable (RCL, 245).

Professor Goldberg views the bid cases as "much ado about (almost) nothing" (RCL, 225), and his review of the case law (RCL, 247-55) bears that out.  Drennan's default rule is "often trumped by pro-subcontractor statutes or by extra-contractual mechanisms" (RCL, 255).  Moreover, Drennan has rarely been extended to apply outside of the GC/sub bid context (RCL, 257-60).  R.2d § 87(2) rarely gets mentioned in the case law.  That section of the Restatement accounts for, on average, one legal victory every nine years, at least in reported cases.  R.2d § 90 seems to be up to the task, for courts that want to enforce offers based on reliance (RCL, 260-63).

So why do we continue to teach Drennan, James Baird, and R.2d §87(2)?  Professor Goldberg has no answer, beyond the obvious attraction of a direct standoff between two giants of 20th-century jurisprudence (RCL, 263).  The danger is that, without the regulatory and law-in-action context that Professor Goldberg provides, students could emerge with a mistaken impression of the role of reliance in commercial contracts, and they also might not develop the habit of thinking about ways in which statutes and contract design can determine the applicable rules. To the contracts prof seeking to address those pedagogical pitfalls, Professor Goldberg's work serves as a valuable teaching assistant.

A post on Chapter 14 (preliminary agreements) is here

A post on Chapters 12 and 13 (excuse doctrine) is here.

A post on Chapter 11 (an Auseinandersetzung with Mel Eisenberg) is here.

A post on Chapters 8-10 (consequential damages) is here.

A post on Chapter 7 (liquidated damages) is here.

A post on Chapters 5 & 6 (speculative damages) is here.

A post on Chapter 4 (lost-volume damages) is here.

A post on Chapter 3 (timing for assessing damages) is here.

A post on Chapter 2 (the flexibility/reliance trade-off) is here.

The introductory post is here.

Tuesday Top Ten - Contracts & Commercial Law Downloads for May 10, 2022

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 11 Mar 2022 - 10 May 2022

Rank	Paper	Downloads
1.	The Limitations of Privacy Rights Daniel J. Solove George Washington University Law School	1,056
2.	An Overview of Privacy Law in 2022 Daniel J. Solove and Paul M. Schwartz George Washington University Law School and University of California, Berkeley - School of Law	462
3.	Where Nonprofits Incorporate and Why It Matters Peter Molk University of Florida Levin College of Law	301
4.	Digital Assets: A Call To Action Johan David Michels, Sharon Hartung and Christopher Millard Queen Mary University of London, School of Law - Centre for Commercial Law Studies, affiliation not provided to SSRN and Queen Mary University of London, School of Law - Centre for Commercial Law Studies	293
5.	The Law and Macroeconomics of Custody and Asset Segregation Rules: Defining the Perimeters of Crypto-Banking Hossein Nabilou University of Amsterdam, Amsterdam Law School	215
6.	Liability for Non-Disclosure in Equity Financing Albert H. Choi and Kathryn E. Spier University of Michigan Law School and Harvard University - Law School - Faculty	176
7.	Rational Contract Design Naveen Thomas New York University School of Law	165
8.	Current Issues in Unjust Enrichment 2022: Failure of Basis, Contractual Rights to Enrichment, Mistake of Law and Limitation Periods Charles Mitchell University College London - Faculty of Laws	143
9.	Contract Remedies for New Economy Collaborations Alan Schwartz and Simone Sepe Yale Law School and Yale Law School	141
10.	Towards a Harmonized Theory of the Law Governing the Arbitration Agreement Prof Maxi Scherer and Ole Jensen Queen Mary, University of London, Centre for Commercial Law Studies and Independent	14

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 11 Mar 2022 - 10 May 2022

Rank	Paper	Downloads
1.	Rational Contract Design Naveen Thomas New York University School of Law	165
2.	Current Issues in Unjust Enrichment 2022: Failure of Basis, Contractual Rights to Enrichment, Mistake of Law and Limitation Periods Charles Mitchell University College London - Faculty of Laws	143
3.	Contract Remedies for New Economy Collaborations Alan Schwartz and Simone Sepe Yale Law School and Yale Law School	141
4.	Towards a Harmonized Theory of the Law Governing the Arbitration Agreement Prof Maxi Scherer and Ole Jensen Queen Mary, University of London, Centre for Commercial Law Studies and Independent	141
5.	A Theory of Frustration and Its Effect Sagi Peari and Zamir Golestani The University of Western Australia and University of Western Australia Law School, Perth, Australia	133
6.	The Maze of Contemporary Contract Theory and a Way Out James Gordley and Hao Jiang Tulane University Law School and Bocconi University - Department of Law	108
7.	Rules vs. Standards in Private Ordering Tomer Stein Stetson University College of Law	90
8.	The Right to Regulate in International Investment Law (Revisited) Catharine Titi CNRS	79
9.	Reconstituting the Code of Capital: Could a Progressive European Code of Private Law Help Us Reduce Inequality and Regain Democratic Control? Martijn W. Hesselink European University Institute	77
10.	Proprietary Restitution Timothy Liau and Rachel Leow National University of Singapore (NUS) - Faculty of Law and National University of Singapore (NUS) - Faculty of Law	65

 

TurboTax Agrees to $141 Million Settlement

In contracts-adjacent news, TurboTax's parent company, Intuit, has agreed to a $141 million settlement with attorneys general from all 50 states, plus DC.  The settlement arises out of TurboTax's practice, documented in a series of reports from Pro Publica, which detailed a long-term company practice of attracting people to use Turbo Tax's products by signaling that the service would be provided for free.  TurboTax would then charge taxpayers if the company determined that they did not meet its criteria for access to the free software.  The company would charge taxpayers who were eligible for free tax assistance through federal programs.

As Pro Publica details here, taxpayers who qualified for free income tax assistance but paid TurboTax will receive refunds from the company of $30/year for 2016-2018.  While Pro Publica contends that TurboTax's misconduct goes back well before 2016, some state statutes of limitations would have precluded further recovery.  Intuit admits no wrongdoing and stands by its marketing.  The company is estimated to have netted $3 billion in the 2016-18 time period.

Pro Publica also reports that Intuit has entered into settlement agreements to resolve the majority of 150,000 separate arbitrations initiated by individual consumers.  A Federal Trade Commission investigation alleging unfair trade practices is ongoing.  It is hard to tell what overall impact this settlement will have on the company, but as its stock price has declined 40% in the last six months, it seems like at least a few clouds remain on the horizon.

Teaching Assistants: Victor Goldberg on the Type II Preliminary Agreement

Now that the semester is behind me (but for the grading), I can take up where I left off.  This is the tenth in a series of posts on Victor Goldberg's work.  Today's post is about Chapter 14 of his book, Rethinking Contract Law and Contract Design (RCL).  Links to related posts follow this one.

In TIAA v. Tribune Co.,670 F. Supp. 491 (S.D.N.Y. 1987), Judge Leval divided the world of preliminary agreements into three categories.  Type I agreements are enforceable, with the final, executed agreement considered a mere formality.  In Type II agreements, the terms are mostly set, and the parties have a duty to negotiate in good faith.  Type III agreements have too many open terms to be enforceable (RCL, 207).  But how does a court go about determining what type of preliminary agreement it is dealing with?  Brown v. Cara, 420 F.3d 148 (2d Cir. 2005) offered Professor Goldberg an opportunity to demonstrate the difficulties in the task.  

The case involved a joint venture through which Brown would develop property owned by Cara.  Brown had to first secure a zoning variance and then the parties would jointly manage the property and split the profits.  By the time negotiations broke down, Brown alleged that he was out $750,000 and that the rezoning had increased the value of the property from $3 million to $18 million (RCL, 210-11).  

The documents relating to this transaction were complex.  The draft operating agreement stretched to 70 pages, and the parties differed on how close they were to final agreement.  Cara pointed out that Brown's attorneys noted "five significant open business points," but Brown himself claimed that the parties were at the  final "wordsmithing stage"  (RCL, 213).  The trial court sided with Cara, dismissing Brown's contractual claims but allowing a claim for unjust enrichment to survive (RCL, 214-15).  Cara then proceeded to build the J Condominium, a luxury residential building in Brooklyn's
awesome Dumbo district, pictured at right (RCL 215-16).

The Second Circuit reversed, finding that the parties had entered into a Type II preliminary agreement, and remanded for further fact-finding necessary to decide whether Cara had breached his duties under a Type II agreement.  The court identified five factors and found that all weighed in favor of finding that the parties had a duty to negotiate in good faith.  Those factors are:

1. whether the language reveals an intent to be bound;
2. the context of the negotiations;
3. the existence of open terms;
4. partial performance; and 
5. whether custom required that such agreements be put in final form.

The court was of the view that, given all of the contingencies and complexities, the parties could not have put their deal in final form.  Professor Goldberg's point is that they could have done so (RCL, 216-17).  In prior cases considering Type II agreements, very few terms had been left open; here multiple terms were left open, but the Second Circuit treated that as a factor in favor of finding a Type II agreement, perhaps because of the parties' decision to first pursue the necessary zoning change and worry about other aspects of the transaction later (RCL 217-18).  But even if this was a Type II agreement, did Cara breach the duty of good faith by breaking off negotiations after one year?  If so, New York law preferred reliance damages as the remedy, while Brown really wanted expectation.  Expectation damages arising from the breach of a contract that was never finalized would be very difficult to calculate (RCL 218-19).

Professor Goldberg analyzes the case from his perspective of the operative trade-offs between reliance and flexibility.  Both parties are heading down a path together.  Both see potential profits and potential pitfalls ahead.  Both seek safe exits and promising alternatives for themselves while also watching the other for signs that they might be abandoned with no clear path forward.  The solution, according to Professor Goldberg was "a mechanism for pricing Cara's option to unbundle;" that is, for seeking a different partner to construct or manage the project (RCL, 220).  Professor Goldberg provides a range of options: Cara could have terminated Brown for cause, subject to a duty to reimburse Brown's reliance expenses; the parties could have agreed in phases, with Brown deriving an advantage over its competitors with each phase of the process because of reimbursement costs Cara would incur; Cara could have agreed to pay a "success fee" to Brown at any point in the process if Cara decided to go it alone; or the parties could have entered into a buy/sell agreement (RCL, 220-21).

Ironically, while other jurisdictions have followed Judge Leval's tripartite approach to preliminary agreement, New York has not done so.  The Second Circuit applied a non-existent New York standard.  Moreover, if Cara acted in good faith in terminating the Type II agreement, Brown should have lost not only its contracts claims but also its unjust enrichment claims.  After all, Brown could have protected itself contractually, but it didn't (RCL 222-23).

And so Professor Goldberg concludes, it is best for the parties to work out a binding contractual agreement, weighing reliance and flexibility interests and pricing the option for exit.  That way, the parties can decide for themself the price at which a party can bail on a joint product, rather than leaving that determination to a court (RCL 223-24).

A post on Chapters 12 and 13 (excuse doctrine) is here.

A post on Chapter 11 (an Auseinandersetzung with Mel Eisenberg) is here.

A post on Chapters 8-10 (consequential damages) is here.

A post on Chapter 7 (liquidated damages) is here.

A post on Chapters 5 & 6 (speculative damages) is here.

A post on Chapter 4 (lost-volume damages) is here.

A post on Chapter 3 (timing for assessing damages) is here.

A post on Chapter 2 (the flexibility/reliance trade-off) is here.

The introductory post is here.

New Scholarship on Contract in Crisis

Temple Law School's Professor Jonathan Lipson and Interim Dean Rachel Rebouché organized a conference last year addressing the various ways in which contracts law has responded to the pandemic.  It was a deep dive into waters that we merely tested in our online symposium from 2020.

The published version is now out in Law and Contemporary Problems.  You can read all of the contributions here.