ContractsProf Blog

Saving Bitcoin (Yes, Really!): The 2022 Uniform Commercial Code Amendments

A great thing is happening in commercial law as I type these words: Musty corners of the Uniform Commercial Code are in the process of being brought up to date to deal with the realities of twenty-first century commerce. The 2022 UCC Amendments now being considered in state legislatures across the country are replacing the "writing" requirements baked into Article 2 (Sales), Article 3 (Negotiable Instruments) and elsewhere with the more flexible "record" that can be electronic or written and represents commercial reality. The comprehensive system of secured lending contained in Article 9 is being updated as well. These revisions will provide a stable system of rules that address once-unimagined electronic assets like NFTs (non-fungible tokens) and cryptocurrency to enable them be safer and more attractive forms of collateral because of the certainty with which a lender can secure its position.

So yes, that "electronic basketball card" NFT your cousin bought last year could actually end up being pledged as collateral that helps that cousin get a loan. As Yakov Smirnoff used to say, "What a country!"

But I digress. To this professor of payment systems law, the most exciting part of the package of 2022 UCC amendments is new Article 12, entitled "Controllable Electronic Records." Article 12 creates state commercial law rules to govern blockchain assets like bitcoin and other cryptocurrency, as well as any other technology (present or future) where a purely digital record is capable of being under exclusive control.

For those unfamiliar, the paradigm-changing innovation brought about by bitcoin circa 2009 was that, through blockchain programming methodology, it allowed for the creation of a digital token that could not be copied (or in currency terms, counterfeited). A thought experiment with paper currency will demonstrate how useful blockchain programming actually is. While counterfeiting is an occasional problem for paper currency like the U.S. dollar, imagine the disaster for the use of cash as a store of value if any trickster with a photocopier could make unlimited and undetectable copies. Eventually, no one would accept cash as payment. Why would you when you could just as easily print your own? Increased money supply facilitates inflation, which is bad enough, but an infinite increase in the money supply would eventually reduce its value to zero.

The trouble with digital files, then, is that they are susceptible to the infinite creation of perfect copies. Bitcoin changed all that through blockchain programming. Because of verification on a decentralized computer network, only one bitcoin token could demonstrably exist as the verified real thing, even in the face of dozens of ostensible duplicates. In payment system terms, this means that bitcoin solved the "double-payment" problem preventing the creation of a digital and decentralized asset. Yay for bitcoin!

But not quite. The creation of non-counterfeitable digital assets has spawned (and is continuing to spawn) numerous applications, such as "trading card" collectable NFTs, digital shareholder governance, smart contracts, and even the possibility of marketable electronic title for real property. Meanwhile, bitcoin and its crypto-progeny have fallen quite short on the original use case for blockchain: a mainstream payment system. Instead, cryptocurrency has become largely the province of high-risk speculative investment and hobbyists. The recent collapse of the FTX cryptocurrency exchange and some high profile crypto-heavy commercial banks suggests that pure speculation is ultimately not a viable path forward. What bitcoin-and-company are truly lacking is widely accepted use as a payment system.

UCC Article 12 is primed to change that. It creates the legal safeguards and commercial certainty that bitcoin needs break out of its niche. Article 12 does this by establishing a basic legal regime for the ownership and transfer of "controllable electronic records"—a category that includes all decentralized cryptocurrency. Rather than focus on physical concepts of possession, the UCC revisions focus on control, as shown in this excerpt from subsection (a) new section 12-105:

§ 12-105. Control of Controllable Electronic Record.

(a) [General rule: control of controllable electronic record.] A person has control of a controllable electronic record if the electronic record, a record attached to or logically associated with the electronic record, or a system in which the electronic record is recorded:

(1) gives the person:

(A) the power to avail itself of substantially all the benefit from the electronic record; and

(B) exclusive power, subject to subsection (b), to:

(i) prevent others from availing themselves of substantially all the benefit from the electronic record; and

(ii) transfer control of the electronic record to another person or cause another person to obtain control of another controllable electronic record as a result of the transfer of the electronic record; and

(2) enables the person readily to identify itself in any way, including by name, identifying number, cryptographic key, office, or account number, as having the powers specified in paragraph (1).

This provision is technology neutral. It clearly covers blockchain assets like bitcoin while still leaving room for other technological innovation in the realm of decentralized digital assets. The only inquiry in connection with making a transaction occur is the existence of control, and the ability to transfer it to another. Article 12 gives bitcoin the legal certainty that existed for centuries in the world of commercial paper by establishing a clear and comprehensible regime of control to stand in the place of the (literally impossible for bitcoin) regime of physical possession.

And there is much more. What good is digital value as a cash substitute if you can't spend it? New Article 12 takes care of that by adapting the centuries-old regime that made a success of commercial paper: negotiability. While the musty negotiable instruments term of "holder in due course" does not appear in the statutory text of Article 12, the definition of a "qualified purchaser" is clearly inspired by it. Section 2-102(a)(2) provides:

“Qualifying purchaser” means a purchaser of a controllable electronic record or an interest in a controllable electronic record that obtains control of the controllable electronic record for value, in good faith, and without notice of a claim of a property right in the controllable electronic record. 

What then is the result of being a qualified purchaser, of (for instance) taking bitcoin as payment in exchange for vale, in good faith, and without notice of a claim to asset? Article 12 provides that the party taking the bitcoin takes it free-and-clear as against anyone else in the world. Subsection (e) of section 12-104 provide for this important commercial law legal right:

§ 12-104. Rights in Controllable Account, Controllable Electronic Record, and Controllable Payment Intangible.

[* * *]   

(e) [Rights of qualifying purchaser.] A qualifying purchaser acquires its rights in the controllable electronic record free of a claim of a property right in the controllable electronic record.

Now,let's tie this all together. Based on the above statutes, a seller of goods or services now knows—from a legal perspective—exactly what it must do to accept cryptocurrency payments with the assurance that the transaction is not going to be undercut by an unknown party. If Joe's Hardware Store takes the steps necessary to obtain "control" of bitcoin and it does so as a "qualifying purchaser" of the bitcoin in exchanging its valuable goods and services for that bitcoin, then the transaction is complete. Period. No one else can show up on Joe's doorstep and claim a lien or other legal right to the bitcoin. The legal uncertainties that arise from taking this "mysterious" cryptocurrency as payment are now resolved. It works with as much certainty as credit cards, checks, or—dare I say it—cash.

The 2022 amendments to the Uniform Commercial Code are set to play a crucial role in "saving" bitcoin by empowering it and other cryptocurrency to live up to its original potential, not as some quirky, speculative investment, but as an actual payment system.

Metropolitan Opera Ordered to Pay $200,000 to Putin Stan Anna Netrebko

We have been posting occasionally on the interaction of the Russian war against Ukraine on the blog.  The most recent such post is here.  Today, care of  Javier C. Hernández and The New York Times, we have a new installment.

By Kremlin.ru, CC BY 4.0

Russian soprano Anna Netrebko (pictured at right receiving the State Prize of the Russian Federation) was scheduled to perform at the Metropolitan Opera in Don Carlo this season and La Forza del Destino and Andrea Chénier next season but the Met cancelled those performances when Ms. Netrebko refused its demand that she denounce Vladimir Putin after the Russian invasion of Ukraine.  

An arbitrator awarded Ms. Netrebko $200,000 under a "play or pay" clause in her agreement with the Met, finding that her support for Putin did not rise to the level of moral turpitude nor was it actionable misconduct.  However, the arbitrator did fine her $30,000 for "highly inappropriate" statements on social media.  The Met has also terminated Ms. Netrebko's husband, tenor Yusif Eyvazov, who was slated to perform in Tosca.  The Met says that they will compensate Eyvazov.  Ukrainian soprano Liudmyla Monastyrska will sing the role of Tosca in four performances.

Admittedly, Netrebko is in a tough spot.  Facing cancellations throughout the West (but she has performances scheduled in Vienna and Milan), she has attempted to distance herself from Putin saying that she met him only a few times, but the penalties she might face in Russia were she to denounce the invasion could be far more grave that losing a gig at the Met.  As Radio Free Europe/Radio Liberty reports, Putin recently signed into law a new provision in Russia's criminal code that provides for up to fifteen years in prison for "false news" relating to the Russian military.  Helen Sullivan reports in The Guardian on Alexei Moskalyov, whom Russian authorities tracked down in Belarus after he attempted to escape form two years of house arrest, in part because of anti-war drawing by his 13-year-old daughter.  She was removed from his care and placed in a state-run rehabilitation center.  

COVID and the Casebook Workshop at Temple University Beasley School of Law

Temple Law School and the University of Wisconsin Law School will host a workshop April 21, 2023 at Temple (Philadelphia) focusing on recent changes in Contracts pedagogy and law: (i) the effect of the last few years on the delivery of Contracts teaching materials (e.g., what is the role of the Contracts casebook?); and (ii) how, in early hindsight, have our predictions about COVID and Contract doctrine, documented in a 2021 issue of Law and Contemporary Problems, played out?

Anticipated speakers/participants will include Ed Cheng (Vanderbilt), Sarah Dadush (Rutgers), Pamela Foohey (Cardozo), Bob Hillman (Cornell), Dave Hoffman (Penn), Marissa Jackson (Richmond), Kish Parella (W&L), Dylan Penningroth (Berkeley), Mitra Sharafi (Wisconsin), Andrew Schwartz (Colorado), Gordon Smith (BYU) and Rip Verkerke (UVA), among others.

BACKGROUND

The COVID-19 pandemic taught us a great deal about the role and teaching of Contracts.  Many feared widespread breach and litigation; others worried about how to teach the law of promising (and breach) through a flat screen.  Some of us worried about both.

With memories still fresh, we wanted to gather those who participated in those discussions, and to welcome newcomers, to assess what we thought in the moment, and where we think COVID’s lingering effects will take Contracts scholarship and teaching.

On the educational side, we have learned that we can do many (but not all) things virtually or remotely.  The pandemic appears, for example, to have accelerated a trend toward the disaggregation of educational content in general.  Now, we use (consciously or not) videos, podcasts, YouTube clips and other online content to supply or supplement content for Contracts class.  Indeed, there are now free and freemium materials from which one could teach an entire Contracts course. And, given increased focus on racial injustice as it manifests in various legal and social systems, many who teach Contracts seek to reckon more deliberately with the legacy of structural racism and inequality.

On the theory/doctrine/practice side, it appears that many of our worst systemic fears about COVID were not realized.  While there was (and remains) plenty of litigation, the vast majority of problems appear to have been resolved consensually, whether through standstills or workouts or the like.  Yet, some of those resolutions were better than others.  Many front-line workers (here and abroad) may have been left with the very short end of the stick, for example.

For those of you who may have participated in the Contract and COVID (K-COVID) workshops hosted by Temple (or contributed to the resulting symposium issue of Law and Contemporary Problems, Contract in Crisis), this will be an opportunity to discuss developments since then.  We also welcome and encourage new or aspiring Contracts teachers (and those who may be new to these issues) to join us.

This will be a continuation of the Kidwell Lecture, which has historically been held every year or so at Wisconsin, named in honor of Professor John Kidwell.  Speakers including Lisa Bernstein, Cathy Hwang and (most recently) Rachel Rebouché have presented Contracts scholarship in the “law in action” tradition (or critiquing it).  

Tuesday Top Ten - Contracts & Commercial Law Downloads for March 28, 2023

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 27 Jan 2023 - 28 Mar 2023

Rank	Paper	Downloads
1.	The Value of M&A Drafting Adam B. Badawi, Elisabeth de Fontenay and Julian Nyarko University of California, Berkeley - School of Law, Duke University School of Law and Stanford Law School	1,049
2.	Terms of Service and Fourth Amendment Rights Orin S. Kerr University of California, Berkeley School of Law	734
3.	Defeating the Empire of Forms David A. Hoffman University of Pennsylvania Carey Law School	648
4.	Contract-Wrapped Property Danielle D'Onfro Washington University in St. Louis - School of Law	335
5.	Non-problems, Future Problems and Fairy Dust Martin Dixon University of Cambridge - Faculty of Law	143
6.	Do Firms Value Court Enforceability of Noncompete Agreements? A Revealed Preference Approach Takuya Hiraiwa, Michael Lipsitz and Evan Starr University of Maryland - Robert H. Smith School of Business, Federal Trade Commission Bureau of Economics and University of Maryland - Robert H. Smith School of Business	139
7.	Expecting Specific Performance Tess Wilkinson‐Ryan, David A. Hoffman and Emily Campbell University of Pennsylvania Carey Law School, University of Pennsylvania Carey Law School and University of Pennsylvania Carey Law School	128
8.	The Scope of the Digital Services Act and Digital Markets Act: Thoughts on the Conflict of Laws Tobias Lutzi University of Augsburg	124
9.	On Rawlsian Contractualism and the Private Law David Blankfein-Tabachnick and Kevin A. Kordana Michigan State University College of Law and University of Virginia School of Law	116
10.	Making Climate Pledges Stick: A Private Ordering Mechanism for Climate Commitments Oren Perez and Michael P. Vandenbergh Bar-Ilan University - Faculty of Law and Vanderbilt University - Law School	105

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 27 Jan 2023 - 28 Mar 2023

Rank	Paper	Downloads
1.	Defeating the Empire of Forms David A. Hoffman University of Pennsylvania Carey Law School	648
2.	Choice of Law in the American Courts in 2022: Thirty-Sixth Annual Survey John F. Coyle, William S. Dodge and Aaron D. Simowitz University of North Carolina School of Law, University of California, Davis - School of Law and Willamette University College of Law	212
3.	Do Firms Value Court Enforceability of Noncompete Agreements? A Revealed Preference Approach Takuya Hiraiwa, Michael Lipsitz and Evan Starr University of Maryland - Robert H. Smith School of Business, Federal Trade Commission Bureau of Economics and University of Maryland - Robert H. Smith School of Business	139
4.	Expecting Specific Performance Tess Wilkinson‐Ryan, David A. Hoffman and Emily Campbell University of Pennsylvania Carey Law School, University of Pennsylvania Carey Law School and University of Pennsylvania Carey Law School	128
5.	On Rawlsian Contractualism and the Private Law David Blankfein-Tabachnick and Kevin A. Kordana Michigan State University College of Law and University of Virginia School of Law	116
6.	Against Essentialism in Private Law Theory: Private Law as an Artifact Kind Thilo Kuntz Heinrich-Heine-University Düsseldorf	110
7.	When Private Law Theory Is Close Enough Andrew S. Gold Brooklyn Law School	88
8.	Reliance Paul MacMahon London School of Economics - Law School	70
9.	How Reputational Nondisclosure Agreements Fail (Or, In Praise of Breach) Mark Fenster University of Florida Levin College of Law	54
10.	Binding Nonsignatories to Forum Selection Clauses Jeffrey A. Parness Northern Illinois University - College of Law	38

 

Warner Bros. to Paramount: Screw You Guys, I'm Going Home!

I learned from OCU 1L Austin Manley that the South Park guys seem to have sold exclusive rights to their show twice.  Well, maybe not.  It's a matter of interpretation. 

As Gene Maddaus reports in Variety (complaint at the bottom of the story), HBO's parent company, Warnermedia Direct is suing Paramount and others for breach of a 2019 deal in which HBO claims it won an intense bidding war by offering  $500 million for an exclusive license to stream episodes of the South Park animated television series, including three seasons' worth of new episodes.  It's a nifty little contract interpretation/good faith issue, because while HBO has the exclusive right to stream episodes of the regular South Park series, Paramount is claiming to have retained the rights to stream specials and other content.  HBO is screaming, "You bastards!"

But it gets worse: HBO claims it was promised at least ten episodes per season, but it has gotten only only eight, with six more slated for the third promised season, giving HBO a total of only fourteen of at least thirty promised episodes.  Because new episodes are far more valuable than the library of old episodes, HBO claims, what it got is worth far less than the $500 million it paid.

Sidebar: really?  I mean, yes, usually, I would be far more interested in new episodes than old episodes, but I haven't watched South Park in over a decade.  Have I missed anything?  Recently I warned my students that because nobody comes to my office hours, they should probably send me an e-mail to let me know they are coming.  Otherwise, I forget that I'm holding office hours, pull a Towelie, and just wander off.    Crickets.  According to the Complaint, "South Park is premium content and a top performer, especially with the highly prized 18-34 audience that is dedicated to the show and engages in repeated viewing."  My students don't even know who Towelie is.  So if old fans of the show (me) aren't watching the show, and my students are not watching the show, why are new episodes valuable? My students are within the 18-34 target audience, and either they are not watching the show or they are gaslighting me.  And if I were willing to shell out money for HBO Max, I would be far more likely to watch old episodes than new.  I have access to all 3,759 seasons of The Simpsons, but I'm mostly interested in Seasons 2-5.

Image by Gage Skidmore, CC BY-SA 3.0 

But wait, there's still more.  Paramount, through its subsidiary MTV, has announced a $900 million deal with the South Park creators, Trey Parker and Matt Stone (above), for exclusive South Park content to run on Paramount +.   Why can't stuff just be on TV like it used to be?  The new content is not "episodes" Paramount maintains; it is "movies," "films" (is that just movies shot in black and white?), and "events"?   Indeed, according to the Complaint, Paramount has acknowledged that South Park content is at the heart of its strategy to develop Paramount +.   

According to the Complaint, Paramount and its joint venture with Parker and Stone informed HBO that it could not make new seasons during the COVID-19 pandemic.  But during that same pandemic, it produced two South Park 50-minute specials that aired on Comedy Central, a Paramount subsidiary.  Two recent "supersized" specials aired on Paramount + with the seemingly self-referential titles The Streaming Wars and The Streaming Wars, Part 2.  The whole thing is so over-the-top, convoluted, and at least based on the Complaint so obviously wrongful, it reads like a plot from a South Park episode.  No wait, this is too big for an episode -- a South Park movie.

The Complaint alleges causes of action for breach of contract and the implied covenant of good faith and fair dealing, statutory claims, tortious interference, and unjust enrichment.  It seeks not only damages for breach of contract, but also disgorgement and punitive damages.  Expect counterclaims alleging that HBO has failed to pay the licensing fees.

Tamar Meshel on Coinbase, Inc. v. Bielski: SCOTUS' First Encounter with Arbitration Relating to Crypto

We introduced readers to Tamar Meshel (left) in Wednesday's post.  We are happy to have her back again to provide a primer on this week's oral argument in a new arbitration case.

First Crypto Arbitration Case Heard by SCOTUS
Tamar Meshel

Coinbase, Inc. v. Bielski is the first case before SCOTUS involving arbitration in the crypto context. Oral argument was heard on March 21.

Background

Coinbase, a cryptocurrency exchange, was sued by two of its customers in federal district courts in California.

The first case, Suski v. Marden-Kane, Inc., concerned a purported class action commenced by persons who opted into Coinbase’s Dogecoin sweepstakes. The plaintiffs alleged that the sweepstakes was an unlawful lottery that violated various California laws. Coinbase moved to compel arbitration and the district court denied its motion. The court found that Coinbase’s User Agreement containing the arbitration provision was superseded by its subsequent Rules for the Dogecoin sweepstakes, which contained an exclusive forum selection clause designating California courts for disputes arising out of the sweepstakes.

The second case, Bielski v. Coinbase, Inc., concerned a purported class action commenced by a victim of a scam that resulted in thousands of dollars being stolen from his Coinbase account. The action alleged violations of the Electronic Funds Transfer Act. Coinbase again moved to compel arbitration. The district court refused, finding that the arbitration agreement (as well as the delegation clause it contained) formed part of a dispute resolution procedure that was substantively and procedurally unconscionable.

Coinbase appealed both decisions denying arbitration to the Ninth Circuit pursuant to section 16 of the Federal Arbitration Act (FAA), which permits an appeal from a federal district court’s refusal to compel a dispute to arbitration (but not from a grant of a motion to compel arbitration). Coinbase also requested the district courts to stay the trial proceedings pending resolution of the appeals. The district courts and the Ninth Circuit refused Coinbase’s stay requests. The Supreme Court granted cert and heard the two cases together.

Issue on Appeal

Typically, a court has discretion to grant or deny a stay request. As a general rule, however, a notice of appeal divests a district court of power to proceed with those aspects of the case that are involved in the appeal (Griggs v. Provident Consumer Disc. Co.). The question before the Supreme Court in Coinbase is whether the Griggs rule applies to an appeal under section 16 of the FAA from a district court’s decision that the underlying dispute is not arbitrable. In other words, once a district court has decided to hear the underlying dispute, must the case be stayed pending appeal given that section 16 of the FAA allows appeals from denials of arbitration as a matter of right.

The circuit courts of appeals have split on this question, with the majority of circuits holding that an appeal from a district court’s denial of arbitration divests the court of jurisdiction to hear the underlying dispute, so long as the appeal is not frivolous. The disagreement among the courts turns on whether a district court’s finding that the underlying dispute is not arbitrable is independent of the underlying dispute, or rather implicates the entire case because it concerns the district court’s jurisdiction to hear it in the first place. 

Oral Argument

During oral argument, the Justices focused on the FAA’s appeal and stay procedures and on the potential implications of the Court’s decision for the parties. While the specific crypto context in which the procedural question before the Court arose did not seem to be on the Justices’ minds, more crypto cases involving arbitration are likely to creep up into the courts’ dockets.   

Justices Kagan, Jackson, and Sotomayor seemed sympathetic to the respondent customers, emphasizing their right to proceed in litigation once arbitration has been denied. These Justices doubted the link that Coinbase attempted to draw between the right to an interlocutory appeal under section 16 of the FAA and Congress’ presumed intention that such an appeal would be accompanied by a mandatory stay of the merits litigation. The Justices seemed to prefer a textualist approach that focused on Congress’ silence regarding a stay of proceedings in section 16 as compared with section 3 of the FAA, which explicitly provides for a stay of litigation pending arbitration. Justice Sotomayor also raised section 6 of the FAA, which states that unless expressly provided otherwise in the act, applications to the courts are to be made and heard “in the manner provided by law f or the making and hearing of motions.” In its recent decision in Morgan v. Sundance Inc. the Court held that section6 was “simply a command to apply the usual federal procedural rules.” Under these rules, Justice Sotomayor pointed out, an automatic stay is the exception rather than the rule. Justice Kagan emphasized that the Griggs rule was a judge-made rule that should be interpreted narrowly, and did not view the district courts and courts of appeals as “doing the exact same thing” in this case. Finally, Justice Jackson pointed to a “conceptual problem” with imposing a mandatory stay when it is not clear that arbitration will happen at all.

In contrast, Justices Alito, Barrett, Gorsuch, and Kavanaugh seemed more sympathetic to Coinbase. Justices Kavanaugh, Gorsuch, and Barrett appeared open to applying the Griggs rule given that the FAA is silent on the issue of a stay pending appeal. Justice Barrett suggested that while the question of arbitrability is distinct from the underlying merits of a dispute, that question is intertwined with the merits proceedings before the lower court thereby triggering the Griggs rule. Justice Alito was concerned that it would be impossible for a defendant to satisfy the irreparable harm requirement for a discretionary stay if the only potential injury is significant litigation costs. Finally, Justice Kavanaugh was concerned that a defendant could be coerced into “massive settlements” absent a mandatory stay pending appeal.

Conclusion

Refusing to impose a mandatory stay of proceedings while an appeal is pending from a denial of arbitration may defeat the very purpose of section 16 of the FAA. This section evidences a legislative preference for enforcing arbitration agreements by allowing an appeal from an order denying, but not from an order compelling, arbitration. Such an outcome would also be contrary to the federal policy favoring arbitration that the Supreme Court has long espoused. At the same time, section 16 of the FAA does not explicitly provide for a mandatory stay. Moreover, in Morgan as well as in Southwest Airlines Co. v. Saxon the Court placed limits on the policy favoring arbitration.

Coinbase is therefore a difficult case to predict, and may well produce a split decision. The outcome will ultimately depend on whether the majority opts for a strict textualist approach to the interpretation of the FAA or for a more pragmatic approach that accords with the purpose of the act and with the realities of litigating arbitration issues. 

Texas AG Ken Paxton Seeks to Scuttle Settlement With Whistleblowers

Image by Gage Skidmore

While I was in Texas for KCON, I came across this news article from James Barragán in The Texas Tribune.  In short, Texas Attorney General Ken Paxton (right) agreed to a $3.3 million settlement with eight whistleblowers who worked with him and were terminated or resigned after accusing him of corruption and abuse of office.  They agreed to pause their suit against General Paxton so that a payment of the settlement could be arranged. 

General Paxton now thinks the pause should to continue indefinitely, and plaintiffs have had to return to court to ask the court to allow the case to proceed.  The Texas legislature is refusing to approve the payment, and Paxton is now arguing that the whistleblowers, having agreed to a settlement that cannot be implemented, should walk away with nothing.  If the legislative session that ends on May 29th awards them nothing, they can wait, General Paxton avers in a legal filing, until the next legislative session . . . in 2025 and then 2027, and so on.

It seems an important commentary on our time that the incredibly powerful Attorney General of our second-most populous state should engage in corruption atop corruption and it doesn't even merit national news.  My quick Google search turned up no reporting on the issue in the national press.  General Paxton boasts on his website that he brought suit against the Obama Administration 27 times in two years.  Sixteen months into the Biden Presidency, General Paxton had already brought 25 challenges to that administration's policies.  It is hard to keep straight all of the cases that the U.S. Supreme Court has heard in the past few years that are captioned Texas v. United States.  And yet, news of significant corruption and abuse of legal process by a politician with a national impact merits little more than a shrug and a sigh.  I spoke with some friends from Texas about the story, but they could not disentangle this story about corrupt politicians from all the others and responded with hopeless resignation.

The settlement agreement included a provision for an apology from Paxton to his former subordinates.  There are no reports that General Paxton has issued the apology.  The Texas Legislature apparently has no interest in using taxpayer dollars to pay for a settlement that would resolve General Paxton's legal problems in this case.  People interested in learning about the other legal fixes for which General Paxton has never been held accountable, including two indictments for securities fraud which somehow, after seven years, still have not gone to trial, can read about them in the Texas Monthly.  

The Texas Montly also provides a litany of complaints about the inefficacy of General Paxton's office in fulfilling its primary mission -- addressing crime in Texas.  That's as may well be, but from this blog's perspective, there's just one legal delict that matters: breach of contract.

Tamar Meshel on Southwest Airlines v. Saxon

We are delighted to welcome Tamar Meshel (right) as a guest blogger!

Dr. Tamar Meshel is an Associate Professor at the University of Alberta Faculty of Law. She researches, teaches, and consults primarily in the areas of domestic and international arbitration and her work has been cited by the Supreme Court of Canada, the Supreme Court of Israel, and the Delaware Court of Chancery, as well as by numerous scholars.

Southwest Airlines v. Saxon Comes Full Circle
Tamar Meshel

One of the most criticized aspects of the Federal Arbitration Act (FAA) (and there are plenty to choose from) is that it operates to “foreclose state legislative attempts to undercut the enforceability of arbitration agreements” (Southland Corp. v. Keating) by pre-empting any state law that “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress” in enacting the FAA (AT&T Mobility LLC v. Concepcion). The conventional wisdom is that if it were left to the states, employees and consumers would not be subjected to the pre-dispute arbitration agreements that SCOTUS—through its interpretation of the FAA—is commonly accused of imposing on them.

In some states, however, the FAA may turn out to be less “pro-arbitration” than state law. Take Southwest Airlines Co. v. Saxon, one of the FAA cases SCOTUS decided in the 2021 Term. Considered a win for employees, the Court in Southwest Airlines unanimously held that airport cargo loaders were “transportation workers” exempt from arbitration under § 1 of the FAA. The Court refused to interpret § 1 of the FAA narrowly on the basis of its “proarbitration purpose,” which it has invoked numerous times in past decisions. As a result, the plaintiff could not be compelled to arbitrate her claims (including collective claims under the federal Fair Labor Standards Act) against Southwest and was permitted to pursue them in court.

Back before the district court in Illinois, however, the plaintiff was less successful in avoiding arbitration. On March 10, the district court granted Southwest’s renewed motion to compel arbitration, this time under the Illinois Uniform Arbitration Act (IUAA). Unlike the FAA, the IUAA does not exempt any category of employees from its coverage, although it allows courts to refuse to enforce arbitration agreements for failure to comply with the terms of the Illinois Workplace Transparency Act (WTA). Having no available exemption from arbitration under the IUAA, the plaintiff instead argued that she should nonetheless be allowed to proceed in court, because Southwest had waived the right to arbitrate, the arbitration agreement was substantively unconscionable, and it violated the WTA.

The district court was unconvinced. It found that Southwest did not waive its right to arbitrate under Illinois law, because it did not unreasonably delay requesting arbitration under the IUAA, did not request any decision on the merits, and no discovery was conducted. The court also rejected the plaintiff’s unconscionability arguments, which were based on provisions in the agreement that limited discovery and entitled Southwest to attorneys’ fees if an employee pursued a claim in court rather than in arbitration. Finally, the district court found that the WTA did not apply to the plaintiff’s case, because the act only prohibits arbitration of claims involving unlawful employment practices, defined as forms of “unlawful discrimination, harassment, or retaliation . . . actionable under Article 2 of the Illinois Human Rights Act, Title VII of the Civil Rights Act of 1964, or any other related State or federal rule or law.” The plaintiff’s claims, the court held, did not involve any such unlawful employment practices. The district court therefore granted Southwest’s motion to compel arbitration and stayed the case.

After spending four years litigating before three levels of federal court in order to avoid the FAA, the plaintiff in Southwest Airlines is now back where she started—in arbitration. Only this time, it is not the FAA that put her there. Some opponents of the FAA might be less bothered by this outcome because it is a function of state law rather than a domineering federal act. At the same time, many critics take issue not only with the FAA’s pre-emptive effect but also more fundamentally with arbitration of employment disputes. If this is indeed the real concern with the FAA, it should equally apply to state laws. Southwest Airlines therefore provides an interesting opportunity to elucidate what precisely is it in the FAA that critics oppose and to consider that some state legislatures have opted to enforce employment arbitration agreements even where the FAA does not mandate them to do so.   

Tuesday Top Ten - Contracts & Commercial Law Downloads for March 21, 2023

Rested and reinvigorated by KCON XVI (the Sixteenth International Conference on Contracts), the time has come for the Tuesday Top Ten to roar back with a scholarly vengeance! Let's check the SSRN charts for our indisputably favorite doctrinal field, shall we?

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 20 Jan 2023 - 21 Mar 2023

Rank	Paper	Downloads
1.	Terms of Service and Fourth Amendment Rights Orin S. Kerr University of California, Berkeley School of Law	721
2.	Defeating the Empire of Forms David A. Hoffman University of Pennsylvania Carey Law School	638
3.	Contract-Wrapped Property Danielle D'Onfro Washington University in St. Louis - School of Law	311
4.	Algorithmic Harm in Consumer Markets Oren Bar-Gill, Cass R. Sunstein and Inbal Talgam-Cohen Harvard Law School, Harvard Law School and Technion-Israel Institute of Technology	212
5.	Non-problems, Future Problems and Fairy Dust Martin Dixon University of Cambridge - Faculty of Law	135
6.	Contract Production in M&A Markets Stephen J. Choi, Mitu Gulati, Matthew Jennejohn and Robert E. Scott New York University School of Law, University of Virginia School of Law, Brigham Young University - J. Reuben Clark Law School and Columbia University - Law School	123
7.	Do Firms Value Court Enforceability of Noncompete Agreements? A Revealed Preference Approach Takuya Hiraiwa, Michael Lipsitz and Evan Starr University of Maryland - Robert H. Smith School of Business, Federal Trade Commission Bureau of Economics and University of Maryland - Robert H. Smith School of Business	121
8.	Expecting Specific Performance Tess Wilkinson‐Ryan, David A. Hoffman and Emily Campbell University of Pennsylvania Carey Law School, University of Pennsylvania Carey Law School and University of Pennsylvania Carey Law School	112
9.	The Scope of the Digital Services Act and Digital Markets Act: Thoughts on the Conflict of Laws Tobias Lutzi University of Augsburg	108
10.	On Rawlsian Contractualism and the Private Law David Blankfein-Tabachnick and Kevin A. Kordana Michigan State University College of Law and University of Virginia School of Law	106

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 20 Jan 2023 - 21 Mar 2023

Rank	Paper	Downloads
1.	Choice of Law in the American Courts in 2022: Thirty-Sixth Annual Survey John F. Coyle, William S. Dodge and Aaron D. Simowitz University of North Carolina School of Law, University of California, Davis - School of Law and Willamette University College of Law	209
2.	Do Firms Value Court Enforceability of Noncompete Agreements? A Revealed Preference Approach Takuya Hiraiwa, Michael Lipsitz and Evan Starr University of Maryland - Robert H. Smith School of Business, Federal Trade Commission Bureau of Economics and University of Maryland - Robert H. Smith School of Business	121
3.	Against Essentialism in Private Law Theory: Private Law as an Artifact Kind Thilo Kuntz Heinrich-Heine-University Düsseldorf	110
4.	On Rawlsian Contractualism and the Private Law David Blankfein-Tabachnick and Kevin A. Kordana Michigan State University College of Law and University of Virginia School of Law	106
5.	When Private Law Theory Is Close Enough Andrew S. Gold Brooklyn Law School	80
6.	Reliance Paul MacMahon London School of Economics - Law School	63
7.	How Reputational Nondisclosure Agreements Fail (Or, In Praise of Breach) Mark Fenster University of Florida Levin College of Law	52
8.	The Due Process Paranoia in International Arbitration Roshani Rathore O. P. Jindal Global University - Jindal Global Law School (JGLS)	33
9.	Binding Nonsignatories to Forum Selection Clauses Jeffrey A. Parness Northern Illinois University - College of Law	32
10.	Dispute Process Choices Among Chinese Companies in the United States: Some Preliminary Data and Analyses Ji Li and Carrie Menkel-Meadow University of California, Irvine School of Law and University of California, Irvine School of Law	29

Consultants Sue Twitter for Unpaid Fees

This post started out as one story, but when I started researching, I fell down a rabbit hole of alleged breaches of contract.  They all fit the incredibly simple pattern: one of the parties to the Elon Musk/Twitter litigation hired some company to do work in connection with the Musk/Twitter transaction.  Then, once Mr. Musk (below) owns Twitter, he doesn't pay.

First, on January 20th, Jon Brodkin reported for arstechnica, that Charles River Associates provided consulting services to Twitter in connection with its lawsuit that eventually forced Elon Musk to purchase the company.  Brodkin previously reported that Twitter had not paid over $1 million to Imply Data, Inc. and apparently intended not to pay the remaining $7 million.  Apparently, Twitter simply doesn't respond when its creditors inquire about unpaid invoices.  At one point, it was impossible to reach Twitter for comment, Brodkin reported, because the PR department had been terminated.  I don't know if that is still the case.  We reported on earlier contract breaches here.

Next, on February 3rd, Lauren Hirsch and Kate Conger reported in The New York Times, Musk has also not paid Innisfree M&A Incorporated $1.9 million owed in connection with work it did for Twitter during the acquisition.  The article details other contracts that the company is not honoring.  

Finally, Laurel Brubaker Calkins reported in Bloomberg News on February 9th that Twitter was also not paying Analysis Group Inc. of Boston $2.2 million in fees for consulting services it provided in connection with the acquisition.  Perhaps Mr. Musk doesn't want to pay the people who contributed to forcing him to buy Twitter, an acquisition he seems to be enjoying less and less these days as the bills come due, the platform degrades, and the route to profitability becomes ever more elusive.  Fortunately, The Onion has a slideshow packed with inspired ideas for making the platform profitable, all suitable for a genius of Mr. Musk's calibre. 

KCON/ContractsProf Blog Brain Trust Assembled

Sorry terrorists, you missed your opportunity.  Last weekend in Fort Worth, current contributors and founding geniuses of both KCON and the Blog were gathered in one place.  You could have taken us all out with a targeted strike, but here we are (Mark Edwin Burge, Wayne Barnes, Frank Snyder, Sid DeLong, and the author (foreground)) laughing at you!

Carol Chomsky, creator, muse, caretaker, peacekeeper, and curator of the AALS Contracts Listserv, was also in the room!  Nancy Kim, was our designated survivor, monitoring all from a secure, undisclosed location.

KCON XVI ENJOYED BY ALL!

I think the headline speaks for itself.  But here are some images in case any are unpersuaded.  

Here we have our name up in lights at the beautifully restored New Isis Theater, where we had an event (below) and dinner, during which we honored living legend Bill Henning.

Once inside, Keith Rowley (pictured left or right, who can tell?) led us through a discussion of various clips from movies and television in which the law of contracts or contract negotiation plays a central role.  

Above is Frank Snyder presenting Bill Henning with a lifetime achievement award to add to his trophy case (photo credit Andrea Tosato).

Even the panels were fun, witness these satisfied panelists, Rachel Arnow-Richman, Tamar Meshel, the author, and Orit Gan.

Thanks to our TAMU hosts, founding genius Frank Snyder, blog contributing editor Mark Edwin Burge, and host extraordinaire Wayne Barnes.  

Haunted House or Contract for Torture?

"Actual" Haunted House

This isn't exactly news, but it's news to me.  Oklahoma City University 1L Zachary Acosta alerted me to the existence of an attraction in Tennessee known as McKamey Manor, reputed to be the most extreme haunted house in the world.  Zachary brought this to my attention because we had just finished a unit on contractual waivers of liability.  

According to Marco Margaritoff & Adam Farley of allthatsinteresting.com, the McKamey Manor requires a doctor's note an the entrants' signatures on a forty-page waiver form.  McKamey offered $20,000 to anyone who could make it through the attraction, but nobody claimed the prize, and the average visitor lasts eight minutes before begging to be let go.  McKamey claims that he did away with the prize because it was attracting "the crazy ones," and McKamey now offers a milder six-hour version of the attraction, which some people make it through.  

While some people have reportedly been hospitalized after visiting the attraction, and there have been numerous threats of law suits, McKamey claims that most of what people think happened to them did not really happen.  He creates illusions, including (he claims) through hypnosis.  He records each session and posts the results to YouTube.  Once he shows participants what actually went on, they drop their suits, he maintains.  

I am of two minds about this one.  I am not a thrill-seeker and do not understand that drive.  But the attraction is popular, and it stands to reason that satisfied customers overwhelmingly outnumber the people who are moved to litigate or agitate over the experience.

One the other hand, there are allegations that McKamey employees continue to torment visitors even after they cry uncle.  If that is a violation of the rules of the game, then the conduct is tortious.  But given the forty-page waiver, it seems likely that the visitors waive all claims, including claims arising out of intentional torts.  My learned colleague Barry Johnson, on whose shoulder I cry when I do not understand the world, analogized the situation to a boxing match -- that certainly involves an agreement to allow oneself to be punched.  

The cases are distinguishable in ways that I find concerning.   Of course, there are problems with boxing itself, and boxing is tame compared with its contemporary cousins.  But it seems unlikely to me that the typical boxer enters a match in the hope of getting beat up.  They intend to deliver the beating and they are trained to protect themselves.  By contrast, I assume that McKamey visitors do not get to respond to their tormentors with punches and kicks.  Moreover, boxing is heavily regulated, and there is a neutral official in the ring who enforces rules and intervenes when a combatant is injured.  The safeguards that are in place at McKamey's seem designed to protect Mr. McKamey from liability rather than to protect participants from injury.  So even if I were okay with boxing, I might not be okay with McKamey's.

As my students well know, I am not a fan of liability waivers.  I do not think that venues that host dangerous activities ought to be insulated against liability for their own negligence.  If you host a dangerous activity, you especially should not be negligent.  If you are negligent, you should be subject to lawsuit, and if you cannot get insurance to protect you against liability, you should be driven out of business, and then we will only have non-negligent venues hosting dangerous activities.  Does that mean that there will be fewer extreme haunted houses, paintball venues, and other sites of totally foreseeable life-altering injury?  I can live with that.  Will those that exist be more expensive?  Great!  People ought not to casually engage in activities that could result in serious injury.

Sid DeLong on Loan Forgiveness and Injunctions (Preliminary and Nationwide)

NATIONWIDE IS ON OUR SIDE: LESSONS FROM THE STUDENT DEBT INJUNCTION
Sidney W. DeLong

In Nebraska v Biden, several states sued the Biden Administration to enjoin the Secretary of Education from implementation of the impending student debt “forgiveness” program under the under the Higher Education Relief Opportunities for Students Act (HEROES Act). The grounds were that that it was unauthorized by the Act and unconstitutional.

Plaintiffs sought a nation-wide preliminary injunction blocking implementation of the plan in a Texas district court, which denied relief on jurisdictional grounds, finding that the plaintiffs lacked standing to sue. In the linked opinion, the Eighth Circuit Court of Appeals unanimously reversed and granted an “injunction pending appeal.”[1] The opinion has several features of interest relating to so-called “nationwide preliminary injunctions.”  

Last month, the Supreme Court heard oral argument on the standing issue.  The Circuit Court held that the state of Missouri had standing to sue because a Missouri governmental agency, the Missouri Higher Education Loan Authority (“MOHELA”), obtained revenue as a result of “servicing” student debt, i.e. collecting loan payments.

The Supreme Court will probably rule in a way that renders the Eighth Circuit’s holdings on the injunction issues moot. But the reasoning that court used is of interest on the matter of nationwide preliminary injunctions.

Irreparable Injury

“It is alleged MOHELA obtains revenue from the accounts it services, and the total revenue MOHELA recovers will decrease if a substantial portion of its accounts are no longer active under the Secretary’s plan.” The Circuit Court held that such harm to MOHELA would irreparably harm the state of Missouri, either directly if MOHELA is part of the state for these purposes or indirectly because of its potential effect on state revenues.

The concept of injury here seems questionable. Who is injured when the government “forgives” a federally guaranteed student loan? Because of the guarantee, lenders and their assignees will be fully paid by the government (the taxpayers) in accordance with the loan guaranty program. Insofar as MOHELA is an assignee of student loans, it will be paid in full.

What about collection agencies whose income comes from the fees they obtain in servicing student loans? Presumably, if the loans are forgiven and the debts are repaid by the government and not by individual payments, there would be no further need to “service” the loans. As was acknowledged in the Supreme Court argument, this loss of fees would give collection agencies enough of an interest to have standing to sue. But since when does a collection agent have a legally enforceable right to the continuation of a debt it services? It seems unlikely that the contract be the creditor and the collection agent gives the agent such a right. Only if the “collection agent” is actually an assignee of the debt, which is not alleged in this lawsuit, then the assignor’s cancellation of the debt would certainly violate the assignee’s rights. But settlement did not affect the holders of the debt because the federal guarantee assures against any loss.

Even if a collection agent had a legally protectable interest in the servicing fees from a debt, violation of that interest would not cause an irreparable injury, giving the agent a general power to enjoin the settlement. An award of money damages would completely compensate for such financial loss. For the same reason, a damages award would compensate any entities, such as the state of Missouri, who derive benefits from the collection of those fees.

There is nothing irreparable about the threatened loss.

The sliding scale test for a preliminary injunction.

Ever since the decision in Winter v Natural Resources Defense Counsel, Inc., 555 U.S. 7 (2008), the Circuits have split on the correct test to apply in ruling on a preliminary injunction. The Winter majority propounded a four-part test in which each element must be established. Justice Ginsburg in dissent argued that courts could continue to use a “sliding scale” test, in which a strong showing of risk of harm might outweigh a weaker showing of likelihood of success on the merits.  In the years following Winter, circuits have split over which test to use.

The Circuit court applied a version of the sliding scale test, finding that a federal preliminary injunction is warranted: “where the movant has raised a substantial question and the equities are otherwise strongly in his favor, the showing of success on the merits can be less.”

But Nebraska seems to be a case like Winter, in which the party seeking the preliminary injunction has a strong case on the merits (given the Supreme Court’s likely resolution of the loan forgiveness validity question) but a weak case on irreparable harm (speculative losses of servicing fees).

Nationwide Injunctions. In a nationwide injunction, a court orders the U.S. government defendant to abate a national program even though the claim at issue is brought on behalf of only a few plaintiffs. But for a court to issue a nationwide injunction upon a showing of only localized harm violates a fundamental equitable principle of injunctive relief: An injunction order must be narrowly tailored to address only the specific irreparable injuries that the plaintiffs have demonstrated will result to them and the injunction must be justified by the balancing of the particular equities of the parties in the case. See generally, Laycock and Hansen, Modern American Remedies (5^th Ed.) Absent a class action, an individual plaintiff should rarely or never be entitled to enjoin a governmental defendant’s actions relating to other parties.

Despite these criticisms, and rather like the storied bumblebee that scientists proved was incapable of flight, the nationwide injunction is now a fact of life and has become the go-to strategy of both the Team Blue (e.g., in actions to enjoin Trump’s immigration policies) and Team Red (in the actions to enjoin the Affordable Health Care Act).

That is not to say that nationwide injunctions are not problematic from a practical basis. Because any district court can issue a nationwide injunction, forum shopping is an essential litigation strategy. Progressives typically file in New York hoping for an Obama judge; Conservatives typically file in Texas hoping for a Federalist Society judge. And the chance always remains that different district courts will issue conflicting temporary restraining orders or preliminary injunctions against an agency, making it impossible to comply with them all.

Members of the DC Mafia as imagined by Justice Kagan
Image by DALL-E

Although such a suggestion is fraught, perhaps the Court should consider issuing a rule that all actions seeking to enjoin a federal agency must be temporarily transferred to a single forum, e.g., a court sitting in the District of Columbia. They could be retransferred after disposition to the court where filed.

The Circuit Court held that a nationwide injunction was appropriate in Nebraska v Biden because the plaintiff obtained loans from around the nation and because it would have been unfeasible to tailor the order to block forgiveness of the specific loans as to which the plaintiff needed relief. The opinion states that “MOHELA is purportedly one of the largest nonprofit student loan secondary markets in America. It services accounts nationwide and had $168.1 billion in student loan assets serviced as of June 30, 2022.”

Nebraska thus adds another factor to be considered in issuing a nationwide injunctions, which is that they are warranted when the plaintiff’s claims are so numerous and geographically widespread that it is unfeasible to disentangle them from the government’s other activities. This factor certainly seems to distinguish Nebraska v Biden from the immigration cases where the orders could be limited to the plaintiffs.

Of course, as the Legal Realists will point out, the resolution of this case will not turn on the law of injunctions or of nationwide injunctions but upon the Supreme Court’s view of the legality of the debt forgiveness order, a question about which there seems to be little dramatic uncertainty.

[1] While the court appears to have granted the preliminary injunction, the exact effect of the ruling is unclear: (“We GRANT the Emergency Motion for Injunction Pending Appeal. The injunction will remain in effect until further order of this court or the Supreme Court of the United States.”) It is unclear to this author whether this is a stay pending the Circuit Court resolution of the preliminary injunction appeal or an injunction pending resolution of an eventual appeal on the merits of the substantive claim.)

(Belated) Tuesday Top Ten - Contracts & Commercial Law Downloads for March 15, 2023

True, these are our Top Ten lists and not the Top Sixteen, but in honor of KCON XVI--the Sixteenth International Conference on Contracts--this week's graphic will be just a little off. This day-late post is a little off, too, but we won't talk about that part. The important point is that we at my beloved home institution of Texas A&M are looking forward to welcoming our global contracts community to Fort Worth this Friday for some excellent scholarship and fun (not always in that order). Now, let's check the SSRN charts!

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 14 Jan 2023 - 15 Mar 2023

Rank	Paper	Downloads
1.	Terms of Service and Fourth Amendment Rights Orin S. Kerr University of California, Berkeley School of Law	708
2.	Defeating the Empire of Forms David A. Hoffman University of Pennsylvania Carey Law School	621
3.	Transactional Drafting: Introduction to Contract Drafting and Transactional Practice Ben Fernandez University of Florida Levin College of Law	322
4.	Contract-Wrapped Property Danielle D'Onfro Washington University in St. Louis - School of Law	284
5.	Standardizing and Unbundling the Sub Rosa DIP Loan Kenneth Ayotte and Alex Zhicheng Huang University of California, Berkeley - School of Law and University of California, Berkeley - School of Law	208
6.	Algorithmic Harm in Consumer Markets Oren Bar-Gill, Cass R. Sunstein and Inbal Talgam-Cohen Harvard Law School, Harvard Law School and Technion-Israel Institute of Technology	180
7.	Contract Production in M&A Markets Stephen J. Choi, Mitu Gulati, Matthew Jennejohn and Robert E. Scott New York University School of Law, University of Virginia School of Law, Brigham Young University - J. Reuben Clark Law School and Columbia University - Law School	121
8.	Mistake in Contract Law Emily L. Sherwin Cornell University - Law School	111
9.	On Rawlsian Contractualism and the Private Law David Blankfein-Tabachnick and Kevin A. Kordana Michigan State University College of Law and University of Virginia School of Law	103
10.	Overcoming Contractual Incompleteness: The Role of Guiding Principles David Frydlinger and Oliver Hart Cirio Law Firm and Harvard University - Department of Economics	100

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 14 Jan 2023 - 15 Mar 2023

Rank	Paper	Downloads
1.	Choice of Law in the American Courts in 2022: Thirty-Sixth Annual Survey John F. Coyle, William S. Dodge and Aaron D. Simowitz University of North Carolina School of Law, University of California, Davis - School of Law and Willamette University College of Law	204
2.	Against Essentialism in Private Law Theory: Private Law as an Artifact Kind Thilo Kuntz Heinrich-Heine-University Düsseldorf	109
3.	On Rawlsian Contractualism and the Private Law David Blankfein-Tabachnick and Kevin A. Kordana Michigan State University College of Law and University of Virginia School of Law	103
4.	Do Firms Value Court Enforceability of Noncompete Agreements? A Revealed Preference Approach Takuya Hiraiwa, Michael Lipsitz and Evan Starr University of Maryland - Robert H. Smith School of Business, Federal Trade Commission Bureau of Economics and University of Maryland - Robert H. Smith School of Business	91
5.	Reliance Paul MacMahon London School of Economics - Law School	57
6.	How Reputational Nondisclosure Agreements Fail (Or, In Praise of Breach) Mark Fenster University of Florida Levin College of Law	51
7.	The Due Process Paranoia in International Arbitration Roshani Rathore O. P. Jindal Global University - Jindal Global Law School (JGLS)	30
8.	Binding Nonsignatories to Forum Selection Clauses Jeffrey A. Parness Northern Illinois University - College of Law	30
9.	Integrating Artificial Intelligence into the Mortgage Credit Market Rosa M. Garcia-Teruel Universitat de Barcelona	29
10.	Dispute Process Choices Among Chinese Companies in the United States: Some Preliminary Data and Analyses Ji Li and Carrie Menkel-Meadow University of California, Irvine School of Law and University of California, Irvine School of Law	26

Flo Rida Wins $82 Million Judgment Against Celsius Energy Drinks

As Marisa Dellatto reports in Forbes, rapper Flo Rida prevailed in a jury trial on his claims against energy drink company, Celsius.  Being a man who can now count his age in decades, I had never heard of or taken note of this line of beverages or of Flo Rida, but my daughter went to Flo Rida concert last year, and now I am seeing Celsius ads every time I stream content on services that have ads.  Live and learn.

The suit arises out of an endorsement deal that Flo Rida (Flo? Mr. Rida?) signed with with Celsius.  The deal was renewed in 2016 and terminated in 2018,  Flo Rida claimed that he was entitled to shares in the company, and a jury agreed.  Celsius argued that the statute of limitations had lapsed, but the jury found(!) that Celsius was equitably estopped from making such an argument.  

The verdict consists, in part, of 250,000 shares in the company, which at the time of the verdict were selling for $110/share.   That accounts for $27 million of the verdict.   I'm not sure where the rest comes from. 

Flo, I've never tasted the stuff, but my advice is: liquidate your shares in a hurry, because this stuff has fad written all over it.  It's already down to $84.50/share, but as recently as May 2020, it was below $5/share, and those times may well return. 

Sid DeLong on FTX Bankruptcy and Asset Forfeiture

CLASH OF THE TITANS: FEDERAL ASSET FORFEITURE VS. FTX BANKRUPTCY TRUSTEE
Sidney W. DeLong

This story may remind the older readers of classic movies involving Godzilla vs. Mothra or childhood discussions about whether Batman could beat Superman. In one corner, the Justice Department with all the weight of federal criminal law behind it. In the other corner, the federal bankruptcy trustee for FTX, representing the unpaid creditors of an $8 billion fraud. In the middle is former FTX officer Nishad Singh.

Image by DALL-E

On reflection forget Godzilla: The better metaphor is a lion and a hyena squaring off over the carcass of a wildebeest on the savannah. Singh is reported (through Bloomberg and The Seattle Times) to have forfeited a multi-million dollar home to the government as part of a plea bargain on charges including federal wire fraud. The federal government and the trustee seem likely to square off over the property. Like the wildebeest, Singh is probably indifferent as to which one prevails.

Civil asset forfeiture has long been a controversial weapon used to swell public coffers at the expense of criminal defendants and their sometimes-innocent families and friends. It is available in a civil action brought by the government against the owner of the property involved. Criminal asset forfeiture is available in a criminal proceeding as part of the sentence imposed upon conviction. Both kinds of forfeiture enrich the government at the expense of the owners of the forfeited property. The government may or may not elect to use the forfeited funds to compensate the victims of the fraud.

But what if there are other claims to the forfeited property? The Singh case reminds us that asset forfeiture can also infringe on the rights of unpaid creditors of the defendant.

Tug-of-War Image by DALL-E
Inspired in part by Squid Game

A bankruptcy trustee for FTX might have several claims against the property of its ex-officers such as Singh, including claims based on theories of negligence, misappropriation, fraudulent transfers, etc. The trustee represents the interests of the unsecured creditors of FTX, which includes all the innocent victims of its fraud. Any diminution of Singh’s assets reduces their potential ultimate recovery and increases their uncompensated loss.

The government’s asset forfeiture claim is, by contrast, not designed for compensation but as punishment. The report suggests that the government sees the forfeiture as a benefit to the victims of the fraud. If it simply turns the forfeited property over to the trustee, no problem results.

If it instead asserts an interest in the forfeited funds on behalf of the federal government, the trustee of FTX is likely to challenge the reported forfeiture. The results of the challenge will depend on bankruptcy law whose analysis is beyond the scope of this post. Such a case will likely raise issues involving priorities of distribution, preferential transfers, fraudulent transfers, and constructive trust theory.

 Stay tuned for more developments.

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(C): Response to Sid DeLong

Comment on Sidney DeLong’s Post on Relational Contracts
Melvin A. Eisenberg

Sidney DeLong’s post on relational contracts prompts me to expand the comments on relational contracts that I made on Ethan’s post on that subject.

Several unsuccessful attempts to define relational contracts were made in the past.

For example, Goetz (left) and Scott (right) proposed that a contract is relational to the extent that the parties are incapable of reducing important terms to well-defined obligations. This definition unsoundly omits any mention of a relation between the contracting parties. Furthermore, parties are often incapable of reducing all terms to well-defined obligations, instead leaving some terms to implication, as illustrated by Fritz Lieber’s famous hypothetical, “Fetch some soup meat.”

Vic Goldberg (right) defined a relational contract as a contract "in which no duties exist between the parties prior to the contract formation." This definition too omits any mention of a relation between the contracting parties. Moreover, in the case of almost all contracts no duties exist between the parties prior to contract formation.

Ian Macneil, who originated the concept of relational contracts, argued at one point that a contract is relational if it has more duration, more personal interaction, more future cooperative burdens and more units of exchange that are difficult to measure.  This definition is much too vague to serve as a basis for making legal rules or deciding cases.

What is striking about these unsound definitions of relational contracts is that a sound definition is ready at hand: A relational contract is one that involves not only an exchange but also a relationship between the contracting parties that bears on the exchange. Under this definition almost all contracts are relational because almost all contracts involve some sort of relationship between the contracting parties. By the same token, few or no contracts are discrete. Ian Macneil, who originated the concept of relational contracts, at one point adopted a comparable definition, formulated in the negative. “A discrete contract,” he said, is one in which “no relationship exists between the parties apart from a simple exchange of goods.” And, he accurately said, a discrete contract is “an impossibility” and discrete contracts are “entirely fictional.”

But if there are no discrete contracts then every contract is relational.

In contrast to my own view and that of Macneil, Sidney DeLong (left) believes there are discrete contracts, and endeavors to support that view by arguing that UCC Article 2 embodies a dramatic recognition of the differences between discrete and relational contracts This recognition is manifested, DeLong maintains, in the distinction between (1) UCC Section 2-601 contracts, which are discrete because they fall under the perfect tender rule, and (2) UCC Section 2-612 contracts, which are relational because relational contracts are subject to the doctrines of good faith, course of dealing, and course of conduct, and, presumably, those doctrines apply to Section 2-612 contracts but not to Section 2-601 contracts.

But just because a contract falls under the perfect tender rule doesn’t make it non-relational. Even parties to a Section 2-601 contract will normally have a relationship. Section 2-601 contracts are seldom made by strangers. Rather, Section 2-601 contracts are usually made between merchants who have dealt with each other in the past and, even where that’s not the case, between merchants who introduce themselves, get to know each other, negotiate, and are likely to be in contact after the contract is made -- in short, between parties do not merely make an exchange but also have, or form, a relationship. Furthermore Section 2-601 contracts are relational even under DeLong’s test. All contracts, including Section 2-601 contracts, must be performed in good faith, and all contracts include the parties’ course of dealing and course of performance. Finally, many Section 2-601 contracts involve the sale of a complex good, such as a machine, a plane, or a locomotive, which involve much relational interchange concerning the good before a contract is signed and, typically, further relational interchange thereafter.  

Previous posts in the Symposium:

Virtual Symposium: Mel Eisenberg and Contracts Law Scholarship

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part I: Shawn Bayern

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part II: Douglas Baird

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part III: Ethan Leib

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IV: Nancy Kim

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part V: Introducing the Second Week

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VI: Mark Gergen

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VII: Jennifer Martin

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VIII: Harris Hartz

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IX: Hila Keren

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(A): Response to Ethan Leib

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(B): Response to Nancy Kim

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(B): Response to Nancy Kim

Comments on Nancy Kim’s Post
Melvin A. Eisenberg

Nancy has perfectly captured my view of contract law, and adds two penetrating questions. I’m grateful for these questions because they have led me think about problems that I had not addressed.

To begin with, Nancy points out that my guiding principle is that the rules of contract law – indeed, the rules of all common law subjects – should be based on propositions of policy, morality, and experience, and that when these propositions conflict they should each be afforded appropriate weight given the issue at hand. She then asks, how should a court determine those weights? I don’t have a definitive answer, but I will make two comments.

First, moral and policy principles, and different policy principles, usually point in the same direction, so problems of weighting don’t often arise.

Second, legal rules should not be based on morality, policy, and experience simpiciter, that is, without a qualifier. Rather, they should be based on social morality, by which I mean moral standards that claim to be rooted in aspirations for the community as a whole and can fairly be said to have substantial support in the community, and on social policies, by which I mean  policies that claim to characterize a state of affairs as good for the community as a whole and can fairly be said to have substantial support in the community. As a result, when social propositions conflict a court should try to determine what weight society puts on the relevant moral and policy propositions. So, for example, in our society the proposition that lying is immoral will rarely if ever be overcome by a proposition of policy.

Arizona Home
Image by DALL-E

Admittedly, not every weighting problem is that easy. In those cases a court must use its best judgment. For example, in Zambrano v. M & RC IILLC, 254 Ariz. 53 (2022), a seller of homes disclaimed the implied warranty of workmanship and habitability, and substituted in its place  a complex express warranty that was much less generous than the implied warranty. The Court had to determine which was more weighty: the policy of freedom of contract or the policy reasons for the implied warranty. The Court carefully reviewed the policy reasons for the implied warranty, and the injuries that would be caused to home buyers if that warranty could be disclaimed, and concluded on the basis of those reasons that the policy reasons for the implied warranty outweighed the reasons for the policy of freedom of contract

Next, Nancy asks how does dynamic law, which I champion, fit into the contract world we live in today, where adhesive terms hijack persons who have no intention of agreeing to those terms entering into a transaction where courts hold those terms to be binding. The answer is, they don’t fit, because dynamic contract law is sound and the current treatment of form contracts is unsound, as Nancy convincingly demonstrates.

To begin with, it is well established, as Nancy points out, that consumers don’t read form contracts. (Neither do employees who sign contracts on behalf of their employer, although that’s much less of a problem due to UCC Section 2-207 and the knockout rule).  Form contract terms fall into two categories: individualized terms, such as price, and standardized terms, such as limitations on liability. Individualized terms are known to form-takers but it is well-established that standardized terms are not. That being so, standardized terms should either be unenforceable or unenforceable if unfair.

The Sky, Not Falling, Supported by Contracts
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As to the former alternative, under which standardized term would be unenforceable, some judges seem to think that the sky would fall if that was the law. However, UCC Section 2-207 and the knockout rule already go very far in that direction for business-to-business transactions, and the sky is still up there. If a contract is formed under Section 2-207(1), under the knockout rule conflicting terms will drop out. Since most standardized terms in a buyer’s and a seller’s forms will conflict, most or all standardized term will drop out. Alternatively, if a contract is formed under Section 2-207(3), every standardized term in both forms drop out even if they do not conflict, except where terms in the two forms match, which will seldom occur.

As to the latter alternative, under which standardized terms should be unenforceable if unfair, Restatement Second of Contracts Section 211(3) already takes that position:

   [Section] 211. Standardized Agreements.

(1)  Except as provided in Subsection (3), where a party to an agreement signs or otherwise manifests assents to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing. . . .

(3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew the writing contained a particular term, the term is not part of the agreement.

In other words, under Section 211(3) a term in a form contract is not enforceable against a form-taker if the form-giver had reason to believe the form-taker would not have agreed to the term if she knew the term was in the form. Since a form-taker would seldom or never agree to an unfair term, Section 211(3), which has been quoted or cited in close to twenty cases, effectively renders unfair form terms unenforceable.

Previous posts in the Symposium:

Virtual Symposium: Mel Eisenberg and Contracts Law Scholarship

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part I: Shawn Bayern

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part II: Douglas Baird

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part III: Ethan Leib

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IV: Nancy Kim

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part V: Introducing the Second Week

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VI: Mark Gergen

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VII: Jennifer Martin

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VIII: Harris Hartz

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IX: Hila Keren

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(A): Response to Ethan Leib

Subsequent posts in the series:

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(C): Response to Sid DeLong

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(A): Response to Ethan Leib

Mel Eisenberg on Ethan Leib

Ethan Leib has had a long and fruitful career – almost sixty articles! – and it’s gratifying to learn that I contributed to his approach to thinking about the academic pursuit in some small measure. Ethan and I disagree about relational contracts, but my strong guess is that we would agree on almost everything else in the law of contracts.  But to our disagreement:

 Ethan’s strong and lucid critique of my article, and later my chapter in Foundational Principles of Contract Law, on relational contracts, has not led me to change my position in a fundamental way, but has led me to expand and clarify my position, which I do here.

To begin with, I believe I’m less rigid about rules than Ethan thinks I am. At the center of my thinking about the common law is that the common law is rule-based and that legal standards and legal principles are legal rules. The dictionary defines a rule as an authoritative prescribed direction for conduct. Expanding that definition a bit, a legal rule is an authoritative prescribed direction that can be applied to determine whether conduct, like nonperformance of a contract, was right or wrong, and whether activity, such as a contract or a will, was legally enabled. Narrow garden-variety legal rules, legal principles, and legal standards are all legal rules, because they can all be applied to determine whether conduct was legally right or wrong and whether activity was legally enabled.

So, for example, the principle of expectation damages, that a promisor who breaches a bargain contract is required to pay the promisee the amount required to put her in the position she would have been in if the promisor had performed that can be and is applied to measure a promisee’s damages. Typically, that principle is expressed in more specific formulas that apply to different contexts – seller’s breach of a contract for the sale of goods, buyer’s breach of a contract for the sale of goods, and so forth -- but these formulas are merely instantiations of the principle, and in any event the principle can be applied directly rather than through a formula, as in the famous case of Hawkins v. McGee. Similarly, the standard of due care is typically expressed in the form of the more specific rule that a negligent actor is liable to a person he injures, but the standard can also be applied directly, as when it is said that a defendant did not exercise due care.

Ethan points out that I reject an approach to contract law rules that involve a spectrum running from discrete contracts to relational contracts. Such an approach requires definitions of the two ends of the spectrum. Ian Macneil, who created relational contract theory as a school of thought about contract law, characterized a discrete contract as having less of certain characteristics – for example, less duration, less personal interaction, and less future cooperative burdens – and a relational contract as having more of those characteristics. The problem is – there are few or no discrete contracts, because almost every contract has relational elements. For example, even buying a car usually involves protracted interactions with a salesman and a sales manager, perhaps more than one visit to the showroom, and repeated cooperative burdens to make repairs in the seller’s shop. 

A Viking and a Saxon
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Indeed, trying to imagine a discrete contract Macneil was driven to a fantastic extreme: “[A]t noon two strangers come into town from opposite directions, one walking and one riding a horse. The walker offers to buy the horse, and after brief dickering a deal is struck under which the horse is to be delivered at sundown upon the handing over of $10. The two strangers expect to have nothing to do with each other between now and sundown, they expect never to see each other thereafter, and each has as much feeling for each other as a Viking trading with a Saxon.” OMG! There are no spectrums in contract law to speak of, because a spectrum has to have two end points, and since discrete contracts are imaginary creatures there are no end points for a spectrums running from discrete contracts to relational contracts.

Ethan thinks I would not accept multi-factor rules as rules. I would. A rule that has three, four, five or more factors is a rule. A court must go through the factors and conclude that a party is liable or not, or that the law did or did not enable certain activity, like whether a contract Is enforceable or a will is valid.

Ethan reads me to be skeptical of the acknowledgement that many  many real-world contracts involve dynamic and that relationships could do more than inform economics and sociology. Uh-uh. I regard contracts as dynamic. Tbey have a past, in the form of course of dealing, and a future, in the form of course of performance. Moreover, they are frequently modified, and under modern contract law modifications are enforceable if . . . . And the fact that parties have enjoyed a mutually advantageous business over the course of decades, as in Eastern Airlines, certainly may be relevant to interpreting their obligations. But that does not require a law that applies to, and only to, parties in a relationship that has lasted decades. The fact that parties have enjoyed a mutually advantageous relationship can be relevant to interpreting their contractual obligations even if that relationship has only lasted months. Again, my point is not that there are no relational contracts – my point is that there are no rules of contract law that apply to, and only to, relational contracts. Similarly, I don’t deny, as Ethan believes I do, that some rules can only be applied through a multi-factor test. First, such a rule is a legal rule, and second, such a rule can be applied to determine what category a relationship falls into even if the parties entered into their relationship two weeks or two days ago.

Finally, Ethan believes I am skeptical about spectrum approaches in the law. But I’m not.

So hip-hip hurray for relational contracts, but not for the proposition that there are rules of contract law that apply to relational contracts and no other contracts.

Previous posts in the Symposium:

Virtual Symposium: Mel Eisenberg and Contracts Law Scholarship

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part I: Shawn Bayern

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part II: Douglas Baird

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part III: Ethan Leib

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IV: Nancy Kim

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part V: Introducing the Second Week

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VI: Mark Gergen

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VII: Jennifer Martin

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VIII: Harris Hartz

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IX: Hila Keren

Subsequent posts in the series:

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(B): Response to Nancy Kim

Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(C): Response to Sid DeLong