ContractsProf Blog

Hiatus

I am taking a break from posting starting this week.  I'm not sure when I will resume, but no later than the start of classes in August.

Friday Frivolity: Nutty Warranty Claim Against Cold Stone Creamery Can Proceed

It was as if Judge Gary Brown (right) of the U.S. District Court for the Eastern District of New York knew he was writing fodder for Friday frivolity.  Ruling on defendant's motion to dismiss purported class action claims arising from frustrated ice cream customers, he began with a citation to Van Halen, "They say all my flavors are guaranteed to satisfy." The opinion includes a liberal sprinkling of such citations. 

In general, I'm not a fan of jokey legal opinions, unless they are really well done, and they rarely are. It is not that there is no place for humor in a courtroom.  Part of the appeal of a Justice Scalia or a Justice Kagan is their wit. But it is another matter when a judge treats a claim as a joke or when an opinion scoffs at the serious legal wrongs alleged.

Here, the court's attempts at witticisms fall short.  Blogs can be serious without being solemn, but people bring lawsuits when they are genuinely aggrieved.  One ought to treat such claims with the sobriety they deserve.  And if the claims are not serious, wasting court resources also is not the stuff of jokes.  

In Duncan v. Kahala Franchising, the claims are borderline. Plaintiff alleges that Cold Stone Creamery's pistachio ice cream contains no actual pistachios. Rather, the pistachio flavor was produced through chemical means.  The complaint alleged violations of New York's General Business Law, §§ 349 & 350, which prohibit deceptive acts and false advertising, as well as breach of warranty claims. On the one hand, why can't the seller just be honest and fess up that is selling pistachio-flavored ice cream?  On the other hand, get a life!  It's not as though you ordered a kale smoothy as part of a cleanse regimen and received a St. Patrick's Day ice cream float instead.  You ordered ice cream; you got ice cream.  Did it taste good?

Other ice cream brands, readers may be relieved to learn, include actual pistachios in their pistachio ice cream, and Cold Stone Creamery's strawberry and banana ice creams include strawberries and bananas respectively.  The proposed plaintiff class provided survey evidence indicating that the vast majority of pistachio ice cream buyers expect it to contain pistachios.  

Interestingly enough, New York courts have developed a line of cases addressing allegations such as those at issue here in a line of cases relating to claims that food products were "vanilla."  In order to make out of a claim under §§ 349 & 350, courts consider:

(1) the presence or absence of express representations, (2) context of the alleged misrepresentation, (3) etymological analysis, (4) allegations about competitor products and (5) consumer survey evidence . . . 

Here, Cold Stone Creamery did not represent that its pistachio ice cream was "made with" or contained pistachios. However, the court was not impressed with the defendant's disclosure of its true ingredients online. Such disclosure is not helpful to a person who is just looking for a treat. 

By Stan Shebs, CC BY-SA 3.0

What the test calls "etymology" turns out to be more of a usage question.  In the vanilla cases, plaintiffs claims were dismissed, because vanilla is more of an adjective than a noun.  But "pistachio," when used as an adjective, is used to describe a color, according to the Oxford English Dictionary, so Judge Brown gives the edge on that one to the defendant.

Oh, please. Now, this opinion is actually pissing me off. A dictionary is a mirror.  If you hand it to a lawyer who has no background in linguistics, don't expect Paul frickin' Grice to peer out. "Pistachio" can also be used adjectivally to mean "pistachio-flavored," and the usage here undoubtedly related to flavor rather than color.  If the purpose of the name were to describe the ice cream's color, it might have been called anything from Avocado to Chartreuse to Lime to pea pod. Still, the fourth and fifth categories clearly favored plaintiffs, at least as to their allegations relating to the pistachio ice cream.

Given the joking tone, it is something of a relief that Judge Brown found that the proposed class had alleged sufficient facts to survive defendant's motion to dismiss, at least as to its pistachio-related claims sounding in §§ 349 and 350, as well as in breach of express warranties.  Plaintiffs made the same claims relating to other flavors but did not present the same kind of evidences relating to those other flavors.  In any case, plaintiffs produced no customers who were disappointed that, e.g., their butter pecan ice cream contained no butter.  All non-pistachio claims were accordingly dismissed.

Georgia Law Governs Non-Competes Even Notwithstanding Choice-of-Law Provision

Back in 2016, Edmund Burbach was living the dream, first working for six Georgia Harley-Davidson Dealerships under common ownership and then soon promoted to Chief Operating Officer.  He executed employment agreements with two of the dealerships, which included restrictive covenants (the non-competes).  During his employment and for three years thereafter , Mr. Burbach was prohibited from working for any competitor within a 120-mile radius of any of the six dealerships. These agreements included included a choice-of-law provision stating that they were to be governed by Florida law.

In 2019, Mr. Burbach left his employment and moved to another Harley-Davidson dealership located within twenty miles of one of the six dealerships that formerly employed him.  Warned that his previous employer would seek to enforce the non-compete, Mr. Burbach took no action, and his former employer sued him.  The Georgia trial court applied Florida law and, finding the non-competes reasonable, enjoined Mr. Burbach from working for a competitor within 120 miles of the six dealerships.

A Georgia court of appeals reversed.  It found that the choice-of-law clause, which it called a choice-of-forum clause, was procedural rather than substantive.  It found itself obligated to apply Georgia substantive law on non-competes, the Georgia Restrictive Covenants Act.(GRCA), OCGA § 13-8-50 et seq. Applying that law, the court of appeals found the non-competes unreasonable.

In Motorsports of Conyers, LLC v. Burbach, the Supreme Court of Georgia first noted that Georgia law generally requires courts to enforce parties' choice-of-law provisions.  However, they will not do so if prohibited by statute or if the result is "contrary to the policy or prejudicial to the interests of this state."  Unreasonable restrictive covenants are, as a matter of statutory law, contrary to public policy and unenforceable in Georgia.  

The Court then recounts the history of Georgia's statutory restrictions on non-competes.  There have been twists and turns, but the general principle abides: unreasonable restrictive covenants are general restraints of trade that contravene public policy. However, Georgia's recently revised statute on restrictive covenants is more permissive, allowing for blue-lining so that a court can edit an unreasonable non-compete to eliminate its unreasonable components.  As result, the Supreme Court issues a very complicated set of instructions for the trial court on remand:

[T]he trial court must first apply the GRCA to determine whether the restrictive covenants in Burbach's employment agreements comply with it. If the covenants are reasonable under Georgia law, . . . the court must then apply the parties' chosen law—Florida law—to determine their ultimate enforceability.  If the covenants as written do not comply with the GRCA, then enforcing them would violate Georgia public policy, and so the court may not apply foreign law to enforce them. Instead, Georgia law would govern the covenants, and so the trial court would apply our law, including the GRCA's blue-penciling provision, to determine whether the restrictive covenants may be enforced in part.

The Supreme Court of Georgia decided this case in September 2023.  It took until January, 2024, for the intermediate appellate court to vacate its 2022 decision and remand the case to the trial court to reconsider in accordance with the Supreme Court's instructions.  I wonder what effect that trial court can give to the non-competes given that their three-year term expired in 2022.  Mr. Burbach's LinkedIn page indicates that he has been employed in Florida since 2021.

Call for Papers, Obligations XI: Private Law Inside and Out

The Eleventh Biennial Conference on the Law of Obligations will be held at Harvard Law School from July 8–11, 2025. The conference will be co-hosted by Harvard Law School and Melbourne Law School, and will be co-convened by John Goldberg, Andrew Robertson and Henry Smith. The biennial Obligations Conferences bring together scholars and practising lawyers from across and beyond the common law world to discuss current issues in private law. Obligations XI will be the first conference in the Obligations series to be held in the United States.

The conference theme is intended to provoke discussion about the inside and outside of private law. The conference will focus on the contrast between ‘internalist’ and ‘externalist’ perspectives on the law in this field. It will also consider the boundaries and relationships between private law and morality, private law and economic efficiency, and private law and other policy goals. A central aspiration of this iteration of Obligations is to give private law scholars working in different intellectual traditions an opportunity to identify previously underappreciated overlaps and synergies, and thereby help to break down methodological barriers to an improved understanding of the field.   

Both established and early-career legal scholars are invited to submit proposals to present papers addressing the conference theme, either at a general level or in relation to any aspect of the law of obligations broadly conceived – contract, property (including intellectual property), torts, unfair competition, and unjust enrichment, as well as equity and other topics within or closely related to private law. Papers exploring relevant issues from a civil law perspective are also welcome. Anyone wishing to offer a paper should submit a working title and an abstract (of no more than 500 words) by email to [email protected] by August 15, 2024. Papers will be selected on the basis of quality, originality, engagement with the conference theme and fit with other papers being presented at the conference. Those proposing papers will be notified by October 1, 2024 whether their papers have been accepted. A waiting list may be established, depending on the level of interest. Late submissions will be considered for inclusion in the waiting list. Presenters whose proposals were accepted for the cancelled 2020 conference are encouraged to resubmit their proposals if the work has not been published in the meantime.

Speakers will be asked to submit fully written draft papers by June 15, 2025 for distribution to conference participants via a password-protected website. It is expected that a small number of selected papers closely focused on the conference theme will be published in an edited collection following the conference. Presenters whose offers of papers are accepted will be expected to meet their own travel and accommodation costs and pay a discounted registration fee. A small number of travel grants are available to support the attendance of scholars travelling from countries that have been underrepresented at previous Obligations conferences. Those wishing to apply for a travel grant should include a short statement with their paper proposals indicating that they wish to be considered for a travel grant, setting out an indicative budget and detailing all available sources of institutional financial support.

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for June 18, 2024

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 19 Apr 2024 - 18 Jun 2024

Rank	Paper	Downloads
1.	Governing AI Agents Noam Kolt University of Toronto	839
2.	Obscure Contract Terms: An Inadvertent Pricing Experiment Stephen J. Choi, Mitu Gulati, Ugo Panizza, Robert E. Scott and Mark C. Weidemaier New York University School of Law, University of Virginia School of Law, Graduate Institute of International and Development Studies (IHEID) - Department of Economics, Columbia University - Law School and University of North Carolina School of Law	293
3.	The Forgotten Anti-Monopoly Law: The Second Half of Clayton Act § 7 Robert H. Lande, John M. Newman and Rebecca Kelly Slaughter University of Baltimore - School of Law, University of Miami - School of Law and Government of the United States of America - Federal Trade Commission	209
4.	Contract Design in Influencer Marketing Reto Hofstetter, Andreas Lanz and Navdeep S. Sahni University of Lucerne - Faculty of Economics and Management, University of Basel - Faculty of Business and Economics and Stanford Graduate School of Business	193
5.	The Original Public Meaning of Investment Contract Edward Lee Chicago-Kent College of Law - Illinois Institute of Technology	176
6.	Vice Capital Andrew Jennings and Kimberly D. Krawiec Emory University School of Law and University of Virginia School of Law	173
7.	Delimiting "Agreements" for International Law Duncan B. Hollis Temple University - James E. Beasley School of Law	163
8.	The Original Meaning of Equity Asaf Raz University of Pennsylvania Carey Law School	120
9.	Freedom of Contract, Properly Understood: The 2024 Maastricht Private Law Lecture Hanoch Dagan Berkeley Law School	119
10.	Wholesale Price Discrimination and Contract Unobservability Shengming Zheng, Quan Zheng and Asoo Vakharia International Institute of Finance, School of Management, University of Science and Technology of China, University of Science and Technology of China - School of Management and University of Florida - Warrington College of Business Administration	110

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 19 Apr 2024 - 18 Jun 2024

Rank	Paper	Downloads
1.	Governing AI Agents Noam Kolt University of Toronto	839
2.	Obscure Contract Terms: An Inadvertent Pricing Experiment Stephen J. Choi, Mitu Gulati, Ugo Panizza, Robert E. Scott and Mark C. Weidemaier New York University School of Law, University of Virginia School of Law, Graduate Institute of International and Development Studies (IHEID) - Department of Economics, Columbia University - Law School and University of North Carolina School of Law	293
3.	The Original Meaning of Equity Asaf Raz University of Pennsylvania Carey Law School	120
4.	Freedom of Contract, Properly Understood: The 2024 Maastricht Private Law Lecture Hanoch Dagan Berkeley Law School	120
5.	Contractual Commitments and the Right to Change Religions Michael A. Helfand Pepperdine University - Rick J. Caruso School of Law	77
6.	Shifting Toward Boilerplate Regulation Wayne Barnes Texas A&M University School of Law	27
7.	Solar Eclipses and the Law Chad G. Marzen and Michael Conklin Pennsylvania State University - Department of Insurance & Real Estate and Angelo State University - Business Law	26
8.	Private Law in Unregulated Spaces Elizabeth A. Rowe University of Virginia School of Law	26
9.	Topic Modelling Case Law Using a Large Language Model and a New Taxonomy for UK Law: AI Insights into Summary Judgment Holli Sargeant, Ahmed Izzidien and Felix Steffek University of Cambridge, Faculty of Law, University of Cambridge and University of Cambridge - Faculty of Law	26
10.	Video Notice Design to Support Meaningful Consent Online: An Analysis of Social Media Videos About Artificial Intelligence and Privacy Jonathan A. Obar, David Gelb, Desirée de Jesús, Guilherme Cavalcante Silva and Hannah Palmier Blizzard York University, York University, Department of Design, York University - Department of Communications, York University and affiliation not provided to SSRN	22

The Final Program(me) for KCON XVII

Is now available online here.

 

 

 

11th Circuit Grants Injunction 42 USC § 1981 Against Venture Capital Support for Black Women

Early in my contracts course, I cover freedom of contract.  I teach a case about the common law right to refuse to enter into a contract if you don't want to do so.  I follow that up with two cases, Barfield v. Commerce Bank & Gregory v. Dillard's, Inc., both discussed in this guest post by Charles Calleros. Those two cases are about 42 U.S.C. § 1981, which provides that “[a]ll persons . . . shall have the right to make and enforce contracts . . . as is enjoyed by White citizens.” 

Thanks to Melissa Murray and Kate Shaw and last week's episode of the Strict Scrutiny Podcast, I just learned of a new case out of the Eleventh Circuit interpreting §1981 in a new context. The case is American Alliance for Civil Rights v. Fearless Fund Management, LLC, and it involves a § 1981 challenge to the Fearless Strivers Grant Contest (the Contest), an entrepreneurship funding competition open only to businesses majority-owned by black women.  The Contest awards winners $20,000, plus access to digital tools and mentorship.  The plan was to run the Contest four times, with each iteration of the Contest open to applicants for one month.

The Eleventh Circuit panel determined first that the plaintiffs had standing and second that the Contest is substantially likely to violate § 1981. The panel remanded the case with instructions to the District Court that it preliminarily enjoin the Contest. The standing issue is an important one and the basis for an eloquent dissent in the case.  In order to claim that one was denied opportunity to "make and enforce a contract" under § 1981, a plaintiff has to show that they were "able and ready" to enter into a contract.  

Plaintiffs presented evidence that they were willing and able to enter the contest.  The unnamed plaintiffs were business owners that could use $20,000 and specified how they would use the grants if successful.  However, they never entered the contest because they are not majority-owned by Black women.  The Dillard's case is interesting because the plaintiffs there had their claims dismissed because they left the store (after being surveilled, harassed, insulted, or denied counter service) without attempting to buy something.  The court required them to take the next step, despite the fact that it may have been impossible to them buy anything if, for example, the employee at the jewelry counter wouldn't show how them anything.  Here, the plaintiffs had not in fact attempted to enter the Contest. 

Moreover, while anonymity is not a bar to recovery under § 1981, it seems to me that it raises certain issues of redressability not addressed in the opinion.  In order for plaintiffs to have a redressable injury, they need not merely have a right to enter the Contest but have a reasonable shot at winning it.  Unless we know more about the corporations and their suitability as applicants, how can the court determine whether they suffer any injury by not entering the contest. There wasn't any doubt that, but for Dillard's alleged discriminatory conduct, plaintiffs were able and ready to make purchases there.  Enter. Lose. Sue.  Why don't these corporations have to jump through the same hoops as natural persons? 

Moreover, there is a recognized exception non-discrimination laws in the affirmative action context.  The majority breezily concludes that the Contest does not fall within the exception because it creates an "absolute bar" to applicants other than Black women.  That seems a bit much, as it would prohibit all grants and awards that target a particular racial group.  As the dissent notes in a footnote, "Black women received only .0006% of [venture capital] funding raised by startups between 2009 and 2017.” That vital information is nowhere acknowledge in the majority opinion.  Viewed in context, the Contest is very far an "absolute bar" to people other than Black women receiving venture capital funding.  In fact, initiatives like the Contest may be the only way that Black women entrepreneurs may have access to capital.

The Fearless Fund (Fearless) contended that its Contest was not a contract. That argument was pretty weak, given that the Contest rules specified "“BY ENTERING THIS CONTEST, YOU AGREE TO THESE OFFICIAL RULES, WHICH ARE A CONTRACT.” Rather clumsily, Fearless tried to amend its rules after getting sued, but a rose by any other name . . . .  Fearless next attempted to argue that it was engaged in expressive conduct protected by the First Amendment, an argument to which the Eleventh Circuit was unsympathetic. I too would be concerned if the First Amendment could become a justification for race-based discrimination.

This seems like it might be a nice case to teach with Barfield  and Gregory. The challenging issue here, which is not really a contracts issue, is whether a remedial statute such as § 1981 can be used to enjoin a Contest designed to give Black women, the very people § 1981 was passed to protect, the opportunity to compete for venture capital funding.  As it turns out, the Supreme Court determined long ago that § 1981 prohibits all discrimination based on race, including  discrimination against white people.  The opinion made that determination was authored by Justice Thurgood Marshall (right)!

My instinct is not to try to apply a statute that expressly states that its about race in a color-blind way, but Justice Marshall provided a discussion of the legislative history behind the statute and is quite convincing that it was designed to protect all people from discrimination on the basis of race.  In any case, the Eleventh Circuit is bound by his decision.  The concurring opinion from Judge Rosenbaum (left) points towards a way out, at least in this case.  Her introduction is worth quoting at length:

No one doubts the sincerity of an Arsenal (soccer) player’s desire to beat Tottenham. But he can’t be allowed to try to win by flopping on the field, faking an injury near Tottenham’s goal. . . . Referees’ vigilance prevents players who have a sincere desire to defeat their opponents—but who try to do so through manufactured fouls— from commandeering referees to improperly exercise their adjudicatory authority to award unwarranted penalty kicks. . . .

Here, no one doubts the sincerity of American Alliance for Equal Rights’s desire to challenge what it views as “distinctions and preferences made on the basis of race and ethnicity.” . . .  But as American Alliance has portrayed its members’ alleged injuries, it has shown nothing more than flopping on the field. Although three of American Alliance’s members pay lip service to the idea they are “ready and able” to participate in Fearless’s Contest, their declarations show, in context, that none has a genuine interest in actually entering the Contest. Indeed, not one has established that she is, in fact, able and ready to enter the Contest and would do so in the upcoming period if the Contest were open to non-Black women. So American Alliance’s alleged injuries don’t show “a real controversy with real impact on real persons” among its membership. . . . Rather, they reflect an attempt to manufacture an “injury” to allow American Alliance to challenge the Contest. That is not enough for standing. 

There was an nteresting lone concurrence from Justice Thomas in last week's mifepristone case indicating his skepticism about associational standing generally.  He specifically references last term's Students for Fair Admissions case, brought by the law firm that brought this one.  Justice Thomas has got me thinking about why associational standing is appropriate here.  Why can't these injured parties bring the case on their own with the law firm acting as counsel of record rather than party of record?

KCON XVII This Week in Bristol

It's finally here!

20 June 2024, 8.30 AM - 21 June 2024, 4.30 PM
Clifton Hill House, BS8 1BT

The University of Bristol Law School is pleased to host the 17th Annual International Conference on Contracts (KCON XVII) on 20th - 21st June 2024. KCON is the largest annual international academic conference dedicated to contract law and related areas of commercial law. It brings together contract law scholars, practitioners, and graduate students from around the world. Junior scholars are encouraged to participate, both as presenters and commentators.

KCON affords an opportunity to present and discuss ideas on a wide range of topics at every level of development, including recently published articles, articles accepted for publication but not yet in print, works in progress, thought experiments, preliminary ideas, and pedagogical innovations. It also provides an opportunity to network with colleagues and potential collaborators or mentors from other parts of the world.

Conference Lifetime Achievement Award to honour Professor Mindy Chen-Wishart

Professor Mindy Chen-Wishart will receive the conference’s Lifetime Achievement Award at the conference dinner on June 20, 2024. The Award honours individuals whose careers have been spent in legal academia and who have made major contributions to legal education, contract law scholarship, and the practice of commercial law. Professor Chen-Wishart is the fifteenth person to be so honoured.

Mindy Chen-Wishart is a Professor of Law at the National University of Singapore, an Emeritus Professor of the Law of Contract at Oxford University and an Emeritus Fellow in Law at Merton College, Oxford. She was the Dean of the Faculty of Law of the University of Oxford until 30 September 2023. She was formerly a Senior Lecturer at Otago University in New Zealand and Rhodes Research Fellow at St Hilda’s College, Oxford. She is the author of Contract Law (7th ed), an editor of Chitty on Contracts (currently in its 35th ed), and is leading a six-book series on the Contract Laws of Asia published by Oxford University Press. Her article on ‘Legal Transplant and Undue Influence’ was named the best article in the International and Comparative Quarterly in 2013. She has lectured to the Judicial College in the UK, Hong Kong and Taiwan. Over her career, she has taught a wide range of private and public law subjects.

Friday Frivolity: Constructive Firing in China

This isn't that frivolous, except that I learned of it through National Public Radio's comedic news quiz, "Wait, Wait, Don't Tell Me."

As reported by Yating Yang in the South China Morning Post, a company in China moved its headquarters from an urban center to a remote mountain top in order to get its employees to quit and avoid having to pay them severance.  The commute took two hours each way.  Employees who did not have their own vehicles had to take public transportation, a bus that ran only once every three hours, and then they had to climb a three-kilometer mountain path.  On their way home, often in the dark, they had to watch out for packs of stray dogs.  The facilities at the new location lacked basic amenities.  Female employees had to walk to the nearest village to use public toilets.

Image by Liuxingy, CC BY-SA 4.0  via Wikimedia Commons

Then, once 70% of the workers had quit, the company returned to its urban setting and began hiring new staff.  A company spokesperson claimed that the move was a cost-cutting measure and was always intended to be temporary so that the company could continue to operate while its main offices were being renovated.   Employees claim that they were told that the relocation would last an unspecified amount of time and could stretch into the new year.  The company claimed that it was considering legal action against the departing employees for damaging the firm's reputation. 

Although the story broke in January, I have found no updates.

Guest Post from Michael Blasie on Why Contracts Should be Understandable

Who Cares if No One Understands Contracts?
Professor Michael. A. Blasie

I do. And I hope I am not the only one.

Why should contracts be understandable? Typically, we link understandability to the fairness of contract terms through arguments about mechanisms like disclosures, informed minorities, and reputational consequences. In short, if people understand contracts then a chain of events leads to more fair contract terms. Thus, understandability is a means to an end.

Mission failed. The verdict is in. Improving understanding will not make terms more fair. Channel the most high-tech features from Star Trek, Star Wars, and all of science fiction to make every contract understandable to all humans of any age, language, reading level, or background and the terms still will not become more fair. Why? Because consumers do not read contracts and cannot negotiate them. Competitors often all use the same unfair terms. And businesses use consumer data, social experiments, and artificial intelligence to make their contracts irresistible.  So if making the contract more understandable will not make it more fair, why care about understandability?

Because the legitimacy of calling an agreement a contract depends on parties having the opportunity to understand that agreement.

Doctrinally, contract formation requires assent, but assent is meaningless without an opportunity to understand. Whatever metric you use to measure understanding, the result is that neither the consumer nor the seller understand consumer contracts. But because the seller (more specifically the seller’s lawyer) created the contract and had time to select the text, the seller had an opportunity to understand it. That said, there may be scenarios where lawyers draft contract language even they do not understand. But for the consumer, there is no opportunity. There is no meaningful difference between giving consumers a modern contract and giving them a contract written in hieroglyphics. The duty to read makes is essential to contract formation, yet makes little sense when we know that if a consumer read the contract they could not understand it. Sure, most consumers choose to not read the contract. But the bigger point is that they never had the opportunity to understand the contract. Without that opportunity, consumers are only assenting to enter a contract, not to enter the contract.

Functionally, understandability offers many benefits unrelated to fairness. A big one is all parties can use an understandable contract to make decisions. From the consumer’s perspective, there is implicit fairness in having the opportunity to understand a contract they cannot negotiate and in having the same opportunity as other consumers. More, that opportunity allows consumers to understand their obligations and whether they or the seller breached the contract. Plus, if understanding is doctrinally relevant, then it can be litigated, which in turn means discovery. And such discovery might be a way to expose unsavory contract design and dark patterns. Keep in mind, here “consumers” means buyers. Don’t forget that businesses, nonprofits, and even governments are all consumers who enter nonnegotiable form contracts. You might not be able to negotiate your contract with the car dealership, but that dealership cannot negotiate its contract with the tire supply company, who in turn cannot negotiate its contract with the internet provider. Bottom line: businesses enter lots of contracts, sometimes as a seller and sometimes as a consumer. Understandable contracts benefit all consumers.

Sellers benefit from understandable contracts for the same reasons that consumers benefit. Sellers also need to know their obligations and need to tell whether they or the consumer breached. Often we overlook this point. Although sellers might use lawyers to draft their contracts, they cannot afford to consult the lawyer every time any action could implicate a contract.  Almost all U.S. businesses are small businesses without in-house counsel and outside counsel is expensive. Even in gigantic companies, in-house counsel does not have the bandwidth to opine on every action cover by a contract. Businesses are not made up of lawyers who specialize in contracts and must selectively consult lawyers. As a result, most contracts are just as perplexing to the consumer as they are to the seller’s employees. Can the employees in procurement or the loading dock tell if the shipment complies with the contract? How many landlords understand the lease they give tenants? Sellers get big benefits if their employees can understand most of the contracts without consulting a lawyer.

There are other benefits for consumers and sellers, but at this point pragmatism sets in. You might begin to wonder if contracts could ever be understandable to every consumer, what would happen to the predictability of terms vetted by precedent, and how much it would cost to jettison all contract templates and start over.  All fair concerns and all manageable. In fact, underlying some of these are widespread misconceptions (some might say myths). As it turns out, contract drafting is much more copying and pasting than intentional wordsmithing and a cohesive strategy to maximize business profits and minimize costs and risks. Let’s make contract drafting intentional and achieve a goal that is good for sellers, buyers and lawyers: understandable contracts. If you are at least tempted to consider understandability as a crucial foundation to contract law, this post has done its job. For a full-throated explanation of the importance and pragmatism of understandable contracts, see The Duty to Make Contracts Understandable, which argues incomprehensible contracts should be unenforceable.

Understandability is a must have, not a nice to have.

SCOTUS Issues a Contracts-Related Opinion on an Indian Law Issue

Living as I now do in Oklahoma, I have learned two very important things about Indian law: 1) I know next to nothing about Indian law; and 2) Indian law intersects with almost every substantive body of law.  If you teach in Oklahoma or other states with significant Indian populations, you should consider adding some cases on the interaction of Indian law and your doctrinal subject matter to each course. It will be enriching for all.

Artwork “Love” by Brent Learned, member of the Cheyenne/Arapaho Tribes

With the first of those lessons firmly in mind, it is with some trepidation that I approach SCOTUS's opinion in Becerra v. San Carlos Apache Tribe, issued last week, in advance of this week's Sovereignty Symposium, hosted by the Oklahoma City University School of Law! 

Following Chief Justice Roberts opinion for the 5-4 majority, we learn that the Indian Self-Determination and Education Assistance Act (ISDA), 25 U.S.C. §5301, et seq., enables Indian tribes to enter into contracts with the Indian Health Service (IHS) to assume responsibility for administering the healthcare programs that IHS would otherwise operate for the tribe.  IHS turns over to the tribes funds to cover such healthcare programs plus funds to cover administrative costs that the tribes take on. 

When tribes take on responsibility for providing health care through contracts with IHS, they incur overhead and administrative expenses that IHS would not incur were it providing healthcare services to the tribes. IHS, as a federal government agency, is exempt from some expenses; other federal agencies provide ancillary services to IHS that the tribes have to cover themselves.  The issue in the case was whether ISDA requires IHS to pay contract support costs to cover these costs that IHS would not have to pay.  

Two self-determination contracts were at issue in the case, one with the San Carlos Apache Tribe and the other with Northern Arapaho Tribe.  In 2019, the San Carlos Apache Tribe sued the Government for breach of contract, alleging that IHS had failed to pay roughly $3 million in contract support costs for the Tribe’s healthcare services over a three-year period.  A District Court dismissed the case, but the Ninth Circuit reversed and remanded.  It found the relevant statutory provisions, 25 U.S.C. § 5325, ambiguous on the question of whether the tribes had to shoulder the costs associated with third-party revenue funded aspects of the tribe's healthcare program.  Applying the Indian canon of construction, the Ninth Circuit resolved the issue in the Tribe's favor.

The Northern Arapaho Tribe entered into a self-determination contract with IHS in in 2016.  The Tribe sued IHS in 2021, alleging that IHS had failed to pay $1.5 million in contract support costs over a two year period.  A district court dismissed the claim, but the Tenth Circuit reversed, with each judge writing separately.  One judge found that the statute ambiguous and applied the Indian canon.  One judge found that the statute unambiguously supported the Tribe's interpretation.  A third judge dissented in part, focusing on 25 U.S.C. § 5326, which was passed in 1998 and thus superseded the earlier adoption of § 5325.

Northern Arapaho Flag

Chief Justice Roberts walked through the language of § 5325 and the ways in which the Tribes accounted for the healthcare spending under the contracts. He found the Tribes' account of their expenses incurred reasonable, entitling the Tribes to the reimbursement they sought.  Section 5326, it turns out, was passed in response to a 1997 case, Ramah Navajo Chapter v. Lujan, in which the Tenth Circuit allowed tribes to recover not only for costs associated with operations under contracts with the federal government but also under contracts with state governments.  Congress did not intend for costs incurred under separate contracts to be recoverable in that case. But the Majority concluded that § 5326 was not intended to cover the current situation as the federal government contracts with the Tribes specifically covered the Tribal healthcare expenditures at issue.  These were not expenses incurred under separate contracts but ancillary costs associated with the Tribes' contracts authorized under the ISDA.

The next section of the Majority opinion addresses the government's contentions and those of the Justice Kavanaugh's dissent.  According to the Majority, the government's arguments simply find no support in the statutory text.  To the extent that the government worries about the Tribes making expenditures beyond what the statute authorizes, the Majority has a straightforward response: such expenditures would not be covered by the statute, and so the government would not be obligated to reimburse them.  Justice Kavanaugh's complaints seem a variant on the government's arguments.  There are general concerns about controls on the natural of tribal healthcare expenditures. Chief Justice Roberts responds that the limitations on such expenditures are laid out in the statute.  Justice Kavanaugh seems to worry about the expense involved, but if Congress has taken on certain obligations, it is not for the Court to question such expenditures.

In a final section Chief Justice Roberts notes that the IHS's refusal to cover the costs at issue imposes a penalty on the tribes for opting for self-determination.  Such a penalty undermines Congress's purpose in enacting the ISDA. The Majority affirmed the decisions of the Ninth and Tenth Circuits.

Justice Kavanaugh begins his dissent by citing decades of executive branch precedent interpreting the statute to provide that the tribes have to cover the contract support costs.  Departing from that precedent will cost the government between $800 million and $2 billion, and most of that money will go to the well-off tribes that have the resources to enter into self-determination contracts.  Hmmm.  I don't associate either Justice Kavanaugh or the three other Justices who joined with adherence to precedent, especially not to precedents adopted by executive agencies.   When we're talking about billions of dollars of expenditures, that sound like a major question.  If only there were a doctrine that allowed courts, rather than executive agencies to decide Congress's intent when major questions were implicated.

The  next section of Justice Kavanaugh's opinion provides five textual arguments in support of the government's position, two based in § 5235, two based in § 5236, and one based in § 5388.  Finally, Justice Kavanaugh contends that Congress did not intend to fund these administrative costs and that doing so actually imposes limits on the tribes' self-determination, as it would allow the federal statutory scheme to cover all tribal choices as to healthcare expenditures.

I am in no position to judge whether the majority or the dissenters have the stronger textual arguments, and there is some evidence in the dissent that the not all Indian tribes have adopted the legal position that won the day here. Based on the response I have seen, it seems like experts in federal Indian law are applauding the decision.  Neither opinion recognizes the possibility that the statutory framework is ambiguous. If they did, we might see the Justices fighting over the continued viability of the Indian canon. That fight may lay ahead.

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for June 11, 2024

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 13 Apr 2024 - 12 Jun 2024

Rank	Paper	Downloads
1.	Governing AI Agents Noam Kolt University of Toronto	822
2.	Obscure Contract Terms: An Inadvertent Pricing Experiment Stephen J. Choi, Mitu Gulati, Ugo Panizza, Robert E. Scott and Mark C. Weidemaier New York University School of Law, University of Virginia School of Law, Graduate Institute of International and Development Studies (IHEID) - Department of Economics, Columbia University - Law School and University of North Carolina School of Law	291
3.	Contract Design in Influencer Marketing Reto Hofstetter, Andreas Lanz and Navdeep S. Sahni University of Lucerne - Faculty of Economics and Management, University of Basel - Faculty of Business and Economics and Stanford Graduate School of Business	190
4.	Vice Capital Andrew Jennings and Kimberly D. Krawiec Emory University School of Law and University of Virginia School of Law	169
5.	The Original Public Meaning of Investment Contract Edward Lee Chicago-Kent College of Law - Illinois Institute of Technology	166
6.	Delimiting "Agreements" for International Law Duncan B. Hollis Temple University - James E. Beasley School of Law	161
7.	Discussion Draft: Principles for AI in Contracting (Version 2.1) Christiane Wendehorst University of Vienna - Faculty of Law	138
8.	Freedom of Contract, Properly Understood: The 2024 Maastricht Private Law Lecture Hanoch Dagan Berkeley Law School	114
9.	The Original Meaning of Equity Asaf Raz University of Pennsylvania Carey Law School	111
10.	Wholesale Price Discrimination and Contract Unobservability Shengming Zheng, Quan Zheng and Asoo Vakharia International Institute of Finance, School of Management, University of Science and Technology of China, University of Science and Technology of China - School of Management and University of Florida - Warrington College of Business Administration	103

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 13 Apr 2024 - 12 Jun 2024

Rank	Paper	Downloads
1.	Governing AI Agents Noam Kolt University of Toronto	822
2.	Obscure Contract Terms: An Inadvertent Pricing Experiment Stephen J. Choi, Mitu Gulati, Ugo Panizza, Robert E. Scott and Mark C. Weidemaier New York University School of Law, University of Virginia School of Law, Graduate Institute of International and Development Studies (IHEID) - Department of Economics, Columbia University - Law School and University of North Carolina School of Law	291
3.	Pay to Plead: Finding Unfairness and Abusive Practices in California Debt Collection Cases Claire Johnson Raba and Dalié Jiménez University of Illinois Chicago School of Law and University of California, Irvine School of Law	263
4.	Freedom of Contract, Properly Understood: The 2024 Maastricht Private Law Lecture Hanoch Dagan Berkeley Law School	114
5.	The Original Meaning of Equity Asaf Raz University of Pennsylvania Carey Law School	111
6.	Shifting Toward Boilerplate Regulation Wayne Barnes Texas A&M University School of Law	25
7.	Private Law in Unregulated Spaces Elizabeth A. Rowe University of Virginia School of Law	25
8.	Solar Eclipses and the Law Chad G. Marzen and Michael Conklin Pennsylvania State University - Department of Insurance & Real Estate and Angelo State University - Business Law	25
9.	Topic Modelling Case Law Using a Large Language Model and a New Taxonomy for UK Law: AI Insights into Summary Judgment Holli Sargeant, Ahmed Izzidien and Felix Steffek University of Cambridge, Faculty of Law, University of Cambridge and University of Cambridge - Faculty of Law	23
10.	Video Notice Design to Support Meaningful Consent Online: An Analysis of Social Media Videos About Artificial Intelligence and Privacy Jonathan A. Obar, David Gelb, Desirée de Jesús, Guilherme Cavalcante Silva and Hannah Palmier Blizzard York University, York University, Department of Design, York University - Department of Communications, York University and affiliation not provided to SSRN	16

Minnesota Moves to Make Its Laws Mirror New FTC Rule on Non-Competes

Sometimes we hear from real lawyers.  Brendan Kenny, a Minnesota attorney, reached out to let us know that his colleague, Mary Ellen Reihsen had written up a short piece on Minnesota's newly-adopted statute, § 181.9881, barring non-solicitation agreements in service agreements with customers.

In 2023, Minnesota adopted a fairly comprehensive ban on non-competes. Then, following the adopting of the new FTC rule, discussed here, they expanded the statute to sync Minnesota law with federal law.  The revision is set to go into effect next month, but Ms. Reihsen reports that business groups are seeking to narrow the rule.

The heart of the new statute reads as follows:

Restrictive employment covenants; void and unenforceable.

(a) No service provider may restrict, restrain, or prohibit in any way a customer from directly or indirectly soliciting or hiring an employee of a service provider.

(b) Any provision of an existing contract that violates paragraph (a) is void and unenforceable.

(c) When a provision in an existing contract violates this section, the service provider must provide notice to their employees of this section and the restrictive covenant in the existing contract that violates this section.

The statute provides for one carve out relating to computer software development services.  I wish I knew the lobblying story behind that bespoke exception.

Ms. Reihsen provides some great examples to illustrate whey this rule is important.  Perhaps you use a service to provide you with home health aids, cleaning services, 0r office temps.  You may like the person you've hired, and they may confide in you that half of what you pay them goes to their employers, not to them.  You decide to cut out the middleman and hire them directly.  They make 25% more; you pay 25% less. Service providers used to be able to prohibit their customers from suggesting such an arrangement, but as of July 1st, they will no longer be able to do so.

Ms. Reihsen's short piece begins by stating that the new law "will create uncertainty among employers." I don't know.  The new law seems pretty clear.  The law has allowed certain anti-competitive practices for decades.  Now it doesn't.

Uncertainty may still arise in the form of law suits. As we noted, the FTC rule is already subject to multi-pronged challenges. If the business interests affected by the new law are not successful in amending the law to narrow its scope, we may see litigation on the state level as well, but I'm not sure what legal theories are available.  The federal litigation is about the separation of powers: major questions doctrine, non-delegation doctrine, Article II's vesting clause.  But here the action is by a state legislature.  The new law is intended to have retroactive effect, but still a Contracts Clause claim would be a stretch.

Teaching Assistants: Andrea Boyack on Abuse of Contract, with a Dash of Eric Goldman

It is always a pleasure to be able to use this blog as an excuse to prod me to read things I really ought to read and to promote the work of the dedicated contracts scholars I have come to know through decades of engagement with the subject.  You can find Andrea Boyack's work, Abuse of Contract: Boilerplate Erasure of Consumer Counterparty Rights, on SSRN.  It is forthcoming in the Iowa Law Review, so congratulations, Andrea, on a wonderful placement.

Professor Boyack  (right) starts with a straightforward explanation of why certain boilerplate provisions are bad.  They are not necessary to the parties' transaction. Rather, they erase default rights that benefit consumers with the sole purpose of shifting the risk onto the parties least well-positioned to protect themselves against that risk.  Peggy Radin laid the groundwork for Professor Boyack's work with her pioneering book on Boilerplate, to which we devoted a symposium in 2013. 

Both the common law and the new Restatement of Consumer Contracts Law allow for the enforcement of such terms.  Scholars are divided about how commonly corporations abuse their bargaining power to strip consumers of their legal rights in truly alarming ways. Professor Boyack dives in with her own study of the online terms and conditions (the T&C Study) of 100 companies.  Her findings are sobering. Here's the money quote from page 3 of the article:

Evidence from the T&C Study shows that the overwhelming majority of consumer contracts contain multiple categories of abusive terms. The existing uniformity of boilerplate waivers undermines the theory that competition and reputation currently act as effective bulwarks  against abuse (3).

The T&C Study tracked four broad categories of "destructive" terms:

• dispute resolution mandates,
• liability waivers,
• limitations on damages, and
• pre-authorization of unilateral modifications (5).

In a more granulated, way, it also tracked eleven rights-deleting terms

1. mandatory arbitration,
2. waiver of a jury trial,
3. waiver of the ability to participate in a class action,
4. forum selection,
5. limited time periods to bring a claim,
6. disclaimer of representations,
7. waiver of implied warranties,
8. privacy waivers,
9. limitations on types of damages,
10. caps on the amount of damages, and
11. authorization for unilateral modifications of terms (7).

Professor Boyack's findings are not exactly surprising, but it is very useful to have the data collected, and there are all sorts of interesting wrinkles and nuances.  Overall, going back to the original four categories of "destructive" terms, over 80% of the contracts reviewed included provisions that fell into all four categories, with nearly all of the companies, limiting remedies and reallocating liability, and  each and every one reserving the right to unilaterally modify the terms of the agreement (21).

The relative uniformity of these terms bolsters the arguments of legal scholars who have claimed that consumers do not give meaningful consent to boilerplate terms.  "If all transactions come bundled with virtually the same substantive terms that shift costs and risks away from companies, consumers can do nothing but acquiesce to these reallocations" (24).  Similarly, if you are inclined to think that competition will force companies to abandon obnoxious boilerplate terms, the T&C Study provides no support for that position (28-29).  

The Article concludes that the current state of contracting offers insufficient legal protection of and insufficient market choices for consumers.  Boilerplate waivers, disclaimers, and limitations are imposed on consumers who acquiesce to those terms rather than choose them, because they have no choice in the matter. As a result, corporations are able to exploit their contracting hegemony to systematically deny consumers their legal rights. 

That may all seem like a bummer, so let's end on a happy note.  Professor Boyack includes in her appendices a great deal of the data she collected, and it is color-coded in soothing pastels, allowing for relaxed contemplation (33-42).  She also includes a sampling of destructive terms (43-51) so that you can read them aloud to your children instead of "Goodnight Moon" and they will beg you to stop so that you all can go to sleep.  Finally, there is a score sheet at the end, grading the companies, so you can appropriately calibrate your resentment (52-55).

Meanwhile, this just in: Eric Goldman (left) reports here on a North Carolina Supreme Court case allowing modification of terms of service without notice.  Here's the core holding:

When parties have mutually agreed to a unilateral change-of-terms provision, said provision “must be enforced as it is written,” subject to certain limitations. Contrary to plaintiff’s assertions, the traditional modification analysis which requires mutual assent and consideration does not apply to changes stemming from a valid unilateral change-of-terms provision in an existing contract.

There are two exceptions: the modifications must not fall outside of the "universe of terms" that the original agreement governs and they must me be made in good faith.

University of California Sues Its Graduate Student Union

Just one week ago, I wrote about the University of California's union, which includes 48,000 graduate students and other employees engaged in teaching and research.  That post was about how the union has done amazing work winning significant wage increases for these workers who contribute with their minds rather than through physical labor.

But now, as Parker Purifoy reports here on Bloomberg, the University of California is suing its union to get them to stop rolling strikes on five of the University's campuses.  According to the complaint filed in the case (thanks, Parker, for including the link -- you are a model for your peers to emulate!), the collective bargaining agreement between the University and the Union prohibits strikes.  The Complaint alleges that the Union authorized the strike on May 17, and the strike began at the Santa Cruz campus on May 20.  Their mascot may be a banana slug, but they won this race!  The strike then expanded to UCLA, UC Davis, UC Santa Barbara, UC San Diego, and UCI.

The cause of the strike is itself a matter of dispute.  The Union communicated that it was to protest the University's unfair labor practices, but the strike communications almost all relate to the conflict in Gaza and demands that the University divest from Israeli companies.  With the UC system on the quarter system, and the quarter due to end in June, the strike threatens to interfere with the submission of grades, and thus the University alleges a threat of irreparable harm.  According to the Complaint, the UAW has stated that the aim of its strike is to “maximize chaos and confusion for the employer,” and a strike during the exam period is a good way to do so. Indeed, the complaint alleges that on each striking campus UAW members "have refused to teach classes, lead discussion sections, conduct research, or otherwise . . . perform their job duties." 

The complaint alleges only one cause of action, for breach of contract.  The University seeks an order enjoining all strike activities while the collective bargaining agreement is in effect.  It also seeks unspecified damages and attorneys' fees.

What’s All the Fuss About? Governing AI Agents

Periodically, when a new article shoots up the SSRN Top Ten charts, we find ourselves asking, “What’s all the fuss about?”  This column is where you can find the answers.  Before the series even had a name, we wrote about Yonathan Arbel and David Hoffman’s Generative Interpretation. Our first official post in this series was on Lawyering in the Age of AI, by Jonathan Choi, Amy Monahan, and Dan Schwarcz. Most recently, we posted about Debt Tokens, by Diane Lourdes Dick, Chris Odinet, and Andrea Tosato. Today, we tackle Governing AI Agents by Noam Kolt.

As has been the case with prior iterations of the What’s All the Fuss About feature, once you read the article, you will see immediately why everyone is downloading it.  Professor Kolt (left) is among the first to address an issue that has come upon us unawares and for which he have yet to develop appropriate legal doctrines and models. After a comprehensive and insightful but mercifully compressed review of the issues associated with AI Agency, he offers a comprehensive approach to the problem.  It is very self-consciously a first draft towards thinking about how to adapt our theoretical constructs, economic and legal, for addressing human agency so as to accommodate the challenges that AI Agency poses.

Professor Kolt begins by reviewing a case we discussed here, in which Air Canada was held liable for misinformation that its bot provided to a customer about the availability of bereavement fares.  He defines AI Agents as “AI systems that have the technical capacity to autonomously plan and execute complex tasks with only limited human oversight”(9). He looks at these AI Agents through two analytical frameworks: the economic theory of principal-agent problems and the common law agency doctrine (6), although Professor Kolt notes that the latter is merely an analytic tool, given the apparent consensus that AI Agents are not considered agents under the common law (10 & n. 26).

Image by DALL-E

The article makes three unique contributions: it identifies and characterizes problems arising from AI Agents; it addresses problems when principal-agent principles are applied to AI agents; and it explore the implications of agency theory for designing and regulating AI agents (7-8). After parts devoted to the development of the technology behind AI agents and explorations of the relevant legal doctrines, Professor Kolt argues that a new technical and legal infrastructure is needed to address the reliability, safety, and ethical challenges posed by AI agents (9).

In Part I, Professor Kolt tells us what AI Agents are and what they can do (11-17).  In short, they can do a lot.  Increasingly, they can do stuff autonomously, which makes it tempting to delegate tasks to them.  However, as they become more autonomous, they may do things that their human principals would not authorize, ranging from hacking websites, colluding with other AI Agents to fix prices, or . . . let your sci-fi-inflected imagination run riot. Professor Kolt then seeks to deploy economic theory of agency problems and common law agency doctrine to address some of the risks associated with AI Agents.

In Part II, Professor Kolt explores problems in delegation to AI Agents (17-29).  The basic problem is the same as that in any principal-agency relationship – the efficiency gains achieved through delegation may be offset or negated because the agent does not conduct the principal’s business as the principal would.  To take a simple example, an AI Agent might be instructed to maximize profit. It might do so in a way inconsistent with the principal’s ethics. It would be very difficult for the principal to foresee in advance all of the potential ethical issues that might arise and accordingly difficult to train the AI Agent in advance to avoid ethical pitfalls.

First, the problem of information asymmetry is especially acute with respect to AI Agents.  Users may not know the AI Agent’s capabilities, and the AI Agent may not have the capacity to comply with the expected common-law disclosure duties that obtain in the usual principal/agent relationship (20-22). Second, because instructions to the AI Agent will always contain gaps, there can be problems involving AI Agents exceeding their authority (23-24). Third, AI Agents might not be as easily bound by the fiduciary duty of loyalty as human agents can be. In part, this is because AI Agents are designed by for-profit corporations interested in the continued development of their technology.  Loyalty to the client might not be the AI Agent’s sole or even the primary objective (25-27).  Finally, AI Agents can and do delegate to sub-agents to assist in their tasks, multiplying the pre-existing complexities attendant to AI Agency.  Professor Kolt suggests that common-law rules governing use of sub-agents can be helpful in addressing the problems of AI sub-agents, but they do not offer comprehensive solution (28-29).

Image by DALL-E

Part III addresses three common-law mechanisms for addressing human agency problems and assesses their suitability to governing AI agency (30-37). The incentive design mechanism is a poor fit for AI-Agents, because they are not incentivized the way human agents are (30-32). The monitoring mechanism seems equally fraught. Monitoring gobbles up the savings that delegation is supposed to produce.  Human agents may not be capable of monitoring AI Agent, and using AI monitors just creates new monitoring problems (32-35). Even if you could monitor AI Agents, you would also need an enforcement mechanism, and there, just as with the incentive design mechanism, we run up against the problem that it is hard to design effective ways to discipline AI Agents (35-37).

Moving beyond the traditional mechanisms for taming agency problems, Professor Kolt recommends in Part IV a bespoke governance strategy for AI Agents, centered around the guiding principles of inclusivity, visibility, and liability (37-46).  Ordinarily, we want the agent’s interests aligned with those of the principal as much as possible.  However, that alignment might be undesirable with respect to AI Agents because of externalities that affect third parties and society at large. Hence, the first component of Professor Kolt’s governance strategy involves inclusivity (37-40). The second component is visibility, which involves tracking and monitoring use of AI Agents. There are considerable technological challenges involved here, but Professor Kolt introduces a number of strategies for visibility that are already being developed (40-42). Finally, Professor Kolt proposes liability rules so that natural or legal persons can be held accountable for the harms caused by their AI Agents (43-46).

Professor Kolt is modest in his aims.  At this point in the development of the technology, one can only foresee potential problems and grope towards solutions.  Nonetheless, he has provided a framework that can get the conversation started, and it is a conversation in which legal minds, business leaders, experts in technology, and legislators/regulators desperately need to engage.

Politicians Can Do Quid Pro Quo Deals, Can Naval Officers?

Last term, SCOTUS decided two cases involving political corruption. In Ciminelli v. United States, the Court rejected New York's right of control theory as a tool in fighting corruption in government bid practices, as we discussed here and here. In Percoco v. United States, the Court reversed and remanded a conviction for violation of the federal "honest services" statute because jury instructions in the case were too vague. This builds on a line of cases going back to the Bridgegate case in which SCOTUS has made it increasingly difficult to prosecute political corruption.

In April, SCOTUS again indicated its willingness to make it difficult to prosecute politicians who receive kickbacks.  Snyder v. U.S. is about a former mayor of Portage, Indiana who was convicted in a kickback scheme.  He was found to have rigged a bid to favor a particular company and then to have approached that company demanding a payment of $15,000.  He received $13,000, which was characterized as a consulting fee for services yet to be rendered to the company.  In oral argument, the court seemed poised to overturn the conviction.  There was a lot of discussion in the oral arguments about the difference between a gratuity and a bribe, and the Justices seemed very concerned that honest politicians would be accused of bribery just for accepting a $100 Starbucks gift card.

Really?  I wouldn't accept a $100 Starbucks gift card from a student.  Why would a politician accept a $100 Starbucks gift card from a constituent to whom he is steering a contract if not as a bribe?  There might be nothing nefarious going on, but that is a matter of determining intent, a feat that is not beyond the capabilities of courts. It's just weird that the Justices have a hard time recognizing corruption when it's staring them in the face.  It's almost as if one of them had  accepted gifts that raised questions about their ability to remain neutral when the interests of the gift-giver are implicated in pending matters.

Last week's New York Times brings a story from Michael Levenson about the arrest of a retired naval officer based on allegations that seem quite similar to those in Snyder.  According to the Times, Robert Burke, once the second highest-ranking officer in the Navy, steered a government contract worth hundreds of millions of dollars to a company in exchange for a position with that company that guaranteed him a salary of $500,000 plus 100,000 stock options.  If the transaction in Snyder is held to be a gratuity rather than a bribe, this seems more gratuity than bribe.  Admiral Burke and his alleged co-conspirators have nonetheless been charged with bribery and conspiracy to commit bribery.  If the arrest leads to a conviction, it will be interesting to see if SCOTUS keeps up its string of standing up for officials accused of corruption. 

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for June 4, 2024

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 05 Apr 2024 - 04 Jun 2024

Rank	Paper	Downloads
1.	Governing AI Agents Noam Kolt University of Toronto	758
2.	Obscure Contract Terms: An Inadvertent Pricing Experiment Stephen J. Choi, Mitu Gulati, Ugo Panizza, Robert E. Scott and Mark C. Weidemaier New York University School of Law, University of Virginia School of Law, Graduate Institute of International and Development Studies (IHEID) - Department of Economics, Columbia University - Law School and University of North Carolina School of Law	284
3.	The New AI: The Legal and Ethical Implications of ChatGPT and Other Emerging Technologies (Symposium Foreword) Deborah W. Denno and Erica Valencia-Graham Fordham University School of Law and Fordham University School of Law	171
4.	Contract Design in Influencer Marketing Reto Hofstetter, Andreas Lanz and Navdeep S. Sahni University of Lucerne - Faculty of Economics and Management, University of Basel - Faculty of Business and Economics and Stanford Graduate School of Business	168
5.	Delimiting "Agreements" for International Law Duncan B. Hollis Temple University - James E. Beasley School of Law	153
6.	Vice Capital Andrew Jennings and Kimberly D. Krawiec Emory University School of Law and University of Virginia School of Law	149
7.	Discussion Draft: Principles for AI in Contracting (Version 2.1) Christiane Wendehorst University of Vienna - Faculty of Law	132
8.	Introduction to the Law of Secured Transactions Michael Conklin Angelo State University - Business Law	128
9.	The Original Public Meaning of Investment Contract Edward Lee Chicago-Kent College of Law - Illinois Institute of Technology	121
10.	Freedom of Contract, Properly Understood: The 2024 Maastricht Private Law Lecture Hanoch Dagan Berkeley Law School	10

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 05 Apr 2024 - 04 Jun 2024

Rank	Paper	Downloads
1.	Obscure Contract Terms: An Inadvertent Pricing Experiment Stephen J. Choi, Mitu Gulati, Ugo Panizza, Robert E. Scott and Mark C. Weidemaier New York University School of Law, University of Virginia School of Law, Graduate Institute of International and Development Studies (IHEID) - Department of Economics, Columbia University - Law School and University of North Carolina School of Law	284
2.	Pay to Plead: Finding Unfairness and Abusive Practices in California Debt Collection Cases Claire Johnson Raba and Dalié Jiménez University of Illinois Chicago School of Law and University of California, Irvine School of Law	260
3.	Freedom of Contract, Properly Understood: The 2024 Maastricht Private Law Lecture Hanoch Dagan Berkeley Law School	100
4.	The Ethical Limits of Markets: Market Inalienability Kimberly D. Krawiec University of Virginia School of Law	91
5.	Consumer Protection and the Illusory Promise of the Unconscionability Defense Benjamin C. Zipursky and Zahra Takhshid Fordham University School of Law and University of Denver Sturm College of Law	85
6.	Exploring Blockchain-Based Alternative Dispute Resolution: Limitations of Traditional Methods and Prospects for Further Research Jamilya Kamalova CNRS-University of Paris 2	72
7.	Private Law in Unregulated Spaces Elizabeth A. Rowe University of Virginia School of Law	25
8.	Shifting Toward Boilerplate Regulation Wayne Barnes Texas A&M University School of Law	24

Non-Disclosure Agreements and the Public Interest

In 2019, David Hoffman and Erik Lampmann published Hushing Contracts, which among other things, specified the ways in which non-disclosure agreements (NDA) externalize the social costs of unsavory behaviors by corporations and their agents. They address the danger that NDAs can protect people against sexual harassment claims and may enable them to move from job to job despite a history of tortious or even criminal misconduct.

We posted eighteen months ago about the Speak Out Act, which rendered NDAs unenforceable with respect to allegations of sexual assault or sexual abuse. Stacey Lantagne (left) was posting about NDAs and sexual harassment on this blog long before then.  We have posted repeatedly about the limits of NDAs imposed on employees of the Trump campaign and the Trump administration. Last week, a new Trump NDA issue arose and a second one re-surfaced.

Previously, we have focused on NDAs in the #metoo and First Amendment (free speech) context.  The latest Trump NDA scandal has to do with his alleged use of the "n-word" in connection with the reality television series, The Apprentice. Former producer for the show, Bill Pruitt, published the details on Slate.  From my perspective, as someone who regards reality television as the monetization of the basest of human qualities, the story has a Leopards Ate My Face vibe to it. Mr Trump, whatever his virtues, is not known for his moral probity.  The 20-year NDA that threatened criminal sanctions for breach should have been a tip-off that this was not your usual work gig.  Is anybody surprised by this latest confirmation that there is no social convention that Mr. Trump will not flout? 

Well, I guess the pee tapes thing wasn't true.

It is common to ruminate in such situations whether it would have have made a difference if Mr. Pruitt could have come forward with his allegations at some point between the famous descent on the tacky gold escalator and the 2016 elections. As someone who, after the release of the "Access Hollywood" video, confidently predicted "he'll never be President," I can't very well say.  Perhaps with Mr. Pruitt's NDA expiring, others will also expire and we will benefit from a series of revealing anecdotes about Mr. Trump saying the sorts of racist, sexist, homophobic, etc. things he undoubtedly routinely says when the mikes are off and all auditors are gagged by NDAs.

But being offensive is his brand.  He's already been found liable for defamation in connection with a sexual assault, for fraud in connection with both his main business and his "charitable" foundation, and now he's been found guilty on 34 felony counts.  While there is some dispute about the application of this particular statute in these particular circumstances, I don't think anybody can doubt that the underlying conduct occurred and is not very Presidential.  So he used some salty language? Why would anybody care about that if they don't mind him saying that he will be a dictator on day one of his second term, if he gets one?

But I digress, the real question is whether public policy can or ought to ban NDAs that prevent people from reporting such offensive conduct. Hofmann and Lampmann articulate an expressive theory of NDAs, arguing that we should concern ourselves not only with the law's commands but with the messages legal actors send. If courts uphold NDAs that facilitate impunity for sexual predators, the law expresses indifference to the plights of the victims of sexual predators and to the problem of sexual predation more generally.  Beyond the use of an offensive racial epithet, here, arguably, Mr. Trump made a decision that had an adverse impact on someone's employment based on the potential employee's race.  Does it matter that the employment opportunity was part of a reality television show?  Would we want the law to set aside NDAs when they stand in the way of unmasking racists? How about if the racists later run for public office? 

The other Trump NDA news is that, as Michael M. Grynbaum reports in The New York Times, a NY appellate court ruled last week that Mr. Trump's suit against his niece, Mary Trump (her book is at right), can proceed.  [Aside: the Times calls her his "estranged" niece, .  I'm not sure what it means for a niece to be "estranged." Again, Mr. Trump operates in ways that raise questions we thought we'd never have to ask ourselves.] The issue was whether Mary Trump violated the NDA entered into in connection with a 1999 financial settlement relating to the will of Mr. Trump's father when she shared information with the Times that resulted in article alleging that Mr. Trump had engaged in tax evasion and fraud.  The appellate division found that Mr. Trump had established a basis for a breach of contract claim, although it noted that issues regarding in the scope and enforceability of the NDA remained.  Mr. Trump's attorney proclaimed that Ms. Trump had committed a "blatant and egregious breach of contract," which, if nothing else, is blatant and egregious hyperbole and also irrelevant, unless New York has some statute that allows for special damages in the case of "blatant and egregious" breaches of contract.  Either it's a breach or it's not. Pounding the table with extra verbiage is not a sign of strength or confidence.  It's a sign that someone is wont to behave like a toddler needing a nap rather than a professional who will develop arguments applying the law to the facts.

Tech Workers in Kenya Appeal to President Biden

We've been posting a lot late about OpenAI. Whether it is paying Reddit so they can mine our brains to feed their chatbot, purloining Scarlett Johansson's voice and pretending they hadn't, or just being generally creepy by wanting its audio assistant to sound like the sex-obsessed operating system at the center of a disturbing, quasi-dystopian fantasy movie, OpenAI is fast becoming a tech giant that I hate as much as all the other tech giants.

This open letter to President Biden from Kenyan tech workers gives me a new reason to hate OpenAI, as well as some new reasons to hate the other tech giants.  The Kenyan workers want President Biden to know that US tech giants are "systematically abusing and exploiting African workers," undermining local labor laws in Kenya, and violating international law standards, by imposing conditions tantamount to modern-day slavery.

Nairobi has very high unemployment.  People are desperate for work and eager to work in the tech sector. But the opportunity comes at too high a price.  The Kenyan workers perform content moderation for the platforms, labeling and training AI tools by "watching murder and beheadings, child abuse and rape, pornography and bestiality, often for more than 8 hours a day." For this work, some are paid less than $2/hour.  They allege that they were not informed of the nature of their work when they were hired and that their work has caused them to suffer from post-traumatic stress disorder.

According to the authors, when Kenyan workers try to organize, they are collectively sacked, and the two companies, Meta and ScaleAI, simply moved their content moderation operations to other states, without paying workers back wages, even when ordered by Kenyan courts to do so. The workers call on President Biden to live up to his commitment to labor rights and worker-centered trade. Kenyans want tech jobs, but not tech jobs that will ruin their lives.  

It doesn't seem like a big ask.  The U.S. government should have the power to pressure the tech giants into paying foreign workers living wages, fostering humane work conditions, and complying with the laws of the foreign states in which they operate. These companies are the face of the United States abroad, and we want that face to be associated with technological innovation and economic opportunity, not with worker oppression bordering on enslavement.