ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Wednesday, December 12, 2018

When setting a noncompete time period, "not less than five years" = five years

A recent case out of Illinois, Pam's Academy of Dance/Forte Arts Center v. Marik, Appeal No. 3-17-0803 (behind paywall but you can listen to the oral argument here), highlights the weirdness of just throwing extra words into a contract without thinking through what they really mean. 

The dispute concerned a noncompete between a dance studio and Marik, one of its employees. The covenant not to compete stated that Marik wouldn't engage in any similar business "for a period of not less than five (5) years," and wouldn't solicit any teachers or students "for a period of not less than three (3) years." The parties were arguing over whether this language meant "five years" and "three years," or whether it meant that the noncompete could extend past five and three years. 

In a vacuum, the statement "not less than five years" reads as "at least five years" to me, meaning that the time period could last longer. But as a matter of contract interpretation, that makes no sense. Could the noncompete theoretically go on for 50 years? After all, that would be a period "not less than" five. On the other hand, as the defendants argued, interpreting the time periods as five and three years would render the "not less than" language as "mere surplusage" -- an interpretation courts usually strive to avoid. 

The court noted that contract interpretation's goal is to discern the intent of the parties. "Not less than" has been interpreted by Illinois courts in a variety of ways, but never in the context of a noncompete. However, many out-of-state courts had come to the conclusion that, in a covenant not to compete, "not less than five years" should be construed as meaning five years. This would prevent the employer from arguing that the noncompete was violated six years later. Indeed, the court thought that arguing that it meant six years would amount to bad faith. 

Whether the five- and three-year periods were reasonable was a fact-based inquiry that had to be determined by looking at the totality of the circumstances. 

This is a situation where I'm sure the "not less than five years" language sounded fancy and official but it was truly pointless. I think the employee probably understood it to be five years and three years (to the extent that the employee read and understood the agreement), and to the extent the employer understood the language to mean otherwise and entitle it to set an indefinite time period, I'm with the court that that's an unreasonable interpretation. 

December 12, 2018 in Commentary, Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Monday, December 10, 2018

You and your corporate entities: often a complex story with repercussions

I got really excited when I saw this case because it's always nice to have a recent parol evidence case to look at, and this one involves movies!

It's a recent case out of Mississippi, Rosenfelt v. Mississippi Development Authority, No. 2017-CA-01120-SCT (you can listen to the oral arguments here). The MDA had communications with Rosenfelt regarding his movie studios' attempt to make movies in Mississippi, eventually guaranteeing a loan through a term sheet signed by the MDA and by Rosenfelt on behalf of his two movie studios. When Rosenfelt wanted to make another movie and applied for another loan under the terms of the agreement, the MDA turned down the request. Rosenfelt then sued for specific performance and damages. Rosenfelt initially triumphed on a motion for partial summary judgment but then, during the specific performance debate in the case, the MDA filed a summary judgment motion challenging Rosenfelt's standing, which resulted in dismissal of Rosenfelt's complaint. 

Rosenfelt appealed, alleging that there was an agreement between him personally and the MDA. However, the court noted that all communications from the MDA were directed explicitly to Rosenfelt as president of the relevant movie studio. The court's decision came down to contract interpretation: All of the written documents in the case unambiguously referred to Rosenfelt in his official corporate capacity or were signed by Rosenfelt in his official corporate capacity. Given the lack of ambiguity on the face of the documents, the court refused to consider parol evidence as to whether Rosenfelt was personally a party to any of the agreements.  Because all of Rosenfelt's allegations concerned his personal agreement with the MDA, the court dismissed the suit. 

This case serves as a reminder that, once you have set up corporate entities, you need to be careful to remember how those corporate entities impact not just your legal liabilities but also your legal rights. 

December 10, 2018 in Commentary, Film, Government Contracting, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Monday, November 12, 2018

The vital difference between a promise and a condition

I always tell my students that if you want people to promise to do something, you'd better make sure you don't phrase it as a condition in your contract, and a recent case out of the Middle District of Pennsylvania, Allen v. SWEPI, LP, No. 4:18-CV-01179 (behind paywall), carries just that lesson. 

The contract was for the purposes of exploring for oil and gas on the Allens' land and read that the agreement was "made on the condition that within sixty (60) days from the Effective Date of this lease, [the defendant] shall pay to the [Allens] the sum of Two Thousand Dollars ($2000.00) per acre for the first year." The defendant never paid the Allens this sum, and the Allens sued. However, the defendant argued that this was nothing but an option contract. It had the right to rent the land for oil and gas exploration if it paid the required sum. However, it was not required to pay that sum. Instead, the payment was a condition that had to be fulfilled before the contract would come into operation. The court agreed and dismissed the Allens' breach of contract causes of action. 

The court then also dismissed the Allens' promissory estoppel claim, because it found that there had been a valid and enforceable contract between the parties -- it was just an option contract that the defendant chose not to exercise. 

The Allens seem to have thought they had rented this land to the defendant. I think that what they wanted to accomplish (or thought they were getting) with the quoted clause was to make sure they were paid within 60 days. However, in phrasing it as a condition, what they got was no commitment from the defendant at all. 

November 12, 2018 in Commentary, Recent Cases, True Contracts | Permalink | Comments (1)

Sunday, November 11, 2018

No Compete Clauses in Bilateral Contracts (No Unilaterality)

In a recent case, employment agency Robert Half International, Inc. (“Robert Half”) brought suit against a former employee, Nicholas Billingham, and Billingham’s current employer, Beacon Hill Staffing (a competitor of Robert Half) for actual and anticipatory breach of contract. Billingham’s contract with Robert Half included the agreement that Billingham would not compete with or solicit clients from Robert Half if leaving the company.  Nonetheless, Billingham accepted employment with Robert Half’s direct competitor where he stated that he intended to “add to my team quickly and take market share from Beacon Hill’s competitors.”  Robert Half brought suit.  Billingham and Beacon Hill moved to dismiss the complaint for failure to state a claim. 0*4-RMaI7gnFkJ32nX.

Billingham first defended himself arguing that unilateral contracts cannot be anticipatorily breached since they technically seen do not arise until the actual performance has been rendered.  He argued that his contract was unilateral since his remaining obligations were not yet due.  (Strangely, he did so although he had already terminated the relationship himself.)  The court corrected him on this point, noting that a unilateral contract is one that “occurs when there is only one promisor and the other party accepts, not by mutual promise, but by actual performance or forbearance.”  (Quoting Williston § 1:17).  To help my students distinguish accepting by beginning of performance in bilateral contracts from offers for unilateral contracts, which is sometimes confusing for them, I tell them that they must scrutinize what type of acceptance is sought by the offeror: if onlythe actual performance, then there is a truly an offer for a unilateral contract. If this is not clearly the case, there is an offer for a “regular” bilateral contract.  In this instance, the contract between Billingham and Plaintiff was bilateral, not unilateral.  Robert Half promised to employ Billingham in exchange for Billingham's promise to abide by the restrictive covenants in the Agreement.  Billingham's promise included the prospectiveagreement that he would refrain from certain activities upon departing the company.  Billingham was thus not correct that the agreement “became unilateral” after his resignation.  That is a legal impossibility.  His obligations to forbear from the non-competitive agreements became due the moment he left Robert Half.  As with many other contractual issues, unilaterality and bilaterality are examined at the point of contract formation, not by looking at what actually happened thereafter.

The court thus found that plaintiffs had sufficiently pled a claim of anticipatory, if not actual, breach of contract. 

Science-non_compete-contracts-labs-contract-law-aton4475_lowPlaintiffs also stated a claim for unjust enrichment. Defendants argued that Robert Half has not actually “conferred” any benefits on Beacon Hill and would thus not be liable for compensation under that theory.  The court noted that this is wrong.  Beacon Hill received a “benefit” from Billingham's employment through the revenue that he generates, his professional training, his relationships with customers and candidates, and his industry knowledge.  Beacon Hill's retention of these benefits is “unjust” as they are benefits that Billingham is barred, by the agreement, from conferring on Beacon Hill.

The case is Robert Half International Inc. v. Billingham, 317 F.Supp.3d 379, 385 (D.D.C., 2018).

November 11, 2018 in Commentary, Contract Profs, Labor Contracts, Miscellaneous | Permalink | Comments (1)

Friday, November 9, 2018

Not remembering signing your arbitration agreement doesn't mean you didn't sign it

Another day, another arbitration compelled, this time in a recent case out of the Northern District of Illinois, Nitka v. ERJ Dining IV, LLC, Case No. 18 cv 3279. The plaintiff sued the defendant for sexual harassment, sex discrimination, and assault and battery. The defendant countered that the plaintiff had signed an agreement to arbitrate disputes relating to her employment, which these were. The plaintiff stated she had no memory of signing the arbitration agreement, but the defendant's Vice President of People and Development testified that it required new employees to sign such agreements before entering employment and maintained them in the usual course of business. The plaintiff's arbitration agreement was located in her personnel file. Furthermore, the plaintiff had apparently affirmatively indicated on an electronic form that she had signed the agreement. 

The plaintiff then argued that she had been a minor at the time of signing the agreement, but the court pointed out that she ratified the agreement by continuing to work for the defendant after her eighteenth birthday. 

I believe that the plaintiff did not remember signing the arbitration agreement. To be honest, I believe that, even if she remembered, she probably had no idea what it really was. She was a minor trying to get a job at a Chili's. I'm sure she signed what she was told to sign and clicked the electronic check-boxes she was told to click -- exactly the way the vast majority of us do when getting a new job. 

November 9, 2018 in Commentary, Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Saturday, September 22, 2018

Sometimes you've just got to shrug and live with the precedent you've got

There comes a time in every teaching semester (usually very early on...) where you have to coax your students to be comfortable with courts contradicting each other. You have to teach them to distinguish the cases, to make sense of it, but sometimes I feel like the answer to the contradictions is "the parties didn't argue that point and it just got missed and now we just have to deal."

I was thinking about this as I read a recent case out of the Third Circuit, Cook v. General Nutrition Corp., No. 17-3216 (behind paywall), which affirmed a failed lawsuit against GNC for, among other things, breach of contract. The appellants made several arguments for why their claims should not have been dismissed, one of them that GNC's termination of the contract was a breach. But the Third Circuit noted that termination was permitted by the contract: "[The contract] expressly permit[ted] GNC to unilaterally modify or cancel the agreement at any time, with or without notice."

That was the line that gave me pause, because I only recently taught Harris v. Blockbuster, which holds a contractual provision illusory precisely because it permitted Blockbuster to unilaterally change the contract at any time without even having to provide any notice. Other courts have definitely agreed with Harris, and  while it's been distinguished I didn't really see any courts disagreeing with the conclusion. Third Circuit courts do seem to apply the illusory promise doctrine, so it doesn't seem like they've just decided to do without this doctrine in the Third Circuit. 

It does seem like Harris can be read as only applying in the context of agreements to arbitrate and not all agreements (although there was apparently an arbitration clause in the GNC contract). Unfortunately, this is just me guessing as to how you can distinguish Harris, because there is zero discussion of illusory promises in the Third Circuit's very brief opinion. The court asserts that the contract gave GNC this right, and that while it might be "unfortunate," it was permissible and therefore not a breach. 

September 22, 2018 in Commentary, Famous Cases, Law Schools, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Monday, August 27, 2018

Ninth Circuit courts continue to not love arbitration clauses as much as the Supreme Court does

Revitch received an automated advertising call from DirecTV to his cell phone, and sued alleging violations of the Telephone Consumer Protection Act. Revitch was a wireless customer of AT&T, so DirecTV moved to compel arbitration under its sibling corporation's wireless service contract with Revitch. This recent case out of the Northern District of California, Revitch v. DirecTV, LLC, No. 18-cv-01127-JCS, denied the motion, finding that the arbitration clause did not cover claims with DirecTV completely unrelated to the wireless services provided under the AT&T contract. 

It was true that the arbitration provision covered affiliates, and it was also true that DirecTV was an affiliate of AT&T, having become sibling companies a few years after Revitch entered into the contract with AT&T. But the court characterized the establishment of this relationship as a "completely fortuitous fact." The court noted that the intention for wording the clause broadly and including affiliates was typically to cover situations regarding assignments or successors. Nothing of the sort had happened here. No benefits under the contract had been assigned to DirecTV, nor had DirecTV undertaken any obligations under the contract. The calls Revitch was complaining about had nothing at all to do with the wireless service covered by the contract. So the precedent DirecTV tried to rely on was all distinguishable in the view of the court: "The Court concludes that Adams and Andermann, at most, support the conclusion that an entity may become an affiliate subject to the arbitration contract after the time of contracting where that relationship arises from an assignment of the underlying agreement or a related entity becomes a successor to the original contracting entity. That is not the case here."

The court interpreted the arbitration clause of the contract according to ordinary rules of contract interpretation that required the avoidance of absurd results and also that contracts be construed against the drafter. DirecTV argued that the presumption in favor of arbitration established by the Federal Arbitration Act meant that arbitration clauses should trump such rules of contractual interpretation, but the court disagreed. The court stated that, according to Ninth Circuit precedent, the FAA requires arbitration agreements to be placed on equal footing with other contracts. Allowing the suspension of ordinary contract rules of interpretation when arbitration agreements were involved would be placing arbitration agreements on favored footing; on equal footing, the same rules ought to apply to arbitration agreements as apply to all other contracts. Arbitration, the court emphasized, "is a matter of consent." 

This is an interesting case. Due to the consolidation of most of our forms of communication under massive umbrella corporations, a relationship with one subsidiary can be used to assert a relationship with all companies under the same corporate umbrella, as DirecTV tried to do here. This court's view feels rooted in a common-sense understanding that the arbitration agreement Revitch entered into when he decided to sign up for AT&T wireless service shouldn't also cover completely unrelated television services provided by a company that hadn't been affiliated with AT&T when Revitch entered into the contract. Only a few months ago, though, the Supreme Court reversed the Ninth Circuit for refusing to enforce an arbitration clause, re-affirming the trump-card nature of the Federal Arbitration Act over many other public policies. This case seems like another display of Ninth Circuit courts' skeptical views toward arbitration clauses -- which the Supreme Court has just reminded the Ninth Circuit it doesn't share. 

August 27, 2018 in Commentary, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Wednesday, August 22, 2018

Another health insurance case where getting proper care pushes you into debt

We have blogged several times before about the confusing and often tragic state of health care and health insurance in this country. Now we have another case out of the Eighth Circuit to add to the tally, Ferrell v. Air EVAC EMS, Inc., No. 17-2554. 

Ferrell went to an emergency room with chest pain. Emergency room staff arranged for an air ambulance operated by AIR EVAC to transport him to another hospital. Ferrell's health insurance only covered a thousand dollars of this helicopter flight, so Ferrell was billed over $29,000. Ferrell then sued on behalf of a class of those similarly situated, alleging that there was no enforceable contract with the air-ambulance provider because he was not informed of the price of the helicopter flight before taking it. The problem, though, is that the federal Airline Deregulation Act (the "ADA") comes into play here, as this is about air travel. The ADA, among other things, prohibits states from regulating the cost of air transportation. 

Ferrell argued that the ADA should not apply to air-ambulance services, which are unique from other forms of air transportation. But the plain language of the ADA is broad enough to include air-ambulance services, so the court refused to exclude them from the preemption. Because Ferrell was bringing a class action, this doomed all of his claims. 

The court did find that Air EVAC could potentially bring a breach of contract claim if Ferrell refuses to pay, and that Ferrell could then assert there was no enforceable contract in defense. In that case, Air EVAC could then possibly rely on equity to recover the value of the services provided, and then the court would be able to determine that value without ADA preemption. 

Which is a pretty complicated analysis and decision. Surely this is not the most efficient way we can think of to handle health care in this country. But I suppose there is something poetic about having to lump in health care with the air transportation industry: They often are both perplexing in their treatment of their customers.  

August 22, 2018 in Commentary, Recent Cases, True Contracts | Permalink | Comments (0)

Friday, July 27, 2018

23andMe decides to exercise its right to do pretty much whatever it wants with your DNA

23andMe, one of the services that takes your saliva and analyzes your DNA for you, has announced a partnership with GlaxoSmithKline to use its DNA database to develop targeted drugs. I've written before about the fairly broad consent Ancestry.com's similar home DNA service elicited under its terms and conditions, which 23andMe also enjoyed. According to the article, 23andMe considers itself to have gained consent from its users, and is allowing users to opt out if you wish. 

I think most of us have little problem with our DNA being used to find cures for terrible diseases and afflictions. If my DNA could be used to cure cancer, I am happy to line right up. (And, in fact, when my father had cancer, we did provide express consent to his doctors for us to assist in their DNA research.) But I think most of us, if asked, would have said something like, "I want my DNA to be used to cure cancer so people with cancer can be cured." 

However, the way the pharmaceutical industry works in this country, that's not exactly what happens. The cure, as we know because we talk about health insurance A LOT, is then available to those who can afford it. Many of Wikipedia's drug entries keep track of the cost of pharmaceuticals in the U.S. against the cost of producing the drug, as can be seen here. So I don't want to sound like a terrible person trying to stall progress, but, well, the users in the database paid to use 23andMe, and now their DNA is being sold to a pharmaceutical company, so 23andMe has now made money off of the DNA twice, and then it's going to get used to develop into medications that will then be sold again, back to the people who need the medications, who may be the same people whose DNA was used to develop the drug. At that point your DNA has been profited off of three times, and never by you, and possibly twice at your own personal expense. And, if history is anything to go by, that pharmaceutical is your DNA coming back to you at a tremendous mark-up. So you could find yourself in a position where you paid to have a pharmaceutical company take your DNA, turn it into the drug that could save your life, and then ask you to pay, again, much more money than you have, to gain access to the drug. You paid to donate your DNA so they could charge you for the benefits it provides. And, according to the terms and conditions, you consented to that. 

July 27, 2018 in Commentary, Current Affairs, In the News, Science, True Contracts, Web/Tech | Permalink | Comments (0)

Friday, July 20, 2018

Court finds a no-media clause contrary to public policy

A recent case out of the Southern District of New York, Garcia v. Good for Life by 81, Inc., 17-CV-07228 (BCM) (behind paywall), is an examination of a settlement agreement implicating the Fair Labor Standards Act ("FLSA"). It's interesting for the language it's willing to approve vs. the language it says should not be contained in the agreement. 

First, the court expresses concern about the contract's releases being overly broad and rewrites them, concerned that the language as written would have attempted to bar claims by a "second cousin once removed." Upon revision, the court is comfortable with the releases, but the court declares unenforceable the no-assistance and no-media provisions. The court finds it a violation of the FLSA to bar the plaintiff from assisting other individuals who might have a claim against the employer. The court also states that the effective "partial confidentiality clause" preventing the plaintiff from contacting the media is "contrary to well-established public policy." I found this last ruling especially interesting in our age of widepsread NDAs, which I've blogged about a bunch. I agree that such a clause would "prevent the spread of information" in a way that would be harmful to other wronged victims trying to vindicate their rights; we should keep talking about that when it comes to NDAs. 

July 20, 2018 in Commentary, Labor Contracts, Recent Cases, True Contracts | Permalink | Comments (0)

Wednesday, July 18, 2018

Surprise Charges for Emergency Room Services… Once Again

I blogged about the issue of emergency room and hospital “surprise charges” before, but this important issue is well worth re-addressing in the context of a new case.  Many court decisions and articles are still generated about the topic, but with no good solution yet from a patient/consumer point of view.

Here is the classic scenario: A person receives urgent medical care in an emergency room.  Upon admission, he or she is presented with a contract stating, for example, that he or she will pay for the services “in accordance with the regular rates and terms” of the hospital or emergency room.  But how does one ever know what those charges will be?  Does that make them an open price term?  If so, is the medical provider under an obligation to pay only the reasonable value of the services provided or can they charge pre-posted list rates?  Who decides what is “reasonable” and not in a market marked by, for most of us, very high prices?  If the provider charges what appears to be a very high amount, is the entire contract void for unconscionability?

A current case I came across addresses these issues (class certification was granted).  The uninsured “self-pay” patient, Mr. Cesar Solorio, signed a three-page admissions contract stating the above.  Once released, he got an un-itemized bill for $7,812.  He filed suit for breach of contract asking the court to, among other things, clarify how the contractual language “in accordance with the regular rates and terms of  [medical center] should be interpreted and applied.  Mr. Solorio alleges that the language constitutes an open price term that, under applicable law, is an agreement to pay only the reasonable value of the items received and not the posted rates by the medical center. Solorio also alleges that the medical charges were artificially inflated and more than four times higher than the actual fees and charges collected by the medical center. 

I still find these types of contracts highly problematic seen from a consumer/patient point of view. I have myself been subjected to a similar treatment (so to speak) by an emergency room that also, after the fact, sent me a much higher bill than what I was initially “promised” (orally and probably non-binding, but still).  Several items were double if not triple billed.  Patients can complain and complain, but what can we really do?  Not much, it seems, as these types of cases keep re-appearing. 

Yes, of course we want urgent medical treatment if we need it.  Yes, that is expensive.  But clearly, we also have a contractual (and moral) right notto be ripped off.  And maybe some services that might initially seem urgent could actually wait… In my own case and, I know, that of many others, medical providers are very eager to promote their treatment as highly necessary and urgent/”a good idea.”  That may, I hate to say, simply be a way for the medical providers to make more money.

As it is now, the burden seems to be on the patient seeking services to bargain for and document having received a promise that is limited in scope to … what?  Is this just an impossible issue to solve from a contractual point of view?  It seems to be.  That’s where health insurance comes into play, but reality remains that not everyone has that.  The “free market” takes over, but, in my opinion, that is far from optimum in this particular context.

The case is Cesar Solorio v. Fresno Community Hospital and Medical Center, Ca. Super. Ct. NO. 15CECG03165, 2018 WL 3373411. 

July 18, 2018 in Commentary, Miscellaneous, Science, True Contracts | Permalink | Comments (2)

Termination for any reason at all means that you can terminate for, well, any reason at all

A recent decision out of Ohio, Whitt v. The Vindicator Printing Company, Case No. 15 MA 0168, discusses the limits of the implied covenant of good faith and fair dealing. In the case, the contract contained a provision permitting termination of the contract for "malfeasance . . . , or at the will of either party for any reason or no reason" upon thirty days written notice. Vindicator terminated the contract with Whitt after an altercation between Whitt and a temp employee working for Vindicator. Whitt sued for, among other things, breach of contract, complaining that Vindictor had wrongfully terminated the contract only seven months into its three-year term. Whitt alleged that Vindictor violated the implied covenant of good faith and fair dealing because it terminated the contract after Whitt was a victim of criminal assault at the hands of Vindicator's employee. 

The court noted, though, that the requirement of good faith should not give a court the ability to second-guess decisions made within the context of the contract. The termination provision of the contract did not require just cause, which was what Whitt was trying to read in. Rather, the contract permitted Vindicator to terminate it for no reason whatsoever, so the exact circumstances of the termination did not matter. 

I think many people assume that contracts provide a level of reliability and predictability that doesn't exist if those contracts permit termination for any reason, or for no reason. I think Whitt assumed that this contract would stay in effect unless he did something terrible, but that's not how the termination clause was worded. 

(h/t to D. C. Toedt for the free link!)

July 18, 2018 in Commentary, Recent Cases, True Contracts | Permalink | Comments (2)

Wednesday, July 4, 2018

Pleading breach of contract adequately

Here's a short case out of the District of New Jersey, Hall v. Revolt Media & TV, LLC, Civil Action No. 17-2217 (JMV) (MF), in which the plaintiff failed to adequately plead his breach of contract claim. I'm blogging it because I don't spend a lot of time teaching my students about complaint-drafting; there are always just so many other things I'm quickly trying to discuss. But this case strikes me as a nice straightforward way to talk about it. The claim fails because all of the plaintiff's allegations were about contract negotiations: He contacted the defendant to discuss a contract, he sent the defendant a contract that was never signed, he continued to attempt to contact the defendant to negotiate the contract, etc. The court said there was never an allegation that any contract had actually been finalized. Nor did the complaint contain any details about the terms of the contract, such that the court could not tell what had allegedly been breached. I think this can be used as a way to focus the students on what they do need to be sure to include in breach of contract allegations. 

And being sure to also plead promissory estoppel would be a good idea. The complaint did adequately plead unjust enrichment, so this case can act as a good way to teach the distinctions of that cause of action as well. 

July 4, 2018 in Commentary, Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Monday, July 2, 2018

An "exceedingly rare" case where a court discounted testimony, relying in part on the witness's admitted "habit of routinely lying" in the course of business

A recent case out of Michigan, Strategy and Execution Inc. v. LXR Biotech LLC, No. 337105, speaks to the perils of not putting agreements in writing (or doing so and subsequently losing the writing). The parties had a written contract that stated that they would arrive at performance criteria at a later time. But the parties disputed ever entering into a later agreement over the performance criteria. No party produced any written document. LXR's principal testified that the parties reached an oral agreement that he memorialized in writing but the writing was later lost. However, this testimony was not corroborated by any other witness except for one who gave "conflicting testimony" regarding the document. LXR's principal had admitted to "routinely lying" because he apparently thought it to be "good business practice." Furthermore, none of the "voluminous" emails exchanged between the parties ever referenced any agreement on the performance criteria. The court therefore agreed that "this is one of the exceedingly rare cases in which a witness's testimony is insufficient to find a jury question." Despite the testimony, the court was permitted to enter a directed verdict on the breach of contract claim. 

Written contracts are not always required, but this case is an example of why they are often desirable to have, and to keep safe!

(There were other points of appeal in the case relating to other clauses of  the contract and some jury instruction issues.)

July 2, 2018 in Commentary, Recent Cases, Teaching, True Contracts, Web/Tech | Permalink | Comments (0)

Friday, June 29, 2018

If you want something specific, ask for it in your contract

A recent case out of the Second Circuit, Ortho-Clinical Diagnostics Bermuda Co. Ltd. v. FMC, LLC, No. 17-2400-cv (behind paywall), is another case about interpretation of contract terms -- twice over. Because here the parties entered into a contract, fought over breach of that contract, and then entered into a settlement agreement, which they were also fighting over. The moral is that, if you want something specific, you should ask for it rather than relying on unspoken industry practices. 

The initial agreement between the parties was about an IT operating system. Although the system was going to cost $70 million, the contract wasn't very detailed, with no technical specifications or description of building methods. The parties' relationship deteriorated and they eventually entered into a Settlement Agreement to terminate the project. Under these new terms, FCM would be released from its obligation to provide the system to Ortho, while providing assistance while Ortho transitioned to a different contractor. After execution of the Settlement Agreement, Ortho apparently realized that FCM was not as far along as Ortho had thought and had not prepared certain items that Ortho had assumed it had prepared, and so Ortho claimed that as a result the IT system cost more and took longer. 

The court, however, noted that there was nothing in the contract requiring FCM to produce the certain deliverables Ortho had been looking for. Ortho claimed it was "standard practice in the industry," but the court said that wasn't the equivalent of it being a contractual obligation. FCM was contractually required to provide assistance -- no more, no less. There was nothing in the contract about the job having to be at a particular stage of completion, or that any particular deliverables or documentation had to exist. 

The court also pointed out that Ortho had released its claims regarding the original agreement in the Settlement Agreement. Ortho tried to argue that it had released claims but not damages but the court called that "a nonsensical reading." 

June 29, 2018 in Commentary, Law Schools, Recent Cases, Teaching, True Contracts, Web/Tech | Permalink | Comments (0)

Wednesday, June 27, 2018

Your contract should say what you want; fancier terms are not always a good thing

A recent case out of the Southern District of New York, Treasure Chest Themed Value Mail, Inc. v. David Morris International, Inc., 17 Civ. 1 (NRB), deals with a digital marketing contract, presenting a variety of straightforward interpretation questions that could be helpful for basic examples for some things to look out for in contract drafting. 

The parties entered into a contract in which Treasure Chest was required to provide "greater than 300,000 follow up weekly digital impressions." The first dispute was over whether "digital impressions" was too ambiguous to be enforced. The court, however, easily defined "digital impression" with reference to investopedia.com. The court distinguished "digital impression" from "email," saying if the parties had meant "email" they would have used the word "email." A lesson in just using what you wish to say if that's indeed what you want; fancier terms are not always necessary and might just leave some room open for arguments about ambiguity and interpretation. 

There was also a dispute over whether it was ambiguous that compensation was "up to" a certain amount. But the court disagreed, saying it was clear that this simply meant the contract would not exceed a certain amount. 

Therefore, the court found there was a valid contract, that Treasure Chest fulfilled all of its obligations under the contract, and David Morris did not, so Treasure Chest was entitled to damages. Treasure Chest also sought attorneys' fees, but the court found that the contract was not clear enough to justify attorneys' fees. The contract said that "costs necessary to collect" past due balances could be awarded, but the court said that did not satisfy the "high standard" for collection of attorneys' fees via contract. Again, if attorneys' fees are what you want, attorneys' fees are probably what you should say. 

June 27, 2018 in Commentary, Recent Cases, Teaching, True Contracts, Web/Tech | Permalink | Comments (0)

Wednesday, June 20, 2018

Is the viral umpire video a breach of contract?

Recently a video went viral showing a 2016 altercation around an umpire ejecting Mets pitcher Noah Syndergaard after he threw a fastball behind the Dodgers' Chase Utley. Umpires wear microphones during Major LeagueBaseball games, and the resulting (often loud and profane) discussions with Mets players and especially Mets manager Terry Collins was recorded. 

The video recently surfaced in an apparent leak, because MLB has announced its intention to try to scrub the video from the internet. MLB's reason for this is that it violates a "commitment" that "certain types of interactions" involving umpires during baseball games would not be made public, claiming it was "in the collective bargaining agreement" and that there was "no choice" but to scrub the video from the internet. Indeed, according to one report it had already been scrubbed

Not so fast, though, because I found it still embedded in news reports about it. It's hard to get anything to vanish from the internet, especially once it's gone viral, but it's not that difficult to locate this video at all. 

And it's not hard to see why it went viral. It's a fascinating glimpse into a part of the game fans seldom get to see. As others have pointed out, the umpire does a fantastic job in the clip, so it's hardly like he's being cast in a bad light. The manager doesn't even come across all that poorly. In fact, in my opinion, the party that comes out of the clip looking the worst is Major League Baseball and its confusing way of handling the explosive Chase Utley situation. 

It's unclear what "interactions" were agreed to be withheld from the public, but this one is certainly an interesting one. I'd love to know what the contract terms actually are. 

June 20, 2018 in Commentary, Current Affairs, Film, In the News, Labor Contracts, Sports, Television, True Contracts, Web/Tech | Permalink | Comments (0)

Friday, June 15, 2018

It's True: People Really Are Getting Dumber and Dumber

New scientific studies have proven what we might all have been jokingly saying, but which apparently is true: the world population is increasing, but IQ levels are decreasing.   The reason?  Nurture, not nature. 

The studies claim that after 1975, IQ levels started to drop because of, it is thought, "environmental factors."  These could include pollution, changes in the education system and media environment, nutrition, reading less, and being online more.   Yikes.

"It's not that dumb people are having more kids than smart people, to put it crudely. It's something to do with the environment, because we're seeing the same differences within families," said one of the co-authors and lead researchers on the project.

For us, this is not good news for obvious reasons.  But are we, in fact, a contributing cause?  I know that some of my students, for example, do not enjoy and sometimes simply will not read long homework assignments, don't read privately, and indeed spend large amounts of time online.  I'm sure your students are not very unlike mine in that respect.  Other studies that I don't have handy here also demonstrate that our students have difficulty reading longer texts simply because they are not used to reading anything much longer than blog posts, twitter feeds, and maybe the occasional article here and there, but certainly not books.  

Read the entire findings.  References to "changes in the education system" and "decreasing access to education" are disturbing.

 

 

June 15, 2018 in Commentary, Contract Profs, In the News, Law Schools, Miscellaneous, Science, Teaching | Permalink | Comments (1)

Wednesday, June 13, 2018

Employees Beware: You are Contractually Presumed to be At-will

A new case out of Minnesota and subsequently the United States Court of Appeals for the Eighth Circuit once again confirms what we suspect already: if there is any doubt about an employee’s status, he or she is likely to be held to be an at-will employee.  Consider this:

Daniel Ayala is hired as an at-will employee in 2006 to serve as a vice president for CyberPower.  In 2012, Ayala and CyberPower agree to convert his position to executive vice president for sales and general manager for Latin America. The written contract details his salary and compensation status, stating that the agreement “outlines the new salary and bonus structure to remain in place until$150 million USD [sic] is reached.  It is not a multiyear commitment or employment contract for either party” (emphasis added).  Ayala is fired before sales could reach $150.  He claims breach of contract, contractual fraud, and unpaid wages, arguing that he was no longer an at-will employee, but rather should have been allowed to remain with the company at least until, as stated in the contract, the sales reached $150 million.  CyberPower also relies on the contractual language, arguing that it unambiguously did notmodify his status as an at-will employee as contained the phrase that it was “not a multiyear commitment or employment contract.” Unknown

The appellate court agreed with CyberPower, highlighting the fact that the text of the agreement indicates that it governed compensation only.  In Minnesota, there is a “strong presumption of at-will employment” which was applied here. The court also pointed out that Ayala did not produce any evidence supporting his claim that the company defrauded him by promising a definite term of employment and then firing him before the completion of the term.

Fair enough, it seems… until you consider the following as well: Ayala performed very well in his first sales position, bring the company’s annual sales from “virtually nothing” to almost $50 million by 2012.  He aspired to become the company’s president when the original president, Robert Lovett, decided to retire.  Lovett allegedly assured Ayala that he would be considered for that position but - surprise! - chose his son Brent as his successor when he retired in 2012.  Ayala then expressed his desire to leave the company, but was persuaded to stay to mentor Brent (thus expecting Ayala to train his own replacement, in effect.). Ayala was assured that if he stayed, he would receive “better compensation, a promotion and a written contract ensuring Ayala long-term employment.”  He was indeed promoted and, per the contract, promised to be able to stay “until” sales reached a certain amount, if the contractual language had been weighed that way.  Further, the contract does not say that his position was in fact at-will.  His previous contract had, in contrast, specifically said so. Images

Because of the parol evidence rule and, probably, the lack of written evidence of the negotiation statements, Ayala lost.  The presumption about at-will employment may have been correctly applied.  Not all court cases are resolved in a fair way for the employees.  But the case clearly reeks of nepotism, luring an employee to stay with a company under false pretenses, and broken oral promises. True, Ayala did not have evidence of the oral negotiations, but neither did CyberPower.

Why is it apparently so darned important in U.S. society to treat employees as mere objects that can be disposed of at will, by definition?  Why would it be so horrible to have to give employees a decent amount of notice and perhaps even a reasonable reason for being let go?  Many other highly developed nations around the world – especially those in Europe – do not employ such law.  These nations do very well.  Companies there make good profits.  Employees have more job security.  They are equally, if not more, productive than American workers.  What’s so bad about that?! 

Clearly, cultural factors play a role in this context. That’s unlikely to change.  In the meantime, employees in the U.S. should continue to be critical towards oral promises made by their employers and get every important term in writing.  Of course, that is easier said than done in today’s often difficult job market and resulting reasonable fears of losing or not getting a coveted position. Employees such as Ayala should not be seen as mere impersonal chess pieces that can be manipulated and moved around for employer benefits only.  But they often are.

The case is Daniel Ayala v. CyberPower Systems (USA), Inc., 2018 WL 2703102.

June 13, 2018 in Commentary, Labor Contracts, True Contracts | Permalink | Comments (4)

Arbitration clause enforceability seems like a pretty safe bet these days

There is very little you can bet on in life but it seems like the continued prevalence of arbitration clauses is one of them. We just had a Supreme Court ruling confirming that, and a recent case out of Nebraska, Heineman v. The Evangelical Lutheran Good Samaritan Society, No. S-17-983, continues in the same vein. 

In the case, a nursing home resident sued the facility for injuries he sustained while living there. The nursing home facility sought to arbitrate the dispute under the arbitration clause Heineman agreed to before being admitted as a resident of the facility. The lower court refused to enforce the arbitration clause based on lack of mutuality of obligation as well as finding it contrary to public policy. The appellate court, however, disagreed. 

First, Heineman's argument on mutality of obligation concerned allegations that the nursing home facility had filed lawsuits against its residents without pursuing arbitration first. Heineman therefore argued that the nursing home's conduct indicated that only Heineman was bound by the arbitration clause. However, Heineman's argument depended on the court taking judicial notice of those lawsuits, considering that, as drafted, the arbitration clause did bind the nursing home. For some reason, though, this was apparently not an argument Heineman made at the lower court level, because the appellate court refused to take judicial notice of the lawsuits because they had not been presented to the trial court.

As far as the public policy concern went, the lower court had relied on a federal regulation prohibiting arbitration clauses as a requirement for admission to long-term care facilities. However, that regulation was passed almost two years after Heineman signed his arbitration clause, and at any rate has been enjoined from application by a federal court. Because there was no other legislation expressing a public policy against arbitration in the context of nursing-home facilities, the court found the arbitration clause was enforceable.

June 13, 2018 in Commentary, Current Affairs, Recent Cases, True Contracts | Permalink | Comments (0)