ContractsProf Blog

AmEx Tries to Pull a Samsung to Avoid Mass Arbitration, but It Ain’t Got the Rizz

We have been following moves in mass arbitration for a few years. Nearly fifteen years ago now, SCOTUS told merchants that the Federal Arbitration Act (FAA) pre-empted state laws banning class-action waivers in consumer contacts. In another case involved American Express (AmEx), SCOTUS stuck to its guns, even when a class action waiver made it impossible for parties to vindicate their federal statutory rights. Justice Kagan summarized the Court’s attitude towards frustrated litigants: “Too darn bad.” 

Mass Arbitration, as imagined by Microsoft Copilot

Plaintiffs lawyers innovated, creating a new strategy called “mass arbitration” about which we have blogged, for example, here and here. Companies responded with “batch arbitration.” and Richard Frankel provided a typography of  batch arbitration. We summarized his findings here. Samsung took a different approach. In response to a mass arbitration, it simply refused to pay its share of the arbitration fees, and the American Arbitration Association (AAA) accommodated it by dismissing the claims. A District Court ordered Samsung to pay the fees and proceed in arbitration, but the Seventh Circuit reversed, in part because of an oversight by the plaintiffs’ attorneys.

AmEx tried to take a page out of the Samsung playbook, but a Rhode Island District Court did not buy it. In 5-Star General Store v. American Express Company, AmEX, like Samsung, had refused to pay fees in a mass arbitration brought by over 5000 claimants. As in Samsung, the AAA administratively closed the case. Fine, said the plaintiffs. They filed a class-action suit in federal court. AmEx moved to dismiss the case and to compel arbitration on an individual basis. In the alternative, AmEx asked the court to strike the class allegations.

5-Star General Store (5-Star) and thousands of other businesses tried to arbitrate claims against AmEx. They alleged that a non-discrimination provision in AmEx’s standard terms, which prevented the businesses from showing a preference for a particular payment mechanism or for disclosing the fees they paid for taking AmEx, violated antitrust laws. The AAA determined that AmEx should pay 90% of the fees associated with those arbitrations. AmEx disagreed, saying it was willing to pay less than one-third of what the AAA demanded. Unable to resolve the fee dispute, the AAA administratively closed the cases. 5-Star then sued, claiming that AmEx had waived its right to demand arbitration. AmEx moved to dismiss the case and compel arbitration or, in the alternative, to strike the class claims.

The first issue the court set out to decide was whether AmEx was in default under § 3 of the FAA, but it first had to address whether the issue of default was for the court or the arbiter to decide. It concluded that the issue was one of statutory interpretation and thus to be decided by the court. As the court presents it, AmEx’s position is a bit hard to fathom. The AAA closed the case; doing so is almost certainly a finding that a party is in default. AmEx was the party that refused to pay, so it is clearly in default. Sending the issue to the arbiter would be, in the court’s view, “redundant.”

Proceeding to the substance of the default issue under § 3, Congress having not defined the term, the court consulted a dictionary and quickly concluded that AmEx was in default. AmEx responded that it’s conduct was better construed as a waiver, but the court found that doing so would yield the same result.

In the alternative, AmEx proposed that it is and always has been ready and willing to proceed with arbitration, so long as it only has to pay its fair share. The court's response was appropriately scathing, reminding AmEx that if it pulled these shenanigans in court, it would have judgment rendered against it. If the court were to grant AmEx’s wishes and remand for arbitration, nothing would prevent AmEx from once again refusing to pay the fees and starting the process over again. The court concluded that AmEx was in default under the FAA’s § 3.

AmEx next argued that 5-Star had amended its complaint in dramatic ways, rendering AmEx’s wavier irrelevant. and allowed the case to proceed as a class action. Long story short: Changes in pleadings will release a party from its waiver of its right to arbitrate only if “it is shown that the amended complaint unexpectedly changes the scope of theory of the plaintiff’s claims.” While there were changes, that standard was not met here.

The remainder of the opinion relates to AmEx’s motion to strike the class allegations. That discussion is beyond the subject matter of this blog. Suffice to say, the court declined to strike the class allegations at this stage of the litigation.

University Hires 72-Year-Old Man with No Experience for $50 Million

The University of North Carolina has much of which it can be proud. If you go to its website, you will see that it boasts over 230 years of public service, having been the first public university in the United States to award degrees starting in the 18th century. Under its “Academics” tab, it boats, "UNC-Chapel Hill is a global leader known for its innovative teaching and ground-breaking research."

Here is the university’s mission statement:

The University of North Carolina at Chapel Hill, the nation’s first public university, serves North Carolina, the United States, and the world through teaching, research, and public service. We embrace an unwavering commitment to excellence as one of the world’s great research universities.

Our mission is to serve as a center for research, scholarship, and creativity and to teach a diverse community of undergraduate, graduate, and professional students to become the next generation of leaders. Through the efforts of our exceptional faculty and staff, and with generous support from North Carolina’s citizens, we invest our knowledge and resources to enhance access to learning and to foster the success and prosperity of each rising generation. We also extend knowledge-based services and other resources of the University to the citizens of North Carolina and their institutions to enhance the quality of life for all people in the State.

With lux, libertas — light and liberty — as its founding principles, the University has charted a bold course of leading change to improve society and to help solve the world’s greatest problems.

Did you notice what is not mentioned in the mission statement? Sports. Sports is no part of the university’s mission, except, at a level not worth mentioning expressly, as an adjunct to teaching and learning. And yet, as the College Football Staff of The Athletic (of The New York Times) reports, the University has committed to a five-year, $50 million contract with Bill Bellichick (left), one of the most successful NFL Football coaches in history. Mr. Bellichick has never coached a college game.

Why is the University expending so much money on something that is no part of its mission? According to Bubba Cunningham, the University’s athletic director, the aim is to get the football team from eight or nine wins a year to ten or eleven. Is it worth spending $50 million on that goal, or would the money be better spent to enable underserved communities access to the University’s vast educational resources? The University could respond with a paraphrase of one of Jesus more problematic aphorisms: "For ye have the poor always with you; but Bill Bellichick ye have not always.” Oh, come now. If it weren’t him, you’d be spending $50 million on some other football coach.

Stewart Mandel, writing for The Athletic, provides reasons to think the strategy might not work. His reasons have to do with Mr. Bellichick’s temperament, his inexperience in recruiting, and speculation that high school students might not be impressed by a guy who coached Super-Bowl-winning teams when they were in middle school and are more focused on how much they will be paid.

But my real question is how Mr. Bellichick will contribute to the University’s mission — you know, all that Lux, Libertas stuff. Here’s his approach to college coaching: “If I was in a college program, the college program would be a pipeline to the NFL for the players that had the ability to play in the NFL. . . . It would be a professional program — training, nutrition, scheme, coaching and techniques that would transfer to the NFL. It would be an NFL program at a college level. . . . ” There is then some mention of “life skills” that will serve the athletes "regardless of whether they’re in the NFL or somewhere in the business.” The business?

Universities face serious challenges. There is talk of an enrollment cliff as a small generation comes of age, young men opting out of college, tuition rises, and the terms of educational loans becoming more onerous. Small colleges may collapse under the pressure, and public universities are shutting down departments due to financial constraints. And yet, there is no lack of resources when it comes to sports programs, which do not, I repeat, do not generate income for their universities as a general rule.  Even in the so-called “power conferences,” most university athletics programs lose money. 

Given the general tone of suspicion of elites and mistrust of institutions, this is an especially hard time to promote support for public education. But we need support for public education. We need for universities to tout their research and professional-training programs with the energy and enthusiasm that they devote to college athletics. Get rid of of the university administrators who think they are running a business and replace them with people who understand the educational mission and can communicate to the legislatures and alumni who control the purse strings. Our future — not only the future of the universities — but our economic and civil well-being, depends on it.

Contracts and the First Amendment: Union Edition

I was today years old (writing in December 2024) when I learned of the 2020 National Labor Relations Board (NLRB) decision finding that it had no jurisdiction over faculty at religious institutions. Overruling its own 2014 decision (Pacific Lutheran), the NLRB in 2020 adopted the D.C. Circuit’s approach in a case involving Duquesne University as more consistent with SCOTUS’s 1979 precedent in NLRB v. Catholic Bishop of Chicago. In that case, SCOTUS rejected NLRB jurisdiction over employment decisions at religious institutions that might reflect protected First Amendment values.

In Pacific Lutheran, the NLRB thought it could exercise jurisdiction over faculty unionization efforts without violating constitutional protections for religious freedom. In that case, the NLRB found that nothing in the University’s “governing documents, faculty handbook, website pages, or other material” suggested that the faculty members at issue “perform any religious function.” That standard, the NLRB held in 2020, was inconsistent with Catholic Bishop. Instead, the NLRB adopted the D.C. Circuit’s Great Falls test, according to which, the NLRB has no jurisdiction over any institution that

(a) “holds itself out to students, faculty, and community as providing a religious educational environment”; (b) is “organized as a nonprofit”; and (c) is “affiliated with, or owned, operated, or controlled, directly or indirectly, by a recognized religious organization, or with an entity, membership of which is determined, at least in part, with reference to religion.”

Religious institutions may choose to recognize unions, but the NLRB cannot force them to do so.

I bring all this up today because I just read Heidi Schlumpf’s reporting from November 25, 2024 in The National Catholic Reporter on the situation at Marquette University.  Ms. Schlumpf writes of full-time, non tenure-track Marquette professors who have to supplement their incomes as Uber drivers or working for food delivery services. Some have given up on teaching altogether, because they could not support their families on the salary they received from Marquette. Unionization might help, but Marquette has availed itself of the religious exemption to refuse to recognize the union. In so doing, Marquette follows the examples set by Boston College, Seattle University and St. Leo University, all of which have refused to recognize unions. There is a longer list of Catholic universities that have allowed unions.

Marquette University cites financial difficulties as the reason why it will not recognize the union. Employees note that they are underpaid compared to their peers at other universities and that Marquette has chosen to send resources towards upper administration rather than instruction.  

In any case, how are financial difficulties grounds for a religious exemption? Isn’t the fact that some Catholic universities voluntarily recognize unions evidence that there is no religious ground for excluding them? At the very least, shouldn’t the NLRB ask Marquette to explain how the a union burdens its free exercise of religion while not burdening the religious exercise of other universities that claim adherence to that same religion?

I have staked out my position on contracts and the First Amendment in a series of posts and law review articles, including this one and that one. I won’t go on at length here. Following Jamal Greene, I call oppose rights absolutism and advocate for rights mediation. You are a religious institution. Fine. Courts should protect your Free Exercise rights. But you still have to make a showing that those rights are meaningfully burdened by the existence of union on your campus. There may well be a connection, but the person claiming a burden on their rights has to make that showing in each case. The result might well be that the private parties work out their own accommodations of contractual and constitutional rights, and whatever they come up with is likely to be a lot better than an absolute bar on worker representation at religious educational institutions.

Reviewing Larry DiMatteo, Principles of Contract Law and Theory, Part V

This is the fifth post in my series on Larry Di Matteo's Principles of Contract Law and Theory (Principles).  The aim is to call some attention to this book while using it to stimulate my thinking as I once again consider how to teach contracts law to first-year students.  Principles is a scholarly textbook addressing advanced topics at a very high level of sophistication.

A note of explanation is in order. When I started this project, I was reviewing two books side by side. As I got further along, I decided that I could not recommend the other book to readers and thus there was no point in continuing with the review. I had numerous points of disagreement with the views of the authors of the other book, both as to substantive matters and as to the organization of the material. This did not seem like the appropriate space to air those differences. 

Chapter five of Principles covers the substantive elements of contracts, and of the chapters discussed thus far, it reads the most like a traditional hornbook. The chapter concentrates much of contracts doctrine into a clear, straightforward, forty-page presentation, covering formation, capacity, illegality and public policy, conditions, and performance and breach. Principles treats capacity as an element of contract formation. It also considers legality an element. (90-91) I think most first year courses and casebooks treat incapacity and illegality as affirmative defenses to contract formation. Seeing them presented as elements of formation is jarring for me, but that is precisely why reading new takes on doctrine is rewarding.

I was disappointed that Principles’ discussion of agreement (94-96) omits any discussion of electronic contracting or contracts of adhesion. The book does not delve into these topics in any depth, and this would have been the place to do so.  Most contracts are entered into through form contracting or electronic contracting, and establishing knowing assent to terms poses an important challenge to their enforceability. Many of the cases reviewed on this Blog feature courts’ careful consideration of whether consumers, small businesses, or employees were on inquiry notice of material terms. Professor DiMatteo could have discussed similar issues in his section on silence as assent. (109-10) Principles accurately states the general rule that silence is not assent, and it discusses some exceptions. But we all silently assent to new terms when we are parties to contracts of adhesion that permit the vendor to amend its terms with notice.

As he does frequently throughout the book Professor DiMatteo provides us with an enlightening comparative perspective, contrasting the common law’s objective approach to formation with civil law’s subjective approach and the CISG’s hybrid approach. (96-98) I suspect that a common-law court, attempting to parse the CISG’s careful modulation between objective and subjective modalities would satisfy itself that an objective approach settled the matter appropriately.

Professor DiMatteo subtitles his section on contract formation (99-111) “Rules, Rules, Rules.” True to his word, he dutifully lays them out, cheek by jowl, with sub-categories and a chart to help us sort them out and keep track. He illustrates the rules with quotations from treatises and brief discussions of cases, mostly  from the UK and mostly either old or very, very old. There is nothing wrong with this, as it illustrates the stability of common-law rules of offer and acceptance. My students object when I give them old cases (which includes for them cases from the 20th century), but my students, for the most part, are not Professor DiMatteo’s target audience.

There follows a brief discussion of substantive components of consideration (111-15), which serves as a supplement to discussion of the formal aspects of the topic in other chapters. Professor DiMatteo discusses Lampleigh v. Braithwaite, a case from 1615 involving allegations of past consideration. Party A promised to pay Party B after the latter procured a pardon for Party A. There had been no discussion of payment prior to the pardon. The court found consideration based on reasonable expectations of payment at the time the services were tendered. (112) That seems a stretch to me, absent some discussion of the amount to be paid. I wonder if today the case would not be decided under the doctrine of moral consideration/promissory restitution.

The next section of the chapter discusses incapacity, including infancy, mental incapacity and intoxication. (115-19) Principles notes that concepts of capacity have evolved: Married women lacked capacity under the doctrine of coverture. (115-16) Although capacity is treated here as a requirement of contract formation, people lacking capacity can form contracts. However, those contracts are voidable at the election of the person lacking capacity. (116)

The last section on contract formation covered in the chapter is illegality and public policy (120-26). Illegality is fairly straightforward, but there is an interesting, brief section on inadequate licensing as a form of illegality. (120-21). I wonder about recovery in restitution in such cases. Professor DiMatteo elegantly sub-divides his discussion of public policy into four common contractual clauses to which courts give close scrutiny: covenants not-to-compete (121-22), exculpatory clauses (122-23), penalties (123-25), and commercial lease assignments. (125-26) I think this well captures most of the cases in this area. I would propose only one addition: sovereign immunity and the state secrets privilege, but I have written in the area, and perhaps that warps my judgment of the importance of these topics.

Professor DiMatteo rounds out the chapter with a brief discussion of conditions (126-27) and an introduction to the topic of performance and breach. (127-33) The discussion of the latter covers trivial versus material breach (127-28) and the evolution of the substantial performance doctrine as an evolution from the old common-law expectation of strict performance. (128-31) Finally, there is a very short discussion of the right to cure, which does not reference the UCC’s rules on the subject matter (131-32) and a discussion of anticipatory repudiation and adequate assurances, relying on UK cases.(132-33)

On the whole, Professor DiMatteo provides an extremely concentrated summary of the rules of contract formation and an introduction to problems of performance and breach. There are times when one would like more detail and more examples drawn from U.S. case law, but given the book’s ambitions and considerations of space, the chapter provides an admirably succinct yet comprehensive overview.

The first post in this series can be found here
Part II is here.
Part III is here.
Part IV is here.

Authors, You Can Enjoy Fifteen Minutes of Fame for Only $1200

Matilda Battersby, writing in The Bookseller reports on a new “disrupter” in the book publishing industry. The start-up, called Spines, began in 2021 and it published its first books this year. It published 273 titles in September alone, including 33 that were released on the same day. Its goal is to publish 8000 authors in 2025 and eventually to help one million people find their way into print.

How is this possible, you may ask? No, you don’t have to ask. AI, of course.

The technology enables Spines to reduce the publication process from between six and eighteen months down to two or three weeks. Authors will pay an up-front fee of between $1200 and $5000, and the AI takes care of the rest. Authors retain 100% of the royalties as well as copyright. Spines’ co-founder Yehuda Niv claims that this is not self-publishing, and it is not vanity publishing. Spines is a publishing platform.  That is “a new concept," says Mr. Niv.

Image by DALL-E

But is it? This does not seem different from publishing on Amazon, which I would call a publishing platform, and a standard definition of vanity publishing is one where the author pays to be published. So Spines seems like vanity publishing platform. Which part of that is   new? If Spines is not benefitting from royalties or from intellectual property rights in the books that it publishes, it seems that its model is based on volume, which means that publishing with Spines will carry with it all the cache of self-publishing — you pay someone to publish you because you cannot interest a reputable publisher in your book.

But wait, if you want to get your book out there quickly, you might also try a new Microsoft’s new imprint 8080 books, which I fear means that Microsoft too, through the wonders of AI, intends to bring out thousands of new titles each year.  But of course, the world does not want for books; it wants for readers.  Publishers, for all their inefficiencies, perform a valuable service in selecting which books find their way into print. Spines boasts that some of its books have become “bestsellers,” but The Bookseller could find no evidence that Spines’ best-selling titles have found more than a few hundred readers, and Spines itself would not provide evidence of book sales because “that data is private and belongs to the author”. 

In short, I can see no reason why this business should succeed, which means you should probably invest because in 2025, dumb things are edgy and cool.

Reviewing Larry DiMatteo and Irma Russell & Barbara K. Bucholtz, Part IV

After a long hiatus, I am back with more in my serial review of these two books. Lesson learned. Don’t try to review books during the semester. Too many other things going on.  So the plan is to get it all drafted over the break to go up during the coming semester.

This is the fourth post in my series on  Larry Di Matteo's Principles of Contract Law and Theory (Principles) and Irma Russell and Barbara K. Bucholtz's Mastering Contract Law (Mastering).  The aim is to call some attention to these two books while using them to stimulate my thinking as I once again consider how to teach contracts law to first-year students.  The two books are very different.  Principles is a scholarly textbook addressing advanced topics at a very high level of sophistication.  Mastering is a study-guide for first-year students. They both have their charms, but they are very different.  Each entry in this series will cover a chapter in each book, with some splitting of chapters because the books don't have the same number of chapters. Most weeks, the chapters will not cover corresponding subject-matters.  So be it.

Chapter four of Principles covers formalism, which Professor DiMatteo defines as “mandatory rules or requirements that apply without the need to provide substantive reasons or rationales for their application.” (77) The chapter covers topics ranging from seals, to the statute of frauds and the parol evidence rule, to formal elements of consideration and distinctions among specialized types of contracts. He begins, as he often does, with a brief but informative historical and comparative review of why formal mechanisms developed as they did. (77-78) In general, he is sensitive to the ways in which, formal elements of contract law, once established, tend to outlive their usefulness. (81)

For example, Professor DiMatteo takes note of the welcome development that many courts, favoring substance over form, “will go to great lengths to avoid the application of the statute of frauds.” (83) He uses the famous Nanakuli case to illustrate that modern rules on the admissibility of extrinsic evidence permit a court to avoid the formalism of holding parties to “plain meaning” while avoiding the need to find that a party has acted in bad faith. (85)

Professor DiMatteo addresses consideration as a formal element of contract formation, but he also discusses it as a means of protecting and promoting the intent of the parties. (86-87) He maintains that the statute of frauds and consideration are alike in this regard (87), and while I agree that they share a common goal, I regard the statute of frauds as an example of a legal formalism that has outlived its usefulness and is now as likely to frustrate the intentions of the parties as promote it. Sophisticated parties can use the statute of frauds to evade their legal obligations vis a vis parties who were not aware of the need to memorialize that agreement in a writing. Consideration is substantive in that there must be an actual bargain. A mere recitation of consideration does not suffice, with the frustrating exception of R.2d § 87(1)(a), which enforces options based on "purported consideration."

The chapter concludes with a discussion of specialized rules for different types of contract. The UCC, for example, creates special rules a variety of sub-categories of contracts. The common law recognizes special rules for exclusive distribution agreements, as well as for franchise agreements and employment contracts. (87-89) This discussion is interesting and thought-provoking, but I am not sure whether to characterize these specialized rules as  formal or substantive developments of the law.

I have a quibble about Professor DiMatteo’s handling of extrinsic evidence. He quotes UCC § 2-202 for the proposition that "outside evidence" is barred only if it contradicts the written agreement. (84) I think it is important to distinguish among types of extrinsic evidence. “Parol” evidence is evidence of words — written or oral. The language to which Professor DiMatteo refers is from UCC § 2-202(b), which is addressed to parol. Other types of extrinsic evidence, that is course of performance, course of dealing, and usage of trade evidence (what the authors of Corbin on Contracts call “invisible evidence”), are addressed in § 2-202(a) and are admissible unless “carefully negated.” As Professor DiMatteo’s discussion of Nanakuli illustrates (84-85), invisible evidence comes in so long as it can be “reconciled” with the text, even if, on its face, it seems to contradict that text. It will depend on the court, of course, but I don’t think it is quite right to say that “invisible” intrinsic evidence is barred if it contradicts the written agreement. It comes in, but a court will give it no weight if it cannot find a way to reconcile text and invisible evidence.

Chapter four of Mastering, on formation, covers a lot of material, so this post will just summarize its first half, up to options. 

The chapter begins with a discussion of capacity to contract. (35-42) I organize the material differently when I teach, grouping incapacity with defenses, but I can see the appeal of introducing capacity here as a necessary pre-requisite to formation. Professors Russell and Bucholtz (the Authors) begin by helpfully noting that incapacity can be incapacitating for the beneficiary of the doctrine. Married women long lacked the capacity to contract (35), a major impediment to their enjoyment of the rights of citizenship.

The coverage of infancy includes a lengthy exploration of exceptions for necessaries, for emancipated minors, as well as a handy list of carve-outs for contracts relating to enlistment in the armed forces, student loans, and child support. (38-39) The section on mental incapacity begins with the oft-ignored distinction between those adjudicated incompetent and non-adjudicated incompetents. The former get overlooked because their condition rarely leads to litigation, as potential counterparties tend to be on notice of adjudicated incapacity. (40-41)

The Authors then move on to a discussion of formation. They present it in the form of a formula O + A + C = K (offer, acceptance, and consideration = contract). They then provide a detailed discussion with illustrative examples of our objective approach to contract formation, and on the way they highlight the difference between voluntary contractual obligations and those imposed automatically in the world of tort. (43-45)

There follows a discussion of offer and acceptance, including an unpacking of the significance of the slogan “the offeror is the master of the offer” (47), and a refreshingly brief discussion of the mailbox rule. (47-48) I say "refreshingly brief” because, in our era of instantaneous communications, the rule is of vanishingly small significance in the real world. Alas, last I checked, the bar is still obsessed with the mailbox rule. The Authors note that silence is not ordinarily acceptance (48), and they provide an example of when silence might be treated as acceptance. (49) In our world, in which transactions are often governed by terms of service that vendors can change with notice, I would have liked to see more emphasis on how frequently employees and consumers are bound by their silence or inaction.

Finally, the Authors provide a very clear discussion of the five ways of terminating offers: rejection/counter-offer, lapse of time, revocation by the offeror, death or incapacity of either party, and acceptance. The section is fleshed out with numerous helpful illustrations, including examples of borderline cases. (49-55) The Authors' fifth mode of termination, acceptance, is not included in the Restatement's list of modes of termination (54-55). The Authors have a point. Once the offer is accepted, we no longer have an offer; we have a contract, and the power of termination ends. However, it is not always the case that acceptance terminates an offer. If there are multiple offerees, acceptance only terminates the offer with respect to one offeree. The others can still accept the offer until they receive notice of its revocation.

The first post in this series can be found here
Part II is here.
Part III is here.

Friday Frivolity: Flair Airline Has to Reimburse Passenger for Spoiled Seafood in Lost Luggage

The case was decided in March, but I just learned of it on Wait, Wait, Don't Tell Me, so it's news to me. Jason Proctor brings us the full story on CBC News.

It turns out, the duty to read does not apply to people who pack their suitcase with crab meat, fish cakes, sea cucumbers and dandelion root before boarding a flight aboard a Canadian budget airline. Passengers are prohibited from packing such items in checked baggage. However, once the airline accepts checked baggage, it assumes liability for any damage to that baggage. Apparently, the rule in Canada is that "the law doesn't allow an airline to use a contract to get out of liability for bags frontline staff agree to put on an airplane — no matter how fishy the contents." Flair was ordered to pay the passenger $780 to cover the value of the seafood, baggage fees, and court costs.

I REALLY don't like this outcome. The proper solution, it seems to me, is that the airline should refund the baggage fee. Maybe that's enough to get the passenger his court costs as well. But all of his other losses are his fault. Don't pack perishables in a suitcase before flying. If you do so and the perishables perish, while permanently funkifying your suitcase, that's on you.

The last thing we need is to give airlines a reason to spend more time inspecting our checked luggage. Now, not only are we going to have to take off shoes and belts, pull out our large electronics (or not in OKC!), and pack our liquids separately (or not, TSA seems not to be obsessed with that anymore), but we will also have to stand in line while dogs trained to sniff out contraband adorably inspect our checked bags.

Thinking About/Worrying About the NextGen Bar

When it comes to the new bar exam, coming to a state near you beginning in 2026, I am still at the bottom of the learning curve.  Oklahoma is planning to administer this version of the exam in 2027, so my current 1Ls will be the first group of students that I have taught who will have to take it. Any of my past students who cannot pass the bar exam before then will also face an exam for which I fear my teaching did not ideally prepare them.

I have long striven to design my assessments to mirror what students will face on the bar exam. My formative assessments combine multiple choice questions to familiarize students with the way fact patterns and distractors work on the MBE with short answer questions to build issue-spotting and IRAC skills. For those of you unfamiliar, IRAC stands for Issue, Rule, Application, Conclusion, which, with some variation, is the format that bar exam answers take. My final exams include essays modeled on bar exam essays. They are designed to have one or two major issues, with perhaps some minor issues layered within them. 

But the NextGen bar expects students to have developed different skills. They need to do more than just spot issues in a fact pattern; they need to take facts as presented by a client and think about what follow-up questions they need to ask. They need to think about not just what they know from the materials but what they need to know in order to proceed. It is not that I do not think our students get training that will help them further develop those skills in their 2L and 3L years and in their summer experiences. Rather, the problem is that pretty much all of the ways in which I assess my 1Ls no longer prepare them for parts of the NextGen bar. I would like to make my assessments more like those on the NextGen bar, and that is my project for next semester. It's a tough assignment, because there are not yet very many exemplars of what the NextGen bar will look like.

I am inclined to be skeptical of a bar exam that makes me do all of this work, but there is an aspect of the NextGen roll-out that makes me more skeptical still. I have now heard from two reliable sources the National Council of Bar Examiners (NCBE), the good people behind the new bar exam, are administering tests to students who recently took the bar. They will then compare the scores of the students on the NextGen exam to their scores on the current bar exam. They will set the pass score for the NextGen exam at a level such that those who passed the current bar will also pass NextGen.

This makes no sense to me. What's the point of changing the exam, if the people who do well enough to pass the old exam also do well enough to pass the new exam? If that is so, the exam is still just a general intelligence quiz, and the new exam serves no purpose not already served by the existing exam.  That is, I thought the problem with all hitherto existing bar exams is that they do test the sorts of skills that are most relevant to practice. The aim of the new bar, one would think, would be reward the students who have the kind of skills that real attorneys need, and that might require a different kind of intelligence. We should want a difference in outcomes on the new bar. It should reward a different kind of smarts, perhaps to some extent at the expense of those with the more traditional skill set, perhaps just in the interests of broadening our assumptions about the kinds of people who can become lawyers.

My limited experience with the NextGen bar suggests that testing in a new way is challenging.  The NCBE circulated some practice questions, and I tried my hand at the problems. The MBE-type questions seem pretty-much unchanged from earlier iterations of the bar exam. The new "integrated question set" portion of the exam constitutes the real innovation here. Some of the questions required the test-taker to imagine what arguments a party in breach might make to avoid liability. I assume the fact patterns will get better, but in the fact pattern I saw, the party in breach had no strong arguments. They had clearly breached and no excuses or defenses applied, so it was matter of choosing the least bad argument. Counseling the client to settle was not an option. To my surprise, my answers were the "right" answers, I think in the sense that they were the least wrong answers. I'm not sure why testing students' ability to find the least bad arguments is a worthwhile goal. You can have a look at more sample questions here (I haven't worked through these yet).

I am relieved that the multiple-choice style questions on the NextGen bar look a lot of like the old MBE questions. I can't say that I understand the decision to cut back so radically on essay writing. It is hard for me to imagine that the practice of law has now become divorced from the need for strong writing skills to the extent that showing a basic competence to write clearly in extended form is no longer considered a qualification that the bar exam needs to test.

Perhaps the goal of the NCBE is not to change the people who can become lawyers. Perhaps the goal is to change legal education, to the extent that we in the academy are inclined to teach to the the test. Some law professors clearly are not, but we in the Other Legal Academy don't all have that luxury. I admire the aspect of the integrated-question-set portion of the NextGen bar that resists the siloing effects of law school, in which students, at least in the first year, learn subjects in isolation. The practice problem I did was a contracts fact pattern, but the questions also related to civil procedure, agency, and legal ethics. Civil procedure and agency matters come up from time to time in my first-year contracts class, but I don't have the time or expertise to perform deep-dives into that subject matter. I think that's fine. Legal education already does a pretty good job, I think, of overcoming siloing in second- and third-year doctrinal courses, and in the experiential learning curriculum.

When I was an attorney, I focused on writing dispositive motions and appellate briefs. My writing experience made it easy for me to train students to write bar essays. I have since learned how to write multiple-choice exams, but that too is about writing fact patterns that require the students to issue spot and apply legal rules to unique facts.  Like many law professors, I clerked for an appellate judge and I worked for a Big Law firm.

To the extent that I interacted with clients, I was talking with corporate counsel. I didn't have to help them piece together their cause of action. And I never did serious transactional work, so I was never involved in a negotiation or a client intake interview. I can learn how to teach the skills that the NextGen bar tests, but it is not a natural fit for me. If law schools are paying attention to what the NCBE is looking for from our students, it could affect hiring priorities. Most schools focus on hiring people with LL.Ms and Ph.D.'s or J.S.D.s who have won prestigious visiting assistant professorships where they taught a reduced load while focusing on their research. Hiring such people is consistent with having faculty members who will contribute to legal scholarship and to law reform projects. However, at least at law schools like mine, where students are not guaranteed to pass the bar unaided, should we have people who are more practice-focused teaching the bar-related courses?

Although the new bar exam will affect our students, I have a sense that very few law professors have contributed to its composition. Yes, our faculty members responsible for bar preparation are engaged with the process, but for the most part, they seem to be passive spectators begging the NCBE for more information about the new exam so that they can strategize about how to prepare students for it. There have been bewildering releases of information regarding concepts covered and the extent they will be covered. Given its lack of a ground game, the NCBE should not be surprised if law professors either think that the new bar exam is not their concern or react to it with hostility. The NCBE may be indifferent to law professors' response to the exam, but really the professoriate and the NCBE should be coordinating their efforts to help our students succeed.

Conspicuous Banana Consumption

The world has real problems. $6.2 million will not solve them, but it certainly could help some people. But people with an extra $6.2 million are more inclined to buy bananas. Well, one banana. One perfectly ordinary banana purchased earlier in the day for 35 cents and attached to a wall with duct tape.

Image by DALL-E

No, I am not typing word salad. I am just passing on reporting that Jaroslav Lukiv published on BBC News. Sotheby's sold what has been described as "Maurizio Cattelan's provocative artwork of a banana duct-taped to a wall" at auction for $6.2 million. The purchaser is Chinese cryptocurrency entrepreneur Justin Sun, who plans to eat the banana.  The banana exhibit has gained some attention. The banana at the center of the exhibit has been eaten and stolen on occasion. It is then replaced with .  . . another banana.

If this tells us anything about art that we didn't learn from R. Mutt's exhibit over a hundred years ago, I don't know what it is. I have in the past expressed my skepticism about conceptual art on this blog. It is not that I am hostile to the notion that conceptual art can provide profound commentaries on society, jolting us out of our mundane preoccupations and confronting us with the absurdities, the evanescence, the utter vacuity or destructive force, etc. of modern society. I only demand that the conceptual art be interesting and inventive and have some unique point. I think Banksy accomplished that with his  delightfully performative shredded painting, although the point was lost when the shredding only enhanced the value of the painting. The "take the money and run" gambit had the performative virtue of breach of contract as art form. I think less of invisible sculptures accompanied by self-indulgent, self-aggrandizing monologues or vapid videos that are supposed to be atmospheric.

Mr. Sun explains that eating the banana will be a "unique artistic experience." Perhaps. Or perhaps he his experience will be less elevated, more akin to eating a banana. After all, the art is not the banana; it is the banana attached to the wall with duct tape and then exhibited and sold at auction.  Perhaps Mr. Sun's ultimate consumption of the banana is also part of the exhibit. I would be interested in knowing his views on the matter. The point of the art would seem to be more sociological than aesthetic. Perhaps we need Mr. Sun's input to complete our understanding. Or perhaps his function is not addition but only subtraction.

California Court Rules That a Distribution Agreement Cannot Be Constructively Terminated

I realized that I was taking myself far too seriously when I gave a post a ❤️ on Facebook but then later decided that was too much and changed it to a 👍. There, as Flaubert never would have said, L'emoticon jus. 

Similarly, I maintain, California appellate courts have gone too far, deciding that some parts of their opinions are to be "published" and other parts of the same opinion are "unpublished."

You aren't fooling anyone. All parts of the opinion are seamlessly available online, and I will cite them for all they are worth. 🤨

In this particular instance, I won't cite to the unpublished portions because, exercising my discretion as blog editor, I do not deem them blogworthy, or at least not worthy of note on this blog.

In the case at hand, Fiji Water Company, LLC (Fiji) entered into a five-year distribution agreement with Carolina Beverage Corporation (Carolina) in 2009, renewed in 2014. The agreement provided that Fiji could "invade" Carolina's distribution territory, subject to an obligation to pay a "termination fee" of $1/case sold directly. It could also terminate the agreement in its sole discretion, but it would have to pay a "termination fee" of $5/case sold directly over the next year in order to do so. By 2018 Fiji had elected to invade 85% of Carolina's territory and never elected to terminate. Carolina sued, alleging constructive termination.

The case was tried to a jury, and the jury awarded Carolina nearly $2 million in damages on its constructive breach claim. In the published part of its opinion in Carolina Beverage Corp. v. Fiji Water Company, LLC, released in June, 2024, the California Court of Appeal, Second District reversed, finding that there is no such thing as constructive termination of a distribution agreement under California law and that even if there were such a thing, there was no constructive termination here.

At trial, the court instructed the  jury as follows: 

A party can constructively terminate a contract through its conduct. Constructive termination occurs when one party unilaterally modifies the terms of the contractual relationship in a way that substantially interferes with the other party’s ability to obtain the benefits of the contract, and the relationship between the parties ends. Constructive termination does not require express notice that the contract is being terminated.

As there was no basis to find that Fiji has actually terminated the agreement, the only basis for the jury verdict was constructive termination

The Court of Appeal found that verdict to be erroneous for three reasons. First -- and interestingly -- California law only recognizes the doctrine of constructive termination in the context of employment agreements and leases. The Court of Appeal explains courts' willingness to imply a term of constructive termination in those contexts as a matter of public policy. Employees and tenants cannot protect themselves against the wiles of their sophisticated counter parties through contractual means. The terms of their agreements are dictated to them. The same is not true of sophisticated parties such as Carolina, and so there is no need to make the doctrine available to them.

Flag of Fiji, the source of Fiji Water

Second, while sophisticated parties can write a term of constructive breach into their contracts,  the parties did not do so in this case. The Court rejected Carolina's argument that denying it recovery based on constructive termination left it with no remedy. The remedies available to it were a product of the contract it entered into.

Third, even if constructive termination were available, Carolina did not treat this contract as terminated. It continued to perform until the end of the five year term of the renewal of the original contract. "A party cannot claim that a contract has been terminated if the party continues to act like the contract has not been terminated."

The Court also refused to construe Fiji's conduct as a breach of the implied duty of good faith and fair dealing. The Court treated this argument as an attempt to revive its now defunct argument regarding constructive termination. Fiji did not act in bad faith by availing itself of its contractual rights of invasion. The exercise of those rights, clearly granted under the contract, could not be construed as a constructive breach when they were expressly permitted under the parties' agreement.

The Court thus reversed the trial court's denial of Fiji's motion for a judgment notwithstanding the verdict (JNOV). This seems like the right result, but mostly because of the court's third reason for rejecting the constructive termination argument. Absent Carolina's failure to make its claims until the end of the contract period, I don't see why a court could not entertain a constructive termination claim in a new context. Moreover, constructive termination and breach of the duty of good faith and fair dealing are not necessarily the same thing. If the court says constructive termination is not available, would it not consider a good faith and fair dealing objection if Fiji had invaded 99.5% of the Carolina's territory and yet insisted that it was not terminating?

Marc Edelman Discusses College Athletes as Employees on the Taboo Trades Podcast

Kim Krawiec (right), joined by guest hosts UVA Law 3Ls Olivia King and Alyssa Marshall, interviewed Marc Edelman (below left) about his recent publication (with Michael A. McCann and John T. Holden), The Collegiate Employee Athlete in the Illinois Law Review. Professor Krawiec's podcast operates like a live seminar, with well-prepared students, who have read the guest's work, posing well-crafted questions to which the guest responds.

Professor Edelman began the discussion by identifying three movements coalescing in the college athletes' rights movement. The first is the name, image, and likeness movement that is now permitting college athletes to promote products for money. Second, there are various strategies involving antitrust litigation to lift restraints that the NCAA and member schools impose to prevent college athletes from being compensated. Finally, there is the subject matter that Professor Edelman and his co-authors address in their work, which is labor law.

Professor Edelman starts with the simple proposition that college athletes meet the legal definition of employees. That means that they should be entitled to the protections afforded to other workers, including a minimum wage and workman's comp, but also that they should get the benefits of unionization, including collective bargaining.  The students, many of whom were themselves collegiate athletes, seem to have drunk the cool-aid on the employee argument, but they press Professor Edelman on the status of college athletes who are not revenu- generating. 

This podcast episode was a revelation for me. I was prepared to hate it. My posts on the subject of college athletics generally take the position that college athletics are a bizarre accident of history, unique to the United States, which undercuts the already rotting foundations of U.S. support for higher education. Professor Edelman comes at the topic from a different direction. And yet, o my surprise, Professor Edelman and I have very similar views up to a point. If he were writing on a blank slate, he says towards the end of the interview, he would de-couple the development sports leagues from higher education, as they do in other countries. That's my solution.

However, given that the cake has already been baked, Professor Edelman doesn't think we can separate the eggs from the flour. College athletics are already thoroughly commercialized, and students are exploited to benefit the universities. He thinks they ought to be treated as employees and have their right to organize recognized. Let the market for their services dictate the ways in which they are compensated for their labor and for the contributions they make to their colleges and universities. I have to admit that his approach is far more realistic than mine.

That said, while I am under no illusion that we will see college athletics dismantled in the near future, I do think we should nonetheless resist exacerbating the commercialization of college sports as well as the disconnect between the educational purpose of the universities and elite athletics programs. Professor Edelman is most eloquent on the ways in which educational institutions shamefully prioritize revenue from college sports over the overall welfare of college athletes. Universities switch conferences, forcing athletes to travel across the country. Everything is done with football in mind. Those games are at least played on the weekends. Basketball games can be played during the week, not to mention all of the non-revenue sports teams whose massive carbon footprints generate expenses well in excess of revenues. Universities give lip service to their educational missions but forget their purposes entirely when pursuing the broadcast revenues associated with the favored conferences. Based on the experience of friends who teach at the University of Oklahoma, I see no evidence that the immense revenues generated from joining the SEC have not benefitted university faculty and staff not affiliated with athletics.

I think Professor Edelman downplays the possibility for negative externalities associated with the gestalt switch for which he advocates from student-athlete to athlete-employee. I do not share his optimism that making college athletes employees will have a dramatic impact on the economic well-being of the typical college athlete. His focus is on "revenue-generating athletes," and I do not think it will be as easy to determine which athletes are revenue-generating as Professor Edelman assumes.  Very few individual athletes generate net revenue. Although they may play a key role, nobody other than family and close friends come to a college football game to see the offensive linemen or the long snapper. What will it do to team morale if some players are employees and some are students. More likely, the decision would be made on the team level. Treating athletes differently based on what sports they play will change behaviors in myriad ways. Professor Edelman has written elsewhere that Title IX is a red herring, and the subject did not come up in the podcast. I'm pretty sure it would come up from day one if a school has some male employee athletes and no female employee athletes. 

I also think Professor Edelman downplays the benefits that students athletes enjoy. He grudgingly grants tuition as a benefit. One of the students raises the idea that for some sports, college athletics is the only path towards professional sports. Well, when I played in a recreational softball league, I paid for the privilege of playing. My team had no coaching staff, and certainly not a professional-level coaching staff. We had no trainers, nutritionists, fitness experts, physical therapists, or tutors. We did not have a bespoke sports facility to which only we had access, nor was there a stadium or training facility built to meet our needs. The team did not pay for my travel. All these factors should be counted as benefits that students receive in exchange for performance. This is why the math becomes challenging on the question of which athletes are "revenue-generating."

Overall, only a handful of university athletics programs generate income over expenses. Those that do tend to reinvest the surplus into athletics programs. That's why I would unbake the cake as much as possible. The finances of college athletics are already decoupled from those of higher education. There would be a lot of psychic boundaries to overcome, but universities are not dependent on income from sports. Their fuel is tuition and, for some, endowments. The sports programs are financially siloed off. 

A note on terminology: Professor Edelman treats the term "student athlete" as an ideologically tainted neologism created by the NCAA to facilitate its exploitation of students. His preferred term is "collegiate employee-athlete." I have referred to "college athletes" in this post because it makes sense in the context of his scholarship. However, notwithstanding the origins of the term, I think it has lasting value to think of college athletes as "student-athletes." Most college athletes are not revenue-generating athletes. Most of them think of themselves as students first. They enjoy athletics, and it might help pay for school, but they are in school for the education. Students first; athletes second, hence student-athletes. Very few collegiate athletes become professional athletes, and so most athletes, including most in revenue-generating sports, would be better off thinking of themselves as student-athletes. As a result, I do not think it promotes the best interests of student athletes to get them to think of their main purpose as athletics.

Notwithstanding that disagreement on the level of student-athlete consciousness, Professor Edelman has persuaded me that at least some collegiate athletes are entitled to be considered employees and thus are entitled to unionize and to enjoy the benefits of collective bargaining. I regard this as a second-best solution. It is certainly an improvement over the current state of affairs, which benefits mostly adults -- university administrators and coaches -- exploits collegiate athletes, and massively detracts from the purpose of universities.

Fourth Circuit Upholds Summary Judgment in Favor of Zion Williamson

By Erik Drost - Zion Williamson and Brandon Ingram, CC BY 2.0 

Zion Williamson (right) played one season as a student-athlete at Duke before announcing his intention to enter the NBA draft. After his last game at Duke, he entered into a five-year agreement with Prime Sports Marketing LLC., through its president, Gina Ford (collectively Prime). Prime was to act as Mr. Williamson's agent, and the parties worked together for a few weeks. Mr. Williamson's parents then notified Prime that he was terminating the agreement, and he signed a contract with a rival agency with whom he had shared the details of his arrangement with Prime.

Mr. Williamson sought a declaratory judgment that his contract with Prime was unenforceable. Prime counterclaimed alleging a variety of claims against Mr. Williamson. Mr. Williamson pointed out that his contract with Prime was illegal under two provisions of the North Carolina Uniform Athlete Agents Act (the Act). Prime did not dispute the substance of Mr. Williamson's argument. The contract was not in conformity with the Act. However, Prime contended that the Act did not apply because Mr. Williamson was no longer a student-athlete at the time the parties entered into their agreement.

The District Court denied Prime's motion to dismiss and then, after discovery, granted Mr. Williamson's motion for summary judgment. Prime appealed, and on May 6, 2024, the Fourth Circuit affirmed the judgment in Mr. Williamson's favor in Williamson v. Prime Sports Marketing, LLC. 

Much like Judge Friendly's opinion that started with "What is a chicken?", the Fourth Circuit's analysis begins with the question, "Who is a student-athlete?" No North Carolina court had construed it. The Court's task was to figure out how a hypothetical North Carolina court would define the term.  The Act defines the term as follows:

An individual who engages in, is eligible to engage in, or may be eligible to engage in any intercollegiate sport. If an individual is permanently ineligible to participate in a particular intercollegiate sport, the individual is not a student-athlete for the purposes of that sport.

Prime's main argument turned on the second sentence of the definition, but the court, deploying the canon of construction against superfluity, found that the second sentence applies to multiple-sport student-athletes, which Mr. Williamson was not. In discussing this argument, the Court does not explain with respect to what particular intercollegiate sport Mr. Williamson was permanently ineligible. That factual predicate is provided in the Court's discussion of Prime's next argument.

Prime argued that Mr. Williamson's violations of NCAA rules rendered him "permanently ineligible" to engage in intercollegiate sport. Mr. Williamson has violated the NCAA's amateurism rules by accepting money to play basketball. However, the Court found that the NCAA and its member schools exercise discretion. Violations of NCAA rules may render a student permanently ineligible, but they do not do so automatically. The schools and the NCAA have discretion. Prime had a bunch of other arguments but the Court found that none of the prior caselaw on which it relied was applicable to these facts.

Having determined that Mr. Williamson was a student-athlete at the time he signed with prime, the Court found that the contract was void. The District Court correctly granted Mr. Williamson's motion on the pleadings and correctly granted Mr. Williamson summary judgment on Prime's breach of contract, fraud, and misappropriation of trade secret claims. Because the underlying contract between Prime and Mr. Williamson was illegal, he violated no duty by sharing Prime's documents with a rival agency. Finally, Prime's marketing materials were not trade secrets.

The case has an ick factor for me all around. Prime's conduct may have been icky in swooping in on a nineteen-year-old college student, apparently cutting his parents out of negotiations. In the alternative, if the parents were involved, it was icky for them to use Prime as a stalking horse so that another agency could swoop in with the aid of Prime's confidential communications with Mr. Williamson. The complicated interpretive dance that the Court had to go through to determine that Mr. Williamson  was not "permanently ineligible" is also a bit icky. Student athletes are an especially vulnerable population. They have the potential to earn millions of dollars in contractual compensation, but they are too young and inexperienced to know how best to protect their own interests. Agents may have the athletes' interests at heart, but they are also competing to profit off other people's talents.

I'm not sure what the solution is. Here's an idea from someone with very limited knowledge of the industry. Professional sports associations are rolling in money. NBA Commissioner Adam Silver (left) earns an estimated $10 million a year. The average NBA team is valued at $4.4 billion. Surely there is enough money floating around to set up an independent non-profit to advise and even represent college athletes. If there is concern about the leagues capturing the non-profit, have the NBA players' association kick in support and leadership. Set up an independent governing board to insulate the non-profit from influences that might be adverse to those of the young, aspiring athletes. The same model could be adopted in other professional sports associations.

Sometimes the Little Guy Is Just Being a Jerk

Back in 2020, due to a nationwide coin shortage, Chipotle was not providing its customers with change. A normal person would just consider the missing change a tip. Not so Bridget McMahon and James Rice (Plaintiffs). They sued Chipotle Mexican Grill, Inc. (Chipotle) on behalf of a class of people desperately in need of a used copy of Don't Sweat the Small Stuff. 

Plaintiffs alleged conversion, unfair trade practices, breach of contract, and unjust enrichment. They sought an injunction that would compel Chipotle to prestidigitate non-existent coins. The court had already refused to certify a class. Plaintiffs continued to press their claims. I'm so confused. How is it not sanctionable for an attorney to continue to pursue this claim in federal court when the amount in controversy per plaintiff is less than one dollar? And how does a federal court have jurisdiction? There is no federal question, and the amount in controversy certainly does not merit diversity jurisdiction. Any help?*

In McMahon v. Chipotle Mexican Grill, Inc., the District Court for the Western District of Pennsylvania granted Chipotle's motion to dismiss. The opinion begins by recounting how the plaintiff for the purported class enlisted his daughter and her friends to try an "experiment" to see if Chipotle would refuse them change. The first experiment failed, not because Chipotle gave change, but because the would-be named plaintiff paid with a credit card. The second experiment failed because the would-be plaintiff forgot to get a receipt. However, the third experiment worked, and so a misguided class-action was born.

The court first found that a contract arose when Chipotle sold food to Plaintiffs. However, the fact that there was a contract eliminated Plaintiffs' tort claims (misappropriation, conversion) under Pennsylvania's "gist of the action" doctrine, which sounds like a version of the economic loss rule. Plaintiffs' statutory claim for fraudulent, unfair, or deceptive trade practices also failed. They claimed that Chipotle lured them with a certain price and then charged them a higher price. However, as Plaintiffs knew all along that they were not going to get any change, Plaintiffs could not establish that they were deceived. One Plaintiff was informed before she tendered payment that she would not receive change. She proceeded nonetheless. The other was a Chipotle regular who was not deceived by the listed price because he knew what he wanted and never looked at the menu. He too could have remonstrated over the lost change if he cared to, but he said he didn't want to cause a commotion.

Plaintiffs' breach of contract claims also failed. The court, relying on Pennsylvania's version of UCC § 2-209, concluded that one Plaintiff had agreed to a modification of their contract with Chipotle. Chipotle effectively suggested a price increase of forty or fifty cents, and Plaintiff took their food without objection.  The other Plaintiff waived any objection when he chose not to create a commotion, took his burrito, and consumed it. Plaintiffs could not proceed with their unjust enrichment claim, because the court had determined that an express agreement existed.

*My colleague Mike O'Shea provided an answer. "Congress greatly expanded federal subject matter jurisdiction over putative class actions in the Class Action Fairness Act of 2005, 28 U.S.C. 1332(d).  It basically allows federal jurisdiction over any putative class action where there's minimal diversity of citizenship and over $5 million in controversy.  So the federal court's denial of class certification didn't deprive it of subject matter jurisdiction over the action." In further discussion, we arrived at some hypotheses as to why the litigation continued. Plaintiffs attorneys were likely after injunctive relief and likely hoped for some class certification down the road. Chipotle wants to get the entire case dismissed in federal court so that it doesn't have to defend multiple suits in state courts.

Sid DeLong, Hillbilly Equity

HILLBILLY EQUITY: Woollums v Horsely as Mountain Melodrama
Sidney W. DeLong

When I began teaching contracts, I used the Dawson, Harvey, and Henderson Contracts casebook. As do many casebook authors, Dawson chose cases whose entertainment value enhanced their pedagogical effects. The defense of unconscionability was illustrated by Woollums v Horsley, 20 S.W. 781 (Ky. App. 1892), a masterpiece of the melodramatic genre of appellate opinion-writing,

The parties were introduced with a few deft strokes:

In August, 1887, the appellant, John Woollums, was living upon his mountain farm of about 200 acres in Bell County. He was then about 60 years old, uneducated, afflicted with disease disabling him from work, owned no other land, and but very little personal property. He knew but little of what was going on in the business world owing to his situation and circumstances in life. He moved in a small circle.

He moved in a small circle. That’s the line that got me. Woollums is the perfect victim, a lamb waiting for the wolf to appear. On cue, the villain made his moustache-twirling appearance:

Horsely, as portrayed by Snidely Whiplash

At this time the appellee, W.J. Horsley, who was then a man of large and varied experience in business, who was then buying mineral rights in that locality by the thousands of acres, and who was evidently familiar with all that was then going on and near at hand in the way of business and development . . . through his agent entered into a contract with [Woollums], which was signed by [Woollums] only, by which he sold to Horsely all the oils, gases and minerals in his land with customary mining privileges, for $0.40 per acre.

This melodrama was set in Bell County, a sparsely populated corner of eastern Kentucky that borders both Tennessee and North Carolina. It is in the heart of the Eastern Kentucky coal belt, which supplies its only income.

Horsely had designs on Woollums’ only asset, his modest mountain “farm,” whose commercial value lay in its coal deposits. Evidence showed that its mineral rights were worth $15 per acre. Horsely’s agent thus snagged Woollums’ $3,000 farm for $80. He persuaded Woollums to sell by assuring him that the mineral rights would never be exploited during Woollums’ lifetime. As the court put it: “He was lulled in the belief that the Rip Van Winkle sleep of that locality in former days was to continue; and the grossly inadequate price of this purchase can only be accounted for upon the ground that the appellant was misled and acted under gross misapprehension.”

In the Second Act, Woollums finally woke up and refused to convey the land. Horsely sued for specific performance, a remedy that is generally available to enforce contracts for the sale of land. In place of the mortgage foreclosure that figured so prominently in melodramas, Horsely brandished a contract for mineral rights that would have permitted the family farm to be strip-mined out from under its owners. The trial court duly granted the order and Woollums appealed, seeking the protection of Equity.

Although it is a common remedy for refusal to perform a contract for the sale of land, specific performance is an equitable remedy and will not be ordered if it would be unfair to do so. After a review of the circumstances of the transaction, the Kentucky appellate court dismissed the bill on grounds that equity would not enforce such a grossly unfair bargain. The gross inadequacy of the consideration coupled with the gross disparity in knowledge and sophistication of the parties made its decision easy. In essence, the court refused to assist Horsely in his legal depredations of local citizens.

It has long been popular among legal realists to deprecate the unsystematic reasoning of courts of equity, where outcomes are thought to rest on unreviewable and unsystematic judicial idiosyncrasy, “the length of the Chancellor’s foot.” Yet, I found the court’s holistic account to be far more compelling than a contemporary, rule-bound analysis of unconscionability.

Unconscionability is loosely defined in Restatement (Second) of the Law: Contracts § 208 and in the Uniform Commercial Code in § 2-302. Unconscionability is to be determined by the court, not a jury. Under the U.C.C., a court may, upon a finding of unconscionability, refuse to enforce a contract or enforce it without the unconscionable term.

Court of Chancery

A strong common law tradition follows the analysis of Professor Arthur Leff in requiring both procedural and substantive unfairness as prerequisites to a finding of unconscionability. Although the Woollums contract exhibited a sufficient substantive imbalance, it is a close question whether a contemporary judge would find sufficient procedural unconscionability, absent fraud, duress, or abuse of a confidential relationship. Today’s legally-competent adults with terrible judgment are bound by contracts even more one-sided than Woollums’. Equity may have been more protective in the nineteenth century, at least at a local level.

But even though he lost on the order of specific performance, Horsely had not yet lost the case. Unconscionability was a defense only to equitable actions, not to legal claims for damages. Woollums remained liable to Horsely for the lost benefit of the bargain, the difference between the contract price ($80) and the value of the land ($3,000). Horsely would have been entitled to a money judgment against Woollums for that amount.

As an aside, the reader may wonder how Woollums, who had “but very litte personal property,” could have paid a judgment for $2,920? Re-enter the melodramatic villain, this time with a judgment instead of a mortgage to enforce. As an unpaid judgment creditor, Horsely, like a mortgagee, could force an auction of the farm at which he very likely would have been the only bidder. If the Law had taken its course, the one-sided contract would have been enforceable despite its lack of Equity.

But Dawson’s casebook posed the following question after the opinion: “It appears that John Woollums was not much of a traveler, so that any suit against him for damages would probably have to be brought in Kentucky in the county of his residence. Would you advise Horsley to bring such an action?”

I loved this classroom question. In addition to forcing law students to see themselves as attorneys for the unpopular litigant – stretching their legal imaginations – a complete answer to this question introduces them into the ways that the world of legal practice can sometimes provide a route to justice that the world of legal theory cannot. Even though the Chancellor had exhausted his institutional power to protect Woollums from Horsely’s over-reaching, the jury system offered one last line of defense. Woollums’s circle of friends may have been small but, in the land of moonshine and jury nullification, his friends and neighbors could give him more protection from Horsely than Equity could.

As the curtain drops and the credits roll, the farm is saved, the villain is foiled by Hillbilly Equity, and the circle, though small, is unbroken. That at least is how I would have written the ending. Cue the banjo.

Fifth Circuit Saves IBM $1.6 Billion by Finding that "Displace" and "Discontinue" Mean the Same Thing

This case made me really angry when I read it. It was a pure, unadulterated, apolitical anger. I don't have a stake of any kind in the outcome of this case. As between two commercial parties, I don't care who wins. The case makes me angry because the Fifth Circuit's manages to be incompetent, arrogant, and disrespectful of the trial court's work. I shared my pointed opinions with colleagues, and they disagreed with me, as law professors are wont to do. I will refrain from investigating whether their portfolios include IBM stock. They may be right. Perhaps I am incompetent, arrogant and disrespectful of the hard work of the appellate court. Here I stand. I cannot do otherwise. Actually, I could, but haters gonna hate, and so must I. I should heed Timothy Steele and his Sapphics Against Anger, but I also find truth in his wise (unpublished so far as I know) observation, "We none of us can help our natures." 

BMC Software, Inc. (BMC) licenses software for use in running, managing, and securing mainframe computers. Although BMC and the International Business Machines Company (IBM) compete, the parties entered into the Outsourcing Attachments in 2008, which were renewed in 2013 and again in 2015 (the OA). 

The OA allowed IBM "to use, access, install, and have operational responsibility of the BMC Customer Licenses" for the purposes of supporting BMC customers that own licenses to use BMC software. The language at the heart of the case comes in the OA's § 5.4, which relates to IBM's right to "displace" or "discontinue" use of the BMC licenses. "[W]hile [IBM] cannot displace any BMC Customer Licenses with [IBM] products, [IBM] may discontinue use of BMC Customer Licenses for other valid business reasons."

Beginning in 2013, IBM and AT&T began cooperating on a project designed to replace BMC software on AT&T's mainframes with a new product. When BMC learned of this plan, it sued IBM. Some of its claims were dismissed, but the District Court awarded BMC nearly $800 million on a breach of contract claim, finding that the OA in § 5.4 precluded "access and use of [IBM] licenses to displace BMC products." The trial court then doubled the damages to $1.6 billion because it found that IBM had fraudulently induced BMC to renew the OA in 2015 at a time when it was already plotting to violate its terms.

In April, in BMC Software Inc. v. International Business Machines Corporation, a Fifth Circuit panel unanimously reversed. Two factors seem to have influenced the Fifth Circuit's decision to reverse. First, the Fifth Circuit found it significant that AT&T reached out to IBM to switch software providers, bringing it within the ambit of the "other valid business reasons" exception to the prohibition on discontinuing use of BMC's products. Second, IBM argued and the Fifth Circuit agreed that the OA gave IBM access to BMC's software only for the purposes of serving BMC's customers. But here, the Fifth Circuit emphasized, AT&T no longer wanted to be a customer. Surely, the license could not be read to preclude a customer from choosing to switch providers. And there's the heart of the matter. It does not preclude AT&T from switching providers; it precludes AT&T from switching to IBM. These are big boys, and that is what they agreed to.

In support of its position, the Fifth Circuit offers three arguments. First, it is not enough, says the Fifth Circuit that "discontinue" and "displace" mean different things according to the dictionary. I certainly agree that, standing alone, dictionaries provide only a toehold for a ruling. However, reading the provision in context, I think the District Court was right to read the provision as distinguishing in a meaningful way between ending the relationship and leveraging the relations to gain a commercial advantage at the expense of its contractual counterparty.  The agreement limited IBM's ability to terminate the agreement.  It needed to identify its "valid business reasons" for doing so. But under no circumstances could it displace BMC's software with its own.  And yet, that is what it did. A keen-eyed colleague pointed out that § 5.4 allows IBM to discontinue the licenses. Literally, all that means is that IBM could choose to stop getting access to BMC software for free. That drafting may be intentional, but I think the courts likely were right to assume that discontinuing the licenses would also entail discontinuing the OA relationship.

Next.

Second, the Fifth Circuit maintains that the District Court's reading renders the language "other valid business reasons" superfluous. No, it doesn't. For some reason, the Fifth Circuit cannot imagine that the parties agreed that IBM could not displace BMC's software with its own software for any reason but it could discontinue its access to the BMC licenses for other valid business reasons. In other words, the language in question relates to discontinuance, not to displacement, and it is not rendered superfluous on the District Court's reading. The language places a small limitation on IBM's right to terminate the agreement, but IBM still has no right to replace BMC's software with its own.

The Fifth Circuit claims that IBM replacing BMC software with is own, at AT&T's request, is just IBM complying with the OA, which obligates it to "assist BMC’s customers with their broad range of needs and requests." Talk about rendering contractual language superfluous! Section 5.4 is an obvious limitation on IBM's powers under the agreement. IBM cannot "assist" BMC's clients by helping them to switch over to becoming IBM's clients. Even without § 5.4, doing so would constitute a breach of the duty of good faith and fair dealing.

That last part makes me Lewis Black level angry (he voices the Anger character in Pixar's Inside Out franchise, but I couldn't post an image of the character, for IP reasons).

Next.

The Fifth Circuit then contends that the District Court's "cramped" reading of § 5.4 would lead to two absurd results. First, "it would allow IBM to replace BMC’s software with any other competing software at AT&T’s request, so long as the competing software is not that of IBM." Well, that's not absurd at all. IBM gained competitive advantages through the OA with respect to BMC's software and the needs of its clients. It is understandable that BMC would want contractual protections against IBM, a competitor, leveraging those advantages to squeeze out BMC. There is no reason to think IBM would be motivated to do so in order to assist another competitor. The other absurdity is that a customer would have to terminate IBM as its IT outsources if it decided to switch software providers, but only if it chose to replace BMC with IBM. That is not absurd for the reasons given above.

Moreover, AT&T and IBM began negotiating their arrangement in 2013. IBM could have just terminated its agreement with BMC then, and then by the time IBM and AT&T renewed their collaboration in 2015, IBM would have been free from its obligations under the OA. It chose not to do so, and so it was still bound not to displace BMC software with its own. The Fifth Circuit finds such an agreement commercially unreasonable, but I find its position far more so. Why would BMC agree to give a competitor access to its proprietary software without some contractual guarantee that the competitor would use that access to compete?

Next.

Finally, the least absurd part of the Fifth Circuit's analysis is that, read as the District Court proposes, § 5.4 is anti-competitive, because it prevents AT&T from switching software providers from BMC to IBM at a time when AT&T had decided to move away from BMC in any case. The weakness in this argument is that it assumes facts not in evidence. Namely, it assumes that AT&T would have dropped BMC even if IBM were not available and even if IBM had not been able to establish a relationship with AT&T through its role facilitated by the OA.

The Fifth Circuit lays great weight on the District Court's factual finding that  “AT&T independently decided to displace BMC software,” and therefore, “AT&T’s decisions and conduct—not IBM’s—are most consequentially tied to BMC’s lost profits from AT&T.” But these quotations taken out of context do not square with the District Court's more-detailed description of how the transition took place. It was a collaborative project between AT&T and IBM, first named Project Swallowtail and then named Project Cirrus. For years, IBM was engaged in developing software that would displace BMC's software in violation of § 5.4, and  it even renewed the OA after it began plotting to violate it. 

There may be other doctrines at play here. Perhaps the agreement between BMC and IBM is anti-competitive and thus violates antitrust laws, as one colleague suggested. I lack the expertise to judge that one. All I know is that the Fifth Circuit's reasoning is unpersuasive, to me at least, as a matter of contracts interpretation. 

Friday Frivolity: Liquid Death News

We reported earlier this year on a promise by a beverage company, Liquid Death, to give away a jet in an advertising campaign piggy-backing off Leonard v. Pepsico. We then reported that there had been no announcement of the winner on September 20th, the date the company had designated as the date for the announcement. Today, we have two new bits of Liquid Death news.

First, Liquid Death has now announced the winner of the jet contest. Thanks to commenter Sasha for letting us know. The details are pretty thin. The winner is "Zac from North Carolina." It seems that he has opted to take the jet, the six months of free hangar space, and the year's supply of Liquid Death. It's a bit disappointing. Having one-upped PepsiCo., I was expecting a splashy event, with the winner, the jet, and -- I don't know -- colorful, loud displays that would appeal to Liquid Death's demographic. "Zac" seems to have a smaller appetite for publicity than he does for liquid refreshment. The company also boasts that it received over 30,000 entries. That actually seems like a pretty low response to me. The plane was worth something like $250,000. I would think the company was hoping to generate more than 30,000 sales through the contest, but perhaps I am thinking about this wrong. Maybe the point was the free advertising that the campaign generated.

Liquid Death has announced a new potential giveaway. This time you have to jump through some hoops. First you have to drink iced tea. Second you have to "chug" it. Third, you have to do so in less than eighteen seconds. Why eighteen? I am not enticed, but it does make it a better example of an offer to enter into a unilateral contract.

I would be worried that I have become a conduit for free advertising for this company, but I'm pretty confident that the overlap between readership of this blog and the intended targets of Liquid Death's promotions is the null set. But it is cute that the company featured some people my age or older chugging iced tea. My students are rooting for "the granny."

Amazon Workers Seeking to Organize in Coventry, UK

Richard Partington, reporting in The Guardian brings us news that 3000 workers at Amazon's warehouse in Coventry held a vote in early July on forming a union.  If successful, it will be the first Amazon union in the UK.  Conflicts between workers and management have been simmering for some time.  There were strikes in 2022 and 2023, with workers demanding pay of £15 an hour.  Workers currently start at somewhere between £12.30 and 13 an hour.

The new Labour government has pledged to improve work conditions, so it may be interesting to see if government action can move the parties to the bargaining table and forestall a strike. 

Nimo Omer, in conversation with Heather Stewart, provides more details in The Guardian's Tuesday briefing from July 9th.  In addition to seeking higher pay, workers would also prefer not to work in a panopticon environment (left) with a high injury rate.  Their reporting highlights the huge boost in Amazon's profits since the COVID pandemic, as well as the shocking net worth of Amazon's CEO.  According to Forbes, his net worth has increased by $44 billion so far this year.  Just to put things in perspective, by my calculations, Mr. Bezos could personally afford to give each Amazon worker worldwide a 15,000 bonus, and he'd still be up over $20 billion for the year.  And then the company might not have to spend $14 million on union-busting consultants.

It occurs to me that Elon Musk payed $44 billion for Twitter. Presumably, with his $44 billion increase in wealth, Jeff Bezos could take Twitter off Musk's hands. The company is now valued at less than $10 billion. The acquisition would be a good synergy with Bezos's ownership of the Washington Post, and then he could make it so that nobody could endorse a Presidential candidate either in the press or on social media. Also, we could just go back to calling the site Twitter.

Eshe Nelson, writing in The New York Times reported back on July 17th that the organization efforts in Coventry failed. Only 49.5% of the workers voted to unionize.

Breaking Terms of Service News: Musk Chooses Northern District of Texas as His Venue

According to Jon Brodkin, writing for Ars Technica, new terms of service for Twitter (a/k/a X) will take effect on November 15th. If you want to bring an action relating to the terms of service, you will have to do so in the Northern District of Texas, home to Judge Reed O'Connor (left), who has disclosed that he owns between $15,001 and 50,000 in Tesla stock. Judge O'Connor is currently presiding over a case brought by Twitter (X Corp.) and has refused to recuse himself. While Twitter did recently move its headquarters from San Francisco to Texas, those headquarters are not within the Northern District of Texas. Twitter likes having a jurisdictional mistress on the side while sticking with the wife, forty miles outside of Austin, the San Francisco of Texas.

Here is the relevant language of the revised Terms of Service:

All disputes related to these Terms or the Services, including without limitation disputes related to or arising from other users’ and third parties’ use of the Services and any Content made available by other users and third parties on the Services, will be brought exclusively in the U.S. District Court for the Northern District of Texas or state courts located in Tarrant County, Texas, United States, and you consent to personal jurisdiction in those forums and waive any objection as to inconvenient forum. Without prejudice to the foregoing, you agree that, in its sole discretion, X may bring any claim, cause of action, or dispute we have against you in any competent court in the country in which you reside that has jurisdiction and venue over the claim. To the extent permitted by law, you also waive the right to participate as a plaintiff or class member in any purported class action, collective action or representative action proceeding. 

The Ars Technica report duly notes that courts will likely enforce the choice of forum, especially if users of Twitter are given notice of the new terms and have to click something to make that notice disappear from their screens. That will surely happen.

But I do wonder if there might not be an unconscionability problem. The choice-of-forum clause is decidedly one-sided. Users can only sue Twitter in the Northern District or in state courts in Tarrant County, Texas, but Twitter can sue users anywhere in the world. Blog Founder Frank Snyder points out that the one-sidedness makes sense here. Twitter may not be able to sue in Texas because the Texas courts might not have in personam jurisdictions of the defendants.

There is also a class-action waiver "to the extent permitted by law." We know that SCOTUS has upheld such class-action waivers in the context of arbitration clauses, even if there is contrary state law. But that is a product of the Federal Arbitration Act and the Supremacy Clause, which give priority to federal statutory law over state law to the extent of any contradiction. 

It may be that Texas law throws up no impediments to class-action waivers, in which case this will not be an issue. Moreover, Twitter has wisely limited its class action waiver "to the extent permitted by law." Presumably, a court troubled by the waiver would simply sever it but enforce the rest of the choice of forum provision.

Homeowners Insurance and the Case for Regulation

First, a confession. Four years into my residency in Oklahoma, I have never been to Enid, OK, which is just ninety miles from my home in Oklahoma City. For a small Oklahoma town, it has many claims to fame and attractions.  However, as Christopher Flavelle reports in The New York Times, Enid also boasts the highest rates for home insurance in the country. That seems odd, as Enid is not prone to all-consuming forest fires. Hurricanes do not threaten Oklahoma shores, in part because we are landlocked (at least so far), and for the same reason, houses tend not to collapse into the sea here.  Now that the fracking boomlet has abated, Oklahoma is not threatened by earthquakes either.

I think Enid has a branding problem. For example if you check out the town's Wikipedia page, you will find the image at right, depicting a tornado that hit Enid in 1966. The image became the cover photo for the National Weather Service's handbooks on tornadoes and severe weather. To make matters worse, being a public domain photo and therefore free, the image made its way into textbooks. So, for most people who, like me, have never been to Enid, you hear "Enid, Oklahoma," and you think "Yeah, I've heard of that place. I associate it with tornadoes."

Scroll down the Wikipedia entry on Enid a bit and you get the image at left of FEMA Director Joe M. Allbaugh talking with a disaster victim at the Red Cross Shelter in Enid during a tour of damage areas in Oklahoma.

Oh, come on!  It's as if the Enid Tourism Board got together and said, "Hey people, Enid is not just a city threatened by killer tornadoes. We have ice storms too!"  

By the way, Enid also holds the record for urban rainfall. During the Enid flood of 1973, it received 15.68" of rain, causing people to cut holes in their roofs to escape. Nine people died. 

But honestly, since 2002, the weather has been great in Enid.  Well, there was a tornado in 2009, but it only did property damage.  Hardly worth mentioning.

The New York Times thinks the problems go beyond marketing. Rather, home insurance rates are higher where the industry sets rates relatively free from regulation:

Higher premiums are being charged in states where regulators apply less scrutiny to requests for rate increases, compared with states where officials question the justifications offered by companies and try to keep rates low.

While weather conditions certainly explain some disparities in home insurance rates, there is often a misalignment between risk and insurance costs. So, for example, the typical homeowner in McCurtain County, OK paid $2,837 for insurance, but if they were to move across state lines to Arkansas, they would pay only $1,673. The risk to property from weather seems to be the same in both locations, and the Times provides no reason to think that property values are significantly higher in Oklahoma than they are just over the state line in Arkansas. While people on average pay $500 in insurance for every $100,000 in real estate value (or 0.5%), in some states insurance rates can be as low as 0.05% or as high as 2%.  In Enid, it is 3.5%. These rates seem to have nothing to do with risk factors, as Californians pay very low home insurance rates despite the high risk of forest fires, torrential rains, earthquakes, and Lex Luthor.

Regulation, of course, is not the only factor that explains these disparities. The Times reporters do a fabulous job explaining the factors that go into the different rates homeowners pay for insurance.  It's worth a read.

Massachusetts Court Upholds Liquidated Damages in Commercial Lease

On April 15, 2016, Cummings Properties, LLC (Cummings) entered into a five-year lease with a company controlled by Daryl Hines (Hines).  The lease provided that should Mr. Hines's company miss a payment, after a ten-day grace period and notice to Mr. Hines, Cummings was permitted to collect, as liquidated damages, the entirety of the remaining rent due on the five-year lease. Mr. Hines also provided a personal guarantee.

The worst imaginable scenario played out.  Mr. Hines' business lost a crucial contract and failed to pay rent one month into its five-year lease. One year later, Cummings found a new lessee for a four-year term. It nonetheless sought to collect the full amount of its liquidated damages.  A trial court awarded Cummings $68,650 in damages.  An intermediate appellate court reversed, finding that, because the liquidated damages provision failed to account for the possibility that Cummings would find a new tenant, it operated as an unenforceable penalty.

In Cummings Properties, LLC v. Hines, Massachusetts' Supreme Judicial Court reversed, reinstating the $68,650 judgment. The substance of the opinion begins, reasonably enough, with freedom of contract.  The parties agreed to a liquidated damages provision, so they should be bound by it.  However, if the court determines that the provision is actually a penalty, well then, not so much.  Courts can evaluate the nature of the clause using the "single-look approach," which focuses on the state of play at the time of contracting or the "second-look approach," considering matters at the time of breach.  Massachusetts opts for the former, as the second seems to the court an invitation to opportunistic litigation.

Applying its single-look approach, the court asks whether damages would be difficult to ascertain ex ante and whether the amount of liquidated damages was a reasonable estimate of actual damages.  Hines failed the first prong because he failed to present any evidence in support of his argument that it was entirely foreseeable that Cummings, a high-volume commercial landlord, would find a new tenant.  As to the second prong, Massachusetts has long allowed such liquidated damages provisions in lease agreements.  Hines alleged a lack of sophistication, but the trial court found him to be sufficiently sophisticated to understand the liquidated damages provision, and the Supreme Court deferred to that determination.

I see no reason to enforce a liquidated damages provision in these circumstances.  It either encourages landlords to leave their premises empty to no good purpose, taking real estate off the market and increasing prices for tenants generally, or it provides them with a windfall.  The clause seems on its face a penalty, designed to discourage breach. The landlord gets paid the full lease amount, in advance and without any adjustment for the expenses associated with maintaining the property.  The clause gives the landlord every incentive to encourage its tenants to breach, especially when the market is tight and the landlord is confident that they can find a new tenant.  They can then collect rents from the new tenant and try their luck going after the former tenant.  The duty to mitigate is there for a reason, and I see no reason for a special judicial carve-out designed to protect what, in almost every imaginable case, would be the dominant party.

Given the framing of the issue as a matter of freedom of contract and its limitations, it would be an interesting project to apply Rebecca Stone's and Hanoch Dagan's theories of freedom of contract to the problem of liquidated damages.