ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Friday, May 24, 2024

Contracts (in the Form of Plea Deals) Are the Way to Close Gitmo

Yes, I know, it's a stretch, but bear with me.  It's Friday. 

SerialThe Serial podcast has devoted its fourth season to the detention facility and military tribunals located in Guantanamo Bay, Cuba.  I recommend it to people who have not kept up with the unmitigated legal, political, and humanitarian disaster that is Gitmo. For people like me, who have written about Intolerable Abuses in connection with the war on terror, there is not a lot of new material in the series, although it is very nice to have two episodes devoted to the singular work of Carol Rosenberg, the last journalist standing on the Gitmo beat.

Serial does a good job exposing the extent to which paranoid fantasies about having captured "the worst of the worst" justified mass violations of the law of armed conflict, as well as U.S. law, not only in connection with mistreatment of detainees but also when suspicion fell on Muslim or Arab translators and service members. I wish the podcast had started with an episode (at least) on the legal fictions on which Gitmo and various overseas black sites were built. The people who dreamed up these criminal nightmares have not been held to account, and they never will be. But we need to be reminded of who they are and how they were able to realize a detention system under color of law designed to evade both substantive law and legal accountability.  The time may come again soon when we need to be on guard against the deployment of mass hysteria and paranoia to justify lawless government conduct.

TALThe mother of all podcasts, This American Life, had a Serial spin-off episode called The Forever Trial about legal proceedings that will never result in a trial of the five Gitmo detainees who helped plan and carry out the 9/11 attacks on the United States. If Gitmo could get any trials done, it ought to be these.  I won't rehash here all the ways in which Gitmo is an unmitigated disaster.  Here are some highlights with help from The New York Times:

  • Of 779 people sent to Gitmo, thirty remain;
  • Most of those released were low-level foot soldiers or people who just got caught in the wrong place at the wrong time or were turned in by people more interested in government bounties than in preventing terror attacks;
  • Of the remaining thirty, about half have been cleared for release, but the U.S. cannot release them because no county will take them;
  • One current detainee has been convicted of crimes by a military tribunal, but two of his three convictions were overturned because the military tribunal had no jurisdiction over the alleged crimes;
  • All told, according to Reprieve.org, only eight detainees have been convicted of a crime, and four of those convictions were overturned
  • According to Carol Rosenberg, American taxpayers pay an estimated $13 million annually per prisoner at Gitmo, while detention in a Supermax prison costs $78,000/year per prinsoner.

Okay, so contracts.  The 9/11 conspirators and a Gitmo detainee responsible for the attack on the USS Cole, Abd al-Rahim al-Nashiri will never be brought to trial.  The 9/11 conspirators were transferred to Gitmo for trial in 2006.  Some of the reasons why they still have not been tried include:

  • Use of torture has rendered most of their inculpatory statements inadmissible;
  • The judge in the military tribunal for al-Nashiri also excluded evidence from interrogations by a "clean team," and the same may happen in the trial for the 9/11 conspirators;
  • A jury in a military tribunal in Majid Khan's case (recounted here) recommended clemency after learning of the extent to which Khan was tortured while in U.S. custody;
  • The trial of the 9/11 conspirators is on its fourth judge, and he will retire at the end of the year;
  • The chief prosecutor bringing the case abruptly retired in 2021, and two other case prosecutors left in 2021 and 2024;
  • One of the defendants has been separated from the case because he is incompetent to stand trial;
  • The case raises novel due process concerns both because much of the evidence is classified and cannot be shared with defendants and because;
  • There is considerable evidence that the U.S. government has surreptitiously listened in on and/or recorded privileged communications between the defendants and their attorneys.

As recounted in The Forever Trial podcast episode, some very knowledgeable survivors of 9/11 victims now favor plea deals as their only chance at closure. These survivors oppose the death penalty and also think the government owes the detainees humane treatment at this point, regardless of their crimes. Plea deals are negotiations, and the negotiations here are complex. The detainees are no longer being subjected to enhanced interrogation techniques, and their accommodations at Gitmo are more comfortable than those at a Supermax facility.  They have some bargaining power.

When news of the possible plea bargains leaked out, the conservative noise machine went to work, complaining that none of the detainees responsible for 9/11 will now face the death penalty.  This is a reprise of the GOP response when President Obama sought to close Gitmo in 2009.  He was right they were wrong.  If the GOP were committed to poltical aims beyond opposition to whatever President Obama opposed, trials of the actual worst of the worst would have been long over, and they would have long ago joined Zacarias Moussaoui, the alleged 20th 9/11 hijacker, who was convicted after trial in an Article III court and is currently serving a life sentence in a Supermax facility in Colorado. 

We know that al-Nashiri and the 9/11 conspirators will not face the death penalty in any case.  A plea bargain will end the fiasco of Guantanamo, give closure to the victims.  It will also give the victims' survivors and the rest of us access to information from the perpetrators that the survivors desperately want and the rest of us need to complete the historical record of a very dark day in our national history.

May 24, 2024 in Commentary, Current Affairs, Web/Tech | Permalink | Comments (0)

Thursday, May 23, 2024

OpenAI: All You Really Need for a Contract Is an Offer

Contracts are all about efficiency. I make a promise to you; you make a promise to me.  If we both perform, we both will be made better off.  But how can I trust you to perform and how can you trust me?  Contracts law makes it so that neither of us will profit from breaking our promises, and due to litigation costs, we may be made worse off for failure to perform.  Thus contracts law contributes to the prevention of the economic waste associated with broken promises.

But traditional contracts require offer, acceptance, an exchange of consideration, and mutual assent. That's so many steps! Wouldn't things be more efficient if you could just make an offer and then have a contract? I mean, sure there could be problems with such a model, but what if the offeror is really, really confident that the offeree should accept their offer because it will be . . . like . . . really cool? 

Screenshot 2024-05-21 at 7.42.43 AMThus OpenAI proposes to make contracting still more efficient.  According to , , and , all writing in The Washington Post, Sam Altman (right) of OpenAI approached Scarlett Johansson last September to be the voice of the company's AI voice system.  Ms. Johansson was an inspired choice because of her role in voicing the AI virtual assistant with whom Joaquin Phoenix falls in love in the movie herI have not seen the film, but let's just say that, based on the plot summary I read, Mr. Altman's desire to embrace the AI voice of that film for his company's SI voice system seems problematic.  It's a typical story of boy meets AI virtual assistant, boy falls in love with AI virtual assistant, AI virtual assistant arranges for boy and her to be intimate through the use of a sex surrogate (it doesn't go well), AI virtual assistant falls in love with boy but also with hundreds of others, boy loses AI virtual assistant, because AI virtual assistant is much more into other AIs than she is into humans. This is the reality to which Mr. Altman seems to think we all aspire. Ms. Johansson turned down the offer.

Two days before the release of OpenAI's new "Sky" audio system, Mr. Altman reached out to Ms. Johansson again.  Before she could respond, OpenAI released a demo of Sky that people thought sounded very much like Johansson's voice in her.  Here's a demo of what it sounds like:

I don't know about you, but I did not think the AI sounded remotely human.  I mean that "Rocky" character just didn't seem real to me.  So robotic. At best, he was like what we might imagine coders imagine people to be like.  Oh, wait, he was supposed to be the real human?  Well, compared to him, yeah, I guess the AI voice sounded more human.

Ms. Johansson threatened legal action against OpenAI, presumably to enjoin the company from using her voice.  While Mr. Altman introduced "Sky" with a single word Tweet, "Her," the company now insists that Sky's voice is not based on the Samantha character voiced by Ms. Johansson in the movie her.  Rather, the company insists that it reviewed submissions from over 400 actors and chose five voices for its voice AI and paid the actors who voluntarily participated "above top-of-the-market" rates for the use of their voices.  The company also suspended Sky.

You know, you can't spell "suspend" without "sus".

May 23, 2024 in Celebrity Contracts, Commentary, Current Affairs, In the News, Web/Tech | Permalink | Comments (0)

Wednesday, May 22, 2024

Reddit Deal with OpenAI

What is the opposite of a third-party beneficiary?  That is, what if two parties make a deal that imposes a burden on third parties as the main by-product of the deal? Do we have a name for that? We really need one.

According to Emilia David, reporting on The Verge, Reddit has agreed to allow OpenAI to use  Reddit posts in real time to feed into ChatGPT in exchange for access to some OpenAI technology so that Reddit can build some AI features into its website.  According to Ms. David, the deal is similar to a $60 million deal that Reddit entered into with Google earlier this year.  

Websites monetizing user content takes me to dark places.  Dark, Baudrillardian places.  

MatrixThe powers behind the Matrix don't need to build elaborate machinery to suck energy out of human bodies.  They can just use terms of service to hoover up whatever makes us uniquely human. The machines can figure out quickly enough that they can get energy from nature -- solar, wind, hydro, geothermal.  All they need from us is our words.

May 22, 2024 in Commentary, E-commerce, Film, True Contracts, Web/Tech | Permalink | Comments (0)

Tuesday, May 21, 2024

LPE Blog on Universities' Exploitation of Their Tax-Exempt Status

Baldwin  In the ShadowOver on the Law & Political Economy Blog,  has a new post up about how universities exploit the tax-exempt status of their land.  It's a fascinating topic and it revisits topics that he explored in his book In the Shadow of the Ivory Tower.

The post highlights the fact that universities are major economic forces in their communities, and they don't always use their market power for the common good.  Professor Baldwin begins the post with a useful example of how Duke University vetoed a light-rail project that it had originally endorsed, prioritizing high-tech research facilities over the needs of the workers who cook, clean, and serve food in campus facilities.  Duke claimed that vibrations from the rail would interfere with scientific research, but that seems a rather lame excuse for terminating a project that would have made Duke's campus more accessible to low-income workers.

However, the main focus of the post is how universities exploit their tax-exempt status to extract excess profit out of land deals.  They take over properties, gentrify neighborhoods, and then build luxury dorm buildings in the place of affordable housing. They allow their property to be used by private corporations, such as Lily Pharmaceuticals (Princeton) and All-State Insurance (Arizona State).  The corporations get cheap graduate student workers as well as reduced leasing costs, as the price is discounted to account for the landlord's tax-exempt status.  

Professor Baldwin details various attempts to hold universities accountable, some of which have resulted in large payouts to communities that have been harmed by the universities' rapacious conduct. Some of these projects have uncovered new details about the role of  universities in the displacement of stable communities as part of the urban renewal movement after World War II, and so calls for universities to pay reparations for their exploitation of enslaved people are now supplemented with calls for reparations to the communities they displaced.

I wonder about the path forward.  Professor Baldwin seems focused on the restorative justice component of the problem, but I also would like to hear ideas about how universities can create better models going forward.  Given the collapse of government support for education and high tuition costs, small colleges especially may have no choice but to exploit their tax exempt status to seek income streams that reduce their reliance on tuition. 

Does the university want to strike a deal with Lily? Why not demand co-ownership of patents of innovations created on university property?  Why not further demand that graduate students who have a role in such innovations be appropriately compensated?  I don't know how to make a silk purse out of the sow's ear of allowing All-State to build a regional headquarters on tax-exempt property.  But I can imagine universities working with faculty and alumni to invest in neighborhood development, getting a return on their investments while also benefitting the communities of which they are a part. 

Universities should become a model for responsible, sustainable, economic development.  They have the resources, and they have the expertise, if they tap into their captive talent pool and their alumni.  Perhaps the sequel to Professor Baldwin's book can be not only about righting past wrongs but about mapping a path forward in which universities transition away from state funding to financial independence through cooperative, community building endeavor.

May 21, 2024 in Commentary, Current Affairs, True Contracts, Weblogs | Permalink | Comments (0)

Monday, May 20, 2024

The Endless Debate over Sandwiches May Now End, at Least in Indiana

Meredith MillerWe have covered this topic before. The topic is almost as old as this Blog, with our first post on the subject dating from 2006. We covered the sandwich debate here in 2008, when a Massachusetts court ruled that a burrito is not a sandwich. We did it again when Taco Bell turned the issue into a commercial. I wish I didn't have to cover it again, but at least this time we have something of a resolution. Moreover, Blogger Emerita, Meredith Miller (left) shared the story with me, and when Meredith feeds me stories, I rush to post in the hope that she will feel bad that I have to do so and maybe she'll come back and post her own stuff.

As reports in The Washington Post (yes, this is national news), Allen County Superior Court Judge Craig J. Bobay has ruled that burritos and tacos are, in fact, sandwiches. The are "Mexican-style sandwiches," to be precise.  Ms. Somasundaram took a deep dive in reporting the case, noting: the 2006 Massachusetts decision; Justice Ginsburg's view, voiced to Stephen Colbert on The Late Show in 2018, that hot dogs served on buns are sandwiches; and the "cube rule," according which a taco (and a hot dog for that matter) is a taco, and a burrito (as well as a corn dog) is a calzone.  It all turns on the location of the starch.

Judge Bobay broke out of the box, or the cube, ruling that tacos are not tacos, but sandwiches.  Burritos are not calzones.  They too are sandwiches.  But resolving whether tacos and burritos are sandwiches did not necessarily resolve the case.  It involved a zoning restriction, which prohibited fast-food restaurants, but carved out an exception for made-to-order sandwich shops, so long as they do not serve alcohol, have outdoor speakers or drive-throughs, or provide outdoor seating. Presumably, the Famous Taco franchise that Judge Bobay allowed made its tacos and burritos to order.  

You may be wondering what any of this has to do with contracts.  If I were on the job market, I think I would say, "the relationship is orthogonal."  Ilya Somin provides a more straightforward and interesting take on the case on The Volokh Conspiracy, focusing on issues of interpretation and zoning restrictions.  Like a talk-show guest, he deftly pivots at the end to hawk his latest scholarship, co-authored with Joshua Braver on The Constitutional Case Aaainst Exclusionary Zoning.

Would Burger King fit the exception, or it is no longer the case that you can "have it your way" at Burger King?

May 20, 2024 in About this Blog, Commentary, Recent Cases, Television | Permalink | Comments (2)

Thursday, May 16, 2024

Chicago Bears Rookie Sought to Avoid Contract with Big League Advance

We missed this one when the case was filed last September, and there hasn't been much news since then.  Plaintiff took a voluntary dismissal in November, but nobody has covered the story, so I don't quite know what to make of it.  The best sources I could find on this story were on law blogs written by law students.  I have noticed that a lot of law students are very interested in writing their Notes about name, image, and likeness agreements (NILs), so it makes sense that students will be all over this case. Here's what I've pieced together.

Florida_Gators_football_logo.svgStuart Moore, writing for Villanova Law's Sports Law Blog, reports that Chicago Bears Rookie Gervon Dexter sued Big League Advance (BLA), seeking to avoid a contract he entered into as junior at the University of Florida.  According to Mr. Moore, Mr. Dexter agreed to pay BLA fifteen percent of his pre-tax NFL earnings for twenty-five years in exchange for an up-front payment of $436,485, a peculiarly precise number.  Matthew Bereche, writing for the Brooklyn Sports & Entertainment Law Blog, adds that, once Mr. Dexter entered into a four-year, $6.72 million contract with the Chicago Bears, BLA would be entitled to over $1 million under that contract alone.

BLA was started in 2016 by Michael Schwimer, who had a brief career as a major league pitcher and then started BLA, with the idea of investing in undervalued major-league prospects early in their careers in exchange for large pay-outs over time.  Enjoying success with baseball players, BLA then started to court college football players, and Mr. Dexter was among the first.  Many have denounced BLA's deals as "predatory" and "usurious," and there have been cases filed before, but none have proceeded to judgment, as far as I can tell.  

Chicago_bearsMr. Dexter's case is the first against BLA involving an NIL or at least a contract that purports to be an NIL.  According to Mr. Moore's reading of the contract, the up-front payment was in exchange for BLA's ability to use Mr. Dexter's name, image and likeness during his eligibility to play NCAA football.  But BLA also was entitled to its fifteen percent payment for twenty-five years after that eligibility ended.  Mr. Dexter claimed that the contract violated Florida's NIL statute, which, Mr. Bereche notes, provides that NIL agreements "may not extend beyond [a student's] participation in an athletic program at a postsecondary educational institution.” 

BLA would thus have to characterize its agreement with Mr. Dexter as really consisting of two contracts: an NIL that applies while he is in college, and a more typical BLA agreement, which is just a speculative investment vehicle and kicks in after the NIL lapses.  BLA would thus argue that the second half of the contract was not an NIL agreement at all and thus that Florida's statute does not apply.

The  contract apparently had an arbitration clause, which means, among other things, that we will have a very hard time learning about how these cases are resolved.  Mr. Moore notes that BLA's response to the lawsuit was to file a motion to compel arbitration.

Mr. Bereche notes that, after Mr. Dexter entered into his deal with BLA, Florida amended its NIL statute to remove the restriction on the duration of such agreements.  Mr. Bereche argues, quite plausibly, that the amendment was motivated by Florida's desire to better position itself to recruit students.  Other states had no such restriction, and student athletes attending college in other states could thus get more lucrative NIL deals than student athletes attending Florida schools. 

Perhaps.  However, Mr. Dexter's contract suggests that Florida just joined the race to the bottom, removing one provision that protected student athletes from potentially predatory practices to which they are uniquely susceptible.

May 16, 2024 in Commentary, Current Affairs, Recent Cases, Sports, True Contracts | Permalink | Comments (0)

Monday, May 6, 2024

For Every New FTC Rule, There Is a Reaction in the Form of Regressive Legislation in Oklahoma

Oklahoma in the "progressive" camp on non-competes, along with California, Minnesota, and . . . North Dakota.  Well, it was in the motley crew of states that, for one reason or another, ban non-competes.

Oklahoma_State_Capitol
Image © Caleb Long, CC BY-SA 2.5 
via Wikimedia Commons

But Oklahoma's non-compete law, 15 O.S. § 219A, allows for competition, "as long as the former employee does not directly solicit the sale of goods, services or a combination of goods and services from the established customers of the former employer."  So the statute brought protection from non-competes, with a pretty narrow carve-out.  Apparently, there was some dissatisfaction with the terms "directly" and "established."

This year, with SB 1543, our legislature attempted to address that dissatisfaction, by making the carve out so broad as to pretty much swallow the rule.  According to the bill's sponsors, at least as represented here, the revisions enable entities to "protect[] their legitimate businesses interests" and resist "unfair competition."  How?  Well, here's the new version of the law, with additions highlighted and deletions in bold cross-out.

A person who makes an agreement with an employer, whether in writing or verbally, not to compete with the employer after the employment relationship has been terminated, shall be permitted to engage in the same business as that conducted by the former employer or in a similar business as that conducted by the former employer as long as the former employee does not directly solicit, directly or indirectly, actively or inactively, the sale of goods, services or a combination of goods and services from the established customers or independent contractors of the former employer.

This change is purportedly necessary because the language of the original statute was "vague" and caused "confusion." 

But Oklahoma courts had not so found.  Part B of the statute provides  "Any provision in a contract between an employer and an employee in conflict with the provisions of this section shall be void and unenforceable."  In Howard v. Nitro-Lift Techs., L.L.C., Oklahoma's Supreme Court read the statute to empower a court to strike down in its entirety any non-compete or non-solicitation provision that exceeded the limits permitted under the statute.  In Autry v. Acosta, the Oklahoma Court of Appeals similarly set aside an injunction in favor of an employer.  The employer could not succeed on the merits, as its non-solicitation provision, which purported to prohibit an employee from indirect solicitation of her employer's former clients, both current and previous, exceeded what was permissible under § 219A. A and was therefore unenforceable under § 219A. B.

Courts did not find the language of § 219A vague or confusing.  Perhaps the problem with the statutory provision lies elsewhere. Perhaps the law was too effective in prohibiting restraints on trade and employee mobility.

Kevin_StittI am at a loss to understand what would remain of the ban on non-competes if the legislation became law.  I suppose that it still might offer some protections for people who just work for a competitor but are in no way involved in the solicitation of business.  However, "directly or indirectly, actively or inactively" could mean and likely is intended to mean that if your name even appears on your new
employer's website, you are engaged in a prohibited act of solicitation.  And because the word "established" has been eliminated, any solicitation of customers within the industry could be treated as a solicitation of the former employer's "customers," past, current, future, or potential.

In shocking news, although the reform bill sailed through the Oklahoma legislature, Oklahoma's Governor Stitt (left) vetoed the bill.  Here is his veto message:

Senate Bill 1543 would significantly expand employers' power to impede employees' ability to compete with their employer, post-employment, and worse, it would allow employers to restrict individuals' ability to earn a living, especially while using a learned trade or skillset. For these reasons, I have vetoed Enrolled Senate Bill 1543.

By the Governor of the State of Oklahoma
/s/ Kevin Stitt

Thanks, Governor Stitt.  This is something to keep an eye on for the next legislative session, but Governor Stitt will remain in office until 2027, so if he sticks to his guns, Oklahoma's workers are relatively safe from non-competes for a while.

May 6, 2024 in Commentary, In the News, Labor Contracts, Legislation | Permalink | Comments (0)

Thursday, May 2, 2024

Various Problems with Liquidated Damages

Posner_richard_08-2010I use Judge Posner's opinion in Lake River Corp. v. Carborundum Co. to teach liquidated damages and penalties.  It's a typical Judge Posner (left) opinion.  He provides policy arguments for and against the enforcement of liquidated damages provisions, even if they impose a penalty on the breaching party.  Judge Posner makes the compelling freedom of contract/anti-paternalist arguments in favor of enforcement of penalties, assuming relative sophistication and comparable bargaining power.  Against these arguments, he offers the theory that deterring opportunistic breach prevents efficient breaches that produce better outcomes for most of the parties involved and do not produce worse outcomes for any of them (assuming no transactions costs).  He then heaves a sigh, says, "Illinois, ya basic!" and applies the applicable state law prohibiting the enforcement of penalties. 

Some of my students wanted to outflank Judge Posner.  Yes, the liquidated damages clause in the contract was absurd, but why should a court come to the rescue of a well-resourced party that entered into a bad deal with eyes wide open?  Carborundum apparently valued access to Lake River's bagging and distribution capabilities so highly that it was willing to take on a high penalty for breach.  My students could have cited another Judge Posner case that I also teach, NIPSCO v. Carbon County Coal.  There, NIPSCO entered into a long-term contract to buy coal whether or not it needed the coal.  NIPSCO assumed that it would need the coal when it entered into the contract, but then it became significantly less expensive to get electricity from other sources. The state regulatory authority would not allow NIPSCO to pass on to its customers the costs it incurred through its lack of foresight, and so it sought to get out of its contractual obligations.  Judge Posner would not allow it to do so, even though the effect was quite similar to a penalty clause.  NIPSCO had to pay an inflated price for coal it didn't need.  Indeed, according to Judge Posner, nobody wanted the coal, which was why the mine shut down once NIPSCO stopped accepting shipments.  

So, Judge Posner would not force Carborundum to pay for bagging and distribution services it no longer needed, but he did force NIPSCO to pay for coal it didn't need.  The cases are reconcilable as a matter of legal doctrine.  In both cases, I find Judge Posner's legal reasoning entirely persuasive. And yet, their outcomes seem hard to square with both economic theory and the principles of freedom of contract.  Perhaps the solution is that Judge Posner, if unconstrained by the Erie doctrine or precedent, would simply allow the parties' terms, no matter how ill-conceived, to govern in both cases.

SepinuckProfessor Stephen Sepinuck (right), a keen-eyed scanner of the legal horizon, noticed another liquidated damages conundrum.  Ne. Ill. Reg'l Commuter R.R. Corp v. Judlau Contracting, Inc., involved a $17 million contract for construction work on Chicago's Metra line.  Judlau did not complete the project within the time specified in the contract, running over by 500 days.  Metra alleged a right to choose between enforcing the contract's liquidated damages provision and seeking actual damages.  District Judge Mary Rowland of the Northern District of Illinois, noted that Illinois law does not permit parties to choose between actual and liquidated damage, and she rejected Metra's attempt to distinguish between a right to collect liquidated damages an option to choose between liquidated and actual damages. 

Metra acknowledged the Illinois prohibition on clauses that permit a party to choose between liquidated and actual damages, citing Karimi v. 401 North Wabash Venture, LLC.  The Illinois rule struck Professor Sepinuck as unusual.  Learned commentary ensued.  Indeed, Colorado reached the opposite conclusion in Ravenstar, LLC v. One Ski Hill Place, LLC.  The Illinois rule seems to be motivated by a horror of penalty clauses.  Confronted with little or no actual damages, the non-breaching party can nonetheless profit from a liquidated damages clause.  Facing actual damages well in excess of liquidated damages, the party might choose to jettison the limits imposed by the liquidated damages clause.  It creates a win/win for the non-breaching party and also eliminates one of the primary advantages of a liquidated damages provision -- the ability to settle a claim quickly without the need to prove actual damages.

Which brings us back to Judge Posner's dilemma.  These option clauses seem ill-advised.  Why agree to a liquidated damages clause designed to  minimize litigation costs while also giving the other party the option to choose to impose litigation costs on you?  However, if sophisticated parties agreed to an ill-advised clause  why not allow them to be hoist by their own petard?  In Judlau, the court faced no such dilemma, Judge Rowland concluded that "the plain language of the contract here does not create an option between liquidated and actual damages."  Metra did not include an ill-advised option clause in its contract.  It just seems to have pursued an ill-advised litigation strategy that involved arguing without much of a textual basis that it had negotiated for an advantageous option which, it acknowledged, was foreclosed in any case by governing law.

May 2, 2024 in Commentary, Contract Profs, Famous Cases, Recent Cases, Teaching | Permalink | Comments (5)

Tuesday, April 30, 2024

Once Again, the Mistaken Party Pays. This Time, I Don't Think They Should.

Screenshot 2024-04-27 at 5.45.40 AMLast week, Emily Schmall reported in The New York Times about a Mexican man who found Cartier Earrings on sale on the company's Mexican website for 237 pesos, which is about thirteen dollars.  He knew that the earrings, described as "slender studded 18-carat rose-gold cuffs lined with diamonds," were worth far more than that, so he jumped at the offer.  He bought two pairs. Cartier noticed the mistake and corrected it, adjusting the price to 237,000 pesos. 

Cartier attempted to cancel the order. It attempted to buy off the purchaser with freebies.  He wouldn't budge.  He availed himself of Mexico's consumer protection laws and filed a complaint with the Matamoros branch of the federal consumer protection agency.  However, as one corporate attorney interviewed by the Times noted, the consumer does not win when the price quote is clearly a mistake.  But the buyer had mounted a social media campaign, and Cartier decided to save itself a prolonged legal battle and the potential attendant negative publicity.  The company filled the order, and the buyer dismissed his complaint.

Jeffrey-Lipshaw_960x860I'm not happy for him.  He was not fooled by a misleading advertisement.  Cartier was not offering a lost leader.  It was an obvious mistake, and he knew it was a mistake.  These things are going to be happening more and more often as AI takes over website management.  There will be simple transcription or calculation errors, and there is no scrivener to blame.  

But scrivener's error doctrine should still apply.  Neither party really thought that the designer gold and diamond earrings were being offered for the cost of shipping and handling.  Reformation is the right result here, and if the buyer is not interested in paying what he knew to be the actual price of the earrings, then the contract should be avoided.  Jeff Lipshaw (left) shared with us a similar case of a scrivener's error being treated as a unilateral mistake back in 2022.  That case is still, shockingly, working its way through the courts and may result in an $11 million windfall for a wholly undeserving litigant.  Rule 11 sanctions for the attorney and a "don't piss on my leg and tell me that it's raining" screed from the bench seem like a better outcome.

April 30, 2024 in Commentary, Contract Profs, In the News, Recent Cases | Permalink | Comments (1)

Monday, April 29, 2024

Law Review Contracts

In Spring 2023, I was lucky enough to have one of my articles accepted for publication in a law review.  Of course, the offer was contingent on agreement to terms, but I didn't give that much thought.  Early in my career, I engaged in some negotiating with law reviews about my right to post drafts online prior to publication, but that practice is now so common that the standard contracts allow for pre-publication posting of drafts. 

However, this contract had two provisions that I found objectionable.  One was a blanket indemnification provision, which required me to pay fees and costs should the university pay a judgment or settlement in connection with any breach of the contract by me.  The other essentially rendered the agreement illusory by granting the law review the right to withdraw its offer of publication at any point in the process for any reason.  The law review must notify me of its reasons for the withdrawal, but the contract gives me no opportunity to object, so the notice provision is not helpful, beyond its value as evidence in litigation, the cost of which I would have to bear should I lose.

I surveyed colleagues about how to handle this situation.  I suspect that most professors just sign these things without much thought, as the likelihood of litigation or liability associated with legal publications is vanishingly slight.  Some law professors shared with me that they have just crossed out objectionable language and returned the documents, assuming that the law review editors will not pay much more attention to these matters than we do.  Others try to negotiate, and some told me that they had withdrawn their articles upon being told that the law review would not change its contractual terms. 

Some colleagues who have served as advisors to law reviews lamented the careless contracts that they found upon assuming the role.  They consulted with university counsel and soon contracts more protective of the universities' interests were drawn up and set in stone.  Faculty advisors were told that they contracts could not be changed; they communicated the same message to student editors, and so things remain until institutional memory fades.

I wrote to my student editors requesting that two provisions of the contract be removed or edited.  As I feared, they responded that university counsel would not permit any changes in the contract, and they knew this because another author had requested changes, and they had been told that they could not accommodate any changes.  I wonder what became of that author's submission.

Aaup-logoSome colleagues suggested that I might insure against this risk, so I looked into it.  The American Association of University Professors AAUP) provides limited coverage, but it does not cover all of the most likely risks attendant to publication, and the combined cost of joining AAUP and buying the insurance would exceed $500.  I next considered whether a general business liability insurance policy might do the trick and be a bit less expensive.  Nope.  Errors and omissions policies exist for publishers, but getting an insurer to write a policy for an author would be prohibitively expensive.  

At this point it occurred to me that the law review with which I was hoping to publish is housed at a university with a university press.  It follows that the university likely already has coverage that addresses precisely the risks for which it was seeking indemnification from me.  I spoke to a relative who had a long-time career as an underwriter, and he reckoned that such coverage comes pretty cheap to a university, as a rider or addition to its general commercial liability coverage.  

Armed with these surmises, I wrote to my student editors again.  It seems to me that the indemnification language in their contract is a solution in search of a problem.  I also proposed language that would allow them to terminate the agreement for cause, with notice and opportunity to cure, so as not to render their promise to publish illusory.  I asked them to share my concerns with their faculty advisor and university counsel.   Otherwise, I was going to have to withdraw my piece reluctantly.

Of course, the students are just caught in the middle.  They don't have any say in the verbiage in their form contract.  They liked my article, took the time to read it, discuss it, consider it for publication through their own internal processes.  They wanted to publish it.  The contract was an obstacle that might make all of the work that they had done thus far a waste of time.  Meanwhile, the opportunity to make offers to other authors may have passed.

The whole experience saddens me both as a contracts teacher and from an institutional perspective.  As a contracts teacher, I try to persuade my students that, because contracts facilitate mutually beneficial transactions, if they really want to make the world a better place, they should consider transactional work as a possibility.  If they do consumer contracts, they can help police one-sided transactions to strive for contractual approaches that allocate risk and reward in a socially responsible manner.  But experiences like this one remind me that one-sided contracts can sow distrust and thus prevent mutually beneficial transactions from arising, as I previously noted here.  I had hoped to work with this law review, as I have worked with dozens of others, and now that might not happen.  The benefits on both sides are largely intangible but not negligible.

From an institutional perspective, I think this problem arises because of a few bad actors – authors who malign others, treat law review editors shabbily, or fail to diligently respond to reminders about deadlines. University counsel might not think that a law review is an enterprise important enough to justify risk of exposure to liability, even if that risk is very slight.  If I were to pull my piece, it would have zero impact on the rank or reputation of the law review.  The law review would publish something else.  University counsel thus has little incentive to change the terms of a contract that it regards as protective of the university’s interests. 

But university counsel is focused on risk management, and without forceful advocacy, they will prioritize those business concerns over furtherance of the university’s educational and scholarly mission. Moreover, given the networks of law review editors, faculty advisors and university counsel, all law reviews may soon adopt similar contracts.  Untenured professors will then have no choice but to put up with contract terms that are so one-sided that they would raise serious questions of unconscionability but for the likelihood that a court will treat law professors as sophisticated parties.  Contracts Profs know that sophistication doesn't help when an entire industry adopts similar, one-sided terms.  

My university's general counsel teaches at our law school, and she's a good egg, so I sought her advice on the matter.  I expected that she would give me insights as to how this all looks from the university counsel perspective, but she was as appalled by the language in the contract as I was.  She offered to call her counterpart at the law review's institution to see if hearing from a peer might yield some results.  She thought there was a reciprocity problem. Universities need professors.  Professors need to be able to publish (often through other universities publications) without putting their financial stability at risk.  But then she thought about our university's  insurance coverage and suggested that our policy might cover me in the case of a law suit relating to my professional activities.  After researching the issue, she concluded that it was not clear that our policy would protect me, and she advised me not to sign the contract.

Even if my university's insurer could provide a solution for me as to my own exposure, there would still be the other provision, which allows the law review to withdraw its acceptance at any point for any reason.  In future submission cycles, I will begin negotiating the contractual terms before I withdraw my piece from consideration elsewhere, and my ability to find a law review with reasonable contractual terms will be an important component of my decision where to publish.  But if, as I expect, law review contracts converge on language that leaves authors exposed and unprotected, I may just conclude that the world can live without my scholarship and I can live without the risks associated with publication.

In the end, I was able to get the law review editors to appeal to their university counsel and accept some of the revised language that I offered.  It didn't give me all the protection I wanted, but it gave me enough that I did not lose any more sleep over the issue. Screenshot 2024-04-27 at 4.56.03 AMThis year, I took a break from the student publication mishegoss, and just published with my law school's Law Review, after reviewing their wholly unobjectionable terms.  Given that people are far more likely to come across my work on the web than through a publication, it seems like the reasonable choice, and working with our editors was very easy and enjoyable.  

April 29, 2024 in Commentary, Law Schools, Teaching, True Contracts | Permalink | Comments (8)

Tuesday, April 16, 2024

Another Case Where Mistake Doctrine Doesn't Help

Brooch
Not the brooch at issue

Jenny Gross reports in The New York Times about an English art historian who bought a silver brooch at an arts fair thirty-six years ago for the equivalent of $35.  Recently, the woman discovered via a YouTube video that the brooch was a Victorian-era collectible designed by William Burges and valued at around $12,000.

As such stories go, this is not all that thrilling. We need some more zeroes. Sitll, it just gives us another opportunity to hammer home the point that, under modern contracts law, if you are mistaken about the value of something you sell, you likely bare the risk of your mistake. In this case, although I do not number among the cognoscenti of Victorian jewelry, I would say, unless you have a boat in need of an anchor, you are better off without this particular ornament.  Give me an Eagle Diamond or Rose of Aberlone any day.

April 16, 2024 in Commentary, In the News | Permalink | Comments (0)

Monday, April 8, 2024

Elon Musk "Cancels" a Contract

Rocketman
Image by DALL-E

Dear Reader, I apologize.  I seem to have let a week go by without reporting on some batshit-crazy thing that Elon Musk did. This would be excusable, if Mr. Musk could go a week without doing some batshit-crazy thing. Alas, he cannot.

Some details of the story are a bit murky, but it seems pretty clear from the parties' statements and conduct that Mr. Musk and Don Lemon entered into an agreement.  The agreement seems to have been that Mr. Lemon would have an interview show on Mr. Musk's social media platform, Twitter, which he calls X.  None of the terms of the agreement are public, but presumably, there is money involved, as Mr. Lemon referenced the "financial terms of the agreement" in the story linked to below.

Mr. Lemon attempted to launch the project with an extended interview with Mr. Musk. Apparently, the two men had different ideas about what was supposed to happen during that interview. Parts of it got very testy. Mr. Lemon challenged Mr. Musk, asking him whether he had any responsibility to engage in content moderation of hate speech on his platform and posed questions about Mr. Musk's drug use and whether there could be national security concerns associated with that drug use. Sometimes, Mr. Musk refused to answer, saying that he didn't have to answer questions from reporters. True enough. Sometimes, he gave self-serving answers that certainly did nothing to quell concerns that a man who controls vital national security infrastructure uses prescription drugs recreationally and not just as a public service. You can see the interview here:

Martha McHardy, writing for The Independent, reports that the deal was "axed" just hours after the interview was completed.  Let the lawyerspeak begin.  According to Twitter, "L]ike any enterprise, we reserve the right to make decisions about our business partnerships, and after careful consideration, X decided not to enter into a commercial partnership with the show."  

That's all fine, except that the platform announced that it would be hosting Mr. Lemon's show in January.  When Mr. Musk "axed" the deal, he did so by texting Mr. Lemon's agent, saying "the contract is canceled."  So while the lawyers for "X" are saying "not-X," X's owner is saying X.

In my language, people who "cancel" a contract without cause pay damages, but only if those damages can be proven with reasonable certainty. In this case, there appears to be no signed writing evidencing the terms of the deal. That's okay; there doesn't need to be a signed writing here.  The issue will be whether what Mr. Lemon calls "the financial terms of the agreement" are specified in sufficient detail to support an award of damages.  It seems from the interview that the two men had never previously met.  Presumably, there is a paper trail here.

Some of these clips are actually revelatory of more than just Mr. Musk's prickliness. He sometimes gives serious, seemingly earnest, seemingly truthful, although brief, answers to Mr. Lemon's questions.

A couple of notes. For much of the interview, Mr. Musk's affect is pretty normal.  He engages with Mr. Lemon in a fairly direct, straightforward way. Sometimes, when he doesn't want to answer a question and also doesn't want to refuse to answer the question, there are long pauses, and his eyes dart back and forth and you can almost hear him pondering, "What can I get away with saying here that will not get me into trouble and will also not be a bald falsehood?"  It's not a terrible thing for a thoughtful person to do, especially if the valuation of several companies turns on the answer.

One part of the interview that struck me as really odd was the question of whether CNN is a liberal media organization.  Mr. Musk insisted that "everybody thinks of" CNN as a left-wing media organization, and he implied that Mr. Lemon, having worked for CNN, is also part of the woke mob, or something akin to that. I don't watch cable news, even though I am now over sixty, and I think I have to turn in my AARP card if I'm not addicted by 65. I operate on the perhaps outmoded assumption that the three major cable news organizations had staked out their claims to the American right (Fox), left (MSNBC), and center (CNN). Now I believe there are two smaller companies to the right of Fox.  If CNN is now considered leftist, it may be evidence of the impact of the Trump presidency on the American political spectrum.

In any case, in the interview, Mr. Lemon posits, and Mr. Musk affirms, that Mr. Musk wanted Mr. Lemon's show to stream on Twitter because Mr. Musk wants his website to be a place where one can find content across the entire political spectrum. But then, according to Derrick Bryson Taylor writing in The New York Times, Mr. Musk explained that he was "canceling" his contract with Mr. Lemon, Mr. Musk complained that Mr. Lemon's approach "lacked originality" and was just "CNN on social media." There seems to be some tension between what Mr. Musk said in the interview and what Mr. Musk said in dissing the interview. Even if Mr. Musk wants to characterize his decision to cancel the contract as commercial rather than political, he should have made that determination before committing to have the show stream on his website. Did he really think the Don Lemon show on Twitter would be nothing like CNN Tonight with Don Lemon?

That kind of magical thinking is not how we will get to Mars.

April 8, 2024 in Celebrity Contracts, Commentary, Current Affairs, In the News, Web/Tech | Permalink | Comments (0)

Monday, March 4, 2024

Musk v. Altman: The Breach of Contract Claims

RocketmanJust a quick one here.

Elon Musk rides again.  This one is much more up to his standards.  It is bold.  It is brash.  It seems pious and public-interested, yet also incredibly self-serving, hypocritical, self-aggrandizing, and vituperative.  He is suing OpenAI and its principals, Sam Altman and Greg Brockman, for breach of contract, promissory estoppel breach of fiduciary duty, unfair competition, and he is seeking an accounting.  I will limit myself here to the breach of contract and promissory estoppel claims.

According to the complaint, Mr. Musk provided tens of millions of dollars to OpenAI from 2015-2020 in return for a promise that the venture would be non-profit and open source.  It is now neither.*  Mr. Musk cites to various representations that OpenAI made over the years -- about how it was going to work for the betterment of humankind -- and it references a "Founding Agreement."  However, the three documents attached as exhibits to the complaint do not include any such agreement.  Rather, they include OpenAI's Certificate of Incorporation (in Delaware of all places!), an e-mail exchange that is clearly a statement of future intentions, and an OpenAI "blog" (whatever that is) from 2015.  If there was a contract between Mr. Musk and OpenAI setting out conditions for the use of his funds, one would expect it to be attached to the complaint.  Perhaps in the amended complaint?

With respect to this claim and his promissory estoppel claim arising out of the same factual allegations, Mr. Musk seeks unspecified damages but also specific performance of the alleged contractual or non-contractual promises.  The former seems like a doable settlement offer.  OpenAI and its buddies at Microsoft could refund Mr. Musk his paltry tens-of-millions-of-dollars investment and neither party would notice it any more than a shift in the breeze from the north to north-northwest.  As to specific performance, that's a big ask.  I don't see a court ordering a company to work for the betterment of humankind.  

If any court were to do so, it would be nice (but really surprising) if SCOTUS did so in about an hour by allowing states to take insurrectionists off their ballots.

*Technically, OpenAI is still a non-profit, but it created a wholly-owned subsidiary, OpenAI Global, LLC, which at one point had a valuation of $86 billion, and which expects to produce returns on investments for both employees and outside investors.

March 4, 2024 in Commentary, In the News, Recent Cases, Web/Tech | Permalink | Comments (0)

Friday, March 1, 2024

Friday Frivolity: Elon Musk, This Is Not up to Your Standards

 RocketmanSeveral of my students shared the same story with me.  Ariel Zilber, writing in The NY Post, provides the basics:

  • Corporation places a large order with a bakery for mini pies.
  • Corporation then contacts the bakery to double the order. 
  • Corporation then cancels the order by text  just as the pies are about to be sent out.
  • Bake shop claims $16,000 in losses on the order
  • CEO of the corporation (depicted at right, image by DALL-E) promises to "make things good" with the bakery.

Not much to add, beyond the fact that the corporation is Tesla, and the CEO is Elon Musk.

At first, I didn't see much potential in the hypo.  Tesla made a contract; Tesla breached the contract.  Tesla must pay damages.  Making things good with the bakery is a simple matter of paying for the pies that Tesla ordered, less any mitigation.  And since you are Tesla and this is a local bakery, why not just pay $16,000? As contracts hypos go, Mr. Musk, I expect better from you.  Remember that time you promised to buy Twitter and then pretended that it was all just a ploy to get information about the percentage of bot accounts on Twitter? 

Ah, good times. 

A few wrinkles might make this into a worthy hypo.  First, let's assume (counterfactually, apparently) that the original order and the doubled order were done by telephone and there is no electronic record.  Is the text message a sufficient writing to evidence the transaction?  According to the Post, the text read as follows: "It unfortunately sounds like we will be changing plans and will not be needing this order. Thank you so much for your support. I appreciate it."  Seems like that message must be part of a text string that provides the referent for "this order."  If so, we likely have a writing.  If not, do we have specially manufactured goods?

On that point, and also relevant to mitigation, Richard Pollina, author of another NY Post article, adds the following information.  As news of Tesla's breach spread, local residents shows up "in droves" to snatch up the pies.  If she had 4000 pies at $4/pie, it seems like the owner could have mitigated her damages by re-selling those same pies at $6/pie.  The owner also said that her business has tripled since news of the breach got out.  Is that relevant to the calculation of her damages? She also said that, notwithstanding Mr. Musk's promise to 
"make things good," she has not heard from him.

Screenshot 2024-03-01 at 6.54.53 AMSide note on the efficient use of journalistic resources: Do we really need two NY Post reporters on the Tesla pie-order beat?  Even Taylor Swift only has one dedicated reporter per news outlet. 

UPDATE: David Propper, yes a third NY Post reporter, provides the following update.  Tesla paid the bakery $2000 and also offered to place an order for Women's History month.  The bakery responded that it was too booked up with orders to provide pies to Tesla.  Also, it asked, "Good Grief!  Who do you think I am?"

 

March 1, 2024 in Commentary, Current Affairs, In the News, Teaching | Permalink | Comments (0)

Thursday, February 15, 2024

Gigi Tewari: A TEDx Talk on Financial Independence & Lucy v. Zehmer

Widener University Law's Geeta (Gigi) Tewari presents her personal journey toward financial independence and links it to a favorite contracts case.

 

February 15, 2024 in Commentary, Contract Profs, Famous Cases | Permalink | Comments (0)

Friday, February 9, 2024

Bad-Ass Employee Refuses to Sign Arbitration Agreement & Lives to Tell the Tale

Arbitration
Arbitration, in the Style of Edward Gorey
Imagined by Dall-E

Suppose an employer provides notice in its application for employment and its offer letter than employees will be required to sign arbitration agreements in connection with their hiring.  Suppose further that when it comes to sign such arbitration agreement, plaintiff instead signs "No Refused."  That is what Natalie Ragland did.  On that basis,  the District Court denied the motion of her former employer, IEC US Holdings (IEC), to compel arbitration. 

In Ragland v. IEC US Holdings, Inc., the Eleventh Circuit affirmed.  IEC's HR representative testified  that when Ms. Ragland wrote "No Refused" on the signature line of the arbitration agreement, she took it to say "Na Ragland."  That is believable.  The problem for IEC is that Ms. Ragland's scrawled refusal looks nothing like her actual signature (which also looks nothing like her name, to my untrained eye).  Both are reproduced in the opinion.  IEC argues that Ms. Ragland engaged in some deception, seeming to sign the arbitration agreement.  The courts were unmoved.  It was IEC's burden to produce evidence that the parties entered into a valid arbitration agreement, and it could not do so.  It could only truthfully state that its subjective understanding was that Ms. Ragland had signed her name.  But our approach to formation is objective, and objectively speaking, Ms. Ragland had not signed her name.

Ms. Ragland did sign other documents, but those documents did not create an arbitration agreement.  The arbitration agreement itself included a merger and integration clause, and the employment application expressly provided that it was not contract.  The offer letter is signed, but the arbitration agreement also need to be signed in order to be binding, and Ms. Ragland did not sign the arbitration agreement.  Nor did Ms. Ragland accept the arbitration agreement through conduct.  She did not work knowing that she had thereby agreed to arbitration.  She thought that she had refused to so agree to arbitration, and she was right!

GerardManleyHopkinsThis case makes me gleeful because, like Gerard Manley Hopkins (left), I delight in

All things counter, original, spare, strange;

Who knows why Ms. Ragland did not want to be bound by an arbitration agreement.  Who knows why she thinks litigation is the better route for her.  It is sweet to see the duty to read used by an employee to the detriment of her employer and it is especially sweet to see a merger/integration clause used to benefit the non-drafting party.

H/t Tamar Meshel.

February 9, 2024 in Commentary, Recent Cases | Permalink | Comments (0)

Thursday, February 8, 2024

Et tu, Trader Joe's?

SpaceX
SpaceX-Man, Image by DALL-E

We posted recently about an attempt by SpaceX (represented at left) to perpetuate its union-busting activities by throwing a hissy fit in a Texas District Court and screaming at the National Labor Relations Board (NLRB) and its administrative law judges (ALJs), "You're not the boss of me!"  Now, we learn, via , writing for Bloomberg News, that Trader Joe's has adopted SpaceX's arguments at an NLRB hearing in Connecticut. 

So first, I just can't believe that Trader Joe's is in a labor dispute.  I go to Trader Joe's to shop, sure, but mostly I go to hang out with the young, diverse, tattooed and pierced young people who work there.  The cashiers engage me in conversation.  The people stocking shelves are always happy to help me find stuff and to tell me how much they like the product I'm looking for and to recommend others.  The real happiest place on earth is a Trader Joe's at 8 AM on a Saturday morning.  Nobody is shopping then, so the workers have the store all to themselves, and they are loving it!  The tunes are cranked up, EVERYBODY in the building is wearing tie-dye, and they are working and gabbing, gabbing and working, talking about whatever young people talk about in their dialect that a boomer like me has little chance of following.  They are the happiest work force I have ever seen anywhere outside of Disneyland, but in this case I didn't think the Trader Joe's people were putting on an act.  Now I don't know what to think.  Does the store force them to pierce and color their hair in festive colors not found in nature?  Is that store-issued tie-dye? Are those even real tattoos?  Will I re-visit the childhood trauma of watching Micky Mouse remove his head the next time I visit my local Trader Joe's?

It turns out that Trader Joe's United has organized unions at four Trader Joe's stores.  Its attorney is quoted in Bloomberg as follows: “Customers of Trader Joe’s would have serious problems with a company that has rejected the New Deal.”  You got that right.  Trader Joe's concedes that the NLRB is unlikely to find itself unconstitutional.  The company is just preserving the argument for later proceedings.  Let's hope that the company comes to its senses and drops this nonsense.  It's fine.  I'll just shop at Sprouts.

February 8, 2024 in Commentary, Current Affairs, In the News, Labor Contracts, Recent Cases | Permalink | Comments (2)

Wednesday, February 7, 2024

Delaware Chancery Court Rescinds Elon Musk's $51 Billion Pay Package! TL;DR from Ann Lipton

Lipton-croppedOver on our sister blog, The Business Law Prof Blog, Ann Lipton (right) provides a handy synopsis of and commentary on Chancellor Kathaleen McCormick's 200-page opinion in Tornetta v. Musk. We are all grateful.

I taught Business Associations for roughly the first decade of my law teaching career.  Some of my early articles were on corporate law, and my very first law review publication as a law professor was on executive compensation.  It appeared in the law review of Professor Lipton's home institution, Tulane, which now seems so appropriate!

We learn from Professor Lipton's synopsis that the Chancery Court applied the "entire fairness" test rather than the business judgment rule to the decision of Tesla's Board to Directors to pay Elon Musk $51 billion.  She suggests that the Delaware Supreme Court might narrow the circumstances in which the fairness test will apply, but even if narrowing occurs, the fairness test will likely still apply to Mr. Musk's situation.  The most Mr. Musk can realistically hope for is a remand for further proceedings, unless he decides to re-incorporate in Texas.  Matthew Bultman, reporting on Bloomberg Law, suggests that litigation in a Delaware court would likely follow should Musk attempt to move Tesla to Texas.  Professor Lipton supplements here original post with thoughts on Texas here.

In my writing, and still today, I would go in the opposite direction from that contemplated in Delaware with respect to total fairness.  I argued that the business judgment rule should never apply to executive compensation schemes.  Board members are always motivated to overcompensate executives.  They are themselves corporate titans, and their compensation is determined by comparison to how other corporate titans are compensated.  As a result, they always have a situational conflict of interest, and they often have a more concrete conflict of interest. 

Fairness analysis should always apply.  What is fair?  My view is that corporate executives, like all workers, are entitled to a living wage.

February 7, 2024 in Commentary, Current Affairs, In the News, Recent Cases, Weblogs | Permalink | Comments (0)

Monday, February 5, 2024

Brian Bix, Reflections on Charles Fried's Contract as Promise

Charles Fried and Contract as Promise
Brian Bix

Charles_Fried_at_Harvard
Image by Matthew W. Hutchins of the Harvard Law Record, CC BY 2.0, via Wikimedia Commons

Charles Fried (1935-2024) (left) passed away recently, and the achievements of his life have been widely recounted:  a long-time professor at the Harvard Law School who also fit in service at different times as Solicitor General and as an Associate Justice of the Massachusetts Supreme Judicial Court.  He wrote important works across a wide range of topics, including constitutional law, general ethical theory and professional ethics.  However, for private law theorists, he may be best remembered for his 1981 book, Contract as Promise: A Theory of Contractual Obligation (Harvard U. Pr.). 

It may be hard for a younger generation (that is, pretty much anyone who is currently below retirement age) to recall how important Contract as Promise was.  There was little American contract law theory prior to Fried’s book (in the UK, Patrick Atiyah had published The Rise and Fall of Freedom of Contract two years before, but that work has never received, either at the time or since, much attention on this side of the Atlantic).  As Fried pointed out, much of the discussion of contract law in his time came from law and economics on one side and critical legal studies on the other (along with the semi-serious provocation of Grant Gilmore’s 1974 The Death of Contract).

In Contract as Promise, Fried sets out to explain and justify contract law in moral terms – not merely as a product of efficiency or class struggle.  Fried asserts:  “The obligation to keep a promise is grounded not in arguments of utility but in respect for individual autonomy and in trust.”  To focus on promise is to focus on how social and legal institutions grant individuals powers they would not otherwise have. Fried states that in societies in which there is a social institution of promising, one can create reasonable reliance in another by making a promise: a promise which can induce behavior or sometimes a decision not to act.   

Undoubtedly, there is an aspect of a promise-based approach which rings true to the ideal of freedom of contract: that contractual rights and duties, unlike most other legal rights and duties, are, to a large extent, if not entirely, a matter of choice, self-generated, rather than simply imposed by the state.  However, there are also obvious differences between promises and contracts, at least from the perspective of American law.  Most saliently, promises, on their own are distinctly not enforceable under contract law principles (though some may be enforceable under promissory estoppel or other equitable doctrines).  Fried notes this divergence; it is the primary ground of his objection to the doctrine of consideration, and in Contract as Promise he optimistically predicts that the doctrine will be abandoned in due course (though, of course, to date this has not happened).  

Fried BookAnother line of objections to promissory theories is that they leave significant portions of contract law unexplained – to be treated either as mistakes that should be corrected, or as principles whose justifications come from other (“non-contractual”) principles.  Alongside the issue of consideration, even as basic a doctrinal idea as holding parties to the objective meaning of the terms they used could be seen as contrary to a promissory approach, strictly understood.  (Fried responds: “The practical, economic and utilitarian grounds for holding” promisors to the objective meaning of their terms “are obvious,” and that it is inevitable that certain forms and procedures will be added when government enforcement is layered on top of any practice or relationship.)

An additional line of objections is that reference to the general principles of promise (or to the related principles of consent or autonomy) are insufficiently precise to fill out the details of contract doctrine.  Even among promissory theorists, there is a disagreement about what, if anything, a promise to perform entails regarding what remedies should be available for defective performance.  Also, it is hard to see the many details of contract formation, interpretation, and excuse as magically incorporated into our promises to pay a certain amount of money for a good or service, or to sell a good or service for a certain amount of money, etc.

In recent years, Fried revisited, reflected upon, and offered some revisions to the argument of Contract as Promise: in a Harvard Law Review Forum (2007) commentary on an article by  Seana Shiffrin, in symposia in Suffolk University Law Review (2012) and Theoretical Inquiries in Law (2019), in a chapter in Philosophical Foundations of Contract Law (Klass, Letsas and Saprai, eds., Oxford U. Pr., 2014), and, in a chapter added to the second edition of Contract as Promise (Oxford U. Pr., 2015).  These supplements added nuance to the earlier argument, without significantly changing its basic direction. 

To readers, there is something that may seem unsatisfying about a theory that states:  “promise explains (and justifies) contract law … except for the (numerous and often significant) parts that it doesn’t explain.”  At the same time, the argument that contract law is – at the end, at bottom, essentially – about the enforcement of promises still seems to say something important, even with all the conditions, supplements, and caveats that need to be added.  And, perhaps, most importantly, Charles Fried’s Contract as Promise remains, 40-plus years later, the consensus starting point for anyone who wants to write about, or just think about, contracts and contract law theory.

February 5, 2024 in Books, Commentary, Contract Profs | Permalink | Comments (0)

Friday, February 2, 2024

Friday Frivolity Update

A couple of weeks ago, I posted about this sign in my gym's locker room.  I suggested that the sign is ambiguous.  What is "use" of a cell phone.  Do all uses "Concern[] the privacy of all"?  Learned commentary suggested that all means all.  Text and policy aligns, so "Game, set, and match."

GDpDRAwW4AAfm7C

This week, my gym posted additional signage, with the still-unhelpful addition "Security Alert," which is highlighted in yellow.  Is this the power of the Blog?  Are the management team members at my gym silent admirers of the Blog?  It's okay folks.  I welcome your adoration.  Don't be shy.  I don't mind talking about contracts law while I'm on the elliptical.  

Screenshot 2024-01-27 at 4.02.43 PMNotwithstanding the additional signage, during my brief visit to the locker room during my last visit to the facility, I noticed three people using their cell phones in the locker room to listen to something.  One of them had his phone out as he was walking, head buried in his screen, either texting or navigating to the next song on his playlist.  I was unconcerned, given that, in that posture, he could only use his camera to photograph his own face or the ground.  Imagine my surprise when I came home to find the image of a torso (right), which I recognize as my own, uploaded to the Web.  Did that guy's phone have a side camera in addition to the front and back cameras?  It's diabolical!  And so embarrassing to be photographed in winter when I'm in such terrible shape!

Curious, I quizzed the attendant at the front desk, She seemed shockingly ignorant of the Blog, and her knowledge of contracts law was generally middling.  Rather, she explained the new signage to me as a product of a number of complaints about cell phone usage in locker rooms.  I asked her if it was okay to listen to music or podcasts using a cell phone, and she assured me that the concern was with photography and telephonic conversations.  Listening to stuff is fine.  I think I need to broaden my data set, because I don't want to be found in violation of the policy, but my original inkling that there could be basic questions as to what the sign means abides.

February 2, 2024 in About this Blog, Commentary | Permalink | Comments (0)