Monday, April 29, 2019
Would we really say that Weinstein's company's directors didn't approve of his pattern of sexual misconduct?
This, strictly speaking, isn't really a contract case, although there is an employment contract at issue so I guess that's how it got caught in my filter. But I read it and thought that this case is raising important enough issues that we should be discussing them.
The case is David v. The Weinstein Company LLC, 18-cv-5414 (RA), out of the Southern District of New York, and it's a case centering around the alleged sexual assault perpetrated by Harvey Weinstein on the plaintiff. The story the plaintiff tells is a familiar one to those who have read the Weinstein reporting, that "Weinstein asked her to meet him in his hotel room to discuss potential acting roles, and then, on one occasion, forcibly raped her." This decision isn't so much about Weinstein's conduct, though, as it is about the former directors of Weinstein's companies, who the plaintiff contends "enabled Weinstein's sexual misconduct, making them liable for general negligence and negligent retention or supervision."
The court dismisses the claims against the directors, and the reasons why were what caught my eye about this case. Plaintiff's allegations were that the directors were aware of Weinstein's harassing behavior toward women, based on a number of things: a written communication within the company calling his behavior a "serial problem" the company had to deal with; the characterization by a company executive of Weinstein's female assistants as "honeypot[s]" to lure actresses into meetings with Weinstein; a formal complaint by an employee about Weinstein's behavior; an employee memo summarizing two years' worth of allegations of sexual harassment and misconduct by Weinstein and characterizing the company as a "toxic environment for women"; the settlement of many sexual misconduct claims against Weinstein; and at least one police investigation into Weinstein's behavior.
None of the allegations established negligence on the part of the directors, according to the court. First of all, the directors did not owe the plaintiff a duty of care, and there is no case law that directors of a company can be held liable for an employee's tortious act. The plaintiff pointed to the fact that the directors renewed Weinstein's contract in 2015 with a provision that prevented Weinstein from being fired for sexual misconduct as evidence that they were enabling Weinstein's conduct, but the court found that this was "a far cry from them approving of Weinstein's sexual assault." While the court admitted that the directors "were not without moral culpability," their actions were not negligence as a legal matter.
Nor did the plaintiff assert a claim for negligent retention or supervision. The plaintiff did not show that Weinstein's sexual assault took place on the company's premises, since she asserted it happened at a hotel not affiliated with the directors. While the plaintiff argued that Weinstein used company credit cards to pay to the hotel room and lured her to the hotel room under the guise of a business meeting regarding employment by the company, that was regarding the company, not the directors sued here.
As a matter of law, the court's reasoning makes sense.
As a matter of recognition of how oppressive power structures work, this decision is terrible.
When I learned negligence way back in law school, I remember so many discussions about the policy behind it, about not wanting to hold people to a generalized duty to protect everyone on the planet, about how we decide proximate causation, about how it's really at heart about what we want to hold people liable for and what we don't.
So this decision makes sense in terms of worrying about generalized duties, of not dismissing the culpability of those committing the intentional tortious act. But it doesn't make sense in terms of thinking about the type of society we want to live in. The Weinstein reporting tells a story of serial abuse that was systemically protected for years by the power structure around Weinstein. To say that nobody else in the power structure was sexually assaulting women is a true statement of legal fact, but also seems disingenuous at this point. Weinstein's abuse was so widespread and lasted so long not only because of Weinstein but also because of the entire operation around him deflecting culpability for it.
The negligence analysis in this case feels like it's operating in a vacuum, which is kind of how we teach our students to think, presenting them with discrete hypotheticals, but might not be the best or most effective way to set up a fair legal system that protects the most vulnerable and least powerful in society. The societal discussion about the oppressive system that permitted Weinstein (and others) to perpetrate so much abuse has just begun, and maybe we should include how the legal system interacts with those power structures in the discussion. If negligence is all about policy decisions about who you need to protect and how much, then maybe we should have a policy discussion about how to make those decisions, especially if we're making them in the context of an abusive pattern that might be obscured by looking at things in isolation.
The plaintiff's allegations in this case contain many damning examples that many people around Weinstein knew about the disturbing pattern of sexual misconduct, and made affirmative choices to find ways to use the power structure to protect Weinstein. I appreciate the court's statement that the directors might be morally culpable but not legally culpable, and I recognize that law and morals are two different things. But I don't know that I agree that the director's actions are "a far cry from them approving of Weinstein's sexual assault . . . ." Given the allegations about what the directors knew and how they reacted to that knowledge, I think we could read their actions as indicating that they were a far cry from disapproving of Weinstein's sexual assault.
Monday, April 22, 2019
Don't just stand there, let's get to it: Second Circuit orders payment of "Vogue" royalties (aside, I hadn't listened to "Vogue" in a while, and it totally started my week off right!)
A recent case out of the Second Circuit, Pettibone v. WB Music Corp., 18-1000-cv, caught my eye because I teach the underlying copyright dispute driving this contractual dispute. You can listen to the case's oral argument here.
Pettibone composed the song "Vogue" with Madonna and entered into a contract with Warner where Warner collected the royalties for the song and split them with Pettibone. In 2012, Pettibone and Warner were sued for copyright infringement. They each had their own counsel and each bore their own costs in successfully defending the lawsuit, both in the trial court and on appeal. (You can read the appellate court decision here. We talk about it in my Transformative Works and Copyright Fair Use class when we do a unit on music.)
After the conclusion of the copyright suit, Warner withheld over $500,000 worth of royalties from Pettibone, claiming that under Section 8.1 of the agreement between Warner and Pettibone, it was allowed to withhold the royalties to pay for its defense of the copyright infringement suit. Section 8.1 read in part, "Each party will indemnify the other against any loss or damage (including court costs and reasonable attorneys' fees) due to a breach of this agreement by that party which results in a judgment against the other party . . . ."
Pettibone sued, arguing that he had never breached the agreement and therefore Section 8.1 did not permit Warner to withhold any royalties. The district court found that Section 8.1 "unambiguously requires Pettibone to indemnify Warner for the attorneys' fees and costs," and dismissed Pettibone's complaint.
In another example of ambiguous understandings of ambiguity, the appellate court here reversed the district court's holding, instead finding that Section 8.1 is "pock-mocked with ambiguity." In the Second Circuit's opinion, a better reading of the section was that, if there was no breach, each party should carry its own attorneys' fees and costs. In fact, Section 8.1 went on to read that "each party is entitled to be notified of any action against the other brought with respect to [the song 'Vogue'], and to participate in the defense thereof by counsel of its choice, at its sole cost and expense" (emphasis added). A fair reading of the section, the Second Circuit said, was that it required Pettibone to indemnify Warner if Pettibone breached the contract, but not otherwise.
Warner was the party that drafted the contract, and could easily have stated that indemnification happened in the event of any allegations, not just any breach. That was not, though, how the contract was drafted.
The effect of Warner's argument would be to shift a million dollars' worth of attorneys' fees onto Pettibone, just because there was a lawsuit, "regardless of merit or frivolousness." The Second Circuit found that to be "an extraordinary result" not justified by the section's ambiguous language. Therefore, the Second Circuit ordered reversal of the district court's dismissal, judgment for Pettibone, and calculation of the royalties improperly withheld from Pettibone, as well as consideration of Pettibone's request for attorneys' fees in connection with the instant action and appeal.
Monday, April 1, 2019
When I teach express conditions, we talk a lot about the language that you use to create them. A recent case out of the Northern District of Ohio, Health and Wellness Lifestyle Clubs, LLC v. Raintree Golf, LLC, Case No. 1:17CV2189 (behind paywall), has some examples. The agreement in question read that it was "contingent upon Purchaser's obtaining and delivering to Seller a written unconditional commitment or commitments," and continued that "the obligations of Seller to consummate the transaction . . . shall be subject to the fulfillment on or before the date of Closing of all of the following conditions," both of which created an express condition that a written unconditional commitment needed to be delivered. Because there was never any such written unconditional commitment in this case, the dependent obligations never became due.
Sunday, March 31, 2019
Reformation is one of those doctrines that I love to have class discussions over, really interrogating when (and whether) courts should employ it. A recent decision out of Delaware, In re 11 West Partners, LLC, C.A. No. 2017-0568-SG, has a nice reformation discussion in clear, straightforward language that I think could be useful in class. I especially like the Court's remarks about "the conclusions of social scientists and psychologists that witnesses may come to believe in factual scenarios beneficial to them . . . ." It's a gentle and sympathetic decision regarding "honorable" men whose recollections of the truth all differ.
h/t to Eric Chiappinelli at Texas Tech for forwarding us this case!
Thursday, March 14, 2019
An employer isn't bound by a policy unless the employee is aware of and relies upon the policy (e.g., reads the handbook!)
A recent case out of Illinois, Brown-Wright v. East St. Louis School District 189, NO. 5-18-0311 (behind paywall), finds that in order for an employee policy to operate as a binding contract, the employee has to have read the policy.
In the case, the plaintiff was suing based on an alleged violation of the sick leave payout policy. The plaintiff, however, did not find out about the policy her case was relying upon interpreting until after her employment ended. Therefore, it was not the case that she learned of the policy and continued to work as acceptance of and consideration for that policy. Because the plaintiff did not read the policy before terminating employment, she could not rely upon it now.
This is a lesson to all of us to read those policies our employers send around.
Friday, March 1, 2019
I have already blogged about one contract dispute over the new stage adaptation of "To Kill a Mockingbird."
Now, with that dispute settled, the former adversaries (Harper Lee's estate and the producers of the current stage adaptation) have joined forces to shut down small productions across the country of the previous stage adaptation of the novel. As the New York Times reports, the problem seems to have arisen from the conduct of Dramatic Publishing Company, which has the right under a contract signed with Harper Lee in 1969 to license theater companies to produce the original stage adaptation of the novel. The problem is that, allegedly, those rights were limited in times when a "first-class dramatic play" of "To Kill a Mockingbird" was playing in New York or on tour. However, Dramatic has apparently continued to license the play's production without adhering to the restrictions that the current play's producers argue should have kicked into place. Many small theater companies have found themselves caught in the fallout of this contractual dispute, through no fault of their own.
h/t to Eric Chiappinelli, Professor of Law at Texas Tech!
Sunday, February 17, 2019
There's a lot of really interesting things at stake in this recent case out of the Northern District of California, Batra v. POPSUGAR, Inc., Case No. 18-cv-03752-HSG, including a contract angle. The case concerns an alleged class of influencers suing POPSUGAR for altering their postings in various ways. In addition to copyright and publicity right violations, the purported class alleges contract interference, because influencers can enter into contracts to receive a cut of the revenue generated by the links on their sites, but POPSUGAR's alleged alterations stripped the monetized links from the postings. Therefore, the class alleged that POPSUGAR was interfering with their contracts with the website linked to. The court found that the class's allegations on this count (and every other count in the complaint) were sufficient to survive a motion to dismiss.
I'm fascinated by this case and can't wait to see where it goes, especially as we get further into the class action allegations. (But probably it'll settle before we get to the good stuff.)
Monday, February 4, 2019
Keeping records on when and how your employees sign their arbitration agreements could be helpful if there's ever a dispute over them
I just blogged about an arbitration case, and here's another one out of California, Garcia v. Tropicale Foods, Inc., E069024. In the last case I blogged about, arbitration was compelled, but in this one, the court reaches a different conclusion, finding that the employer Tropicale failed to prove that Garcia signed the arbitration agreement. The case serves as a lesson to employers hoping to enforce arbitration agreements against their employees: They need to be able to offer information about the circumstances of the employee signing the agreement. Garcia maintained that she never signed the agreement, and in response Tropicale offered a declaration of an employee saying that Garcia did sign the agreement. But that bare declaration wasn't enough, according to the court. It did not offer any sense of the timing or circumstances of the signature, which were important in this case, since the date on the agreement looked like September 2015, but Garcia had been terminated in August 2015. Therefore, the court did not compel arbitration.
Wednesday, January 9, 2019
In a recent case out of the District of Arizona, Brittain v. Twitter Inc., No. CV-18-01714-PHX-DG (behind paywall), a court finds Twitter's terms enforceable as neither illusory nor unconscionable. The plaintiffs admitted that they agreed to Twitter's terms of service, but they argued the terms were illusory and unconscionable.
The illusory argument depended on the assertion that Twitter could unilaterally modify the terms at its discretion. But, unlike other cases where the terms were found to be illusory, Twitter did not try to retroactively modify the terms, and it mutually bound itself to the forum selection clause.
Brittain's unconscionability argument weirdly revolved around the fact that Twitter's terms don't contain an arbitration provision. I found this curious because I've read lots of cases where people want to get out of arbitration clauses, so complaining that the lack of one means the terms are unconscionable isn't an argument I quite follow. Neither did the court, which found that Twitter was not required to include an arbitration clause in its terms and that the terms weren't otherwise unconscionable.
Sunday, December 23, 2018
The below guest blog was shared with us by Oren Gross, the Irving Younger Professor of Law with the University of Minnesota Law School:
Who amongst us has not taught the 1864 case of Raffles v. Wichelhaus, a.k.a. the two ships Peerless? The story of the ships (by some accounts there have been up to eleven ships bearing the same name!) has tantalized and captured the imagination of numerous generations of students learning about meeting of the minds.
You can imagine my delight when, taking a much-needed break from grading exams, I came across a modern version of the story involving three NBA teams and two players named Brooks.
The Washington Wizards, it seems, wanted to strengthen their roster by adding the Phoenix Suns forward Trevor Ariza. For its part, Phoenix was interested in Memphis Grizzlies players and the Grizzlies – in Wizards players. And so, the Wizards’ general-manager concocted a three-team trade and served as the go-between the Suns and the Grizzlies. As part of that trade, the Suns were to get two players from Memphis, namely Selden and Brooks.
Simple enough. Or so it seems. However, as Chris Herrington reported in the Daily Memphian on December 15, 2018, the deal fell apart or, in an insight worthy of contracts’ scholars, “maybe never quite was.”
The problem is that Memphis currently has not one, but two, players on its roster whose last name is Brooks. And whereas the Suns thought they were getting Dillon Brooks, the Grizzlies intended to trade MarShon Brooks. Thus, while “two Grizzlies sources confirmed to The Daily Memphian that it was MarShon Brooks, not Dillon Brooks in the deal. Media in Phoenix, however, insisted it was Dillon, not MarShon.”
As the two teams negotiated through the Wizards as the go-between, the miscommunication as to the identity of the player actually to be traded was not revealed until news of the deal leaked to the media.
The outcome? The three-team deal collapsed. As Herrington put it “the deal that never really was was nixed.”
Tuesday, December 18, 2018
A past consideration case reminds us that being recognized for your past hard work isn't good for your breach of contract claim
I don't know about everyone else but my casebook teaches past consideration using very old cases. Here's past consideration raised as an issue with a recent case out of the Southern District of California, Wright v. Old Gringo Inc., Case No. 17-cv-1996-BAS-MSB (behind paywall).
The case is really interesting, because the court acknowledged that the complaint had proper consideration allegations: ownership interest, salary, and performance bonuses in exchange for providing "expertise and services." The problem came from the deposition testimony, all of which seemed to establish that in fact the ownership interest had been provided as a reward for previous work. The plaintiff herself testified that the ownership interest was effective even if she immediately quit the job, indicating it wasn't in exchange for future services. Plaintiff's friends and relatives provided similar testimony, that the ownership interest was given "to show . . . appreciation" and "for . . . recognition of her hard work." There was no evidence presented that the ownership interest was offered on the condition of future work in exchange. For that reason, the court granted summary judgment for failure of consideration.
The plaintiff's remaining claims were permitted to go forward, including promissory estoppel and tort claims. Those claims (as I remind my students!) don't require consideration.
I find this case really interesting because I'm sure the plaintiff's friends only thought they were helping her with their testimony. This is the kind of thing that I think makes instinctive sense to non-lawyers: the plaintiff did something awesome and they recognized it by giving her an amazing gift. But lawyers know that consideration doctrine makes that a bad thing, not a good one.
(The decision also contains a statute of limitations and damages discussion.)
Wednesday, December 12, 2018
A recent case out of Illinois, Pam's Academy of Dance/Forte Arts Center v. Marik, Appeal No. 3-17-0803 (behind paywall but you can listen to the oral argument here), highlights the weirdness of just throwing extra words into a contract without thinking through what they really mean.
The dispute concerned a noncompete between a dance studio and Marik, one of its employees. The covenant not to compete stated that Marik wouldn't engage in any similar business "for a period of not less than five (5) years," and wouldn't solicit any teachers or students "for a period of not less than three (3) years." The parties were arguing over whether this language meant "five years" and "three years," or whether it meant that the noncompete could extend past five and three years.
In a vacuum, the statement "not less than five years" reads as "at least five years" to me, meaning that the time period could last longer. But as a matter of contract interpretation, that makes no sense. Could the noncompete theoretically go on for 50 years? After all, that would be a period "not less than" five. On the other hand, as the defendants argued, interpreting the time periods as five and three years would render the "not less than" language as "mere surplusage" -- an interpretation courts usually strive to avoid.
The court noted that contract interpretation's goal is to discern the intent of the parties. "Not less than" has been interpreted by Illinois courts in a variety of ways, but never in the context of a noncompete. However, many out-of-state courts had come to the conclusion that, in a covenant not to compete, "not less than five years" should be construed as meaning five years. This would prevent the employer from arguing that the noncompete was violated six years later. Indeed, the court thought that arguing that it meant six years would amount to bad faith.
Whether the five- and three-year periods were reasonable was a fact-based inquiry that had to be determined by looking at the totality of the circumstances.
This is a situation where I'm sure the "not less than five years" language sounded fancy and official but it was truly pointless. I think the employee probably understood it to be five years and three years (to the extent that the employee read and understood the agreement), and to the extent the employer understood the language to mean otherwise and entitle it to set an indefinite time period, I'm with the court that that's an unreasonable interpretation.
Monday, December 10, 2018
I got really excited when I saw this case because it's always nice to have a recent parol evidence case to look at, and this one involves movies!
It's a recent case out of Mississippi, Rosenfelt v. Mississippi Development Authority, No. 2017-CA-01120-SCT (you can listen to the oral arguments here). The MDA had communications with Rosenfelt regarding his movie studios' attempt to make movies in Mississippi, eventually guaranteeing a loan through a term sheet signed by the MDA and by Rosenfelt on behalf of his two movie studios. When Rosenfelt wanted to make another movie and applied for another loan under the terms of the agreement, the MDA turned down the request. Rosenfelt then sued for specific performance and damages. Rosenfelt initially triumphed on a motion for partial summary judgment but then, during the specific performance debate in the case, the MDA filed a summary judgment motion challenging Rosenfelt's standing, which resulted in dismissal of Rosenfelt's complaint.
Rosenfelt appealed, alleging that there was an agreement between him personally and the MDA. However, the court noted that all communications from the MDA were directed explicitly to Rosenfelt as president of the relevant movie studio. The court's decision came down to contract interpretation: All of the written documents in the case unambiguously referred to Rosenfelt in his official corporate capacity or were signed by Rosenfelt in his official corporate capacity. Given the lack of ambiguity on the face of the documents, the court refused to consider parol evidence as to whether Rosenfelt was personally a party to any of the agreements. Because all of Rosenfelt's allegations concerned his personal agreement with the MDA, the court dismissed the suit.
This case serves as a reminder that, once you have set up corporate entities, you need to be careful to remember how those corporate entities impact not just your legal liabilities but also your legal rights.
Monday, November 12, 2018
I always tell my students that if you want people to promise to do something, you'd better make sure you don't phrase it as a condition in your contract, and a recent case out of the Middle District of Pennsylvania, Allen v. SWEPI, LP, No. 4:18-CV-01179 (behind paywall), carries just that lesson.
The contract was for the purposes of exploring for oil and gas on the Allens' land and read that the agreement was "made on the condition that within sixty (60) days from the Effective Date of this lease, [the defendant] shall pay to the [Allens] the sum of Two Thousand Dollars ($2000.00) per acre for the first year." The defendant never paid the Allens this sum, and the Allens sued. However, the defendant argued that this was nothing but an option contract. It had the right to rent the land for oil and gas exploration if it paid the required sum. However, it was not required to pay that sum. Instead, the payment was a condition that had to be fulfilled before the contract would come into operation. The court agreed and dismissed the Allens' breach of contract causes of action.
The court then also dismissed the Allens' promissory estoppel claim, because it found that there had been a valid and enforceable contract between the parties -- it was just an option contract that the defendant chose not to exercise.
The Allens seem to have thought they had rented this land to the defendant. I think that what they wanted to accomplish (or thought they were getting) with the quoted clause was to make sure they were paid within 60 days. However, in phrasing it as a condition, what they got was no commitment from the defendant at all.
Sunday, November 11, 2018
In a recent case, employment agency Robert Half International, Inc. (“Robert Half”) brought suit against a former employee, Nicholas Billingham, and Billingham’s current employer, Beacon Hill Staffing (a competitor of Robert Half) for actual and anticipatory breach of contract. Billingham’s contract with Robert Half included the agreement that Billingham would not compete with or solicit clients from Robert Half if leaving the company. Nonetheless, Billingham accepted employment with Robert Half’s direct competitor where he stated that he intended to “add to my team quickly and take market share from Beacon Hill’s competitors.” Robert Half brought suit. Billingham and Beacon Hill moved to dismiss the complaint for failure to state a claim.
Billingham first defended himself arguing that unilateral contracts cannot be anticipatorily breached since they technically seen do not arise until the actual performance has been rendered. He argued that his contract was unilateral since his remaining obligations were not yet due. (Strangely, he did so although he had already terminated the relationship himself.) The court corrected him on this point, noting that a unilateral contract is one that “occurs when there is only one promisor and the other party accepts, not by mutual promise, but by actual performance or forbearance.” (Quoting Williston § 1:17). To help my students distinguish accepting by beginning of performance in bilateral contracts from offers for unilateral contracts, which is sometimes confusing for them, I tell them that they must scrutinize what type of acceptance is sought by the offeror: if onlythe actual performance, then there is a truly an offer for a unilateral contract. If this is not clearly the case, there is an offer for a “regular” bilateral contract. In this instance, the contract between Billingham and Plaintiff was bilateral, not unilateral. Robert Half promised to employ Billingham in exchange for Billingham's promise to abide by the restrictive covenants in the Agreement. Billingham's promise included the prospectiveagreement that he would refrain from certain activities upon departing the company. Billingham was thus not correct that the agreement “became unilateral” after his resignation. That is a legal impossibility. His obligations to forbear from the non-competitive agreements became due the moment he left Robert Half. As with many other contractual issues, unilaterality and bilaterality are examined at the point of contract formation, not by looking at what actually happened thereafter.
The court thus found that plaintiffs had sufficiently pled a claim of anticipatory, if not actual, breach of contract.
Plaintiffs also stated a claim for unjust enrichment. Defendants argued that Robert Half has not actually “conferred” any benefits on Beacon Hill and would thus not be liable for compensation under that theory. The court noted that this is wrong. Beacon Hill received a “benefit” from Billingham's employment through the revenue that he generates, his professional training, his relationships with customers and candidates, and his industry knowledge. Beacon Hill's retention of these benefits is “unjust” as they are benefits that Billingham is barred, by the agreement, from conferring on Beacon Hill.
The case is Robert Half International Inc. v. Billingham, 317 F.Supp.3d 379, 385 (D.D.C., 2018).
Friday, November 9, 2018
Another day, another arbitration compelled, this time in a recent case out of the Northern District of Illinois, Nitka v. ERJ Dining IV, LLC, Case No. 18 cv 3279. The plaintiff sued the defendant for sexual harassment, sex discrimination, and assault and battery. The defendant countered that the plaintiff had signed an agreement to arbitrate disputes relating to her employment, which these were. The plaintiff stated she had no memory of signing the arbitration agreement, but the defendant's Vice President of People and Development testified that it required new employees to sign such agreements before entering employment and maintained them in the usual course of business. The plaintiff's arbitration agreement was located in her personnel file. Furthermore, the plaintiff had apparently affirmatively indicated on an electronic form that she had signed the agreement.
The plaintiff then argued that she had been a minor at the time of signing the agreement, but the court pointed out that she ratified the agreement by continuing to work for the defendant after her eighteenth birthday.
I believe that the plaintiff did not remember signing the arbitration agreement. To be honest, I believe that, even if she remembered, she probably had no idea what it really was. She was a minor trying to get a job at a Chili's. I'm sure she signed what she was told to sign and clicked the electronic check-boxes she was told to click -- exactly the way the vast majority of us do when getting a new job.
Saturday, September 22, 2018
There comes a time in every teaching semester (usually very early on...) where you have to coax your students to be comfortable with courts contradicting each other. You have to teach them to distinguish the cases, to make sense of it, but sometimes I feel like the answer to the contradictions is "the parties didn't argue that point and it just got missed and now we just have to deal."
I was thinking about this as I read a recent case out of the Third Circuit, Cook v. General Nutrition Corp., No. 17-3216 (behind paywall), which affirmed a failed lawsuit against GNC for, among other things, breach of contract. The appellants made several arguments for why their claims should not have been dismissed, one of them that GNC's termination of the contract was a breach. But the Third Circuit noted that termination was permitted by the contract: "[The contract] expressly permit[ted] GNC to unilaterally modify or cancel the agreement at any time, with or without notice."
That was the line that gave me pause, because I only recently taught Harris v. Blockbuster, which holds a contractual provision illusory precisely because it permitted Blockbuster to unilaterally change the contract at any time without even having to provide any notice. Other courts have definitely agreed with Harris, and while it's been distinguished I didn't really see any courts disagreeing with the conclusion. Third Circuit courts do seem to apply the illusory promise doctrine, so it doesn't seem like they've just decided to do without this doctrine in the Third Circuit.
It does seem like Harris can be read as only applying in the context of agreements to arbitrate and not all agreements (although there was apparently an arbitration clause in the GNC contract). Unfortunately, this is just me guessing as to how you can distinguish Harris, because there is zero discussion of illusory promises in the Third Circuit's very brief opinion. The court asserts that the contract gave GNC this right, and that while it might be "unfortunate," it was permissible and therefore not a breach.
Monday, August 27, 2018
Revitch received an automated advertising call from DirecTV to his cell phone, and sued alleging violations of the Telephone Consumer Protection Act. Revitch was a wireless customer of AT&T, so DirecTV moved to compel arbitration under its sibling corporation's wireless service contract with Revitch. This recent case out of the Northern District of California, Revitch v. DirecTV, LLC, No. 18-cv-01127-JCS, denied the motion, finding that the arbitration clause did not cover claims with DirecTV completely unrelated to the wireless services provided under the AT&T contract.
It was true that the arbitration provision covered affiliates, and it was also true that DirecTV was an affiliate of AT&T, having become sibling companies a few years after Revitch entered into the contract with AT&T. But the court characterized the establishment of this relationship as a "completely fortuitous fact." The court noted that the intention for wording the clause broadly and including affiliates was typically to cover situations regarding assignments or successors. Nothing of the sort had happened here. No benefits under the contract had been assigned to DirecTV, nor had DirecTV undertaken any obligations under the contract. The calls Revitch was complaining about had nothing at all to do with the wireless service covered by the contract. So the precedent DirecTV tried to rely on was all distinguishable in the view of the court: "The Court concludes that Adams and Andermann, at most, support the conclusion that an entity may become an affiliate subject to the arbitration contract after the time of contracting where that relationship arises from an assignment of the underlying agreement or a related entity becomes a successor to the original contracting entity. That is not the case here."
The court interpreted the arbitration clause of the contract according to ordinary rules of contract interpretation that required the avoidance of absurd results and also that contracts be construed against the drafter. DirecTV argued that the presumption in favor of arbitration established by the Federal Arbitration Act meant that arbitration clauses should trump such rules of contractual interpretation, but the court disagreed. The court stated that, according to Ninth Circuit precedent, the FAA requires arbitration agreements to be placed on equal footing with other contracts. Allowing the suspension of ordinary contract rules of interpretation when arbitration agreements were involved would be placing arbitration agreements on favored footing; on equal footing, the same rules ought to apply to arbitration agreements as apply to all other contracts. Arbitration, the court emphasized, "is a matter of consent."
This is an interesting case. Due to the consolidation of most of our forms of communication under massive umbrella corporations, a relationship with one subsidiary can be used to assert a relationship with all companies under the same corporate umbrella, as DirecTV tried to do here. This court's view feels rooted in a common-sense understanding that the arbitration agreement Revitch entered into when he decided to sign up for AT&T wireless service shouldn't also cover completely unrelated television services provided by a company that hadn't been affiliated with AT&T when Revitch entered into the contract. Only a few months ago, though, the Supreme Court reversed the Ninth Circuit for refusing to enforce an arbitration clause, re-affirming the trump-card nature of the Federal Arbitration Act over many other public policies. This case seems like another display of Ninth Circuit courts' skeptical views toward arbitration clauses -- which the Supreme Court has just reminded the Ninth Circuit it doesn't share.
Wednesday, August 22, 2018
We have blogged several times before about the confusing and often tragic state of health care and health insurance in this country. Now we have another case out of the Eighth Circuit to add to the tally, Ferrell v. Air EVAC EMS, Inc., No. 17-2554.
Ferrell went to an emergency room with chest pain. Emergency room staff arranged for an air ambulance operated by AIR EVAC to transport him to another hospital. Ferrell's health insurance only covered a thousand dollars of this helicopter flight, so Ferrell was billed over $29,000. Ferrell then sued on behalf of a class of those similarly situated, alleging that there was no enforceable contract with the air-ambulance provider because he was not informed of the price of the helicopter flight before taking it. The problem, though, is that the federal Airline Deregulation Act (the "ADA") comes into play here, as this is about air travel. The ADA, among other things, prohibits states from regulating the cost of air transportation.
Ferrell argued that the ADA should not apply to air-ambulance services, which are unique from other forms of air transportation. But the plain language of the ADA is broad enough to include air-ambulance services, so the court refused to exclude them from the preemption. Because Ferrell was bringing a class action, this doomed all of his claims.
The court did find that Air EVAC could potentially bring a breach of contract claim if Ferrell refuses to pay, and that Ferrell could then assert there was no enforceable contract in defense. In that case, Air EVAC could then possibly rely on equity to recover the value of the services provided, and then the court would be able to determine that value without ADA preemption.
Which is a pretty complicated analysis and decision. Surely this is not the most efficient way we can think of to handle health care in this country. But I suppose there is something poetic about having to lump in health care with the air transportation industry: They often are both perplexing in their treatment of their customers.
Friday, July 27, 2018
23andMe, one of the services that takes your saliva and analyzes your DNA for you, has announced a partnership with GlaxoSmithKline to use its DNA database to develop targeted drugs. I've written before about the fairly broad consent Ancestry.com's similar home DNA service elicited under its terms and conditions, which 23andMe also enjoyed. According to the article, 23andMe considers itself to have gained consent from its users, and is allowing users to opt out if you wish.
I think most of us have little problem with our DNA being used to find cures for terrible diseases and afflictions. If my DNA could be used to cure cancer, I am happy to line right up. (And, in fact, when my father had cancer, we did provide express consent to his doctors for us to assist in their DNA research.) But I think most of us, if asked, would have said something like, "I want my DNA to be used to cure cancer so people with cancer can be cured."
However, the way the pharmaceutical industry works in this country, that's not exactly what happens. The cure, as we know because we talk about health insurance A LOT, is then available to those who can afford it. Many of Wikipedia's drug entries keep track of the cost of pharmaceuticals in the U.S. against the cost of producing the drug, as can be seen here. So I don't want to sound like a terrible person trying to stall progress, but, well, the users in the database paid to use 23andMe, and now their DNA is being sold to a pharmaceutical company, so 23andMe has now made money off of the DNA twice, and then it's going to get used to develop into medications that will then be sold again, back to the people who need the medications, who may be the same people whose DNA was used to develop the drug. At that point your DNA has been profited off of three times, and never by you, and possibly twice at your own personal expense. And, if history is anything to go by, that pharmaceutical is your DNA coming back to you at a tremendous mark-up. So you could find yourself in a position where you paid to have a pharmaceutical company take your DNA, turn it into the drug that could save your life, and then ask you to pay, again, much more money than you have, to gain access to the drug. You paid to donate your DNA so they could charge you for the benefits it provides. And, according to the terms and conditions, you consented to that.