ContractsProf Blog

Two District Courts Weight in on the FTC's Ban on Non-Competes

Back in April, we posted about the new Federal Trade Commission (FTC) rule that bans most non-competes and may also ban some other restraints on the ability of employees to leave their jobs.  The response was quick and predictable.  Ryan, LLC v. Federal Trade Commission was filed pretty much immediately in the Northern District of Texas.  ATS Tree Services, LLC (ATS) filed its claim in the Eastern District of Pennsylvania two days after the new rule was promulgated.

The Ryan court struck first, issuing a preliminary injunction in early July.  The Eastern District denied ATS's motion for a preliminary injunction in ATS Tree Services, LLC  v. Federal Trade Commission in late July.  Then, on August 20th, the District Court in the Ryan case granted Ryan's motion to set aside the non-compete rule and enjoined it from going into effect on its effective date of September 4th or thereafter.

In the Pennsylvania case, ATS claimed that it would be irreparably harmed if it could not require that its employees sign non-compete clauses prohibiting them from working for rival tree-trimming services for one year after leaving ATS.  ATS claimed that is non-compete clause is necessary to enable ATS to recoup its investment on the specialized training that its employees receive.  ATS argued that the FTC either lacked regulatory power to ban non-competes or exceeded that power.  In the alternative, ATS argued that the ban was arbitrary and capricious.  If none of those things are true, ATS maintained that the FTC Act is an unconstitutional delegation of legislative power to the agency under the major questions doctrine.

In denying ATS's motion for a preliminary injunction Judge Hodge (left) first found that ATS would suffer no irreparable harm from the non-compete ban.  Moreover, she concluded that ATS had not established that it would likely win on the merits.  ATS could not establish irreparable harm because its alleged losses were either de minimis or in any case insufficient to amount to irreparable harm.  Moreover, ATS  failed to make a credible factual  allegation that there was any danger that it would lose employees once the ban goes into effect. 

Judge Hodge was no more impressed with the somewhat exotic argument that the rule would strip ATS of its contractual rights.  She did not find any binding caselaw endorsing the argument that loss of contractual rights amounts to irreparable harm. To the extent that the harm related to employees using their ATS training to benefit rival businesses, she did she not see why ATS could not protect its contractual rights through the less onerous mechanism of non-disclosure agreements.

On the merits, Judge Hodge was satisfied that the FTC had power to enact the law and that doing was was not arbitrary and capricious.  She also found that the FTC had previously issued equally sweeping rules without implicating the major questions doctrine and that this situation was thus distinguishable from recent cases in which SCOTUS invoked that doctrine.  Finally, Judge Hodge rejected ATS's argument based on Schechter Poultry  because it's not 1935, or at least not yet.

Things went differently before Judge Brown (right) in the Northern District of Texas.  Having already granted the motion for a preliminary injunction, it is hardly surprising that Judge Brown went ahead and granted the full injunction.  Unlike her preliminary injunction, however, which applied only to the named plaintiffs and intervenors, this injunction is nationwide.

She granted the motion for an injunction on multiple grounds.  First, she concluded that the FTC  lacked substantive rule-making authority with respect to unfair methods of competition and thus lacked authority to create the non-compete ban. In addition, Judge Brown found that the FTC acted arbitrarily and capriciously in creating the ban.  She found that the ban was "based on inconsistent and flawed empirical evidence," and that the FTC failed to consider the upside of non-compete agreements, disregarding substantial evidence supporting such agreements.  Just as Judge Hodge chided ATS for failing to consider how it might use devices other than its sweeping non-compete to protect its investment in its employees, Judge Brown faults the FTC for failing to consider less sweeping alternatives to the ban it imposed.  Having ruled on statutory grounds, Judge Brown did not address Ryan's constitutional claims.

Both opinions are persuasive in their own terms and they reach their conclusions categorically and without acknowledgment that the case is a close one.  It is challenging for a non-expert in administrative law to know which judge got it right.  My hunch is that this challenge would have been dismissed without much fanfare in the period between Schechter Poultry and the Roberts Court, and I suspect that an opinion like Judge Brown's would have been hard to imagine before Gundy. It may also be that executive agencies have gotten much more ambitious in this era of Congressional gridlock.  And so perhaps rules like this one were relatively rare before, say 2009.

Tenured Law Professor Seeks Declaratory Judgment that She Was Wrongfully Terminated

Professor Lauren Gilbert (left) has taught at the St. Thomas University School of Law since 2002, with tenure since 2009.  On July 18th of this year, she was informed by letter that her employment was terminated, effective July 19th. Here attorney tells the story over at The Faculty Lounge. The termination letter stated grounds for her termination.

Last week, Professor Gilbert filed a complaint seeking a declaratory judgment stating that she was wrongfully terminated.  She seeks reinstatement and back pay.  According to the complaint, Professor Gilbert was not terminated in accordance with procedures set out in the University's Faculty Handbook.  Until such procedures are complied with, according to the complaint, Professor Gilbert is entitled to retain her position and her salary.  

The grounds for the termination have a something old, something new, something troubling, something trivial aspect to them.  There was a serious incident in 2010 which resulted in her suspension without pay for two weeks.  There are serious allegations of a non-chalant response to an active shooter situation in 2022, which resulted in a written reprimand.  And then there were a number of incidents in the past academic year that sound to me like what happens when a faculty is factionalized and some faculty think that the administration is taking actions without proper consultation with faculty.  I have been on such a faculty, and many of us behaved badly at times.  Nobody was fired.  And in fact, much as we bickered behind close doors, faculty members continued to do their jobs, and I think we presented a united front for the students for the most part.  The last straw for St. Thomas's administration  (I'm not making this up) was that Professor Gilbert did not attend graduation.  Although she gave one month's notice that she would not attend, she neither sought nor received permission to skip the event.  This, the administration characterized as "yet another act of insubordination by you." Cue the gif of a soccer player pretending to writhe on the pitch in pain after tripping over a blade of grass.

The termination letter then goes on to quote something called the St. Thomas University Employee Handbook, which the University claims trumps the Faculty Handbook with respect to matters "outside of the classroom and/or academic pursuits." This case will have faculty members running to check out their own university's employee handbook, of whose existence they are, at most, dimly aware.  In any case, it is some sort of a problem, although perhaps not a justiciable one, if there is significant daylight between what the Employee Handbook permits the University to do and tenure guarantees required by the relevant accrediting agencies.

Stay tuned.  Let us hope for a happy resolution for all involved.

Disney, Contracts of Adhesion, and Arbitration-Clause Bootstrapping

Disney is in the news this week, and not in a good way.  For the truly awful facts of the case, you can't do better than Emily Crane's and Alexandra Steigrad's reporting in the New York Post here and here.  In short, Dr. Kanokporn Tangsuan had severe allergies.  She ate in a Disney restaurant.  She informed the restaurant of her allergies and the restaurant staff gave repeated assurances that her food was allergen-free.  Soon after her meal, she was dead, and an autopsy revealed that her death was caused by allergens. 

Okay, those are terrible facts. But what's going on with arbitration clauses in contracts of adhesion is, perhaps less dramatic, but still highly concerning.  Christopher Leslie has described what he terms "arbitration bootstrapping."  Professor Leslie defines bootstrapping as the corporate practice of loading "mandatory arbitration clauses with unconscionable contract terms."  Richard Frankel has published a thoughtful response here.  Increasingly, we are seeing a new form of arbitration bootstrapping; let's call it "arbitration-clause bootstrapping."  Once a consumer has "agreed" to an arbitration provision through one interaction with a business entity, that entity then tries to apply that same arbitration provision to some completely unrelated interaction with the entity.  I've been stockpiling posts all summer, and I keep on coming across these situations.  Earlier in the summer, we wrote about Andrea Boyack's scholarship on abuse on contract, and there's plenty more where that came from.

Image by DALL-E

So, getting back to the case, when Dr. Tangusuan's husband, Jeffrey Piccolo, sued Disney for negligence, Disney responded with a motion to compel arbitration.  It did so on two grounds.  First, Mr. Piccolo years ago signed up for a trial subscription to Disney +, and when he did so he "agreed" that all disputes should go to arbitration.  Second, one month before his wife's death, Mr. Piccolo bought tickets to the Epcot theme park using the "My Disney Experience" app, which also has an arbitration provision.  So, Disney's argument seems to be if you "agree" to arbitration with respect to one transaction with the company, you are agreeing to arbitration with respect to all interactions with the company.  And, as Christopher Leslie's scholarship suggests, that arbitration provision can be used to bootstrap additional terms, that otherwise might not be enforceable, into the parties' "agreement."  As Andrea Boyack's scholarship illustrates, consumers do not read the boilerplate terms of contracts of adhesion, hence the scare quotes bracketing forms of the word "agree" throughout this post.  

You might wonder what's so bad about arbitration.  Substantively, there might not be any difference in this case.  Still, I can think of at least two reasons why Mr. Piccolo and his attorneys might prefer litigation.  First, they might trust a jury rather than an arbitral panel to appropriately value their claim.  Second, they might want the publicity associated with litigation to shine a spotlight on Disney's conduct.  Of course, Disney's arbitration-clause bootstrapping has not helped it to avoid publicity in this case.  Nonetheless, both of those reasons to prefer litigation are also reasons why the threat of litigation enhances the settlement value of the claim.

None of this might matter in this case.  Even if the court allows Disney to engage in arbitration-clause bootstrapping, it might not think that the arbitration clause applies in this case, given that the suit is being brought on behalf of Dr. Tangusan's estate, which never "agreed" to arbitration.

UPDATE: David Horton (left), who is either maddeningly youthful or really needs to update his website, has provided a link to Disney's motion to compel.  My post noted that the estate is not a party to an arbitration provision.  David adds that neither is the defendant in the case, Walt Disney Parks and Resorts, U.S., Inc.  David's forthcoming article Accidental Arbitration, which was on my summer reading list but is now on my urgent reading list, covers the subject matter that I have called arbitration-clause bootstrapping.  He speaks of it in terms of defendants attempts "to enforce ultra-broad arbitration agreements that nobody at the time of contracting could have foreseen would be relevant to the lawsuit."  It is a topic that he also addressed in his already-published article Infinite Arbitration Clauses.

Oklahoma Supreme Court Finds Contract for Catholic Charter School Violates the Establishment Clause

I mean, is anybody really surprised? This case was brought by Oklahoma's Attorney General, Gentner Drummond (right), a conservative Republican, who believes in the rule of law.  That quality has caused a series of clashes between the Attorney General and the more committed cultural warriors in his party. 

In this case, Oklahoma's Virtual Charter School Board (the Board) has exclusive authority to form virtual schools. In October, 2023, the Board voted 3-2 to approve a charter contract with St. Isidore, a charter school formed by the Catholic Archdiocese of Oklahoma City and Catholic Diocese of Tulsa. St. Isidore describes itself as an instrument of the Catholic Church committed to the Church's evangelizing mission.

The contract entered into between the Board and St. Isidore departed in key ways from the standard contract that the Board entered into with other charter schools.  While a typical  charter school must warrant that it is not affiliated with a sectarian school or religious institution, the contract with St. Isidore states that St. Isidore is affiliated with a sectarian school or religious institution.  Other charter schools have to be non-sectarian.  St. Isidore's contract specifically recognizes its right to freely exercise its religious beliefs and practices consistent with its religious protections.

On June 25th, in Drummond v. Oklahoma Statewide Virtual Charter School Board, by a vote of 7-1, with one Justice recused, Oklahoma's Supreme Court found that the Board's plan to allow for a publicly-funded Catholic charter school violates Oklahoma's constitution.  Six Justices also found that the contract violated the federal Constitution's Establishment Clause.  

The Supreme Court first concluded that the Board's contract with St. Isidore violates Article II, Section 5 of the Oklahoma Constitution, which reads:

No public money or property shall ever be appropriated, applied, donated, or used, directly or indirectly, for the use, benefit, or support of any sect, church, denomination, or system of religion, or for the use, benefit, or support of any priest, preacher, minister, or other religious teacher or dignitary, or sectarian institution as such.

That seems pretty clear, and Oklahoma courts have repeatedly construed this provision as prohibiting state funding for sectarian schools.  Consistent with the state constitution, the Act allowing for the creation of charter schools also requires that they be non-sectarian.

The Supreme Court next finds that St. Isidore is a state actor because of its reliance on state funding.  I'm not sure why this holding is even necessary to the outcome of the case, as the suit is brought in mandamus against the Board.  St. Isidore intervened.  The point of the case is that the Board should be enjoined from contracting with St. Isidore.  I suspect that finding St. Isidore to be a state actor is relevant to the Court's Free Exercise discussion, which I summarize in the next paragraph.

Finally, the Court turns its attention to the U.S. Constitution.  It first finds that the contract with St. Isidore also fails under the U.S. Constitution's Establishment Clause.  It next finds no violation of the Free Exercise Clause, notwithstanding the recent trilogy of SCOTUS cases allowing for public funding to flow to private sectarian schools for certain purposes.  The difference here is that St. Isidore would be a public school.

The ability to admit that one is wrong about the law has been excised from the DNA of many Republican politicians.  And so, Oklahoma's Superintendent of Schools, Ryan Walters, previously discussed on this blog here and here and here, without the benefit of any legal training, doubles down on his commitment to state-funded religious eduction, writing on Twitter:

It’s my firm belief that once again, the Oklahoma Supreme Court got it wrong. The words ‘separation of church and state’ do not appear in our Constitution, and it is outrageous that the Oklahoma Supreme Court misunderstood key cases involving the First Amendment and sanctioned discrimination against Christians based solely on their faith.

Mr. Walters cites to the lone dissenting Justice (whose opinion can be found here), who found that because St. Isidore is not a state actor, denying it the opportunity to run a virtual charter school violates the U.S. Constitution's Free Exercise clause.  Because the dissent finds that St. Isidore is not a state actor, the relationship between the Board and the school is purely contractual, and there is nothing unconstitutional about the state contracting with sectarian entities.  Moreover, following on recent SCOTUS cases allowing state funds to flow to sectarian schools, the dissenting Justice finds that the Majority's order that the Board rescind its contract with St. Isidore violates the Free Exercise Clause.

This is a cutting-edge argument and an opportunity to petition SCOTUS for review.  SCOTUS has gone quite far in eliminating the "play in the joints" that once characterized its understanding of the First Amendment's religion clauses.  It used to be that states could allow funds to flow to sectarian educational institutions, either to be used for non-sectarian purposes or indirectly by allowing students or parents to direct state fellowships or education vouchers to the schools of their choice.  Recently, SCOTUS has held that where public education funds are available to private non-sectarian schools, they also must be available to private sectarian schools. Will SCOTUS be willing to take the next step and allow for the creation of public sectarian schools?  Stay tuned.

Update: Forever War Means Forever Detention Without Trial

Last week, in a fit of irrational exuberance, I reported on a plea deal to resolve the cases against three of the architects of the 9/11 attacks on the United States.  That plea deal has now been scuppered through the usual combination of thirst for retribution, political posturing on the one hand, and lack of political will on the other.  In short, as Carol Rosenberg and Eric Schmitt reported in The New York Times yesterday, under pressure from relatives of the dead and the same knuckleheads who prevented the overdue closure of the Guantanamo detention center during the Obama administration, Defense Secretary Lloyd J. Austin, III cancelled the plea deals.  Families of victims who supported the deal suffered "emotional whiplash."

Millions of people who were  alive that day feel some special connection to the events of 9/11.  Mine is that I worked in the World Trade Center and watched my office building burn that morning from the street.  I made it home in time to watch that building collapse on television. I reflected on that experience here. The men responsible for that catastrophe need to have their guilt adjudicated in a court of law which can be a context for fact-finding and some sort of ending to our national ordeal. 

Because the George W. Bush administration engaged in systematic violations of the laws of armed conflict in the form of "enhanced interrogation techniques" universally denounced as torture and cruel, inhuman and degrading treatment, it will not be possible to have a fully satisfying adjudication of the perpetrators' guilt.  One of the five defendants is now unfit to stand trial, likely because the conditions of his detention rendered him so. Evidence gathered against the others may not be admissible because it was produced under conditions that render it of dubious reliability as a true accounting of the facts.

The plea deals were likely the only path forward towards some sort of final reckoning with these mass murderers.  That path is now foreclosed and the national shame of indefinite detention without adjudication of guilt will continue.  Inhumane treatment of the detainees will not bring back the dead.  It just heaps on top of a human tragedy a national disgrace which also provides fodder for the sort of hatred that fueled the attacks whose perpetrators, it seems, will never be held to account.

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

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

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

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

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

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

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

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

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

By Stan Shebs, CC BY-SA 3.0

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

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

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

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

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

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

The heart of the new statute reads as follows:

Restrictive employment covenants; void and unenforceable.

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

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

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

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

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

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

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

University of California Sues Its Graduate Student Union

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

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

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

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

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

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

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

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

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

Non-Disclosure Agreements and the Public Interest

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

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

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

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

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

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

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

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

Tech Workers in Kenya Appeal to President Biden

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

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

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

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

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

Speaking of the Crappification of Work . . .

On Tuesday, I posted about Barbara Ehrenreich and the professional managerial class (PMC).  in that post, I shared an anecdote from the Know Your Enemy Podcast episode devoted to Ehrenreich's legacy in which one of the podcasters shared a story about trying to organize graduate students into a union.  The students were resistant, in part because they didn't think themselves worthy of a union. 

Not so at the University of California, where graduate student organizing has led to salary increases to $36,000 in the Fall.  So I learned from this story from the Mother Ship, Paul Caron's TaxProf Blog.  According to the story, clipped from the Chronicle of Higher Education, Amanda Reiterman was hired as a Lecturer to teach two 120-student sections of classes covering classical texts and Greek history at the University of Santa Cruz.  She recommended that the history department hire as her T.A. a recent graduate who was pursuing a masters degree.  When the department copied her on its offer letter to her former student, Professor Reiterman learned that the student's salary to be her teaching assistant would be 10% higher than her salary to teach the course.  She responded by quitting one of her two sections, instead teaching a small history course for which she would not need a T.A. She experienced learning that her student was earning more than her as "a gut punch."

Strange story, right? I mean how can it be that there are 240 students at UC Santa Cruz who want to attend a lecture course on ancient history? I wonder if any of them would be interested in taking contracts at the Oklahoma City University in the Fall, because I would love to have them.  The response is odd too. Learning that her T.A. is relatively well paid should not make Professor Reiterman want to quit.  She should just be happy that the union's efforts mean that her students can afford decent housing and meals other than packaged ramen noodles.  It should make her want to organize and demand the sort of remuneration she deserves. 

More generally, I wonder about the economics of the California state university system generally.  T.A's now earn four times what I earned when I was a graduate student at Cornell in the 1990s.  I did fine on my princely stipend, and when my wife and I both landed visiting professorships, bringing our household income over the $50,000 threshold, we felt financially secure in the moment (although prospects for future employment were gloomy).  

I understand that the cost of living in California is shockingly high, so I'm not sure $36,000/year in California goes any father than my $9000 in Ithaca, NY.  I just don't get where the money comes from.  According to the story from the Chronicle, there are 48,000 unionized graduate students, researchers and postdocs who work in the University of California system.  Their aggregate salary is now $1.728 billion, representing a $500 million increase over their aggregate salary from 2023.  The mind boggles.  If universities start spending that much money on graduate assistants, how do they have money left to recruit a football team? I mean, have the Santa Cruz Banana Slugs (above right) ever even played in bowl game? 

Taxpayers of Oklahoma Pay for a PR Firm to Promote Its State Superintendant of Schools

Corruption in Oklahoma is probably no worse than corruption in other states, but it just seems like it is both more petty and more shameless.

There's the Epic schools scandal. This was the state's first virtual charter school, and its founders syphoned off millions of taxpayer dollars for their own private use.  Meanwhile, between 2014 and 2020, the principals donated $500,000 to the campaigns of individual Oklahoma politicians and $2 million to various political action committees. The fraud investigation began in 2014.  The principals were charged in 2022 with racketeering, embezzlement, obtaining money by false pretense, conspiracy to commit a felony, violation of the Computer Crimes Act, submitting false documents to the state, and unlawful proceeds.  Who knows if the public will ever disgorge their ill-gotten gains or if they will ever serve time for their crimes. 

Then there's the Swadley's Foggy Bottom Kitchen scandal, which we summarized here.  In short, the state gave a local restaurant chain an exclusive license to provide food service in Oklahoma's state parks. The restaurant won the opportunity through a process in which it was the only bidder and then it overcharged the state for management fees.

The latest is a chapter from the hijinks and shenanigans of the State Superintendent of Schools, Ryan Walters (right), some of which were recounted here and here.  Last week, Jennifer Palmer, writing for The Oklahoman reported that a Republican lawmaker is trying to introduce limits on the state's 2025 budget to prohibit funds from being used to pay for Mr. Walter's  national publicity contract with Washington, D.C.-based Vought Strategies.

The contract potentially pays hundreds of thousands of dollars to the PR firm.  Mr. Walters claims that the purpose of the contract is to help recruit teachers.  Critics contend that the purpose of the contract is really to promote Mr. Walters' career on a national level.  None of the advertising spots thus far produced relate to teacher recruitment.  Rather, according to The Oklahoman, "Vought Strategies pitched interviews about fentanyl and the southern border, drag queens in the classroom, teacher unions, library books and [Mr. Walters'] appointment of Chaya Raichik, the far-right social media influencer behind Libs of TikTok, to a library advisory committee."

Despite clear political ties between Mr. Walters and the agency, inappropriate communications with the agency during a nominally competitive bid process, and questions about the agency's qualifications for a government contract under Oklahoma law, the contract remains in force.  If the Epic scandal is any indication, investigations will be on-going, and indictments will be handed down somewhere around 2035.  Meanwhile, if Mr. Walters really wants to attract teachers to Oklahoma, maybe he should stop trying to revoke their licenses for giving students access to books.

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. 

The 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.

The 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.

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? 

Thus OpenAI proposes to make contracting still more efficient.  According to Nitasha Tiku, Pranshu Verma, and Gerrit De Vynck, 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 her. I 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".

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

Over on the Law & Political Economy Blog, Davarian L. Baldwin 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.

Friday Frivolity: Use of AI Is No Excuse for Frivolous Court Filings

Because of this Blog, I have a Twitter account. As I result I have learned, among other things, the following incontrovertible facts:

• AI is the end of human thought, as we cannot get the current generation to do their own work, formulate ideas, or craft their own writings;
• AI is just a research tool, like a dictionary, a thesaurus, Google, or Wikipedia;
• Law teachers can allow students to use AI on assessments and still generate a good curve that accurately distinguishes students who learned the material and those who don't;
• Law teachers cannot allow students to use AI on assessments because it then becomes impossible to distinguish among students' responses in a meaningful way;
• Allowing students to use AI generates meaningful improvements in weak students' work, and, while it does not improve the quality of skilled' students' work, it helps them produce it more efficiently;
• Sophisticated chatbots can do very well on well-designed law exams;
• Sophisticated chatbots perform terribly -- barely passing -- on well-designed exams;
• Training students on AI is the best way to prepare them for practice; and
• Training students on AI may be a necessary supplement to traditional legal education, but the former will result in malpractice absent the latter.

The New York Times weighed in this week with an Op-Ed by Julia Angwin.  Among the studies she discusses is this re-evaluation of ChatGPT-4's performance on the UBE.

It is certainly true that, whatever we think, practicing attorneys are using AI to assist them.  The results are not always pretty.

Bob Ambrogi reports on Lawsites that the District Court for the Middle District of Florida issued a one-year suspension to an attorney who filed an AI-generated brief replete with "hallucinated" citations.  The suspension only applies to that court.  The attorney has not had his license suspended.  The judge issuing the suspension followed the recommendation of the court's grievance committee.

We learn from Michael A. Mora, reporting on Law.com, that the attorney in question is also facing discipline from the Florida bar.

The offending attorney's misconduct went beyond misplaced reliance on AI.  The grievance committee report included allegations of sanctionable behavior beyond misuse of AI.  One wonders whether misuse of AI was a symptom or a cause.

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.

Stuart 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.  

Mr. 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.

Teachers Bring Breach of Contract Suit Against the Oklahoma Department of Education

Keeping with this week's theme of Oklahoma news, we have a day in the life of the Oklahoma State Department of Eduction (OSDE) under the leadership of Ryan Walters (right). Mr. Walters is the State Superintendent of Schools.  I have never before known who the superintendent of schools was for the state in which I lived, but Mr. Walters manages to grab headlines almost every day.  The headlines are not about how much Oklahoma schools have improved or about the successes those schools have had in recruiting new teachers.  Rather, they tend to be about banning books, shutting down D.E.I. programs, partnering with providers of conservative educational materials, losing employees, including the entire legal team, and difficulties in accounting for federal funds allocated to Oklahoma.

Two teachers are suing Mr. Walters.  The two teachers allege that they signed a contract in November, 2023, in exchange for a $50,000 signing bonus.  In January 2024, the OSDE demanded repayment of the bonus, and according to the complaint in Bojorquez v. State of Oklahoma, Mr. Walters claimed that the only reason they had been paid the bonuses was that they lied on their applications.  As a result of that statement, plaintiffs are suing not just for breach of contract but also for defamation.  

Stay tuned.

The FTC's Rule Banning Non-Competes and the Response

The Federal Trade Commission (FTC) this week announced a new Final Rule on non-competes.  I was hoping for a short document that clearly and concisely lays out the new rule.  Instead, we got a a 570-page document that, truth be told, I will never read.  Here's the summary, which I did mange to read:

The final rule provides that it is an unfair method of competition—and therefore a violation of section 5—for persons to, among other things, enter into non-compete clauses (“non-competes”) with workers on or after the final rule’s effective date. With respect to existing non-competes—i.e., non-competes entered into before the effective date—the final rule adopts a different approach for senior executives than for other workers. For senior executives, existing non-competes can remain in force, while existing non-competes with other workers are not enforceable after the effective date.

According to the FTC's website, the new rule will "will generate over 8,500 new businesses each year, raise worker wages, lower health care costs, and boost innovation."  

Well, that sounds great.  Surely, nobody would oppose all that.

Well, nobody except Ryan, LLC, which was the first to file a federal lawsuit challenging the new rule in Ryan, LLC v. FTC.  The main argument relies on a favored weapon in the anti-regulatory arsenal, the newly minted "major questions doctrine."  The FTC lacks the authority, Ryan argues, under congressional statutes, to issue so sweeping a regulation.  In fact, Ryan argues, the FTC lacks power to regulate unfair competition.  It did not do so until 1962, and it never sought to regulate non-competes until 2022.

As to substance, Ryan argues, "Workers, firms, and the economy all benefit from reasonable non-compete agreements."  The key term here is "reasonable."  Ryan contends that courts have long assessed the reasonableness of non-compete agreements.  Regulation here is unnecessary, as the courts have already struck the right balance among competing interests. 

The causes of action are predictable.  Count I, citing the major questions doctrine, alleges that the FTC lacks authority to adopt the new rule.  Count II, citing the non-delegation doctrine, Schechter Poultry (that old chestnut!), and Justice Gorsuch's dissent in Gundy, alleges that allowing the FTC to regulate in this area would be an unconstitutional delegation of legislative powers to the executive branch.  Count III, citing the Vesting Clause thesis and the unitary executive, alleges that the FTC Act violates Article II, because its commissioners can only be terminated by the President for cause.  Count IV seeks a declaration: vacating the new rule; finding that the FTC has no authority to regulate unfair competition; that the FTC claim of authority to issue the rule violates the non-delegation doctrine; and that the structure of the FTC violates Article II.  

Sounds crazy right?  Not to these folks.

I mean, should the courts strike down an entire agency because they don't like one rule, for which the agency provided a 570-page explanation?  Needless to say, if an agency got out over its skis, Congress could yank it back by issuing its own clarifying instructions.  But in our world, apparently, the power to do so is vested not through Article I, and not through Article II, but through Article III.  We the people, in order to form a perfect juristocracy . . .