ContractsProf Blog

Friday Frivolity: Sid DeLong on the “If by Whiskey” Method

If by Whiskey
Sidney W. DeLong

The Whiskey Speech was delivered on April 4, 1952, to the Mississippi legislature, which was considering whether to repeal Mississippi’s prohibition of the sale of alcohol. The speech was delivered by Noah S. Sweat Jr., who later went on to become a law professor at the University of Mississippi.

My friends, I had not intended to discuss this controversial subject at this particular time. However, I want you to know that I do not shun controversy. On the contrary, I will take a stand on any issue at any time, regardless of how fraught with controversy it might be. You have asked me how I feel about whiskey. All right, this is how I feel about whiskey:

If when you say whiskey you mean the devil's brew, the poison scourge, the bloody monster, that defiles innocence, dethrones reason, destroys the home, creates misery and poverty, yea, literally takes the bread from the mouths of little children; if you mean the evil drink that topples the Christian man and woman from the pinnacle of righteous, gracious living into the bottomless pit of degradation, and despair, and shame and helplessness, and hopelessness, then certainly I am against it.

But, if when you say whiskey you mean the oil of conversation, the philosophic wine, the ale that is consumed when good fellows get together, that puts a song in their hearts and laughter on their lips, and the warm glow of contentment in their eyes; if you mean Christmas cheer; if you mean the stimulating drink that puts the spring in the old gentleman's step on a frosty, crispy morning; if you mean the drink which enables a man to magnify his joy, and his happiness, and to forget, if only for a little while, life's great tragedies, and heartaches, and sorrows; if you mean that drink, the sale of which pours into our treasuries untold millions of dollars, which are used to provide tender care for our little crippled children, our blind, our deaf, our dumb, our pitiful aged and infirm; to build highways and hospitals and schools, then certainly I am for it.

This is my stand. I will not retreat from it. I will not compromise.

Here is a reenactment:

While many have condemned The Whiskey Speech as an epitome of the fallacy of equivocation, a politician talking out or both sides of his mouth in order not to alienate either the “Wets” who wanted liquor sales or the “Drys” who preferred prohibition.

I instead think of it as sheer genius and, indeed, the most reliable method to form a fair opinion on anything. The “If-by-whiskey” method seems perfectly suited to many of the issues dividing Americans.

For example: As an exercise, imagine how you would complete the two contrasting paragraphs that might follow the following prompts:

“If by undocumented immigrants, you mean . . . .”

“If by capitalists, you mean . . . .”

“If by Christians, you mean . . . .”

“If by artificial intelligence, you mean . . . .”

Sidney DeLong

Simplistic answers to complex issues are more difficult after this exercise. (If you have trouble generating opposing descriptions, perhaps a chatbot will help you.)

The If-by-whiskey exercise also exposes a phenomenon I once called call “paradigmatic thinking” in order to explain our paradoxical law of secrets blackmail. A secrets blackmailer who is legally free to disclose someone else’s embarrassing secret commits blackmail if he demands money for keeping the secret. Yet paradoxically, he may lawfully accept an unsolicited “bribe” from the other person not to disclose.  Why do the two identical exchanges have such dramatically different legal consequences?

My explanation was that the different treatment resulted from two different ways to imagine the circumstances that gave rise to them. Criminal statutes such as the law of extortion often read like mathematical theorems involving the relations of bloodless characters known as A and B involved in abstractly defined activities. In order to invest these abstract rules with moral value, we must reimagine them involving real people in real life situations. Like the actual people who will be arrested and tried, the cases can be quite different: we confront conflicting paradigms with different moral values. And the different ways in which we “cast” these dramas lead to radically different moral conclusions.

Contrasting blackmailer paradigms were on display in the #MeToo movement in which private claims against abusers involved their payment of damages in return for a release and a confidentiality agreement.

“If by blackmailer you mean an opportunistic swindler seeking to profit by threatening to destroy the marriage and reputation of a man desperate to keep his misstep a secret” you will think a one way about the law of blackmail.

“But if by blackmailer you mean a victimized young woman desperately seeking compensation for the harm she suffered at the hands of a scoundrel who criminally abused her and who demands that she keep his secret in order to be paid,” then you will think a different way about the law of blackmail.

Finally, as the last example shows, the ‘if-by-whiskey’ approach has one rhetorical bias. The second of two contrasting depictions will tend to trump the first one. Imagine reversing the order of The Whiskey Speech paragraphs, so that the first ended with “tender care for our little crippled children, our blind, our deaf, our dumb, our pitiful aged and infirm; to build highways and hospitals and schools” and then the second one ended with “the bottomless pit of degradation, and despair and shame and helplessness and hopelessness.”  Your vote would swing from “Wet” to “Dry.”

Appellate Court Remands Flo Rida’s Case Against Celsius for a Recalculation of Damages

Two years ago, we brought you news of an $82 million judgment in favor of Flo Rida (right) against Celsius Holdings, Inc. (Celsius) a fitness energy drink company. On appeal before Florida’s District Court of Appeal for the Fourth District in Celsius Holdings, Inc. v. Strong Arm Productions, USA, Inc., the Court noted that Celsius challenged the verdict on many grounds, only one of which had merit. The damages were calculated based on the value of Celsius stock at the time of trial. Damages should have been calculated based on the value at the time of breach.

The parties entered into an endorsement deal in 2014. They entered into a second deal in 2016, and the relationship ended in 2018. Under the agreement, Mr. Rida was entitled to up to 1 million shares of company stock, assuming certain sales benchmarks were met.  When Mr. Rida demanded payment in 2021, the company claimed that the benchmarks had not been met. After trial, a jury found otherwise. The breach occurred in April 2021, but the jury was permitted to determined damages based on the value of the stock as of January 2023. That was error.

I think Mr. Rida will still be okay. Celsius stock was worth 50 cents/share when he signed the endorsement deal in 2014. By the time of breach, it was selling at $57.30/share.The appropriate time for valuation is either April 2021 or, because the stock was restricted and could not be sold right away, November, 2021. The court remanded for the trial court to determine that issue.

Discrimination in Advertising Claims Against McDonald’s Will Proceed to Trial

In December 2021, Entertainment Studio Networks (ESN) and other entities owned and controlled by Byron Allen, a Black entrepreneur, brought suit against McDonald’s. ESN, which operates seven television networks,  alleged that, although it reached out to McDonald’s’ advertising agency, OMD Worldwide (OMD), OMD never recommended that McDonald’s place ads on ESN. ESN alleges that it was directed to contact another advertising agency, Burrell Communications (Burrell), which McDonald’s used to reach Black audiences. ESN objected that its content is not exclusively targeted at the Black community, and yet it is shut out from general advertising revenues. ESN alleges that McDonald thus discriminates against Black-owned businesses, in violation of 42 U.S.C. § 1981, in the way it allocates its advertising dollars.

In Entertainment Studio Networks v. McDonald’s USA, LLC, the District Court for the Central District of California found that ESN’s allegations were sufficient to survive a motion for summary judgment. The case is a pretty good vehicle for teaching § 1981, for those who do so. In a guest post from a few years back, Charles Calleros shared his approach to teaching § 1981, which I adopted for a few years. By the way, the link to the case is behind a paywall. I could not find a free version.

In order to state a § 1981 claim, a plaintiff must allege: an attempt to contract for services; that those services are available to similarly-situated persons who are not members of a protected class; and that, but for racial animus, defendant would have contracted with plaintiff. There seems to be no dispute that ESN has alleged facts sufficient to satisfy the first prong of the test for the purposes of summary judgment. Because ESN has no direct evidence of discriminatory intent, it must make out a prima facie case of discrimination, at which point the burden shifts to McDonald’s to provide a non-discriminatory explanation for its conduct.

ESN attempted to establish its prima facie case by alleging that it and other Black-owned businesses were “relegated” to work with Burrell. Although ESN was able to meet with people from OMD, the OMD representatives were just “going through the motions” and never intended to direct advertising revenues to Black-owned businesses. McDonald’s responded by first questioning whether ESN’s comparators were similarly situated to the Black-owned organizations against which McDonald’s is alleged to have discriminated. The Court weighed the expert testimony and determined that material issues of fact remained.

McDonald’s proffered various non-discriminatory reasons for not working with ESN through OMD. After evaluating all of the arguments, the Court concluded  that "the question of whether plaintiffs have raised a genuine dispute of material fact on both of their discrimination theories is a close call.” Nonetheless, as the burden on plaintiff to raise a triable issue of fact as to pretext is not onerous, ESN had created triable issues of fact as to their claims. 

Is a Farmer a Merchant? Thomas Hardy Weighs In

Each year, when I teach merchant status, I experience mixed emotions when I come upon the conflicting caselaw regarding the merchant status of farmers. Scott Burnham and James Brook, the authors of the Examples and Explanations book that I use, gather cases and inform us that courts are "split just about down the middle” on whether farmers, selling their annual crops to agribusinesses are merchants. Depends on the farmer; depends on the facts.

My emotions are mixed because, I surmise,  the courts are trying to help the farmers by not imposing on them the constructive knowledge or special obligations that attach to merchant status. As between farmers and agribusinesses, my inclination is to want the farmers to win. On the other hand, it strikes me as condescending nonsense to pretend that farmers are not merchants for the purposes of selling their crops. Any Jared with a plaid shirt and some hops becomes a “master brewer” as soon as he opens his craft beer shop. How can it be that farmers, who may have worked their lands for generations and no doubt have organized their farms as business entities, are not merchants? My politics and my belief that courts ought to be guided by facts collide on this matter.

Akira Kurosawa (right) understood the business guile of farmers. In his masterpiece, The Seven Samurai, Toshiro Mifune’s Kikuchiyo knows that even the most humble of subsistence farmers are not without means. Sure enough, when the time is right, the villagers produce a feast from hidden caches of goods that even the most cunning of interlopers could not discover. 

Thomas Hardy provides a wonderful illustration, in Chapter XII of Far from the Madding Crowd, of the wiles of the ordinary farmer when he has his protagonist, Bathsheba Everdene, suddenly emerge at the Casterbridge corn market selling the products of her lands. The scene is worth quoting at length.

The first public evidence of Bathsheba’s decision to be a farmer in her own person and by proxy no more was her appearance the following market-day in the cornmarket at Casterbridge.

The low though extensive hall, supported by beams and pillars, and latterly dignified by the name of Corn Exchange, was thronged with hot men who talked among each other in twos and threes, the speaker of the minute looking sideways into his auditor’s face and concentrating his argument by a contraction of one eyelid during delivery. The greater number carried in their hands ground-ash saplings, using them partly as walking-sticks and partly for poking up pigs, sheep, neighbours with their backs turned, and restful things in general, which seemed to require such treatment in the course of their peregrinations. During conversations each subjected his sapling to great varieties of usage—bending it round his back, forming an arch of it between his two hands, overweighting it on the ground till it reached nearly a semicircle; or perhaps it was hastily tucked under the arm whilst the sample-bag was pulled forth and a handful of corn poured into the palm, which, after criticism, was flung upon the floor, an issue of events perfectly well known to half-a-dozen acute town-bred fowls which had as usual crept into the building unobserved, and waited the fulfilment of their anticipations with a high-stretched neck and oblique eye.

Among these heavy yeomen a feminine figure glided, the single one of her sex that the room contained. She was prettily and even daintily dressed. She moved between them as a chaise between carts, was heard after them as a romance after sermons, was felt among them like a breeze among furnaces. It had required a little determination—far more than she had at first imagined—to take up a position here, for at her first entry the lumbering dialogues had ceased, nearly every face had been turned towards her, and those that were already turned rigidly fixed there.

Two or three only of the farmers were personally known to Bathsheba, and to these she had made her way. But if she was to be the practical woman she had intended to show herself, business must be carried on, introductions or none, and she ultimately acquired confidence enough to speak and reply boldly to men merely known to her by hearsay. Bathsheba too had her sample-bags, and by degrees adopted the professional pour into the hand—holding up the grains in her narrow palm for inspection, in perfect Casterbridge manner.

Something in the exact arch of her upper unbroken row of teeth, and in the keenly pointed corners of her red mouth when, with parted lips, she somewhat defiantly turned up her face to argue a point with a tall man, suggested that there was potentiality enough in that lithe slip of humanity for alarming exploits of sex, and daring enough to carry them out. But her eyes had a softness—invariably a softness—which, had they not been dark, would have seemed mistiness; as they were, it lowered an expression that might have been piercing to simple clearness.

Strange to say of a woman in full bloom and vigor, she always allowed her interlocutors to finish their statements before rejoining with hers. In arguing on prices, she held to her own firmly, as was natural in a dealer, and reduced theirs persistently, as was inevitable in a woman. But there was an elasticity in her firmness which removed it from obstinacy, as there was a naïveté in her cheapening which saved it from meanness.

Those of the farmers with whom she had no dealings (by far the greater part) were continually asking each other, “Who is she?” The reply would be—

“Farmer Everdene’s niece; took on Weatherbury Upper Farm; turned away the baily, and swears she’ll do everything herself.”

Of course, the context of the caselaw is different. There is no market. The goods are bought and sold unseen, in bulk, and likely prior to harvest and perhaps prior to planting. No matter, I think. It is just peculiar for courts to pretend that the typical farmer could not, if the situation arose, bargain with the same commercial finesse as Bathsheba Everdene exhibits.

A Bone to Pick with the Supreme Court of Ohio?

One of the joys of teaching sales are the “reasonable expectation of the biter” cases such as Webster v. Blue Ship Tea Room, Inc. In addition to presenting a difficult puzzle regarding the scope of liability on implied warranties, the case provides a loving account of what separates chowder, "a hearty dish, originally designed to satisfy the appetites of our seamen and fishermen” from some "insipid broth as is customarily served to convalescents.” The reasonable expectation of the biter cases are on the borderline between tort law and warranty. But what if the thing being bitten is a “boneless” chicken wing. That may taste like chicken, but it sounds like an express warranty, a very different matter.

In Berkheimer v REKM, L.L.C., Mr. Berkheimer swallowed a bone hidden in a “boneless” chicken wing that he paired with a parmesan garlic sauce.  The five-centimeter bone lodged in and tore his esophagus, causing significant injury. Perhaps one day an upstate New York court will write an opinion modeled on Webster bemoaning the hard times on which one of Buffalo’s signature contributions to American cuisine has fallen. But my opposition to boneless "chicken wings” does not leave me bereft of sympathy for Mr. Berkheimer.

Mr. Berkheimer sued the restaurant and its supplier alleging negligence, breach of warranty, adulterated food, misbranded food, and violations of the Ohio Deceptive Trade Practices Act. The trial court granted summary judgment to the defendants, and the appellate court affirmed, finding that "a reasonable consumer could have reasonably anticipated and guarded against the bone at issue in this case.”  The Supreme Court of Ohio accepted jurisdiction to address whether a jury needed to decide "whether a consumer should reasonably expect, anticipate, and guard against an injurious substance that has specifically been disclaimed by the seller."

The court makes much of its “hybrid” foreign-natural test, but it seems like there is really only one test, which is to ask whether a reasonable consumer would have expected the object to be in their food. If the object if foreign, the answer is almost always no. If the object is natural, then the test is more contextual. Should one expect fragments of shell when one eats oysters? Should one be on the lookout for chicken bones in a chicken-pot pie? Those questions are hard to answer and bound by the facts of the case and the context of the dining culture. Webster was attuned to this, noting that a person eating fish chowder in a New England fishing village should come to the experience with different expectations than some land lubber in Des Moines eating fish chowder in a Denny’s. 

By Clotee Pridgen Allochuku CC BY 2.0

I am completely flummoxed by the majority's analysis in this case. The court treats it exclusively as a negligence case, with only a passing reference to warranties. Notwithstanding a dissent, the majority declares that, “regarding the food item’s being called a 'boneless wing,' it is common sense that that label was merely a description of the cooking style.” Given the dissent’s opposing view of the dictates of common sense, why not ask jurors for their view of what “boneless” means? The majority notes that such "boneless chicken wings” likely aren’t actual wings any more than chicken fingers are actual fingers. It’s a good point, but “boneless” is not a “cooking style;” my common sense tells me that “boneless” means that there are no bones. As the dissent points out, that’s what the dictionaries tell us as well. The majority draws an analogy to fish filets, which may contain some bones, but chicken bones are not like fish bones. In any case, what about this is a question of law that judges are uniquely qualified to answer?

At first I had no idea what the Majority meant by calling “boneless” a “cooking style.” The court implied that “boneless” was no more a guarantee than was calling the food item “wings.”  The court does not cite the relevant language from the UCC’s § 2-313, which states:

(b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.

To my mind, “boneless” does not describe a cooking style but is a description of the goods and thus a warranty. And “boneless” is a basis of the bargain in a way that “wings” is not, because, I thought, nobody would sue because their boneless chicken wings were actually made of breast meat. The “wings” part was not a basis of the bargain.  Indeed, in the case of “chicken wings” or “Buffalo chicken wings,” the words do describe a cooking style. “Boneless” does not.

A colleague informed me otherwise. A frequent filer has initiated a class action claiming Buffalo Wild Wings engages in a deceptive business practice in calling its product “chicken wings” when it is in fact breast meat. Now that seems like a bone-headed complaint to me.

I have no opinion on whether the case is correctly decided as a matter of tort doctrine, but if the question is whether a reasonable consumer should expect a chicken wing that is warranted as “boneless” to contain a five-centimeter shiv-like chicken bone, that question must be put to a jury. There is no lump of flesh with a hidden legal bone for a court to extract. The jury can be instructed on the reasonable expectations of the biter standard and take it from there. However, this case is distinguishable from Webster and similar cases, because those are about the implied warranty of merchantability. Here we have an express warranty. Am I the only one screaming “What part of ‘boneless’ do you not understand?"

The dissent eloquently makes the obvious case that the question should have been put to the jury. That, at the very least, is the right position, but given that the chicken in question was warranted as boneless, I’m not certain why there is a set of fact on which the supplier at least is not liable for breach of an express warranty. The dissent acknowledges that there was a warranty here and hectors the majority for its proclamations of common-sense conclusions that are so confident that they can be made without any citation to authority. But the dissent too, while talking of warranties, nonetheless treats the issue as one of negligence. Reasonable care does not shield the issuer of an express warranty from liability.

Plaintiff's attorney may not have teed up the issue as clearly as one would wish. It is not clear whether the warranty claim was preserved on appeal. Moreover, as our co-blogger Sid DeLong pointed out, the best cause of action for plaintiff may have sounded in products liability under § 402A of the Restatement of Torts law.  Under that doctrine, the analysis focuses on the appropriate question: Is a food product that one ordinarily eats by popping it into one’s mouth unreasonably dangerous when it contains a hidden sharp bone over one inch long? 

Sometimes the Little Guy Is Just Being a Jerk

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

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

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

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

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

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

Friday Frivolity: Liquid Death News

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

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

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

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

Strike Averted in the Airline Food Industry

As Jerry Seinfeld (right, tapping on the window of the Oval Office) might ask, "What's the deal with airline food service workers?"  Well, the deal is that they agreed at the end of August to a contract, narrowly avoiding a strike, after negotiations stretching back to the 2017.  You can find the union's statement here.

Important excerpt:

Highlights include raising the minimum wage nationwide to $17 per hour, a new quality, affordable healthcare plan, a new wage structure that increases year to year and rewards both years of service and job skills.  Workers will also receive additional sick time and better equipment to keep them safe when working in extreme temperatures, from refrigerated food prep rooms to hot airport tarmacs.

Sounds like a win.

California District Court Grants Preliminary Injunction to Pepperidge Farm Distributor

This case illustrates what happens when COVID-19 and the need for ready access to Pepperidge Farm Goldfish crackers collide. Train wreck. You can't look away.  Pepperidge Farm's behavior in this litigation certainly is fishy, and the District Court doesn't seem inclined to catch and release.

In August 2017, Vital Distributions, LLC (Vital) entered into an agreement with Pepperidge Farm, Incorporated (Pepperidge) to serve as its exclusive distribution agent for two California counties.  At the time the parties entered into their agreement, Pepperidge also proffered an E-Commerce Acknowledgment (the Acknowledgment), which purported to put Vital on notice that the parties' agreement did not prevent Pepperidge from entering into separate distribution agreements through electronic means.  At the time that the parties executed their agreement, Vital rejected the Acknowledgment and refused to sign it.  Vital made clear its understanding that it was to serve as Pepperidge's exclusive distributor for all purposes in the two California counties.

Vital was aware of an Amazon distribution center in the region.  It knew that its agreement with Pepperidge would be nearly worthless if it had to sign the Acknowledgment.  Pepperidge's representative warned that Pepperidge might not agree to sign without the Acknowledgment, but in the end Pepperidge did sign.  Under the agreement, Vital got paid for storage and delivery services, and it also received commissions on all distributions, whether through ordinary or e-commerce, within its territory.

The agreement included a carve-out for deliveries to chain stores that insisted on direct deliveries from Pepperidge to their warehouses, but only after Pepperidge attempted in good faith to persuade the chains to use Vital's services and those chains insisted on bypassing the agreement.  Finally, Pepperidge was contractually obligated to provide amounts of its products to Vital sufficient to guarantee an adequate and fresh supply.

The parties worked together well until COVID hit. Then, product panics hit. Demand for Pepperidge products soared, especially Goldfish crackers, and Pepperidge started meeting that demand through Amazon. Even after shoppers stopped braining each other in pursuit of toilet paper, Pepperidge continue to meet demand through Amazon while providing Vital with half the product it had previously supplied, harming Vital's business relations with retail stores. Vital's customers took to ordering the product they so desperately needed through the Internet.

Vital sued alleging breach of contract and breach of the implied covenant of good faith and fair dealing.  It sought an accounting and declaratory relief.   Pepperidge's motion to dismiss was denied; Vital's motion for discovery was granted, as was its motion for a temporary restraining order.  Back in April, in Vital Distribution, LLC v. Pepperidge Farm, Inc., the District Court granted Vital's motion for a preliminary injunction.

Supervillain Snidely Whiplash, auditioning for the role of Pepperidge Farm in the film version of this case

Soon after an unfavorable discovery ruling, Pepperidge Farm sought to exercise a buyback option provided for in Article 20 of the original agreement.  Article 20 permitted Pepperidge Farm to buy back the distributorship for its market value plus 25%.  Charmingly, it exercised this purported option through an e-mail sent by a paralegal providing Vital with thirty minutes notice. It then disabled technology essential to Vital's distribution services. These actions were then subject to a temporary restraining order.  Pepperidge represented that the parties were working out a settlement that would effectuate the transfer of the distributorship back to Vital. In fact, Pepperidge continued to engage in shenanigans undermining Vital's relationships with distributors. Pepperidge attempted to characterize its conduct as business as usual.  The parties' relationship had soured and so it was exercising its buyback option.

The Court had little difficulty concluding that Vital would likely succeed on the merits of its breach of contract claim. Pepperidge did itself no favors by refusing to respond to recovery requests, making it easy for the Court to side with Vital on all material facts that might otherwise be disputed.  Similarly, the Court found that Vital would likely succeed on its claim that Pepperidge invoked the buyback provision in violation of the duty of good faith and fair dealing. Pepperidge presented no evidence of inadequate performance by Vital and thus had no justification for its invocation of the buyback provision or for its curious timing.  Bad faith is an amorphous concept, the Court noted, but we know it when we see it. If something looks like a fish, crunches like a fish, and tastes of cheddar, well, it's probably a Pepperidge Farm Goldfish being sold through e-commerce distributors in violation of an exclusive distribution agreement.

As you can imagine, the irreparable harm analysis, balance of the equities, and public policy considerations all went Vital's way.  The Court granted Vital's motion preliminarily enjoining Pepperidge from terminating or buying back Vital's distribution rights.

Friday Frivolity: Did Liquid Death Give Away a Jet on the DL?

We posted last month about Liquid Death's promotion that offered a real, actual jet to the lucky winner. In case you missed it, here is the ad.

I forgot to check the news on September 2oth, the date on which Liquid Death was to proclaim the winner, to see who had won and whether they had chosen the jet or its cash equivalent.  I checked this week. . . 

Mostly this is just a frivolity post, but it is also a symptom of the death of journalism. Media outlet after media outlet promoted Liquid Death's jet giveaway, providing the company with an avalanche of free publicity. And yet none of the "journalists" who thought the story newsworthy thought to follow up. It falls to this blog, which is hardly Reuters or the Associated Press, to do so. Don't call yourselves news media. Call yourselves Mad Men.

If anybody has any information about what become of the contest, please share. If there is nothing to share, does the promotion violate some consumer protection statutes?

Kentucky District Court Rejects Class Action Settlement in Papa John's Case

This happened last September, but I'm just catching up.  Unfortunately, I could find no updates on the posture of the case.

A proposed class of Papa John's employees formed, alleging that its franchisors systematically restricted employee compensation and opportunities by agreeing that individual Papa John’s franchises would not seek to hire each other's employees.  After protracted discovery, motion practice, and sending some class members to arbitration, the parties agreed to a $5 million settlement, which would come out to $33/class member, less attorneys' fees.  In addition, Papa John's promised to stop using and enforcing such no-poach provisions for five years.

The question before the U.S. District Court for the Western District of Kentucky in In Re: Papa John’s Employee and Franchisee Employee Antitrust Litigation was whether to preliminarily certify the class and approve the class-wide settlement.  In a decision that surprised the class-action community, the court refused to do so.

The applicable standard, from Fed. R. Civ. P. 23(e)(2), is that a court should approve a class-action settlement if it is "fair, reasonable, and adequate."  The court found that standard likely met.  Beyond that, the court also looked at the prerequisites under Rule 23(a): numerosity, commonality, typicality and adequacy of representation.  The class, which boasted over 400,ooo members, was certainly numerous, and given the expenses incurred and the small per-person recovery, the class action vehicle was obviously superior to individual litigation of claims.

However, the court was not satisfied that the sole named plaintiff was an adequate representative of the class, nor was it satisfied that plaintiffs had made a showing that common issues predominated in the case.  The court expressed reluctance to be the first to certify a class in a no-poach claim against a restaurant.  Moreover, the court recognized possible adequacy issues in that the named plaintiff was a manager who may not be best-situated to represent the interests of non-managerial employees.  There also might be a split between the interests of employees subject to arbitration agreements (which include class-action waivers) and those not subject to such agreements.  The court's typicality concern simply sounded in the lack of evidence that the named plaintiff tried to move between Papa John's stores.  We don't know whether she, as a manager, could have done so.

Perhaps most controversially, the court found that it could not address whether common issues predominate without some exploration of the merits of plaintiffs' anti-trust claims.  The court expressed skepticism regarding plaintiffs' core claim.  Yes, the no-poach rule would prevent a Papa John's employee from working at another Papa John's franchise.  But why wouldn't they then just find another job in the vast fast-food industry?

The court invited plaintiffs to supplement their submission and refile their amended motion for class settlement or extension request within thirty days. The amended motion seems to have been filed in November 2023. I have been unable to find more any more rulings. The case dates from 2018. 

Supreme Judicial Court of Massachusetts Weighs in on Handshake Agreement

In 2013, Wynn Resorts, Limited, through a Massachusetts subsidiary (collectively Wynn) sought to purchase a property in Massachusetts to set up a casino.  The original purchase price for the property was $75 million. The seller was FBT Realty (FBT), in which Anthony Gattineri owned a 46.69% stake. The Massachusetts Gaming Commission (the Commission) held up the deal, apparently because the Commission was concerned that there were connections between FBT and organized crime.

The concerns related to Mr. Gattineri's claim that he purchased a 12% interest in FBT from one Charles Lightbody. Records suggested deception about when the purchase had occurred. Moreover, it seemed that Mr. Gattineri had not paid the full amount that he owed Mr. Lightbody, creating the possibility that Mr. Lightbody retained an interest in FBT. Mr. Lightbody was a convicted felon with ties to organized crime.

Under pressure from the Commission, the parties re-priced the property deal at $35 million, apparently representing the value of the property if it were not used as a casino.  The three publicly-known members of FBT had to certify that they would be the exclusive recipients of the proceeds of the transaction.

Mr. Gattineri initially refused to sign the certification, but he was persuaded to do when Wynn vice-president Robert DeSilvio met with him in San Diego and orally agreed that Wynn would make Mr. Gattineri whole by paying him $19 million, representing his share of the $40 million difference between the original sale price and the reduced price (the San Diego Agreement).  He signed the certification, but Wynn never paid him the $19 million allegedly promised, so he sued in federal court.  

In Gattineri v. Wynn MA, LLC, the First Circuit certified the following two questions to the Supreme Judicial Court of Massachusetts

1. "Is the San Diego Agreement unenforceable because it violates [§] 21 of the Gaming Act?"
2. "If not, is the San Diego Agreement unenforceable for reasons of public policy of ensuring public confidence in the integrity of the gaming licensing process and in the strict oversight of all gaming establishments through a rigorous regulatory scheme?"

In another Gattineri v. Wynn MA, LLC, the Supreme Court held that the San Diego Agreement is unenforceable for reasons of public policy. The Commission was not informed of the San Diego Agreement, and that concealment prevented the Commission from performing its public function of ensuring that organized crime has no role in Massachusetts gaming establishments.

The court provides a detailed discussion of the balance it seeks to effect between principles of freedom of contract and the public policy interest at issue. Massachusetts legalized gambling with some reluctance, noting that there are pitfalls inherent in the introduction of large gambling establishments into the state. It thus empowered administrative agencies to strictly regulate the gaming industry. In order to fulfill its oversight function, the Commission had to be made aware of all transactions relating to the property deal between Wynn and GBT. It was not informed of the alleged side deal between Wynn and Mr. Gattineri. The enforcement of that deal would thus violate public policy, not only because it was concealed from the Commission but because the terms of the deal were "inconsistent with the publicly disclosed terms and conditions upon which the sale of the FBT property had been approved."

There was a side issue involving an allegation that the Commission had engaged in an unlawful taking by forcing the sale price down from $75 million to $35 million.  That issue was not relevant to Mr. Gattineri's case for breach of contract. The taking affected FBT, and FBT had brought its own action alleging a taking.  

Ultimately, the court saw no reason to answer the first certified question, finding that its answer to the second question decided the case: "An agreement, concealed from the commission empowered to review and approve casino licenses, and inconsistent with the terms presented to, and approved by, the commission to address its concerns about the possible involvement of organized crime, is unenforceable as a violation of public policy."

Friday Frivolity: Arizona Couple Excluded from Mickey Mouse Club

Thanks to OCU 1L Lynne Neveu (left) for sharing with me this cringe-inducing story. According to Seth Abramovitch of The Hollywood Reporter, Scott and Diana Anderson are both sixty, and they have been together for forty-four years. They own a golf course in Arizona.

Little known to those of us who think of Disney parks as places to take the children for occasional trips, Disney has an exclusive venue for Disney VIPs (that is, people who shell out a lot of money) called Club 33. The Andersons worked at it for twelve years before they were invited to join the Club, and they paid $50,000 (or $40,000, the story is not entirely internally consistent) for their first year of membership. Club 33, in case you were wondering, is located above the Pirates of the Caribbean ride, and they serve hard liquor there, a fact that will play a role in the rest of our story.  There is also a venue in California Adventure called the 1901 Lounge -- I hope that's because there you can also get absinthe and laudanum, or perhaps some old timey Coca Cola with all the original ingredients, but I digress. The Andersons visited these elite establishments upwards of eighty days a year.

But then tragedy struck. Mr. Anderson was cited for public intoxication at one of the venues. He protested that his symptoms were explained by a vestibular migraine brought on when he had a sip or two of red wine. Disney expelled the Andersons from the club forever. To make matters worse, Disney had Snow White's stepmother (right) deliver the news. The Andersons claim that Disney was retaliating against them for having accused another Club member of sexual harassment.  $400,000 in legal fees later, a jury sided with Disney.

Initially, it seemed that the Andersons were going to continue to fight, but now they have decided to take the high road. The article in The Hollywood Reporter includes a lengthy, dishy interview with the couple. Some highlights include:

• Annual fees for membership is $32,000, which the Andersons, who spent twelve times that amount trying to say in the Club, now say is "just insane";
• "Club 33 is really a glorified annual pass";
• And yet, Club members get booted out if Tom Hanks decides to have Thanksgiving Dinner at the venue, and don't get them started on Katy Perry!

And then the real dishy stuff begins:

• Club members get up to 100 park tickets, which they (not the Andersons, of course) then sell to Muggles;
• Club members (not the Andersons, of course) raid the Club for the latest merch and then sell it to . . . Muggles;
• Club members used to have access to Walt Disney's rooms, with original furnishings, and they could even use his bathroom, but now it is all roped off (I wonder why . . . ) and the furniture has been replaced with replicas;
• "It's a cult, and Walt's the messiah," say the couple, who brag about using Walt's toilet.

The couple had been disciplined by the Club before. After a member of their party knocked over a drink, the Club refused to offer them any more alcoholic beverages. Mrs. Anderson had words, at least one of which began with "f," with the manager, which resulted in a suspension.  Was Mrs. Anderson drunk? Impossible! Because "everyone knows" that she waters down her drinks.

Heard enough? Imagine how the reporter feels.  The interview, which I have reduced to bullet points, had already been edited for length and clarity and still was the length of a short Bildungsroman. And yet I still have so many follow-ups!

And that's the news from the Happiest Place on Earth, where the men are strong, the women's drinks are watered, and the children . . .  are not allowed entry.

Friday Frivolity: Liquid Death Tries to Top Pepsi with Its Own Jet Gimmick

Liquid Death is an interesting case of the self-aware, self-indulgent, post-modern marketing scheme. Stage one of marketing is to try to conflate in the mind of the audience appearance and reality. Post-modernism, among other things, questions whether we are really capable of distinguishing appearance and reality. See recent Presidential campaigns. Stage two of marketing embraces both phase one and insights drawn from post-modernism.  Advertisers now say, yes, we're lying to you, but we both know you can't distinguish appearances from reality, so why not buy something that appears flashy but we both know is actually nothing special, and we'll both have a good laugh because we are taking your money but you know that we are taking your money based on pure puffery? If you prefer, we can make it a non-fungible token.

Enter Liquid Death. "Don't Be Scared" the marketers tell us.  "It's just water.  And iced tea." But we've marketed it in such a way that you will think it is edgy and pay more for it. Not only that, but we've put it in aluminum cans, which are eco-friendly, because the only thing young people enjoy more than being edgy is being environmentally-aware and edgy.

But if you really want to reduce your carbon footprint, what you need is your own jet.  Sure beats the bus.

Despite Liquid Death's protestations that this is all very real, it seems to just look real.  The details of how it works are here. Winning this contest would get very expensive very quickly, as the rules note:

The winner is solely responsible for all costs and expenses associated with shipping, insuring, storing (e.g., in a hangar, except as set forth in Section 6 above), maintaining, and handling the Jet, all required Federal Aviation Administration (“FAA”) certification(s), permits, licenses and any other legally-required permissions, consents and/or documentation, as well as any and all federal, state, and local taxes, if any, that apply to the Prize (whether the Jet Prize or the Cash Prize, as applicable based on what the winner elected to receive).

But the winner has the option of taking cash ($257,000) instead of the jet.  The winner is to be announced on September 20th, at an event that promises to be very flashy. 

Don't be fooled by appearances. It is highly unlikely that anybody is going to take the jet, at least not as anything other than an investment that they can flip before they incur significant costs. Or you can just join in the fun, buy some Liquid Death, and murder your thirst.

A Passover Night Different From All Other Passover Nights . . .

Since 2008, Greenwald Caterers had been hosting a Passover seder for the Orthodox Jewish community at a hotel in Lancaster, Pennsylvania (the Hotel).  The contract gave community members the right to exclusive use of the entire hotel, with the exception of some common areas and represented that the hotel would maintain certain standards of cleanliness, including making sure that the facilities were maintained in accordance with Jewish regulations regarding kashrut -- all dining facilities had to be kosher and kosher for Passover.

In 2018, the Hotel was acquired by Wyndham and was undergoing re-branding and renovations.  Notwithstanding these developments, the parties entered into a five-year agreement that the Hotel would continue to host the seder through 2023.  However, according to the plaintiffs, they arrived for the 2019 seder to discover the Hotel in a state of disarray. 

One of the centerpieces of a Passover seder is the "Four Questions" usually read/chanted by the youngest participant in the seder.  The four questions begin by asking why this night is different from all other nights and then each verse of the four questions specifies ways in which the seder is different from other evening meals. 

In what ways was the 2019 seder in Lancaster different from all other seders? As the U.S. District Court for Eastern Pennsylvania  recounts in Greenwald Caterers LLC v. Lancaster Host LLC, attendees encountered in their rooms:

[C]at crates, cat litter, a “deeply inundating” smell of cat waste, plumbing issues, lack of water, sewage backups, mouse droppings, cockroaches, vermin, exposed nails, uncovered electrical outlets, mold, exposed lead paint, construction dust, non-functioning air conditioning, unmade beds, misplaced or missing furniture and beds, missing cots, missing doors, non-Kosher cooking utensils and cooking equipment, and inoperable telephones.

And of course, the kitchen facilities did not meet the Kosher standards specified in the contract.  It's hardly the ten plagues, but it sounds pretty bad. The herbs must have been especially bitter that evening.  Even after downing all four obligatory glasses of wine, nobody is going to be saying "Dayenu!"

And what's up with all the cats?  Were the cats brought in to address the mouse and other vermin problems or did this rebranding and renovation crew consist of childless cat ladies?  So many questions . . . .

Greenwald Caterers scrambled to accommodate its clients.  It hired extra staff, found lodging for some attendees at neighboring hotels, provided free food and linens to guests, secured generators and fuel, and set up a temporary cooking facility.  The court ruled on competing motions for summary judgment, denying plaintiffs' motion, granting defendants' motions in part, and moving the case a step closer to trial.

As to plaintiffs' motion, the court found that defendants had created disputes as to issues of fact with respect to each of plaintiffs claims for breach of contract. A jury must makes credibility determinations after hearing from fact witnesses.  As a result, the court denied plaintiffs motion for summary judgment as to their breach of contract and declaratory judgment claims

In the next part of the opinion, the court granted the Hotel's motion to preclude testimony from two of the plaintiffs' three expert witnesses.  A jury could hear from a third expert only as to certain issues.  The court then granted some portions of the defendants' motions for summary judgment, excluding certain categories of damages from the case going forward.  Five years after the incident, with the court having cleared away so many issues, I would be surprised if the case did not quickly proceed to settlement.  

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.

Nancy Kim, on SCOTUS, the Federal Arbitration Act, and Wonder Bread

The blog covered this case after oral argument.  Now that the case has been decided, Nancy Kim (left) reports on the outcome.

The U.S. Supreme Court weighed in on a matter today involving some yummy things* – baked goods, contracts and arbitration (okay maybe the last one not so much).  In Bissonnette v. LePage Bakeries Park Street, the petitioners were franchisees and distributors for Flowers Foods, a multi-billion-dollar producer and marketer of baked goods that I’ve never even heard of but that owns brands that I eat regularly, including my favorite, Dave’s Bread (which I just had for breakfast).  It also makes the suspiciously delicious Wonder Bread which is almost the exact opposite of Dave’s Bread.  Anyway, Bissonnette and Wojnarowski signed Distributor Agreements that gave them rights to certain territories to pick up these delicious “bread and buns” and distribute them to various outlets.  They spent at least forty hours delivering these delectable treats and engaged in other activities promoting these products.  The Distributor Agreements incorporated an Arbitration Agreement that required that “any claim, dispute, and/or controversy” be arbitrated under the Federal Arbitration Act.

In 2019, they sued claiming that Flowers had unlawfully deducted from their wages, failed to pay them overtime, and engaged in other types of ungenerous activities.  SCOTUS noted that the FAA provides that arbitration agreements are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”  There is a notable exception:  “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”  (9 USC §1)  Bissonnette and Wojnarowski argued that they fell into this exception.  The District Court dismissed the case and compelled arbitration, finding that Bissonnette and Wojnarowski were required to arbitrate because their jobs were “much broader in scope” and so they were not just transportation workers.  The Second Circuit affirmed but on the grounds that the FAA exemption was only for transportation workers, and they were “in the bakery industry.”

SCOTUS noted a split between the Second Circuit and the First Circuit and resolved the conflict by finding that the Second Circuit erred; there was no requirement that a transportation worker work for a company in the transportation industry in order to be exempt under §1 of the FAA. 

*With apologies to the gluten-free and the hungry.

Franchisee Gets Deep Fried in an Opinion from the Tenth Circuit

I love me a good franchise case.  We all encounter franchises with great frequency, and they involve us in interactions both with large multi-national corporations and with their local and often small-time agents.  The relationship between franchisees and franchisors is complicated and often vexed.  Franchising strategies can make or break large chains, and as this case illustrates, can also enrich the franchisees -- or do them great economic harm.  Here, the franchisee is also extremely well-to-do, but I suspect he worked his way, over decades, to his current station from a much more humble one.

As an added bonus, this case was decided by friend-of-the-blog Judge Harris Hartz (right) .  The case involves a claim that KFC (which now officially stands for KFC) breached an agreement with a Pueblo, Colorado franchisee, or at least the duty of good faith and fair dealing, by allowing for a second franchise in the town.  In Kazi v. KFC, US, LLC, the Tenth Circuit vacated a jury verdict in favor of the franchisee and remanded for an entry of summary judgment in favor of KFC.

Plaintiff Zubair Kazi has been the proud owner of a KFC franchise in South Pueblo since 1986.  He most recently renewed his franchise for ten years in 2017.  He owns a total of eighty franchise restaurants, which generate over $100 million in annual revenue.  In 2019, KFC licensed a new franchise in north Pueblo.  

The case provides a great history of the economic context in which the case arose.  In short, KFC downsized early in the 21st century, and during that time, Mr. Kazi lost three of his four Pueblo franchises.  In 2016, KFC was ready to start establishing new franchises again, but it did so through a cooperative agreement with franchisees to protect their profitability.  Before a new franchise was opened, a feasibility study had to be undertaken with an eye to the impact on existing franchises.  No new franchise could be built within a fixed radius of an existing franchise and the closest existing franchisee was to be offered an opportunity to own the new franchises.  The feasibility studies were undertaken by a firm designated in cooperation with the franchisees.

In this Pueblo case, the feasibility study indicated that the impact on Mr. Kazi's franchise would be within acceptable parameters.  Mr. Kazi did not seek the franchise for himself.  Instead,  he demanded a second feasibility study, which came out higher, but still within acceptable parameters.  Mr. Kazi then undertook his own study of the projected impact of the new franchise on his business.  According to KFC's agreement with its franchisees, anything above a 15% decline in revenue was unacceptable; Mr. Kazi's study indicated that the new franchise would cause his revenues to decline by 35%.  KFC ignored Mr. Kazi's study, and that seems fair, as the entity that undertook the original study was approved by KFC's franchisees.  

Then something procedurally messy occurred.  Real estate issues caused KFC to move the new franchise to a new location.  It was now farther away from Mr. Kazi's franchise.  KFC consulted the appraisers, and they advised that no new feasibility study was necessary.  If anything, the move would lessen the impact on Mr. Kazi's franchise.  And so KFC proceeded.  Mr. Kazi was not informed of the change.

Mr. Kazi brought his suit in November 2019.  The District Court dismissed most of his claims, but his claim for a breach of the implied duty of good faith and fair dealing went to the jury, and the jury found for Mr. Kazi, awarding him nearly $800,000 in damages.  On appeal, the Tenth Circuit found that the District Court erred.  Mr. Kazi could not state a claim for breach of the duty of good faith and fair dealing under Kentucky law.  

Following case law from Kentucky and the Sixth Circuit, the Tenth Circuit concluded that, in order to state a claim for a breach of the duty of good faith and fair dealing, a party must allege that the other party's bad faith defeated "an expectation created by the language of the contract."  Mr. Kazi could make no such allegation.  The KFC franchise agreement specifically addresses the issue of encroachment of new franchises on the domain of existing franchisees and provides a contractual solution.  The Tenth Circuit surveyed other case law involving franchise agreements and found near unanimity that "if the franchise agreement addresses encroachment, the franchisee cannot invoke the good-faith covenant to expand its protections against encroachment beyond the contract terms." The only circuit court to go the other way was the Ninth, which relied on a Florida case subsequently rejected by the Eleventh Circuit.  

Reefer Brief: Ignite International in Contract Dispute with Consulting Firm

FILMORA NEWS, CC BY 3.0, via Wikimedia Commons

According to Law360 (behind a paywall), a Nevada District Court has ordered Instagram Celebrity and CBD oil entrepreneur Dan Bilzerian (left) to pay $1.6 million and dismissed a breach of contract claim.  Prior to that decision, the case generated a lot more heat than light. 

There are some larger-than-life characters involved.  Dan Bilzerian is the son of Paul Bilzerian.  According to Wikipedia, Paul was a successful entrepreneur and takeover specialist until he ran into trouble with the SEC and was jailed in the early 199os.  After his release from prison, Paul launched a Utah-based software company, Cimetrex, but the government confiscated his ownership interest in that company in 2002.  Paul declared bankruptcy in 1991 and again 2001, but, according to Dan Bilzerian's Wikipedia entry, the government alleges that he concealed assets, passing some of them on to his two sons.  It is unclear whether Dan used those funds or his poker winnings to fund his companies, Ignite International Brands and affiliated entities (collectively Ignite).  Paul played a role in the negotiations between Ignite and a consulting firm, Consulting by AR (AR) .

Piecing together the nature of the dispute from redacted pleadings found on Westlaw, Alan Richardson, AR's principal, reached out to Dan Bilzerian in January 2021 to offer his consulting services in assisting Ignite in gaining a marketing foothold in Las Vegas.  Ignite, in case you were wondering, markets vaping products, spirits, apparel for people who prefer not to leave much to the imagination (based on the website), and at least at one point, a CBD-infused lip balm (hence its presence on the Reefer Brief).  AR hoped to link Ignite's products with Las Vegas's newest casino and resort, Resorts World Las Vegas (Resorts World, below right)).  The parties entered into a letter agreement in March 2021, providing that AR would be compensated with stock in Ignite should an agreement with Resorts World be completed by July 1, 2021.  

Problems arose according to AR's counterclaims, with Dan Bilzerian demanding a better deal than the one originally negotiated. AR claims that it successfully negotiated terms more generous to Ignite than those in the original letter agreement.  In April, 2021, the parties entered into a Letter of Intent, the terms of which provided for a strategic partnership between Ignite and Resorts World.  Dan Bilzerian then appeared at Resorts World's grand opening in June 2021, as required under the letter agreement.  Afterwards, AR claims that it facilitated an updated letter agreement, with terms still more favorable to Ignite than previous iterations had been.  

Logan Frick, CC BY-SA 4.0, via Wikimedia Commons

Thereafter, AR alleges that Ignite ceased to cooperate with AR, refused to pay any compensation to AR, and accused AR of poisoning its relationship with Resorts World.  After an exchange of letters relating to the possibility of arbitration, AR sent a demand letter.  Paul Bilzerian wrote to Alan Richardson, urging settlement.  Here are some excerpts from that letter as cited in AR's counterclaims;

Hi Alan, I understand that your lawyer sent a letter to Ignite that essentially said either Ignite accedes to your demands or suit will be filed next week. I know Ignite will not be happy with this response so it is pretty clear where this is headed at the moment. . . .  Of course your lawyer will tell you that you have a great case and can't lose. I have heard that speech so many times over the past 43 years I lost count decades ago. . . .  You do have some goodwill left on the Ignite side which is why Paul Holden [Ignite's general counsel] suggested binding arbitration. . . .  All you need to do is choose the path you want to follow: prompt, cost effective settlement or bitter, costly, scorched earth litigation with the only winners being the lawyers. I hope you make a good choice.

Notwithstanding this letter, it was Ignite that filed suit, seeking a declaratory judgement.  AR counterclaimed.  The parties have spent much of the intervening period in discovery disputes.  It did not go well for Ignite.  Here, for example is an August 2022 decision of the District Court ordering Ignite to file under seal 65 documents allegedly subject to claim of privilege.  Here is a March 2023 order, finding Ignite in contempt for its failure to do so.  The $1.6 million judgement followed just weeks later.  We will see if the Bilzerians pay for a quick end to the matter or, take Paul Bilzerian's road oft-traveled road of scorched-earth litigation with the only winners being the lawyers.  Either way, he will have been proven correct.

Ignite filed its appeal with the Ninth Circuit on April 28, 2023.  Perhaps they did so, like King Croesus, based on the advice of the Delphic oracle, who said, "If Ignite makes war upon AR Consulting, it will destroy a great empire." 

Food Delivery Giants Cannot Compel Arbitration of Antitrust Claims Based on Terms of Service on Their Apps

Davitashvili v. Grubhub is a putative class action brought by customers against Uber Eats, Grubhub and Postmates,  They allege that the three food delivery services entered into agreements with restaurants that restricted them through a "no price competition clause" (NPCC) from charging lower prices either when selling directly to customers or when using an alternative food delivery service, like Doordash.  Plaintiffs seek damages and injunctive relief under Section 1 of the Sherman Act in connection with direct purchases from restaurants and purchases through platforms other than defendants.  Defendants filed a motion with Judge Lewis Kaplan in the U.S. District Court for the Southern District of New York to compel arbitration based on arbitration clauses included in the terms of service on defendants' platforms.  

With respect to Uber and Postmates, which was acquired by Uber in December 2020, the terms of service did not put users on constructive notice of an agreement to arbitrate prior to the December 2021 terms of service.  The court thus concluded that Uber had failed to meet its burden of "demonstrating that an agreement to arbitrate was made" between itself or Postmates and the plaintiffs who sued the platform, except with respect to the December 2021 terms of service.  Because Grubhub's checkout page does not require users to click on or otherwise indicate assent to an arbitration agreement, and because Grubhub supplied no other evidence that plaintiffs were on notice, the court found that Grubhub could not demonstrate that an agreement to arbitrate was made between it and plaintiffs.  

Although Uber's terms of service provided that all threshold issues of arbitrability were to be decided by the arbitrator, plaintiffs raised fundamental challenges to arbitration clause itself.  In such cases, it is for a court to decide whether the dispute is arbitrable.  Grubhub's terms of service provided that decisions as to arbitrability were for a court to decide.  

Citing David Horton's Infinite Arbitration Clauses and Judge Posner's decision in Smith v. Steinkamp, Judge Kaplan (right) noted the defendants' ambitious aspirations for the reach of their arbitration clause. 

If enforced according to their terms, they would require arbitration of any claims between defendants and the Platform Plaintiffs, including claims without any nexus to the agreements containing the clauses — i.e., defendants' terms of use.

Judge Kaplan found no nexus in this case between the arbitration clauses at issue and the allegations of the complaint, and so he refused to enforce them against any plaintiffs.  In the alternative, Judge Kaplan ruled that it would be unconscionable to enforce the arbitration provisions "with respect to claims untethered to defendants' respective terms of use."  Finally, Judge Kaplan ruled that defendants' expansive class action waivers were no more enforceable against these plaintiffs with respect to these claims than were their infinite arbitration clauses.   

Defendants' motion to compel arbitration were denied.  Uber's motion to stay the action was denied as moot.