ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Thursday, May 23, 2024

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

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

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

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

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

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

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

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

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

Friday, May 17, 2024

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:

  • Chatbot2AI 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.

May 17, 2024 in Current Affairs, In the News, Web/Tech | Permalink | Comments (0)

Friday, May 10, 2024

The New York Times Wants to Know How You Use AI in Your Legal Practice

Chatbot1
Image by DALL-E

I will be very interested in seeing the results of this poll posted on The New York Times website this week.  Questions relate to the use of chatbots to do work that might otherwise be done by attorneys or paralegals, including use of legal workers to train and test chatbots.  The poll then asks whether law firms are advising employees about how use of AI will affect staffing going forward. 

Interesting stuff.  

May 10, 2024 in E-commerce, In the News, Web/Tech | Permalink | Comments (0)

Tuesday, May 7, 2024

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

Ryan_WaltersKeeping 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.

May 7, 2024 in Current Affairs, Government Contracting, In the News, Recent Cases | Permalink | Comments (0)

Monday, May 6, 2024

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tuesday, April 30, 2024

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

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

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

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

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

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

Friday, April 26, 2024

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

FTCThe 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.

SCOTUS 2022

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 . . . 

April 26, 2024 in Current Affairs, In the News, Labor Contracts, Legislation, Recent Cases | Permalink | Comments (0)

Thursday, April 18, 2024

NBC "Drops" Ronna McDaniel as a Paid Contributor

We recently discussed Elon Musk's decision to "cancel" contract with Don Lemon.  Now, we have news of NBC "dropping" Ronna McDaniel.  How does dropping accord with contract obligations?

Ms. McDaniel was recently ousted as the Chair of the Republican National Committee (RNC).  She was replaced by Lara Trump. Trump, huh? I wonder if she's related to . . . .  Nah. Must be a coincidence. After all, Donald Trump placed Ms. McDaniel at the head of the RNC after she led his 2016 campaign in Michigan. He wouldn't turn on one of his most loyal supporters, someone who placed allegiance to Mr. Trump ahead of support for her Uncle, Mitt Romney, would he? Hey, Mike Pence, he wouldn't turn on one of his most important supporters would he?

Oh. Well, Lara Trump has little to fear. She's already married to Eric. How much worse can things get?

Almost immediately, NBC hired Ms. McDaniel to be an on-air commentator on political affairs.  Reports indicated she would be paid an annual salary of $300,000 to provide her insights. As Michael M. Grynbaum reported in The New York Times, NBC treated the decision to hire Ms. McDaniel as a coup: "It couldn’t be a more important moment to have a voice like Ronna’s on the team," as Ms. McDaniel could provide "an insider’s perspective on national politics and the future of the Republican Party.”

Ms. McDaniel debuted on NBC with some critical words for some members of her party, taking the bold position that one should not support people who violently attack Capitol police officers. Wow, that's strong leadership. When asked why she did not speak out against the violence of the January 6th protestors previously, Ms. McDaniel explained, that sometimes "When you're the RNC Chair, you kind of take one for the whole team." That little clip pretty much encapsulates how the GOP lost sight of who the "team" is. The party serves the country, you numbskull; not the other way around.  She should have "taken one for the team" by standing up to voices within her own party that support political violence in the naked pursuit of power at all costs.

Voices within NBC felt the same way I do. They demanded that NBC back out of the deal, and the NBC executives, showing little more spine than she did, capitulated. They have "dropped" her. In my world, "dropped" means that they are breaching their contract with her. She may have no damages, given that some other media institution may pick her up, but I don't think audiences on Fox, OAN, or Newsmax want to hear from her either. Do I hear CNN? 

If she can't find comparable work, NBC might have to pay her not to appear. I can't imagine that there is an audience out there clambering to hear from her. Nor is there any lack of conservative voices on NBC.  They have Marc Short, Mike Pence's former chief-of-staff, and Brendan Buck, an aid to Paul Ryan and John Boehner. Yeah, I know.  RINOs.

RNCMs. McDaniel would have had something unique to contribute to NBC news if she would have stuck to her MAGA guns.  It might be valuable for NBC to have a contributor who could honestly explain why the 2020 election was stolen and that the actions of the January 6th protestors were justified.  The challenge is to find such a person who can make those claims in a way that would be credible to non-believers. The problem is that mainstream Republicans act like they believe that the election was stolen or at least they refuse to contradict their party leader on that subject, but they have turned up no evidence of a stolen election that has survived ordinary scrutiny.  Ms. McDaniel's debut and farewell performance on NBC tells a damning story: when you get paid to lie, you lie, even if those lies have devastating consequences for our democracy. Ms. McDaniel likely has many good qualities and no doubt strives to be a good person. Yet, she has devoted her life to politics, and in that realm she simply does not know right from wrong. She is not alone.

Joseph A. Wulfsohn of FoxNews reports that Ms. McDaniel had a two-year contract with NBC for $600,000.  She is now seeking a $600,000 buyout.  

April 18, 2024 in Celebrity Contracts, Current Affairs, In the News, Television | Permalink | Comments (0)

Tuesday, April 16, 2024

Another Case Where Mistake Doctrine Doesn't Help

Brooch
Not the brooch at issue

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

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

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

Thursday, April 11, 2024

Sportsball: Clemson Sues the ACC over $140 Million Exit Fee

Clemson_Tigers_logo.svgThe nerve! Clemson University (Clemson) has filed a complaint against the Atlantic Coast Conference (the ACC) because the ACC claims ownership of media rights over home games at member institutions and because the ACC claims entitlement to a $140 million payment should members leave the conference. The audacity! And all this just because Clemson arguably agreed to those terms when it joined the ACC. The impudence!

How can a public educational institution fulfill its mission if saddled with this onerous financial burden?  Or, as Clemson puts it, "Each of these erroneous assertions separately hinders Clemson's ability to meaningfully explore its options regarding conference membership, to negotiate alternative revenue-sharing proposals among ACC members, and to obtain full value for its future media rights." Yeah! Basic science, medical research, training future educators, social workers, professionals, and others who can serve South Carolina and the region. You can do a lot of worthwhile things with $140 million.

And this really is all about money. The complaint details an alleged "revenue gap." The SEC and the Big Ten entered into more lucrative contracts with media companies than did the ACC.  As a result, universities in those leagues get a media share that can be as much as $20 million higher than what Clemson gets through the ACC.

ACC
As to the media rights, that is a matter of differing interpretations of this contractual language.  Clemson points out that it granted the ACC only those media rights "necessary for the Conference to perform the contractual obligations of the Conference expressly set forth" in separate agreements between the ACC and ESPN.  Those obligations apply only to members, Clemson alleges, not to former members. I think we'd need to see the language of those other agreements to know whether this is a plausible construction of Clemson's obligations. Alas, the parts of the complaint relating to ESPN have been redacted, apparently into response to ESPN's hissy fit when the details of the ACC's arrangement with ESPN were disclosed in a similar case involving Florida State University, as Chapel Fowler and Ted Clifford explain in The State.

As to the $140 million, the ACC characterizes the amount as "liquidated damages," while Clemson says it is -- you guessed it! -- an unenforceable penalty, and an unconscionable one at that. Much of the complaint is dedicated to showing that the withdrawal fee is too high. It is pegged at three times the ACC's annual operating budget, and that operating budget has grown tremendously in the last decade. But if Clemson's media rights are valued at somewhere north of $40 million/year and the ACC is claiming entitlement to those rights through 2036, $140 million hardly seems disproportionate.  Clemson has an argument for why the ACC is not harmed, but much of it is redacted.

Clemson says the that withdrawal fee arose through a "purported" 2012 Amendment to its rules. The complaint does not clarify in what sense this amendment was merely "purported." Seems hard to imagine that Clemson did not somehow agree to this amendment, and it may even have profited from it when other universities withdrew. Clemson's complaint seeks declaratory judgment under a South Carolina statute. Is that an equitable remedy despite being codified? Unclean Tiger paws?

Contracts are risk-allocation devices. Is there anything more to say here?

April 11, 2024 in Current Affairs, In the News, Recent Cases, Sports | Permalink | Comments (0)

Monday, April 8, 2024

Elon Musk "Cancels" a Contract

Rocketman
Image by DALL-E

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

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

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

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

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

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

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

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

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

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

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

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

Friday, April 5, 2024

Friday Frivolity: John Oliver on FAA Oversight

John Oliver devoted a lengthy segment to Federal Aviation Administration (FAA) oversight of aircraft in the aftermath of a door falling off an Alaska Air plane.  The contracts angle on all this has to do with the Boeing/McDonnell Douglas merger and the FAA's relation to Boeing, which seems to involve a lot of delegation to Boeing of FAA oversight over Boeing.

John has a lot of say about Boeing's merger with McDonnell Douglas.  The argument is that Boeing built its reputation on the reliability of its planes.  Its culture was that the engineers, not the corporate executives, drove the company.  That all changed after the merger, as stock price, rather than rigorous focus on engineering challenges, came to dominate the company.  That corporate culture produced the 787 Dreamliner, which was quickly grounded, and the 737 Max, two of which crashed.  Those crashes were apparently due to problems with the aircraft's navigation (MCAS) system and inadequate pilot training, which involved no acknowledgment of the existence of the MCAS system.  The 737 Max was also grounded for two years.

So where does federal regulation fit in here?  Well, it turns out FAA inspectors were incapable of understanding what it was they were regulating.  Boeing engineers described the responses of FAA regulators to their presentations as like dogs watching television.  As a result, for five decades, the FAA has delegated its oversight to Boeing employees, and in 2005, Boeing successfully lobbied for less vigorous regulation of its aircraft.  Now, the Boeing employees who are seconded to the FAA increasingly complain that they are under pressure from the company to say that all is fine.

For those who want to learn more, and perhaps enjoy a few uncomfortable, gallows-humor type chuckles, and now, this . . . 

 

April 5, 2024 in Current Affairs, In the News, Television, Travel | Permalink | Comments (0)

Thursday, April 4, 2024

Implied Contracts and Good Faith in Norman, Oklahoma

Screenshot 2024-03-18 at 5.32.08 PMOklahoma City University School of Law 1L Lino Sengkhamvilay (right) shared this story with me.  Thanks, Lino!

In 2023, voters in the city of Norman rejected a long-term agreement between the city and the utility company, OG&E. The matter was on the ballot again in 2024, and it was defeated by 33 votes, as reports for KOCO News. Those who voted no apparently objected to the 25-year term of the agreement. Why couldn't the city enter into a five-year agreement with OG&E, so that it would have some leverage that it could exercise regularly? 

According to the reporting, Oklahoma requires municipalities to have agreements with power companies. So what now?

OG&E issued the following statement:

We are disappointed in the election outcome. Without a franchise agreement, OG&E and the city of Norman will continue to operate under an implied contract. Over the last five years OG&E has worked in good faith with the city, investing tens of millions of dollars improving reliability in the absence of a franchise agreement. Unfortunately, that good faith was not reciprocated. We will evaluate the long-term status of other agreements or projects underway with the city. OG&E has served Norman for more than 100 years and remains committed to our customers. We will continue to provide the electricity they need to power their homes and businesses.

So many interesting questions! 

First, when the legislature requires that municipalities and utilities be governed by an "agreement," did they have an implied contract in mind? Second, what are the terms of the implied contract and what limits does it place on OG&E's discretion to "evaluate the status of other agreements or projects underway with the city." Finally, who is OG&E accusing of not reciprocating its good faith? The city? How did the city violate its good faith obligations? The city put the contract on the ballot, as it presumably was required to do, and the mayor advocated for its approval. 

Is a monopoly utility accusing the voters who rejected a 25-year agreement of acting in bad faith. If so, that is wonderfully on brand. For those customers, this is a 25-year rolling contract of adhesion. What? You don't want to be bound for 25 years by a contract that you had no role in negotiating and cannot change, under which your utility bills may double or triple or quadruple while you have no alternative source of energy to heat or cool your home? How dare you!

Screenshot 2024-03-18 at 7.29.28 AM
Solar Array Nestled in Agricultural Fields

People of Norman: get thee some solar panels or geothermal!

April 4, 2024 in Government Contracting, In the News | Permalink

Tuesday, April 2, 2024

Two University of Pennsylvania Professors Sue the University for Breach of Contract

HudaProfile1 copyTwo tenured faculty members, Huda Fakhreddine (left), an associate professor of Arabic literature, and Troutt Powell (below right), a professor of Africana studies and history, as well as an organization, Faculty for Justice in Palestine (PFJP), are suing the University of Pennsylvania for engaging in McCarthyism.  McCarthyism is not a cause of action, so they have brought their claims in the U.S. District Court for the Eastern Distrct of Pennsylvnia under the First and Fourteenth Amendments, and for breach of contract

They allege that the country is facing a new form of McCarthyism, in which people who are critical of Israel or Zionism face accusations of anti-Semitism.  I don't think I've seen a complaint like this before.  The complaint does not strike me as a competent bit of legal craftsmanship, but I suspect that the aim of the suit is not to win a legal claim.  Still, it alleges a breach of contract, so here we are.

Much of the complaint is taken up with a criticism of the U.S. House of Representatives and the House Committee on Education and the Work Force (the Committee).  The House passed House Resolution 894 in December 2023, which contained language that the plaintiffs claim violates First Amendment principles.  Among other things, the Resolution equated anti-Zionism with anti-Semitism.  I agree; that's reductive.  Plaintiffs allege that the sentence is "ontologically, and even epistemologically absurd." 

Lawyers, do not let university professors assist in the drafting of your complaint. 

Eve troutt powellThe complaint also alleges FERPA violations. That claim relates to an information letter sent to Penn in January, demanding sixteen categories of documentation to be returned in two weeks.  The letter names Professor Fakhreddine and accuses her of anti-Semitism.  

Although the letter was not a subpoena, the complaint alleges that Penn is beginning to produce the requested documents. Doing so, plaintiffs allege, would violate FERPA rights including the rights of student members of PFJP.  It would also subject plaintiffs to allegations of anti-Semitism, harassment and doxxing at the hands of outside actors.  Plaintiffs accordingly seek an order enjoining the University from cooperating with the Committee.  Plaintiffs further characterize Penn's cooperation with the Committee as rendering them complicit in a First Amendment violation. They allege claims  under both the Fourteenth Amendment  and the Pennsylvania constitution for violations of students' and faculty members' privacy rights.

The breach of contract claim is quite short.  It alleges the University made various promises to plaintiffs on which they relied.  The promises, not specified in the complaint, relate to freedom of speech, diversity, academic freedom, and good faith and fair dealing.  Cooperation with the Committee and complying with the information letter allegedly violate the University's contractual obligations. 

Without knowing what the University has shared with the Committee, it is hard to know whether any of these claims have any legs.  However, based on what I have seen from the COVID cases, it is hard to imagine that these allegations suffice to establish any legally binding promises that the University made to the plaintiffs.  In those cases, courts required specific evidence of contractual promises (express or implied), and plaintiffs' generalized allegations probably are not enough.

April 2, 2024 in Current Affairs, In the News, Recent Cases | Permalink | Comments (0)

Monday, March 4, 2024

Musk v. Altman: The Breach of Contract Claims

RocketmanJust a quick one here.

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

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

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

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

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

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

Friday, March 1, 2024

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

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

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

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

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

Ah, good times. 

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

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

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

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

 

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

Thursday, February 29, 2024

Fridgewrap Rides Again!

Back in 2021, we reported on LG's charming habit of putting notice of mandatory arbitration inside its refrigerators

Screenshot 2024-02-29 at 6.20.23 AM

As you can see, the arbitration provision requires individual arbitration, meaning that each consumer dissatisfied with the product has to go one-on-one against a huge corporation.  And the corporation is not playing nice, as described in this piece by Chris Chmura, Stephanie Lucero, Alyssa Goard and Camille Lopez Rodriguez, reporting for NBC in the Bay Area.

It now appears that over 100 LG buyers are trying to bring a class action against LG for its faulty products. They allege that LG has sent out people to repair the refrigerators, but nothing works, as there is a faulty part that cannot be repaired.  Members of the purported class are done trying to get LG to repair the appliances.  They seek refunds and rescission.  They allege that LG is trying to use arbitration to avoid creating a public record of discovery, as they believe that such discovery will reveal that LG has long been aware of the problems with the faulty part and has tried to conceal that knowledge. 

LG claims that it provides notice to consumers of its arbitration provision in three ways.  First, the notice of arbitration is in the box in which the refrigerator is delivered.  Second, it is in the owners' manual, and third, fridgewrap. 

The problem with the notice in the box is that workers unbox the refrigerators before moving the appliances into homes.  Buyers never see the notice unless delivery people think it is their job to share that information with the end-user.  According to the NBC report, they don't do so.  Anna Han of the Santa Clara University School of Law suggests that the notice in the manual and in the refrigerator may provide adequate notice to consumers and thus that LG may not be able to establish that purchasers of LG products consented to arbitration.  Stay tuned.

Hat tip to my former student, Todd Williams!

February 29, 2024 in Contract Profs, Current Affairs, In the News, Recent Cases | Permalink | Comments (3)

Thursday, February 22, 2024

Gina Carano Strikes Back!

Gina_Carano_by_Gage_Skidmore
Image by Gage Skidmore
CC BY-SA 3.0

This case was brought to my attention by our blog's Founder and Editor Emeritus Frank Snyder.  He posted a link to the case on the AALS Listserv for contracts professors, and discussion ensued.  I acknowledge that what follows is indebted to that discussion, and I thank my colleagues for alerting me to the issues raised in the litigation.  

ADDENDUM:  Just learned via Riddhi Setty writing on Bloomberg.com that Gina Carano's suit is being funded by Elon Musk.  This makes sense, given Mr. Musk's earlier offer to pay the legal bills of anyone who claims that they were unfairly treated by an employer due to Twitter posts.  Musk v. Disney seems like a good match-up.

On February 6th, mixed martial arts fighter, actor, and professional bad-ass Gina Carano (Ms. Carano, right) filed her complaint against The Disney Company (Disney) and others.  The case is of interest not only because of Ms. Carano's success in her role in the Star Wars/Disney series, The Mandalorian, among other boundary-breaking performances, but also because of the interesting legal issues raised by her complaint.

The Complaint alleges that Disney wrongfully terminated Ms. Carano based on the political content of her social media posts made while away from work.  She further alleges that Disney discriminated against her as a woman, as men who posted similar things on social media did not suffer the same adverse employment decisions.

According to the Complaint, Ms. Carano's character, Cara Dune, was a key element in the success of The Mandalorian.  Undoubtedly, she had more rizz than the faceless protagonist, but nobody on that show could compete with the adorable muppet, Grogu, known to fans as "Baby Yoda" (below left).  She was paid only the applicable minimum salary of $25,000 per episode.  Late in 2020, Jon Favreau, who created The Mandalorian, allegedly represented to Ms. Carano that she would be featured in a new spinoff series, for which her compensation would increase as much as tenfold.

Then, in February 2021, Defendant Lucasfilm made the following announcement:

Gina Carano is not currently employed by Lucasfilm and there are no plans for her to be in the future. Nevertheless, her social media posts denigrating people based on their cultural and religious identities are abhorrent and unacceptable.

Carano characterizes this and other statements by defendants as calculated, malicious, false, and knowingly in violation of California statutes that protect employees from persecution for their political beliefs.  She alleges that, based on such false allegations, Disney not only terminated her but also refused to hire her for additional projects. 

Grogu Issues:

Was Ms. Carano an Employee?

Ms. Carano's first cause of action is for wrongful discharge under California Labor Code §§ 1101, et seq, which prohibits employers from "[c]ontrolling or directing, or tending to control or direct the political activities or affiliations of employees."  One issue that may arise in the case is whether she comes within the ambit of the statute.  She may have not have been an employee at the time that Disney announced that her "termination."  After all, according to the Complaint , in announcing Ms. Carano's termination, defendant Lucasfilm said that she was not "currently employed." 

While her employment status might be relevant to her first cause of action, her second cause of action is for both wrongful discharge and refusal to hire.  So even if Ms. Carano was not an employee for the purposes of here §1101 claim, she would not need to be for her claim under California Labor Code § 98.6.  That section prohibits adverse employment actions against "any employee or applicant for employment" for conduct protected under §§ 1101 et seq.  

Ms. Carano cites to various projects of which she was going to be a part.  The problem is that, with the possible exception of a Mandalorian movie, the projects she mentions do not seem to ever have been made.  I think that might move her alleged harm into the realm of speculation.  If I had a dime for every time someone has approached me with a movie treatment based on this blog, well . . . you can do the math yourself.

Her third claim is sex discrimination, because male employees who engaged in expression similar to hers were not subject to termination.  I think the challenge here will be to show that the other expression is similar in legally relevant ways and to show that Disney had no non-discriminatory ground for deciding to end its relationship with Ms. Carano.  Ms. Carano cites to a social media post by Mark Hamill in which he linked to something from J.K. Rowling and "liked" it.  When people objected to the allegedly transphobic content of Ms. Rowling's post, Mr. Hamill issued a retraction of his "like" to the extent that it extended to that message.  Ms. Carano, by contrasts, insists that she has never, ever engaged in expression that was remotely objectionable.  To a company that cares about its image and disagrees with Ms. Carano's characterization of her social media posts, her refusal to acknowledge poor judgment may be a ground for treating her differently from those willing to recognize error.

Was Her Speech Covered by the Statute?

Disney may claim that her conduct was not "political activity" in the sense of the statute.  Here, the Complaint has to walk a rather narrow line.  On the one hand, Ms. Carano insists that her social media posts did not have the meaning ascribed to them by her detractors.  She insists that there was nothing in her posts that was racist, anti LBGTQ+, or transphobic.  On the contrary, she communicated only messages of love and support for people who are targeted for bullying.  Based on her own account of the events, it is a little hard to identify her political activities. 

She notes that other Disney employees engaged in more overt political statements and suffered no adverse employment effects.  But that may be a product not of whether Ms. Carano or her co-workers were people who were associated with the Star Wars brand were engaging in political activity but whether they were engaging in speech that the audience for Star Wars found objectionable.  Which brings us to our next topic . . . .

If Her Contract Has a Morals Clause, What Impact Does that Have on the California Statute at Issue?

Screenshot 2024-02-22 at 12.47.21 PMThis was the topic that Frank Snyder first broached on the AALS Contracts Listserv, and I, having no expertise in employment law, admit that I do not know the answer.  One would think that a morals clause would have to be interpreted in a manner consistent with California's Labor Code.  My hunch is that the case should turn on whether Disney's interest in enforcing its morals clause involved reasons unrelated to the allegation that Ms. Carano was engaged in political activity.  She was attracting a lot of negative attention on social media at the same time as she was emerging as the human face of The Mandalorian. The series' eponymous character (right) never shows his face (except for that one time when he did).  He is, according to the actor who plays him, "of questionable moral character." We don't even learn his name until episode 8.  Grogu is cute and all, but he's not human.  Ms. Carano's notoriety on social media may just be bad for business, bad for the brand, and they may have distracted attention from the heartwarming story of an isolated intergalactic mercenary with an inexplicable attachment to a child of an alien species with potentially gnarly powers but, if his predecessor is any indication, no hope of ever mastering standard English usage.

The Style of the Complaint

The Complaint's Introduction begins as follows:

A short time ago in a galaxy not so far away, Defendants made it clear that only one orthodoxy in thought, speech, or action was acceptable in their empire, and that those who dared to question or failed to fully comply would not be tolerated. And so it was with Carano. After two highly acclaimed seasons on The Mandalorian as Rebel ranger Cara Dune, Carano was terminated from her role as swiftly as her character’s peaceful home planet of Alderaan had been destroyed by the Death Star in an earlier Star Wars film. 

I have two problems with this way of introducing legal claims to a court.  First, the lame jokes and references to Star Wars themes undermine the seriousness of the document and of Ms. Carano's claims.  Of course, this blog is not above lame jokes and references, but we're a blog.  There's a time and a place.  Second, by casting the defendants in the role of the evil "empire "seeking to enforce "orthodoxy in thought, speech, or action" Ms. Carano risks having this lawsuit dismissed (by the public, if not by the court) as a chapter in the culture wars rather than an attempt to vindicate her legal rights.

The problems go beyond the introduction.  Pages 10-25, 28-30 of the Complaint consist of long-winded  detours into alleged online harassment of Ms. Carano by people other than defendants.  As far as I can tell, all of this information serves only to show why Disney might have had apolitical concerns about Ms. Carano's activities on social media.  It is not clear that any of this is otherwise relevant to the legal narrative Ms. Carano is trying to tell if she is seeking to vindicate her legal rights. It is highly relevant to the narrative she is trying to tell if she is attempting to burnish her credentials as a victim of the culture wars.  I don't think it is helpful in a Complaint to make the court feel like it is a platform for an agenda.

What's Not in the Complaint

Given the allegations in the Complaint, I'm not sure why there aren't more causes of action.  It seems like Ms. Carano thinks that the defendants have said and published statements about her that she believes are malicious lies.  That seems like a claim right there.  She also alleges that defendants not only wrongfully terminated her and refused to hire her for future projects; they also interfered with her efforts to procure other employment in the industry, including perhaps by pressuring her agents to sever ties with her.  That too, seems like a claim.  Perhaps an amended complaint is coming.  Perhaps I don't know what I'm talking about.

February 22, 2024 in Celebrity Contracts, Current Affairs, In the News, Labor Contracts, Television | Permalink | Comments (0)

Thursday, February 8, 2024

Et tu, Trader Joe's?

SpaceX
SpaceX-Man, Image by DALL-E

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

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

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

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

Wednesday, February 7, 2024

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

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

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

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

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

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

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