ContractsProf Blog

Of Windfalls from Mistake and Breaches of Auction Contracts

A few months back, we brought you the heartwarming story of a couple that purchased a small, valuable painting by N.C. Wyeth (self-portrait, left) at a thrift shop for $4.  It was expected to fetch up to $250,000 at auction.  

Now, the bad news.  According to Matt Stevens writing in The New York Times, the painting sold for only $191,000 at auction.  And now the worse news.  The buyer never paid and never arranged for delivery of the painting.  The auction house sent the sellers a shrug emoji.  These things happen.  The buyer is located in Australia, a vast, lawless wasteland, where the inhabitants daily confront spiders the size of your face and more dangerous, venomous spiders that hide in your shoes.  Not to mention the pythons that hide in trees and then drop on unsuspecting passers-by (mostly tourists).  Breach of contract is nothing to such people.  A mere auction house is powerless in these circumstances.    

The sellers are philosophical.  They are not out any money, and the auction house returned the painting to them in a lovely cardboard box.  If they have a cat, that cat no doubt values the box at something around $191,000.  If they don't have a cat, they should get one, and then the family's hedonic sum will then equal what it would have been had the Australian paid up.  

[Editor's note: an earlier version of this post identified the painting as created by Andrew Wyeth, N.C.'s son.  Thanks to Jim Fishman for the correction!] 

China Southern Airlines Honors Tickets Sold for 10 Yuan ($1.37)!

Thanks to Wayne Barnes (below, demonstrating how one faces down an airline), we have another in our series of stories of people beating up on the airlines.  The others in this series include a couple that got a refund after being seated next to a gaseous, slobbering dog, a mother forced to sell her child into slavery when the airline would not allow the child to have a seat of her own (perhaps I exaggerate a bit), and a refund for a failed trip to Easter Island.

This time it was a simple website glitch.  For two hours, as reported on CNN, through a story provided by Reuters, China Southern advertised trips for 10, 20 or 30 yuan when they should have cost 400-500 yuan.  Passengers still had to pay airport fees, but the airlines otherwise swallowed the loss.  Perhaps this AI thing isn't all bad.

The story was reported by Sophie Yu and Casey Hall, with editing by Bernadette Baum.

Another Airline Settles With a Dissatisfied Passenger

Recently, we brought you a story of people who gave up their premium seats rather than share an aisle with  a gassy slobbering dog.  They recovered the difference between the premium seats and coach and, they say, donated to a charity that matches up people with presumably non-gassy service animals.  Today, thanks to OCU 1L Taysia Stephens (left), we bring you another story of a consumer victory over the airlines, this time in small claims court.

According to Kathleen Wong writing in USA Today, Erika Hamilton, an Oregon lawyer, purchased two seats on an American Airlines flight, one for her and her 18-month-old daughter, who would sit in her lap, and another for the daughter's twin.  How did Ms. Hamilton choose which child got the lap and which one got the seat?  Was one of her daughters more of a lapchild?  Ms. Wong's reporting is silent on the subject.

In any case, Ms. Hamilton's preferred arrangement  is allowed under the airline's rules and FAA rules. A flight attendant told Ms. Hamilton that her second child needed to be in a car seat, and the flight attendant was not persuaded when Ms. Hamilton pulled up the airline's and the FAA's relevant rules and shared them with the stubborn employee.  Another passenger offered to travel with Ms. Hamilton's second child in her lap, and Ms. Hamilton felt she had no choice but to agree to the arrangement, even though she believed it was safer for the daughter to sit in her own seat with a seat belt.  

The flight attendant eventually relented and apologized, but Ms. Hamilton sued in small claims court seeking $3500.  The case settled, with American agreeing to award Ms. Hamilton 4500 miles.  It is unclear whether that means 4500 miles of free travel or 4500 miles on American's frequent flyer program.  Either way, it seems odd that the reward for a terrible experience on the airline is more time spent on the airline.  

There is a New Yorker cartoon that would be the perfect accompaniment for this article, if only I could find it and it weren't subject to copyright protection.  It depicts a father telling a child, "One day, you will grow up to hate all of the major airlines."  One can imagine Ms. Hamilton preparing her twins for what lies ahead for them with the same sage prediction.

Colorado Welding Company Resists Judgment by Paying Heavy Fine

Image by DALL-E

As Amanda Holpuch reports in The New York Times, Fired Up Fabrication, LLC (Fired Up) sued JMF Enterprises LLC, a Colorado welding company, and its principal, John Frank (collectively JMF).  Fired Up alleged that it had done sub-contracting work for JMF and had not been paid in full.  The parties settled, and JMF agreed to pay $23,500.  Judge Joseph Findley of Larimer County approved the settlement in July.  

In August, JMF purported to make good on the settlement by delivering 6,500 pounds of mixed coins that it had dumped in a metal container.  Fired Up refused delivery on the ground that its freight elevator could only handle 3000 pounds.  There are images of the coins on The New York Times article and also on this video that JMF, for some reason, posted on its Facebook page.  Some people's senses of humor peak in middle school.  

The judge was not amused.  He ordered. JMF to pay in full and add costs for Fired Up's trouble dealing with the coins.  Fired Up estimated those costs at $8000.

The Plea Deals in State of Georgia v. Trump

Nineteen were indicted in the Georgia election case.  Four have now pled guilty.  All four have agreed to cooperate with the prosecutors in the case against the remaining co-conspirators.  

A plea agreement is a contract.  Cooperation is offered in exchange for leniency in sentencing.  The terms of those agreements have been described in the media as generous, in that the defendants will all avoid jail time, assuming good behavior.  In some cases, they get to keep their law licenses, although state bars might determine otherwise down the road. Of interest beyond that are the specifics about what cooperation entails and the penalty for breach. If criminal plea agreements are reduced to writing somewhere, I have been unable to find online versions of the plea agreements in Georgia v. Trump, which is a shame.  I will have to cobble together the terms from news reports on the court proceedings on the matter. 

The first to enter a plea was bail bondsman Scott Hall (right), perhaps the least notorious of the alleged criminal conspirators.  According to Richard Fausset and Danny Hakim, writing in The New York Times, he pled guilty to five misdemeanor counts of intentional interference with performance of election duties.  He had been charged with racketeering and felony conspiracy in connection with tampering with voting equipment in Coffee County, Georgia in January 2021 in an attempt to discover evidence of voting fraud at the behest of the Trump campaign.  

According to the plea deal, he will serve five years of probation.  He will pay a $5000 fine and apologize to the people of Georgia.  He will have to perform 200 hours of community service and surrender his license to carry a firearm.  He may not participate in activities relating to the administration of an election.  He agreed to testify against his co-conspirators, which is bad news for two other defendants, Misty Hampton and Cathy Latham, who allegedly participated in the Coffee County scheme.  Defendant David Shafer the former head of the Republican Party in Georgia, also seems to have ties to Mr. Hall through Mr. Hall's brother-in law, David Bossie.

The next to fall was Sidney “Release the Kraken” Powell (left).  Charles Bethea and Sue Halpern provide in-depth coverage in The New Yorker on what led Ms. Powell to plead guilty. She pled guilty to six misdemeanor counts of election interference and will have to pay nearly $9000 in fines and serve six years of probation.  She has apologized the the people of Georgia and agreed to testify in the proceedings against her co-conspirators.

Ms. Powell was engaged in a lot of election fraud shenanigans, but she, like Mr. Hall, was convicted for allegedly tampering with voting machines in Coffee County.  Misty Hampton, the county's election supervisor, apparently bought into Ms. Powell's nutter idea that Dominion voting machines had been tampered with.  She refused to certify her county's election results.  The story in The New Yorker provides a lot of details I had not read elsewhere.  It took a long time to discover what happened in Coffee County, because Georgia's secretary of state blocked efforts to learn whether the voting records has been illegally accessed.  An election watchdog group investigated and was able to issue subpoenas.  Their forensic expert was able to confirm a breach, and the rest was expected to come out in Fani Willis's case.

The New Yorker obtained a copy of a 400-page report by the Georgia Bureau of Investigation (GBI).  It details what might have been the basis for Ms. Powell's rather surprising decision to plead guilty.  Among other things, it seems clear that Powell and her co-conspirators, including Ms. Hampton and Ms. Latham, represented to their hired forensics experts that they had permission to access election equipment when they did not.  Ms. Powell had pursued a litigation strategy of trying to persuade the court that her involvement in the alleged conspiracy could be limited to conduct in Coffee County on January 7th.  The fact that she paid the outside experts who were given illegal access to voting data suggests a larger role.  The New Yorker seems to suggest that she pled guilty when she did once it became clear that she was going to be implicated in wider illegality.

Next came Kenneth Chesebro.  According to Richard Fausset and Alan Feuer, writing in The New York Times, Mr. Chesebro "was accused of conspiring to create slates of fake electors to support Mr. Trump in Georgia and several other states won by President Biden."  While the earlier pleas had been to misdemeanors, Mr. Chesebro pled guilty to a single count of conspiracy.  He was sentenced to five years' probation.  He apologized to the people of Georgia, and he agreed to pay $5000 in restitution, turn over documents, and to testify against the remaining co-conspirators.  The Times obtained e-mail communications which it regards as indicating that Mr. Chesebro provided political as well as legal advice and included communications with co-defendant John Eastman.  The Times quotes Mr. Chesebro's lawyer, who wants to emphasize that the RICO charge and all other charges against Mr. Chesebro were dismissed.  Got it.  Mr. Chesebro is JUST an attorney who conspired to file false documents. Mr. Chesebro pleaded guilty to a charge that would not require that he surrender his law license.  C'mon bar association.  Seems like felons who are also un-indicted co-conspirators in another case might not be fit to be officers of the court.

Image by Gage Skidmore, CC BY-SA 2.0, via Wikimedia Commons

And finally, yesterday, Jenna Ellis joined the ranks of those who have entered guilty pleas.  According to Richard Fausset and Danny Hakim, writing in The New York Times, Ms. Ellis will be sentenced to five years of probation, pay $5,000 in restitution and perform 100 hours of community service. Like the others who have entered into plea agreements, she has apologized to the people of Georgia, and she agreed to cooperate fully with prosecutors. Unlike the others, she made a statement to the court in which she tearfully expressed remorse, because she takes her responsibilities as a lawyer very seriously "an attorney who is also a Christian."  Add this to the list of ways in which some people think their religion differentiates them from non-believers.  News flash: the ethical rules apply to non-Christians as well.  We just look within to find our moral compass. 

Not surprisingly, it was a bit of a non-apology apology.  She was just trying to do the right thing, but she got bad information from people she trusted.  She didn't do her due diligence and that's on her.  If she had known then what she now knows and what anybody with any sense knew at the time, she never would have represented Donald Trump in his post-election challenges.  Unfortunately, what she says here is not consistent with her sworn statement in a Colorado disciplinary proceeding.  In that statement, she acknowledged that she had knowingly misrepresented facts in claiming that widespread voting fraud had led to Mr. Trump’s defeat.  So her misconduct goes beyond a failure to undertake due diligence.  

Last month, Ms. Ellis described Mr. Trump as "a friend,"  but she said she would not support him politically because of his "malignant narcissistic tendency to simply say that he’s never done anything wrong."  I often say things like that about my friends.  I wonder if, after her plea deal and agreement to testify, Mr. Trump will consider her a friend.   He's known for his loyalty to close friends.  I mean, look at how he has gone out of his way to help Michael Cohen.  Allen Weisselberg no doubt spent his four months spent in jail for lying on behalf of the Trump Organization contemplating the value of his close friendship with Mr. Trump.

Richard Fausset and Alan Feuer's story in The Times makes a strong case for why prosecutors may have been willing to grant generous terms, at least to Mr. Chesebro and Ms. Powell.  Their trial was set to begin very soon.  If prosecutors had to make their case against those two defendants, they would have revealed a great deal about their litigation strategy, and that information could have been useful to counsel for the remaining plaintiffs.

What's next, you might ask?  This is not my area of expertise, but from the perspective of my position as an armchair prosecutor, it seems that these Misty Hampton and Cathy Latham are left looking very exposed, and the noose also seems to be tightening around John Eastman's neck.  Rudy Giuliani has already confessed to lies in another Georgia case and is reportedly running out of funds to pay his attorneys.  I would be surprised if there weren't more plea agreements on the way to trial, unless the prosecutors, thinking they already have enough witnesses, are no longer interested in offering such generous terms.  They may not need to.

A Unilateral Offer from Ring

Not an Alien

When OCU law 1L Dubelza Galvan (left) shared this story with me, I thought it would make a good weekend frivolity post.  But then I saw the there are "Official Rules" that govern the offer, and reading those felt non-frivolous.  So here we are.  Thanks a lot, Dubelza.

So Ring is a company that makes doorbells with cameras attached so that you can see who is at your door and, if you live in the United States, arm yourself appropriately.  If you live in Canada, you can see who is at your door and decide whether you should offer your guest fresh-baked pastries or a Molson.

As announced on the company's website, Ring is offering $1 million to anyone who captures footage of an extraterrestrial on their indoor or outdoor device between now and November 3rd.   Clever participants might already be working on ideas.  After all, Halloween falls between now and November 3rd, so there is a non-negligible chance that some kid will earn me $1 million by showing up as ET or Mork or one of those nasty little guys from Mars Attacks or Boris the Animal ("It's just BORIS") from Men in Black III or that thing from Total Recall that advises Arnold Schwarzenegger, "Open your mind!" or . . . well, you get the idea.

Perhaps an Alien?

Nope.  Ring is all over that.  The "Official Rules" define "extraterrestrial" as:

Any life in the universe originating or occurring outside Earth or its atmosphere. The Extraterrestrial must take up physical space in order to be perceived by humans or cameras and have sufficient technology to be capable of traveling to and surviving within Earth’s atmosphere.

So, what are the rules?

First, you have to be a U.S. resident to play.  Sorry, Canada.  Also, while no purchase is necessary in order to win, you have to own (or have shared access) to a Ring device in order to enter.  So, I guess they mean, no additional purchase necessary.  Once you enter, there are two options.  You can win the GRAND PRIZE by submitting scientific evidence of extraterrestrials recorded on a Ring device. It can't be longer than 1 minute.   "Scientific evidence" is also a defined term.

• “Scientific Evidence” is defined as an unaltered video (with audio) recorded with a Ring device (maximum one (1) minute long) containing ALL of the following criteria (the contents of the unaltered video must be recorded during the Promotion Period with a Ring device without the use of computer graphics, digital effects and/or other artificial elements):

  • The Extraterrestrial exhibiting unusual, extraordinary, or unexplainable behavior (i.e. strange movement, velocity, pattern or other unique morphology).

  • An explanation, within the Promotion Entry Form (as defined below), of why the anomaly is necessarily extraterrestrial in origin (i.e., explanation based on theoretical predictions from the existing scientific literature, recovery and analysis of an Artifact or documentation of Extraterrestrial markings or symbols).

  • The Scientific Evidence must unequivocally rule out any known explanations or any new Earth-based phenomena as an explanation (e.g., equipment malfunction, known aerial objects, atmospheric phenomena, recently discovered terrestrial species)

  • The Scientific Evidence must demonstrate that there was no alteration or malfunction of the Ring device on which it was captured (“Corroboration") (e.g., including footage from an additional camera, correlating audio, or other simultaneously-captured data).

The $1 million grade prize will come in the form of an annuity paid out over twenty years.

Feeling uncertain about whether it is really possible to win the Grand Prize? I have some haunting advice for you:

There will also be five "Out of This World" prizes awarded to people who have some time on their hands or really want a $500 Amazon gift card.  

The criteria for these prizes are as follows:

To be eligible to win the Out of this World Prize, all eligible Option One and Option Two Entries, including any Grand Prize Eligible Entrants who do not win the Grand Prize, will be reviewed by the judging panel comprised of representatives from Ring and Hunter (“Judging Panel”) who will award points according to the following criteria:

• 

  Definitely an Alien
  “extraterrestrial(s)” with the most unique communication style (1-10 points)
• “extraterrestrial(s)” that engaged with their Ring device in the most unique way (1-10 points)
• “extraterrestrial(s)” with the most unique mode of transportation (1-10 points)
• “extraterrestrial(s)” with the most unique costume and accessories (1-10 points)
• “extraterrestrial(s)” that made the Judging Panel laugh the hardest (1-10 points)

In case of a tie, there are additional factors:

• Creativity (1-10 points)
• Visual appeal (1-10 points)
• Humor (1-10 points)

I object, on the ground that the first and third additional factors are duplicative of the original factors and so it all comes down to looks.  Typical.

Sid DeLong on Ethical Altruism and Sam Bankman-Fried

Defective Altruism: Reflections on Bankman-Fried
Sidney DeLong

As the long hand of the criminal law closes inexorably around the neck of Sam Bankman-Fried the disgraced founder of the bankrupt crypto exchange FTX, the insatiable Meaning Machine has already begun to Draw Conclusions from his fate.

Herein are mine.  This is posted during his criminal trial and may be amended.

To some law professors, the most interesting thing in the case is that, although Bankman-Fried is not a lawyer but a graduate of MIT, both his parents, Joseph Bankman (left) and Barbara Fried (right), are each respected members of the legal academic elite, professors at Stanford Law School. Bankman is an expert in tax policy; Fried is an expert in contracts and legal ethics. She is also the co-founder of Mind the Gap, a political fundraising organization that supports the Democratic Party.  Both parents are proponents of the philosophical approach of philosopher Peter Singer, known as “effective altruism,” and thoroughly imbued their son with this philosophy. Effective Altruism is said to have motivated him and several of his associates as they built the financial empire that became FTX.

Effective altruism is a modest approach to doing good that would appeal to people across the pollical spectrum in a saner world of ideas. Briefly stated, it challenges each person to maximize their effectiveness in mitigating inequality by careful application of their resources, getting the most bang for your charitable buck. For Bankman-Fried and his friends, it meant making a lot of money and giving a lot of it away to worthy causes, while keeping enough to lead the good life. Effective altruism apparently is not overly concerned with the first step in the program (making a lot of money) and so it seems not to have mattered that Bankman-Fried’s wealth came, directly or indirectly, from speculating in the wildly fluctuating values of bitcoin and other crypto currencies.

Bankman-Fried also established FTX, a cryptocurrency exchange permitting customers to buy and sell bitcoin. In the unregulated world of crypto-currency transactions, FTX offered those who wished to deal in bitcoin a trustworthy platform on which to buy and sell bitcoin with certainty that the trades would be executed and that the customer’s funds and bitcoin holdings were safe. Because it acquired a reputation as being exceptionally trustworthy, bolstered by Bankman-Fried’s celebrity, FTX grew at a prodigious rate and was soon said to be worth several billion dollars.

With the help of funding from ethically minded millionaires, Bankman-Fried and his friends also created Alameda Research, a hedge fund firm that traded and speculated in bitcoin and other crypto currencies. As a market maker, Alameda provided liquidity to some of FTX’s customers. Alameda’s trading profits were intended to be devoted to altruistic causes. During their operations both FTX and Alameda donated millions of dollars to causes their founders deemed worthy, including Democratic Party political campaigns and causes.

Under Bankman-Fried’s control, Alameda and FTX operated closely together with only casual attention to the corporate formalities. The FTX bankruptcy trustee has accused Bankman-Fried of improperly transferring customer funds back and forth from FTX to Alameda, whence they evaporated in the crypto crash, leaving FTX customers with billions of dollars of losses from their accounts. He is also accused of commingling assets, failure to maintain proper records of transactions, and a host of other breaches of fiduciary duty to the customers and creditors of FTX. He is accused of improperly using the funds of FTX for personal gain. His defense to some of these claims is much more difficult than it would be otherwise because of grossly inadequate record-keeping.

But if these allegations are true, What Does It Mean? To trace all of Bankman-Fried’s misbehavior to his parents’ training on Effective Altruism would be unjustified. Effective Altruism is not a call for a crypto-Robin Hood to take bitcoin from the rich and give it to the poor after extracting a handsome handling fee in the process. But it is predictable that the Singer philosophy is likely to become a scapegoat in the political press, especially when the altruism appears directed to Democrats rather than Republicans. One need not be a cynic to predict that teaching Effective Altruism will be banned in Florida schools.

Although Effective Altruism does not require the forms of misbehavior of which Bankman-Fried and his friends stand accused, it seems that they did not think that it excluded it either. Perhaps Effective Altruism should be recast as Ethical Altruism, limiting the raising of funds for charitable redistribution to ethical means. Ethical Altruism would disavow robber baron philanthropy as a form of secular simony in which one’s sins can be pardoned with a sufficiently large charitable foundation, But this is only a suggestion from a non-philosopher.

If Bankman-Fried had been educated at Stanford Law School, where his parents taught, instead of or after his stint at MIT, he might have avoided his present legal plight. At a general level, he would have been taught the legal constraints and fiduciary obligations that arise when dealing with other people’s money, along with the procedural ways in which to comply with them. Regrettably, in their zeal to convert Sam to the ultimate goals of altruism, his parents apparently failed to teach the less dramatic lawyer-virtues that underlie rules that they taught their law students, including those concerning fiduciary duty, commingling, conflicts of interest, breach of trust, and the other constraints one must observe when dealing with Other People’s Money.

On a more mundane level, if he had been trained as a lawyer, he would also have been forced to come to acknowledge his own ignorance of the legal and ethical relationships that were created by his novel and complex financial empire. A less self-confident Bankman-Fried would have sought legal advice on such questions as the following: What is the exact legal relationship between FTX and people who trade bitcoin on its platform? What are FTX’s record keeping obligations regarding their trades? What am I legally permitted to do and what am I prohibited from doing with regard to customer funds and bitcoin? Am I a trustee and if so to what extent? What may I do and what am I prohibited from doing with regard to transactions between FTX and Alameda? What is the best legal vehicle to achieve my goals?

I confess that the urge to speculate as to why Bankman-Fried failed to get detailed, expert advice on these and similar questions is irresistible. To me, his tragic flaw was that old Greek standby hubris, in this case induced by his having become a twenty-something billionaire who was proclaimed a genius by powerful and wealthy people who praised him for thinking outside the box. For one who was a hero in a culture that prizes recklessness (“Move fast and break things”), it would have been uncharacteristic for a genius to run all his business plays by his lawyers. And anyway, he was assured by ethical experts that his soul was pure because his motives were unimpeachable.

So that is the Meaning I have drawn from this sad tale, as we await the completion of his criminal trial. It is a modest, law school level observation that even masters of the crypto universe must know about professional and fiduciary responsibility and that altruism must be tempered by such responsibility.

As a postscript, however, as the lesser-known details of the FTX bankruptcy sadly illustrate, Bankman-Fried may conclude from this experience that merely training lawyers about their professional responsibility may not be enough to prevent ethical lapses of the sort he committed. His counsel and several other people have accused Sullivan and Cromwell, one of the largest and most prestigious law firms in the country, of a massive conflict of interest arising from its representation of both FTX, as it advised him to file for bankruptcy, and the FTX bankruptcy trustee who later attacked those transactions. The bankruptcy court has rejected these challenges after Sullivan supplemented its disclosure.

Nevertheless, Bankman-Fried might well conclude that the Sullivan firm appears to have reasoned its way around apparent ethical barriers that would have stymied less prestigious, less sophisticated lawyers: It seems to be a professional flaw that an unconscionable fee doth make casuists of us all.

Training Repayment Agreements in the News

Just yesterday, we posted about the debate over the FTC's plans to rein in non-competes.  One response has been Training Repayment Agreements (TRAs) or better still, Training Repayment Agreement Provisions (TRAPs). Thanks to guest contributions from Jonathan Harris (below left) here and here, as well as Miriam Cherry's review of Jonathan's work over at Jotwell, we have already been able to introduce readers to the topic.  Last week, H. Claire Brown published an article in The New York Times indicating how TRAPs work.

The article begins with an illustration.  A physician assistant signed a TRAP when she began work, as part of the first day of work ritual at which your employer presents you with the take-it-or-be-unemployed terms of your employment.  The TRAP provided that she would be required to reimburse her employer $50,000 for on-the-job trainings she received if she left the job before 2025.  She left, providing four-months notice, and her former employer sued, seeking to recover $38,000 in training fees (a ridiculous valuation for the training the employee received) plus $100,000 (a suspiciously round and therefore almost certainly made-up number) supposedly representing loss of business.   One wonders on what theory they think they can recover such lost profits.

In a second illustration, we learn of another medical professional who took a job that paid $35,000/year.  After more than two years on the job, she tried to leave, and her employer sued her for $30,000 in training costs.

According to The Times, nearly 40% of nurses who joined the profession in the last decade have to sign a TRAP.  In California, TRAPs are already unenforceable if they amount to an attempt to shift training costs to employees.  They are only enforceable if designed to allow employees to improve their skills sets in ways that will benefit them throughout their careers.  Even so, The Times notes, the FTC has proposed rules that will ban TRAPs to the extent that they function as non-compete clauses.    Some states have already banned TRAPs.  

Jonathan Harris's spidey sense must have been tingling, because he just shared with us news of this story about the National Labor Relations Board suing an employer that allegedly subjects its employees to unlawful confidentiality, non-disparagement, non-compete, no-solicitation, and training repayment provisions.

The Short and and the Long of the Debate on Non-Competes

The Federal Trade Commission has proposed a ban on virtually all non-compete agreements.  Similarly bans are already in effect in California and other states.  Back in January, Rachel Arnow-Richman (left) and Orly Lobel (right) published The Business Case for a Nationwide Ban on Noncompetes in The Hill.  The piece is now available on SSRN, and that's how I got wind of it. 

As their title suggests, Professors Arnow-Richman and Lobel argue that non-competes are bad for business. They cite to a decade's worth of empirical evidence to back their claim. Noncompetes suppress wages and exacerbate pay gaps based on race and gender.  But they are not just bad for workers; non-competes also stifle entrepreneurship and innovation.  It is no coincidence that Silicon Valley, a center for economic dynamism and technological innovation, is located in California, which bans non-competes.  Eliminating non-competes can be especially helpful as we emerge from the Great Resignation associated with the COVID economy.  Medical professionals in particular need to have the ability to offer their services where those services are needed, notwithstanding competition with past employers. 

That is the short.  Now for the long.  

Alan J. Meese (right) has posted on SSRN his 136-page article, Are Employee Noncompete Agreements Coercive? Why the FTC's Wrong Answer Disqualifies It from Rulemaking (For Now).  I will not attempt to summarize his work.  Here is the abstract: 

The Federal Trade Commission recently proposed a rule banning nearly all employee noncompete agreement (“NCAs”) as unfair methods of competition under Section 5 of the Federal Trade Commission Act. The proposed rule reflects two complementary pillars of an aggressive new enforcement agenda championed by Commission Chair Lina Khan, a leading voice in the NeoBrandeisian antitrust movement. First, such a rule depends on the assumption, rejected by most prior Commissions, that the Act empowers the Commission to issue legislative rules. Proceeding by rulemaking is essential, the Commission has said, to fight a “hyperconcentrated economy” that injures employees and consumers alike. Second, the content of the rule reflects the Commission’s repudiation of consumer welfare and the Sherman Act’s Rule of Reason as guides to implementing Section 5.

Affected parties will no doubt challenge the Commission’s assertion of authority to issue legislative rules. This article assumes for the sake of argument that the Commission possesses the authority to issue such rules enforcing Section 5. Still, prudence can counsel that an agency refrain from issuing rules before it has fully educated itself about the nature of the economic phenomena it hopes to regulate. Such prudence seems particularly appropriate when the Commission has very recently adopted an entirely new substantive standard governing such conduct. Deferring a rulemaking does not mean inaction. The Commission could develop competition policy regarding NCAs the old-fashioned way, investigating and challenging such agreements on a case-by-case basis.

The Commission rejected these prudential concerns and proceeded to ban nearly all NCAs, assuring the public that it had educated itself sufficiently about the origin and impact of NCAs to conduct a global assessment of such agreements. The Notice of Proposed Rulemaking (“NPRM”) offered three rationales for the proposed rule, drawn from a late 2022 Statement of Section 5 Enforcement Policy. First, the Commission opined that NCAs are “restrictive” because they prevent employees from selling their labor to other employers or starting their own business in competition with their employer. Second, NCAs result from procedural coercion, because employers use a “particularly acute bargaining advantage” to impose such agreements. Third, NCAs are substantively coercive, because they burden the employee’s right to quit and pursue a more lucrative opportunity.

The first rationale applied to all NCAs. The second and third applied to all NCAs except those binding senior executives. Such executives, the Commission said, bargain for such agreements with the assistance of counsel and presumably receive higher salary and/or more generous severance in return for entering such NCAs. Because NCAs also have a “negative impact on competitive conditions,” the NPRM also concluded that they are presumptively unfair methods of competition.

The Commission conceded that NCAs can create cognizable benefits. Nonetheless, the Commission concluded that such benefits do not justify NCAs, for two reasons. First, less restrictive means can “reasonably achieve” such benefits. Second, such benefits do not exceed the harms that NCAs produce.

The Commission also rejected the alternative remedy of mandatory precontractual disclosure of NCAs for two interrelated reasons. First, such disclosure would not prevent employers from using overwhelming bargaining power to impose such restraints. Second, disclosure would not alter the number or scope of NCAs and thus would not reduce their aggregate negative economic impact.

The procedural coercion rationale played an outsized role in the Commission’s Section 5 analysis, informing the findings that NCAs are also “restrictive” and substantively coercive. Moreover, the outsized emphasis on procedural coercion dovetailed nicely with the NeoBrandeisian claim that ordinary Americans are routinely helpless before large concentrations of private economic power. Indeed, when the Commission released the NPRM, Chair Khan separately tweeted that NCAs reduced core economic liberties.

Still, the Commission offered no definition of “coercion” or explanation of how to determine whether employers have used coercion to impose NCAs on employees. Instead, the Commission articulated several subsidiary determinations regarding the characteristics of employers and employees that, taken together, established that employers always possess and use an acutely overwhelming bargaining advantage to impose nonexecutive NCAs. Thus, the Commission emphasized that labor market power is widespread, due in part to labor market concentration, most employees are unaware of NCAs before they enter such agreements, NCAs generally appear in standard form contracts, employees rarely bargain over such agreements, most employees live paycheck-to-paycheck and thus have no choice but to accept NCAs, and individuals negotiating over terms of employment discount or ignore the possibility that they will depart from the job they are about to accept and thus downplay the potential impact of an NCA on their future employment autonomy.

This article contends that the Commission’s procedural coercion rationale for condemning nonexecutive NCAs does not withstand analysis. In particular, the Commission’s various subsidiary determinations that support the procedural coercion rationale have no basis in the evidence before the Commission, contradict such evidence and/or disregard modern economic theory regarding contract formation. For instance, a recent study by two Department of Labor economists finds that the average Herfindahl-Hirschman Index in American labor markets is 333, the equivalent of 30 equally-sized firms, each with a 3.33 percent market share, competing for labor in the same market. A previous version of the study was published on the Department of Labor’s website several months before the Commission issued the proposed rule. The NPRM offers no contrary evidence regarding the proportion of labor markets that are concentrated. “Hyperconcentration of labor markets” is apparently a myth.

Moreover, the NPRM ignores record evidence that 61 percent of employees know of NCAs before they accept the offer of employment. The NPRM’s failure to address these data is particularly strange, insofar as the NPRM cites the very same page of the academic article where these data appear three different times for other propositions. The Commission also erred when it assumed that employers with labor market power will use such power coercively to impose even beneficial NCAs. This assumption would have made perfect sense in 1965. However, since the 1980s, scholars practicing Transaction Cost Economics have explained how firms with market power, including labor market power, will not use that power to impose beneficial nonstandard agreements, including NCAs. The Commission was apparently unaware of this literature.

Nor does the lack of individualized bargaining and reliance on form contracts suggest that employers use power coercively to impose NCAs. Form contracts often arise in competitive markets and reduce transaction costs. Background rules governing contract formation, robust state court review of NCAs and exit by potential employees can constrain employers’ ability to obtain unreasonable provisions and induce employers to pay premium wages to compensate employees for agreeing to NCAs. These considerations may explain why a majority of employees who had advanced knowledge of NCAs considered the agreements reasonable, a finding the NPRM ignores.

Nor does it matter that most employees work paycheck-to-paycheck. The Commission ignored the possibility that such individuals may be employed when seeking a new job, bargain from a position of relative security and can thus “walk away” from onerous NCAs. The Commission also ignored economic literature establishing that the presence of some such individuals in a labor market can ensure that employers offer reasonable terms to all potential employees, including unemployed job seekers.

Refutation of the procedural coercion rationale for banning nonexecutive NCAs requires reconsideration of the other two rationales as well. For instance, nonexecutive NCAs are the result of voluntary integration and thus not procedurally coercive or substantively coercive, either. Moreover, because some nonexecutive NCAs are voluntary, the Commission must abandon its erroneous assumption that the beneficial impacts of NCAs necessarily coexist with coercive harms. Proper assessment of business justifications requires the Commission to ascertain the proportion of NCAs that constitute voluntary integration, revise downward its estimate of coercive harms and reassess NCAs’ relative harms and benefits. This revision could result in a determination that NCAs’ benefits in fact exceed their harms. Finally, recognition that beneficial NCAs are the result of voluntary integration requires the Commission to reconsider the mandatory disclosure remedy, which the Commission rejected based on the erroneous belief that employers use bargaining power to impose even fully-disclosed and beneficial NCAs. Such reconsideration could of course lead to revising the scope of the proposed ban or rejection of any ban.

The Commission may well be entirely capable of assessing the global impact of NCAs on economic variables such as price, output, and wages. However, the Commission rejected such a rule of reason approach in favor of a standard that turns in part on the process of contract formation. Thus, the Commission necessarily took on the task of gathering information regarding the process of forming NCAs and of assessing that data in light of applicable economic theory. The Commission’s demonstrably poor execution of this task reveals that it lacks the capacity to conduct a generalized assessment of NCAs under a governing standard that treats procedural coercion as legally significant.

Because it lacks the capacity to assess the process of forming nonexecutive NCAs, the Commission should withdraw the NPRM and start over. There are two alternative paths the Commission may take to develop well-considered competition policy governing NCAs. First, the Commission could revert to the rule of reason approach it rejected in 2021. The Commission could draw upon its considerable study of the impact of NCAs on wages, prices and employee training and promulgate a rule that bans those agreements the Commission believes produce net harm, after reconsidering regulatory alternatives such as mandatory disclosure.

Second, the Commission could continue to embrace its new Section 5 standard but take an “adjudication only” approach to implementation. The Commission could simultaneously take other steps through various forms of public engagement to educate itself about contract formation in general and the formation of NCAs in particular. The Commission could build on data it has to this point ignored regarding various attributes of employers, employees and labor markets more generally. Adjudication and self-education could be mutually reinforcing. Self-education could inform the Commission’s determination of which NCAs to challenge, while information generated in adjudication could improve the Commission’s knowledge base about NCAs. Ultimately this two-track approach could generate sufficient information to justify a well-considered rule governing NCAs.

The SAG-AFTRA Strike

We wrote last week about the auto workers strike.  We have been remiss in not having covered the strike of the Screen Actors Guild and American Federation of Television and Radio Artists (SAG-AFTRA) against the Alliance of Motion Picture and Television Producers (AMPTP), and the related strike of the Writers Guild of America (WGA) that began in May and just concluded this week. 

Although when I first drafted this post, there was no hint that the WGA strike was about to end, I will not claim that I alone fixed it. 

But did I?  I'm just asking questions.

In any case, it is time to catch up.

The WGA strike was the longest work-stoppage involving that group since 1988.  One of the main issues in the strike was the writers' access to residuals from streaming media.  Writers, like all of us, are also concerned that the studios might replace them with some new version of artificial intelligence.   The parties started off pretty far apart, with the WGA saying that its proposals would yield benefits of $429 million a year; the AMPTP's offer would yield $86 million. For months, there seemed to be no prospect of a resolution.  This month, negotiations seemed to make promising progress.

Suddenly, over the weekend, there was a breakthrough.  A tentative deal has been signed and, as Brooks Barnes of The New York Times reports, writers began returning to work this week.  The parties are expected to enter into a new three-year agreement, and most reporting suggests that the writers got most of what they were seeking, including 

• a 76% increase in residuals payments;
• a bonus to writers from streaming services; 
• guarantees of minimal staffing; and 
• no AI encroachment on writers' credits and compensation.

So now the writers can write.  But who will perform what they have written?

SAG-AFTRA joined the strike in July.  This is the first such industry strike since the actors' strike in 1980, and it is the first time writers and actors have gone on strike simultaneously since 1960.  The actors' concerns are similar to those of the writers.  They seek residuals from broadcasts over streaming services, and they too have worries about being replaced through artificial intelligence.

\According to Wikipedia, actors can still appear on podcasts, micro-budget independent films, student films, unscripted television work such as game shows, reality competition shows, documentaries, and talk shows.  This might be a boon to podcasts, and I assume that if the casts of Oppenheimer and Barbie want to make a video appearance on this blog, that would be no problem.  

So, for example, there has been at least one positive externality of all of this.  Jeri Ryan, unable to work due to the strike, has more time to spend on social media.  Two weeks ago, she used some of that time to like something I posted on BlueSky.  

I have followed Ms. Ryan's career since getting to know her as 7 of 9 on Star Trek Voyager.   Let's just say I am a fan.  I wanted to name my daughter "Seven," but my wife, also a fan, won that battle.  Still, twenty years later, one "like" from Jeri Ryan was mind blowing.  I asked my Associate Dean if I could cancel class due to being on Cloud 7 of 9.  She suggested that I instead share my joy with my students.  Which I did.  They had no idea who Jeri Ryan is, but that is their loss.  Also, as Seven would say, irrelevant.

Edited with helpful corrections from David August.

The Art of the Steal and the Art of (Not) Paying Damages

Two years ago, Sid DeLong (below left) posted on The Art of the Steal.  The facts of the case are as follows (lifted from Sid's post)

A Danish artist, Jens Haaning, was famous for imaginative art works intended as social commentary. Two of his previous works consisted of real currency pasted into a picture frame, each containing the average annual incomes of Danes and Austrians. The Kunsten Museum of Modern Art commissioned him to recreate these two pieces as part of an exhibition about the labor market entitled “Work It Out.”  Its contract with Haaning provided that he was to receive the equivalent of around $7,000 in expenses plus a government-determined viewing fee. In addition, the Museum gave him the equivalent of $84,000, (534,000 kroner), which he was to attach to the art works as he had previously done. 

Shortly afterward, he delivered two empty picture frames, entitled “Take the Money and Run.” As he later explained, he thereby fulfilled his promise of artwork: “The work is that I have taken their money…It’s not theft. It is a breach of contract, and breach of contract is part of the work.” 

In my own follow-up post, I opened as follows:

However, it appears that he never contracted for the right to keep the 530,000 Danish kroner he was supposed to use to make the art.  The title of his blank canvases could be construed as an admission of liability.  Not having seen the documents relating to the deal between artist and museum one cannot be certain, but it is hard to imagine a legal argument for why Mr. Haaning should get to keep the money.

Now it's time for the rest of the story, care of our former co-blogger Meredith Miller (right), who now just drops us little jewels from time to time.

Meredith shared with us Doha Madani's story for NBC News, which tells us that the art of the steal is not as profitable as you might think.  A court found that Mr. Haaning had breached his agreement with museum and ordered him to repay the money he was given to attach to the canvases of his works of art (currently valued at about $70,000).  He was permitted to keep his fee.  Mr. Haaning brought a counterclaim, alleging breach of copyright.  The reporting does not explain the legal reasoning underlying that claim, but the court ruled against Mr. Haaning.

True to the take-the-money-and-run spirit of his art, Mr. Haaning does not intend to appeal the ruling, but he also does not intend to pay damages.  He claims that he doesn't have the money. Harriet Sherwood, reporting in The Guardian provides the following quotation from Mr. Haaning at the time he created "Take the Money and Run":

“I encourage other people who have working conditions as miserable as mine to do the same. If they’re sitting in some shitty job and not getting paid, and are actually being asked to pay money to go to work, then grab what you can and beat it.” 

Seen from this perspective, it really would be hypocritical of Mr. Haaning to return the money.  He wouldn't be following his own advice.  Perhaps.  But it is not clear whether he is "sitting in some shitty job," and he definitely was paid.  Unfortunately, his pay may not cover his court fees.

Thrift Store Makes a $250,000 Mistake, but That's No Excuse

2021 was a great year for cases about undervalued goods.  In February, 2021, we posted about a Ming Dynasty bowl that someone bought for $35.  A month later, we covered the case of the valuable doors from the Chelsea hotel.  Nine months later, there was the case of a Dürer drawing picked up an estate sale for $30.  The law of mistake is pretty clear that the seller cannot undo the transaction.  They had possession of the good and could have had it appraised before sale.  

It's been a while, but this week, Matt Stevens writing in The New York Times  brings us yet another case of a valuable art find at a very low price.  This time, a shopper at Savers, in Manchester, New Hampshire found a small painting, for which she paid $4.  Years later, she became curious about the painting's origins, and so she posted a query on Facebook.  Eventually, an excited curator was nattering on about brushstrokes.  The painting was by N. C. Wyeth (above left).  It was the frontispiece illustration and part of a four-image set that Wyeth contributed for a 1939 novel “Ramona,” by Helen Hunt Jackson.  It is expected to fetch up to $250,000 at auction.  

Savers' current manager concedes that the staff members are not connoisseurs of paintings.  He was not with the company in 2017 when the sale took place, but he adopted a philosophical attitude:  “Obviously we missed the boat.”

Strike!

"Stike," by Theodor Kittelsen

Remember the days when Henry Ford stiffed his investors so that he could reduce the price of his cars and pay his workers a living wage (and also deprive the Dodge brothers of capital they could use to  start a rival company)?  A very different ethos inspires the managerial class at the Big Three automakers these days. 

According to Adam S. Hersh, writing for the Economic Policy Institute, profits at the Big Three have increased 92% over the past decade and are expected to be over $30 billion in 2023.  CEO pay is up 40% over the same period, and the companies have paid out $66 billion in dividends and stock buy-backs.  Worker pay, by contrast, adjusted for inflation, has decreased over 19% over the same period.  Unions made concessions to save the industry during the 2008 crisis.  The government bailed out the companies and their shareholders, but workers were expected to believe that keeping their jobs was benefit enough.

However, as Jack Ewing reports in The New York Times, unions sometimes bump up against structural economic changes, including new groups, such as immigrants, people of color, and women, joining the labor force, mechanization, and in this case, the shift to electric vehicles (EVs).  EVs have much simpler engines, which require fewer workers to build.  Moreover, Tesla, a leading EV manufacturer, has fiercely resisted unionization and has labor costs far below those of the Big Three.  Management is trying to frame the issue as pitting the unions against the drive to develop cars that contribute less to global climate change.  The reality is more complicated.  The Biden Administration is providing economic incentives for the shift to EVs, so the money that the Big Three spends on those efforts is partly provided through government subsidies.  

The unions are concerned about the shutdown of plants in the Midwest dedicated to the production of components for internal combustion engines.  Workers could shift to battery manufacturing plants, but those tend to be located in so-called "right-to-work" states where union organizing is much more difficult.  

The timing of the strike seems very well-chosen.  Despite their profits, the Big Three cannot afford a prolonged shutdown.  They run the risk of losing market share to other manufacturers of EVs.  Tesla continues to grow, as do new boutique start-ups that specialize in electric pick-up trucks and SUVs.  And then there are the foreign manufactures that have long located their factories in the U.S. South, where unions are scarce.  

As Michael D. Shear reports in The New York Times, President Biden has backed the union, but he is caught between his gut support for workers' rights and his environmental policies.  The White House has sent mediators hoping to avert a prolonged strike.  There is a lot at stake here, not only for workers and the automobile industry.  Mr. Biden must be aware that his re-election chances are linked to the state of the economy, and a significant strike at the Big Three could have national economic ramifications.

Yesterday, we blogged about Taylor Swift's impact on the fortunes of movie theaters.  Let us hope that a new contract for the autoworkers' unions will provide similar benefits for the rest of the economy.

Taylor Swift Has the Cure for COVID! And It Involves Contracts Law!

Image by Cosmopolitan UK,
CC BY 3.0, via Wikimedia Commons

Is there anything that woman cannot do?  Clearly, she can do anything she sets her mind to do, and if reviving the struggling movie theater business, with carry-on effects for shopping malls and other venues, is a positive externality of Taylor being Taylor, then so be it.  

For those of you who have avoided all human contact for the past decade, Taylor Swift (left) is a singer/songwriter who has had a number of hit songs.  Her international "Eras Tour" broke all imaginable records for successful concert tours, broke the Internet when tickets went on sale, and even generated a seismic event that registered 2.3 on the Richter scale, reportedly due to 70,000 white people trying to dance simultaneously to "You Belong With Me."  

As someone who does not particularly care for Ms. Swift's music but is surrounded by people who do, I have had no choice but to learn some of the details of her career.  So, I know that Ms. Swift does not like to share revenues with media industry bloodsuckers, like record labels and (now) movie studios.  

She has made headlines once again by leaving the studios out of the deal that will bring the Eras Tour to a movie theater near you.  Taylor Swift and her parents have cut the studios out of the process of financing and distributing the film version of her fabulously successful tour.  As Chris Eggertsen, reports on Billboard, the proceeds of the enterprise will be split, with 43% to be shared by the 1000 theaters at which the movie will be shown and 57% to be split between AMC and the Swift family.  Billboard reports (and I find this hard to fathom) that the theaters get to keep proceeds from concessions (fair enough) including from the sale of bespoke Taylor merch to be sold at the screenings (I'll believe it when I see it).  Theaters must agree to show the film for at least four weeks and may keep it up for as long as 26 weeks.  Taylor Swift now aims to beat Starbucks for market penetration.  

And of course, the records for sales for a new movie are dropping like flies.  The movie is not going to be released until October, but it seems like a safe bet that the Swifties will not lose their enthusiasm between now and then.  More likely, only Taylor-inspired bonding will prevent them from beating each other with friendship bracelets as they jostle for position in line.  No studio wants to release anything anywhere close to the release date for Ms. Swift's film, and for the first time in years, there is actually reason to buy AMC stock -- and not just to piss of the investment banks!  If there is a corresponding video game, I would recommend investing in GameStop next. One can anticipate people flocking back to theaters and the shopping malls that house them.  Social behaviors that we had completely forgotten about will return, and before long, we will re-familiarize ourselves with pre-pandemic life.  People will return to work, if only because the water-cooler conversations will now become opportunities to compete for the honors of having seen the movie the most and having bought the most Eras Tour merch.  And all thanks to Ms. Swfit!  

I am a lifelong Cubs fan.  I thought I would never get tired of the song "Go, Cubs, Go."  Then they won the World Series.  The weekend of the victory parade, I took a train into Chicago to attend Loyola Chicago's annual Constitutional Law Colloquium.  The train lasts about an hour, and my fellow Cubs fans were irrepressible, breaking out into song at the slightest provocation and with no regard to pitch or timbre.  I was relieved to step off of the train at my destination station, where "Go, Cubs, Go" was playing over the public address system.  I'd had it.  I was officially tired of the song.  Will the Swifties ever tire of their darling.  All signs point to no.  Well, let them enjoy their pleasure.

Twenty-six weeks may be enough, but expect it to have an afterlife akin to that of the Rocky Horror Picture Show, with dedicated Swifties heading out week after week to the Saturday night showing of The Eras Tour, complete with a pre-show costumes, Karaoke contests, and Taylor-wannabe talent shows.  And of course, the entire concert will be a sing-along punctuated by shrieks and shouts of adoration directed at the image of the singer.

AMC has visions of "Taylorstyle" deals moving forward.  That seems unlikely.  Her charms are lost on me, but they are undeniably unique and powerful.  I cannot think of another performing artist who could replicate this deal.  Maybe Beyonce? And just so that my Swiftie students will actually look at this blog, here's the trailer:

 

Ephemeral Tattoos Won't Go Away!

Tattoo I Would Get if I Were to Get a Tattoo
Image by DALL-E

If you pay for a temporary tattoo, aren't you getting a great deal if it turns out they last longer than their estimated 9-15 months?  So you might think, but as Callie Holtermann reports in The New York Times, some purchasers are dissatisfied and are seeking compensation.  

In Williamsburg, Brooklyn, there was a shop called "Ephemeral" where you could get a tattoo guaranteed to fade after fifteen months.  If I were making up this story, Williamsburg is where I would put the tattoo parlor, but actually they popped up across the country.  Ephemeral's slogan is "Regret nothing."  Regretful customers feel like they have been misled.

Two years later, the disaffected tattoo-curious are lodging complaints.  Some of their tales of woe can be found in Caleb Pershan's story in The San Francisco Chronicle from last November.  They have founded a community on Reddit to express their displeasure.  Ephemeral co-founder Brennal Pierre has joined the group to assure them that their tattoos will fade . . . eventually.   

If it faded. . .
Image by DALL-E

But do they have a claim?  According to The Chronicle, Ephemeral's customers sign a consent form which warns that the tattoos should fade in nine-to-fifteen months, but they may last longer and they won't fade evenly.  As one perhaps not-entirely-dissatisfied customer put it,  “There is a period where it looks like you got this tattoo 20 years ago, you know — in prison. They’re open about that.”  Again, depending on the person, having what looks like a 20-year-old prison tat might be a feature, not a bug.

As of February, the tattoos now come with a "Regret Nothing Guarantee" -- if your tattoo does not fade within three years, you can get your money back.  Ah, but can I get my arm back?

I am looking forward to the next re-make of The Paper Chase.  Imagine Professor Kingsfield updating his casebook by substituting Tatt00-Curious v. Ephemeral for Hawkins v. McGee.

Mr. Hart, what did the tattoo parlor promise?

And the result of the operation?

How should the court measure the damages?  What should Ephemeral pay Tattoo-Curious?

Cut to Mr. Hart desperately entering a bathroom and inspecting his still-intact chest tattoo that reads "I eat organic chemistry for breakfast!"  He gets out his phone, places a call and says, "Babe, I just figured out how I'm going to pay for law school!"

Eleventh Circuit Affirms Dismissal of COVID Claims Against the University of Miami

Adelaide Dixon attended the University of Miami (the University) in the Spring of 2020, but when the University shut down its campus in response to the COVID-19 pandemic, she did not experience the benefits of in-person education as she had hoped.  She sued, purporting to represent a class of similarly-situated students, alleging breach of contract and unjust enrichment.  The District Court granted the University's motion for summary judgment in 2022.  In July, the Eleventh Circuit affirmed in Dixon v. the University of Miami.

As we have seen in similar cases involving other colleges and universities (e.g. the University of Delaware, Bradley University, Brandeis University, DC schools, NJ schools), the outcomes of these cases turn on the particulars of the school's representations to the students.  In this case, the Eleventh Circuit agreed with the District Court that, even if the University had entered into express or implied contracts with its students, those very contracts provided that the University could amend its contracts with or without notice.  In short, the University reserved the right to amend the way in which it delivered its curriculum and so it acted within its rights when it moved to online education in Spring 2020.  

As to Ms. Dixon's unjust enrichment claim, the court first noted that the University could not have continued in-person education without violating two separate executive orders.  In any case, under Florida law, one cannot state a claim for unjust enrichment where payment has been made for the benefits conferred.  Here, the court found that Ms. Dixon received the benefits of a University of Miami education, even if that education was delivered temporarily through online courses.  Her claim that the University did not appropriately prorate her refund for fees was not supported by evidence.  

The opinion concludes on a note of optimism:

We hope that some comfort can be found, however, in our certainty that despite enduring the hardships created by the pandemic, any student who has earned a degree from a school like the University of Miami retains the unspoiled potential for a fulfilling and prosperous future.

May it be so.

State Contracts with PragerU

Oklahoma's state superintendent of schools, Ryan Walters, has generated a lot of controversy.  Prior to becoming superintendent this year, Mr. Walters was appointed Secretary of Education by Governor Stitt.  In May, 2022, federal auditors found that a program Mr. Walters administered had few safeguards to prevent fraud, and they opened an investigation into the distribution of COVID relief funds under Mr. Walters' tenure.  That same month, Oklahoma newspapers reported that Mr. Walters was continuing in his role as Executive Director of a non-profit funded by national school privatization advocates and charter school expansion advocates.  Mr. Walters was paid a salary of $120,000 in his position with that non-profit, while his state salary was only $40,000. 

He stepped down from his position at the non-profit upon taking up his office as  superintendent in January 2023.  The Oklahoma Ethics Commission fined him for fourteen violations of state campaign ethics rules in connection with the election that got him there.  The Oklahoma legislature refused to act on his nomination for a second term as Secretary of Education after the Oklahoma Attorney General told lawmakers that it was illegal for Mr. Walters to hold both positions simultaneously.  

In office, Mr. Walters crossed swords with the Attorney General again, when he attempted to revoke the licenses of teachers who spoke out against new laws that regulate the ways that the subjects of race and gender can be taught in public schools.  He expressed views on the Tulsa Race Massacre that earned him a parody article in The Onion.  Most recently, he threatened to remove accreditation from Tulsa Public Schools, and the Tulsa superintendent resigned in protest, a move that Mr. Walters cheered, calling it a tremendous day for Tulsa parents.  The school board did not agree.  According to this report from local news channel, KTUL, one board member explained the decision to accept the Tulsa superintendent's resignation as follows, "We're devastated as a board but we're going to do what's best for students we have to move forward."

Now, as Chris Casteel reports in The Oklahoman, taking his cues from Florida, Mr. Walters has announced a "partnership" with PragerU Kids.  PragerU's videos are provided for free, so it's not clear why a "partnership" is called for.  Nor is it clear why the state would promote videos from a company whose content has been restricted, demonetized, or flagged by YouTube because they contained misinformation.  In 2018, a U.S. District Court dismissed PragerU's suit against YouTube, a ruling that was upheld by the 9th Circuit on appeal.  

PragerU is a non-profit organization that announces its goal as countering "the dominant left-wing ideology in culture, media, and education."  Prager U is funded by conservative donors whose views on education are closely aligned with the views of those who paid Mr. Walters's salary when he was executive director of a non-profit.   PragerU calls itself "the world’s leading conservative nonprofit that is focused on changing minds."  

This is the politics of shamelessness.  Accusing those on the left of surreptitiously doing what conservatives do openly permits politicians to boast of their adoption of shameful measures.  Students deserve to be provided with the best education we can offer them.  They should be provided with the full picture of the American experience, rather than one sanitized to promote a shallow patriotism fueled by ignorance of the diversity and the complexity of our shared history.  If "culture, media, and education" are dominated by "left-wing views," perhaps it is because it is impossible to study U.S. history without realizing that the views of history associated with the left arose organically in response to politics and a society that have not always been consistent with the story that PragerU wants to promote about U.S. history.  

As Lenzy Krehbiel-Burton and Andrea Eger report in The Tulsa World, schools have no plans to supplement their curricula with PragerU materials.  According to the Oklahoma Department of Education, which has added links to PragerU to its website, the "partnership" is limited to placing those links on the state website and will not have a financial cost to the state.  As so often in the culture wars, this is a lot of sound and fury over not very much because you really cannot force people to adopt the views of a small minority, no matter how vocal or how overrepresented they are in state politics.  Still, there is a cost to the state.  It's just not a financial cost.

The Economics of Empty Space

I'm genuinely perplexed that we are not experiencing a 2008 bust all over again.  Why isn't the fact that most office buildings are half empty the news story that everyone is covering?  Why aren't we reading about all the creative ways in which high-end office space is being converted into affordable housing to benefit the working poor?

Emma Goldberg of The New York Times has a longish article on the topic.  She reports that New York's offices remain at 41% below their pre-COVID occupancy.  Overall, vacancy rates have surged 70% since 2019.  Real estate tycoons who think this is just a temporary setback and contemplate "cutting back on their philanthropy" a bit sound like they are engaged in magical thinking.  On the other hand, a new generation of workers who consider never having to stray more than fifty feet from one's couch a sign of professional success also seem deluded to me.  But then, I am a social creature, the wonder of deans and law school staff -- a faculty member who comes to work every day.  

I find Haruka Sakaguchi's images of empty office space that accompany Emma Goldberg's writing quite chilling.  My law school closed in 2020.  No part of that made me sadder than watching our library go, volume-by-volume, into a dumpster.  Well, several dumpsters.  It seemed only a matter of time before the building that, five years earlier was bustling with over 500 students and staff, would feature tumbleweeds and rodents.  I have adorned this post with images from that experience. 

I am told by a colleague that my old law school's lovely, recently-renovated clinic building now houses administrative offices.  No surprise there.  The law school moved there in our last year of teaching, when we had about fifteen students left.  It's a great space.  But the latest CEO/visionary/university president has yet to find much use for the main law school building.  Apparently, they are holding classes there for students who are not quite ready for college yet, notwithstanding the fact that the small town where the university is located already has a large technical college that addresses that need.  I expect that they will eventually move a cryptocurrency mining operation in there, to be followed by warehousing Beanie Babies to sell on Etsy, before the building is razed so they can plant tulips.

The owners of New York real estate have a few options.  They can upgrade their buildings to help companies lure their workers back to the office, with fitness centers, cafes, and other amenities.  The Times article mentions "sleeker lobbies," but who comes back to work for a swanky lobby?  Or they can covert their properties into hotels or housing, but less than 10% of New York's office buildings are suitable for such conversion.  Apparently, the typical office building does not allow in enough natural light to be suitable for conversion.  What does that tell us about the conditions under which people work in such offices?

But there seems to be another factor, mentioned but not explored in the article, preventing conversion. Apparently some city ordinance prohibits conversion of office space into residential space.  Only older buildings, from before 1977 or 1961, depending on the location, can be converted.  With New York's homeless population surging to 100,000, one hopes the city council will move quickly to remove roadblocks to conversion

The other options are: stop paying the mortgage, and let the lender have the building, or just try to wait things out and hope that people want to return to the office.  The banks don't want the properties.  They are granting extensions on loans.  They too can play the wait and see game.  

But eventually, time will be up for the lenders as well.  And they will have to write off many of those loans as losses.  Let's hope the robust economy can sustain the blow when it comes.

Blind Sided

On the first day of class each year, I tell my contracts students about the blog.  They may or may not think that they are interested in contracts law, but I think it is good to introduce them to the idea that the whole of existence can be considered through the lens of contracts law, which is what we do here.

And then, without warning, on the second day of class, I was blindsided when OCU 1L Sydney Freshwater (left) asked me to blog about suit brought by Michael Oher (below right) challenging the conservatorship set up purportedly on his behalf in 2004.

I protested that I sat out the whole Britney Spears thing, and as a result, I know nothing about conservatorships.  Sydney was unfazed and insistent.  The world needs to read the contracts angle on all of this, she scolded.  Well here goes.

According to Claudia Rosenbaum writing in Vulture, Mr. Oher was not adopted by the Tuohy  family as he and millions of movie-goers believed.  Rather the Tuohy's set up a conservatorship that provided, among other things, that Mr. Oher could not enter into any contracts without their direct approval. 

Jeffrey Beall, CC BY 4.0, via Wikimedia Commons

Mr. Oher claims that he was told that the conservatorship was the legal equivalent to an adoption.  Adoption itself was not an option, he was told (falsely, according to the article), as Mr. Oher was over 18 at the time the conservatorship was established.  No conservatorship was necessary, he now claims, as he suffered from no disability, and he claims that the conservatorship cost him millions of dollars.  He wants the conservatorship to be ended, and he seeks an accounting.  The Tuohys were paid $225,000 each (it's not clear if that is for husband and wife alone or also for their two children) plus 2.25% of profits on the movie The Blind Side, which grossed over $300 million.  

They respond to this suit by a man they "love as a son" by calling it "hurtful and absurd."  They are absurdly rich.  So rich, apparently, that their attorney thinks that hundreds of thousands in up-front payments from a movie studio plus perhaps millions in post-production profits amount to "a few thousand dollars in profit participation payments."  It's easy to lose track of one's spare millions when you are just throwing them on the pile.  They characterize his lawsuit as "ludicrous" and dismiss it as an attempt to drum up interest in his new book.  Gosh, they are so loving!  Imagine what they would say about him if they had actually adopted him.

Mind you, there is a lot going on here that doesn't add up.  It seems odd that Mr. Oher has gotten this far in life without noticing that the Tuohys were necessary parties to his multiple contracts over the years.  At no point did his agent tell advise him that he didn't need the Tuohys around?  Does he need to check with them before he signed with multiple NFL teams? Closed on a house?  Agreed through clickwrap to a website's Terms of Service? Bought a car?

With both parties here are well-resourced, one hopes that this case will be quickly resolved through mediation.  Otherwise both sides might be blindsided and made worse off by attorneys fees.

Locker Room Rap Breaching Licensing Agreements Leads to Suspension of Football Activities at FAMU

I have been writing for the last two years or so about the interaction between contracts rights and First Amendment rights.  There are links to lots of posts starting with this one.  I have an article forthcoming on the case from 2021 in which SCOTUS found that a middle school could not discipline a cheerleader who posted a Snap that read "fuck school fuck softball fuck cheer fuck everything."  

So, I was intrigued when I read Dean Straka's article on CBS's Sports' website, that Florida A & M University's (FAMU) football coach, Willie Simmons, acknowledge free speech issues in announcing on July 21st that he was suspending "all football activities" due to an unauthorized rap video posted on YouTube.  

The artist in question is Real Boston Richey.  He appears in the video, among other places, in the FAMU football team's locker room.  He is shown wearing FAMU gear, including football helmets, and he is surrounded by team members, also wearing FAMU gear.  The Rapper performed at FAMU's homecoming game last season, so there seems to be a genuine bond there.  It is unknown how he and his crew gained access to FAMU's facilities for the purpose of recording the video.  FAMU notes that the unauthorized use of apparel and logos violates licensing agreements.

In suspending all football activities, Coach Simmons expressed his support for free speech but said that the language in the video "is not consistent with FAMU's core values, principles and beliefs."   That's a bit hard to square with FAMU's invitation to Richey to perform at homecoming.  Coach Simmons said of his athletes, "They will all learn from this mishap and we will continue to work hard every day to become the best version of ourselves and continue to make Rattler Nation proud."  Sure.

The video is no longer viewable, as far as I can tell, but you can listen to the song here.  You can find the lyrics to the song here.  I don't have the expertise to comment on the their qualities, but it seems understandable that FAMU would not want to be associated with the rap's message, at least if one associates the message of the song with the words as written.

I assume that the students who join college football teams enter into agreements that include limitations on their rights of free expression.  FAMU is a state university, so there ought to be First Amendment protections that the athletes cannot bargain away.  That said, the cheerleader in the SCOTUS case signed an agreement in which she promised not to make disparaging comments about her school or cheerleading on social media, and then she proceeded to do that very thing.  SCOTUS said that the school could not discipline her in any way consistent with the First Amendment.

In this case, it seems like there was non-expressive conduct that could be punished consistent with the First Amendment.  There was unauthorized access to FAMU's facilities.  There were the licensing violations.  But some of those pertain only to Real Boston Richey and his crew, and some of those pertain to the individual students who presumably allowed him into the locker room and joined him in the music video.  Suspending all football activities seems to punish student athletes who had no involvement. Perhaps for that reason, among others, the suspension was lifted on July 24th.  According to Jim Henry, reporting in the Tallahassee Democrat, no information regarding player discipline has been made public, but the investigation is ongoing.