ContractsProf Blog

No Compete Clauses in Bilateral Contracts (No Unilaterality)

In a recent case, employment agency Robert Half International, Inc. (“Robert Half”) brought suit against a former employee, Nicholas Billingham, and Billingham’s current employer, Beacon Hill Staffing (a competitor of Robert Half) for actual and anticipatory breach of contract. Billingham’s contract with Robert Half included the agreement that Billingham would not compete with or solicit clients from Robert Half if leaving the company.  Nonetheless, Billingham accepted employment with Robert Half’s direct competitor where he stated that he intended to “add to my team quickly and take market share from Beacon Hill’s competitors.”  Robert Half brought suit.  Billingham and Beacon Hill moved to dismiss the complaint for failure to state a claim.

Billingham first defended himself arguing that unilateral contracts cannot be anticipatorily breached since they technically seen do not arise until the actual performance has been rendered.  He argued that his contract was unilateral since his remaining obligations were not yet due.  (Strangely, he did so although he had already terminated the relationship himself.)  The court corrected him on this point, noting that a unilateral contract is one that “occurs when there is only one promisor and the other party accepts, not by mutual promise, but by actual performance or forbearance.”  (Quoting Williston § 1:17).  To help my students distinguish accepting by beginning of performance in bilateral contracts from offers for unilateral contracts, which is sometimes confusing for them, I tell them that they must scrutinize what type of acceptance is sought by the offeror: if onlythe actual performance, then there is a truly an offer for a unilateral contract. If this is not clearly the case, there is an offer for a “regular” bilateral contract.  In this instance, the contract between Billingham and Plaintiff was bilateral, not unilateral.  Robert Half promised to employ Billingham in exchange for Billingham's promise to abide by the restrictive covenants in the Agreement.  Billingham's promise included the prospectiveagreement that he would refrain from certain activities upon departing the company.  Billingham was thus not correct that the agreement “became unilateral” after his resignation.  That is a legal impossibility.  His obligations to forbear from the non-competitive agreements became due the moment he left Robert Half.  As with many other contractual issues, unilaterality and bilaterality are examined at the point of contract formation, not by looking at what actually happened thereafter.

The court thus found that plaintiffs had sufficiently pled a claim of anticipatory, if not actual, breach of contract. 

Plaintiffs also stated a claim for unjust enrichment. Defendants argued that Robert Half has not actually “conferred” any benefits on Beacon Hill and would thus not be liable for compensation under that theory.  The court noted that this is wrong.  Beacon Hill received a “benefit” from Billingham's employment through the revenue that he generates, his professional training, his relationships with customers and candidates, and his industry knowledge.  Beacon Hill's retention of these benefits is “unjust” as they are benefits that Billingham is barred, by the agreement, from conferring on Beacon Hill.

The case is Robert Half International Inc. v. Billingham, 317 F.Supp.3d 379, 385 (D.D.C., 2018).

Not remembering signing your arbitration agreement doesn't mean you didn't sign it

Another day, another arbitration compelled, this time in a recent case out of the Northern District of Illinois, Nitka v. ERJ Dining IV, LLC, Case No. 18 cv 3279. The plaintiff sued the defendant for sexual harassment, sex discrimination, and assault and battery. The defendant countered that the plaintiff had signed an agreement to arbitrate disputes relating to her employment, which these were. The plaintiff stated she had no memory of signing the arbitration agreement, but the defendant's Vice President of People and Development testified that it required new employees to sign such agreements before entering employment and maintained them in the usual course of business. The plaintiff's arbitration agreement was located in her personnel file. Furthermore, the plaintiff had apparently affirmatively indicated on an electronic form that she had signed the agreement. 

The plaintiff then argued that she had been a minor at the time of signing the agreement, but the court pointed out that she ratified the agreement by continuing to work for the defendant after her eighteenth birthday. 

I believe that the plaintiff did not remember signing the arbitration agreement. To be honest, I believe that, even if she remembered, she probably had no idea what it really was. She was a minor trying to get a job at a Chili's. I'm sure she signed what she was told to sign and clicked the electronic check-boxes she was told to click -- exactly the way the vast majority of us do when getting a new job. 

In honor of the Red Sox, some baseball contracts

Hello! I was away at a conference last week and then the Red Sox* decided to win the World Series, which threw off all productivity for a while. As I ease back into blogging, I thought I'd link you to this piece from Business Insider, analyzing some of the terms set forth in the 2011-era version of Major League Baseball's uniform contract. I find my students always love to look at real-life contracts, and this is a nice point in the year to do it, as it's a nice way to demonstrate that they are now able to (or should be able to!) understand more of the contract than they might have on the first day of class. 

Of course, I always try to impress upon my students that contracts can be negotiated, so here's a list of some more unusual contract clauses baseball players were successful in getting teams to agree to. 

*(not the Red Sex)

Attorneys cannot use anti-SLAPP statutes to strike client complaints

Is an attorney’s work in underlying lawsuits on behalf of clients protected speech under the United States or similar state constitutional standards?  No, held a California Appellate Court recently.

The California anti-SLAPP provisions state that “[a] cause of action against a person arising from any act of that person in furtherance of the person's right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim.  An act in furtherance of a person's right of petition or free speech under the United States or California Constitution in connection with a public issue includes ... any written or oral statement or writing made in connection with an issue under consideration or review by a ... judicial body....” 

A client alleged that his attorney misrepresented his labor law expertize when negotiating the retention agreement between the two and that the attorney conducted settlement negotiations with the opposing party in order to drive up fees.  When the attorney sued his client to collect his fees, the client cross-complained for fraud and breach of contract.  The attorney then moved to strike the cross-complaint under the California anti-SLAPP statute, Code of Civil Procedure § 425.16. 

The court found that merely because attorneys occur as part of litigation – the client’slitigation – a malpractice claim such as this is not subject to anti-SLAPP.  Said the court, “[i]t is the principal thrust or gravamen of the plaintiff's cause of actionthat determines whether the anti-SLAPP statute applies, and when the allegations referring to arguably protected activity are only incidental to a cause of action based essentially on non-protected activity, collateral allusions to protected activity should not subject the cause of action to the anti-SLAPP statute.”

“Although attorney retention negotiations may in a sense be ‘connected’ with judicial proceedings involving the client, they in no way relate to the substance of an issue under review in the proceedings or further the attorney's petition or free speech rights in them.  If they did, then every communication between an attorney and a client who is or may become involved in judicial proceedings would constitute an exercise of the attorney's petition and free speech rights, and every lawsuit for malpractice would be required to undergo a second-prong anti-SLAPP analysis.  No principle or authority supports such a proposition.

The case is Mostafavi Law Group v. Ershadi, 2018 WL 4690887, (Cal.App. 2 Dist., 2018)

Lack of Consideration – Or Not!

Currently in the midst of teaching consideration, I found the following case curious not so much because of its somewhat questionable facts, but because of the court’s puzzling reasoning.

Plaintiff Jose Torrez, a skilled laborer, agreed to renovate some buildings owned by defendant Koray Ergur and his companies.  Torrez was promised a bonus of $150,000 for nine months’ worth of work if he would work for the “reduced hourly wage” of $10 per hour.  He did. At some point in time, his hourly pay was increased to $11 per hour.  After completing a total of 18 months of labor, Torrez was terminated and – you guessed it – denied the bonus.  He brought suit claiming, among other things, breach of oral contract and the bonus $150,000 in damages.

The court rejected the latter.  Of course, since the contract was for the completion of nine months of labor, the Statute of Frauds was not implicated and the oral promise was thus enforceable if the court had wanted to do so.  It did not, however.  Instead, it found that Torrez had, during the legal proceedings, “contractict[ed] his allegation of reduced wages as the consideration for the $150,000 bonus.”  The court concluded that “while Torrez recited facts in his pleading to support the element of consideration for the promised bonus [i.e. the low pay of $10 per hour], the evidence presented by deposition and at Hearing [i.e. the “non-reduced” hourly wage of $11 per hour] refutes the existence of consideration … Therefore … it is clear that no consideration existed for the promise to pay a bonus.”

The court apparently found that because Torrez actually received one single dollar more per hour over nine months, there was no consideration for the original promise of working for a “reduced salary.”  However, consideration is measured at the point of contract formation, not after the subsequent turn of events.  Receiving only $10 or even $11 per hour instead of what skilled, manual laborers could get is a “reduced wage” given the market for such work.  It is puzzling why the court found that “no consideration existed for the promise to pay a bonus” when such consideration was fairly clearly present from the outset, namely the promise to work for not much with a promise of a bonus upon completion of the work.

Is something else at play here?  I think so.  It strikes me as odd that, pardon me, a manual laborer would be promised a bonus of no less than $150,000 for nine months of work.  That is $16,999 per month or, working 40 hours a week, $104 per hour.  Skilled workers can and do demand high fees in some locales, and maybe in Ohio as well. But $150,000 does seem high.  Was the court simply trying to protect the defendant from what may have been an attempted fraud by Torrez?

The truth will probably never be known here. Regardless, this case nicely demonstrates how the consideration doctrine is still relevant and, as always, the importance of getting contracts in writing even though they do not haveto be.  Even if Torrez had been promised the asserted bonus, it is also wise to remember the old adage that if something seems too good to be true, it might be.  Maybe Torrez was the one fooled in this case.

The case is Jose Torrez v. Koray Ergur, et al., Case No. G-4801-CI-201604375-000 (Court of Common Pleas, Ohio, Aug. 31, 2018).

H/t to colleagues on Contracts listserv for bringing this case to the attention of all of us.

Deciding insubordination isn't the same as judging spiritual leadership

I just blogged about the ministerial exception of the First Amendment, and now here's another case discussing it! This recent case out of California, Sumner v. Simpson University, C077302, was a dispute over Sumner's dismissal for insubordination. Sumner sued for breach of her employment contract. Simpson argued that the ministerial exception of the First Amendment protected its contractual decision from judicial examination. The court agreed that Simpson was a religious group and also found that Sumner was a ministerial employee even though she wasn't technically titled a minister. Her job duties at the university required her to have a doctorate in ministry or a related field and included promoting the university through preaching appearances. 

However, the court still permitted Sumner's breach of contract claim to go forward, based on the fact that the ministerial exception should not bar all contract actions involving a religious group and its ministerial employees. Rather, it should only operate to bar those causes of action that would require the court to decide religious matters. Sumner was purportedly terminated for insubordination, which was defined by the faculty handbook incorporated into Sumner's contract. The alleged insubordination involved Sumner's violation of the university's written protocol. Sumner, however, alleged that she was never provided with the written protocol and so her conduct could not be found to be insubordinate. Resolving this dispute would not require "wad[ing] into doctrinal waters," because Sumner's religious qualifications weren't at issue and the dispute didn't concern Simpson's religious autonomy. 

Court refuses to judge what adequate spiritual leadership looks like

A recent case out of the Third Circuit, Lee v. Sixth Mount Zion Baptist Church of Pittsburgh, No. 17-3086, applies the ministerial exception of the First Amendment and refuses to entangle the court in a breach of contract dispute between a pastor and his former church. The parties had entered into a contract providing that Lee would serve as the Church's pastor for a twenty-year term. The contract provided for termination if its terms were breached. The Church terminated Lee's employment and alleged that he had failed to provide adequate spiritual leadership, as he was required to do by the terms of the contract. Lee disputed this, but the court refused to get involved, citing the ministerial exception. Courts aren't supposed to get entangled in "religious governance and doctrine," and asking the court to judge the quality of Lee's spiritual leadership under the contract would be just such an entanglement. 

 

You can listen to the oral arguments here. Some press coverage of the district court's decision can be found here. 

Here's one for the "house renovations gone wrong" file

If you're turning to teaching damages in your semester, here's a recent case out of Florida for you, Forbes v. Prime General Contractors, Inc., Case No. 2D17-353. This is one of those cases where the homeowners and the contractor had a contract where the homeowners would pay periodically, as milestones for the work were reached. After completion of the scheduled demolition, though, the contractor told the homeowners that the cost to complete the project had almost doubled. The homeowners refused to pay the extra money, insisting on enforcement of the cost in the contract. The contractor walked off the job at that point. The home, having been in the demolition stage of the project, was uninhabitable. The homeowners rented another house and looked in vain for another contractor to finish the job. Finally, they bought a new house and let the old house go into foreclosure. They also sued the contractor for breach of contract. 

The homeowners won their beach of contract case, but the lower court only awarded them their cost of renting the alternative house as damages, stating that the homeowners had failed to prove any other damages and also had failed to mitigate damages. The appellate court disagreed. The appellate court permitted the homeowners to treat the breach of contract as total and found that they should be awarded damages to place them in the position they would have been in had they never signed the contract. This could include reimbursement of the amount they had paid the contractor and the equity they lost in their home when they had to let it lapse into foreclosure, as well as the rent they had paid. 

The appellate court also found that the homeowners had taken reasonable steps to mitigate damages. They rented while they searched for someone to finish the renovations. When that search failed, they bought a new house rather than continuing to make rent payments. Even if they hadn't bought the new house, they would not have been able to afford continuing to pay rent and the mortgage on the uninhabitable house, so whether they were renting or owning that house would have lapsed into foreclosure either way. The appellate court found that there was nothing else the homeowners could have done to avoid further damages. 

Court finds a no-media clause contrary to public policy

A recent case out of the Southern District of New York, Garcia v. Good for Life by 81, Inc., 17-CV-07228 (BCM) (behind paywall), is an examination of a settlement agreement implicating the Fair Labor Standards Act ("FLSA"). It's interesting for the language it's willing to approve vs. the language it says should not be contained in the agreement. 

First, the court expresses concern about the contract's releases being overly broad and rewrites them, concerned that the language as written would have attempted to bar claims by a "second cousin once removed." Upon revision, the court is comfortable with the releases, but the court declares unenforceable the no-assistance and no-media provisions. The court finds it a violation of the FLSA to bar the plaintiff from assisting other individuals who might have a claim against the employer. The court also states that the effective "partial confidentiality clause" preventing the plaintiff from contacting the media is "contrary to well-established public policy." I found this last ruling especially interesting in our age of widepsread NDAs, which I've blogged about a bunch. I agree that such a clause would "prevent the spread of information" in a way that would be harmful to other wronged victims trying to vindicate their rights; we should keep talking about that when it comes to NDAs. 

Is the viral umpire video a breach of contract?

Recently a video went viral showing a 2016 altercation around an umpire ejecting Mets pitcher Noah Syndergaard after he threw a fastball behind the Dodgers' Chase Utley. Umpires wear microphones during Major LeagueBaseball games, and the resulting (often loud and profane) discussions with Mets players and especially Mets manager Terry Collins was recorded. 

The video recently surfaced in an apparent leak, because MLB has announced its intention to try to scrub the video from the internet. MLB's reason for this is that it violates a "commitment" that "certain types of interactions" involving umpires during baseball games would not be made public, claiming it was "in the collective bargaining agreement" and that there was "no choice" but to scrub the video from the internet. Indeed, according to one report it had already been scrubbed. 

Not so fast, though, because I found it still embedded in news reports about it. It's hard to get anything to vanish from the internet, especially once it's gone viral, but it's not that difficult to locate this video at all. 

And it's not hard to see why it went viral. It's a fascinating glimpse into a part of the game fans seldom get to see. As others have pointed out, the umpire does a fantastic job in the clip, so it's hardly like he's being cast in a bad light. The manager doesn't even come across all that poorly. In fact, in my opinion, the party that comes out of the clip looking the worst is Major League Baseball and its confusing way of handling the explosive Chase Utley situation. 

It's unclear what "interactions" were agreed to be withheld from the public, but this one is certainly an interesting one. I'd love to know what the contract terms actually are. 

Employees Beware: You are Contractually Presumed to be At-will

A new case out of Minnesota and subsequently the United States Court of Appeals for the Eighth Circuit once again confirms what we suspect already: if there is any doubt about an employee’s status, he or she is likely to be held to be an at-will employee.  Consider this:

Daniel Ayala is hired as an at-will employee in 2006 to serve as a vice president for CyberPower.  In 2012, Ayala and CyberPower agree to convert his position to executive vice president for sales and general manager for Latin America. The written contract details his salary and compensation status, stating that the agreement “outlines the new salary and bonus structure to remain in place until$150 million USD [sic] is reached.  It is not a multiyear commitment or employment contract for either party” (emphasis added).  Ayala is fired before sales could reach $150.  He claims breach of contract, contractual fraud, and unpaid wages, arguing that he was no longer an at-will employee, but rather should have been allowed to remain with the company at least until, as stated in the contract, the sales reached $150 million.  CyberPower also relies on the contractual language, arguing that it unambiguously did notmodify his status as an at-will employee as contained the phrase that it was “not a multiyear commitment or employment contract.”

The appellate court agreed with CyberPower, highlighting the fact that the text of the agreement indicates that it governed compensation only.  In Minnesota, there is a “strong presumption of at-will employment” which was applied here. The court also pointed out that Ayala did not produce any evidence supporting his claim that the company defrauded him by promising a definite term of employment and then firing him before the completion of the term.

Fair enough, it seems… until you consider the following as well: Ayala performed very well in his first sales position, bring the company’s annual sales from “virtually nothing” to almost $50 million by 2012.  He aspired to become the company’s president when the original president, Robert Lovett, decided to retire.  Lovett allegedly assured Ayala that he would be considered for that position but - surprise! - chose his son Brent as his successor when he retired in 2012.  Ayala then expressed his desire to leave the company, but was persuaded to stay to mentor Brent (thus expecting Ayala to train his own replacement, in effect.). Ayala was assured that if he stayed, he would receive “better compensation, a promotion and a written contract ensuring Ayala long-term employment.”  He was indeed promoted and, per the contract, promised to be able to stay “until” sales reached a certain amount, if the contractual language had been weighed that way.  Further, the contract does not say that his position was in fact at-will.  His previous contract had, in contrast, specifically said so.

Because of the parol evidence rule and, probably, the lack of written evidence of the negotiation statements, Ayala lost.  The presumption about at-will employment may have been correctly applied.  Not all court cases are resolved in a fair way for the employees.  But the case clearly reeks of nepotism, luring an employee to stay with a company under false pretenses, and broken oral promises. True, Ayala did not have evidence of the oral negotiations, but neither did CyberPower.

Why is it apparently so darned important in U.S. society to treat employees as mere objects that can be disposed of at will, by definition?  Why would it be so horrible to have to give employees a decent amount of notice and perhaps even a reasonable reason for being let go?  Many other highly developed nations around the world – especially those in Europe – do not employ such law.  These nations do very well.  Companies there make good profits.  Employees have more job security.  They are equally, if not more, productive than American workers.  What’s so bad about that?! 

Clearly, cultural factors play a role in this context. That’s unlikely to change.  In the meantime, employees in the U.S. should continue to be critical towards oral promises made by their employers and get every important term in writing.  Of course, that is easier said than done in today’s often difficult job market and resulting reasonable fears of losing or not getting a coveted position. Employees such as Ayala should not be seen as mere impersonal chess pieces that can be manipulated and moved around for employer benefits only.  But they often are.

The case is Daniel Ayala v. CyberPower Systems (USA), Inc., 2018 WL 2703102.

Why do employers sue employees who leave to work for companies that don't compete against them?

A recent case out of the Eastern District of Pennsylvania, Catalyst Outdoor Advertising, LLC v. Douglas, Civil Action No. 18-1470, declined to enforce a non-compete against the defendant Douglas, who had gone to work for an outdoor advertising firm that covered Manhattan and the Bronx. Catalyst, meanwhile, worked out of the Philadelphia area. The non-compete in question had no geographic limitations, which the court took issue with, noting it "covers the entire world." Catalyst asked the court to define reasonable geographic limits for the non-compete but the court declined to do so, stating, "[D]efining the boundaries is not our job." Additionally, because Catalyst operated in Southeastern Pennsylvania (with one billboard along the New Jersey Turnpike) and Douglas's new employer operated only within New York City, the court found that the two companies were not in competition with each other. 

The court also found that Douglas had no confidential information belonging to Catalyst and that there was no evidence the information she knew from working at Catalyst would be beneficial in the entirely new territory of New York City. Therefore, the court concluded there was no likelihood of irreparable harm. 

This is one of those cases that, from a pragmatic standpoint, makes little sense to me. Why would Catalyst pursue a court case against an employee going to work for a company not in its geographic area? The court's irreparable harm analysis seems right to me, that the employee here didn't have any specialized knowledge that could hurt Catalyst, given it didn't compete against the new employer. So, in that case, why is this case worth the money spent by Catalyst to bring it? Even if Catalyst had been successful, what was Catalyst's concrete gain? Is it just that companies don't want any employees to leave ever? Given the breadth of the non-compete in the first place, Catalyst might just be overprotective. Or is there some fact about this case left out of the opinion that makes it make more sense? Is Catalyst contemplating expansion down the road into New York City and is worried this employee might somehow make their plans less successful? This case is in the preliminary injunction stage, so maybe there is information that could arise later that would make it look more likely that Catalyst would succeed on the merits. It seems like Catalyst would have presented that information to the court at this point, though. 

Professor's retaliation claims mostly survive motion to dismiss

A professor at Columbia sued the university, alleging various contract-based claims. In a recent decision, Joshi v. The Trustees of Columbia University in the City of New York, 17-cv-4112 (JGK), the Southern District of New York permitted the claims to survive the university's motion to dismiss. 

The university argued that various employment policies did not constitute binding contracts between the parties. However, the court disagreed. The university had in place a Reservation of Rights that stated the employment handbook should not be treated as a contract. But there were factual disputes as to whether this Reservation of Rights applied to the other employment policies at issue, which did not seem to be found in the employment handbook. The parties disputed how clearly the Reservation of Rights was incorporated into the policies, and whether the Reservation of Rights was conspicuous. Therefore, the court allowed the breach of contract claim to survive the motion to dismiss (it also found that there were factual disputes about whether the university's actions were a breach of the policy). 

The court also allowed the plaintiff's claim of breach of the covenant of good faith and fair dealing to survive, because it was about different conduct than the breach of contract claim (regarding the university's failure to investigate and stop the retaliation at issue, rather than the retaliation itself). 

And the plaintiff's promissory estoppel claim also survived. The university argued that promissory estoppel claims do not apply to employment relationships, but the court disagreed and refused to dismiss the claim based on that alone, stating that the plaintiff was not seeking reinstatement of employment. The plaintiff's allegations, taken in the light most favorable to them, adequately pleaded promissory estoppel, so the court allowed the claim to survive. 

The court did, however, dismiss the plaintiff's claim for fraud in the inducement, finding that the plaintiff had not adequately pleaded that the university acted with an intent to deceive. 

In which we are cited as evidence in a case

The life of a blogger can sometimes feel like toiling sometimes in relative obscurity. And then there's the moment when you get cited as evidence in a case!

A recent decision out of the District of Columbia in Mawakana v. Board of Trustees of the University of the District of Columbia, 14-cv-02069-ABJ, referenced ContractsProf Blog. The case was a tenure dispute between the plaintiff professor and the defendant university. The plaintiff alleged he was denied tenure because of racial discrimination. The defendant moved for summary judgment, which was granted. 

Part of the plaintiff's evidence was a number of favorable comments on his scholarship, including "honorable mention from ContractsProf Blog." The court cites to the plaintiff's opposition, which is sealed, so I can't see exactly what was stated about the entry. I found the school's write-up of it, but the link the school provides to the blog entry doesn't work for me (maybe my computer is just being fickle and you'll have better luck). 

Despite the favorable comments, including the ContractsProf Blog entry, the court noted that there were also less favorable comments about the plaintiff's scholarship (the court actually noted in a footnote that one of the reviewers did not give the ContractsProf Blog honorable mention "any weight"). The court also found that the favorable comments did not mean that the plaintiff's denial of tenure must have been based on racial discrimination. The court eventually concluded, after much analysis (a great deal of it redacted), that the plaintiff wished for the court "to weigh in on the merits of the University's academic judgments in a manner that is contrary to the legal principles governing these disputes." 

The court also found the plaintiff's contract claims to be time-barred, but, even if not time-barred, not supported by evidence. 

(This is not, btw, the first time we blogged about this case.)

h/t to Prof. Eric Goldman at Santa Clara for sending this case to our attention!

 

Update: In Which Arbitration Reigns Supreme (Supreme Court Kind-Of Pun Intended)

I just blogged about the Ninth Circuit case of Morris v. Ernst & Young, and the Supreme Court has now come out with its decision, reversing the Ninth Circuit (shorter analysis here). Where the Ninth Circuit found that arbitration clauses prohibiting concerted actions by employees violated the National Labor Relations Act, the Supreme Court found that permitting concerted actions by employees where arbitration clauses existed would violate the Federal Arbitration Act. Justice Ginsburg wrote a long dissent; the majority opinion was written by Justice Gorsuch. The trend out of the Supreme Court has been that arbitration trumps every other policy. The Federal Arbitration Act is like the royal flush of statutes.

In a world where contracts with arbitration clauses govern almost every imaginable transaction, courts are forced into interesting decisions to press against the primacy of arbitration. So, for instance, on the same day the Supreme Court handed down its decision, the Western District of Pennsylvania declined to enforce an arbitration provision in Jones v. Samsung Electronics America, Case No. 2:17-cv-00571-MAP (behind paywall). Jones sought to bring a class action against Samsung based on alleged defects in its S3 cell phones. Samsung sought to arbitrate, citing the contract allegedly contained in the instruction booklet included with the phone. But the court disagreed that the arbitration clause was enforceable. It found that the clause was "tucked away" in a section entitled "Manufacturer's Warranty" contained in a 64-page booklet. The court agreed that the clause might possibly have been more inconspicuous, but found that

the degree of prominence of the Arbitration Agreement here seems calibrated with dual goals: on the one hand, just enough to persuade a court to smother potential litigation; on the other hand, not enough to make it likely that a consumer will actually notice the Agreement and perhaps hesitate to buy. It is one thing to hold consumers to agreements they have not read; it is another to hold them to agreements that, perhaps by design, they will probably never know about.

The court's decision here makes some sense, but it seems rooted in a somewhat fictional hypothetical. I don't know but I feel like Samsung could sell its phones with an instruction booklet with "ARBITRATION CLAUSE" in big, bold, red letters with exclamation points on the front of it, and I'm not sure it would in fact cause most consumers to "hesitate to buy," especially not if the majority of other cell phones contain similar arbitration clauses (the major cell phone carriers do).

But the bigger fiction at issue here is the idea that we're all "voluntarily" entering into these contracts. I mean, we are, to the extent that it's "voluntary" to have a cell phone in today's world. The answer to that question is: It is, to some extent, but not to the extent that we're willing to forego one entirely based on the mere possibility we might want to sue someday and can't. We all take risks, and maybe the court's view is this a risk that doesn't pay off for the consumer, oh, well, but it seems like the consumer has almost no power to take any other kind of risk. (This is, of course, not limited to cell phone contracts. So the real question is: is it "voluntary" to be a consumer in our capitalist society?) Likewise, is it "voluntary" to accept a job that require arbitrations, if you need a job to survive and jobs without arbitration clauses might be tough to come by?

There are statutory ways to shift the supremacy of arbitration, of course, as the Supreme Court's decision acknowledges. And at one point the FCC was contemplating doing something about the type of arbitration clause the court looked at in Jones. Maybe add it to your list of things to contact your representatives about, if you so desire.  

The interplay between arbitration clauses in employment contracts and labor laws

A recent case out of the Southern District of California, Davis v. Red Eye Jack's Sports Bar, Inc., Case No.: 3-17-cv-01111-BEN-JMA (behind paywall), found an arbitration clause in an employment contract unenforceable because it contained a concerted action waiver. Such a waiver violates labor law policy protecting employees' right to concerted legal claims. The court found that the waiver rendered the entire arbitration agreement unenforceable. 

However, the Supreme Court has granted review in the Ninth Circuit case of Morris v. Ernst & Young, LLP, whose precedent this court followed in its ruling. Therefore, the court stayed the action pending the Supreme Court's decision in Morris, as a reversal of Morris would dictate a different outcome to this case. 

 

Lying about age in sports

I fell down a rabbit hole recently looking at athletes who had lied about their ages. You can find a flurry of pieces about this online, from lists purporting to gather names together (I found some here and here and here) to more in-depth examinations of the phenomenon (see here and here and here and here). I fell down the rabbit hole courtesy of stumbling across a Baseball Prospectus piece on Albert Pujols. I discovered that there had been a flurry of discussion around Pujols's age when the prospect of his next (and last) baseball contract was looming, as you can see here and here and here. I'd never paid much attention to this issue before but it's interesting to contemplate how it intersects with contract law. 

In which we all learn a little bit about the business behind horse-drawn carriages in Nashville

A recent case out of Tennessee, Sugar Creek Carriages v. Hat Creek Carriages, No. M2017-00963-COA-R3-CV, lets us peek behind the scenes at the competition between horse-drawn carriage operators in Nashville, Tennessee. (You can listen to the oral argument here.) The defendant hired one of plaintiff's carriage operators, and the plaintiff sued based on the non-competition agreement that the employee had entered into. 

However, the court refused to enforce the non-competition agreement. The plaintiff's argument boiled down to training that it had provided to the employee, but the court warned the plaintiff that it couldn't protect itself against the employee's using general skills and knowledge learned on the job. There were no allegations of the employee having any confidential information and no allegations that any customers associated the employee with the plaintiff's business. And, in fact, the training that the plaintiff gave to the employee it actually made available to the public at large, encouraging them to use the training to go forth and start their own horse-drawn carriage businesses. So, having offered the training to others with explicit encouragement of competition, the court refused to allow the plaintiff to impose a non-competition restriction on the employee based on the same exact training. 

New York court rules sexual harassment by itself is not against an employer's interest such that it breaches a fiduciary duty

A recent case out of New York, Pozner v. Fox Broadcasting Company, 652096/2017, is related to the growing spotlight on sexual harassment cases. In the case, Pozner was terminated from his employment based on sexual harassment complaints and sued for breach of his employment contract. Fox brought counterclaims for breach of contract and fiduciary duty. 

I'm blogging this case because it has an interesting ruling on the fiduciary duty claim in the context of sexual harassment cases (which I assume we might see more of; or maybe not if maybe people just stop sexually harassing others /end wide-eyed optimism). The court found that the employee handbooks were contracts whose terms Pozner had agreed to abide to, but the court dismissed Fox's breach of fiduciary duty claim, because the fiduciary duty of loyalty is about the employee acting against the employer's interests, and no court in New York has found sexual harassment on its own can serve as a basis for a breach of that duty of loyalty. Fox did not allege enough to convince the court that Pozner's sexual harassment was against Fox's interest. The court noted that other cases where sexual harassment was part of a breach of loyalty involved other financial improprieties or allegations of fraud. 

When you're an at-will employee, if you don't quit, then you accept your new employment terms

A recent case out of Indiana, AmeriGlobe v. Althoff, Court of Appeals Case No. 46A05-1708-PL-1845, reminds all of us that, if you're an at-will employee, your terms of employment can change at any time. If you keep working instead of quitting, that constitutes your acceptance of those new terms. 

In the case, Althoff was employed by AmeriGlobe. He had a written employment contract that specified that his employment was terminable at will. When AmeriGlobe changed the commission rates it was paying Althoff, Althoff recognized that he had two choices: He could quit or continue to work. When he continued to work, he accepted his new terms of employment. An assertion that his commission should have been higher therefore failed.