Monday, April 22, 2019
Don't just stand there, let's get to it: Second Circuit orders payment of "Vogue" royalties (aside, I hadn't listened to "Vogue" in a while, and it totally started my week off right!)
A recent case out of the Second Circuit, Pettibone v. WB Music Corp., 18-1000-cv, caught my eye because I teach the underlying copyright dispute driving this contractual dispute. You can listen to the case's oral argument here.
Pettibone composed the song "Vogue" with Madonna and entered into a contract with Warner where Warner collected the royalties for the song and split them with Pettibone. In 2012, Pettibone and Warner were sued for copyright infringement. They each had their own counsel and each bore their own costs in successfully defending the lawsuit, both in the trial court and on appeal. (You can read the appellate court decision here. We talk about it in my Transformative Works and Copyright Fair Use class when we do a unit on music.)
After the conclusion of the copyright suit, Warner withheld over $500,000 worth of royalties from Pettibone, claiming that under Section 8.1 of the agreement between Warner and Pettibone, it was allowed to withhold the royalties to pay for its defense of the copyright infringement suit. Section 8.1 read in part, "Each party will indemnify the other against any loss or damage (including court costs and reasonable attorneys' fees) due to a breach of this agreement by that party which results in a judgment against the other party . . . ."
Pettibone sued, arguing that he had never breached the agreement and therefore Section 8.1 did not permit Warner to withhold any royalties. The district court found that Section 8.1 "unambiguously requires Pettibone to indemnify Warner for the attorneys' fees and costs," and dismissed Pettibone's complaint.
In another example of ambiguous understandings of ambiguity, the appellate court here reversed the district court's holding, instead finding that Section 8.1 is "pock-mocked with ambiguity." In the Second Circuit's opinion, a better reading of the section was that, if there was no breach, each party should carry its own attorneys' fees and costs. In fact, Section 8.1 went on to read that "each party is entitled to be notified of any action against the other brought with respect to [the song 'Vogue'], and to participate in the defense thereof by counsel of its choice, at its sole cost and expense" (emphasis added). A fair reading of the section, the Second Circuit said, was that it required Pettibone to indemnify Warner if Pettibone breached the contract, but not otherwise.
Warner was the party that drafted the contract, and could easily have stated that indemnification happened in the event of any allegations, not just any breach. That was not, though, how the contract was drafted.
The effect of Warner's argument would be to shift a million dollars' worth of attorneys' fees onto Pettibone, just because there was a lawsuit, "regardless of merit or frivolousness." The Second Circuit found that to be "an extraordinary result" not justified by the section's ambiguous language. Therefore, the Second Circuit ordered reversal of the district court's dismissal, judgment for Pettibone, and calculation of the royalties improperly withheld from Pettibone, as well as consideration of Pettibone's request for attorneys' fees in connection with the instant action and appeal.
Monday, April 1, 2019
When I teach express conditions, we talk a lot about the language that you use to create them. A recent case out of the Northern District of Ohio, Health and Wellness Lifestyle Clubs, LLC v. Raintree Golf, LLC, Case No. 1:17CV2189 (behind paywall), has some examples. The agreement in question read that it was "contingent upon Purchaser's obtaining and delivering to Seller a written unconditional commitment or commitments," and continued that "the obligations of Seller to consummate the transaction . . . shall be subject to the fulfillment on or before the date of Closing of all of the following conditions," both of which created an express condition that a written unconditional commitment needed to be delivered. Because there was never any such written unconditional commitment in this case, the dependent obligations never became due.
Sunday, March 31, 2019
Reformation is one of those doctrines that I love to have class discussions over, really interrogating when (and whether) courts should employ it. A recent decision out of Delaware, In re 11 West Partners, LLC, C.A. No. 2017-0568-SG, has a nice reformation discussion in clear, straightforward language that I think could be useful in class. I especially like the Court's remarks about "the conclusions of social scientists and psychologists that witnesses may come to believe in factual scenarios beneficial to them . . . ." It's a gentle and sympathetic decision regarding "honorable" men whose recollections of the truth all differ.
h/t to Eric Chiappinelli at Texas Tech for forwarding us this case!
Tuesday, December 18, 2018
A past consideration case reminds us that being recognized for your past hard work isn't good for your breach of contract claim
I don't know about everyone else but my casebook teaches past consideration using very old cases. Here's past consideration raised as an issue with a recent case out of the Southern District of California, Wright v. Old Gringo Inc., Case No. 17-cv-1996-BAS-MSB (behind paywall).
The case is really interesting, because the court acknowledged that the complaint had proper consideration allegations: ownership interest, salary, and performance bonuses in exchange for providing "expertise and services." The problem came from the deposition testimony, all of which seemed to establish that in fact the ownership interest had been provided as a reward for previous work. The plaintiff herself testified that the ownership interest was effective even if she immediately quit the job, indicating it wasn't in exchange for future services. Plaintiff's friends and relatives provided similar testimony, that the ownership interest was given "to show . . . appreciation" and "for . . . recognition of her hard work." There was no evidence presented that the ownership interest was offered on the condition of future work in exchange. For that reason, the court granted summary judgment for failure of consideration.
The plaintiff's remaining claims were permitted to go forward, including promissory estoppel and tort claims. Those claims (as I remind my students!) don't require consideration.
I find this case really interesting because I'm sure the plaintiff's friends only thought they were helping her with their testimony. This is the kind of thing that I think makes instinctive sense to non-lawyers: the plaintiff did something awesome and they recognized it by giving her an amazing gift. But lawyers know that consideration doctrine makes that a bad thing, not a good one.
(The decision also contains a statute of limitations and damages discussion.)
Friday, October 12, 2018
I just gave a midterm in my contracts class, which is always so useful to crystallize the places where the students are having consistent understanding issues. For me this year, one of the tricky parts seems to be the statute of frauds, so it was nice to see this recent case out of the Eastern District of Wisconsin, Northern Group, Inc. v. Tech 4 Kids Inc., Case No. 17-C-1367 (behind paywall), that deals with a fairly straightforward statute of frauds issue.
In the case, Northern Group alleged that the parties had an oral agreement for commissions for sales and brought causes of action related to the breach of this agreement. Tech 4 Kids argued that the claims should be dismissed, in part because the oral agreement should have been in writing under the statute of frauds. However, as the court noted, the statute of frauds does not require a contract to be in writing unless it cannot be performed within a year. While it was true that the sales agreements required to be formed to result in commissions under the contract could sometimes taje years to finalize, Northern Group could conceivably have arranged some sales agreements within a year. Moreover, the agreement was terminable at will by either party, so either party could have decided within a year not to continue with the arrangement. Therefore, the oral agreement was capable of being performed within one year and so was not void under the statute of frauds.
Sunday, October 7, 2018
Here's me poking my head out from a weekend of midterm grading to thank Banksy for a situation right out of a contracts hypothetical.
Thank you to Eric Chiappinelli and Jennifer Taub for the heads-up!
Friday, September 28, 2018
If you're looking for a recent accord and satisfaction case, look no further! I've got one for you out of the Northern District of California, TSI USA LLC v. Uber Technologies, Inc., Case No. 17-cv-03536-HSG (behind paywall). In the case, Uber and TSI had a contract that Uber terminated. TSI received a termination notice and a check for a little over $200,000. TSI responded to Uber with outstanding invoices Uber owed payment on, amounting to more than $1.4 million. TSI eventually sued Uber for, inter alia, breach of contract, and Uber moved to dismiss the claim, arguing that that TSI's cashing of the $200,000 check operated as an accord and satisfaction, prohibiting TSI's breach of contract claim.
The court disagreed. Accord and satisfaction requires that the check be presented in good faith and with a conspicuous statement that it is meant to satisfy the entire debt. Construing the facts in the light most favorable to TSI, Uber could not establish that its check of $200,000 met "reasonable commercial standards of fair dealing," given that TSI alleged Uber owed over $1.4 million. In addition, while the termination notice stated "by executing below you acknowledge and agree that such payment constitutes full and final payment," it was followed by a line for signature labeled "Chief Executive Officer." TSI asserted that it thought the signature of the CEO was required for the payment to constitute full and final payment, not that the cashing of the check by itself. The court agreed with TSI that the language was not so "explicit and unequivocal as a matter of law so as to preclude TSI from asserting its breach of contract claim." Therefore, the breach of contract claim survived.
Saturday, September 22, 2018
There comes a time in every teaching semester (usually very early on...) where you have to coax your students to be comfortable with courts contradicting each other. You have to teach them to distinguish the cases, to make sense of it, but sometimes I feel like the answer to the contradictions is "the parties didn't argue that point and it just got missed and now we just have to deal."
I was thinking about this as I read a recent case out of the Third Circuit, Cook v. General Nutrition Corp., No. 17-3216 (behind paywall), which affirmed a failed lawsuit against GNC for, among other things, breach of contract. The appellants made several arguments for why their claims should not have been dismissed, one of them that GNC's termination of the contract was a breach. But the Third Circuit noted that termination was permitted by the contract: "[The contract] expressly permit[ted] GNC to unilaterally modify or cancel the agreement at any time, with or without notice."
That was the line that gave me pause, because I only recently taught Harris v. Blockbuster, which holds a contractual provision illusory precisely because it permitted Blockbuster to unilaterally change the contract at any time without even having to provide any notice. Other courts have definitely agreed with Harris, and while it's been distinguished I didn't really see any courts disagreeing with the conclusion. Third Circuit courts do seem to apply the illusory promise doctrine, so it doesn't seem like they've just decided to do without this doctrine in the Third Circuit.
It does seem like Harris can be read as only applying in the context of agreements to arbitrate and not all agreements (although there was apparently an arbitration clause in the GNC contract). Unfortunately, this is just me guessing as to how you can distinguish Harris, because there is zero discussion of illusory promises in the Third Circuit's very brief opinion. The court asserts that the contract gave GNC this right, and that while it might be "unfortunate," it was permissible and therefore not a breach.
Thursday, September 6, 2018
Here at the beginning of the semester, I've just been going over determining whether the UCC or common law applies to contract claims, and here's a recent case out of the Seventh Circuit, Heiman v. Bimbo Foods Bakeries Distribution Co., No. 17-3366, that illustrates why that question can be important.
The case involves some pretty eyebrow-raising allegations, as, according to the complaint, the defendant began "fabricating" breaches of the contract between the parties, so that it could terminate the contract based on these allegedly faked breaches. Pretty dramatic stuff, but the case falls apart on a statute of limitations issue. The UCC statute of limitations is four years; the relevant common law statute of limitations was ten years. All parties agreed that the cause of action accrued in 2011, so the statute of limitations would have already run if the UCC applied; not so if the common law statute of limitations was applied.
The court looked at the primary purpose of the agreement. The agreement at issue was a distribution agreement, and the court noted that jurisdictions overwhelmingly interpret distributorship agreements to be about the sale of goods. While the agreement certainly also covered "a significant amount of services," those serves were all "incidental to the larger purpose of the contract, which [was] to sell goods to consumers." Therefore, the contract was governed by the UCC and barred as untimely.
There was also a tortious interference claim that likewise failed because the complaint admitted that the plaintiff was aware of the possibility of its tortious interference claim in 2011, and so therefore this claim was also untimely under the relevant statute of limitations. The court also added that a party cannot tortiously interfere with its own contract, so the claim failed on the merits as well.
Thursday, July 26, 2018
It's the time of year when I start thinking about the fact that I should be thinking about my fall classes, and right on cue, here's a case out of the Seventh Circuit, Knopick v. Jayco, Inc., No. 17-2285, that's thoughtful about how waiver works and the policy underlying it. (You can listen to the oral argument here.)
The waiver portion of the case (there was also a jurisdictional issue) involved a warranty that stated it did not apply to RVs purchased by LLCs. The RV in question was purchased by an LLC. Therefore, under the unambiguous language of the warranty, the RV was not covered. However, Knopick argued that Jayco waived this exclusionary language of the warranty when it voluntarily performed some repairs to the RV as if the warranty applied. The warranty, though, had an additional clause stating that such "good will" repairs would not alter the exclusionary language of the warranty.
Even without that language, the court was skeptical that waiver could be used to achieve what Knopick wanted here. The court noted that waiver is ordinarily used as a "shield" to excuse non-performance. It's used so that a party cannot be "lulled" into a belief that its compliance is sufficient to fulfill a contractual obligation only to be surprised by a lawsuit for inadequate compliance later. Knopick, the court said, was trying to use waiver as a "sword." Rather than protecting himself, he wished to use it to compel performance by Jayco. The court, wary of expanding waiver because of how greatly it would damage the predictability of contracts, stated that it was unwilling to use the doctrine of waiver to compel Jayco, as such an action would have the effect of discouraging parties from "good faith" actions such as that undertaken by Jayco for fear of opening themselves up to expanded liability.
h/t to Timothy Murray of Murray, Hogue & Lannis for passing this one along!
Friday, June 29, 2018
A recent case out of the Second Circuit, Ortho-Clinical Diagnostics Bermuda Co. Ltd. v. FMC, LLC, No. 17-2400-cv (behind paywall), is another case about interpretation of contract terms -- twice over. Because here the parties entered into a contract, fought over breach of that contract, and then entered into a settlement agreement, which they were also fighting over. The moral is that, if you want something specific, you should ask for it rather than relying on unspoken industry practices.
The initial agreement between the parties was about an IT operating system. Although the system was going to cost $70 million, the contract wasn't very detailed, with no technical specifications or description of building methods. The parties' relationship deteriorated and they eventually entered into a Settlement Agreement to terminate the project. Under these new terms, FCM would be released from its obligation to provide the system to Ortho, while providing assistance while Ortho transitioned to a different contractor. After execution of the Settlement Agreement, Ortho apparently realized that FCM was not as far along as Ortho had thought and had not prepared certain items that Ortho had assumed it had prepared, and so Ortho claimed that as a result the IT system cost more and took longer.
The court, however, noted that there was nothing in the contract requiring FCM to produce the certain deliverables Ortho had been looking for. Ortho claimed it was "standard practice in the industry," but the court said that wasn't the equivalent of it being a contractual obligation. FCM was contractually required to provide assistance -- no more, no less. There was nothing in the contract about the job having to be at a particular stage of completion, or that any particular deliverables or documentation had to exist.
The court also pointed out that Ortho had released its claims regarding the original agreement in the Settlement Agreement. Ortho tried to argue that it had released claims but not damages but the court called that "a nonsensical reading."
Thursday, June 21, 2018
Forgive my taking an editor's privilege here to share an exciting announcement from my home institution. We are thrilled to have Bobby Ahdieh joining our faculty as dean!
Ahdieh is currently the K.H. Gyr Professor of Private International Law and Director of the Center on Federalism and Intersystemic Governance at Emory University School of Law in Atlanta, Georgia.
University officials say the School of Law has made unprecedented strides since joining the Texas A&M community in 2013, currently ranking among the top 80 law schools in the nation according to U.S. News & World Report. Officials say the School of Law’s forward progress is due to a number of efforts which include increasing its entering class profile; hiring a cohort of nationally recognized scholars who have added to the research strengths of the existing faculty; and enhancing its academic programs, allowing it to offer a rich educational experience to its students.
“We couldn’t be more proud of what our law school faculty, staff, and students have achieved during the School of Law’s first few years as part of Texas A&M,” said Texas A&M University President Michael K. Young. “With the university’s support and Bobby Ahdieh’s vision, scholarly reputation and administrative experience, we are well-positioned to accelerate the law school’s progress even more in the years to come.”
As dean, Ahdieh will oversee all academic and operational affairs of the law school, and will report to Texas A&M Provost and Executive Vice President Carol Fierke, who in announcing his appointment, emphasized Ahdieh’s achievements as a leader in the field of legal education, his significant administrative experience as vice dean and associate dean of faculty at Emory University, and the strength of his scholarly credentials. In particular, she highlighted his record of success in a variety of critical areas, including admissions, alumni relations, career development, faculty appointments and development, interdisciplinary initiatives, and the development of non-JD degree programs during his tenure at Emory.
Ahdieh holds a Bachelor of Arts from Princeton University’s Woodrow Wilson School of Public and International Affairs and a Juris Doctor from Yale Law School. He served as law clerk to Judge James R. Browning of the U.S. Court of Appeals for the Ninth Circuit before his selection for the Attorney General’s Honors Program of the Civil Division of the U.S. Department of Justice.
His scholarly interests revolve around questions of regulatory and institutional design, especially in the business and financial arena. In addition to a monograph on legal transition in the former Soviet Union, published while he was still in law school, Ahdieh’s work has appeared in leading journals including the NYU Law Review, the Michigan Law Review, the Minnesota Law Review, the Boston University Law Review, and the Southern California Law Review.
In accepting the position, Ahdieh reflected on the significant potential of the law school, saying, “I believe no law school in the country has traveled further, in so short a time. Nor does any have more upside potential, going forward.”
Among the key priorities for the School of Law in the coming years, say university officials, will be continuing to build a world-class faculty and ensuring that faculty have the resources necessary to produce research of consequence and significance; extending the audience for a Texas A&M legal education beyond students seeking a three-year J.D., including through new and expanded non-J.D. programs; and enhancing the scope of the law school’s external engagement through active outreach to the community, graduates, and colleagues in legal academia – an effort that will require the active participation of faculty and staff.
Continued investment in faculty excellence and in the recruitment of great students, systematic efforts to increase awareness of the school’s achievements, a focused fundraising campaign, and employer outreach targeted to improving the quantity and quality of placement opportunities available to students around Texas, the United States, and around the world are particular initiatives Ahdieh says he plans to undertake upon taking up the deanship on July 15.
Young and Fierke acknowledged the work of the Search Advisory Committee and thanked Professor Thomas W. Mitchell for his invaluable service as interim dean over the last year.
About Texas A&M University
Texas A&M, established in 1876 as the first public university in Texas, is one of the nation’s largest universities with more than 66,000 students and more than 440,000 living alumni residing in over 150 countries around the world. A tier-one university, Texas A&M holds the rare triple land-, sea- and space-grant designation. Research conducted at Texas A&M represented annual expenditures of more than $905.4 million in fiscal year 2017. Texas A&M’s research creates new knowledge that provides basic, fundamental and applied contributions resulting, in many cases, in economic benefits to the state, nation and world. The school’s Lead by Example campaign is a comprehensive effort to raise $4 billion by the year 2020, making it the largest higher education campaign in Texas history and the second largest conducted nationally by a public university. Aggies are known for their deep commitment to the success of each other and a strong desire to serve.
Media Contact: Kelly Brown, email@example.com.
Friday, June 15, 2018
New scientific studies have proven what we might all have been jokingly saying, but which apparently is true: the world population is increasing, but IQ levels are decreasing. The reason? Nurture, not nature.
The studies claim that after 1975, IQ levels started to drop because of, it is thought, "environmental factors." These could include pollution, changes in the education system and media environment, nutrition, reading less, and being online more. Yikes.
"It's not that dumb people are having more kids than smart people, to put it crudely. It's something to do with the environment, because we're seeing the same differences within families," said one of the co-authors and lead researchers on the project.
For us, this is not good news for obvious reasons. But are we, in fact, a contributing cause? I know that some of my students, for example, do not enjoy and sometimes simply will not read long homework assignments, don't read privately, and indeed spend large amounts of time online. I'm sure your students are not very unlike mine in that respect. Other studies that I don't have handy here also demonstrate that our students have difficulty reading longer texts simply because they are not used to reading anything much longer than blog posts, twitter feeds, and maybe the occasional article here and there, but certainly not books.
Read the entire findings. References to "changes in the education system" and "decreasing access to education" are disturbing.
Monday, June 11, 2018
If you teach Lady Duff-Gordon, as I teach Lady Duff-Gordon, you know that it's a fun case that lets you talk about a frankly pretty incredible life. But it's also an older case, so here's a more recent case out of New York using the implied covenant of good faith and fair dealing to potentially save an allegedly illusory promise, Ely v. Phase One Networks, Inc., 2667/2017 (behind paywall).
The plaintiff is a composer. The defendant is a company that produces music albums. The parties entered into recording and co-publishing agreements. The plaintiff sought a declaratory judgment that the contracts are unenforceable because they are illusory and unconscionable and moved for summary judgment. The court found that factual disputes existed as to both the unconscionability and illusory allegations. The analysis on unconscionability was very brief, but the court did provide a slightly deeper analysis on the illusory promise front. Although the recording contract provided that the recordings were "subject to the defendant's approval in its sole judgment," the court noted that the covenant of good faith and fair dealing "implicit in all contracts" meant that "the defendant could not unreasonably withhold approval."
Wednesday, May 30, 2018
Although this post does not have anything to do with contracts law, it is hopefully interesting to many of you law professors anyway.
Scientific research shows that in years with warmer temperatures, students score worse on tests. The link is "significant." Researchers calculated that for every 0.55° C increase in average temperature over the year, there was a 1% fall in learning.
Colder days did not seem to damage achievement - but the negative impact began to be measurable as temperatures rose above 21° degrees C. The reduction in learning accelerated once temperatures rose above 32° C and even more so above 38° C.
A simple solution could be to use more airconditioning on test days. The more complex, but necessary, solution is to curb climate change. The world is still not doing enough in that respect despite the 2015 Paris Agreement. In particular, it is problematic that the USA has announced its withdrawal from the climate change agreement.
Could increasing temperatures also be part of the reason for our students' worse and worse bar performances? Apparently so.
Thursday, May 24, 2018
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!
Wednesday, May 23, 2018
The dream of becoming a practicing attorney still attracts many students to law school. As we know, many will make it in the legal industry, but many will never get a chance as they will either be attrited from their law schools or, yet worse, never be able to pass the bar. Still, many law schools continue contracting with students they know have a poor chance of ever making it. From a contracts point of view, this is arguably at least bad faith in contracting if not worse. See well-known bar passage analyst David Frakt's blog on the issue here.
Monday, April 2, 2018
Allow me to share some good “personal” news for once: I just received word that all levels of the USD administration has voted for granting me tenure! The Board of Regents will cast its final vote on this in early May.
As some of you will know, it has not been an easy process. I encountered several tiring and stressful procedural hurdles with the USD administration, but the law school was at all times supporting me intensely just as I only got excellent scholarship reviews, so it all ended well! I could also not have done this without the excellent, tireless, and creative legal assistance not to mention very highly encouraging support of David Frakt, Esq.
Monday, December 11, 2017
Were you aware of this? A first-of-its-kind study exploring the relationship between specific law school courses and components of the bar exam has identified Contracts as making the greatest contribution to performance on the Multistate Bar Examination among first-time takers. Most of the other MBE-subject courses showed no significant contribution to overall MBE performance. Austin, Christopher, and Dickerson, Will I Pass the Bar Exam?: Predicting Student Success Using LSAT Scores and Law School Performance, 45 Hofstra Law Review 753, 772 (2017), available here: http://www.hofstralawreview.org/wp-content/uploads/2017/06/BB.2.Austin-et-al.NEW_.pdf
Hat tip to Otto Stockmeyer for this story!
Thursday, November 30, 2017
I always struggle to think of examples of illegal contracts other than contracts to kill people, which makes for a dramatic class discussion but I fear might cause the students to write off illegal contracts as a subject better suited for Breaking Bad or something. So I was delighted to come across this recent case out of Michigan, M-D Investments Land Management, LLC v. 5 Lakes Adjusting, LLC, No. 336394 (behind paywall), dealing with an illegal contract.
While the contract is found illegal in this case, the facts are not glamorous. The plaintiff hired the defendant to adjust its fire insurance claim and signed a contract for the services. Later, the plaintiff filed this action seeking a declaration that the contract between the parties was illegal as against public policy, and therefore voidable at the plaintiff's option. The issue was that the contract had not been approved by the Department of Insurance and Financial Services ("DIFS") as required by Michigan statute.
The trial court found the contract in violation of the statute and thus voidable, and this appellate court agreed. The statute required the adjuster to seek approval from DIFS of its contract, and the defendant's failure to do so, no matter the reason, made the contract at least voidable at the plaintiff's option (which the plaintiff had chosen to exercise), if not void altogether.
The defendant argued that it has since obtained DIFS approval of its contract. However, it was undisputed that it did not have this approval for the entire time the contract with the plaintiff was in effect. Thus, the contract could not be saved by after-the-fact approval.