ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Thursday, March 23, 2023

Texas AG Ken Paxton Seeks to Scuttle Settlement With Whistleblowers

Image by Gage Skidmore

While I was in Texas for KCON, I came across this news article from James Barragán in The Texas Tribune.  In short, Texas Attorney General Ken Paxton (right) agreed to a $3.3 million settlement with eight whistleblowers who worked with him and were terminated or resigned after accusing him of corruption and abuse of office.  They agreed to pause their suit against General Paxton so that a payment of the settlement could be arranged. 

General Paxton now thinks the pause should to continue indefinitely, and plaintiffs have had to return to court to ask the court to allow the case to proceed.  The Texas legislature is refusing to approve the payment, and Paxton is now arguing that the whistleblowers, having agreed to a settlement that cannot be implemented, should walk away with nothing.  If the legislative session that ends on May 29th awards them nothing, they can wait, General Paxton avers in a legal filing, until the next legislative session . . . in 2025 and then 2027, and so on.

It seems an important commentary on our time that the incredibly powerful Attorney General of our second-most populous state should engage in corruption atop corruption and it doesn't even merit national news.  My quick Google search turned up no reporting on the issue in the national press.  General Paxton boasts on his website that he brought suit against the Obama Administration 27 times in two years.  Sixteen months into the Biden Presidency, General Paxton had already brought 25 challenges to that administration's policies.  It is hard to keep straight all of the cases that the U.S. Supreme Court has heard in the past few years that are captioned Texas v. United States.  And yet, news of significant corruption and abuse of legal process by a politician with a national impact merits little more than a shrug and a sigh.  I spoke with some friends from Texas about the story, but they could not disentangle this story about corrupt politicians from all the others and responded with hopeless resignation.

The settlement agreement included a provision for an apology from Paxton to his former subordinates.  There are no reports that General Paxton has issued the apology.  The Texas Legislature apparently has no interest in using taxpayer dollars to pay for a settlement that would resolve General Paxton's legal problems in this case.  People interested in learning about the other legal fixes for which General Paxton has never been held accountable, including two indictments for securities fraud which somehow, after seven years, still have not gone to trial, can read about them in the Texas Monthly.  

The Texas Montly also provides a litany of complaints about the inefficacy of General Paxton's office in fulfilling its primary mission -- addressing crime in Texas.  That's as may well be, but from this blog's perspective, there's just one legal delict that matters: breach of contract.

March 23, 2023 in Commentary, Current Affairs, Government Contracting, In the News, Legislation, Recent Cases | Permalink | Comments (0)

Thursday, March 16, 2023

Sid DeLong on Loan Forgiveness and Injunctions (Preliminary and Nationwide)

Sidney W. DeLong

In Nebraska v Biden, several states sued the Biden Administration to enjoin the Secretary of Education from implementation of the impending student debt “forgiveness” program under the under the Higher Education Relief Opportunities for Students Act (HEROES Act). The grounds were that that it was unauthorized by the Act and unconstitutional.

Plaintiffs sought a nation-wide preliminary injunction blocking implementation of the plan in a Texas district court, which denied relief on jurisdictional grounds, finding that the plaintiffs lacked standing to sue. In the linked opinion, the Eighth Circuit Court of Appeals unanimously reversed and granted an “injunction pending appeal.”[1] The opinion has several features of interest relating to so-called “nationwide preliminary injunctions.”  

Last month, the Supreme Court heard oral argument on the standing issue.  The Circuit Court held that the state of Missouri had standing to sue because a Missouri governmental agency, the Missouri Higher Education Loan Authority (“MOHELA”), obtained revenue as a result of “servicing” student debt, i.e. collecting loan payments.

The Supreme Court will probably rule in a way that renders the Eighth Circuit’s holdings on the injunction issues moot. But the reasoning that court used is of interest on the matter of nationwide preliminary injunctions.

Irreparable Injury

Missouri“It is alleged MOHELA obtains revenue from the accounts it services, and the total revenue MOHELA recovers will decrease if a substantial portion of its accounts are no longer active under the Secretary’s plan.” The Circuit Court held that such harm to MOHELA would irreparably harm the state of Missouri, either directly if MOHELA is part of the state for these purposes or indirectly because of its potential effect on state revenues.

The concept of injury here seems questionable. Who is injured when the government “forgives” a federally guaranteed student loan? Because of the guarantee, lenders and their assignees will be fully paid by the government (the taxpayers) in accordance with the loan guaranty program. Insofar as MOHELA is an assignee of student loans, it will be paid in full.

What about collection agencies whose income comes from the fees they obtain in servicing student loans? Presumably, if the loans are forgiven and the debts are repaid by the government and not by individual payments, there would be no further need to “service” the loans. As was acknowledged in the Supreme Court argument, this loss of fees would give collection agencies enough of an interest to have standing to sue. But since when does a collection agent have a legally enforceable right to the continuation of a debt it services? It seems unlikely that the contract be the creditor and the collection agent gives the agent such a right. Only if the “collection agent” is actually an assignee of the debt, which is not alleged in this lawsuit, then the assignor’s cancellation of the debt would certainly violate the assignee’s rights. But settlement did not affect the holders of the debt because the federal guarantee assures against any loss.

Even if a collection agent had a legally protectable interest in the servicing fees from a debt, violation of that interest would not cause an irreparable injury, giving the agent a general power to enjoin the settlement. An award of money damages would completely compensate for such financial loss. For the same reason, a damages award would compensate any entities, such as the state of Missouri, who derive benefits from the collection of those fees.

There is nothing irreparable about the threatened loss.

The sliding scale test for a preliminary injunction.

Ruth_Bader_Ginsburg_2016_portraitEver since the decision in Winter v Natural Resources Defense Counsel, Inc., 555 U.S. 7 (2008), the Circuits have split on the correct test to apply in ruling on a preliminary injunction. The Winter majority propounded a four-part test in which each element must be established. Justice Ginsburg in dissent argued that courts could continue to use a “sliding scale” test, in which a strong showing of risk of harm might outweigh a weaker showing of likelihood of success on the merits.  In the years following Winter, circuits have split over which test to use.

The Circuit court applied a version of the sliding scale test, finding that a federal preliminary injunction is warranted: “where the movant has raised a substantial question and the equities are otherwise strongly in his favor, the showing of success on the merits can be less.”

But Nebraska seems to be a case like Winter, in which the party seeking the preliminary injunction has a strong case on the merits (given the Supreme Court’s likely resolution of the loan forgiveness validity question) but a weak case on irreparable harm (speculative losses of servicing fees).

Nationwide Injunctions. In a nationwide injunction, a court orders the U.S. government defendant to abate a national program even though the claim at issue is brought on behalf of only a few plaintiffs. But for a court to issue a nationwide injunction upon a showing of only localized harm violates a fundamental equitable principle of injunctive relief: An injunction order must be narrowly tailored to address only the specific irreparable injuries that the plaintiffs have demonstrated will result to them and the injunction must be justified by the balancing of the particular equities of the parties in the case. See generally, Laycock and Hansen, Modern American Remedies (5th Ed.) Absent a class action, an individual plaintiff should rarely or never be entitled to enjoin a governmental defendant’s actions relating to other parties.

Despite these criticisms, and rather like the storied bumblebee that scientists proved was incapable of flight, the nationwide injunction is now a fact of life and has become the go-to strategy of both the Team Blue (e.g., in actions to enjoin Trump’s immigration policies) and Team Red (in the actions to enjoin the Affordable Health Care Act).

That is not to say that nationwide injunctions are not problematic from a practical basis. Because any district court can issue a nationwide injunction, forum shopping is an essential litigation strategy. Progressives typically file in New York hoping for an Obama judge; Conservatives typically file in Texas hoping for a Federalist Society judge. And the chance always remains that different district courts will issue conflicting temporary restraining orders or preliminary injunctions against an agency, making it impossible to comply with them all.

DC Mafia
Members of the DC Mafia as imagined by Justice Kagan
Image by DALL-E

Although such a suggestion is fraught, perhaps the Court should consider issuing a rule that all actions seeking to enjoin a federal agency must be temporarily transferred to a single forum, e.g., a court sitting in the District of Columbia. They could be retransferred after disposition to the court where filed.

The Circuit Court held that a nationwide injunction was appropriate in Nebraska v Biden because the plaintiff obtained loans from around the nation and because it would have been unfeasible to tailor the order to block forgiveness of the specific loans as to which the plaintiff needed relief. The opinion states that “MOHELA is purportedly one of the largest nonprofit student loan secondary markets in America. It services accounts nationwide and had $168.1 billion in student loan assets serviced as of June 30, 2022.”

Nebraska thus adds another factor to be considered in issuing a nationwide injunctions, which is that they are warranted when the plaintiff’s claims are so numerous and geographically widespread that it is unfeasible to disentangle them from the government’s other activities. This factor certainly seems to distinguish Nebraska v Biden from the immigration cases where the orders could be limited to the plaintiffs.

Of course, as the Legal Realists will point out, the resolution of this case will not turn on the law of injunctions or of nationwide injunctions but upon the Supreme Court’s view of the legality of the debt forgiveness order, a question about which there seems to be little dramatic uncertainty.

[1] While the court appears to have granted the preliminary injunction, the exact effect of the ruling is unclear: (“We GRANT the Emergency Motion for Injunction Pending Appeal. The injunction will remain in effect until further order of this court or the Supreme Court of the United States.”) It is unclear to this author whether this is a stay pending the Circuit Court resolution of the preliminary injunction appeal or an injunction pending resolution of an eventual appeal on the merits of the substantive claim.)

March 16, 2023 in Commentary, Current Affairs, In the News, Legislation, Recent Cases | Permalink | Comments (0)

Wednesday, March 1, 2023

Consumer Finance Protection Bureau Proposes Registry of Non-bank Entities Adhesive Boilerplate Terms

Cfpb-logoBack in January, the Consumer Finance Protection Board (CFPB) announced that it was creating a Registry of Supervised Nonbanks that Use Form Contracts to Impose Terms and Conditions that Seek to Waive or Limit Consumer Legal Protections.  The proposal and explanation run to 223 pages.

If you want the tl/dr version, CFPB Director Rohit Chopra (below, right) explains the reasons for the registry here.  The gist is that the CFPB does not like one-sided form contracts and terms of service.  One practice that Director Chopra highlights is "gag rules" that prohibit or even threaten to fine users who post negative comments about a product or website.    Another is contractual waivers that prevent consumers from suing companies, even thought those companies reserve their own right to sue their users or customers.  

Congress has already enacted the Consumer Review Fairness Act, which prohibited “gag clauses” in certain form contracts.  In so doing, Congress built on a tradition in U.S. law of ensuring that standard form contracts are free of coercive or onerous terms.  Similar regulation is in place Australia, Japan, the United Kingdom and the European Union.  The American Law Institute's new Restatement of Consumer Contracts Law recognizes the right of consumers to challenge not only unconscionable contracts but also the terms and conditions adopted as a result of a deceptive act or practice.

Director Chopra identifies the proposal as having three main features:

Our proposal has a number of key features:

Rohit_Chopra_FTC_PortraitFirst, the registry would help regulators and law enforcement more easily detect when companies are offering products and services using prohibited, void, and restricted contract terms described above. This would be especially useful to state and tribal regulators with limited resources to alert or take action against companies violating the law.

Second, the registry would assist the CFPB and the public to understand the types of terms and conditions that are in use in today’s marketplace, and their effect on the adequacy of underlying consumer financial protection laws that are being waived or limited. This would allow the CFPB and others to study the use of these terms, along with their risks and benefits, to inform our research, consumer education, and other functions.

Finally, the registry would inform how the CFPB conducts its supervision of nonbank financial companies. While banks and credit unions are subject to routine examination by regulators, many nonbank companies are not. The CFPB would use data from the registry to identify supervised nonbanks and the risks their terms and conditions pose, prioritize which firms to examine, and plan the scope of those exams.

Let's hope that SCOTUS allows the CFPB to continue its important work in the realm of consumer protection.

March 1, 2023 in Commentary, Current Affairs, In the News, Legislation | Permalink | Comments (1)

Monday, January 23, 2023

LPE Project on the Proposed FTC Ban on Non-Competes

LpeWe posted last week on the proposed new FTC rule that would impose severe limits on non-compete provisions in employment contracts.  

The Law and Political Economy Project has posted eight perspectives on the proposed rule.  It's a great collection.  Recommended reading!


January 23, 2023 in Legislation, Weblogs | Permalink | Comments (0)

Monday, January 9, 2023

FTC Puts the Kaibosh on Non-Competes

Lina_Khan _FTC_Chair_(cropped)
Lina Khan, FTC Chair

The Federal Trade Commission (FTC) has proposed a new rule limiting what it calls unfair methods of competition.  The rule, after some definitional mumbo-jumbo, is pretty straightforward and incredibly sweeping.  First the proposed rule provides:

(a) Unfair methods of competition. It is an unfair method of competition for an employer to enter into or attempt to enter into a non-compete clause with a worker; maintain with a worker a non-compete clause; or represent to a worker that the worker is subject to a non-compete clause where the employer has no good faith basis to believe that the worker is subject to an enforceable non-compete clause.


But wait, you say.  What about all currently existing non-competes?  The FTC is not done yet:

(b) Existing non-compete clauses.

(1) Rescission requirement. To comply with paragraph (a) of this section, which states that it is an unfair method of competition for an employer to maintain with a worker a non-compete clause, an employer that entered into a non-compete clause with a worker prior to the compliance date must rescind the non-compete clause no later than the compliance date.


The rest is notice requirements and narrow exceptions.  Employers would have 180 days from the effective date of the proposed rule to comply with the rescission requirement.

According to the FTC, non-competes suppress wages.  The FTC estimates that its proposed rule would increase workers’ earnings between $250 billion and $296 billion per year.


Expect legal challenges.  Expect them to invoke the Supreme Court's recent invention, the major questions doctrine.

January 9, 2023 in Current Affairs, In the News, Legislation | Permalink | Comments (0)

Monday, January 2, 2023

Eleventh Circuit: Sale of Life Insurance Policy By Terminally Ill Man Not Void

11thCircuitSealModeling proper judicial modesty, the Eleventh Circuit, faced with a novel question of Georgia law, certified the question to the  Supreme Court of Georgia.  Having received the thorough and considered opinion of that body, the Eleventh Circuit thanked Georgia for its assistance and followed its guidance in what then became the easy case of Jackson National Life Insurance Co. v. Crum.

The question certified to the Supreme Court of Georgia was whether Georgia public policy forbids a person from taking out a life insurance policy and then selling that party to a third party with no insurable interest in the policyholder's life.  Jackson National Life Insurance Co. (Jackson) argued that the transaction entailed an illegal wagering contract, but the Supreme Court of Georgia found no support for that position in this case, where the buyer had played no role in procuring the original policy.  

In 1999, Kelly Couch (Couch) procured a $500,000 life insurance policy from Jackson.  At the time, Couch knew that he was HIV+ and had a shortened life expectancy.  He did not disclose those facts to Jackson.  His plan was to sell the policy through a brokerage agency.  Crum bought the policy, knowing that Jackson was HIV+ and that Jackson's life expectancy was shortened as a result.  After Crum learned that Couch had died in 2005, he sought to collect on the claim.  National declined the claim, citing the illegality of wagering on a human life.  National's policy with Couch apparently provided that it could not invalidate the policy based on Crouch's misrepresentations if they were not discovered within two years.

It seems clear that if Crum had induced Couch to conceal his illness from Jackson, procure the insurance, and sell it to Crum, that would violate Georgia law.  If Couch innocently procured the policy and then later became ill and sold the policy to Crum, that would not violate Georgia law.  This case fell somewhere in between, and so the Eleventh Circuit properly certified the question rather than engaging in Erie guessing.

Georgia Supreme Court SealThe issue, according to the Supreme Court of Georgia, was to be determined through a narrow look at the statutory regulation of wagering contracts in the context of life insurance policies.  It turns out that the English, as far back as the 18th century, enjoyed making sport of human life, wagering on the expected demises of celebrities and people convicted of capital offenses.  The was really just gambling, not insurance.  Nonetheless, Parliament disapproved of the practice and created the "insurable interest" rule to prevent insurance policies from becoming vehicles for such speculation as sport.  That is, the owner of an insurance policy must expect some material benefit from the continued life of the insured.  

The Supreme Court of Georgia found that nothing in the Georgia statutory scheme prohibited the transaction between Couch and Crum.  Couch had an indisputable insurable interest in his own life when he took out the policy.  Georgia law does not require that the beneficiary of a policy have an insurable interest in the insured life, and so it is hard to see why the sale of the policy to a disinterested third party would run afoul of a Georgia public policy.

Jackson argued that prior case law in support of its position was part of the common law of Georgia unaffected by the current statutory scheme.  Not so, said the Georgia Supremes.  The case law in question interpreted the prior statutory scheme, but when Georgia reformed its insurance statutes, that case law remained relevant only to the extent that the new statutory regime incorporated it.  The new statutory regime does not incorporate the case law on which Jackson relied, and to the Supreme Court could discern no intention to adopt the rule that Jackson urged upon it.

Armed with this opinion, the Eleventh Circuit vacated the District Court's award of judgment in favor of Jackson and remanded for further proceedings.  The result troubles me a bit, but I suppose the real problem is that Jackson's policy excuses fraudulent concealment after two years.  I'm not sure why that language is in there, but it being there, Jackson would have had to pay out the policy to somebody independent of the challenged transaction.  The Georgia legislature could address transactions like that between Couch and Crum as a means to disincentivize people from raising money through insurance policies to fund their last remaining years, but it has not done so, and there would always be work-arounds it seems.

Some may find the Georgia opinion, appended to the Eleventh Circuit's, a useful teaching case on public policy analysis and on the strategy for reconciling common law opinions with an evolving statutory scheme.  

January 2, 2023 in Legislation, Recent Cases, Teaching | Permalink | Comments (3)

Friday, December 23, 2022

A Russian Threat to the New York Convention

Russian DumaEarlier this week, we noted a decision of the Cour de Cassation, which subjects arbitral awards to scrutiny for their consistency with international public policy.  That court attempts to achieve the right balance between respecting global anti-corruption efforts and insuring the finality of arbitral judgments.  Russia seems determined to evade arbitral judgments entirely.  

Sarah Bronkhorst reports in Eurasianet on yet another disturbing development out of Russia.  Back in 2020, the Russian Duma passed new legislation, On Introducing Changes to the Arbitration Procedure Code of the Russian Federation (Law No: 171-FZ), which protects Russian companies against arbitral judgments.  According to Sarah Bronkhorst, the new law signifies nothing less than Russia’s withdrawal from the 1958 New York Arbitration Convention.

The new law permits any Russian entity subject to international arbitration to shift the proceedings to the Russian judicial service.  Russia justified its action by pointing to international hostility to Russian interests since its 2014 occupation of Crimea.  More recent events have done little to improve Russia's standing abroad.  Russia's Supreme Court upheld the legality of the new law in an eight-page opinion in 2021.  

The good news?  The glass was already (more than) half empty.  Russian companies' compliance with arbitral decisions has been spotty for some time, as Russian courts have long applied exceptions to the New York Convention with liberality.  This was especially true for entities favored by the Kremlin or that could make the argument that their financial stability was of a matter of national concern.  Too big to fail?  But the law may also have limited effect on Russian companies with assets abroad.  One assumes that if a Russian company's right to withdraw from arbitration is not recognized, the arbitration will proceed in the foreign jurisdiction and the victorious party can proceed against the Russian company's foreign assets.

H/T to Ben Davis.

December 23, 2022 in Commentary, Current Affairs, Legislation | Permalink | Comments (2)

Thursday, December 15, 2022

Speak Out Act Provides Some Protection Against Non-Disclosure Agreements

Kirsten_Gillibrand _official_photo _116th_CongressLast week, Congress passed and President Biden signed into law the Speak Out Act.  The Act is evidence that Congress can still pass meaningful legislation.  This one was introduced by New York Senator, Kirsten Gillibrand (right).  Co-sponsors included nine Democratic Senators, as well as  Republican Senators, Marsha Blackburn, John Cornyn, Lindsey Graham, Chuck Grassley, and Rob Portman.  The Act had unanimous support from Democrats, and Republicans in the House were pretty much evenly divided.  It passed the Senate by unanimous consent.

The key operational provision reads as follows:

With respect to a sexual assault dispute or sexual harassment dispute, no nondisclosure clause or nondisparagement clause agreed to before the dispute arises shall be judicially enforceable in instances in which conduct is alleged to have violated Federal, Tribal, or State law.

Keen readers will note that this Act is only a partial victory (but a victory nonetheless), as it only precludes the enforcement of nondisclosure or non-disparagement provisions entered into before the dispute arises from being introduced in connection with sexual assault or sexual harassment disputes.  

As Tom D'Agostino explains on, there are four ways in which the Act falls short.  First, employers can still enter into NDAs with employees after a dispute as begun and thus shield themselves somewhat from the public disclosure of misconduct.  The Act will not end the tradition of paying hush money to employees to get them to drop their claims.  Second, to the extent that pre-dispute NDAs purported to prohibit the reporting of criminal activity, they likely were already unenforceable without the Act.  Third, the Act elevates sexual harassment above other forms of workplace misconduct.  One would hope that the next step would be a broader prohibition on pre-dispute NDAs relating to all forms of workplace harassment.  

Finally, there are state models for bars on NDAs that are already far more protective than the act.  As Tom D'Agostino's reporting notes:

In Maine, for example, employers cannot use nondisclosure agreements to block employees from talking about workplace discrimination and harassment. And in California, employers cannot use nondisclosure agreements in connection with settlement agreements that involve sexual assault or sexual harassment. These laws place a glaring spotlight on the absence of a broader measure of protection in the Speak Out Act.

So the glass if half full, but this is nonetheless a positive development in the realm of federal workplace protections.

HT to my colleague, Michael Gibson.

December 15, 2022 in In the News, Legislation | Permalink | Comments (0)

Friday, December 2, 2022

The Parol Evidence Rule and Ohio's Unconstitutional Electoral Maps

TALThe Ohio Supreme Court struck down the Ohio GOPs gerrymandered electoral maps five times.  The GOP ran out the clock and then ultimately went to a federal court to get an order permitting the elections to go forward with one of their unconstitutional maps.  The story is told, among other places, in a recent episode of The American Life, called Mapmaker, Mapmaker, Make Me a Map. 

In sum, over the past decade, Ohio voters have leaned Republican.  In elections for statewide office, Republican candidates have averaged 54% of the vote, while Democrats get 46%.  True to form, J.D. Vance won election to the Senate with just over 53% of the vote.  Mike DeWine won re-election by a wider margin, likely the result of an incumbency boost.  The state constitution calls for electoral districts designed to reflect those election results, but in last month's elections, as a result of gerrymandering, Republicans won ten out of fifteen congressional seats, a percentage even higher than the percentage of votes won by Mike DeWine. 

And now to our parol evidence point.  In defending the GOP maps, Ohio GOP leader, Matt Huffman put forward the novel theory that when the Ohio constitution says that electoral maps are supposed to reflect "results," it meant the outcome of elections, not the percentage of votes for each side.  Republicans have won about 80% of statewide contests over the past decade and so, Huffman argued, votes that gave Republicans an advantage in less than 80% of the districts were consistent with the constitutional mandate.

The problem with that argument is that nobody else involved in the discussions of the recent amendment to the Ohio constitution thought that "results" meant "outcomes" rather than percentages of voters favoring one party or the other.  The entire point of the amendment was to achieve "proportional representation," so that Ohio's elected officials would reflect the political diversity among the electorate.  

Ira Glass, the host of This American Life interviewed the people who drafted the constitutional amendment, and all concurred:

Ira Glass

Richard Gunther said the same thing. Remember, he was one of the five negotiators who hammered out the terms of the amendment. He says, whenever they talked about election results, it was always about the number of votes, never about the number of races won.

Richard Gunther

No, that was never mentioned. And in fact, I've been a professional political scientist for five decades, and I've never seen election data used in that bizarre fashion.

Ira Glass

Matt Huffman totally sticks by his guns in this one. He told me the word in the constitution is "results." This notion that it means counting votes and not offices won--

Matt Huffman

Well, why does the results mean that? Well, because I want it to? Because it's better for me? Well, those aren't really reasons. Well, you know--

Ira Glass

But they're saying-- they're saying, just, that's what everybody talked about back then. Nobody talked about counting the number of offices.

Matt Huffman

Yeah, then it should be in the constitution. This is like the agreement, right? We enter into a settlement agreement to settle our lawsuit, and later on, you say, well, on the side, you said you were paying court costs. I never said that.

Ira Glass


Matt Huffman

Or on the side, I was supposed to get an extra $10,000. Remember, you mentioned it to me just before we signed the document? No. And so that's why we have the constitution and the votes--

Ira Glass

And you're saying the language-- the language-- the language doesn't specify. So it could be either one.

Matt Huffman


I bring this all up as a nifty illustration of how the parol evidence rule works.  Mr. Huffman implies that, because there is an ambiguity in the document, we can't have recourse to its legislative history to resolve that ambiguity; the language of the text should govern.  But in fact, parol is admitted to clarify ambiguous language.  His analogies to paying court costs or an additional $10,000 are inapt.  Those would be additional terms that likely would be excluded because they would vary the terms of the agreement and are the sort of thing one would expect to be part of the written agreement, assuming integration.  But if there is parol to support the idea that "results" means counting votes and not offices, that evidence is admissible and should aid in interpretation.

Ohio's Supreme Court rejected Mr. Huffman's interpretation of "results" in Adams v. DeWine.  But that may change as a result of the last election.  The three dissenting Justices pointed out that the majority invalidated the proposed GOP maps under the principle of "proportional representation," but the Ohio constitution makes no mention of proportional representation.  The Brennan Center reports that the newly-elected  Ohio Supreme Court Justices may swing the majority of that court from 4-3 against to 4-3 in favor of allowing electoral gerrymandering to proceed.

December 2, 2022 in Commentary, Current Affairs, In the News, Legislation | Permalink | Comments (0)

Wednesday, November 23, 2022

GM to Pay $3.5 Million to Settle Claims Arising Under Servicemembers Civil Relief Act

GM LogoJordyn Grzelewski reports in The Detroit News that GM Financial has agreed to pay U.S military personnel $3.5 million to address breaches of lease agreements in violation of the Servicemembers Civil Relief Act (SCRA).  The SCRA prohibits auto financing and leasing companies from repossessing the vehicles of service members without a Seal_of_the_United_States_Space_Force.svgcourt order if the service members have made even one payment before entering the military.  It also allows service members to terminate their leases under certain conditions.

The Department of Justice began an investigation in 2018 and discovered that GM Financial had violated the SCRA in over 1000 cases, including 71 in which it unlawfully repossessed service members' vehicles.    

November 23, 2022 in Legislation, Recent Cases | Permalink | Comments (0)

Tuesday, November 22, 2022

2022 Amendments to the UCC

The Uniform Law Commission (ULC) has unveiled its new amendments to the UCC on it website.  I am happy to report that the revisions to Articles 1, 2, and 2A seem to be quite modest.  Here are some that might matter to teaching:

  • Conspicuousness is now to be determined by a totality of the circumstances, a highly sensible revision, especially since we now know that ALLCAPS are not helpful;
  • The term "money" is now defined to exclude "an electronic record that is a medium of exchange recorded and transferable in a system that existed and operated for the medium of exchange before the medium of exchange was authorized or adopted by the government," which seems to cover cryptocurrencies but could also encompass broader technologies not yet in existence;

Shockingly, the ULC has not seen fit to change the Statute of Frauds threshold from the $500 amount that made sense when the UCC was drafted to something that makes sense today.  It is less shocking that the ULC did not see fit to eliminate the Statute of Frauds entirely, but its failure to do so remains disappointing.  

ULC Logo
The most significant revision, it seems to me, from the perspective of teaching contracts and sales, is the following innovation in the realm of the predominant purpose test for hybrid transactions:


(2) In a hybrid transaction:

                        (a) If the sale-of-goods aspects do not predominate, only the provisions of this Article which relate primarily to the sale-of-goods aspects of the transaction apply, and the provisions that relate primarily to the transaction as a whole do not apply.

                        (b) If the sale-of-goods aspects predominate, this Article applies to the transaction but does not preclude application in appropriate circumstances of other law to aspects of the transaction which do not relate to the sale of goods.

            (3) This Article does not:

                        (a) apply to a transaction that, even though in the form of an unconditional contract to sell or present sale, operates only to create a security interest; or

                        (b) impair or repeal a statute regulating sales to consumers, farmers, or other specified classes of buyers. 

The revisions to Article 9 are more extensive.  Sucks to be people who teach Secured Transactions, but I've always thought that to be true.  The dramatic innovation of the revisions is a new Article 12 on Controllable Electronic Records.

November 22, 2022 in Legislation, Teaching | Permalink | Comments (0)

Wednesday, September 28, 2022

Contracts Aspects to the Fifth Circuit's NetChoice v. Paxton Ruling

In May we posted about the Eleventh Circuit's ruling in NetChoice, LLC v. Attorney General, which struck down many provisions of a Florida statute that sought to regulate social media companies as common carriers engaged in "censorship."  The Eleventh Circuit quoted from the language that animated the challenged legislation: The law was created to punish “the ‘big tech’ oligarchs in Silicon Valley” who “silenc[e]” “conservative” speech in favor of a “radical leftist” agenda.  Subtle. Before that, we posted about Texas HB 20, which is similar.  Judge Pitman of the District Court for the Western District of Texas had enjoined the enforcement of HB 20 in a 30-page opinion.  The Fifth Circuit lifted that injunction, and then last week, it issued an opinion in the case, NetChoice v. Paxton

GoldmanIt's a 113-page doozy.  Fortunately, in a 6000-word post, Eric Goldman (right) has gone through the entire opinion carefully, and he provides not only a trenchant analysis but also links to sources so that readers can do their own deep dive into the case.  That leaves little for us to say except to address to the contractual connection in this case.  But first, an overview.

Professor Goldman's post begins helpfully with a synopsis of how HB 20 fared in the Fifth Circuit, an edited version of which appears below:

The Texas law has four main provisions. Here’s where they stand after the Fifth Circuit’s ruling:

  • mandatory editorial transparency requirements. . . . [unanimously upheld]
  • digital due process requirements, including an appellate process for aggrieved users. . . . [unanimously upheld]
  • restrictions on viewpoint-biased content moderation. The panel voted 2-1 to lift the injunction for multiple reasons. However, only one vote (Oldham) endorsed the common carriage justification. . . .
  • a ban on email service providers deploying anti-spam filters unless they give appellate rights to all filtered senders. No one has yet challenged this provision, so it was never enjoined and remains available for AG Paxton to enforce. . . . 

The Fifth Circuit opinion begins by saying that HB 20 "generally prohibits large social media platforms from censoring speech based on the viewpoint of its speaker."  Because, as Professor Goldman points out, the social media platforms are private actors who, as such, by definition, cannot engage in censorship, they are not lawfully susceptible to regulation on that basis.  Indeed, as Professor Goldman notes as well, what is really going on here is government censorship of the social media companies' expression.  One way to state the issue might have been "Can social media platforms be prohibited by statute from suppressing speech on the basis that they are state actors engaged in censorship?  So posed, under current law, the answer is no.  By defining content regulation as "censorship" the Fifth Circuit is making new law and deciding the case in advance by making words mean what it wants them to mean.  It doesn't even pay them extra, as the equitable Humpty Dumpty does.

Having started with a faulty premise, the opinion continues:

But the platforms argue that buried somewhere in the person’s enumerated right to free speech lies a corporation’s unenumerated right to muzzle speech.

The implications of the platforms’ argument are staggering. On the platforms’ view, email providers, mobile phone companies, and banks could cancel the accounts of anyone who sends an email, makes a phone call, or spends money in support of a disfavored political party, candidate, or business . . . 

That is almost certainly a mischaracterization of the platforms' arguments, because their argument is that they are not and should not be treated like "email providers, mobile phone companies," etc.  And with that, the District Court's injunction is vacated.

Twitter-logo.svgBut on to the contracts angle.  I have been writing a lot lately about the interaction of First Amendment law and contracts law.  The relationships between the social media platforms and their users are governed by a contract -- the platforms' terms of service.  My co-blogger and co-author Nancy Kim has spent much of her career highlighting the dangers of expansive or exploitative terms of service.  I am not unaware of the hazards.  But terms of service are routinely enforced, and it is a huge problem when the government suddenly steps in to change contractual relations based on the wholly unsubstantiated claim that the social media companies discriminate against conservative voices.  If the social media companies muzzle speech, they muzzle speech that violates their terms and conditions.  As a frequent user of social media, I'm glad that they do it, and I hope they do it better, which means doing it more, as there are ever-new automated mechanisms for flooding popular sites with speech that has little to do with insight and everything to do with incitement of political violence.

The Fifth Circuit opinion surgically excerpts passages from the platforms' terms of service in order to make those platforms look like public fora or common carriers.  What the opinion does not do is note the substantive components of those terms of service and community standards.  Twitter's terms of service, for example, specifically prohibit posts that promote or encourage:

  • Violence
  • Terrorism/violent extremism
  • Child sexual exploitation
  • Abuse/harassment
  • Hateful conduct
  • Perpetrators of violent attacks
  • Suicide or self-harm
  • Graphic violence and adult content
  • Illegal or certain regulated goods or services

Facebook's community standards are broader but non-partisan and pretty damn thoughtful.

But the ultimate point is.  These are private sites with private rules.  Citing Justice Kennedy's dictum in Packingham, the Fifth Circuit calls the each platform a "monopolist"of the modern public sphere.  But the very fluidity of these markets shows the opposite.  Who had even heard of TikTok five years ago?  My students are contemptuous of Facebook and prefer platforms like Snapchat and Instagram that I would never use.  Alternatives to Twitter abound, and if they are less successful than Twitter, that is because they suck, and one of the main reasons that they suck is that they don't have the powerful algorithms that the best platforms have, which allow them, among other things, to enforce their terms of service effectively.

Let's hope that SCOTUS takes this case.  It just about has to given the 5th Circuit/11th Circuit split and the global nature of the Internet.  And let's hope that it enjoins these attempts at government censorship masquerading as regulating private censorship (which is not a thing). 

September 28, 2022 in Commentary, Current Affairs, E-commerce, In the News, Legislation, Recent Cases | Permalink | Comments (0)

Wednesday, August 31, 2022

Nancy Kim in the LA Times on CA's Age Appropriate Design Code Act

Nancy-kimOur very own Nancy Kim (left) published an op-ed in the L.A. Times last week on California's Age Appropriate Design Code Act (the Act).  The purpose of the Act is to deter social media companies from creating features designed to addict children to their web products.  The Act has yet to be come law.  However, Nancy argues, it has already had some impact.

First, the Act raises awareness of the extent of which social media companies knowingly contribute to the problem of addition to social media sites.  Second the Act pushes back against the tech giants' assertions that regulation of the industry stifles free speech rights and hampers technological development.  The tech giants, as is well known, are not consistently on the side of free speech nor are technological innovation and regulation incompatible.  Third, the Act highlights interests like privacy, autonomy, and safety that must be balanced against the social media platforms desire to remain free from regulation or oversight.  

Nancy supports the proposed legislation, arguing that it will be good not only for children but for all users of the Internet.  You can read the details of the enforcement mechanism in her op-ed.

August 31, 2022 in Contract Profs, Current Affairs, E-commerce, In the News, Legislation, Web/Tech | Permalink | Comments (1)

Monday, May 16, 2022

Texas HB 20, Contracts, and the First Amendment (Again)

5th CircuitIf you follow this blog closely, thank you!  Also, you may have noticed that I have been gathering cases in which the law of contracts intersects with the First Amendment.  The most recent such post is here (linking to earlier posts in the series).  The other three cases all made it to the Supreme Court.   Today, we visit the Fifth Circuit Court of Appeals.

Let me illustrate the situation with an analogy.  Let's say you open your house to guests so that people can come and talk to one another.  You have great snacks, flattering lighting, and an attractive ambience.  People eagerly sign your user agreement and flock to your house, so you move to a bigger venue.  More people come.  Eventually, you move to an abandoned shopping mall.  People gravitate towards groups with common interests, and they chat.  They move around the mall from venue to venue and engage in conversation.  Great snacks, flattering lighting, attractive ambience. 

Sometimes people come and shout obscenities.  You warn them.  Some spread conspiracy theories, but eventually those people find each other and leave everyone else to enjoy each other's company.  But some of those people won't let it go.  They are hostile to those who don't share their views.  They scream; they make noise.  They question your snackage.  They lobby for less flattering lighting because they're Emo.  They violate the user agreement that the signed.  They threaten to make the space uncomfortable for everyone.  So you warn them, remind them of the user agreement, specifying how they have violated it, but they double down, saying that you are "censoring" them.  After several warnings, you ban them.  They can't come to your space anymore.  

But they argue that you are infringing their First Amendment rights and that you are discriminating against them based on their politics.  There appears to be no empirical basis for such claims.  They are being banned for being obnoxious and for not abiding by the rules that they agreed to when they came to the venue.

They could go elsewhere, but your space is the best space.  The other spaces are filled with obnoxious people.  They only have Bit O'Honey and Circus Peanuts, the lighting is provided by those fluorescent tubes that buzz, and the decor consists of posters from science-fiction/fantasy movies that never got made.  Think Argo.  However, you know who else is obnoxious?  Politicians.  So the politicians pass a law forbidding you from banning obnoxious people from your space. 

You may think I'm oversimplifying a bit.  But if you replace my hypothetical abandoned shopping mall with the Internet, this is the story of Texas HB 20

Twitter-logo.svg It is styled (rather ponderously) as "AN ACT relating to censorship of or certain other interference with digital expression, including expression on social media platforms [Platforms] or through electronic mail messages."  HB 20 defines Platforms as common carriers if they have over 50 million users per calendar month.   Subchapter B of Section 2 of that Act has some notably broad disclosure requirements.  In short, Platforms (the big ones, not Parlor or Gab) must provide biannual reports to Texas detailing their use policies, their Facebook_f_logo_(2021).svgmethods for prioritizing content, and any disciplinary actions they have take against user accounts.  But it's just a disclosure requirement.  What could be wrong with that?  Don't ask me.  Ask Eric Goldman (below, left).  In his draft article, The Constitutionality of Mandating Editorial Transparency, Professor Goldman explains why the disclosure mandates that Texas and Florida are seeking to impose on Platforms are every bit as problematic as direct bans on speech.  These are state governments trying to control private websites.

Eric GoldmanAfter providing useful background on more mundane disclosure mechanisms and on the breadth of the new Texas and Florida disclosure regimes, Professor Goldman proceeds to make three substantive arguments.  First, mandatory editorial transparency regimes such as these "would be unconstitutional if imposed on traditional publishers, such as print newspapers."  Why? 

"Mandatory editorial transparency restrictions affect the substance of the published content, similar to the effects of outright speech restrictions. This indicates that the laws should be categorized as content-based restrictions and trigger strict scrutiny." 

YouTube_Logo_2017.svgSecond, the same principles should apply to Platforms.  In this part, Professor Goldman responds to five arguments found in an amicus brief filed by Columbia University's Knight First Amendment Institute.  Although the brief opposes the proposed legislation, it argues for according Platforms less constitutional protection than traditional publishers like newspapers.  Third, mandatory editorial transparency regimes facilitate illegal enforcement actions.  He illustrates this part by discussing an attempt by Texas's Attorney General Ken Paxton to retaliate against Twitter for terminating former President Donald Trump's account by opening an investigation and issuing a civil investigation demand, in which Paxton sought disclosures from Twitter similar to those that would become mandatory under HB 20.  

Instagram_logo_2016.svgIn the final section of Professor Goldman's paper, he introduces alternative mechanisms for regulating Platforms.  These alternatives would be equally effective and would not compromise First Amendment principles.  They involve third-party, non-governmental auditing of the Platforms and the empowerment of independent researchers.

Still not convinced?  Consider this article from Mark Joseph Stern on Slate.  He writes:

The intrusive disclosure requirements are almost comically impractical: They oblige companies to give Texas heaps of information about their algorithms, curation, and search functions, as well as a “biannual transparency report” with information about every single “action” taken against “content.” . . .  Platforms must also establish a complex process of notice and appeal any time it “removes content.”

It would be impossible for any target of H.B. 20 to comply with these standards. Platforms like Facebook use automated editorial tools to remove billions of posts and comments every year. They lack the resources, by orders to magnitude, to review and resolve each appeal, especially not within the 14-day limit that H.B. 20 provides. The only solution would be to stop monitoring content. Yet the law forces companies to assess complaints of “illegal content” within 48 hours, so they cannot adopt a true laissez-faire policy either.

But disclosure mandates are not the only mechanism that HB 20 provides. Subchapter D of Section 2 empowers Texas's Attorney General to enjoin any measures that a Platform undertakes to enforce its own disciplinary rules in a manner inconsistent with HB 20.  The Platform would bear the costs incurred by the AG in any enforcement proceeding.  

Neither Professor Goldman nor Mark Joseph Stern address this, but I also wonder about the intellectual property ramifications of laws like HB 20.  The laws require the Platforms to disclose information about the algorithms they use to rank content.  That strikes me as a demand to surrender proprietary information that goes to the heart of what makes these Platforms successful.

Section 6 imposes fines on the Platforms of $25,000 for each day that the Platforms "unlawfully impede" a message.  Section 7 creates a private right of action against "censorship" by Platforms.  Aware that people who inhabit the virtual space that the Platforms create agree to terms and conditions, Section 7 specifically nullifies contractual protections that the Platforms create: 

A waiver or purported waiver of the protections provided by this chapter is void as unlawful and against public policy, and a court or arbitrator may not enforce or give effect to the waiver. . . .

The waiver prohibition described by Subsection (a) is a public-policy limitation on contractual and other waivers of the highest importance and interest to this state, and this state is exercising and enforcing this limitation to the full extent permitted by the United States Constitution and Texas Constitution.

Thus the state tramples private legislation.

Any Platform that engages in "censorship" in violation of Section 7 can be subject to contempt charges.  A user may bring such an action and a court can impose contempt fines even if the law has been enjoined by another court.  

A user may bring an action under this section regardless of whether another court has enjoined the attorney general from enforcing this chapter or declared any provision of this chapter unconstitutional unless that court decision is binding on the court in which the action is brought.

Nonmutual issue preclusion and nonmutual claim preclusion are not defenses to an action brought under this section.

Judge PitmanJudge Pitman (right) of the District Court for the Western District of Texas enjoined the enforcement of HB 20 in a 30-page opinion.  Among other things, as Professor Goldman notes, Judge Pitman rejected arguments proffered by the Knight First Amendment Institute and others who argued that Platforms deserve lesser constitutional protections than traditional publishers.  Predicting the result on the merits, Judge Pitman found that: (1) Platforms exercise editorial discretion protected by the First Amendment; (2) HB 20 compels Platforms to disseminate objectionable content and impermissibly restricts their editorial discretion; (3) HB 20’s disclosure and operational requirements burden Platforms’ editorial discretion; (4) HB 20 discriminates based on content and speaker; (5) HB 20 is unconstitutionally vague; (6) Texas has alleged no interest in regulation sufficient to enable HB 20 to overcome intermediate or strict scrutiny; (7) HB 20 is so constitutionally unsound that its severability provisions cannot save it; and (8) the irreparable harm Platforms would suffer under HB 20 outweighs any harm to the state.

Last week, the Fifth Circuit lifted that injunction, in a 2-1 panel decision without opinion.   An opinion is to follow.  According to Vox, the decisions consists of one sentence: “IT IS ORDERED that the appellant’s opposed motion to stay preliminary injunction pending appeal is GRANTED.”  

The great thing about courts of law is that they provide reasoning for their decisions.  Unless and until the Fifth Circuit addresses the eight reasons given by the District Court for enjoining HB 20, the Fifth Circuit is not acting as a court of law in this case.  It is hard to imagine what the written version of this opinion will look like.  In order to overturn the injunction, the Fifth Circuit has to find that Texas has a strong likelihood of prevailing on the merits and that it will suffer irreparable injury if HB 20 is enjoined.  Under current law, neither of those things seems to be true.  SCOTUS might come along and change such matters, but the Fifth Circuit is supposed to rule based on lex lata, not lex ferenda.

May 16, 2022 in Commentary, Contract Profs, Current Affairs, In the News, Legislation, Recent Cases, Recent Scholarship, Web/Tech | Permalink | Comments (4)

Monday, January 24, 2022

TLDR Legislation

As readers of this blog (and everyone else in the world) knows, nobody reads Terms of Service.  Yet despite this, they stubbornly persist, and, like a certain virus, they continue to spread.  So, when I heard that a bipartisan group of lawmakers introduced legislation last Thursday known cutely as the TLDR bill (as in “too long, didn’t read” but officially standing for the  less cute “Terms of Service Labeling, Design and Readibility Act), I was both cheered and pessimistic.  Reading the bill only confirmed my initial reaction.

The bill would require that websites display a “short form” summary statement to make their terms easier to understand, include a “graphic data flow diagram” and display the “full terms of service” in an “interactive data format.”  The summary statement should be located at the top of the terms of service page and disclose the total word count and approximate time to read the statement.  It should also include a summary of the “legal liabilities” of the user and “rights transferred from the user to the covered entity, such as mandatory arbitration, class action waiver, any licensing by the covered entity of the content of the user, and any waiver of moral rights.”  They are also required to disclose what sensitive personal data they collect, and to disclose whether they have suffered recent data breaches.  Websites are already required to disclose data breaches and disclose information in many states (such as California), but they don’t always do so in a way that is easy to read and understand. 

The proposal arrives in the aftermath of the whistleblower, Frances Haugen’s, disclosures about the harms generated by Meta (formerly known as Facebook) and its various properties and the realization that the problems created by social media aren’t going to disappear on their own anytime soon – all of which have put lawmakers in a regulatory mood. 

The bill has good intentions and is, like the J & J vaccine, better than nothing.  But it’s not the 2-shot MRNA Pfizer or Moderna vaccine with booster that is needed to really make a difference given the reality of consumer contracting behavior. 

January 24, 2022 in Commentary, Legislation | Permalink | Comments (1)

Monday, May 10, 2021

Guest Post from David Noll and Zachary Clopton on Executive Action and Arbitration

The Executive’s Role in Addressing Forced Arbitration
David L. Noll & Zachary D. Clopton

Zachary Clopton

One of the most important recent developments in U.S. “contracting” is the explosion of forced arbitration provisions. Now a standard feature of adhesive consumer and employment contracts, these provisions replace features of the public court system that the drafters disfavor with ones that the drafters prefer. A forced arbitration provision might bar class actions or class arbitrations in favor of individual dispute resolution, limit the scope of discovery in favor of “expedited” proceedings, and replace guarantees of public access to proceedings and evidence with a mandate for confidentiality.

The “arbitration epidemic“ raises a host of normative concerns. Most worrying to us are arbitration’s effects on regulatory regimes enforced through private civil litigation. Across federal and state regulation, litigants and their attorneys serve as “private attorneys general” who enforce regulatory policy while pursuing remedies for the violation of individual rights. As the #MeToo movement highlighted, arbitration provisions are often part of a web of contractual terms that disable or disfigure private regulatory enforcement. This is at odds with lawmakers’ efforts to encourage private enforcement and the decentralized, market-based structure of U.S. regulatory enforcement.

David Noll
David Noll

The arbitration epidemic was made possible by a series of badly reasoned Supreme Court decisions that reinterpreted the Federal Arbitration Act (FAA) to maximize contract drafters’ power over dispute resolution procedure. In a reflection of this history, arbitration scholarship has traditionally been court-focused.

The federal executive, however, plays an important if underappreciated role in the legal and policy response to arbitration.  In a recent essay for the University of Illinois Law Review’s symposium on the Biden administration’s first 100 days, we explore how the executive branch can begin to address harmful uses of forced arbitration.

As our piece shows, the court-centric image of U.S. arbitration law overlooks a number of levers through which executive action can tame forced arbitration. The executive branch administers scores of programs that are impacted by arbitration—among them the major federal antitrust, anti-discrimination, consumer protection, and securities laws. The federal government is the single largest consumer in the world and among the largest employers in the U.S. The President plays a key role in shaping Congress’s agenda. Executive agencies and departments engage in administrative, civil, and criminal enforcement, both competing and collaborating with private attorneys. And the executive is a key player in negotiating the complex relationships among the federal government and the states.

As we explain in our essay, these levers allow the executive to take meaningful steps to address forced arbitration. Executive-branch actors can define the requirements for participating in federal programs to include limits on arbitration. They can collect information about the relationship between arbitration and private regulatory enforcement. They can shape public enforcement priorities in light of arbitration’s effects. They can work with Congress or participate in litigation as amici curiae to reform arbitration law. And they can support state efforts to regulate or respond to forced arbitration.

To be sure, the executive alone cannot address all the effects of forced arbitration. The legal status of forced arbitration “agreements,” the extent of contract drafters’ power over dispute resolution procedure, and the FAA’s relationship to state law raise questions of statutory interpretation that the federal courts have the power to decide. With a conservative majority on the Supreme Court seemingly locked in place for a generation, the Court is likely to continue supporting “haves” over “have nots” in its interpretation of the FAA.

But if executive action is not a panacea, neither is it insignificant. For three and a half decades, the Supreme Court has gradually claimed more and more authority over U.S. arbitration law, building what Justice Sandra Day O’Connor accurately described as “an edifice of its own creation.” In our system of separated powers and parties, it is fanciful to think that the Court will spontaneously correct the errors in its arbitration jurisprudence on its own. Reform must come from the outside. And the White House is a good place to start.

May 10, 2021 in Commentary, Contract Profs, Legislation, Recent Scholarship | Permalink | Comments (0)

Wednesday, November 4, 2020

Guest Post by Yehuda Adar and Samuel Becher on Consumer Contracts

Yehuda Adar and Samuel Becher, on Taking Boilerplate Seriously

Samuel Becher

One of the things that the current pandemic emphasizes is the importance of prevention. As Benjamin Franklin remarked a long time ago, “an ounce of prevention is worth a pound of cure.” While Franklin had fire prevention in mind, and while the pandemic brings to mind the context of health, this maxim is true in many other walks of life.

We all teach our contract law students the core principles of ‘meeting of minds’ and ‘assent.’ We explain that contracts reflect the preferences and desires of the contracting parties. At the same time, we acknowledge that consumer contracting realities misalign with these fundamental assumptions (here’s a humorous take on that). We realize that consumers cannot be expected to read these lengthy and unreadable contracts. We are aware that they in fact don’t. We also know that these contracts often contain one-sided, if not plainly illegal and unenforceable, contract terms. Yet, we pretend that contract law can somehow efficiently deal with consumer form contracts. 

The American approach to consumer form contracts is a bit puzzling. In many other countries and jurisdictions – including the UK, the EU, Australia, New Zealand and Israel – there are specific, detailed laws and regulations pertaining to unfair terms in consumer contracts. But not so much in the U.S. As a result, a great deal of the burden of disciplining unscrupulous firms falls on consumers and courts.

Yehuda Adar
Yehuda Adar

But those institutions cannot do so effectively, because consumers are not sufficiently motivated to litigate unfair contract terms. The small money typically involved in consumer transactions, the costs of litigation, the fear of unequal bargaining power, and the common belief in the validity and enforceability of consumer contracts, all suggest that most consumers will not successfully challenge exploitative boilerplate. In the current environment, even if consumers wanted to litigate, they would probably be prevented from doing so by an arbitration clause that would block their access to the judicial system and by a class action waiver that would deprive them of the ability to sue as a class.

Furthermore, even if consumers do litigate unfair terms, courts are not well-positioned to police such terms using the unconscionability doctrine. The doctrine requires terms to be so biased as to “shock the conscience of the court,” thus excluding many one-sided terms that might not reach this threshold. Furthermore, the doctrine can generally be used only as a shield, not as a sword. Since unconscionability is a vague legal norm (rather than a well-defined rule) with no clear legislative guiding principles, courts have very little guidance in designing its boundaries. All in all, and as Arthur Leff noted decades ago: “One cannot think of a more expensive way and frustrating course than to seek to regulate…‘contract’ quality through repeated lawsuits against inventive ‘wrongdoers.’”

Against this somewhat gloomy reality, we suggest taking prevention more seriously. According to the model we envisage, administrative agencies will be empowered to oversee the content of consumer form contracts and tackle any kind of exploitation – be it in the form of unfair, unconscionable, or illegal terms. The agencies (at the federal and state levels) will focus on the markets or contracts where contractual exploitation is most frequent and severe. They will be authorized to negotiate suspect terms with the relevant firms, ensure any exploitation is removed at the macro level, and enforce their decisions using either consent orders or administrative (or judicial) orders.

We believe that the time is right to consider a supplementary tool in the form of ex ante administrative enforcement. To be sure, implementing such a mechanism entails serious practical and political challenges. These may pertain to institutional capacity, budgeting, legitimacy, regulatory capture and the need to analyze complex markets and contracts. But while not a panacea, such a regime has the promise of shifting the burden of confronting exploitation in consumer contracts from a feeble and ineffective system of private enforcement to a sophisticated and robust system of public oversight.

This post is based on our working paper, Taking Boilerplate Seriously: Tackling Exploitation in Consumer Contracts, available here. Any comments or suggestions are most welcome.

November 4, 2020 in Contract Profs, Legislation, Recent Scholarship | Permalink | Comments (0)

Friday, September 18, 2020

Virtual Symposium Part VII: Ben Davis on the Wisdom of Wisdom-Tooth-Extraction During a Pandemic

Selling out the ordinary citizen: COVID-19 Limitation of Liability
Benjamin G. Davis, University of Toledo College of Law

I. The Wisdom of Fixing My Wisdom Teeth in a Pandemic

This is a dental story about wisdom teeth.

This past July I had my son over with a couple of friends to grill steaks.  When it got dark, we went inside to finish the meal. 15 days later I learned that one of those friends might have been exposed to COVID-19.  So I immediately set up to be tested three days later.  And I called my dentist to reschedule my upcoming appointment because I was not sure if I had been exposed and was getting tested.  Fortunately, another week later the test came back negative.

BGDHIRESII. Contractual Assumption of Risk?

So I went to my rescheduled dentist appointment in early September and one of the conclusions was that my wisdom teeth needed to be removed.  And I was referred to a maxillo-facial surgeon for that.  In the first meeting I was asked to sign a document entitled COVID-19 PANDEMIC DENTAL TREATMENT AND ACKNOWLEDGEMENT OF RISK FORM.  I posted that document to the Contracts listserv.

That document – as a contractual matter was saying that I was assuming the risk of contracting COVID-19 in this treatment.

III. Enter State Limitation of Liability Law

On Friday, September 19, 2020, I am to have the first of two wisdom teeth surgeries under general anesthesia.

And today I learn that the governor has signed  Ohio legislation that would grant employers state law immunity from COVID-19 related civil lawsuits.  As reported in the National Law Review,

Ohio employers will likely soon enjoy greater legal protections when it comes to their efforts to stem the spread of COVID-19. Acknowledging the legal uncertainties faced by essential workers and businesses in the wake of reopening, the Ohio Senate on September 2, 2020, passed House Bill (H.B.) 606, a measure which, if signed into law (and it is expected that Governor Mike DeWine will sign the bill very quickly), would grant state-law immunity from civil lawsuits for “injury, death, or loss” related to “the transmission or contraction” of the novel coronavirus. The bill specifically provides that public health orders issued by the executive branch (i.e., the governor and the Ohio Department of Health), as well as public health orders issued by federal government agencies, counties, local municipalities, and boards of health or public health agencies, do not create new legal duties for purposes of tort liability. The bill and its corresponding protections will be retroactive to the date of the declared state of emergency in Ohio, March 9, 2020, and will expire on September 30, 2021.

The bill significantly limits legal exposure to Ohio businesses, which, absent a showing of reckless, intentional, or willful or wanton misconduct, would not be liable to customers, employees, or others for actions or omissions resulting in the exposure to, or transmission or contraction of, COVID-19. The bill, which is expansive, extends protections to all Ohio entities, including schools, nonprofit and for-profit entities of any size, governmental entities, churches, colleges, and universities.

Subject to limited exceptions, the new law would also shield health care providers from liability in tort actions arising from the “provision, withholding, or withdrawal” of health care services resulting from the coronavirus pandemic. The bill does not provide total protection; plaintiffs who can prove a health care provider acted with “reckless disregard for the consequences” of their actions, or engaged in “intentional misconduct or willful or wanton misconduct” could still recover.

In addition to the above protections, the bill would flatly bar class actions based in whole or in part on allegations that a health care provider, business, government entity, or person caused “exposure to, or the transmission or contraction of” COVID-19.”

As reported on, Andrew Doehrel, president and CEO of the Ohio Chamber of Commerce said, "Ohio businesses stepped up when asked to help with this pandemic crisis and we are pleased that the Senate and House, along with the governor, have acted to help protect jobs and our economy,"

The story continues:

Health care providers are also protected from liability in tort actions related to COVID-19 care and services under the law. Again, anyone looking to sue a health care provider would have to prove they were acting recklessly or displaying intentional misconduct.

IV. What if I were to get COVID-19 in this wisdom tooth operation?

COVIDAs the form I signed was prior to the operation, I would imagine that if I could prove I got COVID-19 during the operation on Friday, I would have to face a question as to whether I had assumed that liability and therefore a breach of contract claim would fail.

If I were to assert a breach of contract or tort claim, given that the operation is two days after the passage of the above law, the bar for my getting any relief for COVID-19 illness contracted in that operation and even for a death from it (I hope not, egads) has been significantly raised by this law.

And there will be a second wisdom tooth operation in the future where the same issue would arise for that operation too.

I could walk into the operation wearing my “Everybody Say, Corona Virus Don’t Play” t-shirt as a kind of new offer that if they operate on me and I contract COVID-19 from it, the surgeon is assuming that risk.  But, that might be a bit too ambiguous.  So maybe I should make up a t-shirt like Ian Ayres once suggested in Guerilla Consumerism that says, “Notwithstanding any other document or legislation, by serving me in any manner you waive any rights or defenses that you may have with respect to any legislation or contractual or other document that limits your liability to anything below the liability that you would have had before the COVID-19 pandemic.”

That is a bit long to put on a t-shirt but maybe I could get it done in very small print that was big enough for them to see, but small enough that they skip over reading it.  Maybe I could put the words NOTICE in big letters to attract their attention.

V. Been warning about this kind of thing since April. 

Pernicious contractual waivers to address a systemic risk that is a pandemic, I have warned, are not a solution to risk.  Nor is this type of legislation.  All these things do is shift the risk to the individual and away from employers.  They do nothing to address the underlying problem, which is the COVID-19 pandemic.

So we have a combination of market failure and state government failure in betraying the public trust by getting employers off the hook for COVID-19 liability.

It is all of a pattern of repression and weaponizing COVID-19 that I have described in a number of articles since April

VI. So what does one do?

A state constitutional, federal constitutional, or international law challenge of these kinds of approaches are something that I think I should think about.  But, in the meantime, I have to get this wisdom tooth out.

The systemic failures of the federal, state, and business communities to do what was and is needed to protect the ordinary citizen are appalling and criminal.  And, ordinary citizens, like me are left to the dogs of COVID-19 – air-borne, relentless, and many times deadly.

No wonder the United States is the butt of jokes around the world such as the following:

Q:  What borders on insanity? 

A: Canada and Mexico.

September 18, 2020 in Commentary, Current Affairs, In the News, Legislation, Recent Scholarship | Permalink | Comments (3)

Wednesday, August 19, 2020

Uber and Lyft drivers in CA

In a previous post, I blogged about the legal (and particularly, legislative) constraints on private parties to recharacterize legally defined relationships such as calling an employee an independent contractor.  In CA, the issue has been heating up and reached a critical point when AB 5, a new law addressing the classification of employees v. independent contractors, went into effect.  As I mentioned in that prior post, the California Attorney General Xavier Becerra and the city attorneys of Los Angeles, San Diego, and San Francisco sued Uber and Lyft, arguing that they had misclassified their drivers as independent contractors when they should be employees under AB 5.  Last week, a California judge agreed and issued a preliminary injunction compelling the companies to classify their drivers as employees immediately (due to the pandemic, this issue has even greater urgency given have financially stressed many drivers are.  Uber and Lyft ridership is also way down). The Verge has the story and a copy of the complaint.

The takeaway is that parties to a contract may allocate their rights and responsibilities but only in areas where they have the authority to do so.  Private parties do not have the right to characterize their relationship in a way that doesn’t reflect reality (as defined by statute).  Facts matter, even in contracts.

August 19, 2020 in Commentary, Current Affairs, Labor Contracts, Legislation | Permalink | Comments (0)

Friday, July 10, 2020

Legislation and Contract Law in the Classroom

My impression is that most non-lawyers think that “the law” is legislation so law students are often surprised at the first-year curriculum which is mostly focused on common law.  Most 1L contracts courses pay scant attention to how contracts (and the drafting of contracts) are affected by legislation (other than the UCC, of course).  But when law students become lawyers, they must pay attention to legislative changes and may be required to change their clients’ contracts to conform to changes in the law.

Along those lines, there are several new laws that might be of interest to readers of this blog.  Not only should they prompt lawyers to revisit their existing contracts, they might freshen the usual classroom discussion and provide some more context to the role of the common law and its relationship with contract doctrine.  I plan to discuss the new laws in the classroom as part of a focus on “practical lawyering skills” (or, my take on it, which is, what a lawyer should do with the knowledge learned in law school).

                Privacy policies - The California Consumer Privacy Act officially became effective January 1st   but there was a six-month grace period that expired on July 1.  The Act gives consumers more power over their data and how it is used, including the right to opt-out of data collection.  In my experience, some companies, especially the credit agencies, need to do a lot more to make it easier to opt-out. Some companies make it very easy – just a click on their website – but the ones that should make it easy, such as the big three credit reporting agencies, make it very difficult by asking for a mailed-in request and all your personal information, including SSN.  Companies should revisit their TOS and privacy policies to make sure that they comply with the act – and preferably, make it easy for consumers to opt-out and/or request what data the company is collecting.

                Employment Contracts and Handbooks – I like to discuss how lawyers often ignore their standard form contracts and policies, and how doing so may affect enforceability and interact with interpretation, illegality, bad faith, and unconscionability (especially when they conflict with legislative changes).  For example, lawyers should revisit and consider whether to update their contracts and handbooks in light of these recent changes:

                Minimum wage - California’s minimum wage is currently $12/hour (for employers with 25 or fewer employees) and $13/hour (for employers with 26 or more employees), eventually reaching $15/hour by 2022; effective July 1, 2020, some counties and cities are moving toward that goal more quickly, including Berkeley and San Francisco ($16.07/hour) and Los Angeles ($14.25 or $15.00/hour). 

                Family Leave – Unlike the federal government, California has a paid family leave which Gov. Newsom extended from six to eight weeks, effective July 1, 2020. 

                Gig workers – Under a recently enacted law, the test for determining whether a worker is an independent contractor or an employer broadens the requirement of “independence” for the independent contractor so that the worker is both free to figure out how to do the work as well as not economically dependent upon the company for a paycheck – and the employer is not dependent upon the worker for survival (okay, that’s just my super quick description of the “ABC” test).  Earlier this pandemic season, the California Attorney General, Xavier Becerra, and the City Attorneys of Los Angeles, San Diego and San Francisco sued Uber and Lyft for misclassifying their drivers as independent contractors instead of employees. It always bears repeating to students (and clients) that a contract can only allocate rights that the parties have – it can’t attempt to change definitions that are defined by the law, meaning that even if the  agreement is titled “Independent Contractor Agreement” doesn’t mean that the relationship is one between an independent contractor and a company.

                One law that California has not enacted, but which has been enacted in other states (Kansas, Louisiana, Oklahoma) according to law firm Littler, is legislation protecting employers from liability if they act in good faith and their employees or customers are exposed to COVID-19.  These are typically pretty limited in scope and generally do not protect employers from intentional or reckless negligence.  The whole issue of waivers in the employment context is a live one that this blog will be keeping an eye on in the weeks to follow….

July 10, 2020 in Commentary, Current Affairs, Legislation | Permalink | Comments (1)