ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Monday, October 5, 2009

Contracts Limerick of the Week: Brackenbury v. Hodgkin

I promised last week that I would discuss Brackenbury v. Hodgkin, 102 A.2d 106 (1917), and provide a companion Limerick to go with Fitzpatrick v. Michael.  In that case, I suggested that specific performance might have led the parties to a reasonable settlement of their dispute.  Ms. Fitzpatrick had been serving as Mr. Michael’s live-in nurse and caretaker.  Apparently induced by his grasping, conniving relatives to oust her, Mr. Michael terminated the relationship.  The court felt uncomfortable ordering two people to live together.  I think the court could have done so confident in the knowledge that they would quickly come to an agreement that would give Ms. Fitzpatrick at least a partial benefit of the bargain but would not involve court-supervised cohabitation.

Witch But the next case suggests at least one reason why law professors might make lousy judges.   People have this nasty habit of not always behaving as rational choice theory suggests they should.  Sarah Hodgkin (pictured), an aging widow, had six children, none of whom were willing to look after her.   Her one daughter agreed to do so in return for income from the farm on which Sarah lived, use of the household goods and ownership after the property after Sarah’s demise.  So, the Brackenbury family moved from Independence, Missouri to the outskirts of Lewiston, Maine.

It took all of two weeks before “the relations between the parties grew most disagreeable,” and Sarah sought to get out of her promise by transferring ownership of the property to her son Walter.   The Supreme Judicial Court of Maine found: (1) a contract that (2) created an equitable interest, (3) that Sarah had breached her duty of performance because she was primarily at fault; and (4) that the Brackenbury family had no adequate remedy at law.

The parties were ordered to continue their arrangement, which included cohabitation.  If they had been rational, the parties ought to have either quickly settled or learned to get along.   They chose to do neither.  Poor Sarah was forced to eat with an old iron fork with two tines broken off and when she asked that food be passed her way at the table, it was passed in the Peyton Manning sense of the word.

This conduct is Limerickworthy.  As the Fitzpatrick Limerick is from the perspective of the judge, this one of from Brackenbury’s perspective:

Brackenbury v. Hodgkin

I’d sooner kiss a chimera
Than put up with my in-law, Old Sarah,
Now whenever she dines,
Her fork has but two tines,
And her home ain't no French Riviera.

[Jeremy Telman]

October 5, 2009 in Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Thursday, October 1, 2009

Bonus Limerick: Totten v. United States


I decided to bolster the section of my Contracts course devoted to public policy issues by introducing students to the Totten doctrine and the states secrets privilege, which we will discuss without reading any cases.  In Totten, a the administrator for the estate of William A. Lloyd brings a claim against the government seeking to recover for the breach of an espionage contract.   It is alleged that Lloyd entered into an agreement with President Abraham Lincoln in which Lloyd infiltrated enemy territory during the Civil War in order to provide the U.S. Government with vital information relating to the military forces and fortifications of the Confederacy.   For these services, Lloyd was to be paid $200/month plus expenses.  Honest Abe allegedly paid Lloyd only expenses.  

Justice Field, writing in 1875, found that the subject matter of the contract was a secret and that both parties must have known at the time of their agreement that their lips would be “for ever sealed respecting the relation of either to the matter.”  In order to protect the public interest in having an effective arm of the government that could engage in secret services, the Court ruled that there could be no claim for breach of a secret contract because the existence of the contract was itself a secret that could not be disclosed.

I am happy to report that Totten is a hit!  We only got to it in the last ten minutes of class, which I thought would suffice for a one-page opinion.  But when I suggested that we could continue the discussion in the next session, in addition to their now habitual groans of disapproval, a couple of students murmured: “Yes!”  And several students stuck around after class to explore the consequences of the Totten doctrine.  Giddy about this overlap of my teaching and research interests, I composed a celebratory Limerick:

Totten v. United States

 The President gamely employed
 But then stiffed an agent named Lloyd.
 Abe knew Lee’s plan
 Because of this man,
 But the court found his legal claims void. 

[Jeremy Telman]

October 1, 2009 in Famous Cases, Government Contracting, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 29, 2009

Contracts Limerick of the Week: Fitzpatrick v. Michael

The Law in Action casebook includes two nicely contrasting cases in its section on the Statute of Frauds and problems that arise in enforcing contracts in the family setting.  The first is Fitzpatrick v. MichaelA.2d 639 (Maryland, 1939), in which a man (Orion C. Michael) hires a woman (Marie Ellen Fitzpatrick) to be his nurse, chauffeur, companion, gardener and housekeeper for $8/week plus a promise to will her his home property with all its furnishings and furniture.  After she performs for two years, culminating in a trip in which she drove him from Maryland to Miami, Florida -- and somehow got him to Cuba as well -- Mr. Michael abruptly decides to end the contractual relationship by having her arrested for trespass when his attempts to get her to leave the property were unavailing.  There can be no doubt that Mr. Michael was satisfied with Ms. Fitzpatrick's performance until that point because, in my favorite fact from the case, he took out a newspaper advertisement to announce their happy return to "their home" after a vacation in Florida during which Ms. Fitzpatrick had driven the entire 4,400 miles "without the least mishap either with motor or tires."

Ms. Fitzpatrick sued for specific performance of the contract and relied on her part performance in order to get around the Statute of Frauds.  The court first announced that "[t]here can be no possible doubt that upon these facts the plaintiff should be entitled to some relief against the defendant."  Unfortunately, the only remedy that the court thought was available was to compel the defendant "to accept the personal services of an employee against his wish and his will."  The court found itself without authority to order people to live together when one of them did not wish to do so.

This case made me wonder why American courts are so shy of positive injunctions,  Clearly, if the court had ordered Michael to specifically perform he would have settled with Ms. Fitzpatrick.  So, here is how I would revise the opinion, were I to address Mr. Michael in verse:

Fitzpatrick v. Michael

I now pronounce you and Marie
To be bound by this solemn decree:
She will be your nurse,
'Til you leave in a hearse;
You owe that to your promisee.

Tune in next week for a Limerick on Brackenbury v. Hodgkin, which illustrates why a court might indeed have good reason to be wary of positive injunctions.

[Jeremy Telman]

September 29, 2009 in Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, September 14, 2009

Limerick of the Week: Leonard v. Pepsico, Inc.

Harrier As most readers of this blog likely know, John Leonard saw a Pepsi commercial and then attempted to accept what he took to be Pepsi's offer of a Harrier Jet.  The commercial seemed to indicate that one could get a Harrier in exchange for 7,000,000 Pepsi Points.  Relying on the Pepsi Stuff catalogue, Leonard learned that he could turn in 15 Pepsi Points and provide the remaining consideration in cash, so he attempted to accept Pepsi's purported offer with 15 Pepsi Points and just over $700,000 in cash.

Judge Kimba Wood found that the ad was not an offer, distinguishing it from the advertisments discussed in the last two Limericks cases, Lefkowitz and Izadi.  The ad, said Judge Wood, was not an offer, largely because the Harrier Jet was not included in the Pepsi Stuff Catalogue that provides further information about the Pepsi Points program. Moreover, Judge Wood added, the ad was a joke, and anybody who didn't recognize it as such was simply past help.  Explaining why a joke is funny defeats the purpose of jokes, Judge Wood opined. 

At least some of my students agreed.  They felt that, while both Lefkowitz and Izadi were taken in by intentionally misleading advertisements, Leonard must have known that the Harrier commercial was just supposed to be absurd.  Among other things, my students pointed out that Pepsico was unlikely to have access to a piece of military hardware like the Harrier.  They also deemed it unlikely that the high school kid featured in the commercial would have been able to get a license to fly a Harrier in any case.  

They are probably right, and yet, as far as we can tell, Lefkowitz was the only person to come forward to complain about having been mislead by the Great Minneapolis Surplus Store's ad.  Izadi seems to have been the only one who tried to trade in a matchbox car in order to get $3000 off a new Ford truck.  But Leonard was not alone.  He did not just happen to have $700,000 lying around; he raised the money necessary to accept Pepsi's "offer" by finding interested investors who thought his interpretation of the commercial as an offer had merit.

Interestingly enough, Pepsi released a second version of the commercial.  It contains only one change.  Now the "offer" requires 700,000,000 Pepsi points for a Harrier jet.  There is also a third version, which ads the additional verbiage: "Just kidding."  Apparently Pepsi's non-offer was not as clearly not an offer as it could have been.

Leonard v. Pepsico

Intent to be bound was a barrier
To Leonard's acquiring a Harrier.
Now he only drinks Coke,
And he gets every joke
But I would not say he's much merrier.

[Jeremy Telman]

September 14, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, September 7, 2009

Contracts Limerick of the Week: Izadi v. Machado (Gus) Ford, Inc.

Pinto As I mentioned in introducing last week’s Limerick, although Lefkowitz and Izadi cover much the same ground, I think they go well together.  In fact, I also have the students read Leonard v. Pepsico., Inc., which is always good for a laugh.

My students raised some interesting issues with respect to Lefkowitz.  As you may or may not recall, Lefkowitz is about a guy who responds to an ad advertising various fur coats and stoles for sale on a first-come-first-served basis for $1.  When Lefkowitz shows up and tries to buy a fur, the store owners say that they have a policy against selling to men.  Lefkowitz tries the trick again two weeks later and gets the same response.  He sues, claiming breach of a contract for sale. The court sides with Lefkowitz, construing the ad as an unambiguous offer.

We had a really interesting discussion of damages this time around.  The court gave Lefkowitz his expectation damages for the second failed attempt at purchase, which was for a stole valued at $139.  The court refused to grant him damages for his first failed attempt because the ad was ambiguous as to the value of the coats: “worth to $100.”   We explored whether Lefkowitz’s attorneys could not have elicited deposition testimony or gotten some appraisal of the coats.  Perhaps if they failed to do so, that’s their fault and Lefkowitz was properly precluded.

But some of my students wondered whether Lefkowitz should be entitled to collect for his second attempt at purchase.  After all, it seems likely that he was unaware of the store policy against selling women’s coats to men when he first showed up in the Great Minneapolis Surplus Store.  But the second time he came, he knew that the ad in question was not an offer directed at him.  Why grant him recovery?   It seems like the court split the baby, but they gave Lefkowitz the wrong half.  Eww; that’s a hideous metaphor, but you get the point.

Pacer I am somewhat sympathetic to Lefkowitz.  I don’t know about Izadi.  Izadi claims to have construed Machado Ford’s ad as meaning that he could get $3000 off a new Ford car or truck if he traded in “any vehicle.”  He showed up with a vehicle which the court acknowledged was likely worth far less than $3000.  Was it a tricycle?   That’s a vehicle.  I feel for Machado Ford, because they were arguing before a highly unsympathetic Judge Alan R. Schwartz.  I’ve had that experience and it was not pleasant.

Judge Schwartz got himself in a lather about what he took to be an intentionally misleading advertisement.   In order to establish that the advertisement was misleading, one might try to learn how many people were actually mislead.  As far as I can tell, only Izadi claimed to have been taken in by the ad -- after all, the case is not a class action -- and I suspect that Izadi was not mislead at all but in fact was opportunistic in his reading of the ad.  

But here’s the rub: Judge Schwartz offers two justifications for ruling against Machado Ford.  First, he reads the ad as an unambiguous offer.  That’s a bit hard to swallow.  The ad is confusing, but that argues for rather than against ambiguity.  The second justification is that people ought not to be allowed to take advantage of consumers with intentionally misleading ads.  I certainly agree with that, but Judge Schwartz is able to find no Florida authority establishing that rule as a matter of contract law.  

I thus use this case to introduce my students to the problems of institutional competence and judge-made law.  In order to do so, I edit out the case which indicates that defendant could also be liable under relevant Florida consumer protection statutes. 

As Judge Schwartz notes, other states have adopted the rule of contracts law that “a binding offer may be implied from the very fact that deliberately misleading advertising intentionally leads the reader to the conclusion that one exists,” but Florida courts had not recognized that rule.  Why not leave it to the legislature to do so, I ask my students.  This can lead to an interesting discussion of why judges often feel that they have to make or adopt legal rules on the fly rather than wait for the slugs in the legislature to act.

Well, this post is already too long.  I’ll have to compose a Limerick for Leonard so that I can explain where that case fits in next week.

Izadi v. Machado (Gus) Ford, Inc.. 

Want to make a used-car dealer weep?
Try to trade in your rusting junk-heap,
Then pretend that your mad
On account of his ad
And seek justice not blind but asleep.

[Jeremy Telman]

September 7, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, August 31, 2009

Contracts Limerick of the Week: Lefkowitz

Lefkowitz Coat I am teaching Lefkowitz v. Great Minneapolis Surplus Store for the first time this year.  I don't know why this case has fallen out of the casebooks; I really like it.  I also teach Izadi v. Machado Ford, Inc. (about which more in next week's Limerick), and I like that case too, but I think they will teach well together because I think Lefkowitz is pretty clearly rightly decided, while I have my doubts about Izadi.

The reason I like Lefkowitz is that it provides lots of opportunities to talk about what constitutes an offer, as well as the sub-topic of when an ad can qualify as an offer.  It also provides an opportunity to talk about the need for damages to be calculable with reasonable certainty.  As I mentioned in an earlier post, I do not start with damages, but I try to bring them into the conversation wherever possible, since as my colleague Alan White stresses, ultimately, contracts cases are about getting some recovery for your clients.  The casebook that we both use, Law in Action, appropriately stresses that the storybook contract with an easily identifiable offer followed by a clear acceptance does not capture the much more tohu vavohu world of actual commercial interactions.  I do not quarrel with that principle, but I still think you've got to be able to swim before you can synchronized swim.  So I start with the basics, even if they may be Platonic forms.

In any case, to celebrate the return of Lefkowitz to my syllabus, I have composed a new Limerick, which I acknowledge does not do the case justice.  By the way, after I introduced my new students to the Limerick approach to contracts pedagogy, one of them asked how much time I spend composing them -- as if he could think of better uses for my time!  Well, in this case, the answer is about 20 minutes.  Next week's Limerick was more of an epiphany; it only took me ten minutes.

Lefkowitz v. Great Minneapolis Surplus Store

Mo Lefkowitz made his career
Finding ads explicit and clear.
He's the first to the store;
Now he's got furs galore,
And the price that he pays isn't dear.

[Jeremy Telman]

August 31, 2009 in Famous Cases, Limericks, Teaching | Permalink | TrackBack (0)

Tuesday, April 21, 2009

Business Associations Limerick of the Week: Paramount Communications v. QVC Network, Inc.

Paramount v. QVC is a lot like Paramount v. Time, and the decisions are entirely consistent: Paramount always loses.  Beyond that, it is hard to say what principles are operative here.  In this case, Paramount was trying to protect a friendly merger with Viacom and fend off a hostile offer from QVC.  Viacom and Paramount agreed to the usual array of defensive measures and treated QVC disdainfully.  Sounds a lot of like the way Time treated Paramount.  

This time, however, the Delaware Supreme Court enjoined the key defensive measures.  Because Viacom's chief, Sumner Redstone, was a controlling shareholder and would be so in the newly combined entity, this transaction contemplated a change in control, an element missing from the proposed Time/Warner merger.  This difference necessitated the imposition of Revlon duties, so Paramount could not engage in defensive measures that shut down an active bidding process.
Paramount v. QVC

The Court invokes the old adage;
We expect that managers manage.
But Boards must patrol:
Where there's loss of control,
Shareholders must win some advantage.

[Jeremy Telman]

April 21, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 14, 2009

Business Associations Limerick of the Week: Paramount Communications v. Time, Inc.

This case is again very complicated and involves a full panoply of defensive measures.  You might think that just a few years after its Revlon decision, the Delaware Supreme Court would be eager to apply that decision to another case in which management arguably shut down an auction of a firm that was clearly not going to continue to exist in its prior form.  But the court believed that Time's management acted within its powers in fending off Paramount's tender offer and locking up with Warner Brothers in order to preserve Time's corproate culture and preserve the entity for future long-term payoffs. 

Paramount Communications v. Time, Inc.

Time's lock-up and no-shop don't trigger
Revlon's protections -- go figger!
A Paramount vulture
Threatened Time's culture
And justified defensive vigor. 

[Jeremy Telman]

April 14, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 7, 2009

Business Associations Limerick of the Week: Revlon v. MacAndrews & Forbes

Ron Perelman, cigar-chomping CEO of Pantry Pride, wanted to acquire Revlon.  Revlon's CEO, Michel Bergerac, did everything in his power to prevent the acquisition.  The case is a great vehicle for teaching defensive measures, because Revlon's efforts to escape Perelmans' grasp were extensive: we've got a poison pill, a stock buy-back, a white knight, and a lock-up involving a no-shop provision, a cancellation fee and a crown jewel transaction. After several rounds of bidding, Revlon locked up with Forstmann Little.  The latter would acquire the company. The security of the deal was enhanced through the no-shop provision, a hefty cancellation fee and an option to purchase Revlon's key divisions (the "crown jewels") at a discount.  

Pantry Pride sought to enjoin the transaction.  The Delaware Supreme Court found that, when management has determined that the corporation is going to be sold, its duty is to maximize the sales price.  Fiduciary duties to other stakeholders must now be subordinated the duty of getting shareholders the greatest possible bang for their buck.  The court thus adds a heightened level of scrutiny in the context of defensive measures.  Just months before Revlon, the court had decided Unocal, in which it permitted an exclusive self-tender to fend off a (two-tiered, front-loaded and potentially coercive) tender offer from T. Boone Pickens.  There, the court determined that Pickens' offer was a threat to the corporation and that management had taken reasonable and proportional measures to counteract the threat.

Here, however, because Revlon was now up for sale and the lock-up with Forstmann precluded further bids that could have benefitted shareholders, there was a fiduciary breach and the transaction was enjoined.

Revlon v. MacAndrews & Forbes

If you put your firm up for sale
And entice a White Knight with a grail,
Lock-ups are out.
In this heavyweight bout,
Shareholder rights must prevail.

[Jeremy Telman]

April 7, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, March 30, 2009

Business Associations Limerick of the Week: Cheff v. Mathes

Muffler Cheff has great facts, although the facts do not really affect the opinion.  Holland Furnace, it turns out, was a thoroughly corrupt business that was also losing money.  Its means of selling furnaces was to send a crew over to people's houses to "inspect" the furnaces.  The inspectors would often find (or perhaps create) problems and then sell the unsuspecting homeowner a new furnace.  Arnold Maremont, who owned a muffler business (and a lot of modernist art), took an interest in taking over Holland furnace and started buying up shares.

Maremont had a reputation for buying corporations and then liquidating them.  The principals of Holland feared he would do the same to them or at least streamline their business model by selling furnaces the way he sold mufflers -- through retailers -- thus eliminating much of Holland's workforce.  Incumbent Holland management decided to use corporate funds to buy back Holland's stock from Maremont, a defensive measure known as greenmail.  Dissatisfied shareholders filed a derivative action, claiming the payments were improper because motivated by a desire to maintain control of the corporation rather than by the best interests of its shareholders.  

The trial court bought this argument, but its finding was reversed on appeal.  Although the trial court applied the right standard, management's conduct in this case was justified, in the court's view, by the real threat to the corporation's well-being posed by the prospect of Maremont's takeover.  The court deferred to Holland's management's business judgment as to the long-term best interests of the firm.  The deference was misplaced in this instance, because the fraudulent scheme described was discovered, leading to the demise of Holland Furnace.  

Cheff v. Mathes

Cheff, who controlled Holland Furnace,
Said, "Pay Maremont greenmail to spurn us."
The court was not peeved
Because Cheff believed
"That Maremont will buy us and churn us."

[Jeremy Telman]

March 30, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 24, 2009

Business Associations Limerick of the Week: Stuparich v. Harbor Furniture

Trailer This is a case about a family-owned close corporation.   The father, Malcolm, Sr. gave a controlling share to his son, Malcolm, Jr., leaving two sisters, Candi and Ann, as minority shareholders.  The siblings disagreed about the direction of the business.  The main business, which involved furniture was stagnating, so the sisters wanted to expand the family's side business in trailer parks. 

But Malcolm had a controlling interest, and while the sisters had the ability to voice their opinions, Malcolm never paid them any heed, and he ran the business according to his own lights.  One of the disputes allegedly involved Malcolm hitting one of the sisters, but the court did not give any weight to that fact. 

The sisters claimed that they were being improperly frozen out and deprived of the benefits of ownership, so they sought a court-ordered dissolution of the company.  The court sided with Malcolm.  The sisters still got their dividends, so their ownership interest in the company was not frustrated.

Stuparich v. Harbor Furniture

Two sisters, Candi and Ann,
Preferred trailers to chairs of rattan.
Dividends they receive
And so they must leave
It to Malcolm the business to plan.

[Jeremy Telman]

March 24, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 17, 2009

Business Associations Limerick of the Week: Pedro v. Pedro

Pedros Pedros was a family business run by three brothers.  Alfred discovered that his brothers, Carl and Eugene were embezzling from the business, and he wouldn't shut up about it.  After two investigations, some funds could not be accounted for.  Carl and Eugene repeatedly warned Alfred to move on, but he refused.  Eventually, they were forced to tell employees that poor Alfred had suffered a nervous breakdown and would no longer be able to work.  I mean really -- what choice did they have?  He was also frozen out of the decision-making process and otherwise deprived of the benefits of his ownership share in the corporation. 

They court found that Carl and Eugene had violated their fiduciary duties to Alfred and ordered damages, including his reasonable expectation of lifetime employment, without any requriement that Alfred show that his brothers' misconduct caused actual harm to the corporation,

Pedro v. Pedro

Alred loved Carl and Eugene,
Though they thought him off his bean.
Their breaches frenetic
Made judges splenetic
So they paid for their freeze-out routine.

[Jeremy Telman]

March 17, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 10, 2009

Business Associations Limerick of the Week: Wilkes v. Springside Nursing Home, Inc.

I am heading off for a conference this week and am behind in preparations, so this will be a short post and probably the last for the week from me.

Wilkes sets out the standard for fiduciaries in the context of a close corporation in Massachusetts. In doing so, it departs from an earlier Massachusetts precedent, Donahue v. Rodd Electrotype. While Donahue treated close corporations like partnerships and thus treated shareholders with all the rigor demanded by Cardozo's punctilio, Wilkes held that standard too demanding. Rather, when challenged by a minority shareholder, the remaining shareholders must show that their actions were inspired by a legitimate business purpose and that the actions taken were narrowly tailored to minimize the harm to the minority shareholder. In short, the court recognized the legitimacy of shareholders looking out for their "selfish ownership interest" in the company.

In this case, the defendants breached their fiduciary duty to Wilkes by freezing him out and depriving him of the benefits of his status as a shareholder

Wilkes v. Springside Nursing Home, Inc.

A freeze may be allowed
Where a proper purpose 's avowed.
But minority rights
May be extinguished like lights
'Neath a selfish ownership shroud.

[Jeremy Telman]

March 10, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 3, 2009

Business Associations Limerick of the Week: Galler v. Galler

Like the case memorialized in last week's Limerick, this is a case about the enforceability of a shareholders' agreement. Like Owen v. Cohen, this case offers the opportunity to develop the Catskills shtick theme in the Limericks for Lawyers.

The Galler brothers, Benjamin and Isadore (Izzy to me) each owned 47.3% shares in a wholesale drug business. They entered into a shareholders' agreement in 1955 that would guarantee each family two seats on the corporation's four-member board, even if one of the brothers died. It also provided for dividends and a death benefit to the widow of either brother. Ben had a heart attack while the agreement was being negotiated. When he died two years later, Isadore and his son Aaron refused to honor the agreement. In a close corporation in which minority shareholders excluded from the agreement do not object, the test for the enforceability of such agreements is simple reasonableness.

The court found the agreement in question here reasonable in terms of the amount to be paid, the terms for payment (contingent upon a specified earned surplus), and duration. The last of these factors is interesting in this case. The agreement provided that it was to last for the lifetimes of the Galler brothers and their wives. The court's rendition of the facts of the case suggests that Ben's widow, Emma, was a generation younger than he was. Perhaps the in-laws weren't crazy about Ben's taste in women. Perhaps Emma was a second wife, viewed as an interloper or a gold-digger.

It is interesting to explore with students why the business's minority shareholder (a long-time employee of the firm) raised no objections to the agreement.

The following Limerick issues from beyond the grave, from Izzy and Ben's yiddische mama.

Galler v. Galler

Is Emma an utter schllemiel?
Izzy, hear this appeal!
She who life to you gave,
Oy! She'll turn in her grave!
Abide by the '55 deal!

[Jeremy Telman]

March 3, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 25, 2009

Business Associations Limerick of the Week: Ringling Bros.


The Ringling Brothers are pictured at right. Together, they created a successful business enterprise. But when they passed the circus on their heirs, things got a bit messy. So messy, in fact, that I no longer teach this case, as the facts are too complicated and the situation too idiosyncratic to justify the time one has to spend on the case in order the earn the meager reward it offers in terms of useful law. Still, it is at least about the breach of a contract, in this case a shareholders agreement, and that makes it a legit case to discuss on this blog. And the facts of the case certainly render it Limerickworthy. 

Much of the background behind the case is nicely explored in J. Mark Ramseyer's article, which can be found on SSRN here. The short version is as follows. John Ringling, one of the original five brothers (he's the one with the mustache!), controlled the circus until his death in 1936. At that point, control passed to three Ringling factions: John's wife Edith, and her son Robert; Aubrey and James Haley; and Ida Ringling North (a sister to the original five) and her sons John Ringling North and Henry North. John Ringling North was the most industrious of the new generation and he actually knew how to run a business. He was the impressario who engaged Igor Stravinsky and George Balanchine to create a ballet for elephants. John North ran the circus ably until 1943 when the Haleys entered into a vote pooling agreement with Edith and Robert Ringling and thus were able to seize control of the board. They did so, Ramseyer tells us, in order to assure that the circus would continue during World War II. 

This was an unwise decision. John North had decided to shut down the circus for the remainder of the war because of the scarcity of fireproof materials for the tents under which the circus performed. But Robert Ringling and the Haleys were willing to take the risk. The result was the tragic Hartford Fire on July 6, 1944, in which 168 people were killed. Ramseyer reports that the fire was either caused by: a mentally handicapped arsonist employed by the circus; a "dirty son-of-a-b----" in the bleachers who threw a cigarette butt; or a monkey jumping around the upper poritions of the tent with a lit cigar. So much for the value of eyewitness testimony. In any case, the circus ended up paying nearly $4 million to settle civil suits, and James Haley was sentenced to a year in jail for involuntary manslaughter. 

Perhaps out of fellow feeling or perhaps out of business savvy, John North made friendly overtures towards his convicted business partner. Robert Ringling, on the other hand, who was himself lucky to have escaped a prison sentence, stayed away. As a result, when Haley got out of jail, he and Aubrey refused to cast their shareholder votes as previously agreed per their shareholder agreement with Edith and Robert Ringling. Aubrey and John North hatched a plan to return control of the circus to John North, while also allowing James Haley the opportunity to benefit from a position as an officer in the corporation.  

The issue before the court then was whether the Haleys had violated their shareholder agreement by refusing to abide by the ruling of the arbitrator appointed under the agreement, one Mr. Loos, and by refusing to cast their votes as Mr. Loos determined they should. The Delaware Supreme Court found that the Haleys were in breach of the agreement but that Mr. Loos had no power to enforce it. It therefore determined that the Haleys' improper votes simply would not count. The result was that the Haleys were simply left without representation on the newly-elected board, but that board was now evenly split between representatives of the North faction and representatives of the Ringling faction, a recipe for deadlock. 

This Limerick addresses the question of what role the Haleys were to have in the new administration of the circus. 

Ringling Bros. v. Ringling

After the Great Hartford Fire,
Aubrey and John did conspire.
The corporation is close;
Aubrey's misconduct, gross
Now the Haleys perform on high wire.

[Jeremy Telman]

February 25, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 17, 2009

Business Associations Limerick of the Week: Pilsbury v. Honeywell, Inc.

VietnamdemWith last week's Limerick, we covered a case that teaches us that a shareholder has a right to inspect a corporation's books and records, including shareholder lists, in the context of a tender offer. State laws, including Section 220 of Delaware's General Corporation Law, provide that a shareholder has inspection rights subject only to the requirement that the shareholder show that she seeks inspection for purposes related to the business of the firm.

In Pilsbury, plaintiff was a member of Project Honeywell, an antiwar group that was trying to get the corporation to stop producing fragmentation bombs for use during the Vietnam War. Pilsbury bought shares in Honeywell so that he could lobby its shareholders on the subject of fragmentation bombs. He said in deposition that his only reason for investing in the company was to call attention to Honeywell's fragmentation bomb production. The court found that his purpose in seeking inspection related to his political views and not to the firm's business. Accordingly, he was denied the right to inspect under Delaware law.

So now, savvy politically-motivated investors know that they have to say in their depositions that they love the corporations that they are seeking to expose, and believe that manufacturing savage weapons is bad for business.

Pilsbury v. Honeywell, Inc.

Pilsbury protests Vietnam
Honeywell could not give a damn.
If he'd only lied,
He'd have not been denied!
Is Section 220 a sham?!?

[Jeremy Telman]

February 17, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 10, 2009

Business Associations Limerick of the Week: Crane v. Anaconda

Anaconda At left, we have an anaconda.  At right, we have a crane.Crane

Alright.  I can imagine an anaconda swallowing a crane.  But here we have a case about a crane trying to swallow an anaconda.  And that, I find, well . . .  hard to swallow. 

Crane Co. attempted to purchase Anaconda Co. in a tender offer and asked for Anaconda's shareholder list to facilitate its offer.  Anaconda refused on the ground that the request was unrelated to the business of the firm, since corproate control is not a part of the firm's business.  The court rejected that argument as about as farfetched as the idea of a bird consuming a serpent.

Crane Co. v. Anacondan Co.

The very idea's insane!
A serpent consuemd by a crane?!?
Crane may inspect
As it aims to effect
A change in the corproate domain.

[Jeremy Telman]

February 10, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 3, 2009

Business Associations Limerick of the Week: Austin v. Consolidated Edison

Like Lovenheim, Austin is a case in which a corporation refused to distribute a shareholder proposal in advance of an annual shareholder meeting. Consolidated Edison's labor union proposed new rules that would provide employees with more generous pension benefits. In this case, the basis for management's refusal to distribute the proposal was its claim that the proposal was excludable under SEC Rule 14a-8(i)(7) because it related to ordinary business operations. The court stated that the proposal, while audacious, was still mundane and thus was best addressed through the collective bargaining process rather than through a shareholder vote.

Austin v. Consolidated Edison Co.

Finding the audacious mundane,
The court would not entertain
Plaintiffs' inventions
Relating to pensions,
And dismissed the suit as inane.

[Jeremy Telman]

February 3, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, January 26, 2009

Business Associations Limerick of the Week: Lovenheim v. Iroquois Brands

Goose This case always generates a lively discussion. It addresses the limitations on a corporation's obligations to distribute proposals of ordinary shareholders along with proxy materials in advance of a shareholder meeting. In this case, Lovenheim, the shareholder, proposed that the corporation investigate the processes by which its suppliers of pâté de fois gras produced their product. Lovenheim was concerned for the well-being of French waterfowl and wanted to make certain that they lived happy lives before they were slaughtered so that American gourmands could gorge themselves on their distended livers.

PateSEC Rule 14a-8(i)(5) permits a corporation to refuse to distribute a shareholder proposal if it relates to operations that account for less than 5% of the firm's assets earnings or sales or it not otherwise significantly related to the firm's business. Pâté actually accounted for a tiny portion of the firm's business -- well below the 5% threshold -- so the only question was whether it was otherwise significantly related to the firm's business. The court held that the phrase "significantly related" is not limited to economic significance. A policy issue may also be raised through a shareholder proposal. So, the question becomes: is force-feeding of geese and ducks a sufficiently significant policy issue that a corporation must be required to circulate a proposal relating to that issue as part of its proxy materials? The court, citing regulations intended to prevent cruelty to animals dating back to colonial times, found that it is.

Lovenheim v. Iroquois Brands, Ltd.

Does Iroquois have to police
Whether pâté requires force-fed geese
Yes, western culture protects
Fish, beasts and insects.
The proposal is no mere caprice.

[Jeremy Telman]

January 26, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, January 19, 2009

Business Associations Limerick of the Week: Rosenfeld v. Fairchild Engine

The issue in Rosenfeld is whether a corporation must pay for expenses incurred in connection with a proxy fight when the insurgent group wins the proxy fight and gains control of the leadership positions in the corporation. The general rule is that the corporation pays the expenses of the incumbent leadership so long as those expenses are reasonable and the proxy fight relates to issues not to personalities (a meaningless distinction, in my view). Rosenfeld establishes that victorious insurgents are also entitled to reimbursement of reasonable expenses on the same conditions, if the shareholders approve. Board approval is a given, since the insurgents now control the Board and will certainly vote to reimburse themselves.

In this case, the dissent pointed out that neither part of the test for reimbursement was really satisfied in this proxy fight. The key issue in the proxy fight was a generous employment contract that the incumbent board approved for a former officer. That seems like a clash of personalities rather than a substantive difference. In addition, many of the expenses were incurred in wining and dining key shareholders. That may stretch the bounds of reasonable reimbursement. The latter topic makes for interesting class discussions. How far should management go to win the votes of key shareholders? Can the company's private jet be used to fly key players to corporate headquarters? How much should be spent on food? On entertainment? And what kind of entertainment is appropriate?

Rosenfeld v. Fairchild Engine and Airplane Corp.

Should a contest for proxies arise
Over insider deals in disguise,
Shareholders may pay
For both sides in the fray
If the shareholders deem payment wise.

[Jeremy Telman]

January 19, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)