Monday, July 8, 2019
In a letter to JPMorgan Chase & Co.’s CEO, Presidential hopeful Elizabeth Warren asked the bank to stop “exploiting its customers” by using what the bank considers the “standard practice” of asking its customers to arbitrate potential claims against it. Chase’s customers can, however, opt out of mandatory arbitration by mailing written rejection notices by Aug. 9, 2019.
Arbitration is, of course, easier for banks and other defendants than having to face a multitude of individual lawsuits. The concern for smaller plaintiff such as private bank customers is that arbitration is not as neutral as a lawsuit as arbitrators are hired privately by, for example, the banks. Arbitrators may thus be unduly biased in favor of the banks and more business savvy than bank customers, who might obtain greater protections from hiring an attorney and going to court. The exploitation part comes in when defendants arguably seek to "sneak" arbitration onto unsuspecting, unsavvy bank customers who are not aware of all the pros and cons of various types of dispute resolution.
Wednesday, May 22, 2019
Salmonella-infected raw chicken meat is not “defective” under Maine law. Anyone selling such meat also do not violate the implied warranties of merchantability or fitness for a particular purpose. This is so even if tons of meat have been recalled by a manufacturer precisely because of a salmonella outbreak affecting the meat. Such held the United States Court of Appeals for the Tenth Circuit recently.
The result may seem both incredibly gross and grotesque, but in a strange way, makes sense. In the case, a raw food manufacturer sold almost 2 million pounds of raw meat to a food processor preparing chicken products such as frozen chicken cordon bleu products. The manufacturer recalled the meat, causing losses to the processor in excess of $10 million. The processor filed suit for breach of contract. Both the trial and appellate courts held that the processor had failed to state a claim under F.R.C.P. 12(b)(6).
Why? Because salmonella is an “inherent, unavoidable, and recognized component of raw chicken that is eliminated by proper cooking methods.” Even though the recall admitted that the recall was adulterated with salmonella, the complaint did not allege that the chicken was contaminated with a form of salmonella that could notbe eliminated by proper cooking. The sick consumers could have contracted the infections from merely touching the raw meat.
This shows the relatively low level of sanitary integrity that can be expected in today’s meat market. Bon Appetit!
The case is Scarlett v. Air Methods Corporation, 2019 WL 1828908
Tuesday, May 7, 2019
As some readers of this blog may be aware, the American Law Institute will be voting on whether to approve the Restatement of Consumer Contracts at its upcoming Annual Meeting on May 21. The proposed Restatement is controversial for several reasons and was the subject of a recent Yale Journal on Regulation symposium. Concerns have been raised by contractsprofs Gregory Klass, Adam Levitin and others (including yours truly) regarding the Reporters' methodology and interpretation of case law. Of particular note, is this post written by the preeminent contracts law scholar Melvin Eisenberg. As Prof. Eisenberg points out, the doctrinal problems are glaring, harmful to consumers, and will make it even harder to explain contract law to 1Ls.
In addition to the doctrinal inconsistencies, the proposed Restatement ignores the problems created by form and digitization and does nothing to address the problems created by ubiquitous digital contracts. As Colin Marks's study showed, retailers often have different and more onerous terms for online purchases than when customers make those same purchases in-store.
The law is still developing when it comes to digital contracts and there are signs that courts in some jurisdictions, such as California, are inclined to move the law in a more consumer-friendly direction. This Restatement would impede that evolution. Furthermore, this proposed Restatement would create a different set of rules when the contract is between two businesses and between a business and a consumer. The result in some cases is that the Restatement would subject a consumer to more stringent contract terms than a business would be subjected to under common law. While this might seem like good news for businesses, it actually is not. In many cases, due to the problem of “contract creep” which Ethan Leib and Tal Kastner discuss in their forthcoming Georgetown Law Journal article, courts are likely to end up applying the law of “consumer contracts” to all contracts, including those between businesses. The result? The proposed Restatement of Consumer Contracts would harm both consumers and businesses. Instead of helping courts make sense of the evolving law, it would cement law that is incoherent and inconsistent. Contractsprofs should be particularly concerned because it will make contract law that much more difficult to explain to 1Ls. The ALI plans to vote on the proposed Restatement of Consumer Contracts on May 21. All readers of this blog who are members are encouraged to attend and provide input.
Sunday, November 11, 2018
In a recent case, employment agency Robert Half International, Inc. (“Robert Half”) brought suit against a former employee, Nicholas Billingham, and Billingham’s current employer, Beacon Hill Staffing (a competitor of Robert Half) for actual and anticipatory breach of contract. Billingham’s contract with Robert Half included the agreement that Billingham would not compete with or solicit clients from Robert Half if leaving the company. Nonetheless, Billingham accepted employment with Robert Half’s direct competitor where he stated that he intended to “add to my team quickly and take market share from Beacon Hill’s competitors.” Robert Half brought suit. Billingham and Beacon Hill moved to dismiss the complaint for failure to state a claim.
Billingham first defended himself arguing that unilateral contracts cannot be anticipatorily breached since they technically seen do not arise until the actual performance has been rendered. He argued that his contract was unilateral since his remaining obligations were not yet due. (Strangely, he did so although he had already terminated the relationship himself.) The court corrected him on this point, noting that a unilateral contract is one that “occurs when there is only one promisor and the other party accepts, not by mutual promise, but by actual performance or forbearance.” (Quoting Williston § 1:17). To help my students distinguish accepting by beginning of performance in bilateral contracts from offers for unilateral contracts, which is sometimes confusing for them, I tell them that they must scrutinize what type of acceptance is sought by the offeror: if onlythe actual performance, then there is a truly an offer for a unilateral contract. If this is not clearly the case, there is an offer for a “regular” bilateral contract. In this instance, the contract between Billingham and Plaintiff was bilateral, not unilateral. Robert Half promised to employ Billingham in exchange for Billingham's promise to abide by the restrictive covenants in the Agreement. Billingham's promise included the prospectiveagreement that he would refrain from certain activities upon departing the company. Billingham was thus not correct that the agreement “became unilateral” after his resignation. That is a legal impossibility. His obligations to forbear from the non-competitive agreements became due the moment he left Robert Half. As with many other contractual issues, unilaterality and bilaterality are examined at the point of contract formation, not by looking at what actually happened thereafter.
The court thus found that plaintiffs had sufficiently pled a claim of anticipatory, if not actual, breach of contract.
Plaintiffs also stated a claim for unjust enrichment. Defendants argued that Robert Half has not actually “conferred” any benefits on Beacon Hill and would thus not be liable for compensation under that theory. The court noted that this is wrong. Beacon Hill received a “benefit” from Billingham's employment through the revenue that he generates, his professional training, his relationships with customers and candidates, and his industry knowledge. Beacon Hill's retention of these benefits is “unjust” as they are benefits that Billingham is barred, by the agreement, from conferring on Beacon Hill.
The case is Robert Half International Inc. v. Billingham, 317 F.Supp.3d 379, 385 (D.D.C., 2018).
Friday, October 26, 2018
The California anti-SLAPP provisions state that “[a] cause of action against a person arising from any act of that person in furtherance of the person's right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim. An act in furtherance of a person's right of petition or free speech under the United States or California Constitution in connection with a public issue includes ... any written or oral statement or writing made in connection with an issue under consideration or review by a ... judicial body....”
A client alleged that his attorney misrepresented his labor law expertize when negotiating the retention agreement between the two and that the attorney conducted settlement negotiations with the opposing party in order to drive up fees. When the attorney sued his client to collect his fees, the client cross-complained for fraud and breach of contract. The attorney then moved to strike the cross-complaint under the California anti-SLAPP statute, Code of Civil Procedure § 425.16.
The court found that merely because attorneys occur as part of litigation – the client’slitigation – a malpractice claim such as this is not subject to anti-SLAPP. Said the court, “[i]t is the principal thrust or gravamen of the plaintiff's cause of actionthat determines whether the anti-SLAPP statute applies, and when the allegations referring to arguably protected activity are only incidental to a cause of action based essentially on non-protected activity, collateral allusions to protected activity should not subject the cause of action to the anti-SLAPP statute.”
“Although attorney retention negotiations may in a sense be ‘connected’ with judicial proceedings involving the client, they in no way relate to the substance of an issue under review in the proceedings or further the attorney's petition or free speech rights in them. If they did, then every communication between an attorney and a client who is or may become involved in judicial proceedings would constitute an exercise of the attorney's petition and free speech rights, and every lawsuit for malpractice would be required to undergo a second-prong anti-SLAPP analysis. No principle or authority supports such a proposition.
The case is Mostafavi Law Group v. Ershadi, 2018 WL 4690887, (Cal.App. 2 Dist., 2018)
Monday, October 8, 2018
A new Seventh Circuit Court of Appeals case demonstrates the importance of filing suit in a timely manner in order to retain one’s contractual rights. It also shows just how nasty contractual parties may act towards each other in violation of the duty of good faith and fair dealing.
JTE distributed products in Chicago for Bimbo Foods Bakeries Distribution Company (“Bimbo”) for over a decade. The contract had no duration, but stipulated that it could be terminated in cases of non-curable breaches by one of the parties. Bimbo sought to force JTE to forfeit its contractual rights so that Bimbo could start working with a new distributor that would accept a smaller slice of the pie: 18% instead of 20%. But because JTE had performed the contract as required, Bimbo
"began fabricating curable breaches in the spring of 2008 as part of a scheme to force JTE out as its distributor. Bimbo Foods employees filed false reports of poor customer service and out-of-stock products at stores in JTE’s distribution area. Even more egregiously, Bimbo employees would sometimes remove JTE-delivered products from grocery store shelves, photograph the empty shelves as “proof” of a breach, and then return the products to their initial location. On one occasion, in 2008, a distributor caught a Bimbo Foods manager in the act of fabricating a photograph and reported him. Bimbo assured JTE that this misconduct would never happen again. Nevertheless, unbeknownst to JTE, Bimbo Foods continued these scurrilous tactics … When JTE refused to sell its distribution rights in January 2011, Bimbo Foods breached the distribution agreement and unilaterally terminated JTE’s agreement, citing the fabricated breaches as cause. Several months later ... Bimbo Foods forced JTE to sell its rights to new distributors."
JTE filed suit in 2017. Under the Illinois law, the statute of limitations for breaches of common law contracts is ten years whereas under the UCC, it is four years. The question thus became whether the parties had entered a contract for sale of goods. They had. Said the court: “Under the primary-purpose test, the distribution agreement between JTE and Bimbo Foods easily qualifies as a contract for the sale of goods. We have previously pointed out that ‘virtually every jurisdiction that has addressed this issue’ has concluded that dealership and distributorship agreements are predominantly for the sale of goods.” The suit was thus untimely filed.
JTE’s additional claim for tortious interference with contract fared no better as a five-year statute of limitation governed that. The court did, however, comment on the merits of the alleged tort. It found that “a party cannot tortiously interfere with its own contract, nor can it tortiously interfere with any business expectancies created by that contract. As the Illinois courts have noted, ‘[t]o allow such claims to be litigated would invite tort law to absorb contract law.’” Thus, because JTE was one of the parties to the suit, it could not assert that claim even thought it was Bimbo, not JTE, that had acted in a highly unwarranted manner.
None of the parties asserted the duty of good faith and fair dealing under UCC §1-304 which states that “[e]very contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement.” “Good faith” is defined as “honesty in fact and the observance of reasonable commercial standards of fair dealing.” UCC § 1-201.
What Bimbo allegedly did clearly did not meet this standard. However, because the four-year statute of limitations had run, JTE could still not have asserted that argument. The moral of this story is for your clients to monitor the contractual performance by the other party closely and, if anything seems awry, bring this up and resolve the issue as soon as possible.
The case is Heiman v. Bimbo Foods Bakeries Distribution Co., 902 F.3d 714 (7th Cir. 2018).
Wednesday, August 29, 2018
The Journal of Strategic Contracting and Negotiation (JSCAN) is open for submissions! JSCAN, a SAGE publication, is "an outlet for research and theory about practices that challenge the status quo in strategic contracting and negotiations, and the commercial implementation of business strategy or policy." JSCAN is peer-reviewed and welcomes submissions in a wide variety of fields. It may have special appeal to those who write on contract-related topics that have cross-over appeal to those affiliated with business and business schools. (Disclosure: I am on the editorial board). You can find more information here.
Wednesday, July 18, 2018
I blogged about the issue of emergency room and hospital “surprise charges” before, but this important issue is well worth re-addressing in the context of a new case. Many court decisions and articles are still generated about the topic, but with no good solution yet from a patient/consumer point of view.
Here is the classic scenario: A person receives urgent medical care in an emergency room. Upon admission, he or she is presented with a contract stating, for example, that he or she will pay for the services “in accordance with the regular rates and terms” of the hospital or emergency room. But how does one ever know what those charges will be? Does that make them an open price term? If so, is the medical provider under an obligation to pay only the reasonable value of the services provided or can they charge pre-posted list rates? Who decides what is “reasonable” and not in a market marked by, for most of us, very high prices? If the provider charges what appears to be a very high amount, is the entire contract void for unconscionability?
A current case I came across addresses these issues (class certification was granted). The uninsured “self-pay” patient, Mr. Cesar Solorio, signed a three-page admissions contract stating the above. Once released, he got an un-itemized bill for $7,812. He filed suit for breach of contract asking the court to, among other things, clarify how the contractual language “in accordance with the regular rates and terms of [medical center] should be interpreted and applied. Mr. Solorio alleges that the language constitutes an open price term that, under applicable law, is an agreement to pay only the reasonable value of the items received and not the posted rates by the medical center. Solorio also alleges that the medical charges were artificially inflated and more than four times higher than the actual fees and charges collected by the medical center.
I still find these types of contracts highly problematic seen from a consumer/patient point of view. I have myself been subjected to a similar treatment (so to speak) by an emergency room that also, after the fact, sent me a much higher bill than what I was initially “promised” (orally and probably non-binding, but still). Several items were double if not triple billed. Patients can complain and complain, but what can we really do? Not much, it seems, as these types of cases keep re-appearing.
Yes, of course we want urgent medical treatment if we need it. Yes, that is expensive. But clearly, we also have a contractual (and moral) right notto be ripped off. And maybe some services that might initially seem urgent could actually wait… In my own case and, I know, that of many others, medical providers are very eager to promote their treatment as highly necessary and urgent/”a good idea.” That may, I hate to say, simply be a way for the medical providers to make more money.
As it is now, the burden seems to be on the patient seeking services to bargain for and document having received a promise that is limited in scope to … what? Is this just an impossible issue to solve from a contractual point of view? It seems to be. That’s where health insurance comes into play, but reality remains that not everyone has that. The “free market” takes over, but, in my opinion, that is far from optimum in this particular context.
The case is Cesar Solorio v. Fresno Community Hospital and Medical Center, Ca. Super. Ct. NO. 15CECG03165, 2018 WL 3373411.
Tuesday, July 10, 2018
Perhaps unsurprisingly, the Seventh Circuit Court of Appeals has held that a nation state issuing a passport to one of its citizens cannot be sued for breach of contracts or a tort, for that matter.
Chinyere Nwoke sued the a consulate of Nigeria after paying $500 for passports for her and her son that she never received. Arguing breach of contract, the district court dismissed her claim under the Foreign Services Immunity Act. On appeal, Ms. Nwoke invoked the exception for acts “based upon a commercial activity.”
A foreign state is immune for federal jurisdiction for its “sovereign or public acts,” but not its acts that are “private or commercial in nature.” Ms. Nwoke argued that the consulate’s actions were commercial because it was “making a profit from a fraudulent activity” (presumably charging for passports never actually issued). However, courts do not consider a nation state’s motivation in determining whether an activity is sovereign or commercial. Because private persons cannot issue passports, the consulate’s activities were of a sovereign nature and immunity thus applied.
This case makes sense, but is of course nonetheless unfortunate for Ms. Nwoke, whose only channel of complaint now seems to be to the government of Nigeria; a case of complaining to the very wrongdoer that oversaw the wrong. Government corruption remains a serious issue around the world.
The case is Nwoke v. Consulate of Nigeria, 2018 WL 3216888
Thursday, July 5, 2018
A recent Indiana case demonstrates the continued necessity of distinguishing between the common law and the UCC. Nothing too new in the case legally as I see it, but it lends itself well to classroom use.
A medical center entered into two contracts with a medical billing services company for records-management software and related services. In Indiana and elsewhere, “where a contract involves the purchase of preexisting, standardized software, courts treat it as a contract for the sale of goods governed by the UCC. However, to determine whether the UCC applies to a mixed contract for both goods and services, Indiana uses the “predominant thrust test.” Courts ask whether the predominant thrust of the transaction is the performance of services with goods incidentally involved or the sale of goods with services incidentally involved. Id. To determine whether services or goods predominate, the test considers (1) the language of the contract; (2) the circumstances of the parties and the primary reason they entered into the contract; and (3) the relative costs of the goods and services.
In the case, the contractual language was neutral. Next, the primary reason for executing the agreements was to obtain billing services. The software was merely a conduit to transfer claims data to the billing services company in order to allow it to perform those services. The goods – the software – were incidental. The third and final factor—the relative cost of the goods and services—also pointed toward that conclusion. As the Indiana Supreme Court has explained, “[i]f the cost of the goods is but a small portion of the overall contract price, such fact would increase the likelihood that the services portion predominates.” Under the agreement, the medical center paid a one-time licensing fee of $8,000 for software; a one-time training fee of $2,000; and $224.95 each month for services and support for about nine years. Thus, for the life of the Practice Manager agreement, the services totaled approximately $26,294—more than three times the $8,000 licensing fee for the software. Under the agreement, the medical center also paid a one-time licensing fee of $23,275 for the software; a one-time training fee of $4,000; and $284 per month for services and support for about six years. Thus, the services totaled about $24,448—slightly more than the $23,275 software licensing fee. The relative-cost factor reinforces the conclusion that services predominated. Thus, the ten-year common-law statute of limitations and not the four years under the UCC applied.
Interestingly, the case also shows that because the UCC did not apply, plaintiff’s claim for good faith performance under the UCC dropped out too. In Indiana, a common-law duty of good faith and fair dealing arises “only in limited circumstances, such as when a fiduciary relationship exists,” which was not the case here. The parties were thus not under a duty to conduct their business in good faith. Yikes! This should allow for some good classroom discussions.
Friday, June 15, 2018
New scientific studies have proven what we might all have been jokingly saying, but which apparently is true: the world population is increasing, but IQ levels are decreasing. The reason? Nurture, not nature.
The studies claim that after 1975, IQ levels started to drop because of, it is thought, "environmental factors." These could include pollution, changes in the education system and media environment, nutrition, reading less, and being online more. Yikes.
"It's not that dumb people are having more kids than smart people, to put it crudely. It's something to do with the environment, because we're seeing the same differences within families," said one of the co-authors and lead researchers on the project.
For us, this is not good news for obvious reasons. But are we, in fact, a contributing cause? I know that some of my students, for example, do not enjoy and sometimes simply will not read long homework assignments, don't read privately, and indeed spend large amounts of time online. I'm sure your students are not very unlike mine in that respect. Other studies that I don't have handy here also demonstrate that our students have difficulty reading longer texts simply because they are not used to reading anything much longer than blog posts, twitter feeds, and maybe the occasional article here and there, but certainly not books.
Read the entire findings. References to "changes in the education system" and "decreasing access to education" are disturbing.
Friday, May 25, 2018
Wednesday, October 25, 2017
Here is your classic Parol Evidence Rule and oral contracts case, diamonds, faulty translations, millions of dollars, and all.
In 2009, David Daniel invested $3.35 in a 50% ownership interest in the jewelry and coin business Continental Coin, thus co-owning it with Nissim Edri. The partnership agreement was oral only. In 2014, Daniel sought to sell his interest. Edri agreed to pay half of the initial contribution as well as some other amounts for a total of $4.2 million. Edri could not pay this amount and thus suggested Daniel taking approx.. 95 diamonds from the inventory instead. This time, the parties did get a writing that, however, was in Hebrew.
The problem with that was that Edri could not understand the first two pages and subsequently did not agree with the poorly translated version of the contract. This stated, among other things (my emphasis):
“We the undersigned, David Daniel and Nissim Edri, hereby declare, in full faith, that the merchandise to be collected today, Friday, 2/21/2014 from CONTINENTAL COIN & JEWLERY CO is and [sic] a payment in full complete repayment for David Daniel's investment in CONTINENTAL COIN & JEWELRY in the sum total of $4,000,000.
“This agreement is signed with a complete understanding that, in the event there are any adjustments to be made between David Daniel and Nissim Edri, they will be handled with good will and in complete consent by both parties.
“David takes from the partnership four million dollars in merchandise that was evaluated by the company while he was a partner[.]”
Of course, a dispute arose as to the true value of the 95 diamonds collected. Daniels claims they were worth less than $2 m. Edri responded that if Daniel was not satisfied with the diamonds, he could return the merchandise in its entirety whereupon Edri would sell them and pay Daniels as each was sold. Daniels brought suit, citing to their prior oral agreement to deliver diamonds worth $4m and to an agreement on the valuation method, which was to be settled in good faith.
As you can guess, the court made short shrift of Daniels’ attempt to bring in any prior oral agreements on what was to happen if the diamonds delivered were actually not worth $4 m. Said the court: “Daniel contends the merchandise he collected upon signing the written agreement was worth substantially less than $4 million under the valuation method specified in the parties' former oral agreement. In direct conflict with that claim, the written agreement provides that “the merchandise” he collected was “a payment in full complete repayment For David Daniel's investment in CONTINENTAL COIN & JEWELRY in the sum total of $4,000,000.” Because Daniel's claim was premised on a purported oral agreement that was inconsistent with the integrated terms of a final written agreement, the trial court properly rejected his breach of oral contract claim under the parol evidence rule.
So there. Perhaps out $2m. Goes to show that you can never really trust anyone in contractual processes, not even apparent friends.
The case is David Daniel v. Nissim Edri, et al., 2017 WL 4684347
Wednesday, October 4, 2017
The Eight Circuit Court of Appeals has held that conduct tending to show fraud and bad faith in relation to one contract is not an excuse for not performing in a closely related contract.
Dr. Halterman signed a recruitment agreement, an employment contract, and a promissory note in the amount of $50,000 as a “signing advance” – a loan - for his upcoming work as a doctor with the Johnson Regional Medical Center (“JRMC”). The recruitment agreement stipulated that the monthly payments on the signing advance would be forgiven so long as Dr. Halterman’s employment at JRMC “continued.” It did not. Five months into his employment, Dr. Halterman quit, citing to, i.a., JRMC’s fraudulent misrepresentations in negotiating his call-coverage obligations and bad faith in that respect. Dr. Halterman had also suffered a shoulder injury that both parties at one point agreed would result in him not being able to do all the work for JRMC that the parties had originally agreed upon.
JRMC claimed repayment of $37,894 still owed by Dr. Halterman when he resigned without, in the hospital’s opinion, a “legal defense.” Dr. Halterman sought to excuse himself from having to repay the remainder of the loan.
The appellate court agreed with JRMC that Dr. Halterman’s obligations to pay the remaining debt were not excused by his allegations (or eventual proof) of fraud or breach of the duty of good faith in the employment contract. An executory contract procured by fraud is not binding on the party against whom the fraud has been perpetrated. Here, Dr. Halterman sought not to perform under the employment contract, but the court found that the loan agreement was an entirely separate contract that thus still had to be performed.
This situation could have been avoided with more legally apt language, of course. Such language could have included express conditions stating that the loan was not to be repaid under a set of circumstances covering, for example, fraud. However, I find it troublesome that the legal effects of three contracts that clearly were meant to relate to and arguably depend on each other were separated decisively as the court did here. In fact, the parties disagreed on whether the three executed documents should be considered separately or as one single contract. The court analyzed the employment contract as separate from the recruitment agreement and note, which were treated as one. That may or may not make sense. Granted, it may make sense that sophisticated parties such as these could simply, if they had intended one single legally binding contract to arise, have worded their documents accordingly. On the other hand, it does not make much common sense to find that a “recruitment” contract is entirely different from an “employment” contract; the two are clearly connected. If fraud has arisen, is not the result of the above that the party acting fraudulently – the hospital, allegedly – can if not outright recover from a fraud, then at least avoid losses from it? Although I do agree with the outcome here, it seems like it to me that some troublesome aspects of this finding remain, namely that an employer apparently got away with broken employment promises fairly scot-free. That’s not fair.
The case is Johnson Regional Medical Center v. Dr. Robert Halterman, 867 F.3d 1013 (Eighth Cir. Ct. of App. 2017).
Monday, October 2, 2017
A contract worth $11 b. Two such major parties as Yahoo!, Inc. and SCA Promotions, Inc. And still the contract does not specify precisely what the payments due are supposed to be for.
In 2014, Yahoo wanted to sponsor a perfect bracket contest in connection with the 2014 NCAA Men's Basketball Tournament, with a $1 billion prize for any contestant who correctly predicted the winner of all 63 games. SCA provides risk management for marketing and prize promotions. In return for a fee, SCA agreed to pay the $1 billion prize if any contestant won the contest.
Two invoices, dated December 27, 2013, were attached to the Contract with continuous pagination. According to the second invoice, the contract fee was $11 million. Yahoo owed an initial deposit of $1.1 million to SCA “[o]n or before December 31, 2013”; the remaining $9.9 million was due to SCA “[o]n or before February 15, 2014.”
The contract permitted Yahoo to cancel the contract with fees varying depending on when Yahoo cancelled. The relevant provision read as follows:
Cancellation fees: Upon notice to SCA to be provided no later than fifteen (15) minutes to Tip-Off of the initial game, Yahoo may cancel the contract. In the event the contract is cancelled, Yahoo will be entitled to a refund of all amounts paid to SCA subject to the cancellation fees set forth in this paragraph … Should the signed contract be cancelled between January 16, 2014 and February 15, 2014, a cancellation penalty of 50% of the fee will be paid to SCA by Sponsor (emphasis added).
Yahoo subsequently cancelled, but argued that it only owed SCA a cancellation fee of $550,000 because “50% of the fee” means 50% of the $1.1 million that Yahoo had already paid to Yahoo as an interim payment. SCA argued that the cancellation fee was $5.5 because “50% of the fee” means 50% of the $11 million total contract fee.
The Fifth Circuit Court of Appeals agreed with SCA: “The district court determined that the Contract's terms do not expressly set an $11 million fee. According to the district court, nowhere does the Contract specify or identify the invoices, when they will be paid, or otherwise provide that the fee is $11 million. But the Contract references invoices several times, and it provides that “this contract, including exhibits and attachments, represents the entire final agreement between Sponsor [Yahoo] and SCA, and supersedes any prior agreement, oral or written.” Although the Contract does not explicitly identify the invoices to which it refers, two invoices are attached to the Contract with pagination continuous with the rest of the Contract … It is clear from the Contract's terms that the invoices are part of the Contract. See In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010) (“Documents incorporated into a contract by reference become part of that contract.”). Accordingly, the district court's conclusion that the Contract does not specify an $11 million fee was in error.”
Once again, students and practitioners: be clear when you draft documents! Unambiguous language and specific references can be worth millions, if not billions, of dollars.
The case is SCA Promotions, Inc., v. Yahoo!, Inc., 868 F.3d 378 (Fifth Cir. 2017).
Tuesday, September 19, 2017
The United States Court of Appeals for the Second Circuit has held that retail stores, including online vendors, are free to advertise “before” prices that might in reality never have been used.
Although the particular plaintiff’s factual arguments are somewhat unappealing and unpersuasive, the case still shows a willingness by courts, even appellate courts, to ignore falsities just to entice a sale.
Max Gerboc bought a pair of speakers from www.wish.com for $27. A “before” price of $300 was juxtaposed and crossed out next to the “sale” price of $27. There was also a promise of a 90% markdown. However, the speakers had apparently never been sold for $300, thus leading Mr. Gerboc to argue that he was entitled to 90% back of the $27 that he actually paid for the speakers. Mr. Gerboc argued unjust enrichment and a violation of the Ohio Consumer Sales Practices Act (“OCSPA”).
The appellate court’s opinion is rife with sarcasm and gives short shrift to Mr. Gerboc’s arguments. Among other things, the court writes that although the seller was enriched by the sale, “making money is still allowed” and that the plaintiff got what he paid for, a pair of $27 speakers that worked. He thus did not unjustly enrich the seller, found the court. (Besides, as the court noted, unjust enrichment is a quasi-contractual remedy that allows for restitution in lieu of a contractual remedy, but here, the parties did have a contract with each other).
Interestingly, the court cited to “common sense” and the use of “tricks,” as the court even calls them, such as crossed out prices to entice buyers. “Deeming this tactic inequitable would change the nature of online, and even in-store, sales dramatically.”
So?! Where are we when a federal appellate court condones the use of trickery, even if a large amount of other large vendors such as Nordstrom and Amazon also use the same “tactic”? Is this acceptable simply because “shoppers get what they pay for”? This panel apparently thought so.
Of course, Mr. Gerboc would disagree. He cited to “superior equity” under both California case law and OCSPA. The court again merely cited to its argument that Mr. Gerboc had suffered no “actual damages” that were “real, substantial, and just.”
I find this line of reasoning troublesome. Sure, most of us know about this retail tactic, but does that make it warranted under contract and consumer regulatory law? If a vendor has truly never sold items at a certain “before” price, courts in effect condone outright lies, i.e. misrepresentation, in these cases just because no actual damages were suffered. This court said that Mr. Gerboc “at most … bargained for the right to have the speakers for 90% less than $300.” But if the speakers were indeed never sold at that price, is that not a false bargain? And where do we draw the lines between fairly obvious “tricks” such as this and those that may be less obvious such as anything pertaining to the quality and durability of goods, fine print rules, payment terms, etc.? Are we as a society not allowing ourselves to suffer damages from allowing this kind of business conduct? Or has this just become so commonplace that virtually everyone is on notice? Does the latter really matter?
I personally think courts should reverse their own trend of approving what at bottom is false advertising (used in the common sense of the word). Of course it is still legal to make money. But no court would allow consumer buyers to “trick” the online or department store vendors. Why should the opposite be true? The more sophisticated parties – the vendors – can and should figure out how to make a profit without resorting to cheating their customers simply because everyone else does it too. Statements about facts of a product should be true. Allowing businesses to undertake this type of conduct is, I think, a slippery slope on which we don’t need to find outselves.
The case is Max Gerboc v. Contextlogic, Inc., 867 F. 675 (2017).
Sunday, August 20, 2017
Pershing Square in downtown Los Angeles is an outdoor area that is regularly the home of free summer concerts and demonstrations of various kinds throughout the year. You would think you could snap as many photos as you wanted of events there since it is an outdoor, public area, right?
This past summer, the answer was no. A photojournalist wanted to take pictures of, among others, the B-52s. However, he was informed of a policy that had been set up with the performers per contractual agreement. The policy barred professional photography equipment, albeit not cell phone usage, from the square during concerts.
ACLU has complained to the Los Angeles City Attorney and the General Manager of the Department of Recreation and Parks, claiming that the city does not have a right to contract away the general public’s First Amendment rights because some performers want it that way.
How do you see contractual rights intersecting with the First Amendment in the government contracting context? Comment below!
Friday, July 28, 2017
Our friend and esteemed colleague, Professor Charles Calleros, has kindly sent the following as a guest contribution to the ContractsProf Blog. Enjoy!
Recently Val Ricks has collected a number of essays from colleagues on best and worst cases for the development or application of contract law. In addition to participating in that project, Charles Calleros invites faculty to upload and post links to essays about their favorite cases as teaching tools (regardless whether the cases advance the law in an important way). He starts the ball rolling with this Introduction to his essay on "Why Pyeatte v. Pyeatte Might be the Best Teaching Tool in the Contracts Casebook":
Pyeatte v. Pyeatte, a 1983 decision of the Arizona Court of Appeals, did not break new ground in the field of contracts. Nonetheless, I assert that it is one of the best pedagogic tools in the Contracts casebook, for several reasons:
- * The facts are sure to grab the attention of first-semester law students: A law grad reneges on a promise to support his ex-wife through graduate school after she supported him through law school during their marriage;
* This 1980’s opinion is written in modern plain English, allowing students to focus on substance, while also learning a few necessary legal terms of art.
* After their immersion in a cold and rather unforgiving bath of consideration and mutual assent, students can finally warm up to a tool for addressing injustice: quasi-contract;
* The opinion’s presentation of background information on quasi-contract provides an opportunity to discuss the difference between an express contract, an implied-in-fact contract, and an implied-in-law contract;
* Although the wife’s act of supporting her husband through law school seems to beg for reciprocation or restitution, students must confront judicial reticence to render an accounting for benefits conferred between partners in a marriage, exposing students to overlap between contract law and domestic relations law;
* The appellate ruling of indefiniteness of the husband’s promise – presented in a later chapter in my casebook, but looming vaguely in the background of the discussion of quasi-contract – invites critique and perhaps even speculation that the appellate panel felt comfortable denying enforcement of the promise precisely because it knew it could grant restitution under quasi-contract; and
* The court’s admonition that expectation interest forms a ceiling for the calculation of restitution reveals a fascinating conundrum that brings us back to the court’s ruling on indefiniteness. . . .
You can find the whole essay here.
Tuesday, July 11, 2017
Will an associate who makes a $1.5 billion (yes, with a “b”) clerical error still make partner?... Do law firms owe a duty of care to clients of opposing party’s law firm? The answers, as you can guess: very likely not and no! The case goes like this:
General Motors (“GM”), represented by law firm Mayer Brown, takes out a 2001 loan for $300 million and a 2006 loan for $1.5 billion secured by different real estate properties. JP Morgan acts as agent for the two different groups of lenders. GM pays off the first loan, but encounters severe financial troubles and enters into bankruptcy proceedings before paying off the big 2006 loan. GM continues to follow the terms on that loan, and the bankruptcy court also treats the lenders as if they were still secured.
What’s the problem with this, you ask? When Mayer Brown prepared and filed the UCC-3 termination statement for the 2001 loan, the firm also released the 2006 loan by mistake. The lenders of that were thus not secured under the law any longer even though both GM itself and the bankruptcy court treated them as such. The big loan was simply been converted from a secured transaction into a lending contract. Yikes.
How did this happen? The following is too good to be true, if you are in an irritable or easily amused summer mode, so I cite from the case:
“The plaintiffs' complaint offers the following autopsy of the error: a senior Mayer Brown partner was responsible for supervising the work on the closing. He instructed an associate to prepare the closing checklist. The associate, in turn, relied on a paralegal to identify the relevant UCC-1 financing statements. As a cost-saving measure, the paralegal used an old UCC search on General Motors and included the 2006 Term Loan. Another paralegal tasked with preparing the termination statements recognized that the 2006 Term Loan had been included by mistake and informed the associate of the problem, but he ignored the discrepancy. The erroneous checklist and documents were then sent to [JP Morgan’s law firm] Simpson Thacher for review. The supervising partner at Mayer Brown never caught the error, nor did anyone else. With JP Morgan's authorization, the 2001 Synthetic Lease payoff closed on October 30, 2008 … We must also note that, when provided an opportunity to review the Mayer Brown drafts, a Simpson Thacher attorney replied, ‘Nice job on the documents.’”
The lenders represented by JP Morgan sued not Simpson Thacher or JP Morgan, but… Mayer Brown; counsel for the opposing party, arguing that the law firm owed a duty to them not because Mayer Brown represented them or their agent, JP Morgan, in connection with these loans, but rather because, plaintiffs argued, Mayer Brown owed JP Morgan – not the plaintiffs directly – a duty of care as a client in other unrelated matters! As the court said, an astonishing claim.
A law firm or a party directly must always prepare a first draft of any document. “By preparing a first draft, an attorney does not undertake a professional duty to all other parties in the deal.” In sum, said the court, “there is no exception to the Pelham primary purpose rule, and there is no plausible allegation that Mayer Brown voluntarily assumed a duty to plaintiffs by providing drafts to Simpson Thacher for review.”
The case is Oakland Police & Fire Ret. Sys. v. Mayer Brown, LLP, States District Court for the Northern District of Illinois, Eastern Division, Case No. 15 C 6742
Friday, June 30, 2017
Denise Daniels of Minnesota, who says that she has worked with children’s social and emotional development for more than four decades, claims that she pitched her idea for what became the 2015 animated box office success "The Moodsters" to Disney-owned Pixar a number of times between 2005 and 2009 with the understanding that she and her team would be compensated if Disney used her idea.
Ms. Daniels just filed a complaint in federal court in the Central District of Los Angeles stating that she had an implied-in-fact contract that obligated Disney to compensate and credit her if the studio used her idea. Ms Daniels also argues that "The Moodsters" would have featured five color-coded, anthropomorphic characters, each representing a single emotion: happiness, sadness, anger, love and fear. The characters would reside in an abstract world within a child. The movie "Inside Out" features five characters based on the emotions joy, sadness, anger, fear and disgust. The characters reside in the mind of a young girl named Riley, who must learn to adjust to a new life when her family moves to San Francisco.
In March, Disney was also sued over 2016's "Zootopia." In that lawsuit, a screenwriter claimed that the studio stole his original idea and copied his designs for the movie's animal characters.
So, how would you advise your students to best take care of the interests of clients seeking advise in pitching ideas to major entertainment companies? “Get a contract in writing ahead of time” is easier said than done. If you really have a good idea for a movie or the like, how do you even get to talk to a studio about it without at least revealing something about your idea? - And if you do, might it then not already be too late? For example, it seems odd to seek to discuss potential ideas with an entertainment company simply saying “I have a good idea, but first, let’s talk legal details.” Wouldn’t the company just tell you to get lost, if you even got a response at all? On the other hand, so many of these suits seem to take place that at least some sort of preliminary writing seems to be a good idea for both parties.
In 2004, Disney lost a case over profits for ABC’s “Who Wants to be a Millionaire,” which resulted in a $320-million verdict against Disney in favor of a British licensing company.
Is Disney just too risk-willing in these types of cases, or are private individuals people egged on by the chance of winning some “big money”? It’s hard to tell. Asked why Daniels waited two years before filing her lawsuit against Disney, Daniels’ attorney says “you don’t file these cases lightly” and that such time gaps are not unusual in these types of cases.
Thus, the moral of this story might simply be: get something in writing and if anything goes wrong, take legal action as soon as possible to be on the safest side possible.