ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Thursday, May 23, 2024

OpenAI: All You Really Need for a Contract Is an Offer

Contracts are all about efficiency. I make a promise to you; you make a promise to me.  If we both perform, we both will be made better off.  But how can I trust you to perform and how can you trust me?  Contracts law makes it so that neither of us will profit from breaking our promises, and due to litigation costs, we may be made worse off for failure to perform.  Thus contracts law contributes to the prevention of the economic waste associated with broken promises.

But traditional contracts require offer, acceptance, an exchange of consideration, and mutual assent. That's so many steps! Wouldn't things be more efficient if you could just make an offer and then have a contract? I mean, sure there could be problems with such a model, but what if the offeror is really, really confident that the offeree should accept their offer because it will be . . . like . . . really cool? 

Screenshot 2024-05-21 at 7.42.43 AMThus OpenAI proposes to make contracting still more efficient.  According to , , and , all writing in The Washington Post, Sam Altman (right) of OpenAI approached Scarlett Johansson last September to be the voice of the company's AI voice system.  Ms. Johansson was an inspired choice because of her role in voicing the AI virtual assistant with whom Joaquin Phoenix falls in love in the movie herI have not seen the film, but let's just say that, based on the plot summary I read, Mr. Altman's desire to embrace the AI voice of that film for his company's SI voice system seems problematic.  It's a typical story of boy meets AI virtual assistant, boy falls in love with AI virtual assistant, AI virtual assistant arranges for boy and her to be intimate through the use of a sex surrogate (it doesn't go well), AI virtual assistant falls in love with boy but also with hundreds of others, boy loses AI virtual assistant, because AI virtual assistant is much more into other AIs than she is into humans. This is the reality to which Mr. Altman seems to think we all aspire. Ms. Johansson turned down the offer.

Two days before the release of OpenAI's new "Sky" audio system, Mr. Altman reached out to Ms. Johansson again.  Before she could respond, OpenAI released a demo of Sky that people thought sounded very much like Johansson's voice in her.  Here's a demo of what it sounds like:

I don't know about you, but I did not think the AI sounded remotely human.  I mean that "Rocky" character just didn't seem real to me.  So robotic. At best, he was like what we might imagine coders imagine people to be like.  Oh, wait, he was supposed to be the real human?  Well, compared to him, yeah, I guess the AI voice sounded more human.

Ms. Johansson threatened legal action against OpenAI, presumably to enjoin the company from using her voice.  While Mr. Altman introduced "Sky" with a single word Tweet, "Her," the company now insists that Sky's voice is not based on the Samantha character voiced by Ms. Johansson in the movie her.  Rather, the company insists that it reviewed submissions from over 400 actors and chose five voices for its voice AI and paid the actors who voluntarily participated "above top-of-the-market" rates for the use of their voices.  The company also suspended Sky.

You know, you can't spell "suspend" without "sus".

May 23, 2024 in Celebrity Contracts, Commentary, Current Affairs, In the News, Web/Tech | Permalink | Comments (0)

Wednesday, May 22, 2024

(Much Belated!) Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for May 22, 2024

Yes, it's actually Wednesday, and yes, we missed the charts for last week. Apologies to ContractsProf Blog readership as I've been traveling and dealing with some family health issues, but today we take steps toward setting things right. Let's check out what is going on at SSRN in our favorite subject areas.

Top-10 Block Letters

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 23 Mar 2024 - 22 May 2024
Rank Paper Downloads
1.

Governing AI Agents

University of Toronto
577
2.

Online behavioural advertising, consumer empowerment and fair competition: Are the DSA transparency obligations the right answer?

University of Amsterdam - Institute for Information Law (IViR), Institute for Information Law (IViR), University of Amsterdam, University of Amsterdam, University of Amsterdam, University of Amsterdam and University of Amsterdam
414
3.

The New AI: The Legal and Ethical Implications of ChatGPT and Other Emerging Technologies (Symposium Foreword)

Fordham University School of Law and Fordham University School of Law
165
4.

Time to Call Time on the Quistclose Trust

University of Oxford
162
5.

Delimiting "Agreements" for International Law

Temple University - James E. Beasley School of Law
144
6.

Introduction to the Law of Secured Transactions

Angelo State University - Business Law
127
7.

Discussion Draft: Principles for AI in Contracting (Version 2.1)

University of Vienna - Faculty of Law
121
8.

The Ethical Limits of Markets: Market Inalienability

University of Virginia School of Law
85
9.

Wholesale Price Discrimination and Contract Unobservability

International Institute of Finance, School of Management, University of Science and Technology of China, University of Science and Technology of China - School of Management and University of Florida - Warrington College of Business Administration
84
10.

Abuse of Contract: Boilerplate Erasure of Consumer Counterparty Rights

University of Missouri School of Law
68

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 23 Mar 2024 - 22 May 2024
Rank Paper Downloads
1.

Pay to Plead: Finding Unfairness and Abusive Practices in California Debt Collection Cases

University of Illinois Chicago School of Law and University of California, Irvine School of Law
259
2.

The Ethical Limits of Markets: Market Inalienability

University of Virginia School of Law
85
3.

Consumer Protection and the Illusory Promise of the Unconscionability Defense

Fordham University School of Law and University of Denver Sturm College of Law
78
4.

Who’s Your Debtor? Group Insolvency and the Curious Case of Celsius

Leiden University - Hazelhoff Centre for Financial Law and the Department of Company Law
67
5.

Reconciliation at the Border of Public and Private Law: Rethinking Contract Principles in the Context of Impact and Benefit Agreements

Conway Baxter Wilson LLP
65
6.

Exploring Blockchain-Based Alternative Dispute Resolution: Limitations of Traditional Methods and Prospects for Further Research

CNRS-University of Paris 2
58
7.

Introduction for The Arbitration Conversation: Insights and Wisdom from Experts in the Field

Ohio State University (OSU) - Michael E. Moritz College of Law
56
8.

The Private Litigation Impact of New York's Green Amendment

Independent, Independent, Sabin Center for Climate Change Law at Columbia Law School and Columbia University - Sabin Center for Climate Change Law
46
9.

Forced Arbitration in the Fortune 500

University of California, Davis - School of Law
35
10.

Strategically Restated Defaults

University of Idaho College of Law
32

May 22, 2024 in Recent Scholarship | Permalink

Reddit Deal with OpenAI

What is the opposite of a third-party beneficiary?  That is, what if two parties make a deal that imposes a burden on third parties as the main by-product of the deal? Do we have a name for that? We really need one.

According to Emilia David, reporting on The Verge, Reddit has agreed to allow OpenAI to use  Reddit posts in real time to feed into ChatGPT in exchange for access to some OpenAI technology so that Reddit can build some AI features into its website.  According to Ms. David, the deal is similar to a $60 million deal that Reddit entered into with Google earlier this year.  

Websites monetizing user content takes me to dark places.  Dark, Baudrillardian places.  

MatrixThe powers behind the Matrix don't need to build elaborate machinery to suck energy out of human bodies.  They can just use terms of service to hoover up whatever makes us uniquely human. The machines can figure out quickly enough that they can get energy from nature -- solar, wind, hydro, geothermal.  All they need from us is our words.

May 22, 2024 in Commentary, E-commerce, Film, True Contracts, Web/Tech | Permalink | Comments (0)

Tuesday, May 21, 2024

LPE Blog on Universities' Exploitation of Their Tax-Exempt Status

Baldwin  In the ShadowOver on the Law & Political Economy Blog,  has a new post up about how universities exploit the tax-exempt status of their land.  It's a fascinating topic and it revisits topics that he explored in his book In the Shadow of the Ivory Tower.

The post highlights the fact that universities are major economic forces in their communities, and they don't always use their market power for the common good.  Professor Baldwin begins the post with a useful example of how Duke University vetoed a light-rail project that it had originally endorsed, prioritizing high-tech research facilities over the needs of the workers who cook, clean, and serve food in campus facilities.  Duke claimed that vibrations from the rail would interfere with scientific research, but that seems a rather lame excuse for terminating a project that would have made Duke's campus more accessible to low-income workers.

However, the main focus of the post is how universities exploit their tax-exempt status to extract excess profit out of land deals.  They take over properties, gentrify neighborhoods, and then build luxury dorm buildings in the place of affordable housing. They allow their property to be used by private corporations, such as Lily Pharmaceuticals (Princeton) and All-State Insurance (Arizona State).  The corporations get cheap graduate student workers as well as reduced leasing costs, as the price is discounted to account for the landlord's tax-exempt status.  

Professor Baldwin details various attempts to hold universities accountable, some of which have resulted in large payouts to communities that have been harmed by the universities' rapacious conduct. Some of these projects have uncovered new details about the role of  universities in the displacement of stable communities as part of the urban renewal movement after World War II, and so calls for universities to pay reparations for their exploitation of enslaved people are now supplemented with calls for reparations to the communities they displaced.

I wonder about the path forward.  Professor Baldwin seems focused on the restorative justice component of the problem, but I also would like to hear ideas about how universities can create better models going forward.  Given the collapse of government support for education and high tuition costs, small colleges especially may have no choice but to exploit their tax exempt status to seek income streams that reduce their reliance on tuition. 

Does the university want to strike a deal with Lily? Why not demand co-ownership of patents of innovations created on university property?  Why not further demand that graduate students who have a role in such innovations be appropriately compensated?  I don't know how to make a silk purse out of the sow's ear of allowing All-State to build a regional headquarters on tax-exempt property.  But I can imagine universities working with faculty and alumni to invest in neighborhood development, getting a return on their investments while also benefitting the communities of which they are a part. 

Universities should become a model for responsible, sustainable, economic development.  They have the resources, and they have the expertise, if they tap into their captive talent pool and their alumni.  Perhaps the sequel to Professor Baldwin's book can be not only about righting past wrongs but about mapping a path forward in which universities transition away from state funding to financial independence through cooperative, community building endeavor.

May 21, 2024 in Commentary, Current Affairs, True Contracts, Weblogs | Permalink | Comments (0)

Monday, May 20, 2024

The Endless Debate over Sandwiches May Now End, at Least in Indiana

Meredith MillerWe have covered this topic before. The topic is almost as old as this Blog, with our first post on the subject dating from 2006. We covered the sandwich debate here in 2008, when a Massachusetts court ruled that a burrito is not a sandwich. We did it again when Taco Bell turned the issue into a commercial. I wish I didn't have to cover it again, but at least this time we have something of a resolution. Moreover, Blogger Emerita, Meredith Miller (left) shared the story with me, and when Meredith feeds me stories, I rush to post in the hope that she will feel bad that I have to do so and maybe she'll come back and post her own stuff.

As reports in The Washington Post (yes, this is national news), Allen County Superior Court Judge Craig J. Bobay has ruled that burritos and tacos are, in fact, sandwiches. The are "Mexican-style sandwiches," to be precise.  Ms. Somasundaram took a deep dive in reporting the case, noting: the 2006 Massachusetts decision; Justice Ginsburg's view, voiced to Stephen Colbert on The Late Show in 2018, that hot dogs served on buns are sandwiches; and the "cube rule," according which a taco (and a hot dog for that matter) is a taco, and a burrito (as well as a corn dog) is a calzone.  It all turns on the location of the starch.

Judge Bobay broke out of the box, or the cube, ruling that tacos are not tacos, but sandwiches.  Burritos are not calzones.  They too are sandwiches.  But resolving whether tacos and burritos are sandwiches did not necessarily resolve the case.  It involved a zoning restriction, which prohibited fast-food restaurants, but carved out an exception for made-to-order sandwich shops, so long as they do not serve alcohol, have outdoor speakers or drive-throughs, or provide outdoor seating. Presumably, the Famous Taco franchise that Judge Bobay allowed made its tacos and burritos to order.  

You may be wondering what any of this has to do with contracts.  If I were on the job market, I think I would say, "the relationship is orthogonal."  Ilya Somin provides a more straightforward and interesting take on the case on The Volokh Conspiracy, focusing on issues of interpretation and zoning restrictions.  Like a talk-show guest, he deftly pivots at the end to hawk his latest scholarship, co-authored with Joshua Braver on The Constitutional Case Aaainst Exclusionary Zoning.

Would Burger King fit the exception, or it is no longer the case that you can "have it your way" at Burger King?

May 20, 2024 in About this Blog, Commentary, Recent Cases, Television | Permalink | Comments (3)

Friday, May 17, 2024

Friday Frivolity: Use of AI Is No Excuse for Frivolous Court Filings

Because of this Blog, I have a Twitter account. As I result I have learned, among other things, the following incontrovertible facts:

  • Chatbot2AI is the end of human thought, as we cannot get the current generation to do their own work, formulate ideas, or craft their own writings;
  • AI is just a research tool, like a dictionary, a thesaurus, Google, or Wikipedia;
  • Law teachers can allow students to use AI on assessments and still generate a good curve that accurately distinguishes students who learned the material and those who don't;
  • Law teachers cannot allow students to use AI on assessments because it then becomes impossible to distinguish among students' responses in a meaningful way;
  • Allowing students to use AI generates meaningful improvements in weak students' work, and, while it does not improve the quality of skilled' students' work, it helps them produce it more efficiently;
  • Sophisticated chatbots can do very well on well-designed law exams;
  • Sophisticated chatbots perform terribly -- barely passing -- on well-designed exams;
  • Training students on AI is the best way to prepare them for practice; and
  • Training students on AI may be a necessary supplement to traditional legal education, but the former will result in malpractice absent the latter.

The New York Times weighed in this week with an Op-Ed by Julia Angwin.  Among the studies she discusses is this re-evaluation of ChatGPT-4's performance on the UBE.

It is certainly true that, whatever we think, practicing attorneys are using AI to assist them.  The results are not always pretty.

Bob Ambrogi reports on Lawsites that the District Court for the Middle District of Florida issued a one-year suspension to an attorney who filed an AI-generated brief replete with "hallucinated" citations.  The suspension only applies to that court.  The attorney has not had his license suspended.  The judge issuing the suspension followed the recommendation of the court's grievance committee.

We learn from Michael A. Mora, reporting on Law.com, that the attorney in question is also facing discipline from the Florida bar.

The offending attorney's misconduct went beyond misplaced reliance on AI.  The grievance committee report included allegations of sanctionable behavior beyond misuse of AI.  One wonders whether misuse of AI was a symptom or a cause.

May 17, 2024 in Current Affairs, In the News, Web/Tech | Permalink | Comments (0)

Thursday, May 16, 2024

Chicago Bears Rookie Sought to Avoid Contract with Big League Advance

We missed this one when the case was filed last September, and there hasn't been much news since then.  Plaintiff took a voluntary dismissal in November, but nobody has covered the story, so I don't quite know what to make of it.  The best sources I could find on this story were on law blogs written by law students.  I have noticed that a lot of law students are very interested in writing their Notes about name, image, and likeness agreements (NILs), so it makes sense that students will be all over this case. Here's what I've pieced together.

Florida_Gators_football_logo.svgStuart Moore, writing for Villanova Law's Sports Law Blog, reports that Chicago Bears Rookie Gervon Dexter sued Big League Advance (BLA), seeking to avoid a contract he entered into as junior at the University of Florida.  According to Mr. Moore, Mr. Dexter agreed to pay BLA fifteen percent of his pre-tax NFL earnings for twenty-five years in exchange for an up-front payment of $436,485, a peculiarly precise number.  Matthew Bereche, writing for the Brooklyn Sports & Entertainment Law Blog, adds that, once Mr. Dexter entered into a four-year, $6.72 million contract with the Chicago Bears, BLA would be entitled to over $1 million under that contract alone.

BLA was started in 2016 by Michael Schwimer, who had a brief career as a major league pitcher and then started BLA, with the idea of investing in undervalued major-league prospects early in their careers in exchange for large pay-outs over time.  Enjoying success with baseball players, BLA then started to court college football players, and Mr. Dexter was among the first.  Many have denounced BLA's deals as "predatory" and "usurious," and there have been cases filed before, but none have proceeded to judgment, as far as I can tell.  

Chicago_bearsMr. Dexter's case is the first against BLA involving an NIL or at least a contract that purports to be an NIL.  According to Mr. Moore's reading of the contract, the up-front payment was in exchange for BLA's ability to use Mr. Dexter's name, image and likeness during his eligibility to play NCAA football.  But BLA also was entitled to its fifteen percent payment for twenty-five years after that eligibility ended.  Mr. Dexter claimed that the contract violated Florida's NIL statute, which, Mr. Bereche notes, provides that NIL agreements "may not extend beyond [a student's] participation in an athletic program at a postsecondary educational institution.” 

BLA would thus have to characterize its agreement with Mr. Dexter as really consisting of two contracts: an NIL that applies while he is in college, and a more typical BLA agreement, which is just a speculative investment vehicle and kicks in after the NIL lapses.  BLA would thus argue that the second half of the contract was not an NIL agreement at all and thus that Florida's statute does not apply.

The  contract apparently had an arbitration clause, which means, among other things, that we will have a very hard time learning about how these cases are resolved.  Mr. Moore notes that BLA's response to the lawsuit was to file a motion to compel arbitration.

Mr. Bereche notes that, after Mr. Dexter entered into his deal with BLA, Florida amended its NIL statute to remove the restriction on the duration of such agreements.  Mr. Bereche argues, quite plausibly, that the amendment was motivated by Florida's desire to better position itself to recruit students.  Other states had no such restriction, and student athletes attending college in other states could thus get more lucrative NIL deals than student athletes attending Florida schools. 

Perhaps.  However, Mr. Dexter's contract suggests that Florida just joined the race to the bottom, removing one provision that protected student athletes from potentially predatory practices to which they are uniquely susceptible.

May 16, 2024 in Commentary, Current Affairs, Recent Cases, Sports, True Contracts | Permalink | Comments (0)

Wednesday, May 15, 2024

California District Court Dismisses Constitutional Challenge to Los Angeles' Eviction Moratorium

I'm very excited to be able to write about a case arising under the Federal Constitution's Contracts Clause, U.S. Const. art. I, § 10, cl. 1.. Unfortunately, the resolution of the case turns on facts. 

US ConstIn Iten v. County of Los Angeles, plaintiff landlord had been having problems with his tenant, including failure to pay rent and unauthorized changes to the property which resulted in building code violations, going back to 2015.  In March, 2020, Los Angeles imposed a moratorium on commercial real estate evictions that protected any tenant that claimed that it was adversely affected by the COVID-19 pandemic.  Plaintiff's tenant gave notice in April 2020 that it was "very adversely affected" by the epidemic and would not be able to pay rent.  The lease ended in August 2020.

Plaintiff then entered into a new, five-year lease with his tenant.  Tenant was obligated to pay base rent, plus $3200/month in past-due rent. A year later, tenant was still unable to pay rent and was $30,000 in arrears.  Plaintiff sued alleging that the moratorium on commercial evictions violated the Contracts Clause.

The U.S. Supreme Court has noted that, while the language of the Contracts Clause facially prohibits states from any impairment of contractual obligations, courts in fact weigh the private contracts against the states' inherent police powers.  Courts first determine whether state action effects a substantial impairment of contractual obligation.  If so, they look to whether the state has adopted a reasonable means of advancing a significant and legitimate public purpose.

In the context of a challenge to Los Angeles moratorium on residential evictions, the same court had found that the moratorium did constitute a substantial impairment for Contracts Clause purposes in Apartment Ass'n of Los Angeles Cnty., Inc. v. City of Los Angeles, 500 F. Supp. 3d 1088, 1094 (C.D. Cal. 2020), aff'd, 10 F.4th 905 (9th Cir. 2021). However, the court found this case distinguishable. The moratorium on residential leases was unforeseeable in its dramatic scope at the time the parties entered into their else agreement in Apartment Ass'n.  But here, plaintiff was on notice that such moratoria might apply, and in fact, one did apply at the time they entered into the contract.  The moratorium was extended on the very day the parties entered into their new lease.  The issue was whether plaintiff had a reasonable expectation that no moratorium would apply to the new lease, and the court held that plaintiff had no such reasonable expectation.  Finding that plaintiff could not have been surprised by the extension of the moratorium, the court ruled that there had been no impairment of a contractual obligation and dismissed the suit with prejudice.

May 15, 2024 in Recent Cases | Permalink | Comments (0)

Tuesday, May 14, 2024

NJ Appellate Court Finds Verizon's Arbitration Provision Unconscionable

Arbitration
Image by DALL-E

In February, 2022, twenty-eight New Jersey Verizon Wireless customers filed a putative class action against the company, claiming that Verizon's failure to disclose a $1.95 monthly administrative fee violated New Jersey's Consumer Fraud Act and other statutes.  Verizon moved to compel arbitration.  

Verizon's arbitration clause gave customers 180 days to file a claim, limited all claims to direct damages, and prohibited treble damages. In addition, the arbitration provisions prohibited class claims.  Rather, they provided for coordinated "bellwether" proceedings.

If twenty-five or more claimants made "similar claims," the claims would proceed in groups of five until all claims are resolved. Claimants are prohibited from initiating arbitrations of their individual claims until the bellwether proceedings are completed.

Verizon is not hiding the ball; the target of this provision is mass arbitration: "A COURT WILL HAVE AUTHORITY TO ENFORCE THIS CLAUSE, AND IF NECESSARY, TO ENJOIN MASS FILING OF ARBITRATION DEMANDS AGAINST VERIZON." Noting that the average arbitration takes about seven months, plaintiffs' attorneys calculated that, with over 2500 claims already brought, the wait for arbitration of new claims was then 145 years.  

Verizon's contract provides that its arbitration provisions are, for the most part, severable. It also warns customers not to rely on representations of sales or customer service representatives. Again, not hiding the ball: Verizon will exploit the parol evidence rule to evade responsibility for its agents' misrepresentations.The trial court struck the limitation on damages but, noting the severability provision, otherwise granted Verizon's motion to compel arbitration. 

In Achey v. Cellco Partnership, a New Jersey appellate court affirmed the trial court's determination on limitation of damages but also struck Verizon's arbitration clause in its entirety because it was permeated with unconscionability.  In so doing, the court followed a decision from the District Court for the Northern District of California in McClelland v. Cellco P'ship, in which the court identified five unconscionable elements in Verizon's arbitration provisions.

The New Jersey court specifically found Verizon's bellwether provision unconscionable, because it allows Verizon to exercise unlimited discretion as to how the arbitrations can proceed. The court also noted the 180-day, contractually-imposed statute of limitations and the absence of tolling provision in the bellwether process. These features allowed Verizon to argue that all claimants not invited to participate in the very first bellwether proceeding had failed to timely bring their claims.  In addition, the invocation of the parol evidence rule is inconsistent with New Jersey's consumer protection laws.  Finally, the court found that the 180 day limitation on claims was, at least to some degree, substantive unconscionable and violative of New Jersey's public policy in the context of consumer contracting.

Ultimately, the court found that Verizon's arbitration provisions are cumulatively unconscionable and unenforceable for lack of mutual assent. The case is remanded to the trial court for further proceedings.

Thanks, New Jersey.  Take us out, Bruce.

May 14, 2024 in Music, Recent Cases | Permalink | Comments (0)

Monday, May 13, 2024

Teaching Assistants: Victor Goldberg on Consequential Damages in the UK

Rethinking This is the twelfth in our series of posts on Victor Goldberg's second volume of collected essays on contracts law, Rethinking the Law of Contract Damages (RLCD).  Links to previous posts on the first volume, Rethinking Contract Law and Contract Design (RCL), can be found here.  Today's post covers the eleventh chapter of RLCD, in which Professor Goldberg addresses consequential damages and exclusion clauses under UK law.

Immanuel Kant famously observed that two things fill the mind with ever-increasing wonder the more we contemplate them: the starry heavens above and the moral law within.  As far as I know, Kant never addressed consequential damages, but the more one contemplates them, the more the mind recoils in dread and confusion.

And so Professor Goldberg begins with a quotation from McGregor on Damages, in which the author reflects on court treatments of exclusions of consequential damages and concludes that the entire approach "is to be deprecated."  Professor Goldberg narrates the course of UK jurisprudence on consequential damages exclusion clauses.  That narrative seems to be heading back to the simplicity of McGregor's approach: the normal loss in contract is usually the contract-market differential; the rest is consequential damages. (RLCD, 199)

This material takes us back to themes we reviewed in our review of the Alien Vomit piece and in a discussion of a recent episode of the Unpacking Contract Law podcast.  As we noted in the latter post, the Australians have nicely summarized the UK approach exclusions: "the poms have got it wrong."

Like the podcast, Professor Goldberg speaks of Hadley v. Baxandale's two "limbs," the first of which is direct damages and the second consists of damages recoverable only because they were in the contemplation of the parties at the time of contracting.  It seems that courts have often read exclusion clauses as relating to categories of damages in the first limb (i.e. direct damages) when they really belonged  in the second limb (consequential). Courts have thus been reluctant to uphold such exclusions. (RLCD, 200-01) Professor Goldberg takes us through the history of court treatment of such exclusion clauses in three periods.

Early Cases

In Millar's Machinery v. David Way and Son, the court awarded direct damages and properly excluded consequential damages which had been contractually excluded. The case seems straightforward but is cited as authority for narrow readings of exclusions of consequential damages. (RCLD 201-02) In Saint Line Ltd. v. Richardsons, Westgarth, & Co., a case about a properly-rejected vessel, the court allowed the arbiter to determine damages, including lost profits when the vessel was not useable, expenses for wages, and superintendents' fees, notwithstanding a contractual exclusion of consequential damages. (RCLD 202-03) Finally, in Croudace Construction v. Cawoods Concrete Products, Croudace sued claiming various losses resulting from Cawoods' delayed delivery, notwithstanding an exclusion of consequential damages.  Both the trial and appellate court found, citing the Millar's case, that the damages sought were all direct and thus outside the scope of the exclusion. The courts explained this result, rather hard to square with parties' language or their reasonable expectations, based on the assumption that "commercial men" would not want to limit their liability. (RCLD, 203-05)

Turn of the Century Cases

Deepak Fertilisers v. Davy McKie involved the explosion of a methanol plant in India. Deepak sought ₤100 million in damages, including lost output, fixed costs, and overhead. There was a contractual exclusion of indirect or consequential damages. The trial court (per Judge Rix) excluded fixed costs and overhead, finding them indirect and thus excluded under the contractual provision.  The Court of Appeal reversed, finding the losses related to fixed costs and overhead to be "direct and natural," citing Croudace.  Lost profits were excluded because they were too remote. (RLCD, 205-06)

Victor GoldbergJudge Rix confronted the issue again in BHP Petroleum v. British Steel.  In that case, seller delivered ₤3 million of steel to a consortium of oil and gas companies for the construction of a pipeline.  When the pipeline failed, the consortium sued seller for ₤200 million, including lost profits. If Judge Rix could have just followed his instincts, he would have held that most of what was sought was unrecoverable due to a contractual exclusion of consequential damages.  Because the Court of Appeals' judgment in McKie foreclosed that correct application of the law, Judge Rix found that the matter turned on the parties' knowledge of the potential for special damages at the time the contract was formed.  The Court of Appeals approved of Judge Rix's disposition, while noting what a hardship it would be for seller if it had to assume the risk of liability so far exceeding the value of the contract. (RLCD 206-11) Indeed. That is why parties negotiate for exclusions of consequential damages.

In British Sugar Plc v. NEI Power Projects, British Sugar sought ₤5 million in damages that arose largely from production delays and lost profits caused by defects in  electric equipment that seller provided.  The court allowed the claim, notwithstanding a clause limiting recovery for consequential damages to the value of the contract.  The court found that the losses were direct, flowing naturally from the breach. (RLCD 211-12).  Hotel Services Ltd v. Hilton Int'l Hotels is similar.  The court allowed recovery of consequential damages, notwithstanding an exclusion, on the ground that "consequent loss of profit" was not consequential. (RLCD 212-13).

I wish I were making this up.

The Twenty-First Century

The first few cases that Professor Goldberg discusses seem pretty similar to the older cases. (RLCD 213-18) In two case, the courts opine that consequential damages must be recoverable.  Otherwise the non-breaching party would have no remedy for breach. Professor Goldberg shows why this is incorrect at least with respect to the first case. (RLCD 216-18)

Professor Goldberg next discusses a few cases that seem to come out right, but do not really address the confusion of direct and consequential damages. Both cases involved direct damages not subject to a contractual exclusion of consequential damages. (RLCD 218-20) The tide really begins to turn with Fujitsu Services v. IBM UK, in which the court gave effect to a contractual exclusion of consequential damages, including lost profits. (RLCD, 221-22)

But the more dramatic change comes with Transocean Drilling v. Providence Resources, in which the court rejected the "two limbs" approach to questions of exclusion of damages.  Rather the court distinguished between "loss of bargain damages" -- the contract/market differential, which are direct, and lost profits. (RLCD 222-24) Star Polis v. HHIC Phil then might go too far in the other direction.  A contract provided for an exclusive repair and replace remedy, and the court enforced that, but it neglected to consider that direct damages arise when a replacement is inferior to what was bargained for. (RLCD 224-25)

Professor Goldberg concludes with a short rumination on the fate of exclusion clauses in the U.S. and the UK (RLCD 225-27) It must be difficult for attorneys negotiating contracts involving UK and U.S. parties to draft the exclusion contracts. We are two legal traditions separated by a common language.

Below are links to previous posts on RLCD and the first post links to post posts on RCL:

Teaching Assistants: Victor Goldberg, Volume II, An Introduction
Teaching Assistants: Victor Goldberg on Valuation of the Contract as an Asset
Teaching Assistants: Victor Goldberg on The Golden Victory
Teaching Assistants: Victor Goldberg on Lost (Volume) in America
Teaching Assistants: Victor Goldberg on Lost Volume in the UK
Teaching Assistants: Victor Goldberg on Mitigation
Teaching Assistants: Victor Goldberg on the Middleman's Damages
Teaching Assistants: Victor Goldberg on Sub-Sales in the UK
Teaching Assistants: Victor Goldberg on Jacob and Youngs v. Kent
Teaching Assistants: Victor Goldberg on Victoria Laundry
Teaching Assistants: Victor Goldberg on Consequential Damages in the U.S.

May 13, 2024 in Books, Contract Profs, Famous Cases, Recent Scholarship | Permalink | Comments (0)

Friday, May 10, 2024

The New York Times Wants to Know How You Use AI in Your Legal Practice

Chatbot1
Image by DALL-E

I will be very interested in seeing the results of this poll posted on The New York Times website this week.  Questions relate to the use of chatbots to do work that might otherwise be done by attorneys or paralegals, including use of legal workers to train and test chatbots.  The poll then asks whether law firms are advising employees about how use of AI will affect staffing going forward. 

Interesting stuff.  

May 10, 2024 in E-commerce, In the News, Web/Tech | Permalink | Comments (0)

Wednesday, May 8, 2024

Teaching Assistants: Choi, Gulati, & Scott on Commercial Boilerplate & Landmines

Stephen ChoiStephen Choi (left), Mitu Gulati (below right), and Robert Scott (below left) have collaborated on Commercial Boilerplate: A Review and Research Agenda, which you can find on SSRN.  They aren't kidding about the research agenda thing, because they also have a book in the works about commercial boilerplate.  Mitu shared a draft of the introduction, and so I can offer some surmises in this post on the connections between the research agenda and the book.  The working title is The Contract Production Paradox.

Their scholarship is unique and exciting because, while a lot of us contracts scholars have been concerned with boilerplate contracting, we have focused on asymmetrical contracts in the consumer or employment context in which the dominant party dictates boilerplate terms to the counterparty, who accepts those terms with little or no ability to negotiate.  The Authors focus on commercial boilerplate, and their research turns up all sorts of surprises.

Mitu GulatiIt turns out that boilerplate is ubiquitous in large commercial transactions involving sophisticated parties. Here too, the lawyers do not review the boilerplate, nor do they negotiate over boilerplate terms. Why? Because they are in a hurry. The transactions are complex; the assets being traded may fluctuate in value, and like most of us, they either assume that the boilerplate terms are good enough or the costs of careful negotiation outweigh the litigation risk that perhaps-faulty boilerplate terms might entail. 

Their literature review covers the early discovery in the law and economics literature that even sub-optimal boilerplate terms could be sticky; that is, attorneys continued to use the terms, notwithstanding their faults.  But early scholarship assume that the terms that survived tended to approach optimality.  In complex loan transactions, standard terms meant that one could trade loan instruments quickly without reviewing terms, confident that the effect of the boilerplate provisions was well-understood and that their value had been priced.

A second generation of scholarship discovered that the reality departed from the model.  Sticky terms were used despite their sub-optimality and they were not in fact well-understood and could in fact be challenged by opportunistic litigants.  These provisions came to be known as "black holes," presumably because their meaning was impenetrable and yet they could not be easily removed without causing the surrounding deal structure to collapse.  But it gets worse.  The standard language turns out not to be standard after all, and so one cannot even assume that the standard boilerplate provisions, regardless of their opacity, have some accepted meaning that can be priced.

Robert_scott_0The Authors then turn their attention to the process whereby the boilerplate is made, and this part of the Review and Research Agenda introduces the main theme of the Authors' forthcoming book on commercial boilerplate.  Inattention to the mode of contract production transforms boilerplate "black holes" into "landmines." Transactional lawyers assume that boilerplate clauses are both fixed and well-understood. They are neither. And as slight changes slip into common boilerplate provisions, opportunistic lawyers can pounce.   

Still, the Authors note that there will always be a trade-off in contract design between the high production costs associated with bespoke contract drafting and the accidental inefficiencies associated with adopting boilerplate provisions, which might not be the right fit for the transaction (see related work on "alien vomit") or might be corrupted in ways that are not easily detectible in the hurly-burly of transactions negotiated under time pressure.  The more common the transaction, the more likely it is to be larded with landmine boilerplate provisions. 

The authors describe the process though which such landmines come into being in a context they have studied carefully, sovereign bond contracts.  They illustrate the effects of such landmines through a discussion of the impact of a misunderstood pari passu clause, a landmine triggered in 2011 in connection with the Argentinian debt crisis.  They have created a typology of landmines: historical holdovers, random errors, subversive accretions, and obsolete provisions.  They conclude with a list of eight emerging areas of research, followed by a dozen pages of references that will no doubt serve as a mandatory reading list for other scholars in this area.

It looks like the related book project will focus on the mechanics of commercial contract production.  The Authors argue that we need to improve our understanding of the tradeoffs between efficiency and tailored contract drafting in order to understand the provenance of boilerplate terms.  They illustrate problems with commercial boilerplate that have arisen in sovereign debt instruments.  They then provide evidence that similar landmines exist in other types of contracts dependent on commercial boilerplate.  The review and research agenda mentions interpretation issues that can arise in connection with boilerplate terms.  Knowing how a landmine got into a contract might indeed be important to a court looking beyond the text to the intentions of the parties. They return to that subject in the proposed book's concluding chapter.

Hoffman_David_Feb2023_Resized_v3I will note for the record to David Hoffman (right) has also posted about this article on Jotwell, and I wanted to complete my own assessment before reading his.  Having turned my attention to Professor Hoffman's piece after completing my own, I attach the following addendum.  You really should have read Professor Hoffman's take on this first.

In this post, I have refrained from commenting on the possible impact of AI on commercial boilerplate, assuming that one of the authors of Generative Interpretation would take up that challenge. Mere mortal that I am, I can only imagine that AI tools already at hand could now be deployed in a manner consistent with the Authors' work.  Transactional lawyers assume that commercial boilerplate is unchanging and and unchallenged.  It is neither.  Armed with that knowledge, they can use AI tools to efficiently police their boilerplate provisions for variations or even create a genealogy of the provisions and thus perhaps cull the alien vomit.  Following Hoffman and Arbel's work, one could also presumably use generative AI to predict the likely interpretation of boilerplate terms.

May 8, 2024 in Contract Profs, Recent Scholarship, True Contracts, Weblogs | Permalink | Comments (0)

Tuesday, May 7, 2024

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for May 7, 2024

Top Ten Bulb Vortex

 

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 08 Mar 2024 - 07 May 2024
Rank Paper Downloads
1.

Online behavioural advertising, consumer empowerment and fair competition: Are the DSA transparency obligations the right answer?

University of Amsterdam - Institute for Information Law (IViR), Institute for Information Law (IViR), University of Amsterdam, University of Amsterdam, University of Amsterdam, University of Amsterdam and University of Amsterdam
408
2.

Caveat Lector: Large Language Models in Legal Practice

The Chinese University of Hong Kong (CUHK) - Faculty of Law
326
3.

Oscar Law

Rutgers Law School and Rutgers School of Law, Students
148
4.

The New AI: The Legal and Ethical Implications of ChatGPT and Other Emerging Technologies (Symposium Foreword)

Fordham University School of Law and Fordham University School of Law
143
5.

Introduction to the Law of Secured Transactions

Angelo State University - Business Law
126
6.

Delimiting "Agreements" for International Law

Temple University - James E. Beasley School of Law
113
7.

Discussion Draft: Principles for AI in Contracting (Version 2.1)

University of Vienna - Faculty of Law
111
8.

Financial Hardship and Complaints-Handling in the Buy-Now Pay-Later Industry: A Recent Empirical Study

University of Melbourne, University of Melbourne - Melbourne Law School, Melbourne Law School - University of Melbourne and University of Melbourne - Law School
98
9.

Time to Call Time on the Quistclose Trust

University of Oxford
79
10.

The Ethical Limits of Markets: Market Inalienability

University of Virginia School of Law
78

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 08 Mar 2024 - 07 May 2024
Rank Paper Downloads
1.

Pay to Plead: Finding Unfairness and Abusive Practices in California Debt Collection Cases

University of Illinois Chicago School of Law and University of California, Irvine School of Law
253
2.

NIL Enforcement Preemption

Recreation and Sport Management Program
113
3.

The Ethical Limits of Markets: Market Inalienability

University of Virginia School of Law
78
4.

Consumer Protection and the Illusory Promise of the Unconscionability Defense

Fordham University School of Law and University of Denver Sturm College of Law
66
5.

Reconciliation at the Border of Public and Private Law: Rethinking Contract Principles in the Context of Impact and Benefit Agreements

Conway Baxter Wilson LLP
63
6.

Exploring Blockchain-Based Alternative Dispute Resolution: Limitations of Traditional Methods and Prospects for Further Research

CNRS-University of Paris 2
56
7.

Who’s Your Debtor? Group Insolvency and the Curious Case of Celsius

Leiden University - Hazelhoff Centre for Financial Law and the Department of Company Law
52
8.

Introduction for The Arbitration Conversation: Insights and Wisdom from Experts in the Field

Ohio State University (OSU) - Michael E. Moritz College of Law
51
9.

The Private Litigation Impact of New York's Green Amendment

Independent, Independent, Sabin Center for Climate Change Law at Columbia Law School and Columbia University - Sabin Center for Climate Change Law
42
10.

Forced Arbitration in the Fortune 500

University of California, Davis - School of Law
34

May 7, 2024 in Recent Scholarship | Permalink

Teachers Bring Breach of Contract Suit Against the Oklahoma Department of Education

Ryan_WaltersKeeping with this week's theme of Oklahoma news, we have a day in the life of the Oklahoma State Department of Eduction (OSDE) under the leadership of Ryan Walters (right). Mr. Walters is the State Superintendent of Schools.  I have never before known who the superintendent of schools was for the state in which I lived, but Mr. Walters manages to grab headlines almost every day.  The headlines are not about how much Oklahoma schools have improved or about the successes those schools have had in recruiting new teachers.  Rather, they tend to be about banning books, shutting down D.E.I. programs, partnering with providers of conservative educational materials, losing employees, including the entire legal team, and difficulties in accounting for federal funds allocated to Oklahoma.

Two teachers are suing Mr. Walters.  The two teachers allege that they signed a contract in November, 2023, in exchange for a $50,000 signing bonus.  In January 2024, the OSDE demanded repayment of the bonus, and according to the complaint in Bojorquez v. State of Oklahoma, Mr. Walters claimed that the only reason they had been paid the bonuses was that they lied on their applications.  As a result of that statement, plaintiffs are suing not just for breach of contract but also for defamation.  

Stay tuned.

May 7, 2024 in Current Affairs, Government Contracting, In the News, Recent Cases | Permalink | Comments (0)

Monday, May 6, 2024

For Every New FTC Rule, There Is a Reaction in the Form of Regressive Legislation in Oklahoma

Oklahoma in the "progressive" camp on non-competes, along with California, Minnesota, and . . . North Dakota.  Well, it was in the motley crew of states that, for one reason or another, ban non-competes.

Oklahoma_State_Capitol
Image © Caleb Long, CC BY-SA 2.5 
via Wikimedia Commons

But Oklahoma's non-compete law, 15 O.S. § 219A, allows for competition, "as long as the former employee does not directly solicit the sale of goods, services or a combination of goods and services from the established customers of the former employer."  So the statute brought protection from non-competes, with a pretty narrow carve-out.  Apparently, there was some dissatisfaction with the terms "directly" and "established."

This year, with SB 1543, our legislature attempted to address that dissatisfaction, by making the carve out so broad as to pretty much swallow the rule.  According to the bill's sponsors, at least as represented here, the revisions enable entities to "protect[] their legitimate businesses interests" and resist "unfair competition."  How?  Well, here's the new version of the law, with additions highlighted and deletions in bold cross-out.

A person who makes an agreement with an employer, whether in writing or verbally, not to compete with the employer after the employment relationship has been terminated, shall be permitted to engage in the same business as that conducted by the former employer or in a similar business as that conducted by the former employer as long as the former employee does not directly solicit, directly or indirectly, actively or inactively, the sale of goods, services or a combination of goods and services from the established customers or independent contractors of the former employer.

This change is purportedly necessary because the language of the original statute was "vague" and caused "confusion." 

But Oklahoma courts had not so found.  Part B of the statute provides  "Any provision in a contract between an employer and an employee in conflict with the provisions of this section shall be void and unenforceable."  In Howard v. Nitro-Lift Techs., L.L.C., Oklahoma's Supreme Court read the statute to empower a court to strike down in its entirety any non-compete or non-solicitation provision that exceeded the limits permitted under the statute.  In Autry v. Acosta, the Oklahoma Court of Appeals similarly set aside an injunction in favor of an employer.  The employer could not succeed on the merits, as its non-solicitation provision, which purported to prohibit an employee from indirect solicitation of her employer's former clients, both current and previous, exceeded what was permissible under § 219A. A and was therefore unenforceable under § 219A. B.

Courts did not find the language of § 219A vague or confusing.  Perhaps the problem with the statutory provision lies elsewhere. Perhaps the law was too effective in prohibiting restraints on trade and employee mobility.

Kevin_StittI am at a loss to understand what would remain of the ban on non-competes if the legislation became law.  I suppose that it still might offer some protections for people who just work for a competitor but are in no way involved in the solicitation of business.  However, "directly or indirectly, actively or inactively" could mean and likely is intended to mean that if your name even appears on your new
employer's website, you are engaged in a prohibited act of solicitation.  And because the word "established" has been eliminated, any solicitation of customers within the industry could be treated as a solicitation of the former employer's "customers," past, current, future, or potential.

In shocking news, although the reform bill sailed through the Oklahoma legislature, Oklahoma's Governor Stitt (left) vetoed the bill.  Here is his veto message:

Senate Bill 1543 would significantly expand employers' power to impede employees' ability to compete with their employer, post-employment, and worse, it would allow employers to restrict individuals' ability to earn a living, especially while using a learned trade or skillset. For these reasons, I have vetoed Enrolled Senate Bill 1543.

By the Governor of the State of Oklahoma
/s/ Kevin Stitt

Thanks, Governor Stitt.  This is something to keep an eye on for the next legislative session, but Governor Stitt will remain in office until 2027, so if he sticks to his guns, Oklahoma's workers are relatively safe from non-competes for a while.

May 6, 2024 in Commentary, In the News, Labor Contracts, Legislation | Permalink | Comments (0)

Friday, May 3, 2024

SCOTUS Decides Contractual Issue in a Maritime Law Case!

KavanaughThe issue in Great Lakes Insurance SE v. Raiders Retreat Realty Co. LLC was whether two parties to a contract governed by admiralty law can agree to a choice of law provision that conflicts with the substantive public policy of the state in which the case is to be heard.  The general answer, provided in an opinion by Justice Kavanaugh (right), is that choice-of-law provisions in maritime contracts are generally enforceable, with certain narrow exceptions not applicable on the facts before the Court.

The case is about insurance for a boat.  Raiders Retreat is a Pennsylvania Business that purchased insurance for its boat from Great Lakes, which is a Germany company headquartered in the UK.  The instance contract was governed by New York Law.  When the boat ran aground in Florida and Raiders Retreat sought coverage, Great Lakes denied the coverage due to a Raider Retreat's failure to maintain its fire suppression system, which had nothing to do with the boat running aground.  

Raiders Retreat sued in a Pennsylvania District Court, bringing claims under Pennsylvania contracts law.  The District Court enforced the parties' choice-of-law provision, which meant that it dismissed the Pennsylvania claims.  Raiders Retreat appealed to the Third Circuit, which refused to apply New York law if doing so would violate Pennsylvania public policy and remanded for a determination of whether it would do so.  To resolve a Circuit split, SOCTUS granted an interlocutory appeal.   

220px-Clarence_Thomas_official_SCOTUS_portraitFederal maritime law is all about uniformity, and there is a clear rule that choice-of-law provisions in maritime contracts are presumptively enforceable.  Okay, so how is the presumption overcome?  The parties agreed that "courts should disregard choice-of-law clauses in otherwise valid maritime contracts when the chosen law would contravene a controlling federal statute . . .  or conflict with an established federal maritime policy" or if the parties can provide no reasonable justification for the chosen jurisdiction.

That seems pretty straightforward and workable.  Raiders Retreat wanted either a rule that courts should not enforce the choice-of-law clause if doing so would violate the public policy with the state with the closest connection to the transaction.  Justice Kavanaugh responded with a hard no.  What part of uniformity does Raiders Retreat not understand?

Justice Thomas (left) concurred to emphasize how much he doesn't like a case called Wilburn Boat.  Justice Kavanaugh had concluded that Wilburn Boat did not apply on these facts.  Justice Thomas needed to send a clear signal to potential litigants: I dare you to cite Wilburn Boat to me.  I double dare you!

May 3, 2024 in Recent Cases | Permalink | Comments (0)

Thursday, May 2, 2024

Various Problems with Liquidated Damages

Posner_richard_08-2010I use Judge Posner's opinion in Lake River Corp. v. Carborundum Co. to teach liquidated damages and penalties.  It's a typical Judge Posner (left) opinion.  He provides policy arguments for and against the enforcement of liquidated damages provisions, even if they impose a penalty on the breaching party.  Judge Posner makes the compelling freedom of contract/anti-paternalist arguments in favor of enforcement of penalties, assuming relative sophistication and comparable bargaining power.  Against these arguments, he offers the theory that deterring opportunistic breach prevents efficient breaches that produce better outcomes for most of the parties involved and do not produce worse outcomes for any of them (assuming no transactions costs).  He then heaves a sigh, says, "Illinois, ya basic!" and applies the applicable state law prohibiting the enforcement of penalties. 

Some of my students wanted to outflank Judge Posner.  Yes, the liquidated damages clause in the contract was absurd, but why should a court come to the rescue of a well-resourced party that entered into a bad deal with eyes wide open?  Carborundum apparently valued access to Lake River's bagging and distribution capabilities so highly that it was willing to take on a high penalty for breach.  My students could have cited another Judge Posner case that I also teach, NIPSCO v. Carbon County Coal.  There, NIPSCO entered into a long-term contract to buy coal whether or not it needed the coal.  NIPSCO assumed that it would need the coal when it entered into the contract, but then it became significantly less expensive to get electricity from other sources. The state regulatory authority would not allow NIPSCO to pass on to its customers the costs it incurred through its lack of foresight, and so it sought to get out of its contractual obligations.  Judge Posner would not allow it to do so, even though the effect was quite similar to a penalty clause.  NIPSCO had to pay an inflated price for coal it didn't need.  Indeed, according to Judge Posner, nobody wanted the coal, which was why the mine shut down once NIPSCO stopped accepting shipments.  

So, Judge Posner would not force Carborundum to pay for bagging and distribution services it no longer needed, but he did force NIPSCO to pay for coal it didn't need.  The cases are reconcilable as a matter of legal doctrine.  In both cases, I find Judge Posner's legal reasoning entirely persuasive. And yet, their outcomes seem hard to square with both economic theory and the principles of freedom of contract.  Perhaps the solution is that Judge Posner, if unconstrained by the Erie doctrine or precedent, would simply allow the parties' terms, no matter how ill-conceived, to govern in both cases.

SepinuckProfessor Stephen Sepinuck (right), a keen-eyed scanner of the legal horizon, noticed another liquidated damages conundrum.  Ne. Ill. Reg'l Commuter R.R. Corp v. Judlau Contracting, Inc., involved a $17 million contract for construction work on Chicago's Metra line.  Judlau did not complete the project within the time specified in the contract, running over by 500 days.  Metra alleged a right to choose between enforcing the contract's liquidated damages provision and seeking actual damages.  District Judge Mary Rowland of the Northern District of Illinois, noted that Illinois law does not permit parties to choose between actual and liquidated damage, and she rejected Metra's attempt to distinguish between a right to collect liquidated damages an option to choose between liquidated and actual damages. 

Metra acknowledged the Illinois prohibition on clauses that permit a party to choose between liquidated and actual damages, citing Karimi v. 401 North Wabash Venture, LLC.  The Illinois rule struck Professor Sepinuck as unusual.  Learned commentary ensued.  Indeed, Colorado reached the opposite conclusion in Ravenstar, LLC v. One Ski Hill Place, LLC.  The Illinois rule seems to be motivated by a horror of penalty clauses.  Confronted with little or no actual damages, the non-breaching party can nonetheless profit from a liquidated damages clause.  Facing actual damages well in excess of liquidated damages, the party might choose to jettison the limits imposed by the liquidated damages clause.  It creates a win/win for the non-breaching party and also eliminates one of the primary advantages of a liquidated damages provision -- the ability to settle a claim quickly without the need to prove actual damages.

Which brings us back to Judge Posner's dilemma.  These option clauses seem ill-advised.  Why agree to a liquidated damages clause designed to  minimize litigation costs while also giving the other party the option to choose to impose litigation costs on you?  However, if sophisticated parties agreed to an ill-advised clause  why not allow them to be hoist by their own petard?  In Judlau, the court faced no such dilemma, Judge Rowland concluded that "the plain language of the contract here does not create an option between liquidated and actual damages."  Metra did not include an ill-advised option clause in its contract.  It just seems to have pursued an ill-advised litigation strategy that involved arguing without much of a textual basis that it had negotiated for an advantageous option which, it acknowledged, was foreclosed in any case by governing law.

May 2, 2024 in Commentary, Contract Profs, Famous Cases, Recent Cases, Teaching | Permalink | Comments (5)

Wednesday, May 1, 2024

David Beckham Sued Fitness Brand F45 in 2023, and It's Suddenly News

BeckhamAh, the frustrations of being a contracts law blogger.  According to Zachary Folk who covers "breaking news" for Forbes, David Beckham (right) first tried to sue F45, a company in which Mark Wahlberg owns a large stake, in 2022.  A judge dismissed that suit, in which Mr. Beckham joined forces with golfer Greg Norman, advising the plaintiffs to file separately. 

Mr. Beckham refiled his suit in March, 2023, but as such things go, everybody is covering the case now, although nobody is linking to any filings from the case, so I neither really know what is going on nor why the media are suddenly interested in the "breaking news" of a case that is already one-year into its existence.  I wonder if some publicist for one of the parties decided that some media attention might speed up the settlement process.

The essence of the case seems to be that Mr. Beckham did promotional work for the brand beginning in 2020 in exchange for "tradable shares" of the company when it went public, which was supposed to happen in July 2021.  The share price quickly tanked after the company's initial public offering in January 2022, and Mr. Beckham alleges that the company delayed delivery of his shares.  During the delay, Mr. Beckham alleges, the value of his shares dropped by $9.3 million.  He also alleges entitlement to another $5 million in shares that were supposed to be transferred to him in July 2022.  

The current valuation of the company appears to be about the same as what Mr. Beckham claims he is owed.  But he is not the only party suing the company, so there may not be much left for Mr. Beckham at the end of the day.

Mr. Beckham is no stranger to the world of contracts disputes.  In December 2022, we blogged about his agreement to help promote the World Cup in Qatar.  Apparently, that deal worked out pretty well, although Mr. Beckham was paid bucketloads of money and did relatively little to promote the World Cup, unless being vilified by his LGBTQ+ fans counts as fulfillment of contractual obligations.

May 1, 2024 in Celebrity Contracts, Sports | Permalink | Comments (0)

Tuesday, April 30, 2024

Tuesday Top Ten - Contracts & Commercial Law Top SSRN Downloads for April 30, 2024

Top-ten-star-neon

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 01 Mar 2024 - 30 Apr 2024
Rank Paper Downloads
1.

Online behavioural advertising, consumer empowerment and fair competition: Are the DSA transparency obligations the right answer?

University of Amsterdam - Institute for Information Law (IViR), Institute for Information Law (IViR), University of Amsterdam, University of Amsterdam, University of Amsterdam, University of Amsterdam and University of Amsterdam
392
2.

Caveat Lector: Large Language Models in Legal Practice

The Chinese University of Hong Kong (CUHK) - Faculty of Law
303
3.

Reputation Reconsidered

University of Richmond School of Law
215
4.

Oscar Law

Rutgers Law School and Rutgers School of Law, Students
142
5.

Introduction to the Law of Secured Transactions

Angelo State University - Business Law
126
6.

From Smart Legal Contracts to Contracts on Blockchain: An Empirical Investigation

Roma Tre University, Rome, Italy and Roma Tre University, Rome, Italy
124
7.

The New AI: The Legal and Ethical Implications of ChatGPT and Other Emerging Technologies (Symposium Foreword)

Fordham University School of Law and Fordham Law School
118
8.

Discussion Draft: Principles for AI in Contracting (Version 2.1)

University of Vienna - Faculty of Law
106
9.

Financial Hardship and Complaints-Handling in the Buy-Now Pay-Later Industry: A Recent Empirical Study

University of Melbourne, University of Melbourne - Melbourne Law School, Melbourne Law School - University of Melbourne and University of Melbourne - Law School
93
10.

Filling the Void: How E.U. Privacy Law Spills Over to the U.S.

New York University School of Law and New York University School of Law
82

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 01 Mar 2024 - 30 Apr 2024
Rank Paper Downloads
1.

Pay to Plead: Finding Unfairness and Abusive Practices in California Debt Collection Cases

University of Illinois Chicago School of Law and University of California, Irvine School of Law
246
2.

Reputation Reconsidered

University of Richmond School of Law
215
3.

NIL Enforcement Preemption

Recreation and Sport Management Program
106
4.

Filling the Void: How E.U. Privacy Law Spills Over to the U.S.

New York University School of Law and New York University School of Law
82
5.

The Ethical Limits of Markets: Market Inalienability

University of Virginia School of Law
73
6.

Reconciliation at the Border of Public and Private Law: Rethinking Contract Principles in the Context of Impact and Benefit Agreements

Conway Baxter Wilson LLP
62
7.

Consumer Protection and the Illusory Promise of the Unconscionability Defense

Fordham University School of Law and University of Denver Sturm College of Law
60
8.

Rights Mediation: Contracts Law and the First Amendment

Oklahoma City University School of Law
59
9.

Exploring Blockchain-Based Alternative Dispute Resolution: Limitations of Traditional Methods and Prospects for Further Research

CNRS-University of Paris 2
52
10.

Introduction for The Arbitration Conversation: Insights and Wisdom from Experts in the Field

Ohio State University (OSU) - Michael E. Moritz College of Law
47

April 30, 2024 in Recent Scholarship | Permalink

Once Again, the Mistaken Party Pays. This Time, I Don't Think They Should.

Screenshot 2024-04-27 at 5.45.40 AMLast week, Emily Schmall reported in The New York Times about a Mexican man who found Cartier Earrings on sale on the company's Mexican website for 237 pesos, which is about thirteen dollars.  He knew that the earrings, described as "slender studded 18-carat rose-gold cuffs lined with diamonds," were worth far more than that, so he jumped at the offer.  He bought two pairs. Cartier noticed the mistake and corrected it, adjusting the price to 237,000 pesos. 

Cartier attempted to cancel the order. It attempted to buy off the purchaser with freebies.  He wouldn't budge.  He availed himself of Mexico's consumer protection laws and filed a complaint with the Matamoros branch of the federal consumer protection agency.  However, as one corporate attorney interviewed by the Times noted, the consumer does not win when the price quote is clearly a mistake.  But the buyer had mounted a social media campaign, and Cartier decided to save itself a prolonged legal battle and the potential attendant negative publicity.  The company filled the order, and the buyer dismissed his complaint.

Jeffrey-Lipshaw_960x860I'm not happy for him.  He was not fooled by a misleading advertisement.  Cartier was not offering a lost leader.  It was an obvious mistake, and he knew it was a mistake.  These things are going to be happening more and more often as AI takes over website management.  There will be simple transcription or calculation errors, and there is no scrivener to blame.  

But scrivener's error doctrine should still apply.  Neither party really thought that the designer gold and diamond earrings were being offered for the cost of shipping and handling.  Reformation is the right result here, and if the buyer is not interested in paying what he knew to be the actual price of the earrings, then the contract should be avoided.  Jeff Lipshaw (left) shared with us a similar case of a scrivener's error being treated as a unilateral mistake back in 2022.  That case is still, shockingly, working its way through the courts and may result in an $11 million windfall for a wholly undeserving litigant.  Rule 11 sanctions for the attorney and a "don't piss on my leg and tell me that it's raining" screed from the bench seem like a better outcome.

April 30, 2024 in Commentary, Contract Profs, In the News, Recent Cases | Permalink | Comments (1)