Saturday, May 25, 2019
A recent case out of New York, Leakey v. The Setai Group LLC, 151298/2014, concerns a tragic event. The plaintiff, Leakey, was allegedly sexually assaulted during a massage.
Leakey sued several entities, including the owners and operators of the spa, on theories of negligence, intentional infliction of emotional distress, and breach of contract. The negligence claims failed because the massage therapist acted outside of the scope of his employment in sexually assaulting Leakey and there was no evidence the spa operators knew of any propensity by the therapist for inappropriate sexual conduct (this also doomed the intentional infliction of emotional distress claim). As for the breach of contract claim, there was no promise that the spa or its employees would be safe, so there was nothing to breach.
(You can read the complaint in the case here.)
Friday, May 17, 2019
This recent case out of Delaware, Leaf Invenergy Co. v. Invenergy Renewables LLC, C.A. No. 11830-VCL, is a corporate disagreement that requires the court to interpret the contract and then establish the proper measure of damages. Which is very complicated, with the courts disagreeing on what the benefit of the bargain was, what needs to be considered to put the party in the position they would have been in but for the breach, and how the theory of efficient breach affects all of this. Damages is always a unit that makes my students' heads hurt, and this is a case that reminds me why!
h/t to Eric Chiappinelli from Texas Tech!
Monday, May 6, 2019
A recent case out of New York, Umeh v. Checole, 159884/2018, reminded me of the first time I negotiated a publishing contract (sidenote: I happen to also be a published novelist). The dispute is a straightforward one: the publishing contract contained an arbitration clause, the plaintiff alleges she didn't realize the arbitration clause meant she was giving up her ability to go to court, the court decides that arbitration is favored and the plaintiff wasn't "naive" so her agreement to the contract represented "a clear and unmistakable intent by two willing parties to resolve disputes by arbitration."
My publishing contract didn't have an arbitration clause, but this case reminded me of it nonetheless because, after the contract was sent to me by my editor, I asked for a couple of changes and sent it back, and my editor replied something along the lines of, "Hey, I was wondering actually if you could explain to me what that part of the contract means, I've never understood." And that was my introduction to the fact that so, so, so many people are entering into contracts that they have no idea what they mean. This was a contract the publishing company sent to me, but there wasn't enough of a communication to non-lawyers in the company what the contract meant. I write fiction for fun, but I think one of the biggest fictions is the one in which we pretend that people understand the contracts they're entering into.
Thursday, May 2, 2019
The difficulties in establish an oral agreement, the difficulties in establishing promissory estoppel
A recent case out of the Fifth Circuit, Mr. Mudbug, Inc. v. Bloomin' Brands, Inc., No. 18-30626 (behind paywall), reminds us that, in the case of establishing the existence of an oral agreement, it helps to have testimony that comes from a third party.
The plaintiff asserted that it had entered into an oral agreement with the defendant where the defendant promised to buy 28 million pounds of various dressings. However, all of the testimony about the existence of the oral agreement came from the plaintiff's executives. While it was true that the plaintiff and the defendant had a ten-year business relationship, that by itself did not establish the existence of the 28-million-pound contract, especially where the defendant had provided evidence that it consistently refused to commit to a specific volume of purchasing.
Having failed to establish the existence of a contract, the plaintiff turned to promissory estoppel, but you can only have promissory estoppel where a promise exists. The plaintiff asserted that the defendant told it that it would have to "substantially enlarge its . . . facilities" if it wanted "to produce all of the food products" that the defendant would need. But this was a declaration of fact, not a promise that the defendant would enter into contracts with the plaintiff if it expanded.
Monday, April 29, 2019
Would we really say that Weinstein's company's directors didn't approve of his pattern of sexual misconduct?
This, strictly speaking, isn't really a contract case, although there is an employment contract at issue so I guess that's how it got caught in my filter. But I read it and thought that this case is raising important enough issues that we should be discussing them.
The case is David v. The Weinstein Company LLC, 18-cv-5414 (RA), out of the Southern District of New York, and it's a case centering around the alleged sexual assault perpetrated by Harvey Weinstein on the plaintiff. The story the plaintiff tells is a familiar one to those who have read the Weinstein reporting, that "Weinstein asked her to meet him in his hotel room to discuss potential acting roles, and then, on one occasion, forcibly raped her." This decision isn't so much about Weinstein's conduct, though, as it is about the former directors of Weinstein's companies, who the plaintiff contends "enabled Weinstein's sexual misconduct, making them liable for general negligence and negligent retention or supervision."
The court dismisses the claims against the directors, and the reasons why were what caught my eye about this case. Plaintiff's allegations were that the directors were aware of Weinstein's harassing behavior toward women, based on a number of things: a written communication within the company calling his behavior a "serial problem" the company had to deal with; the characterization by a company executive of Weinstein's female assistants as "honeypot[s]" to lure actresses into meetings with Weinstein; a formal complaint by an employee about Weinstein's behavior; an employee memo summarizing two years' worth of allegations of sexual harassment and misconduct by Weinstein and characterizing the company as a "toxic environment for women"; the settlement of many sexual misconduct claims against Weinstein; and at least one police investigation into Weinstein's behavior.
None of the allegations established negligence on the part of the directors, according to the court. First of all, the directors did not owe the plaintiff a duty of care, and there is no case law that directors of a company can be held liable for an employee's tortious act. The plaintiff pointed to the fact that the directors renewed Weinstein's contract in 2015 with a provision that prevented Weinstein from being fired for sexual misconduct as evidence that they were enabling Weinstein's conduct, but the court found that this was "a far cry from them approving of Weinstein's sexual assault." While the court admitted that the directors "were not without moral culpability," their actions were not negligence as a legal matter.
Nor did the plaintiff assert a claim for negligent retention or supervision. The plaintiff did not show that Weinstein's sexual assault took place on the company's premises, since she asserted it happened at a hotel not affiliated with the directors. While the plaintiff argued that Weinstein used company credit cards to pay to the hotel room and lured her to the hotel room under the guise of a business meeting regarding employment by the company, that was regarding the company, not the directors sued here.
As a matter of law, the court's reasoning makes sense.
As a matter of recognition of how oppressive power structures work, this decision is terrible.
When I learned negligence way back in law school, I remember so many discussions about the policy behind it, about not wanting to hold people to a generalized duty to protect everyone on the planet, about how we decide proximate causation, about how it's really at heart about what we want to hold people liable for and what we don't.
So this decision makes sense in terms of worrying about generalized duties, of not dismissing the culpability of those committing the intentional tortious act. But it doesn't make sense in terms of thinking about the type of society we want to live in. The Weinstein reporting tells a story of serial abuse that was systemically protected for years by the power structure around Weinstein. To say that nobody else in the power structure was sexually assaulting women is a true statement of legal fact, but also seems disingenuous at this point. Weinstein's abuse was so widespread and lasted so long not only because of Weinstein but also because of the entire operation around him deflecting culpability for it.
The negligence analysis in this case feels like it's operating in a vacuum, which is kind of how we teach our students to think, presenting them with discrete hypotheticals, but might not be the best or most effective way to set up a fair legal system that protects the most vulnerable and least powerful in society. The societal discussion about the oppressive system that permitted Weinstein (and others) to perpetrate so much abuse has just begun, and maybe we should include how the legal system interacts with those power structures in the discussion. If negligence is all about policy decisions about who you need to protect and how much, then maybe we should have a policy discussion about how to make those decisions, especially if we're making them in the context of an abusive pattern that might be obscured by looking at things in isolation.
The plaintiff's allegations in this case contain many damning examples that many people around Weinstein knew about the disturbing pattern of sexual misconduct, and made affirmative choices to find ways to use the power structure to protect Weinstein. I appreciate the court's statement that the directors might be morally culpable but not legally culpable, and I recognize that law and morals are two different things. But I don't know that I agree that the director's actions are "a far cry from them approving of Weinstein's sexual assault . . . ." Given the allegations about what the directors knew and how they reacted to that knowledge, I think we could read their actions as indicating that they were a far cry from disapproving of Weinstein's sexual assault.
Wednesday, April 24, 2019
A recent case out of the Southern District of New York, Optima Media Group Ltd. v. Bloomberg L.P., 17-cv-1898 (AJN), reminds us that fraud causes of action, including fraudulent inducement to enter into a contract, need to be pled with specificity.
In the case, Bloomberg alleged that it had been fraudulently induced to enter into the contract based on alleged misrepresentations made by "Optima's head, Rotimi Pedro, and his principal advisers" made "in a series of communications" "during [the] negotiations." This was not enough specificity. These allegations do not identify exactly: who provided these alleged misrepresentations, where they were made, how they were made, or when they were made. For instance, there was no indication whether the statements were made "in person, over the phone, or by email." Failure to specify the exact speakers was problematic in and of itself, and especially problematic in view of the failure to specify the location, method, or time frame of the alleged misrepresentations. Therefore, the court dismissed the claim. (Other of Bloomberg's claims survived.)
Monday, April 22, 2019
Don't just stand there, let's get to it: Second Circuit orders payment of "Vogue" royalties (aside, I hadn't listened to "Vogue" in a while, and it totally started my week off right!)
A recent case out of the Second Circuit, Pettibone v. WB Music Corp., 18-1000-cv, caught my eye because I teach the underlying copyright dispute driving this contractual dispute. You can listen to the case's oral argument here.
Pettibone composed the song "Vogue" with Madonna and entered into a contract with Warner where Warner collected the royalties for the song and split them with Pettibone. In 2012, Pettibone and Warner were sued for copyright infringement. They each had their own counsel and each bore their own costs in successfully defending the lawsuit, both in the trial court and on appeal. (You can read the appellate court decision here. We talk about it in my Transformative Works and Copyright Fair Use class when we do a unit on music.)
After the conclusion of the copyright suit, Warner withheld over $500,000 worth of royalties from Pettibone, claiming that under Section 8.1 of the agreement between Warner and Pettibone, it was allowed to withhold the royalties to pay for its defense of the copyright infringement suit. Section 8.1 read in part, "Each party will indemnify the other against any loss or damage (including court costs and reasonable attorneys' fees) due to a breach of this agreement by that party which results in a judgment against the other party . . . ."
Pettibone sued, arguing that he had never breached the agreement and therefore Section 8.1 did not permit Warner to withhold any royalties. The district court found that Section 8.1 "unambiguously requires Pettibone to indemnify Warner for the attorneys' fees and costs," and dismissed Pettibone's complaint.
In another example of ambiguous understandings of ambiguity, the appellate court here reversed the district court's holding, instead finding that Section 8.1 is "pock-mocked with ambiguity." In the Second Circuit's opinion, a better reading of the section was that, if there was no breach, each party should carry its own attorneys' fees and costs. In fact, Section 8.1 went on to read that "each party is entitled to be notified of any action against the other brought with respect to [the song 'Vogue'], and to participate in the defense thereof by counsel of its choice, at its sole cost and expense" (emphasis added). A fair reading of the section, the Second Circuit said, was that it required Pettibone to indemnify Warner if Pettibone breached the contract, but not otherwise.
Warner was the party that drafted the contract, and could easily have stated that indemnification happened in the event of any allegations, not just any breach. That was not, though, how the contract was drafted.
The effect of Warner's argument would be to shift a million dollars' worth of attorneys' fees onto Pettibone, just because there was a lawsuit, "regardless of merit or frivolousness." The Second Circuit found that to be "an extraordinary result" not justified by the section's ambiguous language. Therefore, the Second Circuit ordered reversal of the district court's dismissal, judgment for Pettibone, and calculation of the royalties improperly withheld from Pettibone, as well as consideration of Pettibone's request for attorneys' fees in connection with the instant action and appeal.
Wednesday, April 17, 2019
A recent case out of the Northern District of California, Sanchez v. Gruma Corporation, Case No. 19-cv-00794-WHO, is a good case to point to to remind students that unconscionability has both procedural and substantive sides, and you need to have both. In the case, the court admits that the plaintiff's account of the signing of the contract raised procedural unconscionability issues: the plaintiff alleged that he was given no choice, was told if he did not sign the contract he could not work at the company, was not told what the contract really meant, and was given no opportunity to review the contract. However, this procedural unconscionability ultimately didn't matter, because the court ruled the contract was not substantively unconscionable. There was one provision the court found unenforceable but the court severed that provision and enforced the rest of the agreement.
Monday, April 15, 2019
A recent case out of the Central District of California, Chromadex, Inc. v. Elysium Health, Inc., Case No. SACV 16-02277-CJC(DFMx) (behind paywall), discusses consideration allegations under California law. I never practiced in California and don't teach in California, so I didn't realize that California has a statute, Cal. Civ. Code § 1614, that provides that "[a] written instrument is presumptive evidence of consideration." The defendants argued that the contract in question did not have consideration because the consideration was an offer of employment to Morris but Morris left that employment the same day he signed the agreement. However, the court pointed out that the plaintiff alleged the agreement was a written instrument and attached it to the complaint, which raised the presumption that it had adequate consideration, so the court refused to dismiss the claim.
Monday, April 1, 2019
When I teach express conditions, we talk a lot about the language that you use to create them. A recent case out of the Northern District of Ohio, Health and Wellness Lifestyle Clubs, LLC v. Raintree Golf, LLC, Case No. 1:17CV2189 (behind paywall), has some examples. The agreement in question read that it was "contingent upon Purchaser's obtaining and delivering to Seller a written unconditional commitment or commitments," and continued that "the obligations of Seller to consummate the transaction . . . shall be subject to the fulfillment on or before the date of Closing of all of the following conditions," both of which created an express condition that a written unconditional commitment needed to be delivered. Because there was never any such written unconditional commitment in this case, the dependent obligations never became due.
Sunday, March 31, 2019
Reformation is one of those doctrines that I love to have class discussions over, really interrogating when (and whether) courts should employ it. A recent decision out of Delaware, In re 11 West Partners, LLC, C.A. No. 2017-0568-SG, has a nice reformation discussion in clear, straightforward language that I think could be useful in class. I especially like the Court's remarks about "the conclusions of social scientists and psychologists that witnesses may come to believe in factual scenarios beneficial to them . . . ." It's a gentle and sympathetic decision regarding "honorable" men whose recollections of the truth all differ.
h/t to Eric Chiappinelli at Texas Tech for forwarding us this case!
Saturday, March 23, 2019
I am always fascinated by cases where the courts can't agree whether a contract is ambiguous or not. The very fact of there being disagreement should probably point to the contract being ambiguous, right? A recent case out of Pennsylvania, SBA Towers II LLC v. Wireless Holdings, LLC, No. 325 WDA 2018, gives us another example. The lower court and the majority on appeal found that the clause in question was ambiguous. A partial concurrence/dissent, however, would have held that the contract was unambiguous. The dissent argued that the majority was finding ambiguity in the contract's silence, and that in this case ambiguity should have been rooted in something about the contract itself:
"In sum, although an ambiguity could, in another scenario, arise from the silence in a contract as to a particular term, Appellees in this case have failed to articulate a basis for finding ambiguity in Paragraph 18 of the lease, e.g., unclear wording or punctuation, the impossibility of enforcement of the contract term as written, or language in another paragraph that would make Paragraph 18 confusing or unworkable."
Monday, March 18, 2019
A class action in the Southern District of New York, Pisarri v. Town Sports International, No. 18 Civ. 1737 (LLS) (behind paywall), has breach of contract claims that survived a motion to dismiss based on the notice requirement to make modifications. The class action has been brought on behalf of a number of members of a chain of gyms. The contract between the gyms and their members stated that the gyms could modify the contract at any time but it also stated that the gyms would notify members of any modifications. The members alleged that they were not notified of the modifications to the contract. This was a plausible allegation of breach of contract and so survived the motion.
However, the members' other breach of contract claim based on the gyms' revocation of their memberships did not survive. The contract allowed the gyms to revoke membership at any time if it was in the gyms' best interest. The court concluded that it was well within the gyms' best interest to revoke the memberships of people who were suing them. Since the members had other gym alternatives available to them, the court found the gyms' actions reasonable and dismissed this breach of contract claim.
Thursday, March 14, 2019
An employer isn't bound by a policy unless the employee is aware of and relies upon the policy (e.g., reads the handbook!)
A recent case out of Illinois, Brown-Wright v. East St. Louis School District 189, NO. 5-18-0311 (behind paywall), finds that in order for an employee policy to operate as a binding contract, the employee has to have read the policy.
In the case, the plaintiff was suing based on an alleged violation of the sick leave payout policy. The plaintiff, however, did not find out about the policy her case was relying upon interpreting until after her employment ended. Therefore, it was not the case that she learned of the policy and continued to work as acceptance of and consideration for that policy. Because the plaintiff did not read the policy before terminating employment, she could not rely upon it now.
This is a lesson to all of us to read those policies our employers send around.
Wednesday, March 13, 2019
First. the court had to tackle the question of when a contract was formed and which of the many interactions between the parties was the governing contract. That involved the court reading emails closely to determine if there was ever an offer and acceptance. The court concluded there was not, because the parties always spoke in terms of "fine tuning" the agreement, contemplated a subsequent written document would happen, and did not intend to be bound until then. There was also a consideration issue, because basically in the emails the parties were just agreeing to discuss entering into an agreement.
Subsequent written contracts between the parties on the subject contained merger clauses that in and of themselves would have superseded the emails, even if the emails had constituted binding contracts. The emails also did not satisfy the statute of frauds, as they contemplated a three-year term but did not contain all the material terms nor a signature from the party to be bound. Finally, the plaintiff had not been damaged because the plaintiff did not actually have the rights he was claiming were violated.
Tuesday, March 12, 2019
When I teach about illegal contracts, I often find myself talking about paid assassins, because for some reason it's the only example I can come up with on the fly (let's not psychoanalyze that too much). A recent case out of California, Lin v. Chiu, B285053, has a different illegality analysis. The case involved a contract concerning an investment of money into the opening of a fast food restaurant franchise. Chiu alleged that Lin used the contract to apply for permanent residency in the United States, even though the contract did not fulfill the requirements for such an application, and therefore the contract was illegal and unenforceable.
The court disagreed. Even if Lin's attempt to use the contract as the basis for residency might be questionable, the central purpose of the contract itself was a straightforward investment, not anything illegal. Nothing about the alleged illegal use of the contract had anything to do with Lin's contractual rights to repayment of his investment, and there were no allegations that the contract was merely a sham to defraud the U.S. government. It was a bona fide contract in and of itself, with the objective of receiving a return on investment, and not the objective of winning Lin permanent residency. Maybe Lin had an illegal motive underlying his actions, but that did not change the fact that his actions were a legitimate business transaction. Enforcing the investment contract, the court found, would not encourage others to use such contracts as an illegal basis for permanent residency.
Sunday, March 10, 2019
A recent case out of Texas, Rosenberg Development Corp. v. Imperial Performing Arts, Inc., No. 17-0660, tackles the question of whether economic development corporations are protected by the sovereign immunity doctrine, concluded that they are not. Interesting for its analysis of how to treat economic development corporations in this breach of contract suit.
Thursday, February 28, 2019
Sometimes it can seem so tempting to draft the broadest possible non-competition provision, but a recent case out of the Western District of Arkansas, Foster Cable Services v. Deville, Case No. 1:18-cv-1049, reminds us of why that can be dangerous.
In the case, Deville, a former employee, had signed a contract that classified "all information" given to Deville by the plaintiff as a trade secret and/or confidential, with no time or geographical limitations. Deville left the plaintiff's employment and the plaintiff sued that Deville had breached his employment agreement because he had disclosed confidential information to his new employer.
The court agreed with Deville's contention that the agreement he signed was unenforceable. The contract prohibited Deville from disclosing any information he learned while employed by the plaintiff, forever. The court found this unreasonable. Covenants not to compete should be reasonably drawn to protect genuine confidential information, whereas this agreement was broad enough to cover all experience and knowledge that Deville gained during his employment, forever. Therefore, the court refused to enforce it as an unreasonable restraint on trade.
Tuesday, February 19, 2019
I just blogged about a case in which failure to keep proper records meant there wasn't enough proof of agreement to the arbitration clause, and here's another one out of Texas, Stagg Restaurants, LLC v. Serra, No. 04-18-00527-CV. Stagg tried to compel arbitration, but the employee denied ever receiving notice of the clause or the agreement it was contained in. There was no signature on that particular agreement and none of Stagg's records indicated that it had ever been provided to the employee, even though the records indicated many other documents had been provided to him. Once again: make sure you keep good records.
Monday, February 18, 2019
Be careful in drafting your NDA while negotiations are ongoing, if you want it to also cover information exchanged after those negotiations end
Among other disputes in this recent case out of Idaho, Dickinson Frozen Foods, Inc. v. J.R. Simplot Co., Docket No. 45580, is a dispute over whether or not a nondisclosure agreement between the parties was violated. There was no dispute that the information in question was confidential. The only dispute was whether it was covered by the NDA. The court ruled that it was not, because the NDA had been drafted while the parties were in the process of negotiating their business relationship with each other. For that reason, it covered information disclosed "in connection with a proposed business relationship," and that the information was only to be used for "discussions relating to a possible vendor relationship." Once the parties had finished negotiating their relationship, it was no longer "proposed" or "possible"; it was fact. Therefore, there needed to be another NDA to cover information exchanged during the fact of the business relationship (of which the information in dispute was some).