ContractsProf Blog

Claim of Warranties Failing Their Essential Purpose in LOT v. Boeing

In August, 2021, Polskie Linie Lotnicze LOT S.A. (LOT) filed its 143-page complaint against The Boeing Company (Boeing).  There were twelve claims, most of which were dismissed on an earlier motion.  In February, the U.S. District Court for the Western District of Washington ruled on a motion to dismiss the claims relating to implied warranties of merchantability and fitness for a particular purpose. 

Image by Aka The Beav from Seattle, Washington, CC BY 2.0 via Wikimedia Commons

LOT leased fourteen Boeing MAX 737 aircraft.  Five were delivered before the Boeing MAX 737 was grounded because two of the jets crashed.  Boeing represented that the main advantage of the new jet was fuel efficiency.  According to the complaint, it failed to disclose that the new design would "change the aircraft's center of gravity; decrease aircraft stability; negatively affect flight handling characteristics to make the aircraft more susceptible to the catastrophic risk of aerodynamic stall; and create inherent safety risks."   There were allegedly faulty disclosures both to the FAA and to operators such as LOT relating to the aircraft's Maneuvering Characteristics Augmentation System ("MCAS"), problems with which may have contributed to the two crashes.  In a deferred prosecution agreement, Boeing admitted to having conspired to defraud the FAA.  The MAX 737 was not re-certified for flight until January 2021.

LOT claims that it suffered $250 million in damages due to the aircrafts' grounding.  It claims that the losses continue.

 The Aircraft General Terms Agreement  entered by Boeing and LOT's lessor, included an "exclusive" express warranty that the aircraft would be delivered free from defects in material or design. It appears that Boeing provided as the exclusive remedies available to the lessor the ability to return the planes for repair.  Boeing disclaimed consequential damages relating to warranties associated with the planes. 

LOT argued that the limitation caused the warranties to fail of their essential purpose because of how long the planes were grounded and because of Boeing's misrepresentations regarding MCAS.  In addition, LOT claimed that the limitations were unconscionable because Boeing's "gross negligence" caused the planes to be grounded for two years.  All of this follows from UCC §2-719(2) and (3), but the court mentions the UCC only in passing, and it doesn't mention §2-719(3) at all, which is troubling.   

There are some wrinkles here that the court does not acknowledge, perhaps because they are not relevant in this jurisdiction.  Some courts require that both tests in §2-719 be met -- that is, a warranty cannot be limited if the limitation both causes a remedy to fail of its essential purpose and enforcement would be unconscionable.  In addition, some jurisdictions treat §2-719 as relating to limitations on warranties but not to exclusions of consequential damages (see, e.g., Sheehan v. Monaco Coach Corp, footnote 4).  If that is true, a disclaimer of consequential damages can survive even if the warranty otherwise fails of its essential purpose.

The court rejected Boeing's argument that LOT should not be permitted to create a warranty claim by alleging fraud.  At this point in the litigation, it is unclear whether LOT will succeed on its warranty claim.  It ought be be permitted to plead in the alternative and retain its warranty action in case the fraud claim does not succeed. 

The court rejected LOT's unconscionability argument, finding that the parties engaged in extensive negotiations, and there were insufficient facts alleged t0 prove substantive unconscionability.  I find the court's discussion confusing, as the extent of the parties' negotiations has nothing to do with substantive unconscionability, but it would seem to negate any claim to procedural unconscionability.  The court defers judgment on the exclusion of consequential damages, which suggests that it may be open to an argument that the exclusion is unenforceable.  On what grounds?  

Well, perhaps on the ground that the remedy would fail of its essential purpose if Boeing were permitted to give operators such as LOT repeated assurances that the aircraft would soon be useable while disclaiming any damages resulting from any reliance of those assurances.  The court found the complaint's allegations "debatable but plausible" and allowed the warranty claims to go forward on that basis.  

While Boeing claimed that implied warranties did not run to LOT, Washington law "activates" implied warranties when an express warranty fails.  As a result, LOT's claims for breaches of implied and express warranties both survive.  The court does not detail the nature of the claim for a breach of an implied warranty of fitness for a particular purpose, and I would have been interested to see what about LOT's use of the planes was "particular" as opposed to ordinary.  

What It Takes to Get a Refund from an Airline

We posted last week about happy news for travelers seeking recovery from airlines over flight cancellation caused by the pandemic.  More legal action is in the offing against Southwest for its holiday meltdown this year.  I'm still hoping that Southwest will get ahead of this PR nightmare and offer frustrated travelers generous compensation.

Meanwhile, friend of the Blog Karen Halverson Cross alerted us to a feel sorta, kinda good story about about a $17,000 recovery from American Airlines.  The New York Times' Seth Kugel reports in the Tripped Up column about a traveler who, through no fault of her own, was unable to fly to Chile in time to meet up with her cruise to Antarctica.  The snafu was caused by American Airlines having provided the traveler with inaccurate information about what documents she needed in order to be able to fly Rapa Nui (Easter Island). 

The traveler did everything right: she researched travel requirements, she bought travel insurance, and ahw followed up aggressively when both American and the travel insurance company denied her claims.  American offered to refund the costs of her airline tickets, given that she was unable to fly due to her reliance on information provided to her by American, but they would not allow her to recover her consequential damages arising from her inability to meet up with her cruise ship.  The travel insurance company also refused a refund, on rather technical and shaky grounds. 

Seth Kugel put the screws to American, reading through the 299 pages of American's General Rules of the International Tariff, and he thought he had come up with a colorable argument for why American should have to cover the traveler's consequential harms and then . . .miraculously . . . American caved and paid.  

We should all be so fortunate.

But truth be told, applying ordinary principles of consequential damages, I'm not sure it would make sense to make the airlines cover the costs of a missed cruise.  How is American to know what the traveler had planned beyond Easter Island?  If they knew that $17,000 of additional liability awaited them on the other side of that flight, they might have upped their precautions against the provision of misinformation, but the more realistic course would be that the airline would make clear that they are not responsible for such consequential losses.  The traveler has to insure against the possibility of a missed connection.  The real problem here seems to lie with the limitations of travel insurance, which is really the only way for travelers to protect themselves against the unknown unknowns of air travel.

Airlines Required to Pay Refunds to Stranded Passengers

With my favorite airline, Southwest, in the news for a complete meltdown in the face of the Christmas blizzard, it is good to be reminded how much the other airlines suck.  We have two stories.  

First, Judge Jesse Furman approved a class-action settlement in which British Airways agreed to pay 100% refunds to over 26,000 class members whose flights were canceled due to COVID.  The settlement also included $1.26 million in attorneys' fees.  According to TopClassActions,

The settlement benefits consumers who purchased a ticket for a British Airways flight that was canceled between March 1, 2020, and Dec. 31, 2021, where the customer did not cancel the flight or fail to show up, the customer did not receive a refund or rebooking and the customer received a voucher from British Airways that they have not used.

Second, on November 14th, the U.S. Department of Transportation announced that airlines were required to refund $600 million to customers due to COVID cancellations.  In addition, six airlines had to pay fines of $7.25 million for their failure to provide timely refunds.  To nobody's surprise, Frontier Airlines led the way.

That Other SCOTUS Arbitration Case: Viking River Cruises

We were ever so happy to report on the first two Supreme Court cases this term interpreting the Federal Arbitration Act (FAA), Morgan v. Sundance, Inc., and Southwest Airlines v. Saxon.  They were short; they were unanimous; and they rejected motions by corporations to compel arbitration of their employees' claims.  The third, Viking River Cruises, Inc. v. Moriana, is more involved, generating a majority opinion from Justice Alito (left), a confusing flurry of concurrences, including one for the ages from Justice Barrett, and a quick dissent from Justice Thomas.  

The challenge in Moriana is the interaction between the FAA and California's Private Attorneys General Act (PAGA).  California's legislature determined that its Labor and Workforce Development Agency (LWDA) lacked resources necessary to enforce California's labor laws.  PAGA permits "aggrieved employees" to initiate  actions against former employers on behalf of themselves and other current or former employees.  They must first exhaust administrative remedies and give the LWDA an opportunity to act.  If it does not do so, they may bring their claims.  LWDA gets 75% of any award, and the employees split the remaining 25%.  PAGA operates like a qui tam action.  A PAGA suit is not a class action because the aggrieved employee is suing as an agent the state.

When Viking Cruises hired Moriana, you'll never guess what happened!  She signed an arbitration agreement that included a class action waiver.  After she left Viking, she sued under PAGA alleging that she had not received her final wages in a timely way but she also brought numerous PAGA claims on behalf of other current and former employees.  Viking moved to compel arbitration of Moriana's claim brought on her own behalf and to dismiss her PAGA claims.  The California courts refused to do so, relying on Iskanian v. CLS Transp. Los Angeles, LLC, in which California Supreme Court held that waivers of the right to bring "representative" PAGA claims violate public policy and are invalid.  The specific issue in Moriana is which of her claims count as "representative."  

As we have covered in earlier posts, the Supreme Court issued a number of pro-arbitration decisions, starting with Rent-A-Center and Stolt-Nielsen in 2010.  The upshot of those and other cases was that courts must enforce class action waivers in arbitration agreements on the ground that "a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”  Viking, citing those cases, argued that California courts cannot rely on Iskanian to force them into class litigation to which they have not consented.  The Court rejected that argument, because a PAGA claim is not a class claim.  It is a claim brought on behalf of one party, the state, via a proxy.

Still there is a problem, from the perspective of the Court's decisions interpreting the FAA as requiring enforcement of class-action waivers in employment agreements.  Iskanian does not permit the division of PAGA claims into individual actions (e.g., Moriana's claim brought on her own behalf) and non-individual claims (e.g., her claims brought on behalf of other current and former Viking employees).  Justice Alito resolves the tension between the FAA and Iskanian using the severability provision in Viking's arbitration agreement.  That agreement is invalid under Iskanian to the extent that it seeks to preclude Moriana's non-individual PAGA claims.  However, she must arbitrate her individual PAGA claim.

As they did with their SMUGLER episode a few weeks back, Will Baude and Dan Epps' Divided Argument has again provided some helpful insights about the toughest aspects of the Moriana case in their COBRA episode.  Justice Alito cannot cut through the Gordian knot that the case presents.  PAGA claims must be brought by an "aggrieved employee."  Once Moriana's individual claims are severed from her non-individual claims, she has no statutory standing to bring  her non-individual claims, because she is not "aggrieved" by Viking's alleged misconduct that did not affect her.  Not sure where to go from there, Justice Alito remands the case for "further proceedings not inconsistent with this opinion."  Sucks to be that court.

Justice Sotomayor offers a little help in her concurrence.  One option is that the California courts can offer a different interpretation of PAGA, perhaps somehow allowing non-individual PAGA claims to be brought after they have been severed from individual claims subject to arbitration.  I'm not sure how they get there.  The other option is that the state legislature can permit people other than "aggrieved workers" to bring PAGA claims.  That seems like the more workable solution, if the California legislature has the will to actually fix a faulty statute.

And then comes the fun stuff.  Justice Barrett wrote a concurrence, joined in full by Justice Kavanaugh.  She joined only in Part III of Justice Alito's majority opinion.  In her view, PAGA is just another means of aggregating claims, and those are all barred under the FAA if there is an arbitration agreement with a class action waiver.  Stolt-Nielsen is right so let's compel arbitration.  That's all the Court really needed to say.  As to Parts II and IV, she wrote the following: "The discussion in Parts II and IV of the Court’s opinion is unnecessary to the result, and much of it addresses disputed state-law questions as well as arguments not pressed or passed upon in this case."  Chief Justice Roberts joined up to there.  Then, she dropped a footnote, saying that the same was true of Part I.  That was too much for the Chief apparently, and it's quite comical, because Part I lays out the facts of the case.  Visions of the Marx brothers.

It seems like a snide dissent, but it might not be as bad as it looks.  If she were writing for herself, she could have just said that she signs on to Part III and nothing more.  But it's late in the term, and CJ Roberts didn't want to have to write a separate concurrence about how I and III are fine, so we get what looks like the ultimate mean girl footnote.  Justice Alito?  He doesn't even go here!

And finally, we get a lone dissent from Justice Thomas, who, as he has explained before, does not think the FAA applies in state courts.

On the whole, this strikes me as progress.  I would have predicted a 6-3 court reasoning along Justice Barrett's lines.  At best, even if this case came through a federal court, she only has four votes.  The Court seems willing to allow the people of California to rein in limitations on representative actions, and that seems to me a very good thing given the ubiquity of contracts of adhesion and gross disparities of bargaining power in the world of employment law.

Guest Post from Ohad Somech: Incorporating Different Voices into Digital Platforms

Ohad Somech
Doctoral Student in the Zvi Meitar Center for Advanced Legal Studies in Tel-Aviv University

In a series of articles, Stephen Burgen of The Guardian reported on the struggle of chambermaids in Spanish hotels to encourage digital platforms, such as TripAdvisor and Booking.com, to factor working conditions into their hotel rankings. When the platforms ignored their appeals, the chambermaids resolved set up an independent booking platform. Work is already underway, with a crowdfunding campaign exceeding the €60,000 target.s

A Chambermaid

Reading of the chambermaids’ triumph I was delighted, not only for them, but also because this was a great instance of theory coming to life. In Voicing the Market, Roy Kreitner explores a new movement in contract theory. He begins with the observation that contract theory is divided into two bodies of scholarship that, as Judy Kraus has noted, “passed each other like ships in the night.” The first type of scholarship, associated with legal realism, is dedicated to the relation between contracts and markets. The second, originating with Charles Fried’s Contract as Promise, seeks to ground contract law in personal morality.

It is only recently, Kreitner suggests, that contract scholars began to envision the contract-markets-morality triangle as a single theory. Alan Brudner, Daniel Markovits, and Nathan Oman have each independently sought to incorporate both personal morality and markets into their theories of contracts. Kreitner identifies the common denominator in all three works to be markets, and the pricing mechanism in particular, as allowing contracting parties to enter into agreements without first having to discuss what makes the traded thing valuable. In Kreitner’s words “prices are the public, shared face of valuation, which can be conducted without discussion, without dissention, without politics.”

By aggregating information from dispersed transactions, markets represent the moral accomplishment of allowing mutual recognition and collaboration without requiring parties to share similar values and beliefs. But, Kreitner goes to ask, is bracketing our disagreement about values truly a virtue? His answer is that bracketing may be desirable in well-functioning, competitive, or ideal markets, but not in many real-world ones.

In bracketing values and fixating on price and quality, markets offer us the option of participating or exiting. But many market actors, such as the Spanish chambermaids, want their voices to be heard as well. Indeed, rather than bracket valuation of working conditions, the chambermaids want every tourist to be confronted by them. Some may shrug off the information, but for others – including, I suspect, many of the blog’s readers – staying at hotels that mistreat their staff would be a non-starter.

And there is an even bigger picture to consider. The relationship between platforms and their commercial users is notoriously complex, not least because of the multiple functions served by platforms. One such function, Rory Van Loo suggested, is as conscripted regulators of the market that they constitute (e.g., the hotel market). Thus, one lesson from the chambermaids’ story is that, at least when it comes to working conditions, platforms have dropped the ball (if not forgot all about it).

Guggenheim, Bilbao, image by PA

However, were the chambermaids to succeed, platform may be pressured to do what they initially refused to do and include working conditions in their ranking. Imagine Amazon requiring sellers on the platform to provide it with information on working conditions (or environmental impact) and incorporate that information into Amazon’s ranking system. Though this may seem like a pipedream at the moment, initiatives like that of the chambermaids in Spain may bring it closer to reality. The other lesson from the story, then, is that platforms are ideally placed to offer a voice to market actors who are rarely given one, and we should encourage the platforms to do so.  

So, whenever we can (safely) travel to Spain again, don’t forget to visit the chambermaids’ (forthcoming) website and make sure you are satisfied with the working conditions at the hotel where you are staying.

Arbiter Orders Uber to Pay $1.1 Million in Damages for ADA Violations

According to the Business Insider, an arbitrator ordered Uber to pay $1.1 million in damages to Lisa Irving, a San Francisco Bay Area resident who is blind and relies on her guide dog, Bernie (pictured, as we imagine him), to help her get around.  Irving alleged that Uber drivers either refused to give her rides or harassed her because they did not like Bernie.   As a result of being left stranded by Uber drivers, Irving alleged that she was late for work, which contributed to her getting fired.  

She complained to Uber, to no avail.  Uber attempted to evade liability based on its drivers' status as independent contractors.  The arbiter did not buy it.   Nor did the arbitrator find convincing Uber's claims that it trains drivers to accommodate people with disabilities.  Rather, the arbitrator found that Uber, in some instances, coached drivers "to find non-discriminatory reasons for ride denials," and kept using drivers despite complaints that they discriminated against people with disabilities.  

The arbitrator found that Uber was responsible for its drivers' conduct and awarded Ms. Irving $1.1 million in damages relating to Uber's violation of the American with Disabilities Act.

Hat Tip to OCU Law 1L, Michael Turner

Emirates Airline and Unilateral Contracts

This is a bit out of date but it is still an interesting hypothetical.  According to this story, Emirates Airline is offering to pay medical expenses up to €150,000 ($173,000) and quarantine costs up to €100/day for fourteen days to anyone who contracts COVID-19 during an Emirates flight.  The offer is good through October 31st, so book your tickets now! 

The structure of the offer is similar to the set up to Carbolic Smoke Ball.  There, the company offered €100 to anyone who used their product, which was purported to prevent influenza, and still contracted the disease.  Plaintiff did both, and so was rewarded.  In the re-make, it seems like the difficulty would be proving that one contracted COVID on an Emirates flight.  After all, the airline is not promising immunity from COVID; it is only expressing its confidence that you will not be infected while flying.  But, at least as reported by CNN, Emirates is offering pretty broad coverage, as the language suggests that the offer is good "during the[] trip."  Arguably, if you contract COVID in the airport, in a taxi, in a hotel, on a non-Emirates connecting flight, that all would be covered. 

If nothing else, I think this offer suggests the lengths to which airlines are willing to go to entice people back into travel.  All signs suggest that it is not working.

H/T Miriam Cherry 

How Would John Rawls Design an Airline?

If you are flying on a U.S. commercial airline, you often have two options: the major carriers (US Air, American, United, Delta and their affiliates) or Southwest.  The two represent very different models.  The major carriers build their businesses by catering to the needs of business travelers, who fly frequently and whose employers usually pay for their flights.  These travelers seem to value their personal comfort and convenience very highly, because they are willing to pay extra for: leg room, a guaranteed seat, the ability to check a bag, early boarding, and the ability to put a carry-on in the overhead bins (really! United charges for this "privilege" if you buy the cheap seats).  Actually, the business travelers value personal comfort and convenience neither more nor less than economy passengers, but the business travelers aren't paying with their own money.

If you are the sort of customer to whom these airlines cater, you can expect great treatment.  You will find that the people who work for the airlines are attentive to your needs, and they will go the extra mile for you because they want to keep your business.  And most of your travel experiences will be pleasant.  You pay extra, so you don't have to wait in line, and you interact with the employees lucky enough to work with the happy, pampered customers rather than with the grouchy, put-upon infrequent flyers on whom the airline relies in bulk but not individually.

Southwest has a different model.  It treats all of its customers pretty much the same.  For a small fee, you can jump the line, but in most situations, it doesn't make that much difference.  If you don't pay the small fee, you will most likely still get an aisle or a window seat, perhaps at the back of the plane, but still.   Southwest flying is no-frills flying, but it is brisk and efficient; the crew is friendly and does not take itself too seriously.  Above all, they don't treat any of their customers like unwelcome interlopers.

Whose model works better?  Well, according to Wikipedia, US Air went bankrupt in 2002 and then again in 2004.  Delta absorbed two bankrupt airlines, Pan Am and Northeast, before declaring its own bankruptcy in 2005.  United entered bankruptcy in 2002 and emerged in 2006.  American waited until 2011 to file for bankruptcy.  They all would have gone bankrupt after 9/11 but for a $15 billion bailout from the federal government.  Southwest has never filed for bankruptcy.  If financial sustainability is the criterion, the major carriers do not get high marks.

But imagine, if you will, that you and a group of people are put in a room and asked to design a just airline.  Imagine that you are behind what John Rawls called a veil of ignorance: you do not know who you will be when you leave the room.  You do not know if you will be young or old, you do not know your gender identity or sexuality, you do not know if you will be able-bodied, you do not know your race, ethnicity, religious views, native language.  Most importantly for the exercise, you don't know whether you are rich or poor.  You don't know whether your employer will pay for/reimburse you for travel, and you don't know whether you will be a frequent flyer.  You just know that you may need to fly from time to time.  I will go out on a limb and assume that you will prefer not to be treated like trash.

My guess, is that you would design an airline a lot more like Southwest than like the major carriers.

As for me, I'm with Elaine, our goal should be a society without classes.

 

Hey, remember that time you went on that cruise and agreed to a contract before boarding?

Here's another case for the "periodic reminder" file, this one reminding you that you are entering into enforceable contracts all over the place, often without really registering that's what you're doing. This recent case out of the Southern District of Florida, Incardone v. Royal Caribbean Cruises, Ltd., Case No. 16-20924-CIV-MARTINEZ/GOODMAN (behind paywall), reiterates this lesson in the context of a cruise. The plaintiff argued that there was no binding contract between the parties because there was no evidence she had ever agreed to any such contract, but Royal Caribbean pointed out that every passenger is required to agree to terms and conditions during the online check-in, and that's the only way they're allowed to board the ship. Therefore, the court found, there was a binding contract. Granted, probably not one the plaintiff was really aware of when she checked in to go on vacation, but she clicked the button nonetheless. 

You can read more about the lawsuit here and here. 

If you don't pay for a raffle ticket, there's no contract for the prize

If you've already started thinking about gathering examples for your courses this fall, here's a consideration case for you out of Ohio, Forbes v. Showmann, Inc., Appeal No. C-180325. Forbes was an employee of Showmann, and at a holiday party Showmann gave its employees, including Forbes, raffle tickets. One of the prizes was what sounds like a pretty sweet cruise package, and Forbes won the cruise. Showmann terminated Forbes's employment a few weeks later and informed Forbes that the cruise package was conditioned on Forbes still being a Showmann employee when she took the cruise. 

Forbes sued for breach of contract but the problem was that it was undisputed that Forbes did not pay for the raffle ticket. Showmann simply distributed the raffle tickets for free to its employees. Therefore, there was no consideration with which to form a contract. Forbes tried to argue her employment by Showmann was the consideration for the ticket but Forbes's employment was not used to bargain for the raffle ticket in exchange, so therefore there was no contract. 

If you feel bad for Forbes, which I admit I kind of did based on these given facts, her conversion claim does survive, so there is some hope for her. 

Court finds HomeAway gives sufficient notice of its terms and conditions online

A recent case out of the Western District of Texas, May v. Expedia, Inc., No. A-16-CV-1211-RP (behind paywall), examines the enforceability of HomeAway.com's online contract. HomeAway is a website that offers vacation rental properties. Property owners can buy one-year subscriptions to HomeAway to list their properties for rent on the website. May was a property owner who had purchased successive annual subscriptions to HomeAway, and who now sues based on several breach of contract and fraud allegations, together with related state claims. HomeAway moved to compel arbitration, pointing to its terms and conditions. Specifically, in July 2016 HomeAway amended its Terms and Conditions to include a mandatory arbitration clause. May allegedly agreed to this clause when he renewed his HomeAway subscription in September 2016, and again when he booked his property through the website in October 2016. 

May argued that he did not agree to the terms and conditions when he renewed his annual subscription because he changed the name on the account to his wife's name in an effort to avoid being bound by the new terms, but the court found that had no effect on the effectiveness of the terms and conditions and that May bound himself when he renewed his subscription, regardless of changing the name on the account. May was trying to take advantage of the benefits of the subscription without binding himself to the terms, and the court found that to be inequitable. 

The court  already found May to be bound but for the sake of completeness also analyzed May's argument that he was not bound when the property was booked because he did not receive sufficient notice of the terms and conditions, which gives us further precedent on how to make an enforceable online contract. The HomeAway site required the clicking of a "continue" button, and wrote above the button that the user was agreeing to the terms and conditions if they clicked the button, with a hyperlink to the terms and conditions. The court found this to be sufficient notice of the terms and conditions. 

A dispute along the shores of Lake George

We went to Lake George on vacation a couple of times when I was a kid, so I am blogging this recent case out of New York, Edscott Realty Corp. v. LaPlante Enterprises, Inc., 61356, out of a sense of nostalgia. Also it's another ambiguity case, and I always find those interesting and instructive for thinking about things to watch out for. 

The parties operate two adjacent hotels on the shores of Lake George. In 1999, the parties had a dispute over water access that was eventually resolved in 2002 by dividing up the water according to a fence line "continued out into the waters of Lake George in an easterly direction along said course." The waters north of the fence line were reserved for the plaintiff and the waters south for the defendant. 

The parties are now disputing, among other things, the meaning of this division. The plaintiff alleged that it limits both the actual berthing of boats on the wrong side of this line plus ingress and egress to navigate into those berths. The defendant alleged that it pertains only to the berthing of boats and does not limit the navigation of boats on Lake George. The court found that there was an ambiguity as to how far out into Lake George the parties had stipulated their rights to extend, and so refused to award summary judgment on the issue. 

A slip-and-fall in a cruise ship bathroom, a forum selection clause, a defective filing, an untimely filing...and equitable tolling

A recent case out of the Southern District of Florida, Jordan v. Celebrity Cruises, Inc., Case No. 1:17-cv-20773-WILLIAMS/TORRES (behind paywall), concerned a plaintiff, Jordan, who was allegedly injured when she slipped and fell in the bathroom of her cabin. She attempted to sue the defendant, Celebrity Cruises, in Florida state court. However, her ticket contract with Celebrity Cruises required that any causes of action be filed in the Southern District of Florida. Jordan did eventually file in the Southern District of Florida but it was after the statute of limitations had run. 

The main issue in the case revolved around whether the statute of limitations could be equitably tolled, since she had filed in state court prior to the statute of limitations running. Jordan argued that she did not have her ticket contract, nor was she aware that it required suit in the Southern District of Florida--a not-at-all implausible argument on her part, considering that few of us read those terms and conditions or really register them. She claimed that the first time she realized she had a ticket contract with Celebrity Cruises was when Celebrity Cruises attached the ticket contract to its motion to dismiss her state court complaint, and that the case was refiled in the proper contractual forum shortly thereafter. 

The court found that equitable tolling could apply. Jordan was diligent in pursuing her cause of action, and Celebrity Cruises did not suffer any adverse consequences, since Jordan had provided timely notice of her injury to Celebrity Cruises. The court did not think Jordan was negligent in her failure to file in the proper forum. Celebrity Cruises seemed to argue that Jordan should have found the ticket contract online to learn where the proper forum to file would be, but there was no evidence in the record showing that the ticket contract was so easy to locate online that Jordan's failure to do so was negligent. Therefore, Jordan's timely filing in the wrong forum entitled her to equitable tolling, considering her diligence in all other respects. 

Forum non conveniens Doesn't Overcome Forum Selection Clauses

A recent case out of Delaware, SRL Mondani, LLC v. Modani Spa Resort, Ltd., C.A. No. N16C-04-010 EMD CCLD, deals with forum issues. In the case, the parties had entered into a number of contracts. The contracts at issue in the dispute between them both contained forum selection clauses that disputes should be brought in Delaware court. A third contract between the parties, not explicitly at issue in the dispute, had a forum selection clause that disputes should be brought in Israeli court. Modani argued that the Israeli forum selection clause should control, but SRL was seeking to enforce the Delaware agreements, not the Israeli one, and so the court found the Israeli forum selection clause didn't matter. 

In the alternative, Modani tried to argue that the action should be dismissed under forum non conveniens. Modani's argument was that the relevant documents were located in Israel. The court, however, noted that "modern methods of communication" meant it was relatively easy to get the documents over to Delaware. While Modani alleged that the relevant witnesses were located in Israel, it failed to explain exactly what testimony those witnesses might have and why they were relevant, so the court was not convinced. The court did acknowledge that Modani's principles were located in Israel and had no ties to Delaware but at all but the court also pointed out that the contracts at issue had resulted from negotiations between two sophisticated businesses with millions of dollars at stake, so it was unpersuaded by Modani's allegations of hardship. Because the dispute was about enforcement of contracts with clauses requiring the application of Delaware law, Delaware was the best forum. 

Flying the Friendly Skies after the Suffering Through the Violent Boarding Process?

Everyone is surely, by now, aware of the (most recent) United Airlines scandal.  Numerous questions abound: Was the airline racist in asking a non-white person to give up his seat or was the selection of which passenger to bump truly random? If the latter, was the airline racist in pursing this action after seeing that the selected passenger was not white whereas it might have given up taking such drastic action if it the passenger had been white? Equally importantly, what in the world is going on when law enforcement officers act as they did in this situation?! Is it fair to consider United Airlines responsible for actions that were, after all, not taken by its employees, but rather by the authorities?

While these questions are being addressed in many other locations, I find it interesting that several news sources correctly point out that United was legally entitled to bump a passenger, but that several sources seem to incorrectly state that under Department of Transportation rules, airlines may only pay passengers “up to a” $1,350 limit for delays of more than two hours. I have not had the time to fully research this rule, but as I read the rules, there is nothing saying that there is a limit to how much airlines may choose to pay, only what the DOT rules guarantee a pay-out (that one can, incidentally, insist on getting as payment, not a voucher) of $1,350, not more under the federal rules. The DOT guideline states as follows (from a website version only, admittedly):

“If the substitute transportation is scheduled to get you to your destination more than two hours later (four hours internationally), or if the airline does not make any substitute travel arrangements for you, the compensation doubles (400% of your one-way fare, $1350 maximum).”

If my understanding is correct, United could have chosen to voluntarily pay out a lot more than what they reportedly did ($800-1,000) and, as many correctly point out, most likely found some taker.  Surely, the rules do not prohibit this.  Instead, however, United chose to do what seems to increasingly be the order of the day: stand on their own rights and disregard the interests of their customers in the name of making a few extra dollars. Why am I not surprised?

Fire Brings Us Another Impossibility Case

Here's one for when you teach impossibility: 

The plaintiff is a travel company. The defendant operates a resort. They had a multi-year contract whereby the plaintiff would rent out the resort for Passover each year. The resort burned down and the guests could no longer go to it. The resort, however, sought to keep the plaintiff's down payment. This lawsuit in New York, Leisure Time Travel, Inc. v. Villa Roma Resort and Conference Center, Inc., 32504/09 (behind paywall), resulted. 

The court found that the fire "undoubtedly" rendered the resort's performance impossible, but the resort could not unjustly enrich itself by keeping the travel company's deposit. Therefore, the resort had to give the deposit back to the travel company. 

The court also contemplated whether, once the resort was rebuilt, it was required to permit the travel company to rent it out for Passover. The court found that it had been uncertain at the time of the fire whether or not the resort would ever be rebuilt, and it indeed took years for it to be rebuilt. Therefore, it considered the contract to have been rescinded at the point that the fire rendered the resort's performance impossible, with neither party under any obligation to perform anymore. 

(The resort, weirdly, sought payment from the travel company for the years when the resort was not operational and could not be rented out. The court classifies this claim as "incredible" and denies it. The same fire that rendered the resort's performance impossible also freed the travel company from having to pay for a benefit it was no longer receiving.)

Air Force None?

Recently, Donald Trump famously tweeted that “Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control, more than $4 billion. Cancel order!”  Trump has not said why he believes the planes will cost "more than $4 billion." Boeing says it currently has an Air Force One contract worth $170 million.

This raises several contractual issues that could be used as an interesting issue-spotting practice for our students. At first blush, it seems like an impossible attempt at a breach of contract that would, conversely, at least give very reasonable grounds for insecurity if not constitute an anticipatory repudiation outright.

Needless to say, Trump’s remark that “[w]e want Boeing to make a lot of money, but not that much money” finds no support in contract law. One contractual party has no control over how much money the other party should make. One would have thought that Trump – as a staunch “market forces” supporter – would have understood and embraced that idea, but that either was not the case or he is flip-flopping in that respect as well.

Digging deeper into the story, however, it turns out that “not even [Boeing] can estimate the cost of the program at this time, since the Pentagon has not even decided all the bells and whistles it wants on the new Air Force One." Further, “without knowing all the security features, it is hard to estimate the cost … and the Air Force isn't even sure whether it wants two or three of the planes.” Does a contract even exist at this point, then, when the essential terms have apparently not been mutually agreed upon, or is there simply an unenforceable agreement to agree? A valid argument cold be made for the latter, I think.

Mr. Trump has been accused of overestimating the cost of the planes. Does he, however, have a point? “So far[,] the Air Force has budgeted $2.9 billion through 2021 for two new Air Force Ones.” It is not inconceivable that the price tag may, in these circumstances, run higher than that. That circularity goes back to the essential terms – the price in this case – arguably not having been decided on yet.

There might, of course, be other issues in this that I have not seen in my admittedly hasty review of the story, but it is interesting how the media jumps at a legally related story without thoroughly or even superficially attempting to get the law right.

Strongarming Car Renters to Buy Insurance

In an 8/27 article, the New York Times (paid access only) reports how Payless Car Rental, owned by Avis Budget, basically forces at least some of its customers to buy personal liability insurance whether or not they want it. Here’s how the story reports it done – well worth repeating on this website to show the blatant disregard for contract law displayed by Payless Car Rental:

A client states repeatedly to the car rental company that he or she does not want insurance. When returning the car after the rental period is over, guess what shows up on the receipt: of course, the declined insurance – in one case $222. When the renter complains, the car rental agency representative snatches the contract that had been initialed by the renter, who apparently thought he or she indicate that they did not want the insurance. Instead, although orally and repeatedly stating that, the initials indicated that he or she did want the insurance (fine print probably not read by renter at airport counter).

After not getting the reimbursement requested, he or she disputed the charge with credit card provider American Express. The amount was refunded, the renter thought… until Payless sent a letter titled “Debit notice” which indicated that the amount would now be sent to collection by a company located on, I kid you not, “32960 Collection Center Drive, Chicago, Ill.” The problem with that is that no such address exists! Try in Google Maps. At least I and the New York Times reporter could not bring it up.

Payless also told the renter that if he or she did not react, his/her “rental privileges” would be suspended(!). Not sure why they would think that their renter would ever want to rent from that company again…

A Payless PR representative did not, when contacted about this incident, offer any explanation or apologies. She simply stated that the issue had been resolved and that “we will reinforce with our associates … the importance of ensuring that our customers clearly understand which services and options they are selecting.” It seems like they should also train their associates to accept the contractual choices then made by the customers.

“Trophy hunting” contracts – unenforceable for reasons of public policy

Allow me to highlight my most recent article on the questionable ecosystem viability and contractual common law validity of so-called “trophy hunting” contracts. With these contracts, wealthy individuals in or from, often, the Global North contract for assistance in hunting rare animals for “sport.” Often, these hunts takes place in the Global South where targeted species include giraffes, rhinos, lions, and other vulnerable if not outright threatened or endangered species. 
A famous example of this is Minnesota dentist Walter Palmer killing “Cecil the Lion” in 2015 causing widespread outcry in this country and around the world. Trophy hunting also takes place in the USA and Canada, where targeted animals include polar bears, grizzly bears, and big horn sheep.

Trophy hunting should be seen on the background of an unprecedented rate of species extinction caused by several factors. Some affected species are already gone; others are about to follow. Western black rhinoceroses, for example, are already considered to have become extinct in 2011.   The rest of the African rhinoceros population may follow suit within the next twenty years if not sufficiently protected. In the meantime, more than 1.2 million “trophies” of over 1,200 different kinds of animals were imported into the United States just between 2004 and 2015. In addition to the extinction problem, the practice may also have ecosystem impacts because, among many other factors, the trophies often stem from or consist of alpha animals.

Of course, no one is arguing that rare species should be driven to extinction, in fact, quite the opposite: both trophy hunters and those opposing the practice agree that such species should be conserved for the future. However, the question lies in how to do so. Some argue that trophy hunting creates not only highly needed revenue for some nations, but also brings more attention to the species conservation issue.

I argue that at least until there is much greater certainty than what is currently the case that the practice truly does help the species in the long run (and we don’t have much time for “the long run”!), legal steps must be taken against the trophy hunting. Even when positive law such as hunting laws and/or the Endangered Species Act (“ESA”) do not address the issue (yet), common law courts may declare contracts that have proved to be “deleterious effect upon society as a whole,” “unsavory,” “undesirable,” “nefarious,” or “at war with the interests of society” unenforceable for reasons of public policy.

In the case of Cecil, African lions had been proposed for listing under the ESA when the animal was killed, but the listing did not take effect until a few months later. The case, others like it, and several studies demonstrate that a sufficient and sufficiently broad segment of the population have come to find the killing of very rare animals so reprehensible that common law courts can declare them unenforceable should litigation on the issue arise. This has been the case with many other contracts over time. The same has come to be the case with trophy hunting. As long as doubt exists as to the actual desirability of the practice from society’s point of view – not that of a select wealthy individuals – the precautionary principle of law calls for nations to err on the side of caution. The United States prescribes to this principle as well.

The article also analyzes how different values such as intrinsic and existence values should be taken into account in attempts to monetize the “value” of the practice. Instead of the here-and-now cash that may contribute to local economies (much revenue is also lost to corruption in some nations), other practices such as photo safaris are found by several studies to contribute more, especially in the long term. (Note that Walter Palmer paid a measly USD 50,000 for his contract with the landowner and local hunting guide).

Finally, the article draws in arguments under the public trust doctrine and the state ownership of wildlife doctrine. Ethically, these animals belong to all of us (or none of us).

Trying to save rare animals by shooting them simply flies in the face of common sense. It also very arguably violates notions of national and international law.

Ryan Lochte and Morals Clauses

I have witnessed with interest the evolving story of what exactly happened in Rio involving Ryan Lochte the morning of August 14. Initially Lochte claimed he had been robbed at gunpoint. I later heard through the gossip mill that that story was untrue and that Lochte had in fact beat up some security guards. That turned out, it seems, just to be rumor-mongering, but the story has continued to evolve from there, with both Lochte and the Rio police making statements that later seem untrue, or only partially true, or exaggerated. Slate has a good run-down of the changing versions of Lochte's story, although it's from a week ago. Now Lochte has been charged with filing a false police report, since it does seem clear at this point that no robbery happened. Even that, however, is confusing to parse if you read a lot of articles about it: It seems like the crime is more accurately making a false communication to police, as some articles have eventually stated, since there are conflicting reports about whether a police report was ever filed. 

In the wake of this whole mess, Lochte has lost several of his sponsorship deals (although he's also picked one up). It's unclear, because the contracts don't seem to be public, whether this is a choice of just not renewing the contract (apparently that's the case with Ralph Lauren) or if a violation of a morals clause is being invoked to allow cancellation of the contract (which might be what's going on with Speedo). All of this provokes an interesting morals-clause conversation to me, and we had a bit of discussion about it on the Contracts Professors listserv. It seems clear that Lochte engaged in some sort of inappropriate behavior, and it seems also clear that whatever that behavior was, even the most minor version of the story is arguably a violation of any morals clause out there.

What is most clear is that, no matter what really happened, this has definitely served to tarnish his reputation, and that's is what's striking to me. This story has taken on an enormous life of its own, with many differing versions of it floating around the Internet. This situation has been caused, of course, by Lochte's many differing stories, together with some apparent conflicting statements by the Rio police, coupled with reporting that may have been less than precise itself in describing what was going on. One online story details all the conflicting information and asks the individual reader what they believe about the story.

While this particular maelstrom seems to have some basis in fact, it's not difficult to imagine something like this getting out of control without such justifying behavior at the root of it. Morals clauses tend to be about perception, but does that mean you can manipulate the perception of someone, through no real fault of their own? Take, for instance, the "Ted Cruz is the Zodiac Killer" meme that was popular on the Internet earlier this year. Ted Cruz wasn't born until after some of the Zodiac killings had happened, so he obviously could not have been the Zodiac Killer, and in fact some people interviewed about the meme noted that was the point: what they were saying was impossible. Nevertheless, it was reported that polls indicated 38% of those surveyed thought he might, in fact, be the Zodiac Killer, despite the impossibility. If a substantial number of people start thinking you did something you absolutely did not do, is that enough for a morals clause to be violated, because of the perception that you did it?