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).
Sunday, February 17, 2019
There's a lot of really interesting things at stake in this recent case out of the Northern District of California, Batra v. POPSUGAR, Inc., Case No. 18-cv-03752-HSG, including a contract angle. The case concerns an alleged class of influencers suing POPSUGAR for altering their postings in various ways. In addition to copyright and publicity right violations, the purported class alleges contract interference, because influencers can enter into contracts to receive a cut of the revenue generated by the links on their sites, but POPSUGAR's alleged alterations stripped the monetized links from the postings. Therefore, the class alleged that POPSUGAR was interfering with their contracts with the website linked to. The court found that the class's allegations on this count (and every other count in the complaint) were sufficient to survive a motion to dismiss.
I'm fascinated by this case and can't wait to see where it goes, especially as we get further into the class action allegations. (But probably it'll settle before we get to the good stuff.)
Monday, February 4, 2019
Keeping records on when and how your employees sign their arbitration agreements could be helpful if there's ever a dispute over them
I just blogged about an arbitration case, and here's another one out of California, Garcia v. Tropicale Foods, Inc., E069024. In the last case I blogged about, arbitration was compelled, but in this one, the court reaches a different conclusion, finding that the employer Tropicale failed to prove that Garcia signed the arbitration agreement. The case serves as a lesson to employers hoping to enforce arbitration agreements against their employees: They need to be able to offer information about the circumstances of the employee signing the agreement. Garcia maintained that she never signed the agreement, and in response Tropicale offered a declaration of an employee saying that Garcia did sign the agreement. But that bare declaration wasn't enough, according to the court. It did not offer any sense of the timing or circumstances of the signature, which were important in this case, since the date on the agreement looked like September 2015, but Garcia had been terminated in August 2015. Therefore, the court did not compel arbitration.
Friday, February 1, 2019
An arbitration clause that allows you to pursue injunctive relief in the court system still requires arbitration of the underlying claims
A recent case out of the District of Oregon, Sixel, LLC v. Penning, No. 6:17-cv-01846-AA, has a fairly typical fight over whether or not a claim needs to be arbitrated, but in this case it's the employer who doesn't want to arbitrate and the employees who are fighting to enforce the arbitration clause.
The case involves allegations of trade secret theft, and Sixel relies on the fact that the arbitration clause permits it to pursue injunctive relief in the court. However, the employees maintain that that is limited to the pursuit of relief and does not allow the litigation of the underlying claim in court. The court sides with the employees, finding that the exception to the arbitration clause is explicitly in its plain language only in terms of remedies, not any cause of action. The court therefore finds that Sixel can seek injunctive relief in court and pursue the underlying claims in arbitration. The claims in question fall squarely under the arbitration clause, and given the law's preference for enforcing arbitration provisions, the court chooses to enforce the provision.
Wednesday, January 30, 2019
I had previously blogged about this case involving a dispute between a university and its retired president over his retirement contract during its motion to dismiss phase. Now it's completed its trial, and the jury verdict is in. The jury ruled against the former president Taylor and in favor of the university, finding that the university did not have to pay Taylor under the asserted contract. It seems from the press coverage of the closing arguments that there were two warring versions of the facts: Taylor asserted that the board of trustees approved the contract as a reflection of Taylor's worth to the university. The university, however, asserted that Taylor drafted the contract himself and then had his friend, who happened to be the chairman of the university's board, sign it, meaning that it was never reviewed by university attorneys and never approved by the board of trustees.
h/t to Eric A. Chiappinelli of Texas Tech University School of Law for passing this one along!
Wednesday, January 9, 2019
In a recent case out of the District of Arizona, Brittain v. Twitter Inc., No. CV-18-01714-PHX-DG (behind paywall), a court finds Twitter's terms enforceable as neither illusory nor unconscionable. The plaintiffs admitted that they agreed to Twitter's terms of service, but they argued the terms were illusory and unconscionable.
The illusory argument depended on the assertion that Twitter could unilaterally modify the terms at its discretion. But, unlike other cases where the terms were found to be illusory, Twitter did not try to retroactively modify the terms, and it mutually bound itself to the forum selection clause.
Brittain's unconscionability argument weirdly revolved around the fact that Twitter's terms don't contain an arbitration provision. I found this curious because I've read lots of cases where people want to get out of arbitration clauses, so complaining that the lack of one means the terms are unconscionable isn't an argument I quite follow. Neither did the court, which found that Twitter was not required to include an arbitration clause in its terms and that the terms weren't otherwise unconscionable.
Sunday, December 23, 2018
The below guest blog was shared with us by Oren Gross, the Irving Younger Professor of Law with the University of Minnesota Law School:
Who amongst us has not taught the 1864 case of Raffles v. Wichelhaus, a.k.a. the two ships Peerless? The story of the ships (by some accounts there have been up to eleven ships bearing the same name!) has tantalized and captured the imagination of numerous generations of students learning about meeting of the minds.
You can imagine my delight when, taking a much-needed break from grading exams, I came across a modern version of the story involving three NBA teams and two players named Brooks.
The Washington Wizards, it seems, wanted to strengthen their roster by adding the Phoenix Suns forward Trevor Ariza. For its part, Phoenix was interested in Memphis Grizzlies players and the Grizzlies – in Wizards players. And so, the Wizards’ general-manager concocted a three-team trade and served as the go-between the Suns and the Grizzlies. As part of that trade, the Suns were to get two players from Memphis, namely Selden and Brooks.
Simple enough. Or so it seems. However, as Chris Herrington reported in the Daily Memphian on December 15, 2018, the deal fell apart or, in an insight worthy of contracts’ scholars, “maybe never quite was.”
The problem is that Memphis currently has not one, but two, players on its roster whose last name is Brooks. And whereas the Suns thought they were getting Dillon Brooks, the Grizzlies intended to trade MarShon Brooks. Thus, while “two Grizzlies sources confirmed to The Daily Memphian that it was MarShon Brooks, not Dillon Brooks in the deal. Media in Phoenix, however, insisted it was Dillon, not MarShon.”
As the two teams negotiated through the Wizards as the go-between, the miscommunication as to the identity of the player actually to be traded was not revealed until news of the deal leaked to the media.
The outcome? The three-team deal collapsed. As Herrington put it “the deal that never really was was nixed.”
Tuesday, December 18, 2018
A past consideration case reminds us that being recognized for your past hard work isn't good for your breach of contract claim
I don't know about everyone else but my casebook teaches past consideration using very old cases. Here's past consideration raised as an issue with a recent case out of the Southern District of California, Wright v. Old Gringo Inc., Case No. 17-cv-1996-BAS-MSB (behind paywall).
The case is really interesting, because the court acknowledged that the complaint had proper consideration allegations: ownership interest, salary, and performance bonuses in exchange for providing "expertise and services." The problem came from the deposition testimony, all of which seemed to establish that in fact the ownership interest had been provided as a reward for previous work. The plaintiff herself testified that the ownership interest was effective even if she immediately quit the job, indicating it wasn't in exchange for future services. Plaintiff's friends and relatives provided similar testimony, that the ownership interest was given "to show . . . appreciation" and "for . . . recognition of her hard work." There was no evidence presented that the ownership interest was offered on the condition of future work in exchange. For that reason, the court granted summary judgment for failure of consideration.
The plaintiff's remaining claims were permitted to go forward, including promissory estoppel and tort claims. Those claims (as I remind my students!) don't require consideration.
I find this case really interesting because I'm sure the plaintiff's friends only thought they were helping her with their testimony. This is the kind of thing that I think makes instinctive sense to non-lawyers: the plaintiff did something awesome and they recognized it by giving her an amazing gift. But lawyers know that consideration doctrine makes that a bad thing, not a good one.
(The decision also contains a statute of limitations and damages discussion.)
Wednesday, December 12, 2018
A recent case out of Illinois, Pam's Academy of Dance/Forte Arts Center v. Marik, Appeal No. 3-17-0803 (behind paywall but you can listen to the oral argument here), highlights the weirdness of just throwing extra words into a contract without thinking through what they really mean.
The dispute concerned a noncompete between a dance studio and Marik, one of its employees. The covenant not to compete stated that Marik wouldn't engage in any similar business "for a period of not less than five (5) years," and wouldn't solicit any teachers or students "for a period of not less than three (3) years." The parties were arguing over whether this language meant "five years" and "three years," or whether it meant that the noncompete could extend past five and three years.
In a vacuum, the statement "not less than five years" reads as "at least five years" to me, meaning that the time period could last longer. But as a matter of contract interpretation, that makes no sense. Could the noncompete theoretically go on for 50 years? After all, that would be a period "not less than" five. On the other hand, as the defendants argued, interpreting the time periods as five and three years would render the "not less than" language as "mere surplusage" -- an interpretation courts usually strive to avoid.
The court noted that contract interpretation's goal is to discern the intent of the parties. "Not less than" has been interpreted by Illinois courts in a variety of ways, but never in the context of a noncompete. However, many out-of-state courts had come to the conclusion that, in a covenant not to compete, "not less than five years" should be construed as meaning five years. This would prevent the employer from arguing that the noncompete was violated six years later. Indeed, the court thought that arguing that it meant six years would amount to bad faith.
Whether the five- and three-year periods were reasonable was a fact-based inquiry that had to be determined by looking at the totality of the circumstances.
This is a situation where I'm sure the "not less than five years" language sounded fancy and official but it was truly pointless. I think the employee probably understood it to be five years and three years (to the extent that the employee read and understood the agreement), and to the extent the employer understood the language to mean otherwise and entitle it to set an indefinite time period, I'm with the court that that's an unreasonable interpretation.
Monday, December 10, 2018
I got really excited when I saw this case because it's always nice to have a recent parol evidence case to look at, and this one involves movies!
It's a recent case out of Mississippi, Rosenfelt v. Mississippi Development Authority, No. 2017-CA-01120-SCT (you can listen to the oral arguments here). The MDA had communications with Rosenfelt regarding his movie studios' attempt to make movies in Mississippi, eventually guaranteeing a loan through a term sheet signed by the MDA and by Rosenfelt on behalf of his two movie studios. When Rosenfelt wanted to make another movie and applied for another loan under the terms of the agreement, the MDA turned down the request. Rosenfelt then sued for specific performance and damages. Rosenfelt initially triumphed on a motion for partial summary judgment but then, during the specific performance debate in the case, the MDA filed a summary judgment motion challenging Rosenfelt's standing, which resulted in dismissal of Rosenfelt's complaint.
Rosenfelt appealed, alleging that there was an agreement between him personally and the MDA. However, the court noted that all communications from the MDA were directed explicitly to Rosenfelt as president of the relevant movie studio. The court's decision came down to contract interpretation: All of the written documents in the case unambiguously referred to Rosenfelt in his official corporate capacity or were signed by Rosenfelt in his official corporate capacity. Given the lack of ambiguity on the face of the documents, the court refused to consider parol evidence as to whether Rosenfelt was personally a party to any of the agreements. Because all of Rosenfelt's allegations concerned his personal agreement with the MDA, the court dismissed the suit.
This case serves as a reminder that, once you have set up corporate entities, you need to be careful to remember how those corporate entities impact not just your legal liabilities but also your legal rights.
Monday, December 3, 2018
Sorry for being absent lately. Blame exam season! So this is slightly old news but I plan to bring it up in my Entertainment Law class in the spring, so I was doing a sprint through the news reporting on it: Taylor Swift and her new contract.
Monday, November 12, 2018
I always tell my students that if you want people to promise to do something, you'd better make sure you don't phrase it as a condition in your contract, and a recent case out of the Middle District of Pennsylvania, Allen v. SWEPI, LP, No. 4:18-CV-01179 (behind paywall), carries just that lesson.
The contract was for the purposes of exploring for oil and gas on the Allens' land and read that the agreement was "made on the condition that within sixty (60) days from the Effective Date of this lease, [the defendant] shall pay to the [Allens] the sum of Two Thousand Dollars ($2000.00) per acre for the first year." The defendant never paid the Allens this sum, and the Allens sued. However, the defendant argued that this was nothing but an option contract. It had the right to rent the land for oil and gas exploration if it paid the required sum. However, it was not required to pay that sum. Instead, the payment was a condition that had to be fulfilled before the contract would come into operation. The court agreed and dismissed the Allens' breach of contract causes of action.
The court then also dismissed the Allens' promissory estoppel claim, because it found that there had been a valid and enforceable contract between the parties -- it was just an option contract that the defendant chose not to exercise.
The Allens seem to have thought they had rented this land to the defendant. I think that what they wanted to accomplish (or thought they were getting) with the quoted clause was to make sure they were paid within 60 days. However, in phrasing it as a condition, what they got was no commitment from the defendant at all.
Friday, November 9, 2018
Another day, another arbitration compelled, this time in a recent case out of the Northern District of Illinois, Nitka v. ERJ Dining IV, LLC, Case No. 18 cv 3279. The plaintiff sued the defendant for sexual harassment, sex discrimination, and assault and battery. The defendant countered that the plaintiff had signed an agreement to arbitrate disputes relating to her employment, which these were. The plaintiff stated she had no memory of signing the arbitration agreement, but the defendant's Vice President of People and Development testified that it required new employees to sign such agreements before entering employment and maintained them in the usual course of business. The plaintiff's arbitration agreement was located in her personnel file. Furthermore, the plaintiff had apparently affirmatively indicated on an electronic form that she had signed the agreement.
The plaintiff then argued that she had been a minor at the time of signing the agreement, but the court pointed out that she ratified the agreement by continuing to work for the defendant after her eighteenth birthday.
I believe that the plaintiff did not remember signing the arbitration agreement. To be honest, I believe that, even if she remembered, she probably had no idea what it really was. She was a minor trying to get a job at a Chili's. I'm sure she signed what she was told to sign and clicked the electronic check-boxes she was told to click -- exactly the way the vast majority of us do when getting a new job.
Thursday, November 8, 2018
Here's one for exam review.
A recent case out of the District of Oregon, Reed v. Ezelle Investment Properties Inc., Case No. 3:17-cv-01364-YY, contains an application of the mirror image rule.
The parties in the case were embroiled in a copyright infringement dispute. They had settlement discussions as follows:
- Reed's counsel sent Ezelle a cease and desist letter that included a settlement agreement proposing to settle the matter for $5,000.
- Negotiations followed.
- Ezelle's counsel sent Reed's counsel a thousand dollar check (stating that it was not a settlement offer, although that doesn't seem important to the analysis here).
- Reed's counsel responded saying that Reed accepted the thousand dollar offer and sending Ezelle's counsel a new proposed settlement agreement.
- Ezelle's counsel crossed out the proposed agreement's confidentiality clause and sent it back.
- Reed's counsel said the confidentiality clause was non-negotiable.
- There were further negotiations that fell apart, leading eventually to this lawsuit.
Ezelle argued that the parties had settled the case through the above series of events, but the court found there was never a binding settlement because Ezelle never accepted the settlement agreement. Under the mirror image rule, when Ezelle's counsel crossed out the confidentiality clause, that operated as a counteroffer that Reed would have needed to accept. Reed never did. Rather, Reed informed Ezelle that the proposed modification of the settlement agreement was unacceptable. Therefore, there was no binding settlement agreement between the parties.
Ezelle argued that the confidentiality clause should be classified as immaterial or unconscionable, so that the settlement agreement should be enforced just with the confidentiality clause struck, as Ezelle had desired. However, the court found no reason to strike the confidentiality clause.
The court went on to find copyright infringement and awarded $1500 in statutory damages, as well as attorneys' fees and costs.
Thursday, November 1, 2018
Hello! I was away at a conference last week and then the Red Sox* decided to win the World Series, which threw off all productivity for a while. As I ease back into blogging, I thought I'd link you to this piece from Business Insider, analyzing some of the terms set forth in the 2011-era version of Major League Baseball's uniform contract. I find my students always love to look at real-life contracts, and this is a nice point in the year to do it, as it's a nice way to demonstrate that they are now able to (or should be able to!) understand more of the contract than they might have on the first day of class.
Of course, I always try to impress upon my students that contracts can be negotiated, so here's a list of some more unusual contract clauses baseball players were successful in getting teams to agree to.
Friday, October 26, 2018
The California anti-SLAPP provisions state that “[a] cause of action against a person arising from any act of that person in furtherance of the person's right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim. An act in furtherance of a person's right of petition or free speech under the United States or California Constitution in connection with a public issue includes ... any written or oral statement or writing made in connection with an issue under consideration or review by a ... judicial body....”
A client alleged that his attorney misrepresented his labor law expertize when negotiating the retention agreement between the two and that the attorney conducted settlement negotiations with the opposing party in order to drive up fees. When the attorney sued his client to collect his fees, the client cross-complained for fraud and breach of contract. The attorney then moved to strike the cross-complaint under the California anti-SLAPP statute, Code of Civil Procedure § 425.16.
The court found that merely because attorneys occur as part of litigation – the client’slitigation – a malpractice claim such as this is not subject to anti-SLAPP. Said the court, “[i]t is the principal thrust or gravamen of the plaintiff's cause of actionthat determines whether the anti-SLAPP statute applies, and when the allegations referring to arguably protected activity are only incidental to a cause of action based essentially on non-protected activity, collateral allusions to protected activity should not subject the cause of action to the anti-SLAPP statute.”
“Although attorney retention negotiations may in a sense be ‘connected’ with judicial proceedings involving the client, they in no way relate to the substance of an issue under review in the proceedings or further the attorney's petition or free speech rights in them. If they did, then every communication between an attorney and a client who is or may become involved in judicial proceedings would constitute an exercise of the attorney's petition and free speech rights, and every lawsuit for malpractice would be required to undergo a second-prong anti-SLAPP analysis. No principle or authority supports such a proposition.
The case is Mostafavi Law Group v. Ershadi, 2018 WL 4690887, (Cal.App. 2 Dist., 2018)
Tuesday, October 16, 2018
As the Hollywood Reporter reports, the license agreement expired between Dish Network and Univision more than three months ago, and the parties are fighting it out in federal court, pointing fingers at which of them (if any, I suppose) breached the license agreement, and whether there are any additional IP claims in play. It's a high-profile case with a real impact for Hispanic viewers, who probably just would like to get Univision back on Dish. Given the litigation, that might take a while.
Monday, October 15, 2018
Currently in the midst of teaching consideration, I found the following case curious not so much because of its somewhat questionable facts, but because of the court’s puzzling reasoning.
Plaintiff Jose Torrez, a skilled laborer, agreed to renovate some buildings owned by defendant Koray Ergur and his companies. Torrez was promised a bonus of $150,000 for nine months’ worth of work if he would work for the “reduced hourly wage” of $10 per hour. He did. At some point in time, his hourly pay was increased to $11 per hour. After completing a total of 18 months of labor, Torrez was terminated and – you guessed it – denied the bonus. He brought suit claiming, among other things, breach of oral contract and the bonus $150,000 in damages.
The court rejected the latter. Of course, since the contract was for the completion of nine months of labor, the Statute of Frauds was not implicated and the oral promise was thus enforceable if the court had wanted to do so. It did not, however. Instead, it found that Torrez had, during the legal proceedings, “contractict[ed] his allegation of reduced wages as the consideration for the $150,000 bonus.” The court concluded that “while Torrez recited facts in his pleading to support the element of consideration for the promised bonus [i.e. the low pay of $10 per hour], the evidence presented by deposition and at Hearing [i.e. the “non-reduced” hourly wage of $11 per hour] refutes the existence of consideration … Therefore … it is clear that no consideration existed for the promise to pay a bonus.”
The court apparently found that because Torrez actually received one single dollar more per hour over nine months, there was no consideration for the original promise of working for a “reduced salary.” However, consideration is measured at the point of contract formation, not after the subsequent turn of events. Receiving only $10 or even $11 per hour instead of what skilled, manual laborers could get is a “reduced wage” given the market for such work. It is puzzling why the court found that “no consideration existed for the promise to pay a bonus” when such consideration was fairly clearly present from the outset, namely the promise to work for not much with a promise of a bonus upon completion of the work.
Is something else at play here? I think so. It strikes me as odd that, pardon me, a manual laborer would be promised a bonus of no less than $150,000 for nine months of work. That is $16,999 per month or, working 40 hours a week, $104 per hour. Skilled workers can and do demand high fees in some locales, and maybe in Ohio as well. But $150,000 does seem high. Was the court simply trying to protect the defendant from what may have been an attempted fraud by Torrez?
The truth will probably never be known here. Regardless, this case nicely demonstrates how the consideration doctrine is still relevant and, as always, the importance of getting contracts in writing even though they do not haveto be. Even if Torrez had been promised the asserted bonus, it is also wise to remember the old adage that if something seems too good to be true, it might be. Maybe Torrez was the one fooled in this case.
The case is Jose Torrez v. Koray Ergur, et al., Case No. G-4801-CI-201604375-000 (Court of Common Pleas, Ohio, Aug. 31, 2018).
H/t to colleagues on Contracts listserv for bringing this case to the attention of all of us.
Friday, October 12, 2018
I just gave a midterm in my contracts class, which is always so useful to crystallize the places where the students are having consistent understanding issues. For me this year, one of the tricky parts seems to be the statute of frauds, so it was nice to see this recent case out of the Eastern District of Wisconsin, Northern Group, Inc. v. Tech 4 Kids Inc., Case No. 17-C-1367 (behind paywall), that deals with a fairly straightforward statute of frauds issue.
In the case, Northern Group alleged that the parties had an oral agreement for commissions for sales and brought causes of action related to the breach of this agreement. Tech 4 Kids argued that the claims should be dismissed, in part because the oral agreement should have been in writing under the statute of frauds. However, as the court noted, the statute of frauds does not require a contract to be in writing unless it cannot be performed within a year. While it was true that the sales agreements required to be formed to result in commissions under the contract could sometimes taje years to finalize, Northern Group could conceivably have arranged some sales agreements within a year. Moreover, the agreement was terminable at will by either party, so either party could have decided within a year not to continue with the arrangement. Therefore, the oral agreement was capable of being performed within one year and so was not void under the statute of frauds.
Monday, October 8, 2018
When you've been stuck in an airport for hours, boarded the plane, un-boarded the plane, and have several more hours of airport waiting time in front of you, you're allowed to randomly make a Fall Out Boy reference if your Fall Out Boy playlist is what's getting you through the delay.
As far as the case goes: a recent case out of New Jersey, Gross v. Fotinos Enterprises, Docket No. A-2058-17T4, involved a dispute over a landlord's duty to inspect, which the court decided did not exist. The landlord rented to a pancake house restaurant (I have a habit of blogging about pancake houses, I happen to like pancakes) who used a cinder block to prop open an exterior door. The plaintiff was a restaurant employee who tripped over the cinder block and sued for injuries she sustained.
The lease stated that the tenant should not obstruct the entrances, and the parties agreed that the lease imposed liability on the tenant for all charges associated with the property. The plaintiff argued, though, that the landlord had a duty to ensure the tenant's compliance with all terms of the lease.
The court disagreed. The lease explicitly delegated responsibility for maintenance of the premises to the tenant, and the landlord was not aware that the tenant was using the cinder block to prop open the door. The landlord therefore owed no duty to inspect the premises or enforce compliance with the lease.