ContractsProf Blog

The Overtime Contingency and Lumon’s Terms of Employment

I wlll assume that it is now safe to talk about Season 2 of Severance on the Blog. If you were going to watch it, you would have watched it by now.  In any case, as I am drafting this (in late January), I have only seen the first two episodes, so I don’t have any big reveals.

For the uninitiated, I will just say that Severance is the story of four "severed" employees of Lumon Industries. They are severed in the sense that their work selves (Innies, or as the Ricken character, played perfectly by Michael Chemus, would have it,“Workies") have no knowledge of their lives prior to the severance. They are only conscious and self-aware when they are on Lumon’s severed floors. Similarly, their non-severed selves (Outies) have no knowledge or memories of their Innies' lives.

This post is about how the show references terms of service in a way that is, like so much about the show, an eerily familiar element of the strange worlds of Lumon Industries and Kier Town. During Season 1, Dylan (played by Zach Cherry) pilfered a card while he and his fellow Macrodata Refiners were visiting their co-workers in Optics and Design (O&D). Like the work that the Macrodata Refiners and the O&D people do, the card was important and mysterious. Its mysteries were so deep that Dylan had no sense of what he had taken. Its importance was so great that a Lumon supervisor, Mr. Milchick (Tramell Tillman), had to trigger the Overtime Contingency (OTC) in order to recover it.

The OTC is a mechanism that causes Innie Dylan to wake up in the walk-in closet of his Outie’s home, presumably in Kier Town. While Innie Dylan is talking with Mr. Milchick about the purloined card, his perhaps six-year-old son runs in and hugs Dylan, who is overcome to learn that he has a son. Mr. Milchick is understandably vexed that the child had not complied with Mr. Milchick’s  simple instructions to close his eyes and count to 1000. The fetid moppet failed to heed the command of the shambolic rube. Mr. Milchick immediately terminates the OTC.

Flash forward to Season 2, where we finally (after a three year wait) learn what happened just after the end of Season 1. At the end of Season 1, the Macrodata Refiners, having learned of the OTC, hatch a plot to awaken themselves, except for Dylan who has to stay behind using a Waffle Party as a diversion, in the Outie world. They are successful for 39 minutes, and then Mr. Milchick catches Dylan, and the OTC, and Season 1, end.

So, in Season 2, Episode 2, Mr. Milchick, doing damage control, visits Mark (Adam Scott), team leader of the Macrodata Refiners. He wants to know what information Mark has revealed. But Mark is still reeling from the experience of having his Outie’s life disturbed and having behaved like a madman when his Innie woke up at a reading of Ricken’s book, “The You You Are” in the home of Ricken and Outie Mark’s sister Devon. The following conversation ensues.

Mr. Milchick: What happened tonight is what we call the overtime contingency. It's a safeguard we employ if we ever need to access your work personage off company grounds.

Mark: Yeah, you never told me about this.

Mr. Milchick: OTC disclosure can be found in your start paperwork.

It’s like every interaction any employee anywhere has ever had with their HR department.

Recreation and Risk: The Book, The Website, The Links to Liability Waivers

From time to time, liability waivers and exculpatory agreements have been a topic for the Blog. There was plenty of interest in the subject in connection with the OceanGate disaster in 2023. We also weighed in on the subject in connection with McKamey Manor,  

Last year, William Gordon Childs published Recreation and Risk, which provides a cross-doctrinal primer on the law by looking at the way recreational venues handle the risk of liability. This is not a review of the book, which I haven’t read, but simply a pointer to the website, where Professor Childs has gathered resources relating to exculpatory agreements and liability waivers, including materials relating to McKamey Manor.

The resources page focuses on incidents that occurred at amusement parks and other attractions. It provides links to court filings, including the relevant legal documents, as well as a spreadsheet on statutory schemes to regulate risk-avoidance devices in the recreation industry. This is probably more of interest to torts folks, but there are contractual elements as well, given the common practice of having patrons of recreational venues sign exculpatory agreements. It may provide materials that people could consider incorporating into their discussions (if they include such matters in their courses) of contractual waivers of liability.

Friday Frivolity: The Onion Buy InfoWars

There's not much to say beyond the headline. I was just thrilled to write a headline that you might expect to find in The Onion, except that it is a real headline about The Onion. Benjamin Mullin and Elizabeth Williamson, two actual journalists, bring you the story in The New York Times, here.

Some background: Families of the victims of the mass shooting at the Sandy Hook Elementary School won a $1.4 billion defamation suit against Mr. Jones and his company. His company is called Free Speech Systems, but it turns out, First Amendment protections do not apply to baseless claims that the mass shooting at Sandy Hook was fabricated as a "pretext for confiscating Americans’ firearms." The judgment bankrupted Mr. Jones and his companies. The Onion purchased Infowars in resulting sale required to satisfy Mr. Jones' debts. The families of the victims reportedly support the transaction.

There may be an actual contract issue here, but perhaps it will end up being more frivolity. There is a frustrated bidder, which the Times identifies as "First United American Companies, a business associated with an online supplement store that bears Mr. Jones’s name." The business alleges irregularities in the bidding process. For its part, The Onion has disclosed that it bought InfoWars for a bargain price, "less than one trillion dollars."

The Time Share Scam, 2.0: Luxury Vacations

New York Times reporters Rukmini Callimachi and Derek M. Norman interviewed fifty people and attended a three-hour sales pitch before bringing us this story about Unlimited Vacation Club (UVC), a scammy business that overpromises, under-delivers, and causes people to empty their savings accounts after glitzy presentations at swanky tropical resorts.

In true NY Times style, after a splashy headline, the reporters acknowledge that vacation clubs have their "devoted fans." We don't hear much from them. Instead, we get a statement from a UVC executive who boasts that twenty percent of members upgrade because they are so pleased with the experience.  When we do hear from the satisfied customers, the endorsement is not entirely ringing. One has to work hard to get UVC discounts, researching fares and contacting UVC with screengrabs of lower prices in order to qualify for those discounts. Some describe the upgrade as yet another swindle.

The Times provides a typical account of, to borrow Oren Bar-Gill's coinage, seduction by contract.

They said they were stuck with pricey contracts they had signed after lengthy pitches in beguiling surroundings, as copious amounts of complimentary alcohol were served to them. The pitches they heard diverged sharply from the agreement — which members described as a voluminous and dense document that they were not able to read: They were asked to sign the contract on an electronic tablet, where the text was so small it resembled the label on the back of a Tylenol bottle.

The last element of the seduction is that Hyatt has put its name and its A+ Better Business Bureau rating behind the vacation club, which has an F rating. But the Times reports that Hyatt, Marriott, and Hilton are getting out of the hotel-owning business, pivoting to franchising and management. Hyatt got UVC as a side-dish when it acquired a company that owned 99 resorts in Mexico and the Caribbean. It seems like it is interested in divesting from UVC, but meanwhile it is collecting between $60 and 70 million in royalties and fees.

Here's a video from the company:

Notice, there was no mention of contracts, black-out dates, or restrictions in the video. There isn't even any fine print, notifying viewers that the governing contract is subject to Panamanian law! If the sales pitch is that four-minute video multiplied by fifty, I'm pretty certain I would be immune. I don't really drink, so the alcohol would only make me sick.

According to the article, one in five time-share buyers regret their investment, but vacation clubs are worse because you have no ownership interest. A big part of the problem is blackout dates. One couple bought a $52,000 members, hoping to book luxury hotels so that they could ski in Aspen. But the rooms were only available in summer months.

This post is brought to you via the sharp eyes of Scott Burnham, who shared the story with me. And here's something that's not at all a scam: The ninth edition of  Burnham & Brooks, Examples and Explanations: Sales and Leases (right), is now available for adoption for the Spring. I was a satisfied adopter of the Eighth edition, and I am in for the upgrade.

Strike Averted in the Airline Food Industry

As Jerry Seinfeld (right, tapping on the window of the Oval Office) might ask, "What's the deal with airline food service workers?"  Well, the deal is that they agreed at the end of August to a contract, narrowly avoiding a strike, after negotiations stretching back to the 2017.  You can find the union's statement here.

Important excerpt:

Highlights include raising the minimum wage nationwide to $17 per hour, a new quality, affordable healthcare plan, a new wage structure that increases year to year and rewards both years of service and job skills.  Workers will also receive additional sick time and better equipment to keep them safe when working in extreme temperatures, from refrigerated food prep rooms to hot airport tarmacs.

Sounds like a win.

California District Court Grants Preliminary Injunction to Pepperidge Farm Distributor

This case illustrates what happens when COVID-19 and the need for ready access to Pepperidge Farm Goldfish crackers collide. Train wreck. You can't look away.  Pepperidge Farm's behavior in this litigation certainly is fishy, and the District Court doesn't seem inclined to catch and release.

In August 2017, Vital Distributions, LLC (Vital) entered into an agreement with Pepperidge Farm, Incorporated (Pepperidge) to serve as its exclusive distribution agent for two California counties.  At the time the parties entered into their agreement, Pepperidge also proffered an E-Commerce Acknowledgment (the Acknowledgment), which purported to put Vital on notice that the parties' agreement did not prevent Pepperidge from entering into separate distribution agreements through electronic means.  At the time that the parties executed their agreement, Vital rejected the Acknowledgment and refused to sign it.  Vital made clear its understanding that it was to serve as Pepperidge's exclusive distributor for all purposes in the two California counties.

Vital was aware of an Amazon distribution center in the region.  It knew that its agreement with Pepperidge would be nearly worthless if it had to sign the Acknowledgment.  Pepperidge's representative warned that Pepperidge might not agree to sign without the Acknowledgment, but in the end Pepperidge did sign.  Under the agreement, Vital got paid for storage and delivery services, and it also received commissions on all distributions, whether through ordinary or e-commerce, within its territory.

The agreement included a carve-out for deliveries to chain stores that insisted on direct deliveries from Pepperidge to their warehouses, but only after Pepperidge attempted in good faith to persuade the chains to use Vital's services and those chains insisted on bypassing the agreement.  Finally, Pepperidge was contractually obligated to provide amounts of its products to Vital sufficient to guarantee an adequate and fresh supply.

The parties worked together well until COVID hit. Then, product panics hit. Demand for Pepperidge products soared, especially Goldfish crackers, and Pepperidge started meeting that demand through Amazon. Even after shoppers stopped braining each other in pursuit of toilet paper, Pepperidge continue to meet demand through Amazon while providing Vital with half the product it had previously supplied, harming Vital's business relations with retail stores. Vital's customers took to ordering the product they so desperately needed through the Internet.

Vital sued alleging breach of contract and breach of the implied covenant of good faith and fair dealing.  It sought an accounting and declaratory relief.   Pepperidge's motion to dismiss was denied; Vital's motion for discovery was granted, as was its motion for a temporary restraining order.  Back in April, in Vital Distribution, LLC v. Pepperidge Farm, Inc., the District Court granted Vital's motion for a preliminary injunction.

Supervillain Snidely Whiplash, auditioning for the role of Pepperidge Farm in the film version of this case

Soon after an unfavorable discovery ruling, Pepperidge Farm sought to exercise a buyback option provided for in Article 20 of the original agreement.  Article 20 permitted Pepperidge Farm to buy back the distributorship for its market value plus 25%.  Charmingly, it exercised this purported option through an e-mail sent by a paralegal providing Vital with thirty minutes notice. It then disabled technology essential to Vital's distribution services. These actions were then subject to a temporary restraining order.  Pepperidge represented that the parties were working out a settlement that would effectuate the transfer of the distributorship back to Vital. In fact, Pepperidge continued to engage in shenanigans undermining Vital's relationships with distributors. Pepperidge attempted to characterize its conduct as business as usual.  The parties' relationship had soured and so it was exercising its buyback option.

The Court had little difficulty concluding that Vital would likely succeed on the merits of its breach of contract claim. Pepperidge did itself no favors by refusing to respond to recovery requests, making it easy for the Court to side with Vital on all material facts that might otherwise be disputed.  Similarly, the Court found that Vital would likely succeed on its claim that Pepperidge invoked the buyback provision in violation of the duty of good faith and fair dealing. Pepperidge presented no evidence of inadequate performance by Vital and thus had no justification for its invocation of the buyback provision or for its curious timing.  Bad faith is an amorphous concept, the Court noted, but we know it when we see it. If something looks like a fish, crunches like a fish, and tastes of cheddar, well, it's probably a Pepperidge Farm Goldfish being sold through e-commerce distributors in violation of an exclusive distribution agreement.

As you can imagine, the irreparable harm analysis, balance of the equities, and public policy considerations all went Vital's way.  The Court granted Vital's motion preliminarily enjoining Pepperidge from terminating or buying back Vital's distribution rights.

Friday Frivolity: Panda Contracts

Panda enthusiasts know that China does not give giant pandas to American zoos. The pandas are leased, and the terms of the leases permit China to reclaim their pandas, which remain, as they put it, Chinese citizens.

Now you might think that, when these loaned pandas reproduce, we might use their offspring as anchor babies. The baby pandas, the logic would run, are natural born U.S. citizens, and then, after an appropriate time, they could apply to get citizenship for the parents.  But no, under the terms of the leases, the babies are and remain Chinese citizens, subject to repatriation within four years of birth.

Ambassador Barbara K. Bodine explains it all in this interview on the Georgetown University website.  With Washington and Atlanta due to return their pandas to China this year, there was consternation in the U.S. panda-loving community that the U.S. might be entirely bereft of pandas. We would all have to get by with Internet videos and baby sloths. However, as Jorge Garcia reports on Reuters, a new panda exhibit opened in San Diego in August. And there's more good news: it seems that Washington is going to get two young pandas later this year! Panda diplomacy is alive and well.

Thanks to OCU 1L Jacey Herrington (above right) for calling my attention to the lease agreements.

And now, a panda video. 

Enjoy the weekend.

 

Contracts (Plea Deals) May Finally Resolve Some of the 9/11 Cases

Seems fitting to ease in to blogging again with some breaking news, even if it is not your typical contracts law fare.  More like Lawfare fare.

Back in May, I suggested that contracts, in the form of plea deals, were the best way to finally end the national shame of the detentions at Guantanamo Bay and the travesty of justice that ought to bring resolution to the cases against the people responsible for the attacks on the United States on September 11, 2001.  Now, Carol Rosenberg (right), the last reporter standing in Gitmo, brings us news in The New York Times that some of the 9/11 defendants have entered into plea deals. 

Khalid Shaikh Mohammed (KSM), Walid bin Attash, and Mustafa al-Hawsawi, who have been in U.S. custody since 2003, agreed to plead guilty to the murder of 2.976 people in exchange for a promise that they will be spared the death penalty.  They were supposed to stand trial in the military tribunals set up at Guantanamo Bay.  The defendants had been held there since 2006, but their trial has been mired in pretrial proceedings for ten years.  It was unclear whether they were ever going to be tried.  We know, for example, that KSM was waterboarded 183 times, and Carol Rosenberg suggests the possibility that the military judge might throw out their confessions, which would have been a key piece of evidence.  

As expected, relatives of some of the defendants' victims are upset that the death penalty will be taken off the table.  Others are relieved that there will be some resolution.  While there will not be a trial, there will be hearing, which will provide an opportunity for the victims' families and the public at large to get all of the information they might want to learn from the perpetrators. KSM (left) had previously bragged about having been the "mastermind" behind 9/11.  Unless he has changed his ways, we can expect that he will be happy to have a forum in which to explain his thought processes and the techniques he used to perpetrate mass murder.  It seems unlikely that he will have much to add to what he has already told his interrogators.  We will also learn from the defendants about their treatment while in custody.  What we hear will be ugly but again it seems unlikely that people who have been following the story of US treatment of detainees in the war on terror will be surprised by what they hear.  But who knows? Some of my students were probably in kindergarten when we learned about crimes perpetrated by Americans against detainees at the Abu Ghraib prison.  The hearing may revive interest and educate the public about this chapter of our recent history.

There were originally five defendants in the case.  One has been found unfit to stand trial due to mental illness.  A fifth, Ammar al Baluchi, might have to stand trial alone.  Carol Rosenberg reports that he conditioned his agreement to a plea on a demand that the U.S. set up a civilian-run torture treatment facility for the defendants in prison.  The government may not have been willing to commit to that, but perhaps the government has more leverage now that Mr. Baluchi stands alone.

This may be a farewell gift from the Biden administration.  These talks have been going on for over two years.  The Biden administration originally would not accept the defendants' terms.  Now that President Biden is not seeking a second term, perhaps he feels emboldened to shut down as much of Gitmo as he can so that future administrations will not have to deal with the continued embarrassment of  the indefinite detention of mass murderers who cannot be tried because the U.S. found compliance with legal norms inconvenient and thus tainted all of the evidence that might have been marshaled so that they could be convicted of their crimes. 

Friday Frivolity: Constructive Firing in China

This isn't that frivolous, except that I learned of it through National Public Radio's comedic news quiz, "Wait, Wait, Don't Tell Me."

As reported by Yating Yang in the South China Morning Post, a company in China moved its headquarters from an urban center to a remote mountain top in order to get its employees to quit and avoid having to pay them severance.  The commute took two hours each way.  Employees who did not have their own vehicles had to take public transportation, a bus that ran only once every three hours, and then they had to climb a three-kilometer mountain path.  On their way home, often in the dark, they had to watch out for packs of stray dogs.  The facilities at the new location lacked basic amenities.  Female employees had to walk to the nearest village to use public toilets.

Image by Liuxingy, CC BY-SA 4.0  via Wikimedia Commons

Then, once 70% of the workers had quit, the company returned to its urban setting and began hiring new staff.  A company spokesperson claimed that the move was a cost-cutting measure and was always intended to be temporary so that the company could continue to operate while its main offices were being renovated.   Employees claim that they were told that the relocation would last an unspecified amount of time and could stretch into the new year.  The company claimed that it was considering legal action against the departing employees for damaging the firm's reputation. 

Although the story broke in January, I have found no updates.

Teaching Assistants: Andrea Boyack on Abuse of Contract, with a Dash of Eric Goldman

It is always a pleasure to be able to use this blog as an excuse to prod me to read things I really ought to read and to promote the work of the dedicated contracts scholars I have come to know through decades of engagement with the subject.  You can find Andrea Boyack's work, Abuse of Contract: Boilerplate Erasure of Consumer Counterparty Rights, on SSRN.  It is forthcoming in the Iowa Law Review, so congratulations, Andrea, on a wonderful placement.

Professor Boyack  (right) starts with a straightforward explanation of why certain boilerplate provisions are bad.  They are not necessary to the parties' transaction. Rather, they erase default rights that benefit consumers with the sole purpose of shifting the risk onto the parties least well-positioned to protect themselves against that risk.  Peggy Radin laid the groundwork for Professor Boyack's work with her pioneering book on Boilerplate, to which we devoted a symposium in 2013. 

Both the common law and the new Restatement of Consumer Contracts Law allow for the enforcement of such terms.  Scholars are divided about how commonly corporations abuse their bargaining power to strip consumers of their legal rights in truly alarming ways. Professor Boyack dives in with her own study of the online terms and conditions (the T&C Study) of 100 companies.  Her findings are sobering. Here's the money quote from page 3 of the article:

Evidence from the T&C Study shows that the overwhelming majority of consumer contracts contain multiple categories of abusive terms. The existing uniformity of boilerplate waivers undermines the theory that competition and reputation currently act as effective bulwarks  against abuse (3).

The T&C Study tracked four broad categories of "destructive" terms:

• dispute resolution mandates,
• liability waivers,
• limitations on damages, and
• pre-authorization of unilateral modifications (5).

In a more granulated, way, it also tracked eleven rights-deleting terms

1. mandatory arbitration,
2. waiver of a jury trial,
3. waiver of the ability to participate in a class action,
4. forum selection,
5. limited time periods to bring a claim,
6. disclaimer of representations,
7. waiver of implied warranties,
8. privacy waivers,
9. limitations on types of damages,
10. caps on the amount of damages, and
11. authorization for unilateral modifications of terms (7).

Professor Boyack's findings are not exactly surprising, but it is very useful to have the data collected, and there are all sorts of interesting wrinkles and nuances.  Overall, going back to the original four categories of "destructive" terms, over 80% of the contracts reviewed included provisions that fell into all four categories, with nearly all of the companies, limiting remedies and reallocating liability, and  each and every one reserving the right to unilaterally modify the terms of the agreement (21).

The relative uniformity of these terms bolsters the arguments of legal scholars who have claimed that consumers do not give meaningful consent to boilerplate terms.  "If all transactions come bundled with virtually the same substantive terms that shift costs and risks away from companies, consumers can do nothing but acquiesce to these reallocations" (24).  Similarly, if you are inclined to think that competition will force companies to abandon obnoxious boilerplate terms, the T&C Study provides no support for that position (28-29).  

The Article concludes that the current state of contracting offers insufficient legal protection of and insufficient market choices for consumers.  Boilerplate waivers, disclaimers, and limitations are imposed on consumers who acquiesce to those terms rather than choose them, because they have no choice in the matter. As a result, corporations are able to exploit their contracting hegemony to systematically deny consumers their legal rights. 

That may all seem like a bummer, so let's end on a happy note.  Professor Boyack includes in her appendices a great deal of the data she collected, and it is color-coded in soothing pastels, allowing for relaxed contemplation (33-42).  She also includes a sampling of destructive terms (43-51) so that you can read them aloud to your children instead of "Goodnight Moon" and they will beg you to stop so that you all can go to sleep.  Finally, there is a score sheet at the end, grading the companies, so you can appropriately calibrate your resentment (52-55).

Meanwhile, this just in: Eric Goldman (left) reports here on a North Carolina Supreme Court case allowing modification of terms of service without notice.  Here's the core holding:

When parties have mutually agreed to a unilateral change-of-terms provision, said provision “must be enforced as it is written,” subject to certain limitations. Contrary to plaintiff’s assertions, the traditional modification analysis which requires mutual assent and consideration does not apply to changes stemming from a valid unilateral change-of-terms provision in an existing contract.

There are two exceptions: the modifications must not fall outside of the "universe of terms" that the original agreement governs and they must me be made in good faith.

Non-Disclosure Agreements and the Public Interest

In 2019, David Hoffman and Erik Lampmann published Hushing Contracts, which among other things, specified the ways in which non-disclosure agreements (NDA) externalize the social costs of unsavory behaviors by corporations and their agents. They address the danger that NDAs can protect people against sexual harassment claims and may enable them to move from job to job despite a history of tortious or even criminal misconduct.

We posted eighteen months ago about the Speak Out Act, which rendered NDAs unenforceable with respect to allegations of sexual assault or sexual abuse. Stacey Lantagne (left) was posting about NDAs and sexual harassment on this blog long before then.  We have posted repeatedly about the limits of NDAs imposed on employees of the Trump campaign and the Trump administration. Last week, a new Trump NDA issue arose and a second one re-surfaced.

Previously, we have focused on NDAs in the #metoo and First Amendment (free speech) context.  The latest Trump NDA scandal has to do with his alleged use of the "n-word" in connection with the reality television series, The Apprentice. Former producer for the show, Bill Pruitt, published the details on Slate.  From my perspective, as someone who regards reality television as the monetization of the basest of human qualities, the story has a Leopards Ate My Face vibe to it. Mr Trump, whatever his virtues, is not known for his moral probity.  The 20-year NDA that threatened criminal sanctions for breach should have been a tip-off that this was not your usual work gig.  Is anybody surprised by this latest confirmation that there is no social convention that Mr. Trump will not flout? 

Well, I guess the pee tapes thing wasn't true.

It is common to ruminate in such situations whether it would have have made a difference if Mr. Pruitt could have come forward with his allegations at some point between the famous descent on the tacky gold escalator and the 2016 elections. As someone who, after the release of the "Access Hollywood" video, confidently predicted "he'll never be President," I can't very well say.  Perhaps with Mr. Pruitt's NDA expiring, others will also expire and we will benefit from a series of revealing anecdotes about Mr. Trump saying the sorts of racist, sexist, homophobic, etc. things he undoubtedly routinely says when the mikes are off and all auditors are gagged by NDAs.

But being offensive is his brand.  He's already been found liable for defamation in connection with a sexual assault, for fraud in connection with both his main business and his "charitable" foundation, and now he's been found guilty on 34 felony counts.  While there is some dispute about the application of this particular statute in these particular circumstances, I don't think anybody can doubt that the underlying conduct occurred and is not very Presidential.  So he used some salty language? Why would anybody care about that if they don't mind him saying that he will be a dictator on day one of his second term, if he gets one?

But I digress, the real question is whether public policy can or ought to ban NDAs that prevent people from reporting such offensive conduct. Hofmann and Lampmann articulate an expressive theory of NDAs, arguing that we should concern ourselves not only with the law's commands but with the messages legal actors send. If courts uphold NDAs that facilitate impunity for sexual predators, the law expresses indifference to the plights of the victims of sexual predators and to the problem of sexual predation more generally.  Beyond the use of an offensive racial epithet, here, arguably, Mr. Trump made a decision that had an adverse impact on someone's employment based on the potential employee's race.  Does it matter that the employment opportunity was part of a reality television show?  Would we want the law to set aside NDAs when they stand in the way of unmasking racists? How about if the racists later run for public office? 

The other Trump NDA news is that, as Michael M. Grynbaum reports in The New York Times, a NY appellate court ruled last week that Mr. Trump's suit against his niece, Mary Trump (her book is at right), can proceed.  [Aside: the Times calls her his "estranged" niece, .  I'm not sure what it means for a niece to be "estranged." Again, Mr. Trump operates in ways that raise questions we thought we'd never have to ask ourselves.] The issue was whether Mary Trump violated the NDA entered into in connection with a 1999 financial settlement relating to the will of Mr. Trump's father when she shared information with the Times that resulted in article alleging that Mr. Trump had engaged in tax evasion and fraud.  The appellate division found that Mr. Trump had established a basis for a breach of contract claim, although it noted that issues regarding in the scope and enforceability of the NDA remained.  Mr. Trump's attorney proclaimed that Ms. Trump had committed a "blatant and egregious breach of contract," which, if nothing else, is blatant and egregious hyperbole and also irrelevant, unless New York has some statute that allows for special damages in the case of "blatant and egregious" breaches of contract.  Either it's a breach or it's not. Pounding the table with extra verbiage is not a sign of strength or confidence.  It's a sign that someone is wont to behave like a toddler needing a nap rather than a professional who will develop arguments applying the law to the facts.

Tech Workers in Kenya Appeal to President Biden

We've been posting a lot late about OpenAI. Whether it is paying Reddit so they can mine our brains to feed their chatbot, purloining Scarlett Johansson's voice and pretending they hadn't, or just being generally creepy by wanting its audio assistant to sound like the sex-obsessed operating system at the center of a disturbing, quasi-dystopian fantasy movie, OpenAI is fast becoming a tech giant that I hate as much as all the other tech giants.

This open letter to President Biden from Kenyan tech workers gives me a new reason to hate OpenAI, as well as some new reasons to hate the other tech giants.  The Kenyan workers want President Biden to know that US tech giants are "systematically abusing and exploiting African workers," undermining local labor laws in Kenya, and violating international law standards, by imposing conditions tantamount to modern-day slavery.

Nairobi has very high unemployment.  People are desperate for work and eager to work in the tech sector. But the opportunity comes at too high a price.  The Kenyan workers perform content moderation for the platforms, labeling and training AI tools by "watching murder and beheadings, child abuse and rape, pornography and bestiality, often for more than 8 hours a day." For this work, some are paid less than $2/hour.  They allege that they were not informed of the nature of their work when they were hired and that their work has caused them to suffer from post-traumatic stress disorder.

According to the authors, when Kenyan workers try to organize, they are collectively sacked, and the two companies, Meta and ScaleAI, simply moved their content moderation operations to other states, without paying workers back wages, even when ordered by Kenyan courts to do so. The workers call on President Biden to live up to his commitment to labor rights and worker-centered trade. Kenyans want tech jobs, but not tech jobs that will ruin their lives.  

It doesn't seem like a big ask.  The U.S. government should have the power to pressure the tech giants into paying foreign workers living wages, fostering humane work conditions, and complying with the laws of the foreign states in which they operate. These companies are the face of the United States abroad, and we want that face to be associated with technological innovation and economic opportunity, not with worker oppression bordering on enslavement.

Reddit Deal with OpenAI

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

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

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

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

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

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

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

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

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

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

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

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

Chicago Bears Rookie Sought to Avoid Contract with Big League Advance

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Law Review Contracts

In Spring 2023, I was lucky enough to have one of my articles accepted for publication in a law review.  Of course, the offer was contingent on agreement to terms, but I didn't give that much thought.  Early in my career, I engaged in some negotiating with law reviews about my right to post drafts online prior to publication, but that practice is now so common that the standard contracts allow for pre-publication posting of drafts. 

However, this contract had two provisions that I found objectionable.  One was a blanket indemnification provision, which required me to pay fees and costs should the university pay a judgment or settlement in connection with any breach of the contract by me.  The other essentially rendered the agreement illusory by granting the law review the right to withdraw its offer of publication at any point in the process for any reason.  The law review must notify me of its reasons for the withdrawal, but the contract gives me no opportunity to object, so the notice provision is not helpful, beyond its value as evidence in litigation, the cost of which I would have to bear should I lose.

I surveyed colleagues about how to handle this situation.  I suspect that most professors just sign these things without much thought, as the likelihood of litigation or liability associated with legal publications is vanishingly slight.  Some law professors shared with me that they have just crossed out objectionable language and returned the documents, assuming that the law review editors will not pay much more attention to these matters than we do.  Others try to negotiate, and some told me that they had withdrawn their articles upon being told that the law review would not change its contractual terms. 

Some colleagues who have served as advisors to law reviews lamented the careless contracts that they found upon assuming the role.  They consulted with university counsel and soon contracts more protective of the universities' interests were drawn up and set in stone.  Faculty advisors were told that they contracts could not be changed; they communicated the same message to student editors, and so things remain until institutional memory fades.

I wrote to my student editors requesting that two provisions of the contract be removed or edited.  As I feared, they responded that university counsel would not permit any changes in the contract, and they knew this because another author had requested changes, and they had been told that they could not accommodate any changes.  I wonder what became of that author's submission.

Some colleagues suggested that I might insure against this risk, so I looked into it.  The American Association of University Professors AAUP) provides limited coverage, but it does not cover all of the most likely risks attendant to publication, and the combined cost of joining AAUP and buying the insurance would exceed $500.  I next considered whether a general business liability insurance policy might do the trick and be a bit less expensive.  Nope.  Errors and omissions policies exist for publishers, but getting an insurer to write a policy for an author would be prohibitively expensive.  

At this point it occurred to me that the law review with which I was hoping to publish is housed at a university with a university press.  It follows that the university likely already has coverage that addresses precisely the risks for which it was seeking indemnification from me.  I spoke to a relative who had a long-time career as an underwriter, and he reckoned that such coverage comes pretty cheap to a university, as a rider or addition to its general commercial liability coverage.  

Armed with these surmises, I wrote to my student editors again.  It seems to me that the indemnification language in their contract is a solution in search of a problem.  I also proposed language that would allow them to terminate the agreement for cause, with notice and opportunity to cure, so as not to render their promise to publish illusory.  I asked them to share my concerns with their faculty advisor and university counsel.   Otherwise, I was going to have to withdraw my piece reluctantly.

Of course, the students are just caught in the middle.  They don't have any say in the verbiage in their form contract.  They liked my article, took the time to read it, discuss it, consider it for publication through their own internal processes.  They wanted to publish it.  The contract was an obstacle that might make all of the work that they had done thus far a waste of time.  Meanwhile, the opportunity to make offers to other authors may have passed.

The whole experience saddens me both as a contracts teacher and from an institutional perspective.  As a contracts teacher, I try to persuade my students that, because contracts facilitate mutually beneficial transactions, if they really want to make the world a better place, they should consider transactional work as a possibility.  If they do consumer contracts, they can help police one-sided transactions to strive for contractual approaches that allocate risk and reward in a socially responsible manner.  But experiences like this one remind me that one-sided contracts can sow distrust and thus prevent mutually beneficial transactions from arising, as I previously noted here.  I had hoped to work with this law review, as I have worked with dozens of others, and now that might not happen.  The benefits on both sides are largely intangible but not negligible.

From an institutional perspective, I think this problem arises because of a few bad actors – authors who malign others, treat law review editors shabbily, or fail to diligently respond to reminders about deadlines. University counsel might not think that a law review is an enterprise important enough to justify risk of exposure to liability, even if that risk is very slight.  If I were to pull my piece, it would have zero impact on the rank or reputation of the law review.  The law review would publish something else.  University counsel thus has little incentive to change the terms of a contract that it regards as protective of the university’s interests. 

But university counsel is focused on risk management, and without forceful advocacy, they will prioritize those business concerns over furtherance of the university’s educational and scholarly mission. Moreover, given the networks of law review editors, faculty advisors and university counsel, all law reviews may soon adopt similar contracts.  Untenured professors will then have no choice but to put up with contract terms that are so one-sided that they would raise serious questions of unconscionability but for the likelihood that a court will treat law professors as sophisticated parties.  Contracts Profs know that sophistication doesn't help when an entire industry adopts similar, one-sided terms.  

My university's general counsel teaches at our law school, and she's a good egg, so I sought her advice on the matter.  I expected that she would give me insights as to how this all looks from the university counsel perspective, but she was as appalled by the language in the contract as I was.  She offered to call her counterpart at the law review's institution to see if hearing from a peer might yield some results.  She thought there was a reciprocity problem. Universities need professors.  Professors need to be able to publish (often through other universities publications) without putting their financial stability at risk.  But then she thought about our university's  insurance coverage and suggested that our policy might cover me in the case of a law suit relating to my professional activities.  After researching the issue, she concluded that it was not clear that our policy would protect me, and she advised me not to sign the contract.

Even if my university's insurer could provide a solution for me as to my own exposure, there would still be the other provision, which allows the law review to withdraw its acceptance at any point for any reason.  In future submission cycles, I will begin negotiating the contractual terms before I withdraw my piece from consideration elsewhere, and my ability to find a law review with reasonable contractual terms will be an important component of my decision where to publish.  But if, as I expect, law review contracts converge on language that leaves authors exposed and unprotected, I may just conclude that the world can live without my scholarship and I can live without the risks associated with publication.

In the end, I was able to get the law review editors to appeal to their university counsel and accept some of the revised language that I offered.  It didn't give me all the protection I wanted, but it gave me enough that I did not lose any more sleep over the issue. This year, I took a break from the student publication mishegoss, and just published with my law school's Law Review, after reviewing their wholly unobjectionable terms.  Given that people are far more likely to come across my work on the web than through a publication, it seems like the reasonable choice, and working with our editors was very easy and enjoyable.  

Reefer Brief, Oklahoma Edition

Wonder what contracts to move marijuana look like?  Nolan Clay writing in this week's Oklahoman newspaper provides some interesting details.  A prosecution witness testified that he was hired to drive a counterfeit Amazon truck from twenty different Oklahoma pot farms for shipment out of state.  He was paid $15 per pound.  He managed to load 150-200 pounds of marijuana into the truck each trip, so that amounts to up to $3000 per trip, and he took 10-15 such trips.  The witness brought the marijuana back to his business's warehouse where it was packed into a semi for out-of-state shipment.  That is where the bust took place.  The witness pled guilty and then gave testimony against other members of the conspiracy.  A later raid yielded nearly 20,000 plants and $100,000 in vacuum-sealed cash (just like in the movies!).  

The big fish in this sting were not all that big.  The alleged manager of the operation was paid $3000-$4000 a month.  His "intern" was paid $2500/month.  They face imprisonment of ten years to life.  The street value of the marijuana seized (it's not clear from the story whether this is the 20,000 plants of the contents being loaded onto the semi) is estimated at $6 million.  Seems like the bigger fish are still swimming.  The witness had only a last name to offer.  The government is seeking to seize the farms involved in the conspiracy.

I am reminded of the chapter in Freakanomics about why drug dealers live with their mothers.  The salaries of these relatively low-level employees in a drug-peddling operation were only enough to constitute a profitable side-gig.  Even the "manager" makes less than $50,000/year in exchange for the risk of an extended stay in prison and other risks associated with criminal activities.  Once again, I'm glad I decided to become a law professor rather than trying to claw my way to the top and become a drug kingpin.

Nature Provides a Contracts Hypo

The facts of this case are almost perfect but not quite.  I plan to tweak it and work it into my sales class.  The actual facts are that a buyer contracted to purchase a used truck in "mint condition" for $9400.  Just as the buyer was driving up to pay for the truck, a deer, no doubt in training for the US hurdling team, soared through the air over two other parked cars and landed on the bed of the truck.  It didn't exactly stick the landing, as it collided with the side of the truck, doing nearly $1000 of damage.  If it were a different species, I could say that it rammed the truck, but we're above those sorts of cheesy puns on this blog.  It was all captured on video, and this deer is awesome! 

Moreover, you can actually see the buyer opening his car door just as the deer slams into the truck he is about to buy.   In a ContractsProf Blog exclusive, we are excited to report that the buyer, upon seeing the deer exclaimed,

"D'oh!  A deer!"

And the dumbfounded teenager on the driveway adds, "A female deer!" 

And I know, you're thinking, "That's not accurate." 

Fair enough, I suppose it could have been a young male deer, but that's what our spot reporter heard them say.

The timing makes the hypo a little too straightforward for a sales course.  Although the parties have an agreement, and the good has been identified to the contract, no tender of payment or delivery has been made, and so the risk of loss is clearly with the seller.  The harm to the truck will fall to the seller.  But we can play with the timing, play with delivery/acceptance, introduce a third-party delivery service, and I think I may have a vehicle (ha!) for making delivery terms less mind-numbingly dull.

Friday Frivolity: Tricking AI Into Selling You a Car for $1

Chris Bakke posted the following on Twitter, which he calls X

Contracts hypo: did Chris Bakke buy a Chevy Tahoe for $1?
Real life question: if you could buy any car for $1, would it be a Chevy Tahoe?

Enrique Dans reports on Medium that Mr. Bakke achieved this result by feeding the Chevy dealer's rather primitive AI what tech people call "prompt injections."  As Mr. Dans explains, "Prompt injection is when an end user of an LLM application (or any generative AI application) gives it instructions to make it bypass those the developer of the application have provided."