ContractsProf Blog

AI Hallucinations Continue, Affecting Even BigLaw

Thanks to Eric Goldman (left), of Santa Clara Law School and the Technology and Marketing Law Blog fame, for sharing the case. 

The Special Master in Lacey v. State Farm General Insurance Co. wastes no time getting straight to the point: Referencing the attorneys’ use of artificial intelligence (AI) in the form of large-language models, the court noted that the attorneys representing plaintiff submitted briefs containing “bogus AI-generated research.” The court imposed litigation sanctions against plaintiff and financial penalties against the attorneys involved. One third of the twenty-seven citations in a ten-page letter brief submitted to the Special Master were faulty in some way.  Two cited cases did not exist; citations to existing cases were invented. The dread AI hallucination strikes again.

A Malfunctioning ChatBot, Image by DALL-E

This time, the victims were not harried solo practitioners. The plaintiff was represented by a team of attorneys at two firms. One attorney generated a draft brief with the aid of AI. Other attorneys incorporated that draft brief into their submission without checking any citations. Nobody asked, and the attorney who provided the original draft did not volunteer the key detail that his draft was AI-assisted. The other attorneys behaved no better than the original malfeasor. Offered the opportunity to revise their submission, they offered up another brief that still included AI-generated errors, and they did not avail themselves of the opportunity to admit their earlier misplaced reliance on AI.

The Special Master sanctioned the attorneys by having them cover the costs of the proceedings, which came to over $26,000, plus $5000 of defense attorneys’ fees. Because the attorneys confessed their misconduct and expressed genuine remorse, the Special Master refrained from recommending any further discipline.

A New Private Law Substack, Geeta (Gigi) Tewari’s Defining Money

Geeta Tewari, whose work we have previously featured on the Blog here and here, has launched a new Substack. Each week, Defining Money provides a simple definition of a finance or business law term with a creative story or example. The purpose of this new blog is to help others overcome financial apprehension in a fun, manageable way.

Head on over and check it out!

Belatedly Introducing the Money Stuff Podcast, with Matt Levine and Katie Greifeld

A few years back, I started following Matt Levine (left) and his Money Stuff column on Bloomberg. His columns inspired posts such as this one about a costly but understandable error at Citibank and this one about a preposterous money laundering sting.

I recently discovered that Mr. Levine has taken to podcasting about his Money Stuff column, along with his co-host Katie Greifeld, (below right), who provides an intelligent conversation partner for Mr. Levine. There is a bit of a yin/yang thing between them, in that Matt likes markets to work efficiently and Katie likes chaos. But both like humor, and that is what makes Money Stuff not just educational but fun. I have gone back to the first episode and am catching up. I expect that I will have a lot of blog fodder from the podcast, as I learn so much form it and it gives me so many fresh ideas to write about. 

I should caution that, unlike Matt Levine and Katie Greifeld, I am no expert on money stuff. They do an amazing job making complex financial transactions understandable. But almost every segment inspires a short sidebar from the perspective of a ContractsProf who taught Business Associations for ten years. Moreover, being a year behind them, I can provide updates to stories that have now receded from public attention.

The first episode has four segments, each of which provides blogworthy content. The first segment is about the Destiny Tech 100 Fund (DXYZ). Destiny gives investors the ability to purchase an interest in shares of privately-held tech companies. As of their most recent disclosure, about half of the portfolio is SpaceX. Money Stuff focuses on the odd fact that when Destiny went public, the valuation of the stock mushroomed to $500 million when the valuation of the portfolio was only $50 million. When the Money Stuff folks did their reporting one year ago, the stock had just peaked at $60/share. It then fell back to earth, mostly hovering between $10-15/share, but then it exploded again after the elections to $70/share. It’s now settled in at around $30/share.

One recurring theme on the podcast that I want to highlight is rational irrationality. Given the subject matter, it should not surprise that my observations are derivative [pause while you appreciate that joke]. I make no claims to original insights for the ranks of the professoriate, but some readers of this Blog may not think about such matters very often, so my rudimentary takes may be new to them or they may be a helpful reminder.

I thought that last week was a big week for rational irrationality. There was no real good financial news in the media, but the markets exploded on rumors of good news on the horizon. A rational person would not put much faith in this administration's promises of new trade deals in the works or relaxations of tariffs rates. But the markets are not rational; they believe what they want to believe, so the rational money buys on the dip and will no doubt dump when the markets whipsaw with the next battle in the trade war.

My two cents to add on to this segment is that there are two possibilities. One is that these privately held tech start-ups are radically undervalued, which I doubt. The other is that a lot of people want in on these companies, and they are willing to pay far in excess of the companies' valuation in order to do so. Economic theory tells us that stock prices should not respond to laws of supply and demand. If the value of a stock is $10/share, it should sell at that price, no matter how many people want to own it. But investors can be irrational. Rational investors know of that irrationality and are happy to exploit it, boosting the stock price well above the value of the underlying asset and then selling to the irrational marks once the stock has peaked.

I did a quick search to see if more has been written about Destiny, but as is typical with such things, there was a flurry of reporting when the stock price popped about a year ago, and since then, mostly silence. Finance sites follow the stock price, of course, but I couldn’t find much analysis of the fund as a phenomenon. 

The second segment is about Avi Eisenberg, who devised an incredibly simple trick for making $117 million in 2022 by manipulating positions (longs and shorts) in Mango Markets (MNGO), a decentralized finance platform. Matt Levine’s money quote [I pause again while you appreciate the joke] describes both this caper and the attitude of crypto capitalists generally. Matt and Katie focus on the tension between the regulators’ perspective that  “law is law” and the crypto-investors perspective that “code is law.” Matt says, “As long as you’re the smart one, you’re like ‘Ahhhh, anything goes, you don’t need regulators,’ but then you get blown up and you’re like, ‘Ahhhhh, where were those regulators?” Worth a listen just to hear Matt’s “Ahhhh, which I can’t really translate into print.

Mr. Eisenberg was so confident that code is law that he took to Discord to brag about his “hack” and to defend it as completely consistent with the protocols that Mango had set up. Those protocols had a vulnerability; he exploited it. Things went a bit too well. Mango’s losses exceeded its insurance coverage, and the platform was in danger of collapse. Mr. Eisenberg agreed to return $67 million of his winnings in exchange for Mango’s promise not to press charges.

Well, federal prosecutors don’t think that code is law. They think law is law, and as Amin Ayan reports here on Cryptonews, prosecutors are now seeking a 6.5 year sentence for Mr. Eisenberg, who was convicted in April 2024 for wire fraud, commodities fraud, and market manipulation. I find the wire fraud and commodities fraud charges a bit puzzling, as one of the interesting features of this story is how open Mr. Eisenberg was about what he was doing. Market manipulation may be another matter. Having looked at the indictment, I see that he was charged under 7 USC § 13(a)(2), which makes it a felony for:

Any person to manipulate or attempt to manipulate the price of any commodity in interstate commerce, or for future delivery on or subject to the rules of any registered entity, or of any swap, or to corner or attempt to corner any such commodity or knowingly to deliver or cause to be delivered for transmission through the mails or interstate commerce by telegraph, telephone, wireless, or other means of communication false or misleading or knowingly inaccurate reports concerning crop or market information or conditions that affect or tend to affect the price of any commodity in interstate commerce, or knowingly [to violate various other provisions of the Code.]

The unusual thing about market manipulation is that it doesn’t require any deception, and it seems to apply on the facts here.

According to Alex Costa, reporting on DailyCoin, Mango Markets shut down in January, never having recovered from having its vulnerabilities exposed. Mango is seeking restitution of the remaining $47 million that Mr. Eisenberg kept from his scheme. He’s got other problems, as prosecutors found child pornography in his possession while investigating his other crimes. 

Very few sectors of the economy are as risk-averse as academics. Law professors and perhaps business professors like to tell ourselves that we could have made a lot more money if we had stayed in private practice, and that is certainly true for some of us. But most of us have happily traded job security, status, and the ability to control our own lives for the pursuit of wealth. I admit, I don’t think I could have made huge sums as an attorney, because I could never work whole-heartedly on behalf of clients to whose fate I was largely indifferent. I lasted as long as I did because I always, with one exception, esteemed my client’s adversary somewhere below indifference. Being averse to risk and not really interested in vast wealth, I have a hard time understanding people who devote their lives to making something from nothing.

At my former law school, I had colleagues who viewed life from the perspective of a tax attorney looking for the lucrative loophole. They had something like mild contempt for people who were governed by norms rather than by law. And now an infinitely more extreme version of such people runs the country. We need to appreciate thee psychology and the worldviews of these people and do so fast.

We’re #1 and #14!

I am pleased to announce that the ContractsProf Blog is once again the #1 Contracts Law Blog in the world according to Feedspot.

We are also ranked 14th among business blogs, and I suspect we would be ranked higher, except that our competitors have more Facebook and Twitter followers than us because we don’t have feeds on either of those platforms.

So, given that this is the season of March Madness, we are glad to be both a #1 seed and a potential Cindarella dark horse, even if much of the information is either wrong or out-of-date.

The Divided Argument Podcast and Oklahoma City’s Dean/Mayor

The last time we mentioned the Divided Argument podcast, we were congratulating them on their funniest bit yet. After that, I chided co-host Will Baude on social media for throwing shade on my adopted home town, Oklahoma City.

To his credit, in their latest episode, Will apologized for his ill-chosen words about Oklahoma City, and rising to the bait, he has indicated a willingness to enhance his knowledge of OKC by giving a guest lecture here. We only have two endowed lectures a year, so it may take us a while to reach out, but I can assure Will that I have very good relations with the chair of the speakers committee, and the Dean/Mayor has expressed willingness to arrange an outing to a Thunder game as an added inducement. 

Unfortunately, I now have to turn my Kendrick Lamar-level Beef energy to Will’s partner, Dan Epps, for two faux pas during the latest episode.

First, the duo announced the launch of their new blog, and I congratulate them on that endeavor. In announcing the launch, however, Dan for some reason felt it necessary to stress that their blog, which is called a blog, is not a blog because “Blogs died and got taken over by Substack.” Their blog is actually a Substack, I guess, except that you don’t have to pay to subscribe, and they explain why that is different from a blog. Well I never. 

Rumors of the death of blogs is exaggerated. They cite to the Volokh Conspiracy as an example of a blog, and it is one on which I think Will, at least, has been known to post. Notwithstanding the Beef, I have subscribed to their Substack, but it will always be a blog to me. I recommend that you subscribe as well. Tell them that the ContractsProf Blog sent you. And tell them that you are subscribing to them because it is a blog, which is like a Substack, except that it is free, and that’s why you are refusing to pay subscription fees. Hah. That’ll show ‘em.

And having now had a look at the blog, I would add that, if anything, they undersold it. In addition to having bonus content from the maddeningly prolific and always surprising and interesting podcast co-hosts, Will and Dan, the blog also includes guest essays from luminaries in the firmament of our legal academy. Will’s sometime co-author Stephen Sachs and Notre Dame's Samuel Bray are, thus far, he most frequent guest contributors. It is invaluable to be able to read quick takes from these authors who, like Will and Dan, produce more article-length content than the typical blogger can digest given other demands and commitments.

There follows a mention of this blog, for which we are very grateful, and renewed, more positive discussion of Oklahoma City. Will Baude shares that the Dean of our law school (above right) is also the Mayor of Oklahoma City , and here Dan makes his second Beef-worthy gaffe. He opines that it seems like being Dean and being Mayor are both full-time jobs, and he expressed his doubts that anyone could do them both well.

We currently have a co-President who also runs five companies, so I don’t know why Dan thinks Dean Holt cannot wear a couple of hats. In fact, the day-to-day operations of Oklahoma City are run by our City Manager. Dean Holt’s other job is important but decidedly part time. He had a different day job before we chose him as Dean. Oklahoma generally has a tradition of having politicians involved in higher education. David Boren’s stewardship of the University of Oklahoma was the most prominent example, but there are many others. Robert Henry went from Oklahoma Attorney General to Dean of our Law School to Tenth Circuit Judge. He stepped down from the Tenth Circuit to serve as our university president from 2010-2018.

Our last Dean, Jim Roth, was also a politician and practitioner before he stepped into the role as Dean. We like the synergies. For example, when the local NBA team makes the playoffs, the Mayor/Dean can procure a comically-large banner to hang in the Law School’s central atrium to inspire the students as they prepare for their contracts class. Our Mayor/Dean also hosted a Thunder watch party in said atrium, and our Associate Dean showered the students from the balcony with Thunder swag  (T-shirt cannon is on hold due to budgetary constraints). These are the sort of special bonuses a law school can offer its students when you have a Dean who is also the Mayor.

Professors: Interested in joining a professor letter supporting the CFPB?

Over at the Consumer Law and Policy Blog, Jeff Sovern has posted a link to a letter in support of the Consumer Financial Protection Bureau (CFPB). We have posted recently about the current administration’s attempts to dismantle the CFPB.  We encourage profs to follow the link and sign if so inclined.

To read and join the letter, go to Sign-on Letter – Law Professors re: CFPB

Having not looked at the Consumer Law and Policy Blog for a while, I now notice that there are a number of recent posts on the CFPB.This can be a good opportunity to get caught up on recent developments, including this thirteen-minute report on the CFPB from 60 Minutes

Brian Leiter Has Cracked the Case of “Citation Rings"

Last week, Brian Leiter reported on his Law School Reports on alleged “citation rings.” Here’s how the caper works: Mid-level scholars cross-commit to citing one another’s work to boost their citation counts. So says a “younger scholar” who reported it to some unnamed person who reported it to Brian Leiter. Professor Leiter finds the practice reprehensible.  

There is no scholarly purpose served by "citation rings."  There are ways to detect such pattersn in citations, although I hope it won't be necessary to use them.  But if they are identified, then Deans should be encouraged to impose disciplinary measures on faculty found guilty of this kind of scholarly malpractice.

In my view, two things are surprising about this. First I am surprised that Professor Leiter dialed the outrage right up to ten and called for investigation, which I think would be harder than he thinks, and sanctions. Second, I’m surprised the junior level reported rather than emulated the behavior of more experienced scholars.

On the first point, I imagine that the citation ring gambit occurs when scholars doing related work meet up at conferences or gatherings or even just on social media. Finding a way to cite a colleague is not hard, so long as there is some hook, and if there is some hook, the crime will go undetected. The student editors would likely question a citation that did not relate to the text of the article. An investigating dean, or the academic mischief forensics expert to whom the task would be delegated, would have to find a citation that slipped through the cracks, find a reciprocal citation that also slipped through the cracks, and then begin the interrogation. I, for example, have cited Brian Leiter. I think I can justify it. If he ever cited me, he’d be toast if he were mid-level. What possible motivation would he have to cite me, absent a quid pro quote?

But I have suggested in an earlier post, that "citation rings" are completely unnecessary. People who are at schools that care about citation counts cite other people at such schools because, almost inevitably, they know each other, share work, see each other at conferences, and think of one another has having made contributions to the field that are worthy of citing, even if only to but see. 

A few years have now passed since that earlier post, so I will say a few words more for those who missed it. In my view, even though I share a job title with people at top schools (“The Legal Academy’) my job is different from theirs. I teach in the Other Legal Academy (OLA), and what that means is that I mostly teach. I do write; I’m doing so right now, and thank you for reading. But you likely never have read (or cited to) my scholarship. I engage in my scholarship earnestly and passionately, but I know that it will have the impact of a feather thrown into the Grand Canyon, if I can even find a publisher, which has gotten significantly harder in the past decade for those of us in the OLA.

Things work differently in The Legal Academy. People there also work earnestly and passionately, and if they are realistic, they may conclude that the impact of their work is akin to lobbing bricks into the Grand Canyon. But when it comes to citation, they have a huge advantage over me. I am much more likely to cite a paper I hear delivered or read in draft than I am to cite something I come across randomly. But I go to a grand total of two conferences a year, and my law school hosts two outside lectures a year. I have not been invited to give a lecture at another U.S. law school in well over a decade. So people don’t read my work in draft and they don’t hear my scintillating presentations.

Moreover, if you are at the top of your field, you don’t come across things randomly. You know your field; that’s your job, and it’s a big job. If you have some confidence that you already know the important voices in your field, you don’t go digging around for the sixty-page law review articles you missed. If your research assistant comes across something, you can add it to a string cite.  You’ve gathered enough material to engage with already from the recent papers from known quantities. You make your name and reputation by responding to them, not to me.

So if citation rings exist, I am surprised, but not scandalized. If they exist, they smack of a desperation induced by the stupidity of paying attention to citation counts. C’mon The Legal Academy. You are better than that. You don’t need a proxy to help you estimate the value of your colleagues’ work, especially as the proxy is flawed.

Congratulations to Eric Goldman on Twenty Years of Blogging

This month, Eric Goldman is celebrating the twentieth anniversary of his Technology and Marketing Law Blog. It is an amazing achievement. Our Blog has also been around for twenty years, but we have had numerous contributors over those years, and there was a regrettable lapse when the Blog went silent. Imagine that!

I check in from time to time on Eric’s blog. It often has content that is relevant to our readers as well. Eric estimates that he spends two hours per blog post, which seems about right to me on average. As Eric explains, bloggers do what they do because they enjoy it. They hope that it a provides a reading public with information delivered at the right level and in a convenient space, but we wouldn’t keep at it if we weren’t passionate about it, even when it seems like the world has pushed past blogs. Here is Eric’s summation:

As I’ve said before, I feel like I was born to blog. Despite the heavy time commitment, I rarely feel like blogging is a chore. . . . If I was forced to stop blogging, I would miss it desperately. I never could have imagined that I would blog for 20 years. But having reached that milestone, I fully expect to keep going for 20 more years or longer.

Whenever I have a look at Eric blog, I feel a bit guilty that I don’t visit it more often. One of the ironies of blogging is that a committed blogger lacks time to read other people’s blogs, at least if they also have a day job. I won’t have my day job in twenty years, nor do I think I will be blogging. I will miss both, but I can take some consolation in knowing that Eric’s blog will still be going strong.

Oligarchs Dismantle the Consumer Financial Protection Bureau

I lack the expertise to explain the importance of the Consumer Financial Protection Bureau (CFPB). Suffice it to say that the attacks on it from the banking interests, and members of Congress swayed by their lobbyists, have been unrelenting since it was created in response to the Great Recession. As you may recall, that Recession was brought on by financial entities deemed “too big to fail.” The resulting lax regulatory regime created an environment in which financial institutions were encouraged to take on huge financial risks, to reap the rewards while those bets paid off, but to expect government bailouts when those risks turned out to be calamitous losers. We all paid, first when our investments evaporated and then when we the taxpayers had to foot the bill to bail out the banks.

Fearing a President more inclined to protect bankers than bank customers, the people who designed the CFPB sought to insulate it from executive whim. SCOTUS took a cleaver in the form of the highly questionable unitary executive theory to such schemes in a series of decisions culminating in Seila Law v. CFPB.  Ever since then, the banking interests have tried to use the supposed constitutional infirmities of the CFPB to detract attention from its vital work, returning money that financial institutions bilked from unwary consumers of financial services. 

I would direct you to CFPB’s website to learn more, but this is what it currently looks like:

Instead, I direct you to Erin Witte’s recent post on the Consumer Federation of America’s site, and I note the irony that the banking interests have now effectively thanked American taxpayers for the bailout by backing an administration that will eliminate the regulations working to prevent the next Great Recession. 

It will come.

Federal Workers, Unions, and Government Accountability Watchdogs Sue the Government

Hats off to the JustSecurity Blog, where its editors have created a litigation tracker covering all current cases filed against the Trump Administration, complete with docket links. It’s a wonderful resources, so thanks to all who contributed!

For our purposes, the important cases are those relating to the treatment of federal employees. Just Security provides short summaries of those cases. Here, we add just a quick summary of the legal issues in the cases. Links are to the complaints in each action

In National Treasury Employees Union v. Donald J. Trump et al., the National Treasury Employees Union (NTEU), a labor union representing employees in 37 federal agencies and departments in grievances and litigation and in negotiating collective bargaining agreements, filed suit in the D.C. District Court. NTEU challenges a January 20, 2025 Executive Order, which the complaint characterizes as depriving federal employees of civil service and due process protections, permitting the President to fire them at will. NTEU contends that the Executive Order exceeds executive authority and frustrates congressional intent. Congress granted the President limited authority to prescribe rule for federal workers, but only as necessary and as conditions of good administration warrant. Because the Executive Order was neither necessary nor in service of good administration, it was ultra vires. The Executive Order is also impermissibly overbroad in that it applies to career employees not subject to regulation by the President. It also deprives federal authorities of their procedural due process rights under the Fifth and Fourteenth Amendments. The procedures authorized under the Executive Order are inconsistent with the regulations that govern the Office of Personnel Management (OPM). NTEU seeks an order enjoining the President and other named defendants from implementing the Executive Order.

In Government Accountability Project v. Office of Personnel Management, the Government Accountability Project (GAP), along with the National Active and Retired Federal Employees Association, sued in the D.C. District Court to enjoin the same Executive Order at issue in the NTEU case, designed to strip career civil servants of employment protections created by Congress. OPM Director Charles Ezell, a named defendant in this and the NTEU case, issued a Guidance that reclassifies federal employees so that they can be terminated at will.  This complaint is written with more flair, providing choice hyperbolic quotes from administration officials in which they characterize federal employees as a cancer and calling for mass dismissals. The complaint characterizes the Executive Order as reversing 150 years of progress against the spoils system and returning the United States to an era when all civil servants were hired based on political patronage and personal loyalty.  The complaint provides a history of civil service regulation going back to the 1883 Pendleton Act. It alleges that the Executive Order and OPM Guidance violate the Administrative Procedures Act (APA), The Civil Service Reform Act (CSRA), and the Fifth Amendment’s Due Process protections. The OPM Guidance violates the APA because they were not promulgated in compliance with "notice and comment" requirements. The Executive Order is invalid because it is inconsistent with Congressional enactments protecting civil servants. The court has equitable powers, the complaint alleges, to enjoin unlawful executive actions. The plaintiffs seek declaratory judgment and ask the court to vacate the Executive Order and OPM Guidance.

Public Employees for Environmental Responsibility v. Donald Trump et al. was filed in the District Court of Maryland. This one is brought by Public Employees for Environmental Responsibility (PEER), working with Democracy Forward and Citizens for Responsibility and Ethics in Washington (CREW). The basis for the complaint is the same as in the first two cases discussed above. The complaint here provides an even deeper dive into the civil service reform movement to combat the spoils system, from the 1883 Pendleton Act through the 1978 CSRA. The Complaint then details regulations that implement those reforms in the service of a simple goal: career civil servants are to be selected on the basis of merit and are not removed simply on account of their political views or those of the president. It then reviews the history of Donald Trump’s attempts to gut the civil service, going back to a 2020 Executive Order that was never implemented and citing his repeated statements that he would destroy what he calls the “deep state.” There follow specific allegations of how the new Executive Order harms PEER and impedes its work.  The complaint alleges three counts of ultra vires executive actions in violation of the CSRA, regulations of the OPM, and procedural due process, and one violation of the APA. The complaint seeks declaratory and injunctive relief.

Finally (for this post), in American Federation of Government Employees, AFL-CIO and American Federation of State, County And Municipal Employees, AFL-CIO v. Donald Trump et al., plaintiff, The American Federation of Government Employees, AFL-CIO (“AFGE”), is the largest representing federal employees. It has been in existence since 1932 and now has about 800,000 members. This complaint is shorter, but it adds new details on the history of Donald Trump’s efforts, beginning with his 2020 Executive Order to reclassify federal employees under “Schedule F,” empowering him to fire them at will. Count 1 names OPM and Ezell and alleges violations of the APA. Count 2 alleges ultra vires actions by all defendants in violation of the APA’s notice and comment requirements. The complaint seeks declaratory and injunctive relief.

With the help of Just Security’s litigation tracker, we hope to post periodic updates on these suits and to provide summaries of others that are relevant to the government’s contractual relations with federal employees. Watch this space.

Court Finds Twitter’s Terms of Service Unconscionable in Part

Plaintiffs allege that Twitter was a dumpster fire. Twitter’s Head of Security from 2020 until 2022 turned whistleblower and testified to Congress about pervasive problems with Twitter’s data security. Plaintiffs allege that, due to Twitter’s negligence on that front, Twitter experienced a massive data breach, and Twitter users’ personal information was harvested and then sold on the dark web. Plaintiffs allege special harm because they took advantage of Twitter’s invitation to users to post under pseudonyms. The data breach made it possible for people to establish the identities behind their posts. They filed a class action complaint, alleging seven causes of action, including breach of express and implied contracts. The others are of less interest to us beyond the fun bit where Twitter moves to dismiss the claim for gross negligence despite having already conceded that California law forbids limitations on liability for gross negligence. The court dryly notes that "it is unclear why Defendant would raise this argument here."

In Gerber v. Twitter, Inc., the issue was the enforceability of Twitter’s Terms of Service (ToS), which put Twitter’s users on notice that its services were provided AS IS and without warranties and that Twitter’s liability was limited to the maximum extent provided by law. Kandis Westmore, Magistrate in the U.S. District Court for the Northern District of California got right to the heart of the matter, noting that ToS are enforceable unless unconscionable.

Data Breach, Image by Microsoft Copilot

California tests unconscionability on a sliding scale, requiring some combination of procedural and substantive unconscionability. The court found that the ToS were “at least somewhat” procedurally unconscionable, in that they are a form contract of some length, and the objectionable terms appear on pages eight and nine of a twelve-page document. Twitter objected that the language was conspicuous, in large font and ALLCAPS and that it provided notice to users each time it updated its terms. Still, the court noted plaintiffs’ objections that "these terms were buried in lengthy forms drafted by the party who wished to enforce them.” In California, that is enough to establish at least some procedural unconscionability.

As to substantive unconscionability, while parties can disclaim liability, the problem here is that, taking the allegations of the complaint as true, Twitter had statutory duties to protect its users against data breaches and knowingly failed to do so. The court rejected Twitter’s claim that the statute in question cannot be relied on in support of common law claims for breach of contract or negligence. California courts have found otherwise.

The court granted Twitter’s motion to dismiss Plaintiffs’ allegations of a breach of an express contract. Plaintiffs relied on blog posts and website statements that they did not adequately link to the User Agreement. Moreover, Plaintiffs conflate Twitter’s promise not to disclose users’ personal information without their consent with a failure to maintain adequate data security measures. As a result, Plaintiffs could identify no express promise that Twitter breached. However, Plaintiffs did successfully allege breach of an implied contract based on representations on Twitter’s website about its commitment to data security. Those promises were then breached if, as alleged, Twitter failed to take steps to safeguard users’ information. I am not sure why the court dismissed Plaintiffs’ express contract claims but then upheld “implied” claims that are based on written promises. A written promise seems like an express promise to me.

In the end, the court dismissed plaintiffs claims for breach of an express contract and denied Twitter’s motion with respect to all other claims.

Tip of the hat to my former student Don Dechert, who alerted  me to a post about the case on Eric Goldman’s Technology and Marketing Law Blog. Professor Goldman notes that the ruling is quite broad, rendering ToS ineffective to shield companies for liability for intentional conduct. There is no clear way to fix that infirmity. One might suggest that sophisticated technology companies not knowingly fail to protect their users from data breaches, but of course all plaintiffs have to do is plausibly allege knowing misconduct to create a litigation headache for the defendants.

Law Dork on Revocation of Executive Order 11246

Chris Geidner, also known as Law Dork, reports on a Jan. 21, 2025 Executive Order that reversed an executive order from President Lyndon Johnson, designed to implement the 1964 Civil Right Act. LBJ’s Executive Order 11246 built on 25 years of prior enactments going back to FDR. FDR issued Executive Order 8802 to prevent military contractors from discriminating against black people seeking employment.

Combined with legislative enactments, Execuive Order 11246 provided the foundation underlying a sixty-year legacy of federal initiatives designed to combat racial discrimination and promote diversity, equity, inclusion, and accessibility in both governmental and private workplaces. LBJ expanded on FDR’s Executive Order to make it applicable "to every aspect of Federal employment policy and practice.“ President Obama expanded it to protect against discrimination based on sexual orientation or gender identify. As Chris Geider points out:

There should be nothing controversial about any of this. If certain policies or programs go too far, review them and fix them, but the fundamental basis for and nature of these policies began with the Civil War Amendments and were forged into modern America’s laws in the Civil Rights Era and the time since.

President George H.W. Bush signing
The American with Disabilities Act

It had come to be generally accepted that one should not discriminate against people on the basis of immutable characteristics. Over time, we came to recognize new categories of immutable characteristics.

And then came a backlash. Clearly, we are not, as a nation, united in our conceptions of which characteristics count as immutable. In addition, according to the new Executive Order, the need to combat discrimination of all kinds must be informed by the need "to promote individual initiative, excellence, and hard work.” 

Okay. I understand that language. That is, I am familiar with the rhetoric of white grievance, according to which different standards apply to so-called “diversity hires.” However, I was surprised to see that new Executive Order targets not only affirmative action and DEI initiatives but also accessibility. It seems that in 2025 we have entered into a world in which people in government think that having a disability is a lifestyle choice.

Friday Frivolity: The Unalloyed Joy of Having One's Priors Confirmed!!!

Last year, I was vexed to have been characterized as a "proponent of tested contract language" by one of the leading advocates for the "plain language" movement in contracts drafting. I objected to my characterization because, while I have nothing against clear drafting, I don't think complexity in language is the biggest problem that we face in contracts drafting, and I don't think plain language does anything to alleviate the major problems. I reviewed the terms and conditions of the blog on which I was pilloried, and I noted that they amounted to ten clearly-worded pages, including links to the privacy policies of there "trusted partners." The terms also provided that they could be changed with or without notice. I commented that if a reader got through all ten pages of the policy, they would likely conclude that "ease of understanding the contract's language is not its biggest problem."

Shawn Bayern (right) recently posted on JOTWELL his review of recent draft article by Yonathan Arbel (left), ​ The Readability of Contracts: Big Data Analysis, 21 J. Empirical Legal Stud. __ (forthcoming, 2024), available on  SSRN. You should read Shawn's review and Yonathan's work. But I am struck by his conclusion (at least in the draft), which Shawn cites in his review: 

[T]he resources devoted to simplifying contract language could have been directed towards addressing more fundamental issues in consumer markets, such as improving market competition to give consumers more meaningful choices; addressing information asymmetries through targeted disclosure requirements; strengthening enforcement mechanisms against unfair or deceptive practices; or removing regulatory barriers to entry to markets. 

I am grateful to Yonathan for his work, elevating my priors, which were based on anecdote and hence might be dismissed as unwarranted, to the level of empirically-justified social scientific conclusions.

Stephen Henderson Is Now Leading the CrimProf Blog

I'm always heartened when I learn that a law professor has turned to blogging. In this case, there is also an Oklahoma connection. Stephen Henderson of the University of Oklahoma has taken over leadership of the CrimProf Blog, and he has brought some new bloggers on board.  I may have some links once they start posting. It looks like Professor Henderson will, in the great LawProfs Blog Network tradition, also post from time to time on law school and law school culture more generally, so this may be a blog to watch, even if you are not that into crim law.

You can follow CrimProf Blog on Bluesky here. 

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.

In Memory of Barbara Ehrenreich, Reflections on the Professional Managerial Class

Barbara Ehrenreich (right) died in 2022, but it wasn't until I listened to the Know Your Enemy Podcast episode devoted to her legacy that I thought about her concept of the professional managerial class (PMC) in connection with my own professional identity and my politics.  I should note that the KYE episode was timely. This blog post, not so much.  Summers are when I catch up on things, and this will be one of many posts in which I ruminate on things past because I've only now discovered them in my reading or listening queue.

Barbara Ehrenreich and her husband at the time John started publishing about the PMC in 1977.  They introduced the topic in two articles that appeared in Radical America, "The Professional Managerial Class," and "A Case-Study in Professional Managerial Class Radicalism."  Those two essays and a 2019 interview that Alex Press conducted with Ms. Ehrenreich in 2019 and published in Dissent magazine are my source materials  I take a certain pleasure in revisiting the older material.  Even the fonts are outdated. Ehrenreich herself describes the material from Radical America as having been written in a "rather tedious" way. I am indebted to the KYE hosts, Matthew Sitman and Sam Adler-Bell and their guests on the Ehrenreich episode, Alex Press and Gabriel Winant, for giving me a framework in which to situate the Ehrenreichs' approach to the PMC. There's a lot to unpack here, so I will keep things brief, at the risk of oversimplifying.

Office Design, 1937

The Ehrenreichs developed their concept of the PMC in response to a crisis in leftist theory after the collapse of the student movement of the 1960s. The working class had not developed into a revolutionary force along the lines predicted by Marxist theory. The New Left embraced student revolts as presenting the possibility of a vanguard of a new revolutionary class -- radicalized university students. The revolution, which for the Ehrenreichs would have been a democratic, non-violent one, did not materialize. The question for the left was, why not?

The Ehrenreichs' answer was that students belong to neither of the class categories then available to Marxist theory.  They are neither a part of the bourgeoisie, nor are they part of the proletariat.  They also are not petty bourgeois.  Rather they are part of a fluid category, the PMC, which is caught in late-stage capitalism between those with genuine economic power and the working class.  The PMC consists of "salaried mental workers who do not own the means of production and whose major function . . . [is] the reproduction of capitalist culture and capitalist class relations."  As such, the PMC is a problematic vehicle for radical social change, and the path forward is an alliance between the PMC and the working class.

Office Design After the Crappification of Work

Members of the PMC are not manual laborers, and they can become part of the managing class. However, jumping ahead a few decades, they are increasingly subject to deskilling and proletarianization through what a friend of mine called the "crappification of work." At the turn of the 21st century, my friend was a computer programmer working for an investment bank.  It was a pretty good job, and then it was an okay job, and then it was a bad job that paid okay and had decent benefits, and then it slowly became a demeaning job, and then it evolved into a soul-crushing job that one would not wish upon one's bitterest foe.  Eventually, the investment bank outsourced her department, and she never again found rewarding work in her field.  Her politics grew emphatically leftist.

Teachers are the first category of workers associated with the PMC, according to the Ehrenreichs.  Their role is social control or the production and propagation of ideology.  I feel seen. 

Not really.  Either the Marxist categories associating socio-economic roles and relation to the mode of production from the 1970s do no map well onto current realities or I am no longer persuaded by the New Left reasoning that shaped my political identity in young adulthood.  In the alternative, perhaps after decades in the PMC, I have become blind to my role in reifying existing socio-economic hierarchies. That's what I'm trying to work out.

In any case, despite the Ehrenreichs' rhetoric assigning to teachers a role in developing and disseminating the ideology of late capitalism, with all the chauvinisms that entails, it is not as if they regard members of the PMC as ineluctably aligned with the forces of oppression.  After all, they have to account for their over-educated, bookish, skilled selves.  The relationship between the PMC and workers is "objectively antagonistic," but so is the relationship between the PMC and the capitalist class.  Ehrenreich rejects the use of PMC as a slur.  PMC members have a service ethic. They are genuinely committed to making positive contributions to their communities.  But workers are motivated by a version of the same ethic, and the fact that it is ever harder for members of both groups to take pride in their work should be a source of unity.

Workers earned some protections through unionization; the PMC used the jargon of professionalism to establish their monopolies in markets for services.  The KYE folks share an anecdote that illustrates both the difference in self-conception between PMC members and workers and the crappification of mental work. One of them (hard to keep four male voices straight when none of them are Ira Glass) shared a story of trying to organize graduate students into a union. They met resistance, in part because the graduate students did not feel like they needed unions to protect their interests in the same way that workers did. It felt false. The organizers pointed out that they had been sent by the university workers' union.  The union workers wanted the graduate students to join them.  And, the organizers added, the union workers got paid far better than the graduate students did.

Barbara Ehrenreich's consciousness of her status as a member of the PMC enabled her to write her greatest hit, Nickled and Dimed, from a unique perspective. While her sympathies were with the manual laborers whose ranks she joined, she was not one of them and could never be one of them. The interests of the PMC can be opposed to those of the workers, but the real unbridgeable gap between members of the two groups is better understood, to borrow a term from Pierre Bourdieu, as a matter of differences in habitus.  Ehrenreich learned a great deal from her co-workers. In a different context, they could have learned a great deal from her, but her knowledge could not change their lives. Her mode of being-in-the-world: her tastes in food, clothes, music, reading materials, her hobbies, her sense of humor, her ways of thinking about herself, and her ways of dealing with others were all fundamentally  or subtly-but-crucially different from those of her co-workers.  She could not bridge the difference in consciousness between her own PMC-class identity and her co-workers' sense of who they were and their role in relation to work and the economy. 

The KYE podcast recounts an incident where one of Barbara Ehrenreich's co-workers injures her ankle.  She was then working for a house-cleaning service.  The injured woman was also pregnant. She needed time off, but they were paid hourly.  Ehrenreich's solution is that the workers should organize and strike, demanding, among other things, paid time off for injuries sustained at the workplace.  Her c0-workers, exhibiting what to Ehrenreich must have seemed like a textbook example of false consciousness, protested that they could not let down their employer, who was counting on them to clean houses that day. Ah, the cooptation of the service ethic to benefit capital! True to her own habitus, Ehrenreich found a middle ground.  She advocated for her co-worker and persuaded the employer to give her a day off with pay so that she could recover from her ankle injury.  Reflecting on the incident, Ehrenreich might have been reminded of Bertolt Brecht's "A Bed for the Night." A more upbeat liberal might think of the starfish story. But after her grim slog through working-class misery, Ehrenreich's worldview likely was a more inclined towards Brecht.

Ehrenreich understood the importance of habitus (although she did not use the word) in ways that others on the left didn't.  She tells of "Twinkie wars," when PMC-types would try to unite with workers to form food co-ops. The workers wanted the co-ops to carry the sorts of processed foods that they were used to eating and found in their local groceries. The PMC-types took "principled" stands against unhealthy foods, and these differences led to genuine conflicts.

The limitations of the New Left and student radicalism became clear, say the Ehrenreichs, when students radicalized by their opposition to the Vietnam War attempted to combine forces with Black radicalism. While PMC students may have been prepared to embrace the calls of the Black working class to demolish elite institutions and return power to the people, older members of the PMC denounced student radicalism as misdirected and directionless post-adolescent rebellion or the harbinger of a new kind of leftist authoritarianism.

As a law professor, at least where I teach, I am a beneficiary of professionalization.  My status remains very high, even within the university, compared to that of staff and even legal writing or clinical professors, to say nothing of our own adjuncts, or the professors, adjuncts, and staff in the rest of the university. The crappification of work has eroded my quality of life at the margins. University bureaucrats treat me like a cog and are far more concerned about my how much revenue I generate for the university (measured in FTEs) than they are in either my scholarly output or the quality of my teaching. If it weren't for ABA accreditation requirements, law students would mostly be taught by adjuncts earning $1500/credit hour taught.  Other parts of the university are already crumbling under economic strain. I would not want the life of my colleagues in the humanities at small colleges and non-flagship state universities. When young people tell me that they want to be professors, I am inclined to advise them to do something else with their lives. But what?

Listening to the KYE episode in the context of renewed student protests and my own position as an un-reconstructed Jewish New Leftist with close familial ties to Israel made me think about my PMC status in connection with those student protests.  It's a theoretical matter for me, because there were no student protests at my law school, and as far as I know there were no student encampments or mass arrests of student protests anywhere in Oklahoma, my adopted home state.

Gaza Encampment at Columbia University (my alma mater),
Image by عباد ديرانية - Own work, CC0

This post has gone on too long, so this part will be brief.

My inclination has always been to admire radical protestors for calling attention to very important issues. But I've never felt comfortable joining them.  Part of the problem is the lack of fit between my own leftism, which is based on class analysis, and the identity politics that has come to dominate the left. Part of the problem is that I am a left-wing pragmatist. Political action has to be targeted and has to have clear goals in order to be effective. You have to have a strategy for winning and something tangible to show for it at the end of the day. Finally, I think people get caught up in the theater of acting out injustice in ways that draws attention away from addressing actual injustices. When you occupy a building on a college campus, your goal is to be arrested. The people who are arrested want it to be as ugly as possible. But once they are released with a few bruises, what is the next step?

I have multiple ambivalences about the pro-Palestinian protests even while I admire the courage, discipline, and sacrifice of the students involved. I think their efforts will come to nought. Nothing good, that is. Smart university administrations will play along, promising to look at investment strategies, but they won't stop investing in companies based in countries with horrible human rights records. But even if universities did divest from Israel, that would not help Palestinians. Meanwhile, the protests drive pro-Palestinian voters away from support for Biden and drive pro-Israel voters into the Trump camp, and my view is that a Trump Presidency will exacerbate the conflict and just bring more misery to the region.

For my part, if I have to choose between the self-defeating excesses of the Netanyahu government and a Palestinian movement led by Hamas, I choose neither. I am for peace, and peace means that everybody stops fighting, recognizes the other party's right to self-determination, and all that has to happen without pre-conditions and without delay.

I used to lead study abroad programs about the conflict. Students would come because they wanted to see "the Holy Land." We hired a "dual narrative" touring company that provided us with one Jewish Israeli and one Arab Israeli guide.  Students would tell me in their final evaluations that they emerged from the program confused about the conflict. I would consider that a win, because I've been immersed in the conflict since childhood, and I'm confused.

From my perspective as a member of the PMC, all I can do is teach about the conflict. But will students come willing to listen, not only to me but to each other, and learn?

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.

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.

SCOTUS Takes Another FAA Case

Image by DALL-E

A couple of years ago, we wrote about the Arbitration for All approach to the Federal Arbitration Act (FAA), which was given extreme expression in a recent Judge Easterbrook opinion.  That opinion builds on a series of SCOTUS cases from a decade ago (we barely took notice of Stolt-Nielsen; here's a guest post on Rent-A-Center; here's our post on Concepcion, and here's our post on Italian Colors).  Now, arbitration is in retreat on a number of fronts.

First, the Consumer Finance Protection Bureau attempted to prohibit class-action waivers in consumer lending agreements.  That regulation was nixed by the Republican-controlled Congress soon after Donald Trump took office.  Second, mass arbitration has lead some companies to remove compulsory arbitration from the their terms and conditions, a development that we most recently covered here.  Finally, SCOTUS recently issued two unanimous opinions limiting business entities' ability to compel arbitration on employees once the litigation has progressed for a while or if the employees are transportation workers.

The Supreme Court will now take another crack at the latter issue, having granted cert. in Bissonnette v. LePage Bakeries.  That case is a putative class action by people who deliver baked goods.  They are suing the company that makes those goods.  Defendant LePage Bakeries moved to dismiss the suit and compel arbitration.  Like the plaintiffs in Saxon, which SCOTUS decided in 2022, plaintiffs claimed that they are exempt from the FAA, because Section 1 of the FAA exempts workers involved in interstate commerce.  The district court granted the motion to compel.  A panel of the Second Circuit first decided the case in 2022 and affirmed over a dissent from the late Judge Rosemary Pooler (right).  

The majority opinion kept things simple.  Following the Supreme Court precedent of Circuit City Stores v. Adams, the Court noted that only "transportation workers" come within the Section 1 exemption from the FAA.  The Second Circuit agreed with the district court that delivery workers are not "transportation workers."  Then, after SCOTUS decided Saxon, the panel reconsidered its opinion but arrived at the same conclusion.   

The Second Circuit first elected not to take the off-ramp available through arbitration under state law because the availability of arbitration under Connecticut law in this instance is unsettled.  Turning to the FAA, the majority noted that not everybody who works in the transportation industry is a transportation worker, but more to the point, just because you drive a truck to deliver baked goods does not mean that you are in the transportation industry.  Judge Pooler, citing courts from other jurisdictions, drew a different conclusion, "“[A] trucker is a  transportation worker regardless of whether he transports his employer’s goods or the goods of a third party.”  She sprinkled citations from Saxon liberally throughout her opinion, and she makes a compelling case that, if people who merely load baggage onto planes are "transportation workers," clearly a truck driver is a "transportation worker."  

In February, 2023, the Second Circuit denied rehearing en banc over the dissents of three judges.  Judge Jacobs, who wrote for the majority in the panel decision, and Judge Pooler take the gloves off in their statements regarding the denial of rehearing.  SCOTUS granted cert. back in September 2023.  The issue is "Whether, to be exempt from the Federal Arbitration Act, a class of workers that is actively engaged in interstate transportation must also be employed by a company in the transportation industry."

According to Ronald Mann, writing on SCOTUSblog, Justice Kavanaugh (left) took the lead in oral argument, making the case for a narrow reading of Section 1.  Somehow, Justice Kavanaugh believes that the Congress that passed the FAA didn't want anybody to be outside of arbitration.  Workers in the transportation industry were exempt because there was a separate arbitration scheme for them.   But look, if Congress intended for employees to be exempt from the FAA for any reason, including another arbitration scheme, then it intended them to be exempt from the FAA.  If Congress changed its mind about that, it is for Congress to amend the FAA to make it applicable to employees.  It is not for the courts to revise legislation.  SCOTUS should not update the non-delegation doctrine in the guise of the "major questions doctrine" while arrogating to itself the power to decide major questions of statutory interpretation through reference to non-textual sources. 

Moreover, I'm not sure what arbitration scheme he is referring to.  Counsel for the employees, Jennifer Bennett, ably showed that Justice Kavanaugh was just wrong about why seamen and transportation workers were exempted from Section 1. The arbitration schemes that he references were nothing like the FAA.  They provided only an option for arbitration as an alternative to litigation after a dispute arises.  She then goes on to argue that the FAA has no requirement that "transportation workers" be employed in the "transportation industry."

I have a different take.  On my reading of the legislative history of the FAA, the drafters expected it to apply exclusively among business people.  They never wanted it to apply to employment agreements and they never expected arbitration agreements to come in the form of contracts of adhesion.  As the drafters explained the purposes of the FAA to the Senate, “It is purely an act to give the merchants the right or the privilege of sitting down and agreeing with each other as to what their damages are, if they want to do it.  Now, that is all there is in this.”

Justice Kavanaugh is right that the drafters of the FAA assumed that there would be an alternative arbitration scheme for employment agreements.  It was state arbitration statutes such as Connecticut's.  Congress had no power in the 1920s to legislate on the subject of employment agreements that did not implicate interstate commerce as that phrase was understood at the time.  At the time, it was quite narrow.  So the exemption in Section 1 was not meant to protect employees in the transportation industry from arbitration in unique ways.  It addresses the only category of workers whose employment agreements might be subject to arbitration and provides that they are exempt.  Nobody thought in 1925 that the FAA would apply to other employment agreements.  That was a matter for state arbitration statutes.

However, if, as may be the case here, the employer has not properly provided for arbitration consistent with the state statute, well then, litigation it is!  Even if arbitration under state law is appropriate, not all states permit employers to ban class representation through arbitration clause bootstrapping, so a return to the original public meaning of the FAA (see what I did there!) could effect a substantive change in the arbitration law landscape.

Justice Kavanaugh worries that protecting employees from mandatory arbitration would be a major shift.  Indeed.  However, as SCOTUS recently recognized, sometimes a court has to revise its decisions when those decisions were "egregiously wrong from the start."  From that perspective, it should be very telling that the earliest cases that the employer's counsel can cite in support of their narrow understanding of the Section 1 exemption date from the 1970s.  To make matters worse, Chief Justice Roberts (right) asks where the test applied in those 1970s test came from.  He expresses his intuition, which seems spot on, that "they just kind of made [it] up."

Delaware Chancery Court Rescinds Elon Musk's $51 Billion Pay Package! TL;DR from Ann Lipton

Over on our sister blog, The Business Law Prof Blog, Ann Lipton (right) provides a handy synopsis of and commentary on Chancellor Kathaleen McCormick's 200-page opinion in Tornetta v. Musk. We are all grateful.

I taught Business Associations for roughly the first decade of my law teaching career.  Some of my early articles were on corporate law, and my very first law review publication as a law professor was on executive compensation.  It appeared in the law review of Professor Lipton's home institution, Tulane, which now seems so appropriate!

We learn from Professor Lipton's synopsis that the Chancery Court applied the "entire fairness" test rather than the business judgment rule to the decision of Tesla's Board to Directors to pay Elon Musk $51 billion.  She suggests that the Delaware Supreme Court might narrow the circumstances in which the fairness test will apply, but even if narrowing occurs, the fairness test will likely still apply to Mr. Musk's situation.  The most Mr. Musk can realistically hope for is a remand for further proceedings, unless he decides to re-incorporate in Texas.  Matthew Bultman, reporting on Bloomberg Law, suggests that litigation in a Delaware court would likely follow should Musk attempt to move Tesla to Texas.  Professor Lipton supplements here original post with thoughts on Texas here.

In my writing, and still today, I would go in the opposite direction from that contemplated in Delaware with respect to total fairness.  I argued that the business judgment rule should never apply to executive compensation schemes.  Board members are always motivated to overcompensate executives.  They are themselves corporate titans, and their compensation is determined by comparison to how other corporate titans are compensated.  As a result, they always have a situational conflict of interest, and they often have a more concrete conflict of interest. 

Fairness analysis should always apply.  What is fair?  My view is that corporate executives, like all workers, are entitled to a living wage.