Tuesday, September 3, 2019
U.S. District Judge William Orrick (ND CA) has just held that companies must still provide online customers with adequate notice of arbitration and other provisions. This is so in at least the Ninth Circuit after Nguyen v. Barnes & Noble(763 F.3d 1171 (Ninth Cir. Ct. of App.)). (I proudly note that Kevin Nguyen was a student in one of my 1L Contracts classes years ago!)
As reported by Reuters, it’s become standard operating procedure for companies to require online or mobile customers to agree to mandatory arbitration by clicking their assent to terms of service. But there’s still a roaring debate about exactly howcompanies can bind their customers (and employees, for that matter) to arbitration in other contexts. Do customers assent to arbitration merely by visiting a website or downloading a mobile app that provides a link to service terms mandating arbitration? Or must consumers specifically acknowledge that they’ve surrendered their right to litigate?
Courts have had to scrutinize websites and apps to decide whether they provide consumers with enough information to allow informed assent. Judges have come to be generally skeptical of so-called browse-wrap agreements, in which companies merely post mandatory arbitration conditions and contend that customers have consented by continuing to use their services. Click-wrap agreements – in which companies present consumers with their terms of service and specifically require assent – are generally deemed to be enforceable. In the case just resolved by J. Orrick, the arbitration provision fell into an in-between category known as a “sign-in wrap.” Beginning in February 2018, when customers registered at the company’s website, they were required to click their assent to Juul’s terms of service, which prominently mentioned mandatory arbitration. But to see those terms of service, consumers had to click on a separate link.
Juul did not prominently highlight the hyperlink to its terms of service. The link, said J. Orrick, was virtually indistinguishable from the surrounding text – no color change, underlining, capitalization or italicization signaled to consumers that they could click to read Juul’s specific terms and conditions. One of the plaintiffs registered via a subsequent log-in iteration in which Juul underlined the hyperlink to its service terms, but J. Orrick found even that notice to be inadequate.
The case is Bradley Colgate, et al. v. Juul Labs, Inc., et al.,2019 WL 3997459.
Monday, August 12, 2019
Here's another case for the "periodic reminder" file, this one reminding you that you are entering into enforceable contracts all over the place, often without really registering that's what you're doing. This recent case out of the Southern District of Florida, Incardone v. Royal Caribbean Cruises, Ltd., Case No. 16-20924-CIV-MARTINEZ/GOODMAN (behind paywall), reiterates this lesson in the context of a cruise. The plaintiff argued that there was no binding contract between the parties because there was no evidence she had ever agreed to any such contract, but Royal Caribbean pointed out that every passenger is required to agree to terms and conditions during the online check-in, and that's the only way they're allowed to board the ship. Therefore, the court found, there was a binding contract. Granted, probably not one the plaintiff was really aware of when she checked in to go on vacation, but she clicked the button nonetheless.
Wednesday, July 24, 2019
School handbook statements about civility, respect, diversity, and inclusiveness are aspirational, not contractually binding
A recent case out of the First Circuit, G. v. The Fay School, No. 18-1602 (behind paywall), has an ADA angle, but I'm focusing on the breach of contract claim, which was based on statements in the school handbook about respect, civility, and diversity. The court held, though: "Without diminishing the importance of these words, they are exactly the sort of generalized, aspirational statements that are insufficiently definite to form a contract." For a school handbook to form a binding contract, it has to consist of "well-defined procedures and policies," rather than just generalized statements such as those at issue in this case. The student and his parents failed to point to any statements in the handbook definite enough to form the basis of a contract, borne out by the fact that the school's enrollment contract, signed by the student's parents, specifically stated that the handbook was not a contract but rather just "general expectations."
The First Circuit decision is behind a paywall but you can read some reporting on the district court decision here.
Monday, July 22, 2019
You can watch the appellate arguments in the case here.
Wednesday, June 19, 2019
Continuing the theme of thinking about fall courses, a recent case out of the Western District of Washington, Phytelligence, Inc. v. Washington State University, Case No. C18-405 RSM (behind paywall), has a discussion about both extrinsic evidence and agreements to agree -- both topics my students often struggle with. Might be worthwhile to take a look at this recent analysis, especially if you teach in Washington.
Friday, June 14, 2019
This isn’t, strictly speaking, about contracts, I guess. But it is about a consent decree, which is at heart a document that binds parties to terms. The Department of Justice has announced that it is reviewing the antitrust consent decree that governs ASCAP and BMI, the two major performing rights organizations used by songwriters and music publishers. Because ASCAP and BMI control so much of the music licensing market, they have been governed by a consent decree for several decades, with the Department of Justice worried about the competitive effects of their near-monopoly over music licensing.
I thought, therefore, that maybe it was time for me to share my friend's Music Licensing Experience.
The music copyright holders keep noting that piracy is a major problem. However, piracy tends to decrease if you make it easier for people to gain legal access to the work in the question. For some time now, studies have shown that people will pay for content, if they are given a feasibly legal way to do it.
A friend of mine was starting a noncommercial podcast. Podcasts are all the rage now. They’re low-cost and have few barriers to entry, and recording equipment is so cheap and easy to come by these days, basically anyone can have a podcast. I am frequently asked by students for information about using music on podcasts. They’ve heard, of course, that any length of time less than thirty seconds is “automatic fair use.”
So my friend’s got this noncommercial podcast and they want to use, in a single episode, two separate clips of the same copyrighted song. Together, the clips total less than forty seconds. My friend, who is not a lawyer, was inclined to do what so many lawyers do, and just take the risk and use the song. “But no!” I protested. “You know me, a copyright lawyer! You should properly license the song!”
I had, in actuality, never licensed a song before. But, I thought, how hard can it be? It shouldn’t be hard, right? Wouldn’t it be in the best interest of the music copyright holders to make it relatively easy for this kind of use to be licensed? Especially given the apparent stance BMI takes that there is no way for you to use music without a license.
(Fair use? What fair use?)
I told my friend that either BMI or ASCAP would probably have the rights to the song, and they should just ask for a license through the right one. So they looked into it. BMI ended up being the organization to contact, and my friend found a literal tab for Podcasts on the BMI website, so they contacted BMI.
I thought that would be the end of it for my friend, but BMI’s response, unfortunately, was not very helpful. BMI said that the only license it offers is a blanket license, so my friend could not license a single work the way they wanted. The blanket license would be an annual license of almost four hundred dollars a year – a lot of money for a noncommercial podcast that wanted to use a grand total of forty seconds of music from a single song. But, BMI informed them, that license would get my friend access to fourteen million songs!
The problem: My friend didn’t want access to fourteen million songs. My friend wanted one song. Also, I’m pretty sure that BMI is actually required by that consent decree currently under review to offer per-song licensing rates. See Section IX.C ("[BMI] shall not, in connection with any offer to license by it the public performance of musical compositions by music users other than broadcasters, refuse to offer a license . . . for the performance of such specific (i.e., per piece) musical compositions, the use of which shall be requested by the prospective licensee."); see also United States v. Broad. Music, Inc., 275 F.3d 168, 178 n.2 (2d Cir. 2001) ("[T]he per piece license . . . is explicitly required in Section IX(C).”). My friend told me what BMI said, and I told my friend that maybe they should try again, maybe they weren’t clear the first time. So they wrote back to BMI, clarifying that they wanted a per-song rate.
BMI responded saying that it was not capable of providing my friend with the licensing rights they wanted. Despite the fact that it had been very willing to provide my friend with a license for several hundred dollars in the previous email, it now took the stand that it did not have the ability to provide rights for a song used within a podcast, and my friend had to contact a different entity. I don’t know if I’m more alarmed by BMI trying to sell my friend a license that wouldn’t actually cover their use, or BMI lying about whether it could sell them a license that would cover their use.
At any rate, BMI at least provided my friend with the contact information for another entity, which my friend contacted. But that entity wrote back and said it was not the right entity and provided the contact information for yet another entity. Which never wrote back to my friend’s request at all.
So, in the end, that’s how music licensing goes if you’re a little guy, I guess: It doesn’t. My friend lost a little bit of faith in the U.S. copyright legal system as a result of their experience, and that definitely harms all of us. And as we’re thinking about the music business in the context of the consent decree, maybe we should also think about the people who use music. Because, sometimes, as studies keep showing, they’d really love to pay the artist, they literally can’t find the way to do it.
(Could my friend’s use qualify as fair use? I am offering no legal opinion on that. What I will say is that, fair use doesn’t stop you from getting a DMCA notice.)
Thursday, May 16, 2019
Very few of us actually read the terms and conditions of the many, many, many services we register for every day. It's not like we can negotiate them, anyway, so I think, as a matter of sheer efficiency, most of us just grin and bear it. We want or need the particular service in question, it comes with conditions we can't get out of, so we just click "OK" and move on with our lives. I think a lot of people think, well, how bad can it be?
But these terms and conditions often give the licensor a great deal of power, leaving end users with very few rights to whatever they want to gain access to. A perfect illustration of this: As many outlets have reported (here's a link to just one), Adobe has told its users that it's discontinuing older versions of popular programs like Photoshop, and so users are no longer allowed to use those versions under the licenses they agreed to years ago when they gained access to the program. We've gotten blase about the lack of ownership we have over many things in our current economy, but this action is exposing the fact that, when you rent everything instead of owning it, then there's very little we can do to keep the things we like; all of the control over them always continues to rest with the original licensor, and we possess them only so long as the original licensor lets us. You might have preferred the older version of Photoshop, but that doesn't matter; Adobe's terms of service let Adobe choose when you are allowed access to Photoshop.
Sunday, February 17, 2019
There's a lot of really interesting things at stake in this recent case out of the Northern District of California, Batra v. POPSUGAR, Inc., Case No. 18-cv-03752-HSG, including a contract angle. The case concerns an alleged class of influencers suing POPSUGAR for altering their postings in various ways. In addition to copyright and publicity right violations, the purported class alleges contract interference, because influencers can enter into contracts to receive a cut of the revenue generated by the links on their sites, but POPSUGAR's alleged alterations stripped the monetized links from the postings. Therefore, the class alleged that POPSUGAR was interfering with their contracts with the website linked to. The court found that the class's allegations on this count (and every other count in the complaint) were sufficient to survive a motion to dismiss.
I'm fascinated by this case and can't wait to see where it goes, especially as we get further into the class action allegations. (But probably it'll settle before we get to the good stuff.)
Wednesday, January 9, 2019
In a recent case out of the District of Arizona, Brittain v. Twitter Inc., No. CV-18-01714-PHX-DG (behind paywall), a court finds Twitter's terms enforceable as neither illusory nor unconscionable. The plaintiffs admitted that they agreed to Twitter's terms of service, but they argued the terms were illusory and unconscionable.
The illusory argument depended on the assertion that Twitter could unilaterally modify the terms at its discretion. But, unlike other cases where the terms were found to be illusory, Twitter did not try to retroactively modify the terms, and it mutually bound itself to the forum selection clause.
Brittain's unconscionability argument weirdly revolved around the fact that Twitter's terms don't contain an arbitration provision. I found this curious because I've read lots of cases where people want to get out of arbitration clauses, so complaining that the lack of one means the terms are unconscionable isn't an argument I quite follow. Neither did the court, which found that Twitter was not required to include an arbitration clause in its terms and that the terms weren't otherwise unconscionable.
Monday, December 3, 2018
Sorry for being absent lately. Blame exam season! So this is slightly old news but I plan to bring it up in my Entertainment Law class in the spring, so I was doing a sprint through the news reporting on it: Taylor Swift and her new contract.
Thursday, November 8, 2018
Here's one for exam review.
A recent case out of the District of Oregon, Reed v. Ezelle Investment Properties Inc., Case No. 3:17-cv-01364-YY, contains an application of the mirror image rule.
The parties in the case were embroiled in a copyright infringement dispute. They had settlement discussions as follows:
- Reed's counsel sent Ezelle a cease and desist letter that included a settlement agreement proposing to settle the matter for $5,000.
- Negotiations followed.
- Ezelle's counsel sent Reed's counsel a thousand dollar check (stating that it was not a settlement offer, although that doesn't seem important to the analysis here).
- Reed's counsel responded saying that Reed accepted the thousand dollar offer and sending Ezelle's counsel a new proposed settlement agreement.
- Ezelle's counsel crossed out the proposed agreement's confidentiality clause and sent it back.
- Reed's counsel said the confidentiality clause was non-negotiable.
- There were further negotiations that fell apart, leading eventually to this lawsuit.
Ezelle argued that the parties had settled the case through the above series of events, but the court found there was never a binding settlement because Ezelle never accepted the settlement agreement. Under the mirror image rule, when Ezelle's counsel crossed out the confidentiality clause, that operated as a counteroffer that Reed would have needed to accept. Reed never did. Rather, Reed informed Ezelle that the proposed modification of the settlement agreement was unacceptable. Therefore, there was no binding settlement agreement between the parties.
Ezelle argued that the confidentiality clause should be classified as immaterial or unconscionable, so that the settlement agreement should be enforced just with the confidentiality clause struck, as Ezelle had desired. However, the court found no reason to strike the confidentiality clause.
The court went on to find copyright infringement and awarded $1500 in statutory damages, as well as attorneys' fees and costs.
Tuesday, October 16, 2018
As the Hollywood Reporter reports, the license agreement expired between Dish Network and Univision more than three months ago, and the parties are fighting it out in federal court, pointing fingers at which of them (if any, I suppose) breached the license agreement, and whether there are any additional IP claims in play. It's a high-profile case with a real impact for Hispanic viewers, who probably just would like to get Univision back on Dish. Given the litigation, that might take a while.
Friday, September 28, 2018
If you're looking for a recent accord and satisfaction case, look no further! I've got one for you out of the Northern District of California, TSI USA LLC v. Uber Technologies, Inc., Case No. 17-cv-03536-HSG (behind paywall). In the case, Uber and TSI had a contract that Uber terminated. TSI received a termination notice and a check for a little over $200,000. TSI responded to Uber with outstanding invoices Uber owed payment on, amounting to more than $1.4 million. TSI eventually sued Uber for, inter alia, breach of contract, and Uber moved to dismiss the claim, arguing that that TSI's cashing of the $200,000 check operated as an accord and satisfaction, prohibiting TSI's breach of contract claim.
The court disagreed. Accord and satisfaction requires that the check be presented in good faith and with a conspicuous statement that it is meant to satisfy the entire debt. Construing the facts in the light most favorable to TSI, Uber could not establish that its check of $200,000 met "reasonable commercial standards of fair dealing," given that TSI alleged Uber owed over $1.4 million. In addition, while the termination notice stated "by executing below you acknowledge and agree that such payment constitutes full and final payment," it was followed by a line for signature labeled "Chief Executive Officer." TSI asserted that it thought the signature of the CEO was required for the payment to constitute full and final payment, not that the cashing of the check by itself. The court agreed with TSI that the language was not so "explicit and unequivocal as a matter of law so as to preclude TSI from asserting its breach of contract claim." Therefore, the breach of contract claim survived.
Wednesday, August 29, 2018
A recent case out of the Western District of Texas, May v. Expedia, Inc., No. A-16-CV-1211-RP (behind paywall), examines the enforceability of HomeAway.com's online contract. HomeAway is a website that offers vacation rental properties. Property owners can buy one-year subscriptions to HomeAway to list their properties for rent on the website. May was a property owner who had purchased successive annual subscriptions to HomeAway, and who now sues based on several breach of contract and fraud allegations, together with related state claims. HomeAway moved to compel arbitration, pointing to its terms and conditions. Specifically, in July 2016 HomeAway amended its Terms and Conditions to include a mandatory arbitration clause. May allegedly agreed to this clause when he renewed his HomeAway subscription in September 2016, and again when he booked his property through the website in October 2016.
May argued that he did not agree to the terms and conditions when he renewed his annual subscription because he changed the name on the account to his wife's name in an effort to avoid being bound by the new terms, but the court found that had no effect on the effectiveness of the terms and conditions and that May bound himself when he renewed his subscription, regardless of changing the name on the account. May was trying to take advantage of the benefits of the subscription without binding himself to the terms, and the court found that to be inequitable.
The court already found May to be bound but for the sake of completeness also analyzed May's argument that he was not bound when the property was booked because he did not receive sufficient notice of the terms and conditions, which gives us further precedent on how to make an enforceable online contract. The HomeAway site required the clicking of a "continue" button, and wrote above the button that the user was agreeing to the terms and conditions if they clicked the button, with a hyperlink to the terms and conditions. The court found this to be sufficient notice of the terms and conditions.
Monday, August 27, 2018
Revitch received an automated advertising call from DirecTV to his cell phone, and sued alleging violations of the Telephone Consumer Protection Act. Revitch was a wireless customer of AT&T, so DirecTV moved to compel arbitration under its sibling corporation's wireless service contract with Revitch. This recent case out of the Northern District of California, Revitch v. DirecTV, LLC, No. 18-cv-01127-JCS, denied the motion, finding that the arbitration clause did not cover claims with DirecTV completely unrelated to the wireless services provided under the AT&T contract.
It was true that the arbitration provision covered affiliates, and it was also true that DirecTV was an affiliate of AT&T, having become sibling companies a few years after Revitch entered into the contract with AT&T. But the court characterized the establishment of this relationship as a "completely fortuitous fact." The court noted that the intention for wording the clause broadly and including affiliates was typically to cover situations regarding assignments or successors. Nothing of the sort had happened here. No benefits under the contract had been assigned to DirecTV, nor had DirecTV undertaken any obligations under the contract. The calls Revitch was complaining about had nothing at all to do with the wireless service covered by the contract. So the precedent DirecTV tried to rely on was all distinguishable in the view of the court: "The Court concludes that Adams and Andermann, at most, support the conclusion that an entity may become an affiliate subject to the arbitration contract after the time of contracting where that relationship arises from an assignment of the underlying agreement or a related entity becomes a successor to the original contracting entity. That is not the case here."
The court interpreted the arbitration clause of the contract according to ordinary rules of contract interpretation that required the avoidance of absurd results and also that contracts be construed against the drafter. DirecTV argued that the presumption in favor of arbitration established by the Federal Arbitration Act meant that arbitration clauses should trump such rules of contractual interpretation, but the court disagreed. The court stated that, according to Ninth Circuit precedent, the FAA requires arbitration agreements to be placed on equal footing with other contracts. Allowing the suspension of ordinary contract rules of interpretation when arbitration agreements were involved would be placing arbitration agreements on favored footing; on equal footing, the same rules ought to apply to arbitration agreements as apply to all other contracts. Arbitration, the court emphasized, "is a matter of consent."
This is an interesting case. Due to the consolidation of most of our forms of communication under massive umbrella corporations, a relationship with one subsidiary can be used to assert a relationship with all companies under the same corporate umbrella, as DirecTV tried to do here. This court's view feels rooted in a common-sense understanding that the arbitration agreement Revitch entered into when he decided to sign up for AT&T wireless service shouldn't also cover completely unrelated television services provided by a company that hadn't been affiliated with AT&T when Revitch entered into the contract. Only a few months ago, though, the Supreme Court reversed the Ninth Circuit for refusing to enforce an arbitration clause, re-affirming the trump-card nature of the Federal Arbitration Act over many other public policies. This case seems like another display of Ninth Circuit courts' skeptical views toward arbitration clauses -- which the Supreme Court has just reminded the Ninth Circuit it doesn't share.
Monday, August 20, 2018
California warranty case against Google illustrates the work the covenant of good faith and fair dealing does for consumers
A recent case out of the Northern District of California, Weeks v. Google LLC, Case No. 18-cv-00801 NC (behind paywall), involves Google's Pixel phones, which the plaintiffs allege are defective. The phones were covered by a warranty that permitted Google to either repair, refund, or replace the phones, at its discretion. When the plaintiffs complained about the defective phones, Google offered to replace the phones, but the plaintiffs weren't happy with that result: Their allegations are that their defective phones would just be getting replaced with more defective phones, until the point when the warranty expired.
The court agreed with Google that, under the terms of the warranty, Google had every right to do exactly that: "The Court understands plaintiffs' outrage at Google's being able to replace a defective Pixel with another defective Pixel for 365 days straight. . . . It beggars reason and would appear to make hash of the spirit of the warranty. But the warranty provided a remedy, and as far as the Court can tell, Google abided by its remedy. . . . The question of whether it was valid under the express warranty to replace a defective Pixel with another defective Pixel must be answered in the affirmative based on a plain reading of the Limited Warranty."
However, all was not lost for the plaintiffs, because the court then turned to allegations that Google had breached the covenant of good faith and fair dealing, a claim which the court allowed to survive Google's motion to dismiss. The court found that, while Google's conduct might not have been in violation of the terms of the contract, its conduct was not "expressly permitted" under the contract, nor did it meet "reasonable expectations" as to what its behavior would be. Therefore, the covenant of good faith and fair dealing acted as a backstop here against the dismissal of the breach of warranty claims.
(The court also allowed fraudulent concealment and California consumer protection law claims to survive.)
Friday, August 3, 2018
Watch out for relevant statutes when entering into contracts (but also, read your own contract language)
A recent case out of the Eastern District of Virginia, K12 Insight LLC v. Johnston County Board of Education, Civil Action No. 1:17-cv-1397, is a cautionary tale for being aware of how statutes can affect contracts. But, also, it could have been decided just on the contractual language alone.
In the case, the Board of Education signed an Order Form with K12 Insight that provided for an annual fee for three one-year terms. After signature, the school district realized that it could not afford the final two years of the subscription to K12's software and so attempted to terminate the subscription. K12 sued for breach of contract, alleging that the school district was obligated to maintain its subscription for the full three years.
The court declared the Order Form contract to be void. First, there was a statute that required a pre-audit certification to be affixed to the Order Form in order to ensure that there would be funding for the school district's contract. This contract lacked the pre-audit certification (which maybe explains why there wasn't funding). The court found that the contract was also outside the scope of the superintendent's authority.
But, finally, even if the contract had been properly made, the Board was permitted under the contract's own terms to terminate it if it didn't have sufficient funds. That was exactly what happened here, so the termination was proper.
Friday, July 27, 2018
23andMe, one of the services that takes your saliva and analyzes your DNA for you, has announced a partnership with GlaxoSmithKline to use its DNA database to develop targeted drugs. I've written before about the fairly broad consent Ancestry.com's similar home DNA service elicited under its terms and conditions, which 23andMe also enjoyed. According to the article, 23andMe considers itself to have gained consent from its users, and is allowing users to opt out if you wish.
I think most of us have little problem with our DNA being used to find cures for terrible diseases and afflictions. If my DNA could be used to cure cancer, I am happy to line right up. (And, in fact, when my father had cancer, we did provide express consent to his doctors for us to assist in their DNA research.) But I think most of us, if asked, would have said something like, "I want my DNA to be used to cure cancer so people with cancer can be cured."
However, the way the pharmaceutical industry works in this country, that's not exactly what happens. The cure, as we know because we talk about health insurance A LOT, is then available to those who can afford it. Many of Wikipedia's drug entries keep track of the cost of pharmaceuticals in the U.S. against the cost of producing the drug, as can be seen here. So I don't want to sound like a terrible person trying to stall progress, but, well, the users in the database paid to use 23andMe, and now their DNA is being sold to a pharmaceutical company, so 23andMe has now made money off of the DNA twice, and then it's going to get used to develop into medications that will then be sold again, back to the people who need the medications, who may be the same people whose DNA was used to develop the drug. At that point your DNA has been profited off of three times, and never by you, and possibly twice at your own personal expense. And, if history is anything to go by, that pharmaceutical is your DNA coming back to you at a tremendous mark-up. So you could find yourself in a position where you paid to have a pharmaceutical company take your DNA, turn it into the drug that could save your life, and then ask you to pay, again, much more money than you have, to gain access to the drug. You paid to donate your DNA so they could charge you for the benefits it provides. And, according to the terms and conditions, you consented to that.
Monday, July 2, 2018
An "exceedingly rare" case where a court discounted testimony, relying in part on the witness's admitted "habit of routinely lying" in the course of business
A recent case out of Michigan, Strategy and Execution Inc. v. LXR Biotech LLC, No. 337105, speaks to the perils of not putting agreements in writing (or doing so and subsequently losing the writing). The parties had a written contract that stated that they would arrive at performance criteria at a later time. But the parties disputed ever entering into a later agreement over the performance criteria. No party produced any written document. LXR's principal testified that the parties reached an oral agreement that he memorialized in writing but the writing was later lost. However, this testimony was not corroborated by any other witness except for one who gave "conflicting testimony" regarding the document. LXR's principal had admitted to "routinely lying" because he apparently thought it to be "good business practice." Furthermore, none of the "voluminous" emails exchanged between the parties ever referenced any agreement on the performance criteria. The court therefore agreed that "this is one of the exceedingly rare cases in which a witness's testimony is insufficient to find a jury question." Despite the testimony, the court was permitted to enter a directed verdict on the breach of contract claim.
Written contracts are not always required, but this case is an example of why they are often desirable to have, and to keep safe!
(There were other points of appeal in the case relating to other clauses of the contract and some jury instruction issues.)
Friday, June 29, 2018
A recent case out of the Second Circuit, Ortho-Clinical Diagnostics Bermuda Co. Ltd. v. FMC, LLC, No. 17-2400-cv (behind paywall), is another case about interpretation of contract terms -- twice over. Because here the parties entered into a contract, fought over breach of that contract, and then entered into a settlement agreement, which they were also fighting over. The moral is that, if you want something specific, you should ask for it rather than relying on unspoken industry practices.
The initial agreement between the parties was about an IT operating system. Although the system was going to cost $70 million, the contract wasn't very detailed, with no technical specifications or description of building methods. The parties' relationship deteriorated and they eventually entered into a Settlement Agreement to terminate the project. Under these new terms, FCM would be released from its obligation to provide the system to Ortho, while providing assistance while Ortho transitioned to a different contractor. After execution of the Settlement Agreement, Ortho apparently realized that FCM was not as far along as Ortho had thought and had not prepared certain items that Ortho had assumed it had prepared, and so Ortho claimed that as a result the IT system cost more and took longer.
The court, however, noted that there was nothing in the contract requiring FCM to produce the certain deliverables Ortho had been looking for. Ortho claimed it was "standard practice in the industry," but the court said that wasn't the equivalent of it being a contractual obligation. FCM was contractually required to provide assistance -- no more, no less. There was nothing in the contract about the job having to be at a particular stage of completion, or that any particular deliverables or documentation had to exist.
The court also pointed out that Ortho had released its claims regarding the original agreement in the Settlement Agreement. Ortho tried to argue that it had released claims but not damages but the court called that "a nonsensical reading."