Thursday, December 5, 2013
Eli Bukspan, Trust and the Triangle Expectation Model in Twenty-First Century Contract Law, 11 DePaul Bus. & Com. L.J. 379 (2013)
Veronica J. Finkelstein, Dollars and Horse Sense: Why Prudent Buyers and Sellers Should Account for Article 2 of the Uniform Commercial Code in Their Equine Sales Contracts, 5 Ky. J. Equine, Agri., & Nat. Resources L. 181 (2012-2013)
As we noted last week, on Monday, the U.S. Supreme Court heard arguments in the first investment arbitration case ever to be placed on the Court's docket. That transcript from oral argument can be found here.
Other links related to the case, BG Group PLC v. Republic of Argentina, can be found on SCOTUSblog.
Wednesday, December 4, 2013
Unconscionability and the Contingent Assumptions of Contract Theory, 2013 Mich. St. L. Rev. 211 (2013), by Dr. M. Neil Browne and Lauren Biksacky, argues that basic assumptions of liberal contract theory – for example, that contracts are made by rational and informed parties – don’t hold. Therefore, courts should find more contracts unconscionable.
This short article would be a nice primer for law students on basic liberal contract theory, especially in conjunction with some Judge Posner readings. The authors argue that people often yield to irrational motives. They get in bar fights. They have road rage. They buy books on feng shui. Judge Posner might respond that the human rationality economists speak of is that of pigeons or rats, not angels. Dr. Browne, himself an economist, seems to take exception to that conception of human beings.
The article argues courts can do better than simply making people keep their ratty promises. Courts can allow people to be their best, most-informed selves by invalidating “irrational” promises made under distorting influences like advertising and cognitive biases. Courts can and should step in like adults over wayward children and guide them toward eudaimonia.
Yet the article notes that despite research showing people are often irrational and ill-informed, courts are not finding more contracts unconscionable. Why? The article doesn’t answer, but the reason is probably that to do so seems unworkable. If human irrationality were grounds for invalidating a contract, how many contracts would be secure? The law tends to be a great guardian of the status quo, and apparently some people like books about feng shui.
[Image by Vicky TGAW]
For those who don't want to click on the links, here is our earlier summary of the facts of the case:
Plaintiff, Rabbi, S. Binyomin Ginsberg had been a member of Northwest's frequent flyer program, WorldPerks, since 1999. By 2005, he was such a macher, Northwest granted him Platinum Elite Status (oy, what nachas!). In 2008, Northwest revoked his membership. Ginsberg claims that Northwest took this action because he was a kvetch. . . .
The official reason provided for the termination was that Northwest had discretion "in its sole judgment," to cancel a member's account due to abuse of the program. Apparently, such judgment includes the ability terminate a membership if complaints persist after the "Enough with the complaining already!" warning. Ginsberg sued, asserting four causes of action, but Northwest moved for dismissal, arguing that the Airline Deregulation Act (ADA) preempted all of Ginsberg's claims.
According to the The New York Times' synopsis of oral argument, Justices Ginsburg and Sotomayor expressed concern that the airline's frequent flyer program was either an illusory contract or subject to the airline's "whim and caprice." Justice Breyer, however, seemed inclined to think that claims sounding in breach of contract are preempted by the federal Airline Deregulation Act of 1978, which was supposed to allow airlines to compete based on, among other things, price. Since frequent flyer programs are price discounts, Breyer suggested that such programs are governed by the Deregulation Act and cannot be subject to claims based on state laws aimed at regulating the airlines. However, in 1995, the Court exempted contracts claims from federal preemption in American Airlines v. Wolens.
The distinction between regulating airlines through state law and regulating airlines through breach of contract claims is a subtle one. It seems to turn on whether Rabbi Ginsberg's claim is construed as a breach of contract claim or a claim that the airline breached a duty of good faith and fair dealing. Paul Clement, arguing for the airline (on page 13 of the transcript) claimed that to permit a claim based on the duty of good faith and fear dealing would "enlarge the bargain." Since the contract gave the airline discretion to terminate Rabbi Ginsberg's membership, Clement argued, invoking the implied duty of good faith and fair dealing takes his claim outside of the contract. The claim implicates state policies because in some states the implied duty is not merely a rule of construction but a means of imposing public policy standards of "fairness and decency" on private agreements.
The Solicitor General joined the case as amicus curiae on behalf of the airline and attempted to clarify the federal uniformity concerns implicated in the case. Counsel for the Solicitor General contended that state contracts law is fine to help adjudicate the intent of the parties, but where states impose public policy concerns in areas such as implied covenants and the unconscionability defense, there preemption is necessary.
This is very strange territory, and it was clear that Justices and counsel alike struggled to work out how to put such fine distinctions into place. It is odd for the Court to say in Wolens that contracts claims are not preempted by the Deregulation Act but for the Court to now say that certain types of contracts claims, like breach of the implied covenant of good faith and fair dealing or unconscionability defenses are still preempted.
And what about Federal Arbitration Act (FAA) preemption? One of the few ways that parties can get out of arbitration clauses is by arguing that such clauses are unconscionable, because the FAA does not preempt defenses sounding in common law contracts doctrine. But since unconscionability doctrine varies from state to state, parties seeking to enforce arbitration clauses could argue that the same uniformity concerns that govern preemption in the Deregulation Act context should also apply in the FAA context. If so, good-bye unconscionability challenges to arbitration clauses.
The Times provides this link to the transcript of oral argument.
Tuesday, December 3, 2013
Monday, December 2, 2013
The United Nations Convention on Contracts for the International Sale of Goods (“CISG”) continues to collect state parties. The CISG will enter into force for Brazil on 1 April 2014, and for Bahrain on 1 October 2014. With that, Brazil and Bahrain will become the 79th and 80th States Party to the CISG, respectively.
The delay in entry into force is built into CISG art. 99, and does not suggest any particular caution on the part of either state. What may require some explanation, however, is why it took almost 25 years after Brazil approved the final text of the CISG and signed the Final Act of the Conference, before it finally acceded to the convention on 5 March 2013. According to local commentators, a large part of the delay is due to extraneous political considerations. Legislative inaction on this front was common under a previous authoritarian political system, as the regime was skeptical of – if not outright hostile to – multilateral initiatives to advance private international law. Efforts by Brazilian academics, the Bar Association of Brazil, and business interests progressively pressed for Brazil to engage in such initiatives, and the end result was that Brazil rejoined the Hague Conference on Private International Law in 2001 and began the internal process for accession to the CISG in 2011.
Brazil’s accession is a particularly significant development. Brazil’s economy is the largest among Latin American states, and the second largest in the Western Hemisphere. The existence of a common set of default rules governing trade in goods, irrespective of the significant differences in U.S. and Brazilian legal traditions, creates potential efficiencies for the future of economic relations between the two states. Furthermore, from the perspective of economic development policy, the existence of modern, uniform framework for contracts for the sale of goods involving one of the fastest-growing major economies in the world is a positive feature.
The increasing likelihood that regional contract activity in the Americas may implicate the CISG underscores the need for U.S. academics to ensure that our students at least understand that the convention exists as part of U.S. contract law. This generally applicable source of federal contract law constitutes the default rules that apply to an expanding range of regional contract situations. It has been a commonplace that parties can always make a contractual choice of law that would remove the CISG from the mix. However, what you don’t know can’t be planned against, and who is to say that local law – as opposed to the CISG default rules – is necessarily optimal for a given contracting situation?
Over at the Huffington Post, Sam Fiorella takes note of the egregious terms in Facebook Messenger's Mobile App Terms of Service. These terms include allowing the app to record audio, take pictures and video and make phone calls without your confirmation or intervention. It also allows the app to read your phone call log and your personal profile information. Of course, an app that can do all that is also vulnerable to malicious viruses which can share that information without your knowledge. But, of course, this is allowed only with your "consent."
We are delighted to introduce the latest of our new contributors, Michael P. Malloy (pictured), Distinguished Professor of Law of the University at the Pacific's McGeorge School of Law. Professor Malloy's posts will generally fall into the rubric "Global K" and will concentrate mainly on transnational contract law, including but not limited to CISG developments (e.g., cases, accessions, interpretations, secondary literature).
An internationally recognized expert on bank regulation and on economic sanctions, Michael P. Malloy received his J.D. from the University of Pennsylvania and his Ph.D. from Georgetown University. SEC enforcer, bank regulator, economic sanctions architect, Dr. Malloy has authored or edited over 100 books and book-length supplements. He is the co-author of Global Issues in Contract Law (West 2007), and the author of Anatomy of a Meltdown (Aspen 2010), a study of the current global financial crisis.
A listing of Professor Malloy's representative publications can be found here.
A more detailed biography can be found here.
According to this report from the Courthouse News Service, California Controller John Chiang is suing SAP Public Services (SAP), a company with which the state of California had contracted for payroll services software (MyCalPAYS) that would assist California in managing payments to its 240,000 employees. After three years of development and eight months of trials, California alleges that SAP still has not managed to get the system to work.
The system was projected to cost California taxpayers just over $100 million, but by the time it was cancelled, it had cost $260 million and never worked right, according to the state. The state claims that MyCalPAYS was tried out on a test goup, and the results were disastrous: overpayments, underpayments, failures to report deposits in retirement accounts, childcare payments and medical contributions. Although the state complained before declaring SAP to be in default, SAP contended that the system was working as designed.
As Courthouse News Service reports, California encounered similar problems when it contracted with software developer Deloitte to manage its statewide judicial case management system.
California, Kathleen Sebelius feels your pain.
Friday, November 29, 2013
Craig Crockett's law firm had a billing dispute with LexisNexis (Lexis). but his firm's agreement with Lexis had an arbitration clause. Crockett realized that arbitration of his claim against Lexis as individual claim would be economically unfeasible, so he sougth to create a nationwide class of similarly situated Lexis customers. The arbitration clause itself was silent about the availability of class claims. In 5 Reed Elsevier, Inc. v. Crockett, the Sixth Circuit affirmed the District Court's finding that arbitration clause does not permit class claims.
Crockett's basic claims is that, although his firm was to be charged a monthly fee for unlimited use of certain Lexis databases, and an additional fee for the use of other databases, Lexis charged him for the use of databases that were not identified as extras. He seeks to bring claims for fraud, negligent misrepresentation, breach of contract, negligence, gross negligence, unjust enrichment, and violation of New York's consumer protection laws on behalf of classes consisting of law firms using Lexis services and their clients. On behalf of the two classes, Crockett sought damages in excess of $500 million.
Lexis responded to the claim with a suit in federal District Court seeking a declaration that the arbitration agreement did not allow for class arbitration. The District Court granted the declaratory judgment sought. Crockett objected that the issue of whether or not classwide arbitration was available should have been put to the arbiter. As the Sixth Circuit explained, that issue turns on whether it is a "gateway" or a "subsidiary" question. There is a presumption in favor of courts answering gateway questions, while subsidiary questions should presumptively be reserved to the arbiter.
Alas, the Supreme Court has yet to decisively address whether classwide arbitrability is a gateway or subsidiary question. While a plurality of the Justices found the issue to be susbidiary in Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003), the Court more recently acknowledged that it had not yet determined whether or not classwide arbitrability is a gateway question. Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2068 n.2 (2013). But in other recent cases, Stolt-Nielsen and Concepcion, the Supreme Court has characterized the difference between bilateral and class arbitration as "fundamental" and thus has indicated fairly strongly that the issue is a gateway question.
The Sixth Circuit cited various reasons for assigning "gateway" status to the question of classwide arbitration and concluded that "whether an arbitration agreement permits classwide arbitration is a gateway matter, which is reserved 'for judicial determination unless the parties clearly and unmistakably provide otherwise'" (citing Howsam v. Dean Witter Reynolds, 537 U.S. 79, 83 (2002)). The Court then reasons that "the principal reason to conclude that this arbitration clause does not authorize classwide arbitration is that the clause nowhere mentions it." Because the consequences of class arbitration are "momentous," the Sixth Circuit reasoned, an arbitration agreement must include class arbitration in order for a court to find that the parties have agreed to it.
To which I say, where is the contra proferentem canon when a consumer needs it? The agreement is silent on the issue and thus unquestionably ambiguous. The consequences are equally momentous on both sides, since the Sixth Circuit acknowledges that Crockett's claims are not worth bringing as an individual arbitration. It also characterizes the contract as one of adhesion. So it was entirely within Lexis's powers to avoid the ambiguity and completely beyond Crockett's power to remedy it. In such cases, courts should invoke contra proferentem and interpret the agreement in favor of the non-drafting party.
Crockett also argued that the arbitration clause is unconscionable, and the Sixth Circuit seemed to agree that, substantively, it's a lousy agreement. However, elements of procedural unconscionability are lacking, and Crockett had the option of using Westlaw (which apparently has no arbitration clause -- for now). This is likely a correct application of the law but it also illuminates a central tension in unconscionability doctrine. In order to show that substantive unconscionability exists, one has to show that the terms are outrageously lopsided in favor of the drafting party "by the business standards and mores of the time and place." But if one can make such a showing, then one loses on the procedural unconscionability prong because one then could have chosen to go with a competing business. And if all of the businesses in the market have equally one-sided terms, then one cannot meet the standard for substantive unconscionability.
Thursday, November 28, 2013
Theodoros Chiou, On Royalties and Transfers without (Monetary) Consideration -- Looking for the "Magic Formula" for Assessing the Validity of Renumeration Clauses of Copyright Transfers under French Copyright Law. 44 IIC: Int'l Rev. Intell. Prop. & Competition L. 585 (2013)
Louise Longdin & Phen Hoon Lim, Inexhaustible Distribution Rights for Copyright Owners and the Foreclosure of Secondary Markets for Used Software, 44 IIC: Int'l Rev. Intell. Prop. & Competition L. 541 (2013)
Michael Pressman, The Two-Contract Approach to Liquidated Damages: A New Framework for Exploring the Penalty Clause Debate, 7 Va. L. & Bus. Rev. 651 (2013)
Thomas J. Lilly, Jr. Participation in Litigation as a Waiver of the Contractual Right to Arbitrate: Toward a unified Theory. 92 Neb. L. Rev. 86 (2013)
Andrea M. Matwyshyn, The Law of the Zebra. 28 Berkeley Tech. L.J. 155-225 (2013)
Debra Pogrund Stark, Jessica M. Choplin & Eileen Linnabery, Dysfunctional Contracts and the Laws and Practices that Enable Them: An Empirical Analysis. 46 Ind. L. Rev. 797-847 (2013) [and check out Kenneth Ching's review of this article here]
George G. Triantis, Improving Contract Quality: Modularity, Technology, and Innovation in Contract Design. 18 Stan. J.L. Bus. & Fin. 177 (2013)
William Wood, It Wasn't an Accident: The Tribal Sovereign Immunity Story, 62 Am. U. L. Rev. 1587 (2013)
Wednesday, November 27, 2013
Today’s mini-review is of Dysfunctional Contracts and the Laws and Practices that Enable Them: An Empirical Analysis, 46 Ind. L. Rev. 797 (2013), by Debra Pogrund Stark, Dr. Jessica M. Choplin, and Eileen Linnabery.
Apparently, many real estate contracts limit buyers’ remedies to return of earnest money, and many courts enforce such limitations. The problem is that if a buyer’s only remedy for breach of contract is the return of earnest money, then the seller hasn’t really bound himself to anything. If the seller doesn’t want to perform, all he has to do is return the earnest money. This encourages the kind of strategic behavior that contracts are supposed to prevent. For example, a seller may agree to sell real estate, but if the property's market value increases, the seller can breach the contract, return the earnest money, and sell the property to a second buyer at a higher price. The seller essentially gets to speculate on the buyer's dime.
Further, many buyers don’t understand the meaning of these limitation of remedy clauses, even if they read them. The authors conducted a study which suggests more than a third of people who read a limitation of remedies clause fail to comprehend that their remedies have been limited. The authors use this finding to challenge some courts’ reasoning that buyers knowingly consent to the limitation of their remedies.
The authors offer several reforms, and two are particularly interesting: (1) enacting legislation that prohibits limiting buyers’ remedies to the return of earnest money, and (2) replacing the exacting standards of unconscionability with a "reasonable limitation of remedy” test similar to that used in evaluating liquidated damages.
This article is state-of-the-art in its use of empirical research to aid legal analysis. It not only provides interesting data, but it also marshals that data against flimsy intuitive arguments still common wherever people talk about contracts.
[Image by thinkpanama]
Tuesday, November 26, 2013
Monday, November 25, 2013
The U.S. Supreme Court is scheduled to hear oral arguments on December 2, 2013 in BG Group PLC v. Republic of Argentina. Links related to the case can be found on the SCOTUSblog, including this fabulous introduction to the case from Professor Diane Marie Amann (pictured), the Emily and Ernest Woodruff Chair in International Law at the University of Georgia School of Law. The issue in the case is whether, in disputes involving a multi-staged dispute resolution process, a court or the arbitrator determines whether a precondition to arbitration has been satisﬁed.
The International Dispute Resolution Committee of the DC Bar's International Law Section, in cosponsorship with the American Society of Internatioanl Law's Howard M. Holtzmann Research Center for the Study of International Arbitration and Conciliation and the Washington Foreign Law Society, and in cooperation with the International Arbitration Committee of the American Bar Association's Section of International Law and the International Committee of the American Bar Association's Section of Dispute Resolution, will host a luncheon program to discuss the case immediately following the oral argument.
- George Bermann, Professor, Columbia Law School, and Chief Reporter for the forthcoming Restatement on International Commercial Arbitration
- Janis Brennan, Partner, Foley Hoag LLP, and Vice-Chair, DC Bar International Dispute Resolution Committee
- Jean Kalicki, Partner, Arnold & Porter LLP (Moderator)
Sunday, November 24, 2013
In California and a dozen other states, it is becoming increasingly popular to have solar panels installed on private properties to reduce household electric bills. In addition to potentially significant energy savings, solar panels also help private parties mitigate climate change at the very local level. However, solar panels are expensive. Instead of buying them outright (an average-size residential system costs about $35,000), many consumers choose to lease the systems instead. This option typically entails no upfront costs and, as many solar panel providers tout, “low monthly rental fees” that are supposedly offset by utility bills savings and the avoidance of maintenance and upgrading otherwise associated with individually owned systems.
So is this a contractual win-win situation? Not necessarily so. Solar panel leases typically comprise terms that may either surprise the unwary consumer or turn out to be more favorable to the solar panel owners than the homeowners in the long run.
For example, state or federal tax benefits, renewable energy credits sold to companies to offset carbon emissions, and state or utility cash incentives go to the solar panel owners and thus not the leasing homeowners. Some contracts contain escalator clauses increasing the initially low lease payments over time. What is also often left unsaid, at least upon initial conversations with solar panel providers, is that if a household already has low electricity bills, leases structured as is often typically the case may not pay at all or be financially beneficial enough to justify the risks inherently involved in transactions between consumers and sophisticated energy company for something as new and technologically risky as solar electric panels. This risk is enhanced by the fact that the contract duration used by many California solar panel providers is no less than twenty years. Much could happen over two decades in relation to both the technical and financial aspects of these types of contracts: technology could (and likely will) change so that in the years to come, more effective systems are developed that could have produced even greater benefits for homeowners then tied to contracts for “old” technology. Utilities could reduce their electric rates so that the leases are not as commercially viable anymore. State and federal subsidies and other rules could change the entire energy field. Could consumers down the road prevail on an argument that imposing contracts of such durations in field so rapidly evolving is sufficiently draconian to be unconscionable? Probably not.
In California as in many - if not most - other states, unconscionability consists of both procedural and substantive elements and are evaluated on a sliding scale. The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to, among other factors, unequal bargaining power and the lack of meaningful choice. Substantive unconscionability pertains to the fairness of the actual terms of an agreement and to assessments of whether these terms are overly harsh or one-sided. However, substantive unconscionability “turns not only on a ‘one-sided’ result, but also on an absence of ‘justification’ for it.” Several problems thus abound for consumers attempting this argument. First, no reasonable argument can be made that leasing solar panels rises to the level of “needed services” or “life necessities” that even perceivably liberal California courts have called for in connection with the lack-of-choice prong. Second, consumer choice does exist here: homeowners could, for example, simply not rent the panels if not sure of the ultimate advantageousness of the deal. They could buy the systems outright instead, or ask their utility providers if it is possible to increase the percentage of household power purchased from renewable sources if interested in acting on climate change. Substantively, twenty years is a long time, but far from uncommon in contractual contexts. Finally, the solar panel companies have an arguably justified cause for requiring a twenty-year duration, namely installing the equipment at no upfront payment, servicing it over years, and the chance to recover a good return on it.
Solar power is one of many solutions that could prove viable in mitigating climate change. In a nation with as much annual sunshine as the United States, solar power will hopefully quickly become much more prevalent than is currently the case and help us as a nation become more energy independent. Consumers may be well able to obtain current and significant energy savings if operating solar systems on their properties. But consumers should realize that twenty-year leases constitute a significant legal commitment that will be difficult, if not impossible, to avoid if better technological solutions should be discovered in the next years to come.
Myanna Dellinger, JD, MA, Assistant Professor of Law, Western State College of Law
I want to thank all the experts who participated in last week's symposium on WRAP CONTRACTS: FOUNDATIONS AND RAMIFICATIONS . They raised a variety of issues and their insights were thoughtful, varied and very much appreciated. I also want to thank Jeremy Telman for organizing the symposium and inviting the participants.
Today, I’d like to respond to the posts by Michael Rustad, Eric Zacks and Theresa Amato. Eric Zacks emphasizes the effect that form has on users, namely that the form discourages users from reviewing terms. Zack notes that contract form may be used to appeal to the adjudicator rather than simply to elicit desired conduct from the user and that forms that elicit express assent - such as “click” agreements - help the drafter by aiding “counterfactual analysis surrounding the ‘explicit assent’” issue. In other words, drafters may use contract forms to manipulate adjudicator’s decisionmaking and not necessarily to get users to act a certain way. (This is a topic with which Zachs is familiar, having just written a terrific article on the different ways that drafters use form and wording to manipulate adjudicators’ cognitive biases).
Both Michael Rustad and Theresa Amato focus, not on form, but on the substance of wrap contracts – the rights deleting terms that contract form hides so well. Amato comes up with an alternative term to wrap contracts – online asbestos – to highlight the not-immediately-visible damage caused by these terms. As a consumer advocate and an expert on how to get messages to the general public, Amato understands the need to overcome the inertia of the masses by communicating the harms in a way that can drown out the siren call of the corporate marketing masters. So yes, a stronger term may be required to jolt consumers out of their complacency although the real challenge will be getting heard and beating the marketing masters at their own game.
Michael Rustad notes that my doctrinal solutions fall short of resolving the problem of predispute mandatory arbitration and anti-class action waivers. He’s right, of course, although I think reconceptualizing unconscionability in the way I propose (by presuming unconscionability with certain terms unless alternative terms exist or the legislature expressly permits the term) would reduce the prevalence of undesirable terms including mandatory arbitration and class-action waivers. Rustad, who has considerable expertise on this subject, mentions that many European countries are further along than we are in dealing with unfair terms. Many of those jurisdictions, however, also have legislation which limits class actions, tort suits or damages awards. In addition, they don’t have the same culture of litigation that we do in this country. Wrap contracts have their legitimate uses, such as deterring opportunistic consumer behavior and enabling companies to assess and limit business risks. In order to succeed, any proposal barring contract terms or the enforceability of wrap contracts must also consider those legitimate uses.
I believe there is a place for wrap contracts and boilerplate generally but their legitimate uses are currently outweighed by illegitimate abuses of powers. Wrap contract doctrine has moved too far away from the primary objective of contract law – to enforce the reasonable expectations of the parties-- and my solutions were an attempt to move the train back on track. My focus was on doctrinal solutions but the problems raised by wrap contracts are complex and my solutions do not foreclose or reject legislative ones. I’m a contracts prof, so my focus naturally will be on contract law solutions (if you have a hammer, everything looks like a nail, I guess). Doctrinal responses have the advantage of flexibility and may be better adapted to dynamic environments than legislation which can be quickly outdated when it comes to technology or business practices borne in a global marketplace.
Admittedly, when it comes to wrap contracts, doctrinal flexibility hasn’t really worked in favor of consumers, but that only makes it more important to keep trying to sway judicial opinion. I know there are those who question whether judges read legal scholarship, but I know that there are many judges (and clerks) who do. The case law in this area has spiraled out of control so that it makes no sense to the average “reasonable person” and has opened the door to the use of wrap contracts that exploit consumer vulnerabilities.
My book was not intended as a clarion call to rid the world of all wrap contracts; rather, it was intended to point out how much damage wrap contracts have done, how much more they can do, and to provide suggestions on how to rein them in and use them in a socially beneficial manner.
I’m grateful to have had the opportunity to hear the insightful comments of last week’s highly respected line-up of experts and to share my thoughts with blog readers.
Friday, November 22, 2013
We remind our readers that the Ninth International Conference on Contracts will be held next February in Miami. All the details can be found here. Here's the main information:
The 9th Annual Conference on Contracts
February 21-22, 2014
The 2014 conclave will be hosted by
St. Thomas University School of Law.
Deadline is Monday, December 16, 2013.
Proposals submitted earlier will be accepted on a rolling basis. Proposals submitted after the deadline will be accepted on a space-available basis. Submissions should be directed to:
We now have a list of confirmed participatnts; they are:
Kristen Adams – Stetson University
Bader Almaskari - University of Leicester, England
Reza Baheshti - University of Leicester, England
Wayne Barnes – Texas A&M University
Daniel Barnhizer – Michigan State University
Thomas Barton – California Western School of Law
Shawn Bayern – Florida State University
Amy Boss – Drexel University
Steve Callandryllo – University of Washington
Miriam Cherry – University of Missouri
Kenneth Ching – Regent University
Neil Cohen – Brooklyn Law
Gerrit De Geest – Washington University School of Law
Sidney Delong – Seattle University
Scott Devito – Florida Coastal School of Law
Zev Eigen – Northwestern University School of Law
Larry Garvin – Ohio State University
Katie Gianasi – Husch Blackwell L.L.P.
Jim Gibson – University of Richmond
Ariela Gross – USC Gould
Nancy Kim – Cal Western University
Christina Kunz – William Mitchell College of Law
Lenora Ledwon – St. Thomas University
Joasia Luzak – University of Amsterdam
Kingsley Martin – KM Standards
Jennifer Martin – St. Thomas University
John Mayer – CALI
Murat Mungan – Florida State University
Dr. John Murray – Duquense University
Marcia Narine – St. Thomas University
Wendy Netter Epstein – DePaul University
Karl Okamoto – Drexel University
Joe Perillo – Fordham University
Amir Pichhadze – University of Michigan (SJD Student)
Michael Pinsof - Attorney
Lucille Ponte – Florida A&M University, College of Law,
Deborah Post – Touro Law Center
Michael Pratt – Queens University
Cheryl Preston – Brigham Young University
Val Ricks – South Texas College of Law
Roni Rosenberg – Carmel Academic Center, Law School, Israel
Linda Rusch – Gonzaga University
Mark Seidenfeld – Florida State University
Gregory Shill – University of Denver
Frank Snyder – Texas A&M University
Jeremy Telman – Valparaiso University
David Tollen – Adili & Tollen, L.L.P.
Manuel Usted – Florida State University
Robin West – Georgetown University
Robert Whitman – University of Connecticut
Eric Zacks – Wayne State University
Deborah Zalesne – CUNY School of Law
Candace Zierdt – Stetson University
For more information about the Conference contact lead conference organizer:
Professor Jennifer S. Martin (pictured)
at (305) 474-2420, or via email at email@example.com
Our seventh guest blogger, Theresa Amato, is the executive director Citizen Works which she started with Ralph Nader in 2001. After earning her degrees from Harvard University and the New York University School of Law, where she was a Root-Tilden Scholar, Amato clerked in the Southern District of New York for the Honorable Robert W. Sweet. She was a consultant to the Lawyers Committee for Human Rights (Human Rights First) and wrote an influential human rights report on child canecutters in Haiti and the Dominican Republic. She then became the youngest litigator at Public Citizen Litigation Group, where she was the Director of the Freedom of Information Clearinghouse in Washington D.C. In 1993, Amato founded the nationally-recognized, Illinois-based Citizen Advocacy Center and served as its executive director for eight years. She currently serves as its Board President. Most recently, she has launched Fair Contracts.org to reform the fine print in standard form contracts. In 2009, The New Press (New York) published her book, Grand Illusion: The Myth of Voter Choice in a Two-Party Tyranny. She also appears prominently in the Sundance-selected and Academy Awards short-listed documentary “An Unreasonable Man.”
“Yes,” writes Professor Nancy S. Kim. “As strange as it may seem, under contract law you can legally bind yourself without knowing it.”
In her valuable book, Wrap Contracts, Foundations and Ramifications, Professor Kim does a service to all by explaining how courts enforce these online contracts “where consumers have no intent of entering into a contract.” She points out that “[t]he requirement of manifestation of consent seems to be subsumed in wrap contract cases with the issue of notice.” As a result, “the nondrafting party does not actually need to either receive notice or understand or intend the meaning attributed by the courts to a particular action.”
courts have constructed consent in an entirely unreasonable fashion by twisting doctrinal rules, conjuring up notice, inferring action from inaction, and blithely ignoring the central role of intent in contracts. They engage in this hocus pocus in order to enforce transactions that they believe provide a net benefit to society.
These “wrap contracts” consumers often unknowingly “agree” to may be buried in the hyperlinks and are not merely proprietary instructions for how to use the product or service. As Professor Kim explains, consumers are not only under affirmative obligations in these “wrap contracts,” they may be subject to a smorgasbord of rights-reducing language. Exclusive jurisdiction, forced arbitration, waived class actions, and the vendor’s one-way reserved rights to change the terms whenever it wants to are aggressive consumer rights reducers, often eviscerating decades of public policy and legal decisions that have afforded consumers their rights. In some cases, consumers are agreeing to muzzle themselves from complaining about the product or service. Fine print contracts may not only strip mine the legal rights of consumers, but they can also take or “steal” their property and privacy.
Thank you, Professor Kim for spelling it out for all to read. Not only do consumers not need a pen to sign on a dotted line, or in some cases even a button to click that one “agrees” to terms certainly not read, but “wrap contracts” take it even further. Consumers don’t even need to know they are agreeing, much less to what set of terms. Nonetheless, “wrap contracts,” now often “multi-wrap contracts,” as Professor Kim notes, “by their form, permit companies to impose more objectionable terms than paper contracts of adhesion.”
When people begin to understand how their rights are treated in the “wrap contract” rabbit hole, this offends sensibilities. For those not attuned to the “degradation of consent,” so aptly explained in Professor Margaret Jane Radin’s book Boilerplate, The Fine Print, Vanishing Rights, and The Rule of Law, this sort of contract peonage is not only unwelcome, it runs counter to everything the non-drafting parties think of as fair play.
Professor Kim’s use of the term “crook provisions” should not be understated and aligns with popular sentiment when consumers are fully informed of this state of affairs. Companies now grant themselves the right to “appropriate” -- once known otherwise as “stealing” or, charitably, “taking”-- from consumers for no payment. They then turn around and make a profit on what heretofore we would have considered the possessions of the consumer, e.g. their content, images, personal information and shopping habits.
As Professor Kim explains: “a crook provision anticipates no such offensive action by the consumer and has no direct relationship with the product or services offered by the company. It is simply an attempt to sneak an entitlement from the user without payment, either in terms of money or goodwill.” Indeed.
So where is the counteraction to this outright mugging of consumer rights and property? The ubiquity of these contracts has masked the reality of their potential to do serious harm to consumers such that consumers are not even aware of the magnitude of the problem.
For lack of a better term at the moment, I think we should nonetheless stop calling them “contracts” and start treating them as the equivalent of “online asbestos.” Like asbestos in its heyday, manufacturers and service providers use “wrap contracts” everywhere. They have properties that facilitate commerce but that does not mean that they are not toxic and dangerous for those exposed to them.
Moreover, like asbestos, some of the dangers will not necessarily emerge for decades when content thieves and data aggregators use consumer information to the detriment of the consumers. Perhaps due attention will be paid when the content providers, i.e. the consumers/users, begin to realize they cannot expunge those posts from their teens or more uncensored moments that now prevent them from getting hired or getting credit. Or perhaps regulators will begin to pay sufficient attention to the one-sided misappropriations when serious amounts of data are compromised by those with criminal intent (already it is happening) and with frequency for millions of users.
The question is, how long will it take for U.S. regulation and the courts to catch up to the need to ban or strictly limit the use of these offensive sword and crook provisions? For asbestos it took at least half a century, while manufacturers whined the whole way about regulation even as they knew for decades of its dangers much as “wrap contract” apologists do now. No, these “contracts” may not kill you, but they can make your life miserable and we would all breathe better if consumers were treated more fairly.
Professor Kim’s doctrinal adjustments (“a duty to draft reasonably; replacing blanket assents with specific assent; considering contract function when apply existing doctrinal rules, and reinvigorating unconscionability”) are a very solid start, though they are only a beginning. In some cases, such as replacing blanket assent with specific assents, the proposed remedy may only devolve into the Pavlovian clicking response now exercised by consumers with routine oblivion to the consequences, believing they have little choice if they want the product or service behind the click.
Courts should be helping consumers enforce their intent, not creating doctrinal chaos as Kim writes by reciting, “law that originates from the paper-based contracting world to this brave new digitally based world when they might be better off acknowledging the difference that contract form and function make to the reasonable expectations of the parties.” The courts have instead largely given corporations a judicial pass thus far and Professor Kim’s rebalancing of burdens (from the nondrafting party to the drafting party) is the least that they could begin to impose to adjust the invocation of the judicial force of the state.
I think we should be asking for much more on behalf of consumers and could take cues from other countries with more advanced notions of consumer protection and data privacy. Not only should legislators, regulators and courts protect consumers from exposure to online asbestos by outright banning, or at minimum reforming, many of these harmful provisions, but corporations who have taken rights from consumers should also be required to begin remediation efforts – immediately. These corporations can start by returning the misappropriated property and other stolen goods to their rightful owners.
[Posted, on Theresa Amato's behalf, by JT]
Thursday, November 21, 2013
It’s my pleasure to respond to Tuesday’s posts from Juliet Moringiello and Woodrow Hartzog. Juliet Moringiello asks whether wrap contracts are different enough to warrant different terminology. Moringiello’s knowledge in this area of law is both wide and deep and her article (Signals, Assent and Internet Contracting, 57 Rutgers L. Rev. 1307) greatly informed my thinking on the signaling effects of wrap contracts. The early electronic contracting cases involved old- school clickwraps where the terms were presented alongside the check box and their signaling effects were much stronger than browsewraps. Nowadays, the more common form of ‘wrap is the “multi-wrap,” such as that employed by Facebook and Google with a check or click required to manifest consent but the terms visible only by clicking on a hyperlink. Because they are everywhere, and have become seamlessly integrated onto websites, consumers don’t even see them. Moringiello writes that today’s 25-year old is more accustomed to clicking agree than signing a contract. I think that’s true and it’s that ubiquity which diminishes their signaling effects. Because we are all clicking constantly, we fail to realize the significance of doing so. It’s not the act alone that should matter, but the awareness of what the act means. I’m willing to bet that even among the savvy readers of this blog, none has read or even noticed every wrap agreement agreed to in the past week alone. I wouldn’t have made such a bold statement eight years ago.
Woodrow Hartzog provides a different angle on the wrap contract mess by looking at how they control and regulate online speech. With a few exceptions, most online speech happens on private websites that are governed by “codes of conduct.” In my book, I note that the power that drafting companies have over the way they present their contracts should create a responsibility to exercise that power reasonably. Hartzog expands upon this idea and provides terrific examples of how companies might indicate “specific assent” which underscore just how much more companies could be doing to heighten user awareness. For example, he explains how a website’s privacy settings (e.g. “only friends” or authorized “followers”) could be used to enable a user to specifically assent to certain uses. (His example is a much more creative way to elicit specific assent than the example of multiple clicking which I use in my book which is not surprising given his previous work in this area).
Hartzog also explains how wrap contracts that incorporate community guidelines may also benefit users by encouraging civil behavior and providing the company with a way to regulate conduct and curb hate speech and revenge porn. I made a similar point in this article. I am, however, skeptical that community guidelines will be used in this way without some legal carrot or stick, such as tort or contract liability. (Generally, these types of policies are viewed in a one-sided manner, enforceable as contracts against the user but not binding against the company). On the contrary, the law – in the form of the Communications Decency Act, section 230- provides website with immunity from liability for content posted by third parties. Some companies, such as Facebook, Twitter or Google, have a public image to maintain and will use their discretionary power under these policies to protect that image. But the sites where bad stuff really happens– the revenge porn and trash talking sites – have no reason to curb bad behavior since their livelihood depends upon it. And in some cases, the company uses the discretionary power that a wrap contract allocates to it to stifle speech or conduct that the website doesn’t like. A recent example involves Yelp, the online consumer review company that is suing a user for posting positive reviews about itself. Yelp claims that the positive reviews are fake and is suing the user because posting fake reviews violates its wrap contract. What’s troubling about the lawsuit, however, is that (i) Yelp almost never sues its users, even those who post fake bad reviews, and (ii) the user it is suing is a law firm that earlier, had sued Yelp in small claims court for coercing it into buying advertising. To make matters worse, the law firm’s initial victory against Yelp (where the court compared Yelp’s sales tactics to extortion by the Mafia) for $2,700 was overturned on appeal. The reason? Under the terms of Yelp’s wrap contract, the law firm was required to arbitrate all claims. The law firm claims that arbitration would cost it from $4,000-$5,000.
I agree with Hartzog that wrap contracts have the potential to shape behavior in ways that benefit users, but most companies will need some sort of legal incentive or prod to actually employ them in that way.