Friday, July 3, 2015
Late night comedians everywhere celebrated when Donald Trump (pictured) announced his candidacy for President. We too are grateful for the blog fodder. Politico reports that the Donald is suing Univision over its decision to withdraw from a five-year $13.5 contract to broadcast the Miss USA and Miss Universe Pageants, which Trump co-owns. As Time Magazine reports here, NBC has also backed out of airing the Miss USA Pageant, and several people involved have also given the Donald their notice. Trump's partners were upset by statements he made as part of his Presidential campaign that disparaged Mexico and Mexicans. Never fear, the pageant will still be broadcast on Reelz (whatever that is).
Meanwhile, London's The Guardian reports that Harvey Keitel is suing E*Trade for withdrawing from a commitment with Keitel to feature him in a series of three commercials for $1.5 million. According to The Guardian, E*Trade really wanted Christopher Walken for the spots. It was willing to settle for Keitel, until Kevin Spacey became available. E*Trade offered Keitel a $150,000 termination fee, but Keitel says that's not enough.
Students are often astonished that major corporations sometimes operate through informal arrangements such as letters of intent. The fact that they do -- and that they can get in trouble by doing so -- is illustrated in Belfast International Airport's (BIA) attempt to enforce a letter agreement with Aer Lingus. As reported by the BBC, BIA read the letter as embodying a ten-year commitment from Aer Lingus to fly out of BIA. The court found that the agreement merely covered pricing should Aer Lingus continue to fly out of BIA for ten years. Aer Lingus decided to switch to Belfast City Airport, claiming that its arrangement with BIA was no longer financially viable.
Thursday, July 2, 2015
Kelli A. Alces, The Fiduciary Gap, 40 J. Corp. L. 35 (2015)
Claudia H. Allen, Bylaws Mandating Arbitration of Stockholder Disputes? 39 Del. J. Corp. L. 751 (2015)
Aaron E. Ghirardelli, Rules of Engagement in the Conflict between Businesses and Consumers in Online Contracts, 93 Or. L. Rev. 719 (2015)
Lori D. Johnson, Say the Magic Word: A Rhetorical Analysis of Contract Drafting Choices. 65 Syracuse L. Rev. 451 (2015)
Dennis Lazarev, Dispute Resolution Clauses in International Sponsored Research Contracts, 16 Cardozo J. Conflict Resol. 585 (2015)
John Linarelli, Concept and Contract in The Future of International Law, by Joel Trachtman, 67 Rutgers U. L. Rev. 61 (2015)
Wednesday, July 1, 2015
Uber claims that users can opt-out of these changes, but I'm skeptical. Users may technically have this ability, but it won't be easy to figure out. As the EPIC complaint notes, Uber's opt-out places an "unreasonable burden on consumers and is not easy to exercise."
Tuesday, June 30, 2015
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Monday, June 29, 2015
Given the major U.S. Supreme Court opinions that were released last week, it's no surprise that the one involving contracts, Kimble v. Marvel Entertainment, LLC, didn't make the headlines. The case involved an agreement for the sale of a patent to a toy glove which allowed Spidey-wannabes to role play by shooting webs (pressurized foam) from the palm of their hands. Kimble had a patent on the invention and met with an affiliate of Marvel Entertainment to discuss his idea --in Justice Elena Kagan's words--for "web-slinging fun." Marvel rebuffed him but then later, started to sell its own toy called the "Web Blaster" which, as the name suggests, was similar to Kimble's. Kimble sued and the parties settled. As part of the settlement, the parties entered into an agreement that required Marvel to pay Mr. Kimble a lump sum and a 3% royalty from sales of the toy. As Justice Kagan notes:
"The parties set no end date for royalties, apparently contemplating that they would continue for as long as kids want to imitate Spider-Man (by doing whatever a spider can)*."
It wasn't until after the agreement was signed that Marvel discovered another Supreme Court case, Brulotte v. Thys Co. 379 U.S. 29 (1964) which held that a patent license agreement that charges royalties for the use of a patented invention after the expiration of its patent term is "unlawful per se." Neither party was aware of the case when it entered into the settlement agreement. Marvel, presumably gleeful with its discovery, sought a declaratory judgment to stop paying royalties when Kimble's patent term expired in 2010.
In a 6-to-3 opinion written by Justice Kagan (which Ronald Mann dubs the "funnest opinion" of the year), the Court declined to overrule Brulotte v. Thys, even though it acknowledged that there are several reasons to disagree with the case. Of interest to readers of this blog, the Court stated:
"The Brulotte rule, like others making contract provisions unenforceable, prevents some parties from entering into deals they desire."
In other words, the intent of the parties doesn't matter when it runs afoul of federal law. Yes, we already knew that, but in cases like this - where the little guy gets the short end - it might hurt just the same to hear it. In the end, the Court viewed the case as more about stare decisis than contract law and it was it's unwillingness to overrule precedent that resulted in the ruling.
Yet, I wonder whether this might not be a little more about contract law after all. The Court observed in a footnote that the patent holder in Brulotte retained ownership while Kimble sold his whole patent. In other words, Brulotte was a licensing agreement, while Kimble was a sale with part of the consideration made in royalties. This made me wonder whether another argument could have been made by Kimble. If Kimble sold his patent rights in exchange for royalty payments, and those royalty payments are unenforceable, could he rescind the agreement? If the consideration for the sale turns out to be void ("invalid per se"), was the agreement even valid? The question is probably moot now given the patent has expired....or is it? Although Kimble did receive royalty payments during the patent term, he presumably agreed to a smaller upfront payment and smaller royalty payments in exchange for the sale of the patent because he thought he would receive the royalty payment in perpetuity. So could a restitution argument be made given that he won't be receiving those royalty payments and the consideration for the sale of the patent has turned out to be invalid?
*Yes, I made an unnecessary reference to the Spiderman theme song so that it would run through your head as you read this - and maybe even throughout the day.
Jed Rubenfeld declared the end of privacy in an article that appeared in Stanford Law Review in 2008. Around the same time, Danial Solove explored the role of social media in eroding privacy in Scientific American. National Public Radio introduced a series on the end of privacy back in 2009. In January, Science Magazine devoted a special issue to the end of privacy.
But all is not lost! Contracts can protect our privacy, and corporations routinely agree to privacy policies that restrict their right to sell or otherwise transfer or share the private information they collect when their customers use their services.
Such contractual provisions can protect consumers . . . unless the company itself is sold or transferred to (merged into) another company. Then the private information that the company has collected just becomes another asset that can get sold off like any other asset. So says a report in today's New York Times. About 85% of the privacy policies of companies reviewed (including Amazon, Apple, Facebook, Google, LinkedIn and Hulu) provide that "the company might transfer users' information in case of a merger, acquisition, bankruptcy, asset sale or other transaction . . . "
Martha Ertman's new book, Love's Promises: How Formal and Informal Contracts Shape All Kinds of Families (Beacon Press 2015) is the subject an online symposium over at Concurring Opinions.
And in other publication news . . .
Robert Bejesky, Mercenaries, Myrmidons, and Missionaries, 37 U. Ark. Little Rock L. Rev. 45 (2014)
Gregory Crespi, Agreements to Alter the Limitation Period Imposed by U.C.C. Section 2-725: Some Overlooked Complications, 46 St. Mary's L.J. 199 (2015)
Royce de R. Barondes, Frictions and the Persistence of Inferior Contract Terms. 9 Va. L. & Bus. Rev. 257 (2015)
Bob Wessels, Contracting Out of Secondary Insolvency Proceedings: The Main Liquidator's Undertaking in the Meaning of Article 18 in the Proposal to Amend the EU Insolvency Regulation, 9 Brook. J. Corp. Fin. & Com. L. 236 (2014)
Eric A. Zacks, Contract Review: Cognitive Bias, Moral Hazard, and Situational Pressure, 9 Entrepren. Bus. L.J. 379 (2015)
Wednesday, June 24, 2015
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Tuesday, June 23, 2015
Last week, the Federal Communications Commission acted to approve a number of proposals that update the TCPA (Telephone Consumer Protection Act), popularly known as the "Do Not Call" law that prohibits companies from interrupting consumers' dinner time conversations with pesky telemarketing calls. They closed a number of existing loopholes and clarified that phone companies can now block robocalls and robotexts to cell phones. The ruling also makes it easier for consumers who have previously consented to withdraw consent.
So what does this have to do with contracts? We all know how easy it is to consent to online terms. PayPal does, too. PayPal recently informed its customers that it was unilaterally amending its User Agreement. As anyone reading this blog knows, there are serious problems with unilateral modification clauses, especially in the context of wrap contracts that nobody reads. Yet, some courts have found that these clauses are enforceable (others have found they are not because they lack consideration and/or notice/assent). PayPal's recent announced modifications caught the attention of the Federal Communications Commission. The FCC Chief expressed concern that PayPal's prospective agreement may run afoul of federal law. The TCPA requires express written consent before any company can make annoying prerecorded telemarketing calls to consumers. The written consent, however, isn't the ridiculous version of consent that suffices as contractual consent in some courtrooms. There are certain requirements including that the agreement be "clear and conspicuous" and that the person is "not required to sign the agreement...as a condition of purchasing the property, goods, or services." In other words, it can't be a "take it or leave it" situation. Pay Pal's amended User Agreement, however, appears to contain "take-it-or-leave-it" language as it doesn't indicate how customers may refuse to consent to receive calls without having their account shut down. Furthermore, unlike contract law where blanket assent is okay, blanket consent is not okay under the FCC rules. (This blog post provides a nice overview of the issues and also notes that eBay (PayPal's soon-to-be former parent) encountered similar problems with the New York Attorney General).
PayPal's agreement is not the only reason the FCC acted last week, but as Bob Sullivan points out in this post here, it may have been the reason it acted so quickly. Expect to see an updated version of PayPal's agreement in the near future.
Monday, June 22, 2015
Here is the abstract:
This essay is a reflection on the gap between the real-life practice of contract law and some of the academic theory that tries to explain it. I define “lexical opportunism” as an adversary’s clever lawyering, using contractual text of a complex business arrangement, ironically as devoid of thoughtful drafting or close negotiation as the boilerplate in a consumer contract, but which, when turned into a legal theory, creates a potential for staggering liability beyond all common sense. A multi-billion lawsuit, recently settled, serves as an example, and triggers my discussion of (a) what it means to engage in theoretical assessment in contract law, (b) how the justification of contract law by way of inhibiting economic opportunism is based on the simplest examples, rather than the kind of contract discourse found in any real-world contract worth spending millions to litigate, and (c) how normative theory based on upholding the moral sanctity of promise keeping evaporates when the parties disagree about the meaning of their promises. I argue that both economic and moral theories about contract law fail to account for issues in the use of language and depend on the naïve adoption of the correspondence theory of truth. The nature of language permits opportunism, and the only check on it is the desire, from whatever motivation, not to be opportunistic. I conclude with what I hope are some constructive thoughts about the appropriate use of theory in lawyering, and thereby mitigate my skepticism whether any single theory or discipline is capable of meaningful explanation or prediction about lexical opportunism.
Thursday, June 18, 2015
We used to count on Britney Spears as the leading source for blog fodder. Move aside Britney. Uber just passed you by. We have two new Uber stories just in California alone.
First, last week the District Court for the Northern District of California issued its opinion in Mohamed v. Uber Technologies. Paul Mollica of the Employment Law Blog called that decision a "blockbuster," because it ruled Uber's arbitration agreement with its drivers unconscionable and therefore unenforceable. The opinion is very long, so we will simply bullet point the highlights. With respect to contracts entered into in 2013, the court found:
- Valid contracts were formed between plaintiffs and Uber, notwithstanding plaintiffs' claims that they never read the agreements and that doing so was "somewhat onerous";
- While Uber sought to delegate questions of enforceability to the arbiter, the court found that its attempt to do so was not "clear and unmistakable" as the contract included a provision that "any disputes, actions, claims or causes of action arising out of or in connection with this Agreement or the Uber Service or Software shall be subject to the exclusive jurisdiction of the state and federal courts located in the City and County of San Francisco, California";
- In the alternative, the agreement was unconscionable and therefore unenforceable;
- The procedural unconscionability standard of "oppression," generally assumed in form contracting, was not overcome in this instance by an opt-out clause; the opt-out was inconspicuous and perhaps illusory;
- The procedural unconscionability standard of "surprise" was also met because the arbitration provision was "hidden in [Uber's] prolix form" contract; and
- Uber's arbitration provisions are substantively unconscionable because the arbitration fees create for some plaintiffs an insuperable bar to the prosecution of their claims.
The court acknowledged that the unconscionability question was a closer question with respect of the 2014 contracts but still found them both procedurally and substantively unconscionable.
There is much more to the opinion, but that is the basic gist.
In other news, as reported in The New York Times here, the California Labor Commissioner's Office issued a ruling earlier this month in which it found that Uber drivers are employees, not independent contractors as the company claims. The (mercifully short!) ruling can be found here through the good offices of Santa Clara Law Prof, Eric Goldman (pictured).
The issue arose in the context of a driver seeking reimbursement for unpaid wages and expenses. The facts of the case are bizarre and don't seem all that crucial to the key finding of the hearing officer. Although plaintiff''s claim was dismissed on the merits, Uber has appealed, as it cannot let the finding that its drivers are employees stand.
But the finding is a real blockbuster, especially as Uber claims that similar proceedings in other states have resulted in a finding that Uber drivers are independent contractors. Here's the key language from the ruling:
Defendants hold themselves out to as nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business of transportation. The reality, however, is that Defendants are involved in every aspect of the operation. Defendants vet prospective drivers . . . Drivers cannot use Defendants' application unless they pass Defendants' background and DMV checks
Defendants control the tools the drivers use . . . Defendants monitor the Transportation Drivers' approval ratings and terminate their access to the application if the rating falls below a specific level (4.6 stars).
As the Times points out, few people would choose to be independent contractors if they had the option to be employees. Our former co-blogger Meredith Miller has written about similar issues involving freelancers, and we blogged about it here. So far, it appears that five states have declared that Uber drivers are independent contractors, while Florida has joined California in finding them to be employees. For more on the implications of this ruling, you can check out this story in Forbes, featuring insights from friend of the blog, Miriam Cherry.
Wednesday, June 17, 2015
Wendy Netter Epstein, Facilitating Incomplete Contracts. 65 Case W. Res. L. Rev. 297 (2014)
W. Stanfield. Johnson, Hercules, Winstar, and the Supreme Court's Conspicuous and Potentially Consequential Error, 44 Pub. Cont. L.J. 199 (2015)
David Kenny & Rosemary Hennigan. Choice-of-Court Agreements, the Italian Torpedo, and the Recast of the Brussels I Regulation. 64 Int'l & Comp. L.Q. 197 (2015)
Thomas H. Koenig, & Michael L. Rustad, Fundamentally Unfair: An Empirical Analysis of Social Media Arbitration Clauses, 65 Case W. Res. L. Rev. 341 (2014)
Amy L. Peikoff, Of Third-Party Bathwater: How to Throw out the Third-Party Doctrine While Preserving Government's Ability to Use Secret Agents, 88 St. John's L. Rev. 349 (2014)
Katherine M. Urban, Sustainable Acquisition and the Post-Conflict Environment: Why Adopting a Federal Sustainable Procurement Policy for Post-Conflict Environments that Mirrors those Adopted by Some Local Governments Would Help Lead to Mission Success, 44 Pub. Cont. L.J. 261 (2015)
In addition, we have an entire symposium on Atlantic Marine and forum selection clauses form the Hastings Law Journal
Atlantic Marine and Choice-of-Law Federalism
Andrew D. Bradt
Volume 66, Issue 3, 617-42
Governing Law on Forum-Selection Agreements
Kevin M. Clermont
Volume 66, Issue 3, 643-74
Atlantic Marine and the Future of Party Preference
Volume 66, Issue 3, 675-92
Atlantic Marine and the Future of Forum Non Conveniens
Volume 66, Issue 3, 693-718
Gaming the System: Protecting Consumers from Unconscionable Contractual Forum-Selection and Arbitration Clauses
Linda S. Mullenix
Volume 66, Issue 3, 719-60
Five Questions After Atlantic Marine
Stephen E. Sachs
Volume 66, Issue 3, 761-76
Enforcing Forum-Selection Clauses
Bradley Scott Shannon
Volume 66, Issue 3, 777-94f
Atlantic Marine Through the Lens of Erie
Adam N. Steinman
Volume 66, Issue 3, 795-822
The New York Times had an article in last weekend's Style section about the post-prom waiver. Apparently, in some suburbs, liability conscious parents and schools hosting a post-prom after party are asking teenagers and their parents to sign a waiver. My initial reaction was, Really? Has it come to this? But the more I thought about it, I could understand why some schools and parent- hosts might think it was a good idea. I did a quick search of "post prom waivers" and it seems that they serve several purposes.
First, they waive liability. The waiver would probably not be enforceable to stop lawsuits based upon negligence -- none of the ones I found even sought release for negligent acts on the part of the host - and certainly would not be effective to bar suits claiming gross negligence or recklessness on the part of the host. They generally did not overreach by which I mean they did not seek to waive liability for everything under the sun (like this Borat release).
Second, and related to the waiver, was an assumption of the risk clause. This requires the student and the student's parent to knowingly and voluntarily assume the risk of harm relating to the student's participation in post-prom activities. It seems as though post-prom activities have become much more active than when I was in high school - I found parties where there are extreme sports challenges and what looked like sumo wrestling!(?) The waivers also contained a medication release form, which given the laws in this area, is a prudent measure.
Third, and most useful, all the post-prom waivers I found established guidelines or rules of conduct. These clearly outline the school's (or host's) expectations for student behavior as well as parental responsibilities. They establish, for example, whether the event is a "lock-in" (meaning the students can't leave the premises) and the rules regarding pick-up times and who may attend the event. Given this is prom night, they also set out very clearly the expectations regarding drugs and alcohol - i.e. there will be NONE of that. Students and parents know that drugs and alcohol are not allowed, but putting this in the waiver allows the conversation to happen. More importantly, I think, it communicates to them that the school is not messing around. The language tends to be very express that illegal activity will not be tolerated and police will be called. Some people may think these types of reminders (and other disclosures) are not useful. I think it depends upon the disclosure. In a post-prom waiver, where the students and parents will be reading it for useful information, such as what to bring, etc, it reinforces expectations and allows parents to set up their own rules in the event the student breaks the school rules (i.e. no leaving the house all summer if I have to bail you out of jail at 3am...) All the waivers I read were also short and, for the most part, clearly written.
Finally, there are the indemnity type clauses. Unlike exculpatory clauses (which free the school/host from liability), an indemnity clause makes the student responsible for harm caused to others. Most of the ones I saw seemed fine - they required the students/parents to assume responsibility for any damages they caused. Again, I don't think this gives the host any more rights than they would otherwise have since you are generally liable for any property damage that you cause. It is useful, however, for setting expectations for conduct. Sure, you might have to check some of your wild physical activity - no whirling dervish dancing around the Ming vases - but from the host's point of view, understandable. It's also useful for setting expectations after you break the vase. You can't pretend it's unfair that you have to pay for it because you knew in advance. Kind of like those "You break it, you buy it," signs in stores.
I'm still not convinced that these waivers are a good idea although I don't think they are necessarily a bad idea as long as they are clearly written, short and, most of all, reasonable and limited in scope. It's unclear whether they will be enforceable, and again, I think it depends upon how reasonable they are in terms of scope and process (they are signed well in advance of the event and both the student and a parent/guardian must sign it). Given our litigious and form contracting society, I don't think they are going away.
Tuesday, June 16, 2015
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Monday, June 15, 2015
Two years ago, the National Hockey League's Phoenix (Arizona) Coyotes signed a 15-year lease on a facility in Glendale, Arizona. Now, the city is claiming a right to terminate the lease because of an alleged conflict of interest that has arisen affecting the team's former legal counsel. ESPN has the story here. According to ESPN, the city does not really want the team to leave; it just wants to negotiate a more favorable deal.
Eric Wemple of The Washington Post reports here on the latest troubles experienced by Al Jazeera American (AJAM). Shannon High-Bassalik, who served as AJAM's Senior Vice President of Programming and Documentaries, is suing for breach of contract, discrimination and retaliation. She alleges that the network promotes proclaims neutrality but actually pushes a pro-Arab, anti-Israel perspective. High-Bassalik claims that she was terminated for objecting to AJAM's racist and misogynist practices.
We reported a couple of months ago about suits brought by students, parents and alumni challenging the closing of Sweet Briar College. Today, we note that according to this report in the Lynchburg, VA News & Advance, faculty are challenging the propriety of the closing as well. Plaintiff faculty members are seeking a declaratory judgment that there is no financial emergency justifying the closing of the college. They allege the the college would breach faculty contracts by closing. The seek monetary damages and orders requiring the reinstatement of the faculty plaintiffs.
Wednesday, June 10, 2015
Southwestern Law Review has published the proceedings of a symposium it held on Nancy's book, Wrap Contracts. Kudos to the Law Review for putting together such a stellar group of contributors and for bringing attention to Nancy's scholarship!
SOUTHWESTERN LAW REVIEW
Nancy Kim's Wrap Contracts Symposium
Robert A. Hillman
|215||Escaping Toxic Contracts: How We Have Lost the War on Assent in Wrap Contracts (PDF)
Daniel D. Barnhizer
|231||Norm Shifting By Contract (PDF)
Zev J. Eigen
|239||Against Contractual Authoritarianism (PDF)
|251||Form & Substance in Nancy Kim's Wrap Contracts (PDF)
Danielle Kie Hart
|265||Challenging the Law Online Southwestern Law Review Symposium on Nancy Kim's Wrap Contracts (PDF)
Allyson Haynes Stuart
|275||Notice, Assent, and Form in a 140 Character World (PDF)
Juliet M. Moringiello
|285||Wraps and Copyrights (PDF)
|297||Preserving Substantive Unconscionability (PDF)
|309||The Wrap Contract Morass (PDF)
Nancy S. Kim
Tuesday, June 9, 2015
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Monday, June 8, 2015
I wanted to follow up on Jeremy Telman's posts about two cases, Andermann v. Sprint Spectrum and Berkson v. Gogo. Both cases involved consumers and standard form contracts. Both Sprint and Gogo sought to enforce an arbitration clause in their contracts and both companies presumably wanted to do so to avoid a class action. In Andermann v. Sprint Spectrum, there was no question regarding contract formation. The contract issue in that case involved the validity of the assignment of the contract from US Cellular to Sprint. The court found that the assignment was valid and consequently, so was the arbitration clause.
In Berkson v. Gogo, on the other hand, the issue was whether there was a contract formed between the plaintiffs and Gogo. As Jeremy notes in his post, this is an important case because it so thoroughly analyzes the existing wrap contract law. It also has important implications for consumers and the future of class actions.
Many arbitration clauses preclude class actions (of any kind). Judge Posner notes in his opinion in Andermann v. Sprint Spectrun:
"It may seem odd that (Sprint) wants arbitration....But doubtless it wants arbitration because the arbitration clause disallows class arbitration. If the Andermann's claims have to be arbitrated all by themselves, they probably won't be brought at all, because the Andermanns if they prevail will be entitled only to modest statutory damages."
Judge Posner may have been troubled by this if the facts were different. The Andermanns are claiming that Sprint's calls to them are unsolicited advertisements that violate the Telephone Consumer Protection Act, but Sprint needed to inform them that their service would be terminated because U.S. Cellular's phones were incompatible with Sprint's network. How else would they be able to contact their customers whose service would soon be terminated, Posner rhetorically asks, "Post on highway billboards or subway advertisements?....Post the messages in the ad sections of newspapers? In television commercials?" Sprint's conduct here "likely falls" within an exception to the law and hence, Posner notes "the claims are unlikely to prevail."
It's a different situation in Berkson v. Gogo. In that case, Gogo is allegedly charging consumers' credit cards on a monthly recurring basis without their knowledge. The plaintiffs were consumers who signed up to use Gogo's Wi-Fi service on an airplane, thinking it was only for one month. When Welsh, one of the plaintiffs, noticed the recurring charges, he was given a "partial refund." Welsh then hired a lawyer. Welsh's lawyer sent Gogo a letter notifying the company of the intent to file a class action lawsuit if it did not correct its practices and notify everyone who might have been charged in this manner. Gogo then allegedly sent a refund check directly to Welsh, not his lawyer (which would violate the rule not to directly contact someone represented by counsel). When Berkson, another plaintiff, noticed the charges and complained, the charges stopped; however, when he requested a refund for the period he was charged for the service but did not use it, the company allegedly refused.
I think that most people would agree that, if the facts alleged are true, Gogo likely violated consumer protection statutes. It also acted poorly by making it so hard to get a refund. Companies should not be permitted to act like this and consumers shouldn't have to threaten class action lawsuits to get their money back. (Gogo doesn't seem to dispute that they were charged during months they did not use the service).
This is where contract formation becomes so important. The class action in Berkson v. Gogo was allowed to proceed because the court found that there was no valid contract formation.
If there was a contract formed between Gogo and the plaintiffs, the arbitration clause would likely have been effective. (I say "would likely have been" because it wasn't even included until after Berkson signed up for the service. But let's put that aside for now and continue....). The arbitration clause - you guessed it - contained the following clause:
"To the fullest extent permitted by applicable law, NO ARBITRATION OR OTHER CLAIM UNDER THIS AGREEMENT SHALL BE JOINED TO ANY OTHER ARBITRATION OR CLAIM, INCLUDING ANY ARBITRATION OR CLAIM INVOLVING ANY OTHER CURRENT OR FORMER USER OF THE SITE OR THE SERVICES, AND NO CLASS ARBITRATION PROCEEDINGS SHALL BE PERMITTED. In the event that this CLASS ACTION WAIVER is deemed unenforceable, then any putative class action may only proceed in a court of competent jurisdiction and not in arbitration.
WE BOTH AGREE THAT, WHETHER ANY CLAIM IS IN ARBITRATION OR IN COURT, YOU AND GOGO BOTH WAIVE ANY RIGHT TO A JURY TRIAL INVOLVING ANY CLAIMS OR DISPUTES BETWEEN US."
Now, under the recent line of federal cases (AT&T Mobility v. Concepcion, American Express v. Italian Colors, etc) interpreting the FAA, if a contract contains a mandatory arbitration clause, an arbitrator pretty much decides everything unless (1) the arbitration agreement is unconscionable; or (2) the agreement to arbitrate was never formed
Regarding (1), this doesn't mean that a court may determine whether any other contract provision was unconscionable - only the arbitration clause. So, if there's another clause that you want to argue is unconscionable -- let's say a recurring billing provision that is not conspicuous just as a random example -- you have to take that to the arbitrator. Furthermore, it's much harder now (after the line of US Supreme cases noted above) to argue that an arbitration clause is unconscionable. While many state courts had previously found mandatory arbitration clauses and class action waivers unconscionable, they may no longer find them unconscionable just because they impose arbitration. In other words, in order to be found unconscionable, the arbitration clauses have to be one-sided (i.e. only the consumer has to arbitrate) or impose hefty filing fees, etc. This, as I mentioned in a prior post, is why so many of these clauses contain opt-out provisions. Gogo's arbitration clause also contained an opt-out provision. But, as readers of this blog know, NOBODY reads wrap contract terms and I would be surprised if anyone opted out. The clause was also in capitalized letters and so would be conspicuous -- if only anyone clicked on the link and scrolled down to see it.
This is why Judge Weinstein's opinion is so important -he recognizes the burden that wrap contracts place on consumers:
"It is not unreasonable to assume that there is a difference between paper and electronic contracting....In the absence of contrary proof, it can be assumed that the burden should be on the offeror to impress upon the offeree -- i.e., the average internet user - the importance of the details of the binding contract being entered into...The burden should include the duty to explain the relevance of the critical terms governing the offeree's substantive rights contained in the contract."
If a contract contains a mandatory arbitration clause, a consumer who has been wronged and wants to argue that a standard form contract is unconscionable, would probably have to take it to an arbitrator unless there was no agreement to arbitrate in the first place. If there was no agreement formed at all, that would mean no agreement to arbitrate.
This is why it is so important not to find contract formation so easily and expect unconscionability to do all the heavy lifting of consumer protection. An arbitrator very well might do a good job - but we don't know that because an arbitration is a closed hearing. Arbitrators also don't go through the rigorous screening process that judges go through (both elected and appointed judges are thoroughly scrutinized). Furthermore, arbitral decsions are not generally made public, and so arbitration doesn't help with providing guidelines for acceptable business behavior. Judge Posner notes in his opinion, "It's not clear that arbitration, which can be expensive...and which fails to create precedents to guide the resolution of future disputes, should be preferred to litigation." Furthermore, if the arbitration clause contains a "no class" provision, it also forces a consumer to face a company's intimidating attorneys all alone ((because no lawyer is taking this type of case on a contingency basis and no consumer is going to pay a lawyer to attend this type of arbitration).
Berkson v. Gogo is notable for recognizing that website design and contract presentation matter in determining contract formation. Not every click is perceived the same way by consumers -- scrollwraps (where scrolling is required to read through all the terms) provides more notice than a "sign-in-wrap" which is merely a hyperlink next to a SIGN UP button. The reality is that nobody clicks on the Terms hyperlink with a sign-in wrap. As Judge Weinstein notes:
"The starting point of analysis must be the method through which an electronic contract of adhesion is formed. The inquiry does not begin, as defendants argue, with the content of the provisions themselves."
There are some who think that there's no harm in finding contract formation so easily because courts and the doctrine of unconscionability will protect consumers from really bad contract terms. They should think again. Mandatory arbitration clauses affect consumers' ability to seek redress which is why we should start taking contract formation seriously.
As reported in the Washington Post here, Senators Al Franken (left) and Chris Murphy (right) have introduced the Mobility and Opportunity for Vulnerable Employees (MOVE) Act. The purpose of the Act is
To prohibit employers from requiring low-wage employees to enter into covenants not to compete, to require employers to notify potential employees of any requirement to enter into a covenant not to compete, and for other purposes.
The bill would prohibit non-compete clauses in the contracts of workers who earn $15/hour or less, unless the minimum wage is higher in the relevant jurisdiction. According to the Post, 12.3% of all workers' contracts include non-compete clauses, including some workers who make minimum wage or a bit more. The non-competes trap such workers in their current low-wage jobs when they could build in their work experience to pursue higher-paying jobs in the same field. California law already prohibits enforcement of non-competes.
There are counter-arguments,. Non-compete clauses protect employers and thus incentivize them to invest in their employees and give them on-the-job training in their fields. If that training becomes portable, employers might be less willing to provide it. However, as the Post story suggests, California's ban on non-competes has not prevented Silicon Valley from becoming a synonym for success in innovative, high-tech industries. No doubt Congress will weigh the pros and cons in a matter fitting the dignity we associate with that august institution and, after mature deliberation, take decisive action.
Hat tip to Rachel Arnow-Richman, one of many academics consulted in the drafting of the MOVE Act.
Friday, June 5, 2015
It was an easy decision for Judge Posner; he granted Sprint's motion to compel arbitration without too much difficulty, leaving him time to ruminate more generally on the purposes of the Federal Arbitration Act. We summarized his views as follows:
Having quickly dispensed with plaintiffs' opposition to the motion to compel arbitration, Judge Posner then focused his attention on Sprint's effusive celebration of arbitration provisions as "a darling of federal policy" (Judge Posner's wording). Judge Posner emphasized that language encouraging judges to enforce arbitration clauses was a corrective to an era when judges disfavored arbitration. The aim of federal policy is neither to favor nor disfavor arbitration but to compel arbitration when the parties have agreed to arbitrate claims. Fortunately for Sprint, this case was, in Judge Posner's view, not a close call.
Judge Posner then when on to note Sprint's motives in challenging the denial for arbitration when, in Judge Posner's view, the Andermanns will lose on the merits wherever their claim is decided. Judge Posner pointed out that Sprint wants to avoid class action litigation, which is prohibited under the applicable arbitration provision. He also noted that without the class action option, the claim is unlikely to be brought at all. Judge Posner then explained the absurd results that would follow from a finding that Sprint had violated the TCPA, thus effectively deciding a claim that the Seventh Circuit ruling will prevent from ever being brought, before catching himself and noting that the decision is really for the arbiter and limiting the Court's ruling to the instruction that the claim be sent to arbitration.
Fordham Law Professor Aditi Bachi (pictured) now has a post up over at the New Private Law blog in which she uses Judge Posner's opinion as an occasion to ruminate on the need for a federal arbitration policy. As she puts it:
Putting aside for the moment what stance federal courts should take (and which Congressional statutes might speak to the question), arbitration is too substantial a public policy issue for courts to approach these terms with ostensible neutrality. In the absence of an articulated policy, we are likely to end up with courts that are in practice either friendly or hostile but march under the banner of neutrality.
We look forward to the ensuing policy debate, which is long past due.