ContractsProf Blog

Editor: D. A. Jeremy Telman
Valparaiso Univ. Law School

A Member of the Law Professor Blogs Network

Monday, June 1, 2015

Opt-out arbitration provisions

As I mentioned in a previous post, I recently took a look at Instagram's terms of use.  I found it interesting that it contained an opt-out provision for arbitration.  A clause at the top of the page states the following in bold:

ARBITRATION NOTICE: EXCEPT IF YOU OPT-OUT AND EXCEPT FOR CERTAIN TYPES OF DISPUTES DESCRIBED IN THE ARBITRATION SECTION BELOW, YOU AGREE THAT DISPUTES BETWEEN YOU AND INSTAGRAM WILL BE RESOLVED BY BINDING, INDIVIDUAL ARBITRATION AND YOU WAIVE YOUR RIGHT TO PARTICIPATE IN A CLASS ACTION LAWSUIT OR CLASS-WIDE ARBITRATION.

(Side note - I found it rather lazy for Instagram not to include section numbers in its TOU.  One of the reasons to have an opt-out provision is to guard against claims of unconscionability as in Hey, they had a choice!  They could have opted out!  It doesn't make sense then to make the user scroll through the entire agreement and try to find the arbitration clause instead of just referring to it). 

The arbitration clause itself permits the user to opt-out "within 30 days of the date that you first became subject to this arbitration provision."  Furthermore, the user has to provide written notice and send it to Instagram's offices. 

Of course, very few users will opt-out.  First of all, very few people read TOU.  Second, a lot of people don't know what arbitration is so they don't know to opt-out.  Finally, Instagram puts a "hurdle" in the user's way - they have to send a written notice.  The last time I had to mail a card, it took me several days.  I had to find an envelope, for one thing.  Then I had to find some stamps.  I don't even know where the post office is near my house and when I asked the cashier at the grocery store, he looked at me as though I were Rip Van Winkle --stamps?  

Contrast the written notice requirement to opt-out with how Instagram updates its TOU: 

"You agree that we may notify you of the Updated Terms by posting them on the Service, and that your use of the Service after the effective date of the Updated Terms (or engaging in such other conduct as we may reasonably specify) constitutes your agreement to the Updated Terms."

So, Instagram only has to post changes to its website but the user has to mail a notice to its headquarters in order to opt-out of arbitration? Why not have all notices be effective if sent via email?  Maybe because some people might actually choose to opt-out of arbitration then.

Instagram's opt-out clause is not unusual - in fact, it's quite common.  The CFPB recently issued  its report on the use of arbitration clauses .  It found that a  fair number of banking and credit card agreements contained provisions allowing consumers to opt-out of arbitration clauses but that very few consumers chose to opt-out.  There were a number of other interesting findings and the report is well worth reading although the report is rather long.  Professor Jean Sternlight of University of Nevada - Las Vegas summarized some of the key findings here

 

 

 

 

June 1, 2015 in Miscellaneous, True Contracts, Web/Tech | Permalink | Comments (0)

Thursday, May 28, 2015

Can Terms of Use Stop Richard Prince?

According to this article, the photographer, Richard Prince, is ripping off using other people’s Instagram photos – and selling them for lots of money ($90,000)!  Arguably, he can do this because it’s fair use  -- he blows the images up and makes minor changes to them, like removing captions and adding comments.  (One could also argue that it’s not fair use because he doesn’t change them enough).  Putting aside the copyright related issue (fair use or not fair use) and the privacy issue (are there any privacy related claims when you post on Instagram for the world to see – but don’t mean to have your photos used in this way?) – what intrigues me are the contract related issues.  I took a quick peek at Instagram's latest terms of use and there’s nothing in there that would really help someone whose photos were being used by Richard Prince.   And while Instagram's Community Guidelines are thoughtful and cover a variety of topics, they don’t address this problem.  But could its TOU address this issue – and should it?  What if Instagram put in its Terms of Use a provision that forbade visitors to its site from using other people's photographs for any purpose?  If so, what could the company do if a user violated that term?  It could, of course, ban the offending user from Instagram.  Could it sue for breach of contract – and if so, what damages could it claim? If people started to copy users’ photographs from Instagram and use them for their own purposes that would likely hurt Instagram’s business.  Instagram should consider how its Terms of Use can be amended to protect their users from this type of unauthorized use.

May 28, 2015 in Commentary, Current Affairs, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 27, 2015

New in Print

Tuesday, May 26, 2015

Airbnb Update

We have previously blogged about “sharing economy” short-term rental company Airbnb at various times here.  Time for an update: The City of Santa Monica, California, just passed an ordinance that prohibits property owners and residents from renting out their places unless they remain on the property themselves.  This is estimated to prohibit no less than 80% of Airbnb’s Santa Monica listings (1,400 would be banned).  

The city plans to spend $410,000 in the first year to enforce the rule using three new full-time employees.  Violators may be fined by up to $500.  However, because Airbnb does not list addresses, staff will have to look at photos of the properties and drive around the city streets to try to identify the violators.   Doing so sounds awfully invasive and awkward, but that is nonetheless the plan.  Adds Assistant Planning Director Salvador Valles: “We can issue citations just based on the advertisement alone when we're using our business regulations.”  Other major cities are also trying to crack down on short-term rentals.

But why, you ask?  Good question.  In times when, as I have blogged about before and as is common knowledge, medium- and low-income earners are falling behind higher-income earners to a somewhat alarming extent, you would think the government could let people earn some additional money on what is, after all, their own property.  Cities, however, claim that short-term rentals drive up the rental prices by cutting into the number of residences that are available for long-term rentals.  “Even a study commissioned by Airbnb itself earlier this year found that Airbnb increases the price of a one-bedroom apartment in San Francisco by an average of $19 a month.”    Traffic concerns are also often mentioned in this context as are potential tax avoidance issues, although Airbnb has now started to deduct taxes from rental fees before transferring these to the landlords.

Airbnb’s end goal?  To go IPO.  The goal for at least some landlords?  Eighty-year-old Arlene Rosenblatt, for example, rents out her home in Santa Monica whenever she and her husband leave town to visit their seven grandchildren. She charges anywhere from $115 to $220 a night for her home, listing it on Airbnb and other sites and thus earning as much as $20,000 a year.  "I'm a retired schoolteacher," Rosenblatt says. "We don't get a lot of retirement income. My husband, all he has is his Social Security." 

Time will tell what happens in this latest clash between private property and contractual rights and government regulations. 

May 26, 2015 in Current Affairs, E-commerce, Famous Cases, In the News, Legislation, Travel, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Weekly Top Tens from the Social Science Research Network

SSRNSSRN Top Downloads For Contracts & Commercial Law eJournal
RECENT TOP PAPERS 

RankDownloadsPaper Title
1 258 Loyalty Rebates after Intel: Time for the European Court of Justice to Overrule Hoffman-La Roche 
Damien Geradin 
George Mason University School of LawTilburg University - Tilburg Law and Economics Center (TILEC) 
2 191 M&A Contracts: Purposes, Types, Regulation, and Patterns of Practice 
John C. Coates, IV 
Harvard Law School 
3 158 The Validity of Restraints on Alienation in an Oil and Gas Lease 
Luke Meier and Rory M. Ryan 
Baylor University - Law School and Baylor University - Law School 
4 119 Lex Mercatoria 
Gralf-Peter Calliess 
University of Bremen - Faculty of Law 
5 115 Private Lenders’ Demand for Audit 
Richard BaylisPete BurnapMark ClatworthyMahmoud Gad and Christopher K. M. Pong 
Cardiff Business School, University of Wales System - Cardiff University, University of Bristol, Department of Accounting and Finance, University of Bristol, Department of Accounting and Finance and Heriot-Watt University - School of Management and Languages 
6 112 Judicial Deregulation of Consumer Markets 
Max N. Helveston 
DePaul University - College of Law 
7 103 Pluralistic Legal Theories: In Search of a Common Denominator 
Ronen Perry 
University of Haifa - Faculty of Law 
8 101 Freedom to Tinker 
Pamela Samuelson 
University of California, Berkeley - School of Law 
9 96 Other People's Contracts 
Aditi Bagchi 
Fordham University School of Law
10 84 The Forum Selection Defense 
Stephen E. Sachs 
Duke University School of Law 

SSRN Top Downloads For LSN: Contracts (Topic)
RECENT TOP PAPERS 

RankDownloadsPaper Title
1 119 Lex Mercatoria 
Gralf-Peter Calliess 
University of Bremen - Faculty of Law 
2 115 Private Lenders’ Demand for Audit 
Richard BaylisPete BurnapMark ClatworthyMahmoud Gad and Christopher K. M. Pong 
Cardiff Business School, University of Wales System - Cardiff University, University of Bristol, Department of Accounting and Finance, University of Bristol, Department of Accounting and Finance and Heriot-Watt University - School of Management and Languages 
3 112 Judicial Deregulation of Consumer Markets 
Max N. Helveston 
DePaul University - College of Law 
4 103 Pluralistic Legal Theories: In Search of a Common Denominator 
Ronen Perry 
University of Haifa - Faculty of Law 
5 96 Other People's Contracts 
Aditi Bagchi 
Fordham University School of Law 
6 84 The Forum Selection Defense 
Stephen E. Sachs 
Duke University School of Law 
7 80 A Crib Sheet for Contracts Profs 
Victor P. Goldberg 
Columbia Law School 
8 69 Online Consumer Contracts: No One Reads, But Does Anyone Care? 
Shmuel I. Becher and Tal Zarsky 
College of Management (Israel) - School of Law and University of Haifa - Faculty of Law 
9 62 Two Cheers for Corporate Experimentation: The A/B Illusion and the Virtues of Data-Driven Innovation 
Michelle N. Meyer 
Union Graduate College - Icahn School of Medicine at Mount Sinai Bioethics Program 
10 52 The Influence of Comparative Law on the English Law of Obligations 
Andrew Burrows 
University of Oxford - Faculty of Law 

 

May 26, 2015 in Recent Scholarship | Permalink | TrackBack (0)

Monday, May 25, 2015

Law School Interactive's New Podcast on Contracts Law

SnyderLaw School Interactive, which provides podcasts for various purposes relating to law school, has a new podcast up featuring Frank Snyder (pictured left), the Zeus from whose head this blog sprung, and two friends of the blog, Brian Bix and Steven Schooner.  It's always interesting to hear how colleagues introduce the topic of contracts law to prospective students.  You can find the podcast here.

Law School Interactive summarizes the podcast as follows (slightly edited):

Frank Snyder starts his comments by defining contract law and explaining it as an unusual part of the legal system, and speaks of its practical aspects and the importance of being attuned to the client’s needs. Professor Snyder finishes his comments by likening the practice of contract law to business advising. He mentions that those who are good business advisers will likely enjoy and do well with contract law. He also advises students to investigate all areas of legal practice that they are interested in to find the one they would like to specialize in.

Steven Schooner [right] Schoonerexplains that contract law is a very different law practice than the more common practice areas of criminal, tort, or defense law. He underscores the fact that there seems to be no gray areas when it comes to students and contract law: Students either consider the field fascinating, or they don’t. He says that if you find business and bargains interesting, contract law might be the practice for you—and a love of math and numbers helps too.

BixOur final guest, Brian Bix [left], talks about contract law’s connection with many other specialties. Although undergraduate courses will not teach you much about the intricacies of contract law, Professor Bix tells budding law school student not to worry—law school will definitely give you the tools you need to succeed in the field. He ends his advice by saying that to be successful in this practice of law, face-to-face interaction and conversational skill are definitely a necessity.

May 25, 2015 in Contract Profs, Weblogs | Permalink | Comments (0) | TrackBack (0)

Seventh Circuit Grants Motion to Compel Arbitration Where Underlying Contract Has Been Assigned

7th Circuit SealRonald and Anna Andermann had had cell phone service through US Cellular since 2000.  Their service contract provided for arbitration of all claims.  The contract also provided that US Cellular could assign the contract without notice to the Andermanns.  The Andermanns renewed their contract every two years up until 2012.  In May 2013, they received notice that their contract had in fact been assigned to Sprint but that it could not be renewed because their phone was not compatible with Sprint's network.  Sprint called the Andermanns six times (three times each) to try to persuade them to purchase a new phone that would be compatible with Sprint's network, but the Andermanns decided to move to a different service provider instead.

They also decided to sue Sprint on behalf of a class of similarly situated consumers, alleging that the undesired calls violated the Telephone Consumer Protection Act (TCPA).  Sprint filed a motion to compel arbitration, which the District Court denied on the ground that the calls originated after the contract had terminated and thus the legality of the calls had no connection to the contract.  

PosnerIn Andermann v. Sprint Spectrum L.P., the Seventh Circuit reversed and remanded with instructions to order arbitration.   Judge Posner an found intimate relation between the contract and the calls.  The case was an easy one according to Posner because the claims here clearly arose out of or related to the agreement.  Sprint was attempting to offer consumers a way to continue their services.  This case was thus easily distinguishable from other cases, more favorable to plaintiffs, in which the plaintiffs had agreements with defendants that were governed by arbitration provisions but plaintiffs' claims related to contracts that did not contain arbitration provisions.

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.

May 25, 2015 in Recent Cases | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 20, 2015

New in Print

Pile of BooksCarl J. Circo, A Case Study in Collaborative Technology and the Intentionally Relational Contract: Building Information Modeling and Construction Industry Contracts, 67 Ark. L. Rev. 873 (2014)

Tal Kastner, How 'bout Them Apples?: The Power of Stories of Agreement in Consumer Contracts, 7 Drexel L. Rev. 67 (2014)

Eric A. Zacks & Dustin A. Zacks, Not a Party: Challenging Mortgage Assignments, 59 St. Louis U. L.J. 175 (2014)

May 20, 2015 in Recent Scholarship | Permalink | TrackBack (0)

Rising Minimum Wages

Should salary levels be regulated or mainly left to individual contractual negotiations between the employee and his/her employer?  The former, according to the Los Angeles City Council and governance entities in several other cities and states.  

On Tuesday, Los Angeles decided to increase the minimum salary to $15 an hour by 2020.  Other cities such as San Francisco, Chicago, New York, and Seattle have passed similar measures.  Liberal strongholds, you say?  Think again.  Republican-leading states like Alaska and South Dakota have also raised their state-level minimum wages by ballot initiative.  Some companies such as Walmart and Facebook have raised their wages voluntarily.

But the effect is likely to be particularly strong here in Los Angeles, where around 50% of the work force earn less than $15 an hour.  That’s right: in an urban area with super-rich movie studios, high-tech companies, hotels, restaurants, health companies and much more, half of “regular” employees barely earn a living salary.  In New York state, around one third of workers make less than $15 an hour.  Take into consideration that the cost of living in some cities such as Los Angeles and maybe even more so San Francisco and New York is very high.  In fact, studies show that every single part of Los Angeles is unaffordable on only $15 an hour if a person spends only the recommended one third on housing.  

“Assuming a person earning $15 an hour is also working 40 a week, which is rare for a minimum wage employee, and that they're not taking any days off, they'd be earning $31,200 a year.  An Economic Policy Institute study released in March found that a single, childless person living in Los Angeles has to make $34,324 a year just to live in decent conditions (and that was using data from 2013).”

Opponents, however, say that initiatives such as the above will make some cities into “wage islands” with businesses moving to places where they can pay employees less.  Others call the initiative a “social experiment that they would never do on their own employees” (they just did...)  But “even economists who support increasing the minimum wage say there is not enough historical data to predict the effect of a $15 minimum wage, an unprecedented increase.  A wage increase to $12 an hour over the next few years would achieve about the same purchasing power as the minimum wage in the late 1960s, the most recent peak.”  

Time will tell if the sky falls from the above initiative or if the system in a rich urban area such as Los Angeles can cope.  Said Gil Cedillo, a councilman who represents some of the poorest sections of the city and worries that some small businesses will shut down, “I would prefer that the cost of this was really burdened by those at the highest income levels.  Instead, it’s going to be coming from people who are just a rung or two up the ladder here.”

This is, of course, not only an issue of the value of low-wage work and fending for yourself to not end up at the bottom of the salary chain.  It is a matter of alleviating urban poverty and improving the nation’s overall economy for a sufficient amount of people to better get the economy back on track for more than the few.

May 20, 2015 in Commentary, Current Affairs, In the News, True Contracts | Permalink | Comments (9) | TrackBack (0)

Tuesday, May 19, 2015

Employers Must Continually Monitor 401(k) Plans

Yesterday, I blogged here about a proposed Labor Department rule that would require investment brokers to contractually bind themselves as fiduciaries of their clients. 

Somewhat relatedly, the United States Supreme Court just issued an opinion finding employers to be fiduciaries in relation to the employment plans offered to their employees.  The petitioning employees argued that respondent employers acted imprudently by offering six higher priced retail-class mutual funds as 401(k) plan investments when materially identical lower-priced institutional-class mutual funds were available.  The higher-priced funds also carried higher fees.   The Ninth Circuit Court of Appeals applied the ERISA statute of limitations to the initial selection of funds without considering whether there is also a continued duty to monitor the funds.  There is.  The Supreme Court found that because the fiduciary duty can be traced to trust law, there is “a continuing duty of some kind to monitor investments and remove imprudent ones.  A plaintiff may allege that a fiduciary breached the duty of prudence by failing to properly monitor investments and remove imprudent ones. In such a case, so long as the alleged breach of the continuing duty occurred within six years of suit, the claim is timely.  The Ninth Circuit erred by applying a 6- year statutory bar based solely on the initial selection of the three funds.”

May 19, 2015 in Current Affairs, Famous Cases, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Weekly Top Tens from the Social Science Research Network

SSRNSSRN Top Downloads For Contracts & Commercial Law eJournal
RECENT TOP PAPERS 

RankDownloadsPaper Title
1 385 Hello Barbie: First They Will Monitor You, Then They Will Discriminate Against You. Perfectly 
Irina D. Manta and David S. Olson 
Hofstra University - Maurice A. Deane School of Law and Boston College Law School
2 237 Loyalty Rebates after Intel: Time for the European Court of Justice to Overrule Hoffman-La Roche 
Damien Geradin 
George Mason University School of LawTilburg University - Tilburg Law and Economics Center (TILEC) 
3 187 M&A Contracts: Purposes, Types, Regulation, and Patterns of Practice 
John C. Coates, IV 
Harvard Law School 
4 151 The Validity of Restraints on Alienation in an Oil and Gas Lease 
Luke Meier and Rory M. Ryan 
Baylor University - Law School and Baylor University - Law School 
5 109 Private Lenders’ Demand for Audit 
Richard BaylisPete BurnapMark ClatworthyMahmoud Gad and Christopher K. M. Pong 
Cardiff Business School, University of Wales System - Cardiff University, University of Bristol, Department of Accounting and Finance, University of Bristol, Department of Accounting and Finance and Heriot-Watt University - School of Management and Languages 
6 109 Judicial Deregulation of Consumer Markets 
Max N. Helveston 
DePaul University - College of Law 
7 108 Lex Mercatoria 
Gralf-Peter Calliess 
University of Bremen - Faculty of Law 
8 92 Pluralistic Legal Theories: In Search of a Common Denominator 
Ronen Perry 
University of Haifa - Faculty of Law 
9 91 Other People's Contracts 
Aditi Bagchi 
Fordham University School of Law 
10 85

Social Justice, Social Norms and the Governance of Social Media 
Tal Zarsky 
University of Haifa - Faculty of Law 

SSRN Top Downloads For LSN: Contracts (Topic)
RECENT TOP PAPERS

RankDownloadsPaper Title
1 109 Private Lenders’ Demand for Audit 
Richard BaylisPete BurnapMark ClatworthyMahmoud Gad and Christopher K. M. Pong 
Cardiff Business School, University of Wales System - Cardiff University, University of Bristol, Department of Accounting and Finance, University of Bristol, Department of Accounting and Finance and Heriot-Watt University - School of Management and Languages 
2 109 Judicial Deregulation of Consumer Markets 
Max N. Helveston 
DePaul University - College of Law 
3 108 Lex Mercatoria 
Gralf-Peter Calliess 
University of Bremen - Faculty of Law 
4 92 Pluralistic Legal Theories: In Search of a Common Denominator 
Ronen Perry 
University of Haifa - Faculty of Law 
5 91 Other People's Contracts 
Aditi Bagchi 
Fordham University School of Law 
6 85 Social Justice, Social Norms and the Governance of Social Media 
Tal Zarsky 
University of Haifa - Faculty of Law 
7 78 The Forum Selection Defense 
Stephen E. Sachs 
Duke University School of Law 
8 67 Online Consumer Contracts: No One Reads, But Does Anyone Care? 
Shmuel I. Becher and Tal Zarsky 
College of Management (Israel) - School of Law and University of Haifa - Faculty of Law 
9 64 A Crib Sheet for Contracts Profs 
Victor P. Goldberg 
Columbia Law School 
10 49 Two Cheers for Corporate Experimentation: The A/B Illusion and the Virtues of Data-Driven Innovation 
Michelle N. Meyer 
Union Graduate College - Icahn School of Medicine at Mount Sinai Bioethics Program 

 

May 19, 2015 in Recent Scholarship | Permalink | TrackBack (0)

Monday, May 18, 2015

Retirement Investment Brokers Contractually Bound to Act as Fiduciaries

Under a United States Labor Department plan, investment brokers may be required to bind themselves contractually as fiduciaries for their clients in the future.  Only a few states such as California and Missouri require brokers to act as fiduciaries at all times.  In others, brokers must simply recommend investments that are “suitable” for investors based on various factors, but are not required to adhere to the higher fiduciary “best-interest” standard.

The contemplated advantages are two-fold.  First, the rule is thought to better protect investors from broker recommendations that, if followed, would help the brokers earn more or higher fees, but fail to meet investors’ best interests.  A contractually stipulated duty would also help “deflate arguments that brokerages typically raise to deflect blame for bad advice, such as that an investor has in-depth financial know-how.  

Second, arbitration cases would be easier to prove.  This is so because arbitrators currently rely on state laws when determining the standard of conduct to be followed by the brokers, which is one of the threshold issues to be analyzed in investor cases.  A uniformly required fiduciary standard would, it is thought, be more investor-friendly.

Needless to say, there are also contrary views.  For example, some attorneys fear that investors’ lawyers will start or increase a hunt for more retirement account cases to represent.  Others worry about an increased amount of class action cases.

Regardless, given the complexity of today’s investment world, requiring brokers to act as fiduciaries for their clients does indeed seem like the “good step in the right direction” as the president of the Public Investors Arbitration Bar Association recently called the initiative. 

May 18, 2015 in Current Affairs, Legislation, True Contracts | Permalink | TrackBack (0)

Opportunity to Contribute to Contracts in the Real World, 2d Ed.

Cunningham_2009Larry Cunningham of George Washington Law School (pictured) is preparing the second edition of his book, Contracts in the Real World.  You may remember the first edition from prior posts such as  the online symposium that we cross-posted here in 2012.

Larry is turning to the market to get ideas for the next edition.  Via his twitter feed, he is now offering a copy of Contracts in the Real World to those who suggest a story that is chosen for inclusion in the next edition.  More details on the book are at Cambridge University's webpage.

May 18, 2015 in Contract Profs, Recent Scholarship | Permalink | Comments (2) | TrackBack (0)

Seventh Circuit Parses "Generate" and "Receive" in an Attorney's Breach of Contract Suit

7th Circuit SealIn 2001, Kanosky & Associates (now Kanosky Bresney) hired Lawrence Hess to handle medical malpractice suits.  In 2007, the firm fired Mr. Hess.  Under Mr. Hess's employment agreement, Hess was entitled to bonus pay in the amount of fifteen percent of all fees “generated over the base salary."   The employment agreement also stated that the “[b]onus shall increase” to twenty-five percent “on all fees received annually in excess of $750,000.00.”   

Mr. Hess conceded that he was not entitled to any additional fees "received," but he claimed that his work had "generated" fees for which he had not been compensated.  The District Court found that "generated" and "received" had the same meaning within the employment agreement, and in oral argument before the Seventh Circuit in Hess v. Kanosky Bresney, Mr. Hess conceded as much.  

 However, Mr. Hess pointed to a 2002 modification of his employment agreement that entitled him to 40% of all revenue "generated."  Both parties also relied on additional language in Section 8 of the original employment agreement:

[W]here the Corporation retains clients upon Employees [sic] termination that Employee has no proprietary interest in fees to be earned since the Employee is to be fully compensated through his salary and/or bonus for all work done while an Employee of the Corporation” (emphasis added). 

Mr. Hess read this provision to entitle him to compensation for revenues "generated" while he was an employee; the firm read the provision to bar him from any post-employment compensation.

The Seventh Circuit rejected Mr. Hess's arguments.  While implying that the employment agreement could have been more clearly drafted, the Court found that reading "generate" and "receive" as synonyms results in a simple, straightforward compensation scheme.  Reading generate as Hess would have it read, leads to headaches, as the contract does not specify (and doing so would be very difficult) how one is to determine any individual attorney's role in "generating" fees.  Hess's interpretation of the contract was "less plausible" than the firm's, and he produced no extrinsic evidence suggesting that his interpretation should be favored despite its facial implausibility.  Given the Court's presumption that the firms documents use "generate" and "receive" interchangeably, Mr. Hess's 2002 Modification did not avail him.  

May 18, 2015 in Recent Cases | Permalink | Comments (0) | TrackBack (0)

Friday, May 15, 2015

Kmart Cannot Enforce Arbitration Agreement with Class of Infant (Minor) Plaintiffs

InfantIn 2013, Kmart hired Adrian Lopez, then age 16, as a cashier.  Before beginning work, Lopez received online training, and in order to do so, he had to acknowledge receipt of various Kmart forms, including an arbitration agreement.  One month after turning 18, Lopez filed a putative class action lawsuit against his employer for breaches of California's wage and hours laws. Kmart sought to compel arbitration.

Under California Family Code § 6710, minors (under the age of 18) may enter into contracts, but they have a right of disaffirmation "before majority or within a reasonable time afterwards."  In Lopez v. Kmart Corp., Magistrate Corley, of the Northern District of California, held that Lopez disaffirmed his arbitration agreement with Kmart by filing the lawsuit within one month of turning 18 and that one month was a "reasonable" time under § 6710.  

While California Family Code § 6712 excepts certain categories of contracts from the right of disaffirmation, Kmart did not argue that its contract with Lopez fell within any of those categories.  Instead, Kmart sought to argue that the contract could not be disaffirmed because California Family Code § 6711 removes the right of disaffirmation of any contract entered into "under the express authority or direction of a statute."  Magistrate Corley disagreed with Kmart, finding that § 6711 did not apply and that the argument was waived because first raised at oral argument.

Kmart next argued that §6710 only applies to contracts for goods or services and not to employment contracts.  Magistrate Corley simply noted that the statutory language contains no such limitation.  In any case, the contract was for services, as Lopez was to serve as a cashier.  

Finally, Kmart urged the court to deny the disaffirmation in the exercise of its equitable powers.  Magistrate Corley noted that she could not exercise such powers where the authority for disaffirmation was statutory.  Kmart cited to cases from other jurisdictions in which courts had exercised such equitable powers in the employment context, but Magistrate Corley noted that they did so in the context of common law, not statutory infancy doctrines.

May 15, 2015 in Recent Cases | Permalink | Comments (3) | TrackBack (0)

Wednesday, May 13, 2015

New in Print

Tuesday, May 12, 2015

Weekly Top Tens from the Social Science Research Network

SSRNSSRN Top Downloads For Contracts & Commercial Law eJournal
RECENT TOP PAPERS 

RankDownloadsPaper Title
1 373 Hello Barbie: First They Will Monitor You, Then They Will Discriminate Against You. Perfectly 
Irina D. Manta and David S. Olson 
Hofstra University - Maurice A. Deane School of Law and Boston College Law School 
2 229 Loyalty Rebates after Intel: Time for the European Court of Justice to Overrule Hoffman-La Roche 
Damien Geradin 
George Mason University School of LawTilburg University - Tilburg Law and Economics Center (TILEC) 
3 173 M&A Contracts: Purposes, Types, Regulation, and Patterns of Practice 
John C. Coates, IV 
Harvard Law School 
4 134 The Validity of Restraints on Alienation in an Oil and Gas Lease 
Luke Meier and Rory M. Ryan 
Baylor University - Law School and Baylor University - Law School 
5 103 Judicial Deregulation of Consumer Markets 
Max N. Helveston 
DePaul University - College of Law 
6 102 Antitrust Arbitration and Merger Approval 
Mark A. Lemley and Christopher R. Leslie 
Stanford Law School and University of California, Irvine School of Law 
7 101 Lex Mercatoria 
Gralf-Peter Calliess 
University of Bremen - Faculty of Law 
8 100 Private Lenders’ Demand for Audit 
Richard BaylisPete BurnapMark ClatworthyMahmoud Gad and Christopher K. M. Pong 
Cardiff Business School, University of Wales System - Cardiff University, University of Bristol, Department of Accounting and Finance, University of Bristol, Department of Accounting and Finance and Heriot-Watt University - School of Management and Languages 
9 83 Other People's Contracts 
Aditi Bagchi 
Fordham University School of Law 
10 78 Social Justice, Social Norms and the Governance of Social Media 
Tal Zarsky 
University of Haifa - Faculty of Law 

SSRN Top Downloads For LSN: Contracts (Topic)
RECENT TOP PAPERS 

RankDownloadsPaper Title
1 103 Judicial Deregulation of Consumer Markets 
Max N. Helveston 
DePaul University - College of Law 
2 102 Antitrust Arbitration and Merger Approval 
Mark A. Lemley and Christopher R. Leslie 
Stanford Law School and University of California, Irvine School of Law 
3 101 Lex Mercatoria 
Gralf-Peter Calliess 
University of Bremen - Faculty of Law 
4 100 Private Lenders’ Demand for Audit 
Richard BaylisPete BurnapMark ClatworthyMahmoud Gad and Christopher K. M. Pong 
Cardiff Business School, University of Wales System - Cardiff University, University of Bristol, Department of Accounting and Finance, University of Bristol, Department of Accounting and Finance and Heriot-Watt University - School of Management and Languages 
5 83 Other People's Contracts 
Aditi Bagchi 
Fordham University School of Law 
6 78 Social Justice, Social Norms and the Governance of Social Media 
Tal Zarsky 
University of Haifa - Faculty of Law 
7 77 The Forum Selection Defense 
Stephen E. Sachs 
Duke University School of Law 
8 69 Pluralistic Legal Theories: In Search of a Common Denominator 
Ronen Perry 
University of Haifa - Faculty of Law 
9 67 Shareholder Litigation by Contract 
Verity Winship 
University of Illinois College of Law 
10 59 Online Consumer Contracts: No One Reads, But Does Anyone Care? 
Shmuel I. Becher and Tal Zarsky 
College of Management (Israel) - School of Law and University of Haifa - Faculty of Law 

 

 

May 12, 2015 in Recent Scholarship | Permalink | TrackBack (0)

Monday, May 11, 2015

Weekly News Roundup

BoxingAccording to Philadelphia Magazine, two men who paid to watch the Mayweather-Paaquiano fight on pay-per-view are suing on behalf of a class of viewers who did not get their money's worth because Paquino had an undisclosed shoulder injury.  The suit claims damages for  breach of contract, fraud conspiracy and violation of consumer protection laws. Viewers paid between $89 and $100 to watch the fight.  The suit alleges that the fight should have been cancelled or postponed.

The LA Times reports that a group of students who contracted Leishmaniasis, a parasitic disease that causes painful skin ulcers, while on a trip to Israel are suing the trip's organizers for failing to take adequate precautions to protect the students.  The illness is allegedly caused by sand fly bites.  The suit names the North American Federation of Temple Youth and the Union for Reform Judaism as defendants.  It alleges that the organizations failed to take precautions such as providing the students with insecticides or insect netting and that the organizations provided the students with bug-infested bedding.

The LA Times also reports on a new trend on the hot, new social media: suing your co-founder.  The report suggests that combining handshake deals undertaken in college dormitories, coupled with youthful hasted makes for a dangerous mix.  We are all familiar with the strife among the founders of Facebook, but it turns out that Snapchat, Tinder, Maker Studios and Beats Electronics have all also experienced co-founder difficulties sounding in allegations of breaches of founders' agreements.

May 11, 2015 in In the News, Sports, Travel, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Friday, May 8, 2015

Victory at the Smelliest Place on Earth

 

Disney Tree of Life
Disney Tree of Life by Clavet

The Orlando Sentinel reported that an arbitrator has reinstated Disney workers who had refused to perform in a Disney Animal Kingdom Show, the Festival of the Lion King.  The workers refused to perform because the unitards they were expected to wear for the show were not clean and dry as required in the Collective Bargaining Agreement between Disney and Teamsters Local 385 of the Services Trade Council Union (Attachment 6, Part C).  

Disney was forced to cancel a performance of the show and then terminated the objecting workers.  Disney will have to pay the workers back-pay for the time they were out of work (minus what they earned at other jobs), and reprimands will be removed from their files.

May 8, 2015 in Labor Contracts, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Thursday, May 7, 2015

West Virginia Supreme Court of Appeals Refuses to Enforce Unethical Fee-Splitting Agreement

WV SealGary Rich and Joseph Simioni met in connection with an asbestos case involving West Virginia University.  Rich is an attorney.  Simioni has a J.D. but was never admitted to the bar.  Starting in the 1990s, the two men collaborated on two additional asbestos cases and contracted with out-of-state law firms to help them class action litigation.  It appears that until 2002, the men agreed that they would split the proceeds of their work 50/50.  but then Rich announced there would be an 80/20 split in his favor. The parties then proceeded on this basis and committed their agreement to writing in 2005.  

Rich now contends that he was under the impression that Simioni was a licensed attorney, and he did not realize that Simioni was not licensed until 2000 or 2001.  He consulted with the former Chief Lawyer Disciplinary Counsel of the West Virginia State Bar, who told him that Sinioni “might not be able to get paid ethically."

Simioni eventually filed sued in District Court against the out-of-state law firms, seeking recovery based in quantum meruit, unjust enrichment and breach of an implied contract.  The District Court certified the following question to the Supreme Court of Appeals:

Are the West Virginia Rules of Professional Conduct statements of public policy with the force of law equal to that given to statutes enacted by the West Virginia State Legislature? 

The Supreme Court of Appeals answered in the affirmative, at least with respect to Rule 5.4 of the Rules of Professional Conduct. which prohibits fee-sharing between lawyers and non-lawyers..  The Court held for the first time (but based on numerous authorities) that fee-sharing agreements between lawyers and non-lawyers violate public policy.  The parties sought to persuade the court to find an alternative mechanism for compensating Simioni by setting aside the agreement to share fees and compensate Simioni in quantum meruit, but the Court rejected that as an attempt to circumvent the rule.

May 7, 2015 in Recent Cases, True Contracts | Permalink | Comments (1) | TrackBack (0)