ContractsProf Blog

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

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Tuesday, March 11, 2014

Probably Not the Best Time to Have Ukraine Owe you $3 Billion

According to Russian media, China has sued Ukraine for $3 billion, claiming Ukraine breached a loan-for-grain contract. 

Under the loan-for-grain contract signed in 2012, the Export-Import Bank of China provided the loan to Kiev in exchange for supplies of grain.

Ukraine's State Food and Grain Corporation used part of the $3 billion Chinese loan to instead provide crops for other countries and parties, including Ethiopia, Iran, Kenya and the Syrian opposition groups, the ITAR-TASS news agency reported, citing a Ukrainian parliament official.

The contract stipulated annual supply of a maximum 6 million tonnes of Ukrainian grain for a 15-year period.

China also delivered half of the agreed loan to Ukraine last year and Ukraine had planned to export four million tonnes of grain to China.

However, Chinese importers have so far received only 180,000 tonnes of grain, worth $153 million, from Ukraine, the report said.

 

More here.

March 11, 2014 in In the News | Permalink | Comments (0) | TrackBack (0)

Weekly Top Tens from the Social Science Research Network

SSRN Top Downloads For Contracts & Commercial Law eJournal

SSRNRECENT TOP PAPERS for all papers first announced in the last 60 days 
9 Jan 2014 through 10 Mar 2014

RankDownloadsPaper Title
1 309 Will Ticket Scalpers Meet the Same Fate as Spinal Tap Drummers? The Sale and Resale of Concert and Sports Tickets 
Gregory M. Stein 
University of Tennessee College of Law 
2 241 The Two-Contract Approach to Liquidated Damages: A New Framework for Exploring the Penalty Clause Debate 
Michael Pressman 
University of Southern California 
3 145 Non-State Law in the Hague Principles on Choice of Law in International Contracts 
Ralf Michaels 
Duke University - School of Law 
4 124 Limits of Procedural Choice of Law 
S.I. Strong 
University of Missouri School of Law 
5 108 Sovereign Bonds and National Relativism: Can New York Law Contracts Safely Cross the Atlantic? 
Mathias Audit 
University of Paris Ouest Nanterre La Defense 
6 88 Foreclosure and the Failures of Formality, or Subprime Mortgage Conundrums and How to Fix Them 
Joseph William Singer 
Harvard Law School 
7 80 Zombie Mortgages, Real Estate, and the Fallout for the Survivors 
David P. Weber 
Creighton University - School of Law 
8 75 Cases and Controversies: Some Things to Do with Contracts Cases 
Charles L. Knapp 
University of California Hastings College of the Law 
9 75 The Political Economy of Regulating Contract 
Aditi Bagchi 
Fordham University School of Law 
10 73 Forward: Review of Baird, Eisenberg & Bix on Contract Doctrine 
Lisa Esther Bernstein 
University of Chicago - Law School 

SSRN Top Downloads For LSN: Contracts (Topic)
RECENT TOP PAPERS
 for all papers first announced in the last 60 days  

10 Jan 2014 through 11 Mar 2014

RankDownloadsPaper Title
1 242 The Two-Contract Approach to Liquidated Damages: A New Framework for Exploring the Penalty Clause Debate 
Michael Pressman 
University of Southern California 
2 146 Non-State Law in the Hague Principles on Choice of Law in International Contracts 
Ralf Michaels 
Duke University - School of Law 
3 109 Sovereign Bonds and National Relativism: Can New York Law Contracts Safely Cross the Atlantic? 
Mathias Audit 
University of Paris Ouest Nanterre La Defense 
4 76 The Political Economy of Regulating Contract 
Aditi Bagchi 
Fordham University School of Law 
5 75 Cases and Controversies: Some Things to Do with Contracts Cases 
Charles L. Knapp 
University of California Hastings College of the Law 
6 73 Forward: Review of Baird, Eisenberg & Bix on Contract Doctrine 
Lisa Esther Bernstein 
University of Chicago - Law School 
7 67 The Utopian Promise of Private Law 
Hanoch Dagan 
Tel Aviv University - Buchmann Faculty of Law 
8 59 Intuitions About Contract Formation 
Tess Wilkinson‐Ryan and David A. Hoffman 
University of Pennsylvania Law School and Temple University - James E. Beasley School of Law 
9 54 Text and Context: Contract Interpretation as Contract Design 
Ronald J. GilsonCharles F. Sabel and Robert E. Scott 
Stanford Law School, Columbia University - Law School and Columbia University - Law School 
10 44 Are You Free to Contract Away Your Right to Bring a Negligence Claim? 
Scott J. Burnham 
Gonzaga University School of Law 

March 11, 2014 in Recent Scholarship | Permalink | TrackBack (0)

Monday, March 10, 2014

NewYork City Ballet Dancers Agree to New Contract

As the New York Times reports here, dancers with the New York City Ballet (NYCB)  have been operating without a contract since the summer of 2012.  No details of the agreement are available, beyond the fact that the dancers are guaranteed pay for 38 weeks of work now, up from 37.  

A bit of quick internet research suggests that a member of the NYCB corps de ballet makes $1500 a week.  Let's assume the new contract is more generous and round up to $2000/week.  If they get paid for 38 weeks of work, that comes out to $76,000/year, which is a good salary in New York City, so long as you can share a studio apartment in an outer borrough with two or more other members of of the corps (or you can marry and investment banker).  There was a bit of controversy about five years ago when tax returns for Peter Martins, the NYCB's Ballet Master-in-Chief, surfaced and revealed that he made about $700,000.  Some of that money comes from royalties he earns on his choreographies.  In any case, it seems that was considered a lot of money for a dancer.

To put that in some perspective, the median salary for an NBA player is $1.75 milion, if we include players on short-term contracts.  The top salary exceeds $30 million, and the lowest salary, as of the 2011-12 season according to nba.com, was just under $500,000 for a rookie.

And now, here is the New York City Ballet performing an excerpt from George Balanchine's Agon

 

 

March 10, 2014 in Celebrity Contracts, Commentary, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Friday, March 7, 2014

Tenth Circuit Holds New Mexico Law Preempted by the Federal Arbitration Act

10th Cir.A New Mexico law permits a court to strike down as unconscionable arbitration agreements that apply only or primarily to claims that only one party would bring.  That is, if an arbitration agreement is drafted so that one party always has to go to arbitration while the other party can always go to court, such an agreement may well be unconscionable.   In THI of New Mexico at Hobbs Center, LLC v. Patton, a Tenth Circuit panel unanimously held that the Federal Arbitration Act (FAA) preempts the New Mexico law.  The Court reversed the District Court's ruling and remanded the case for the entry of an order compelling arbitration.

Lillie Mae Patton's husband was admitted to a nursing home in Hobbs, New Mexico operated by THI.  When he was admitted, he agreed to an arbitration clause that required "the parties to arbitrate any dispute arising out of his care at the home except claims relating to guardianship proceedings, collection or eviction actions by THI, or disputes of less than $2,500."  After he died, Ms. Patton sued THI on behalf of his estate, alleging negligence and misrepresentation.  THI brought a claim in the federal district court to compel arbitration.  At first, the District Court granted THI the relief it sought, but it reversed itself when the New Mexico Supreme Court found an identical arbitration clause unconscionable in Figueroa v. THI of New Mexico at Casa Arena Blanca, LLC, 306 P.3d 480 (N.M. Ct. App. 2012).

The Tenth Circuit reviewed the legislative purposes underlying the FAA and the case law firmly establishing the view that arbitration agreements are to be enforced notwithstanding federal statutes that seemd to imply hostility to arbitration or state law invalidating arbitration agreements.  While a court may invalidate an arbitration agreement based on common law grounds such as unconscionability, it may not apply the common law in a way that discriminates against arbitral fora. Assuming that the agreement did indeed consign Ms. Patton to arbitration while allowing THI to bring its claims in court, and accepting the Figueroa Court's holding that the agreement is unsconscionable, the Tenth Circuit found that "the only way the arrangement can be deemed unfair or unconscionable is by assuming the inferiority of arbitration to litigation."  However, "[a] court may not invalidate an arbitration agreement on the ground that arbitration is an inferior means of dispute resolution.  As a result, the Court found that the FAA precludes Ms. Patton's unconscionability challenge to the enforceability of the arbitration agreement.

The Court distinguished this case from a Fifth Circuit case, Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, 379 F.3d 159, 168–71 (2004), in whichthe Fifth Circuit found an arbitration agreement to be unenforceable where one party's claims had to be arbitrated while the other's could be either litigated or arbitrated.  On the Court's reading of the arbitration agreement, THI did not have the option of arbitrating its claims; it would have to go to court.  Rather ominously, the Tenth Circuit expressed its doubt about the Fifth Circuit's reasoning in Iberia Credit that having the option to choose between arbitration and litigation was superior to having arbitration as the only option.  

There is a remarkable formalism to the Tenth Circuit's opinion.  Absolutely nothing that smells of denigration of arbitration is permissible.  The Court does not inquire into what might have motivated THI to provide that it gets to go to court with its claims, while its patients have to go to arbitration.  Given that THI drew up the contract, that seems a relevant line of inquiry.  If THI exploited its superior bargaining power and knowledge to create an unreasonably lopsided agreement that would not be detectable by the average consumer, the arbitration agreement is unconscionable and should not be enforced.  Refusing to do so is not a global rejection of arbitration but a recognition that both litigation and arbitraiton have their advantages and disadvantages. The Tenth Circuit's approach permits the party with superior bargaining power exploit its superior knowledge to extract benefits from form contracts to which the other party cannot give meaningful assent.

March 7, 2014 in Commentary, Recent Cases | Permalink | TrackBack (0)

Thursday, March 6, 2014

Conference at Emory: Teaching Transactional Law and Skills, June 6-7, 2014

 Educating the Transactional Lawyer of Tomorrow 

Emory University School of Law – June 6-7, 2014 

Emory’s Center for Transactional Law and Practice is delighted to announce its fourth biennial conference on the teaching of transactional law and skills. The conference, entitled “Educating the Transactional Lawyer of Tomorrow,” will be held at Emory Law, beginning at 1:00 p.m. on Friday, June 6th and ending at 3:45 p.m. on Saturday, June 7th.

 

REGISTRATION AND HOTEL

The registration fee for the Conference is $179.00. It includes a pre-Conference lunch beginning at 11:30 a.m., snacks, and a reception on June 6, and breakfast, lunch, and snacks on June 7. We are planning an optional dinner for attendees on Friday evening, June 6, at an additional cost. Attendees are responsible for their own hotel accommodations and travel arrangements. Registration closes Friday, May 30, 2014. 

Special hotel rates for conference participants are available at the Emory Conference Center Hotel, less than one mile from the conference site at Emory Law. Subject to availability, rates are $129 per night.

Free shuttle transportation will be provided between the Emory Conference Center Hotel and Emory Law. To make a reservation, call the Emory Conference Center Hotel at 800.933.6679 and reserve under “The Emory Law Transactional Conference” to obtain the special conference rate.

CALL FOR PROPOSALS

We are accepting proposals immediately, but in no event later than 5 p.m. on Monday, March 17, 2014. We welcome proposals on any subject of interest to current or potential teachers of transactional law and skills, focusing particularly on our overarching theme: “Educating the Transactional Lawyer of Tomorrow.” We expect to address questions like the following:

  • What is the shape of the future employment market for transactional lawyers? Will our students be working at law firms (small, medium, large), as solo practitioners, as in-house counsel, as government attorneys, or as degreed attorneys not practicing law?
  • Who will be the transactional lawyers’ clients? Individuals? Small to mid-sized businesses? Large businesses?
  • How do we best educate our students to become transactional attorneys in each kind of practice setting for each kind of client?
  • In what particular areas of the law will transactional attorneys be most needed? Administrative Law and Regulatory Practice, Health Law, Intellectual Property Law, and International Business Law, to name a few?
  • What are the current best practices for teaching students about each area of transactional law?
  • What skill sets and competencies do legal employers expect new transactional attorneys to possess?
  • What innovative techniques and technology can we use to enhance the teaching of transactional law and skills?
  • How can we teach ethics and professionalism within our transactional law and skills courses?
  • How can we assess the students’ progress toward developing the competencies and professionalism required of effective transactional lawyers?

In addition to proposals addressing the overarching questions listed above, we hope to receive proposals that address and update topics that we have considered in past conferences, such as:

  • Teaching doctrinal transactional law courses
  • Teaching contract drafting and other critical deal skills
  • Teaching transactions in an international setting
  • Teaching transactional skills within first-year doctrinal courses

Each session will be approximately 80 minutes long. We invite you to present your topic individually or with a panel of other participants and we encourage you to make your presentation creative and interactive. We look forward to receiving your proposals so that we can finalize the Program. 

As in prior years, the proceedings of the Conference as well as the materials distributed by speakers will be recorded and published in Transactions: The Tennessee Journal of Business Law, a publication of the Clayton Center for Entrepreneurial Law of The University of Tennessee. Your remarks will be transcribed and you will have the opportunity to edit them. You will also be asked to sign a release permitting publication and broadcast.

Please submit the attached proposal form electronically via the Emory Law website at https://emorylaw.wufoo.com/forms/2014-conference-proposals/ before 5 p.m. on Monday, March 17, 2014.

Beginning March 1, 2014, you can also register for the Conference at our Emory Law website at https://emorylaw.wufoo.com/forms/2014-emory-law-conference-registration/.

If you encounter any technical difficulties in submitting your proposal or in registering online, please contact Edna Patterson, Conference Coordinator, at [email protected] or 404.727.6506.

March 6, 2014 in Conferences | Permalink | TrackBack (0)

Wednesday, March 5, 2014

Nutrition Labels and "Natural" Foods

As a follow-up on Nancy's post from last week on Nutrition Labels and Wrap Contracts, I would like to call attention to a new paper posted on SSRN by my colleague Nicole Negowetti (pictured).  The paper is called Defining "Natural" Foods: The Search for a "Natural" Law, and here is the abstract:

NegowettiBecause the FDA has refused to codify a uniform or enforceable definition of “natural” food, each food manufacturer determines its own standard for the term. Unlike the certified organic label, no government agency, certification group, or other independent entity ensures that “natural” claims have merit. Generally, the term “natural” means that a food has been minimally processed, contains no artificial ingredients or preservatives, is healthy and wholesome. However, food producers are not prohibited by law from using pesticides, genetically modified crops, fumigants, solvents, and toxic processing aids. Consumers and food producers are both disadvantaged by the inconsistent meanings and uses of the term. Recent surveys demonstrate that while consumers demand “natural” products, they are confused regarding the term’s meaning. A proliferation of consumer protection lawsuits against food producers has flooded the courts over the past two years. Food producers truly committed to producing “natural” products are competing with manufacturers who loosely interpret the term, produce and sell cheaper, inferior, and not-so-“natural” products. In light of the FDA’s reluctance to codify a “natural” definition, this Article will evaluate the recent decisions in the “natural” lawsuits and the attempts by courts, legislatures, the food industry, and retailers to establish a “natural” standard. The Article concludes that the search for an enforceable and comprehensive “natural” standard is futile. It predicts that the term “natural” has proven to be so confusing to consumers that the significance of the term has likely been diluted. Furthermore, because the claim has been so legally troublesome for food manufacturers, use of “natural” on food labels will surely be on the decline.

 

March 5, 2014 in About this Blog, Food and Drink, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

New in Print from Carolina Academic Press

Nygren & KatzCarolyn J. Nygren & Howard E. Katz, Starting Off Right in Contracts (2d Ed. 2014)

To do their best on the final exam, students need a strategy to approach the course material efficiently and to organize it in a logical manner. This book gives students that and more. In chapters on contract formation, defenses, breach and remedies, and multi-issue fact patterns, the authors show students how to answer sample questions, use a step-by-step method that will improve their ability to analyze contracts problems, and effectively demonstrate their knowledge to the professor.

Charles Calleros & Stephen Gerst, Contracts: An Electronic Text: Cases, Text & Problems (2013 ed.)

Contracts: Cases, Text, and Problems is an electronic casebook available in PDF format. The 2013 edition is updated to July 2013.

Calleros & GerstCreated initially for a four-unit Contracts course at ASU, Professor Calleros designed Contracts: Cases, Text, and Problems as an "open-source" textbook. Other professors of contract law are invited to become “co-authors” by tailoring the book to their own courses. As an open-source book, professors can add, delete, or replace material as dictated by their own teaching styles and points of emphasis. Contracts offers professors a unique and innovative way to teach students in an up-to-date way, with easily customized material, and without being forced to buy multiple books and supplements.

Most topics in the book present material in the fashion in which new associates typically address an assignment in a law office: they (1) consult a secondary source or an expert within the firm for general background information and to identify issues and authority {the book provides treatise-style background information on most topics before diving into the main cases}, (2) associates then study specific decisions on point in the relevant jurisdiction {the book presents plenty of case law, as is customary with any "casebook"}, and (3) they apply their newly synthesized knowledge of the law to the facts of a new dispute or other problem presented to them {the book provides many more exercises and practice exams than the standard casebook, including a fair number of drafting exercises}. The book thus includes the written equivalent of a combination of introductory lecture, case method, and problem method.

To combat the high cost of casebooks, the 509-page book is available at a very modest price for permanent download of any of the electronic formats. Each purchaser is permitted to download the purchased file on any computer or electronic device used exclusively by that purchaser. Purchasers agree not to transfer files to others or to allow others to use their files.

The book analyzes selected provisions of the Restatement (Second) of Contracts but does not reproduce it in its entirety, to avoid advancing the common student practice of treating the Restatement like a collection of statutes. It reproduces most of articles 1 and 2 of the UCC as enacted in Arizona, to better illustrate the nature of the UCC as a uniform code that is adopted and codified by individual state legislatures.

March 5, 2014 in Books, Recent Scholarship | Permalink | TrackBack (0)

Tuesday, March 4, 2014

Hans Kelsen in America Conference

I wish I could say that this were a Kelsen and Contracts Conference, but I can say that there will be some contracts scholars among the participants.  And that suffices as a hook for me.

For those readers who are not Kelsen accolytes, if you know people who are (especially if they are philosophers, sociologists, or political scientists), please spread the word.

Kelsen Call for Papers

March 4, 2014 in Conferences | Permalink | Comments (0) | TrackBack (0)

Weekly Top Tens from the Social Science Research Network

 

With the aid of the ContractsProf Blog Bump, Gregory Stein premiers at #1!

SSRNRECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of Contracts & Commercial Law eJournal 

January 3, 2014 to March 4, 2014

RankDownloadsPaper Title
1 303 Will Ticket Scalpers Meet the Same Fate as Spinal Tap Drummers? The Sale and Resale of Concert and Sports Tickets 
Gregory M. Stein
University of Tennessee, Knoxville - College of Law
2 296 An Economic Theory of Fiduciary Law 
Robert H. Sitkoff
Harvard Law School
3 235 The Two-Contract Approach to Liquidated Damages: A New Framework for Exploring the Penalty Clause Debate 
Michael Pressman
University of Southern California
4 140 Non-State Law in the Hague Principles on Choice of Law in International Contracts 
Ralf Michaels
Duke University - School of Law
5 134 Executive Benefits Insurance Agency V. Arkison: Does Party Consent Render Bankruptcy Court Adjudication Constitutionally Valid? 
Elizabeth GibsonJonathan M. Landers
University of North Carolina (UNC) at Chapel Hill - School of Law, Scarola Malone & Zubatov LLP
6 122 Limits of Procedural Choice of Law 
S.I. Strong
University of Missouri School of Law
7 98 Promises and Expectations 
Florian EdererAlexander Stremitzer
Yale University - School of Management, UCLA School of Law
8 78 Zombie Mortgages, Real Estate, and the Fallout for the Survivors 
David P. Weber
Creighton University - School of Law
9 74 Unpopular Contracts and Why They Matter: Burying Langdell and Enlivening Students 
Jennifer Taub
Vermont Law School, 
Date posted to database: December 24, 2013 
Last Revised: December 24, 2013
10 72 Forward: Review of Baird, Eisenberg & Bix on Contract Doctrine 
Lisa Esther Bernstein
University of Chicago - Law School

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of LSN: Contracts (Topic)  

January 3, 2014 to March 4, 2014

RankDownloadsPaper Title
1 235 The Two-Contract Approach to Liquidated Damages: A New Framework for Exploring the Penalty Clause Debate 
Michael Pressman
University of Southern California
2 140 Non-State Law in the Hague Principles on Choice of Law in International Contracts 
Ralf Michaels
Duke University - School of Law
3 98 Promises and Expectations 
Florian EdererAlexander Stremitzer
Yale University - School of Management, UCLA School of Law
4 74 Unpopular Contracts and Why They Matter: Burying Langdell and Enlivening Students 
Jennifer Taub
Vermont Law School
5 72 Forward: Review of Baird, Eisenberg & Bix on Contract Doctrine 
Lisa Esther Bernstein
University of Chicago - Law School
6 71 Cases and Controversies: Some Things to Do with Contracts Cases 
Charles L. Knapp
University of California - UC Hastings College of the Law
7 57 Mandatory Rules and Default Rules in Insurance Contracts 
Kyle D. LogueTom Baker
University of Pennsylvania Law School, University of Michigan Law School
8 56 The Political Economy of Regulating Contract 
Aditi Bagchi
Fordham University - School of Law
9 54 Crowding In: How Formal Sanctions Can Facilitate Informal Sanctions 
Scott BakerAlbert H. Choi
Washington University in Saint Louis - School of Law, University of Virginia School of Law
10 54 The Utopian Promise of Private Law 
Hanoch Dagan
Tel Aviv University - Buchmann Faculty of Law

March 4, 2014 in Recent Scholarship | Permalink | TrackBack (0)

Monday, March 3, 2014

THE STUFF

                                                                                                    81ZvoyKrS0L._AA1500_

About one-third of the time while teaching copyright, I realize we are actually dealing with contract issues.  This is particularly true when one party has been granted rights at one time and then technology changes meaning whatever term was used now may have  a different and broader meaning.  Plus, the Copyright Act has its own Statute of Frauds provision requiring transfer of ownership to be in writing.

Here is were the film The Stuff comes in.  (Effects Asociates v. Cohen, 908 F.2d 555 (9th Cir. 1990)).  Haven't heard of it? That's understandable; it's not exactly Oscar material. If you want to see what I mean, take a look here. 

The creator of the very special effects for The Stuff (yogurt taking over the world) felt that the producers of the film had infringed the copyright on the special effects sequences. There was no written grant of permission to use the segments made by the special effects specialist and,  supposedly, no grant of permission.

The film producer evidently found writings to be silly. As Judge Kosinski describes it, the position taken by the defendant was something like,"Moviemakers do lunch, not contracts." (I often feel the same way about contracts teachers.)

Although there was no writing, it was also clear that the special effects creator had done the work at the request of the producer and turned it over to the producer with the understanding that it would used in the film.

Still, the Copyright Act could not be clearer -- no writing, no transfer. But, there is a narrow exception. The writing requirement does not apply to nonexclusive licenses. Accordingly, Kosinski bails out the fim maker by finding an implied grant of a non exclusive license.  Of course, had there been a writing, it almost certainly would have been for exclusive use. Almost certainly, that is what the parties intended.   

There is a happy ending. For those of you interested in enriching your contracts or copyright classes with serious American made art, The Stuff is available from Netflix. Or, if you are teaching Law and Trivia (aren't we all), you should know that it stars Garrett Morris.

 

March 3, 2014 | Permalink | Comments (0) | TrackBack (0)

Do Contractual Penalty Clauses Violate Notions of Due Process?

Contracts between credit card holders and card issuers typically provide for late fees and “overlimit fees” (for making purchases in excess of the card limits) ranging from $15 to $40.  Since these fees are said to greatly exceed the harm that the issuers suffer when their customers make late payments or exceed their credit limits, do they violate the Due Process Clause of the Constitution? 

They do not, according to the United States Court of Appeals for the Ninth Circuit (In re Late Fee & Over-Limit Fee Litig, No. 08-1521 (9th Cir. 2014)).  Although such fees may even be purely punitive, the court pointed out that the due process analyses of BMW of North America v. Gore and State Farm Mut. Auto Ins. Co. v. Campbell are not applicable in contractual contexts, but only to jury-awarded fees.  In Gore, the Court held that the proper analysis for whether punitive damages are excessive is “whether there is a reasonable relationship between the punitive damages award and the harm likely to result from the defendant's conduct as well as the harm that actually has occurred” and finding the award of punitive damages 500 times greater than the damage caused to “raise a suspicious judicial eyebrow”.  517 U.S. 559, 581, 583 (1996). The State Farm Court held that “few awards exceeding a single-digit ratio between punitive and compensatory damages … will satisfy due process. 538 U.S. 408, 425 (2003).

Contractual penalty clauses are also not a violation of statutory law.  Both the National Bank Act of 1864 and the Depository Institutions Deregulation and Monetary Control Act provide that banks may charge their customers “interest at the rate allowed by the laws of the State … where the bank is located.”  12 U.S.C. s 85, 12 U.S.C. S. 1831(d).  “Interest” covers more than the annual percentage rates charged to any carried balances, it also covers late fees and overlimit fees.  12 C.F.R.  7.4001(a).  Thus, as long as the fees are legal in the banks’ home states, the banks are permitted to charge them.

Freedom of contracting prevailed in this case. But should it?  Because the types and sizes of fees charged by credit card issuers are mostly uniform from institution to institution, consumers do not really  have a true, free choice in contracting.  As J. Reinhardt said in his concurrence, consumers frequently _ have to_ enter into adhesion contracts such as the ones at issue to obtain many of the practical necessities of modern life as, for example, credit cards, cell phones, utilities and regular consumer goods.  Because most providers of such goods and services also use very similar, if not identical, contract clauses, there really isn’t much real “freedom of contracting” in these cases.  So, should the Due Process clause apply to contractual penalty clauses as well?  These clauses often reflect a compensatory to penalty damages ratio higher than 1:100, much higher than the limit set forth by the Supreme Court in the torts context. According to J. Reinhardt, it should: The constitutional principles limiting punishments in civil cases when that punishment vastly exceeds the harm done by the party being punished may well occur even when the penalties imposed are foreseeable, as with contracts. Said Reinhardt: “A grossly disproportionate punishment is a grossly disproportionate punishment, regardless of whether the breaching party has previously ‘acquiesced’ to such punishment.”

Time may soon come for the Supreme Court to address this issue, especially given the ease with which companies can and do find out about each other’s practices and match each other’s terms.  Many companies even actively encourage their customers to look for better prices elsewhere via “price guarantees” and promise various incentives or at least matched, lower prices if customers notify the companies.  Such competition is arguably good for consumers and allow them at least some bargaining powers.  But as shown, in other respects, consumers have very little real choice and no bargaining power.  In the credit card context, it may be said that the best course of action would be for consumers to make sure that they do not exceed their credit limits and make their payments on time.  However, in a tough economy with high unemployment, there are people for whom that is simply not feasible.  As the law currently stands in the Ninth Circuit, that leaves companies free to virtually punish their own customers, a slightly odd result given the fact that contracts law is not meant to be punitive in nature, but rather to be a resource allocation vehicle in cases where financial harm is actually suffered.

March 3, 2014 in Commentary, Contract Profs, Legislation, Recent Cases, True Contracts | Permalink | Comments (1) | TrackBack (0)

Blockchain Contracting


WireMy student, Sam Henderson (who blogs here), directed my attention to this report on the Legal Informatics Blog about blockchain contracting and conveyancing systems.  Blockchain technology is apparently one of the many things that makes Bitcoin transactions foolproof, genius-proof, and completely impervious to rampant speculation, financial catastrophe and the bankruptcy of major dealers in the virtual currency.  So, like Bitcoin itself, applying blockchain technology could only democratize and decentralize commercial law, or so maintains this blog post on Thought Infection.

What a strange idea.  

Contracts are private legislation.  They are already about as democratic and decentralized as they could possibly be.  Sure, they are governed by the relevant laws of the relevant jurisdictions, but blockchain technology would not change that.  In any case, the law of contracts already permits the parties to choose the law that will govern them (within reason), so that's pretty decentralized and democratic.  

What is not democratic and decentralized about commercial law is the fact that contracts tend to be drafted by the powerful and imposed upon people as take-it-or-leave it deals through form contracting.  Given the complexity of the technologies associated with Bitcoin, it seems unlikely that adding layers of technology to commercial law would render it more democratic and less centralized.  

Unfortunately, Thought Infection's post is misinformed about contracts.  He writes

Whereas today contracts are restricted to deals with enough value to justify a lawyers time (mortgages, business deals, land transfer etc…), in the future there is no limit to what could be codified into simple contracts. You could imagine forming a self-enforcing contract around something as simple as sharing a lawnmower with your neighbor, hiring a babysitter, or forming a gourmet coffee club at work. Where this could really revolutionize things is in developing nations, where the ability to exchange small-scale microloans with self-enforcing contractual agreements that come at little or no cost would be a quantum leap forward.

Here are the problems with this as I see it:

  • Contracts are not restricted; they are ubiquitous;
  • Contracts do not require lawyers; they are formed all the time through informal dealings that are nonetheless legally binding so long as the requisite elements of contract formation are present;
  • To some extent, Thought Infection's imagined contracts already are contracts, and to the extent that they are not contracts it is because people often choose to form relationships that are not governed by law (e.g., do you really want to think about the legal implications of hiring a baby sitter -- taxes, child-labor laws, workman's comp . . . yuck!); and 
  • Microloans are already in existence, and the transactions costs associated with contracts do not seem to be a major impediment.

Look, I'm not a Luddite (I blog too), but I also don't think that technology improves our lives with each touch.  Technology usually makes our lives more efficient, but it can also make our lives suckier in a more efficient way.  Technology does not only promote democracy and decentralization; it also promotes invasions of privacy by the panopticon state and panopticon corporations or other private actors, reification of human interactions, commidication and alienation.  It has not helped address income disparity on the national or the global scale, ushered in an era of egalitarian harmony overseen by benevolent governments or pastoral anarchy.  

As to contracts specifically, however, there are lots of ways to use technology that are available now and are generally useful.  Last week, we discussed Kingsley Martin's presentation at KCON 9. Kingsley has lots of ideas about how to deploy technology to improve sophisticated contracting processes.  But for  the more mundane agreements, there is a nifty little app that a couple of people mentioned at KCON 9 called Shake.  For those of you looking for a neat way to introduce simple contracts to your students, or for those of you who want to make the sorts of deals that  Thought Infection thinks we need blockchain to achieve, Shake is highly interactive, fun and practical.

March 3, 2014 in Commentary, E-commerce, Web/Tech | Permalink | Comments (1) | TrackBack (0)

European Parliament Approves Common European Sales Law

EU FlagAs reported here on Out-Law.com, the EU Parliament approved the proposed Common European Sales Law designed to apply to transnational sales conducted by telephone or through the Internet.  Despite opposition from the German and UK governments, the new law found overwhelming support in the EU Parliament, passing by a vote of 416-159, with 65 abstentions. 

The law is now placed before the EU's Council of Ministers, which can adopt the proposal into law.  The EU's Justice Commissioner, Viviane Reding, spoke out in favor of the law, saying that he would cut down on transactions costs by creating a uniform sales law throughout Europe.  The savings would be especially helpful to medium and small business, which account for 99% of all businesses in the EU.  

We summarized the characteristics of the proposed sales law (in its then-current version) here.

You can find the version approved by the EU Parliament here (click on "texts part 3" and go to page 83 of the document that should open up).

Hat tip to Peter Fitzgerald.  

March 3, 2014 in Current Affairs, E-commerce | Permalink | Comments (0) | TrackBack (0)

Friday, February 28, 2014

Nutrition Labels and Wrap Contracts

The Food and Drug Administration proposed big changes to nutrition labels on food packages.  These changes would include putting calorie counts in large type.  The serving sizes would also reflect typical serving sizes (meaning they will be bigger).  The purpose of the redesign is to make certain information salient and to increase comprehension.  Will it do so?  There's evidence that lots of people already read nutrition labels (although apparently a lot of commenters at the NYT blog here don't). The redesign is intended to make it easier for those who already read labels to find the information they want (such as calorie count).  What's interesting is that the goal here wasn't to improve reading of the labels - it was to make finding the information and understanding it easier for those who were already interested.

What does the revised nutrition label  have to do with wrap contracts? Wrap contracts (browsewraps, clickwraps) are basically notices.  Like nutrition labels, you take them or leave them.  Will making information more salient increase reading?  It has to - in other words, certain information (such as calorie count) can't be missed.  But the goal isn't to increase reading.  It's to increase awareness of certain information.  By increasing awareness, the labels may encourage consumers who may not otherwise have cared, to pay attention to what's on the labels.  But more importantly, it makes it harder for companies to get away with selling foods with excessive calories to unsuspecting consumers.  For those suspecting consumers (those who know and don't care about calorie count), it does nothing and it's not intended to affect them.  Furthermore, it may provide some marketplace incentives for companies to adjust their ingredients.  As the NYT article notes, when the category for trans fats was added in 2006, it both raised consumer awareness and resulted in companies reducing or eliminating the ingredient from their food. 

Wrap contracts, like nutrition labels, contain information that people care about but often can't find.  It's clear, for example, that most people are starting to care about their online privacy.  Privacy is the "calories" information.  But it' s not easy to find out how companies are using personal information.  Online privacy policies are densely written and typically hard to find, requiring several "clicks" to access.  Why not have some "labeling" requirements for wrap contracts?  It's high time that they had some sort of a redesign since consumers aren't reading them.  I know many think disclosure requirements are a lost cause, but I'm not one of them.  Naysayers always protest that consumers don't read terms, but that's because they're unreadable.  Would requiring that terms be both salient and concise increase reading of terms?  I think increasing reading as a goal is desirable but shouldn't be framed as the objective.  The objective should be to increase the salience (prominence) of certain information.  Increasing the prominence makes the information more relevant.  This may ultimately increase reading, but that's not the goal (at least in my view).  The goal is to heighten awareness of terms - that's different from encouraging consumers to read (which, given the state of contracts, is not efficient...)  But in order for disclosure to work it has to be accompanied by redesign.  The visual has to draw attention to the textul.   Like nutrition labels, a redesign of wrap contracts is long overdue.

Some may say the new labeling won't work.  The reason I think it will have a positive effect?  Some food companies are already protesting.  As my favorite nutritionist Marion Nestle (who likes the new labeling) said, the new labeling will be "wildly controversial."  Nobody likes to draw attention to their flaws.  Food companies are no exception.

 

 

February 28, 2014 in Commentary | Permalink | Comments (0) | TrackBack (0)

Thursday, February 27, 2014

Margaret Jane Radin responds

Readers of this blog will remember that last year we hosted a lively symposium on Margaret Jane Radin's book, Boilerplate:  The Fine Print, Vanishing Rights, and the Rule of Law.

Others entered into the discussion in different avenues, including Omri Ben-Shahar with his essay reviewing Radin's book.  Margaret Jane Radin responds to Ben-Shahar's essay here.

The debate about mass consumer form contracts is far from over....

 

February 27, 2014 in Books, Miscellaneous, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 26, 2014

New in Print

Tuesday, February 25, 2014

New Spinal Tap Scholarship

SteinThe University of Tennessee ContractsProf Gregory M. Stein has just posted Will Ticket Scalpers Meet the Same Fate as Spinal Tap Drummers? The Sale and Resale of Concert and Sports Tickets on SSRN.  Here is the abstract:  

Some people purchase concert or sports tickets for their own entertainment and then are unable to use their tickets. They may have a scheduling conflict, or their favorite team may be underperforming. Other people buy tickets with the intention of giving them as gifts. Still others purchase with the goal of reselling the tickets at a profit. This Article examines the transferability of tickets to performances and sporting events.

What, exactly, is a “ticket”? What property and contract rights does the initial ticket holder acquire? Does the holder have the legal power to transfer these rights? To what extent can the initial ticket seller limit that transferability? Does it matter whether the initial purchaser planned to sell at a profit all along? If there is a profit to be made, who is entitled to keep the resale premium? More generally, what are the economics of the market in ticket sales and resales? 

Part I of this Article asks what legal rights a ticket creates under contract and property law and whether the party who acquires a ticket is legally empowered to reconvey it. Part II looks more globally at the economics of the market in sales and resales of tickets. Part III examines and compares the roles of the private market and the government in transactions involving the sale and resale of event tickets. Finally, Part IV looks to the future, suggesting some directions the ticket resale market may and should take as technology and the law continue to evolve and as the political process functions.
 

 

February 25, 2014 in Recent Scholarship | Permalink | TrackBack (0)

Weekly Top Tens from the Social Science Research Network

SSRNRECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of Contracts & Commercial Law eJournal 

December 26, 2013 to February 24, 2014

RankDownloadsPaper Title
1 227 The Two-Contract Approach to Liquidated Damages: A New Framework for Exploring the Penalty Clause Debate 
Michael Pressman
University of Southern California
2 184 An Economic Theory of Fiduciary Law 
Robert H. Sitkoff
Harvard Law School
3 133 Executive Benefits Insurance Agency V. Arkison: Does Party Consent Render Bankruptcy Court Adjudication Constitutionally Valid? 
Elizabeth GibsonJonathan M. Landers
University of North Carolina (UNC) at Chapel Hill - School of Law, Scarola Malone & Zubatov LLP
4 131 Non-State Law in the Hague Principles on Choice of Law in International Contracts 
Ralf Michaels
Duke University - School of Law
5 118 Limits of Procedural Choice of Law 
S.I. Strong
University of Missouri School of Law
6 95 Promises and Expectations 
Florian EdererAlexander Stremitzer
Yale University - School of Management, UCLA School of Law
7 76 Zombie Mortgages, Real Estate, and the Fallout for the Survivors 
David P. Weber
Creighton University - School of Law
8 71 Forward: Review of Baird, Eisenberg & Bix on Contract Doctrine 
Lisa Esther Bernstein
University of Chicago - Law School
9 70 Unpopular Contracts and Why They Matter: Burying Langdell and Enlivening Students 
Jennifer Taub
Vermont Law School
10 56 Mandatory Rules and Default Rules in Insurance Contracts 
Kyle D. LogueTom Baker
University of Pennsylvania Law School, University of Michigan Law School

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of LSN: Contracts (Topic)  

December 26, 2013 to February 24, 2014

RankDownloadsPaper Title
1 227 The Two-Contract Approach to Liquidated Damages: A New Framework for Exploring the Penalty Clause Debate 
Michael Pressman
University of Southern California
2 131 Non-State Law in the Hague Principles on Choice of Law in International Contracts 
Ralf Michaels
Duke University - School of Law
3 95 Promises and Expectations 
Florian EdererAlexander Stremitzer
Yale University - School of Management, UCLA School of Law
4 71 Forward: Review of Baird, Eisenberg & Bix on Contract Doctrine 
Lisa Esther Bernstein
University of Chicago - Law School
5 70 Unpopular Contracts and Why They Matter: Burying Langdell and Enlivening Students 
Jennifer Taub
Vermont Law School
6 56 Mandatory Rules and Default Rules in Insurance Contracts 
Kyle D. LogueTom Baker
University of Pennsylvania Law School, University of Michigan Law School
7 52 Crowding In: How Formal Sanctions Can Facilitate Informal Sanctions 
Scott BakerAlbert H. Choi
Washington University in Saint Louis - School of Law, University of Virginia School of Law
8 43 Are You Free to Contract Away Your Right to Bring a Negligence Claim? 
Scott J. Burnham
Gonzaga University School of Law
9 41 Cases and Controversies: Some Things to Do with Contracts Cases 
Charles L. Knapp
University of California - UC Hastings College of the Law
10 31 A Proposal in Equity: The Marriage of Undue Influence with Unconscionable Dealing? 
Hamilton Zhao
University of New South Wales (UNSW) - UNSW Law Student

February 25, 2014 in Recent Scholarship | Permalink | TrackBack (0)

Monday, February 24, 2014

KCON9 Is Over: On to KCON 10 in Vegas

Last weekend's conference was a great success thanks to the efforts of Jennifer Martin and the St. Thomas team.

Miami

It has already been determined that Keith Rowley will host KCON 10 in Las Vegas. 

Las_Vegas_Strip_at_night

February 24, 2014 in Conferences | Permalink | Comments (0) | TrackBack (0)

KCON9: Saturday Afternoon Session

We had an all-star afternoon panel on Contract Law and Social Justice.  The panel was moderated by Robin West, who gave a killer Keynote Speech over lunch.  That speech will be forthcoming in the St. Thomas Law Review, as will Amy Schmitz paper, discussed below, so look out for that.

HartDanielle Hart started off the panel with a paper on Contracts and Inequality.  Her talk took issue with the claim that the state is absent in contract law.  In fact, she regards contract law as public law because the state is neither netural nor minimal, and contract law in action helps to create and perpectuate inequality.  She illustrated her point with a case of a fairly typical subprime mortgage loan to an African-American women in a predominantly minority neighborhood.  The state helped manufacture the desire for homeowneship; the state created the residential housing market through regulation and deregulation of the housing market; and the state decides on enforcement and enforces judgment.  

The result is that law promotes inequality.  Parties to contracts are not equal, but contract law ignores structural inequality in bargaining power and applies rules "neutrally" without adjusting for structural inequality.  Thus the stronger party gets the better end of the bargain.  And getting into contracts is much easier than getting out of them, especially with the new hurdles to litigation including the Twombly/Iqbal line of cases, as well as standard contract terms such as binding arbitration clasues and class action waivers.  The result is an endless cycle in which those with more power continually can use contracts to extract favorable terms in each successive contractual relationship and those without bargaining power are made worse off through unfavorable bargains.  

Returning to her illustration involving the African-American borrower, Professor Hart noted that the banks that made subprime loans before the mortgage meltdown are mostly doing fine, but there is now a remarkable racial disparity in wealth in American households (over $113,000 for White households; about $5-6000 for African American and Hispanic households).  The numbers are very low for African-American and Hispanic households because so much of their wealth was tied up in their homes, which they lost in the subprime crisis.  This illustrates Professor Hart's cycle of contracts law serving the interests the better off at the expense of the poor.

KerenHila Keren next presented her paper on Contract Law and the Responsive State, in which she addressed what can be done in light of the very depressing state of things as described in Professor Hart's paper.  Professor Keren regards contracts as a mode of social regulation and offered ways in which we can use contracts law to further socially desireable ends.  She does so in the context of two patterns of market exploitation.  The first is "predatory prenups;" that is, prenups in which a woman is coerced into a marriage relationship because of particular vulnerabilities.  Second, in predatory loan agreements, people enter into unfavorable loans because they were vulnreable, low-income, unsophisticated, first-time buyers. 

Inequalities are increased if judges refuse to intervene to protect exploited parties.  Professor Heren agrees with Professor Hart that judges are increasingly refusing to intervene.  Her proposal is to replace our neo-liberal theory with a revamped vulnerability theory to underpin contracts doctrine.  Neo-liberal theory associates equality with non-discrimination; vulnerability theory focuses on the right of individuals to participate in society and to have their human dignity recognized and protected.  Neo-liberal theory regards the subject as the private, autonomous individual; under vulnerability theory we are all vulnerable and interconnected.  Finally, neo-liberal theory regards the state as a threat to individual freedom, while vulnerability theory desires a responsive state that will address human vulnerabilities.  In the contractual context, the responsive state simply refuses to enforce exploitative contracts.

Vulnerability theory eanbles us to appreciate that vulnerability is a normal part of life that arises as a product of state policies and politics.  Permitting exploitation of such vulnerabilities harms human dignities, and the responsive state ought not to permit such exploitation.   Professor Keren supports the recognition of a right not to be exploited through contractual means, and she notes that European law recognizes a norm against contractual exploitation.  In the U.S., where that norm is not legislatively enacted (and the prospects are dim), we might be able to make due with a beefed-up version of the doctrine of unconscionability.  

SchmitzAmy Schmitz gave a talk on Acccess to Consumer Remedies in the Squeaky Wheel System.  Her talk built on this paper from the Pepperdine Law Review.  By "squeaky wheel," Professor Schmitz refers to the fact that only 1/3 of consumers do anything when dissatisfied with a product and few go beyond just calling and complaining.  Very wealthy consumers are the most likely to complain about non-conforming consumer goods.  Those "squeaky wheels" often get the remedy they wanted and they end up being loyal customers because they are satisfied with customer service.  

The same goes with sales.  White men are more likely to bargain than women or minority groups.  An Ian Ayres study indicated that women paid a 40% mark-up over men in car sales and African Americans and Hispanics paid a 100% mark up over white male consumers.  Most people do not bargain or seek to change terms when they enter into contracts, and most people do not read or pay attention to most contractual terms.

So, how do we bring back remedies?  How do we compel sellers to stand by their goods? Professor Schmitz suggests that we need a new "handshake" to ignite justice in business-to-consumer contracting.  She thinks online dispute resolution (ODR) might be a way to do so in a low-cost, flexible, user-friendly and non-intimidating manner.

KnappCharles Knapp delivered a paper called Unconscionability: Once More Unto the Breach.  He has been tracing the progress of unconscionability doctrine in the U.S. in a series of law review articles, including this one and this one.  His main argument at this point is that courts have developed a comprehensive body of law on unconscionability.  The doctrine comes up a lot in all sorts of contexts, and the courts know how to deal with unconscionability.  The doctrine is more pervasive than one might think.  Unconscionable behavior also comes up frequently in the interpretation of state and federal statutes.  Courts have also recognized unconscionability as a sword as well as a shield, permitting recovery of large claims based on court findings that certain agreements are unconscionable.  Judges with conscience should not enforce unconscionable agreements because lots of people and corporations do not have consciences.

LinzerPeter Linzer commented on the papers.  He noted Chuck Knapp's important contribution in helping us to recognize that unsconscionability is not a doctrine that we embraced in the 60s and 70s and then it ran its course.  It is alive and well and continues to permit court to invalidate contracts when "something smells bad."  He noted that consumer contracts are far more complex today than they were in the age of face-to-face transactions, because we work through intermediaries (Amazon, Google, credit card companies) each of which has its own terms that we agree to by clicking or using the product.  

Professor Linzer expressed some skepticism that merchants will embrace Professor Schmitz's online dispute resolution mechanisms.  Doctrinal solutions to the problems of form contracts also fail because consumers don't want to litigate, and if they do, the odds are stacked against them.  He therefore prefers the European route of banning certain contractual provisions through blacklists and greylists.  So, we could simply ban pre-dispute binding arbitration in consumer contracts or choice of forum clauses that force the world to come to (e.g.) Microsoft when Microsoft already operates globally.   The new Consumer Financial Protection Bureau may be the entity that can actually do these things.  

Finally, Professor Linzer noted that consumer spending accounted for 71% of the GDP last year.  That makes contracts law an issue of public law.

February 24, 2014 in Conferences, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)