Contracts and Privacy

Dave Hoffman

Dave Hoffman is the Murray Shusterman Professor of Transactional and Business Law at Temple Law School. He specializes in law and psychology, contracts, and quantitative analysis of civil procedure. He currently teaches contracts, civil procedure, corporations, and law and economics.

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12 Responses

  1. A.J. Sutter says:

    Interesting, but your best argument in this post — the community nature of the contract debt — rests on entirely different grounds from those in your previous one. Assuming the community doctrine is pertinent in the Nagy case, there isn’t any need to make your arguments based on “social harm,” any special nature of adultery, or on morality at all.

    Still, there can be many factual questions, even assuming that the relevant provincial law recognizes community property or a sufficiently similar marital regime. E.g., is the account truly community property, or was it the wife’s separate property, and consolidated merely because, e.g. the partners subsequently included each other on a “calling circle” or similar arrangement entered into after the accounts had been set up.

  2. Dissent says:

    Dave,

    Thanks so much for taking the time to explain your analysis in greater detail. This humble non-lawyer found it really informative and thought-provoking.

    I think I’ve been naively and incorrectly generalizing some constitutional protections to the business sector and assuming that if we protect speech even though it’s vile, and we protect against warrantless search and seizure, and we protect privacy of thought by the Fifth Amendment, a contract that promises to protect privacy should be enforceable, even if we despise the conduct. You’ve now made me aware that such may not be the case in contract law and that even if the conduct is not illegal, but is “socially nefarious,” that may negate or reduce the business’s contractual obligations.

    That said, the Hennig opinion leaves me with the impression that had Hennig been able to point to a non-disclosure agreement, the outcome might have been different. Then, too, is it “reasonable” for a carrier to assume that two people with different last names at the same address are even related, much less married or that there would be any “community debt?” Rogers may have lucked out on that, but I don’t see where it makes their action reasonable, a priori.

    I look forward to seeing how Dan responds as we look at the intersection of contract law and privacy law.

  3. Dave Hoffman says:

    AJ: I agree that the property right/marital nexus is highly fact-dependent. And I find the public policy/damages interaction to be more interesting. I don’t believe the arguments are in tension, so I figured I’d lay out both.

    Dissent: I think that most people would start by supposing that your ability to disclaim speech rights is stronger in the contractual context – relying on a Prosser/Keaton quote about consent and contract. But that perspective is framed as a public law problem, and doesn’t take seriously enough the private law limits on enforceability that I tried to articulate in my post. As for whether Henning would turn out differently if there was an explicit NDA, my guess is that there was one (we don’t have a trial court opinion to know for sure). But my analysis doesn’t depend on whether the contractual promise not to disclose was implicit or explicit.

    You are right that Nagy has some facts in her favor (different last names) which I hadn’t focused on.

  4. Lawrence Cunningham says:

    I’d skip the moral thicket and classify the claimed damages as consequential, requiring that Nagy prove that they are foreseeable. That’s highly unlikely. She had total control over the risk the manifested, including by not having the affair or by using a dedicated cell phone for it; there’s no way to see the cell provider as backstopping losses like this in exchange for monthly billing rate programs. Hundreds of cases reaching all the way back to Hadley v. Baxendale support this, and I they may even be good law in Canada.

  5. Daniel Solove says:

    Dave,

    Interesting post. I didn’t know about the cases you cited. I was confused by your original post, but this post clarifies your position a lot. For example, your other post seemed to suggest there could be no expectation of privacy when one was engaging in adultery, but there generally isn’t any morality exception for expectations of privacy.

    On contract law, your points are well-taken. It seems to me that the contract would be valid, only that damages based on the adultery would be not allowed as in violation of public policy.

    You write: “The common law generally dislikes punishing breach with liability or damages when the inevitable consequence of performance is to motivate socially wrongful conduct, and nonperformance to retard it.”

    I agree with this statement, as this is when contracts are void for public policy reasons. The Nagy case strikes me as different because the contract itself wasn’t to engage in socially wrongful conduct. Instead, the contract was to provide phone service. It was the reason why Nagy found the breach to be particularly harmful that was based on her socially wrongful conduct. So I would think that the contract between Nagy and the phone company is enforceable. If the contract were explicitly for the phone company to help Nagy get away with adultery, that’s different.

    The Shaheen v. Knight case does seem to go to the issues in Nagy. As I understand it from what you’ve written, courts won’t allow contract damages when the harm is that the plaintiff can’t engage in socially-disfavored activities.

    Quite frankly, I find the rule quite bizarre. I don’t see it as consistent with confidentiality agreements that protect confidentiality even when third parties are harmed. There’s one case I have in my information privacy law casebook, where a nurse was fired by a hospital for making serious errors. The nurse and the hospital reached a confidentiality agreement to keep the reason for the nurse’s termination confidential. That agreement was held to be enforceable, even when the nurse applied for a job as a nurse at a different hospital and that hospital asked for a reference about the nurse’s performance at the old hospital. See Giannecchini v. Hospital of St. Raphael, 780 A.2d 1006 (Conn. Super. 2000).

    The explanation for why the law allows these contracts doesn’t strike me as consistent with judicial reluctance to allow contract damages for immoral conduct. Giannecchini is much worse than Nagy — lives might be at risk with the Giannecchini contract.

  6. Dave Hoffman says:

    Dan & Larry, thanks for commenting. Your posts together raise an interesting question. We all agree, I believe, that the privacy clause can’t possibly be void on its face. I’ve argued that as applied to this particular breach, Nagy won’t get damages. But what about an injunction? Imagine that Nagy plans to cheat. She contacts her lawyer and learns that damages for breach of contract are unlikely. Can they get an injunction against the cellphone company consolidating the bills?
    It’s a weird hypo, because it points out (as does Larry) that Nagy’s damages are entirely under her control and unforeseeable to Rogers. But ignore that: can you get injunctive relief where damages are unrecoverable under public policy? On the one hand, the argument feels like a nonstarter: (1) injunctions are disfavored; (2) if the validated interest isn’t legitimate, why would the state employ a different form of remedy to protect it?. But on the other hand: (1) this is a negative injunction, so less disfavored; (2) the traditional test is the unavailability of damages, met here; (3) it would satisfy those like Dan who want to protect privacy interests without actually suggesting that Nagy suffered a financial loss caused by her own bad conduct. I don’t know how this would sort out. The thicket, as Larry points out, gets pretty dense.

    As for NDA and third party harm, I don’t necessarily agree that Nagy presents less social harm than Giannecchini — knowing how to compare would require us to decide whether to consider the contracts as one-off, or to incorporate the social signally effect that celebrating adultery by paying for it would have. Moreover, I’d distinguish exigent and foreseeable harm (my oil derrick case) from speculative harm based on past performance (your nurse case), although I recognize that the distinction is paper thin. Basically, since risk analysis turns on implicit values, I think that different courts are likely to come to different conclusions about the weight of facts in deciding whether a given NDA is enforceable. That’s what public policy is such a bucking, wild, ride.

  7. Jimbino says:

    You’d think this society would by now have gotten over the quaint notion that marriage has anything to do with morality.

  8. Lawrence Cunningham says:

    Dave,

    I can see a thesis in this discussion about the implicit or hidden role of morality in some applications of traditional contract doctrine. That would be fascinating. I don’t see the role as overt as you do. Here’s some of what I mean.

    I have basic issues, most arising from your sentence: “The common law generally dislikes punishing breach with liability or damages when the inevitable consequence of performance is to motivate socially wrongful conduct, and nonperformance to retard it.”

    1. The common law of contracts never awards remedies to punish any breach for any reason. The purpose of contract remedies is compensation, to put an aggrieved party in the position performance of her bargain would have done.

    2. The limitations on contract law’s compensation principle of remedies are the following: certainty, foreseeability, avoidability and no damages for emotional distress.

    3. I am not aware of a general principle of contract law remedies addressed to “socially wrongful conduct.”

    4. True, there’s a class of illegal bargains courts do not recognize, including those that violate statutes or the criminal law. That is not exactly about morality though and changes over time, notably once including gambling contracts now in retreat.

    5. In contract law, equitable remedies like injunctions and specific performance are available only when money damages are inadequate to protect an agreived party’s expectancy interest, to put her in the position performance would have done.

    6. If Nagy’s damages are limited under the foreseeability limitiation, as I suggest, money damages will not be adequate under that test. An injunction would in principle be available. As an equitable remedy, on the other hand, judicial discretion widens, and I then see a place for your morality thesis.

    7. I also admire the Sheehan court’s candor, struggling to wonder how in the world conceiving a baby can represent damages susceptible to measure in the bargain compensation world of contract law.

    8. More on point, perhaps, is the case of Whitten v. Greeley–Shaw (Maine 1987), where a court refused, on lack of consideration grounds, to enforce a contract purporting to regulate an adulterous affair, using venerable contract doctrine to wash its hands of a dubious relation without ever addressing its morality expressly.

    [At p. 200 of the Dawson Contracts casebook (9th ed.) noting the case, the editors write: “Is there something in the case the court is not talking about?”]

    Maybe this comment should have been rewritten as a post.

  9. Dissent says:

    So in another hypothetical situation, if Spouse B finds out that Spouse A had been unfaithful because Company C sent him her records without his request or authorization and without her request or authorization, does Spouse B have any viable claim against Company C under either contract law or tort law for the emotional distress *he* suffered and dissolution of their marriage as a result of their breach of their contract with Spouse A? If I understood Lawrence’s post (and I may not have), there’s no compensation for emotional distress under contract law. Does he have any viable claim under any tort law?

    Sure, we all know the spouse’s conduct is the ultimate cause of the marital problems, but the couple might have remained married for the rest of their lives had it not been for the carrier seemingly violating its own privacy policy. I really don’t think it’s good public policy to give companies a free pass for violating their privacy policies or assurances of confidentiality.

    The FTC fines companies who promise privacy and security and who fail to live up to such promises. They fine them for unfair business practices or deceptive practices, but it seems ironic that the FTC might fine a company for breaching their privacy policies but the individual(s) affected by the breach cannot get remedies in the courts if they were to sue directly.

  10. Lawrence Cunningham says:

    Dissent–

    You understood my post on that point. Contract law remedies exclude damages for emotional distress. (Note that the customer in Hennig sought damages for mental anguish, emotional distress, embarrassment and humiliation –none of which are recognized in contract law; the liability theory for those damages must be tort, if at all.)

    More fundamentally than absence of a theory of contract remedy, your injured spouse would not have a theory of contract liabilty, if he is a stranger to the customer-provider contract. There is a small category of third parties entitled to assert liability under contracts to which they are strangers, but the contract parties must manifestly intend that the third party have such enforcement rights. It is essentially impossible to see any such intention in the cell phone contract context.

    Note that these points have nothing to do with morality.

  11. Dave Hoffman says:

    Larry,

    This topic has legs! I agree – and how couldn’t I -that contract law formally eschews language of punishment. But have you read the Michigan Law Review symposium on fault in contract law, with an emphasis on willful breach? I wonder whether the the distortions that willfulness creates makes the distinction between expectation and punishment a little flimsy?

    It is also true that courts will rarely rest the grounds of decision explicitly on a moral calculus. This seems to met to arise out of a suspicion of natural law reasoning and a fear of illegitimacy. Yo could argue that the move from will theory to social policy analysis to economics as a shift away from the active judicial voice in enforcement decisions. But common attributes of responsibility & blame are always lurking in damage verdicts and in the doctrine: how could a set of cases resolved by people be otherwise?

  12. clerk says:

    My guess is that with respect to the contract claim, the contract to protect private information wouldn’t be held void as against public policy, but Nagy can’t recover because she’s asking for tort damages rather than benefit-of-the-bargain damages. (Maybe this is the same as the foreseeability issue discussed above.) Thus, the court doesn’t need to address the morality of the damages in this case. In contrast, an equitable remedy (including certain measures of damages) won’t be available because equity is animated by fairness concerns, including morality principles.