Archive for the ‘Contract Law & Beyond’ Category
posted by Dave Hoffman
On re-reading Discover Bank v. Superior Court (Cal. 2005) I found myself getting hung up on a conceptual problem you might be able to help me with. The Discover Bank court considered the validity of class action arbitration waivers. Holding such waivers unconscionable as a matter of law, the court halted (that is, until Concepcion) arbitration’s inexorable conquest of consumer litigation. The court reasoned was that such waivers presented issues of both procedural and substantive unconscionability. Procedural, the waivers were default-forcing “bill stuffers” and consequently not meaningfully chosen. Substantively, “they may operate effectively as exculpatory contract clauses . . . because . . . damages in consumer cases are often small . . and the class action is often the only effective way to halt and redress [wrongdoing.]“
The question I have is what distinguishes “exculpatory clauses” – typically thought to be against public policy – from ordinary “stipulated damages” clauses, which are subject to reasonableness review. I unaware of any scholarship that tries to define exactly what stipulated damages are (and are not). Consider two possibilities:
- To the extent that stipulated clauses are broadly defined, so as, for example, to include bespoke procedure, courts’ permissive treatment of stipulated damage clauses would seem to then imply vastly more private-party control over remedies than the traditionally-narrow scope that the term stipulated damage implies.
- But perhaps such clauses are narrowly defined – that is, the stipulation must relate only to damages flowing from the contract (i.e., a term that limited parties’ ability to seek specific performance would not count as a stipulated damages clause, nor would a waiver of damages for a tort). In that case the Discover Bank court’s categorical move is more defensible, but it’s not obvious that the line between damage and remedy makes sense analytically.
A third possibility is that stipulate damage reasonableness review is limited to scenarios where some remedies remain on the table, regardless of whether the remedy arises out of a claim related to the contract or not; the categorical public policy bar from Discover Bank applies when all remedies are precluded. Discover Bank is, again, a bad case for that claim, since not all contract remedies were precluded, only those which would deter future harms.
Anyway, it’s a puzzle. Thoughts?
posted by Orly Lobel
I promised Victor Fleisher to return to his reflections on team production. Vic raised the issue of team production and the challenge of monitoring individual performance. In Talent Wants to Be Free I discuss some of these challenges in the connection to my argument that much of what firms try to achieve through restrictive covenants could be achieved through positive incentives:
“Stock options, bonuses, and profit-sharing programs induce loyalty and identification with the company without the negative effects of over-surveillance or over-restriction. Performance-based rewards increase employees’ stake in the company and increase their commitment to the success of the firm. These rewards (and the employee’s personal investment in the firm that is generated by them) can also motivate workers to monitor their co-workers. We now have evidence that companies that use such bonus structures and pay employees stock options outperform comparable companies .”
But I also warn:
“[W]hile stock options and bonuses reward hard work, these pay structures also present challenges. Measuring employee performance in innovative settings is a difficult task. One of the risks is that compensation schemes may inadvertently emphasize observable over unobservable outputs. Another risk is that when collaborative efforts are crucial, differential pay based on individual contribution will be counterproductive and impede teamwork, as workers will want to shine individually. Individual compensation incentives might lead employees to hoard information, divert their efforts from the team, and reduce team output. In other words, performance-based pay in some settings risks creating perverse incentives, driving individuals to spend too much time on solo inventions and not enough time collaborating. Even more worrisome is the fear that employees competing for bonus awards will have incentives to actively sabotage one another’s efforts.
A related potential pitfall of providing bonuses for performance and innovative activities is the creation of jealousy and a perception of unfairness among employees. Employees, as all of us do in most aspects of our lives, tend to overestimate their own abilities and efforts. When a select few employees are rewarded unevenly in a large workplace setting, employers risk demoralizing others. Such unintended consequences will vary in corporate and industry cultures across time and place, but they may explain why many companies decide to operate under wage compression structures with relatively narrow variance between their employees’ paychecks. For all of these concerns, the highly innovative software company Atlassian recently replaced individual performance bonuses with higher salaries, an organizational bonus, and stock options, believing that too much of a focus on immediate individual rewards depleted team effort.
Still, despite these risks, for many businesses the carrots of performance-based pay and profit sharing schemes have effectively replaced the sticks of controls. But there is a catch! Cleverly, sticks can be disguised as carrots. The infamous “golden handcuffs”- stock options and deferred compensation with punitive early exit trigger – can operate as de facto restrictive contracts….”
All this is in line with what Vic is saying about the advantages of organizational forms that encourage longer term attachment. But the fundamental point is that stickiness (or what Vic refers to as soft control) is already quite strong through the firm form itself, along with status quo biases, risk aversion, and search lags. The stickiness has benefits but it also has heavy costs when it is compounded and infused with legal threats.
November 15, 2013 at 12:05 am Posted in: Behavioral Law and Economics, Bright Ideas, Contract Law & Beyond, Corporate Finance, Corporate Law, Economic Analysis of Law, Empirical Analysis of Law, Employment Law, Innovation, Intellectual Property, Symposium (Talent Wants to be Free), Technology, Uncategorized Print This Post No Comments
posted by Orly Lobel
Peter Lee’s thoughtful review of Talent Wants to Be Free goes straight to the heart of the issues. Peter describes a “central irony about information” – so many aspects of our knowledge cannot lend themselves to traditional monopolization through patents and copyright that their appropriation is done under the radar, through the more dispersed and covert regimes of talent wars rather than the more visible IP wars. We’ve always understood intellectual property law as a bargain: through patents and copyright, we allow monopolization of information for a limited time as a means to the end of encouraging progress in science and art. We understand the costs however and we strive as a society to draw the scope of these exclusive rights very carefully. and deliberately. We have heated public debates about the optimal delineation of patents, and we are witnessing new legislative reforms and significant numbers of recent SCOTUS cases addressing these tradeoffs. But patents are only a sliver of all the information that is needed to sustain innovative industries and creative ventures. Without much debate, the monopolization of knowledge has expanded far beyond the bargain struck in Article I, Section 8 of the Constitution. Through contractual and regulatory law, human capital – people themselves - their skills and tacit knowledge, their social connections and professional ties, and their creative capacities and inventive potential are all the subject to market attempts, aided by public enforcement, of monopolization. Peter refers to these as tacit versus codified knowledge; I think about inputs, human inventive powers versus outputs – the more tangible iterations of intangible assets – the traditional core IP, which qualifies patentability to items reduced to practice (rather than abstraction) and copyrightable art to expressions (rather than ideas). Cognitive property versus intellectual property, if you will.
Lee is absolutely correct that university tech transfer and its challenges and often discontent is highly revealing in this context of drawing fences around ideas and knowledge. Lee writes “in subtle ways, Orly’s work thus offers a cogent exposition of the limits of patent law and formal technology transfer.” Lee’s recent work on tech transfer Transcending the Tacit Dimension: Patents, Relationships, and Organizational Integration in Technology Transfer, California Law Review 2012 is a must read. Lee shows that “effective technology transfer often involves long-term personal relationships rather than discrete market exchanges. In particular, it explores the significant role of tacit, uncodified knowledge in effectively exploiting patented academic inventions. Markets, patents, and licenses are ill-suited to transferring such tacit knowledge, leading licensees to seek direct relationships with academic inventors themselves.” And Lee’s article also uses the lens of the theory of the firm, the subject of the exchanges here, to illuminate the role of organizational integration in transferring university technologies to the private sector. I think that in both of our works, trade secrets are an elephant in the room. And I hope we continue to think more about how can trade secrets, which have been called the step child of intellectual property, be better analyzed and defined.
November 13, 2013 at 12:30 pm Posted in: Behavioral Law and Economics, Bioethics, Contract Law & Beyond, Corporate Law, Intellectual Property, Law and Psychology, Symposium (Talent Wants to be Free), Technology, Uncategorized Print This Post No Comments
posted by Dave Hoffman
Where were we? I know: throwing stink-bombs at a civil procedure panel!
At the crack of dawn saturday I stumbled into the Contracts II panel. Up first was Ian Ayres, presenting Remedies for the No Read Problem in Consumer Contracting, co-authored with Alan Schwartz. Florencia Marotta-Wurgler provided comments. The gist of Ayres’ paper is that consumers are optimistic about only a few hidden terms in standard-form contracts. For most terms, they guess the content right. Ayres argued that should be concerned only when consumers believe that terms are better than they actually are. The paper proposes that firms make such terms more salient with a disclosure box, after requiring firms to learn about consumer’s knowledge on a regular basis. Basically: Schumer’s box, psychologically-calibrated, for everyone. Florencia M-W commented that since standard-form contracts evolve rapidly, such a calibrated disclosure duty might be much more administratively complex than Ayres/Schwartz would’ve thought. A commentator in the crowd pointed out that since the proposal relies on individuals’ perceptions of what terms are standard, in effect it creates a one-way ratchet. The more people learn about terms through the Ayres/Schwartz box, the weaker the need for disclosure. I liked this point, though it appears to assume that contract terms react fairly predictably to market forces. Is that true? Here are some reasons to doubt it.
Zev Eigen then presented An Experimental Test of the Effectiveness of Terms & Conditions. Ridiculously fun experiment — the subjects were recruited to do a presidential poll. The setup technically permitted them to take the poll multiple times, getting paid each time. Some subjects were exhorted not to cheat in this way; others told that the experimenters trusted them not to cheat; others were given terms and conditions forbidding cheating. Subjects exhorted not to cheat and trusted not to cheat both took the opportunity to game the system significantly less often than those presented with terms and conditions. Assuming external validity, this raises a bit of a puzzle: why do firms attempt to control user behavior through T&Cs? Maybe T&Cs aren’t actually intended to control behavior at all! I wondered, but didn’t ask, if T&Cs that wrapped up with different formalities (a scan of your fingerprint; a blank box requiring you to actually try to sign with your mouse) would get to a different result. Maybe T&Cs now signal “bad terms that I don’t care to read” instead of “contract-promise.” That is, is it possible to turn online T&Cs back into real contracts?
Next, I went to Law and Psych to see “It All Happened So Slow!”: The Impact of Action Speed on Assessments of Intentionality by Zachary C. Burns and Eugene M. Caruso. Bottom line: prosecutors should use slow motion if they want to prove intent. Second bottom line: I need to find a way to do cultural cognition experiments that involving filming friends jousting on a bike. I then hopped on over to International Law, where Adam Chilton presented an experimental paper on the effect of international law rules on public opinion. He used a mTurk sample. I was a concern troll, and said something like “Dan Kahan would be very sad were he here.” Adam had a good set of responses, which boiled down to “mTurk is a good value proposition!” Which it is.
After lunch it was off to a blockbuster session on Legal Education. There was a small little paper on the value of law degrees. And then, Ghazala Azmat and Rosa Ferrer presented Gender Gaps in Performance: Evidence from Young Lawyers. They found that holding all else equal, young women lawyers tend to bill somewhat fewer hours than men, a difference attributable to being less likely to report being highly interested in becoming partners while spending more time on child care. What was noteworthy was the way they were able to mine the After the JD dataset. What seemed somewhat more troubling was the use of hours billed as a measure of performance, since completely controlling for selection in assignments appeared to me to be impossible given the IVs available. Next, Dan Ho and Mark Kelman presented Does Class Size Reduce the Gender Gap? A Natural Experiment in Law. Ho and Kelman found that switching to small classes significantly increases the GPA of female law students (eliminating the gap between men and women). This is a powerful finding – obviously,it would be worth it to see if it is replicable at other schools.
The papers I regret having missed include How to Lie with Rape Statistics by Corey Yung (cities are lying with rape statistics); Employment Conditions and Judge Performance: Evidence from State Supreme Courts by Elliott Ash and W. Bentley MacLeod (judges respond to job incentives); and Judging the Goring Ox: Retribution Directed Towards Animals by Geoffrey Goodwin and Adam Benforado. I also feel terrible having missed Bill James, who I hear was inspirational, in his own way.
Overall, it was a tightly organized conference – kudos to Dave Abrams, Ted Ruger, and Tess Wilkinson-Ryan. There could’ve been more law & psych, but that seems to be an evergreen complaint. Basically, it was a great two days. I just wish there were more Twiqbal papers.
October 29, 2013 at 8:37 pm Posted in: Capital Punishment, Civil Procedure, Civil Rights, Conferences, Constitutional Law, Contract Law & Beyond, Courts, Economic Analysis of Law, Empirical Analysis of Law Print This Post No Comments
posted by Dave Hoffman
Barry Schwartz might’ve designed the choice set facing me at the opening of CELS. Should I go to Civil Procedure I (highlighted by a Dan Klerman paper discussing the limits of Priest-Klein selection), Contracts I (where Yuval Feldman et al. would present on the relationship between contract clause specificity and compliance), on Judicial Decisionmaking and Settlement (another amazing Kuo-Chang Huang paper). [I am aware, incidentally, that for some people this choice would be Morton's. But those people probably weren't the audience for this post, were they.] I bit the bullet and went to Civ Pro, on the theory that it’d be a highly contentious slugfest between heavyweights in the field, throwing around words like “naive” and “embarrassing.” Or, actually, I went hoping to learn something from Klerman, which I did. The slugfest happened after he finished.
In response to a new FJC paper on pleading practices, a discussant and a subsequent presenter criticized the FJC’s work on Twiqbal. The discussant argued that the FJC’s focus on the realities of lawyers’ practice was irrelevant to the Court’s power-grab in Twombly, and that pleading standards mattered infinitely more than pleading practice. The presenter argued that the FJC committed methodological error in their important 2011 survey, and that their result (little effect) was misleading. The ensuing commentary was not restrained. Indeed, it felt a great deal like the infamous CELS death penalty debate from 2008. One constructive thing did come out of the fire-fight: the FJC’s estimable Joe Cecil announced that he would be making the FJC’s Twombly dataset available to all researchers through Vandy’s Branstetter program. We’ll all then be able to replicate the work done, and compare it to competing coding enterprises. Way to go, Joe!
But still, it was a tense session. As it was wrapping up, an economically-trained empiricist in the room commented how fun he had found it & how he hoped to see more papers on the topic of Twombly in the future. I’d been silent to that point, but it was time to say something. Last year in this space I tried being nice: “My own view would go further: is Twiqbal’s effect as important a problem as the distribution of CELS papers would imply?” This year I was, perhaps impolitically, more direct.
I conceded that analyzing the effect of Twombly/Iqbal wasn’t a trivial problem. But if you had to make a list of the top five most important issues in civil procedure that data can shed light on, it wouldn’t rank.* I’m not sure it would crack the top ten. Why then have Twiqbal papers eaten market share at CELS and elsewhere since 2011? Some hypotheses (testable!) include: (1) civil procedure’s federal court bias; (2) giant-killing causes publication, and the colossi generally write normative articles praising transsubstantive procedure and consequently hate Twombly; (3) network effects; and (4) it’s where the data are. But these are bad reasons. Everyone knows that there is too much work on Twombly. We should stop spending so much energy on this question. It is quickly becoming a dead end.
So I said much of that and got several responses. One person seemed to suggest that a good defense of Twiqbal fixation was that it provided a focal point to organize our research and thus build an empirical community. Another suggested that even if law professors were Twiqbal focused, the larger empirical community was not (yet) aware of the importance of pleadings, so more attention was beneficent. And the rest of folks seemed to give me the kind of dirty look you give the person who blocks your view at a concert. Sit down! Don’t you see the show is just getting started?
Anyway, after that bit of theatre, I was off to a panel on Disclosure. I commented (PPT deck) on Sah/Lowenstein, Nothing to Declare: Mandatory and Voluntary Disclosure leads advisors to avoid conflicts of interest. This was a very, very good paper, in the line of disclosure papers I’ve previously blogged here. The innovation was that advisors were permitted to walk away from conflicts instead of being assigned to them immutably. This one small change cured disclosure’s perverse effect. Rather than being morally licensed by disclosure to lie, cheat and steal, advisors free to avoid conflicts were chastened by disclosure just as plain-vanilla Brandeisian theory would’ve predicted. In my comments, I encouraged Prof. Sah to think about what happened if advisors’ rewards in the COI were returned to a third party instead of to them personally, since I think that’s the more legally-relevant policy problem. Anyway, definitely worth your time to read the paper.
Then it was off to the reception. Now, as our regular readers know, the cocktail party/poster session is a source of no small amount of stress. On the one hand, it’s a concern for the organizers. Will the food be as good as the legendary CELS@Yale? The answer, surprisingly, was “close to it”, headlined by some grapes at a cheese board which were the size of small apples and tasted great. Also, very little messy finger food, which is good because the room is full of the maladroit. But generally, poster sessions are terribly scary for those socially awkward introverts in the crowd. Which is to say, the crowd. In any event, I couldn’t socialize because I had to circle the crowd for you. Thanks for the excuse!
How about those posters? I’ll highlight two. The first was a product of Ryan Copus and Cait Unkovic of Bolt’s JSP program. They automated text processing of appellate opinions and find significant judge-level effects on whether the panel reverses the district court’s opinion, as well as strong effects for the decision to designate an opinion for publication in the first instance. That was neat. But what was neater was the set of judicial base cards, complete with bubble-gum and a judge-specific stat pack, that they handed out. My pack included Andrew Kleinfeld, a 9th circuit judge who inspired me to go to law school. The second was a poster on the state appellate courts by Thomas Cohen of the AO. The noteworthy findings were: (1) a very low appeal-to-merits rate; and (2) a higher reversal rates for plaintiff than defendant wins at trial. Overall, the only complaint I’d make about the posters was that they weren’t clearly organized in the room by topic area, which would have made it easier to know where to spend time. Also, the average age of poster presenters was younger than the average age of presenters of papers, while the average quality appeared as high or higher. What hypotheses might we formulate to explain that distribution?
That was all for Day 1. I’ll write about Day 2, which included a contracts, international law, and legal education sessions, in a second post.
*At some point, I’ll provide a top ten list. I’m taking nominations. If it has federal court in the title, you are going to have to convince me.
posted by Lawrence Cunningham
Autonomy does not mean carte blanche; its operational companion, hands-off management, does not mean abdication. The concepts entail complex relations between power and responsibility. Autonomy is an act of trust whose disappointment prompts its revocation. The saga of Benjamin Moore, about which my recent blog drew two thoughtful comments, illustrates.
Beginning in 1883, the company’s paint was sold solely through a network of small distributors operating with extraordinary autonomy, as owners of their own businesses. In 2000, when Berkshire Hathaway acquired the company, its famously hands-off chairman, Warren Buffett, assured distributors of continuation of that tradition.
As the grip of the Great Recession in 2008 stunted sales growth, however, a new CEO at Benjamin Moore (Denis Abrams) began displacing the distributorship tradition through new arrangements with chain stores (including big-box retailers). Abrams altered the distributor relationship to respond to competitive changes, including dictating tougher terms on financing inventory and charging for advertising. Distributors complained about this to Buffett, but Berkshire’s practice of vesting autonomy in its CEOs prevented direct or immediate intervention.
Ultimately, however, Abrams’s repudiation of distributor autonomy prompted Buffett to make an exception to the autonomy Berkshire usually gives Berkshire CEOs, and fired Abrams. To replace him, Buffett delegated much of the task to a new Berkshire employee, Tracy Britt Cool, a recent business school graduate he had just named chairman of Benjamin Moore. Her choice, Bob Merritt, began correcting the errors that Buffett believed Abrams had made, especially restoring distributorship autonomy.
Last month, however, Merritt was fired too. Who fired him (Buffett or Britt) is unclear and the exact reasons have not been disclosed. It may be a replay, a business disagreement about distribution or involve (per press gossip) issues of gender bias and locker room humor among company management. Merrit’s replacement, meanwhile, was chosen jointly by Britt and Buffett.
So there are several marks on the long winding story of autonomy in the Benjamin Moore saga. The distributors had autonomy, which Berkshire promised they would keep, yet Abrams impaired; distributor complaints to Berkshire first met resistance in the name of CEO autonomy until Berkshire lifted its usual deference to that practice; Buffett gave Britt considerable autonomy to choose Merritt, who ran with it until he didn’t have it anymore; and, most recently, she enjoyed far less autonomy in the case of selecting his successor.
People claiming that Buffett is a hands-off manager or gives his CEOs extraordinary autonomy are right, so long as they appreciate how that entails a strangely awesome burden. People who are trusted, and who are trustworthy, often excel and avoid problems precisely because autonomy is a huge responsibility.
posted by Marc Poirier
First, thanks to Concurring Opinions for inviting me back. It’s been years. What took you so long?
I plan to spend some of my month’s effort here discussing coastal land use and disasters and the law. In light of Superstorm Sandy and likely future megastorms, and given climate change and sea level rise, I can’t help noting that, whatever is going on with managing CO2 levels at a global scale, one class of disasters results from what I have come to call in conversation (and now in writing) Stupid-A** Land Use Decisions (SALUD). We build houses in harm’s way. I’ve written about the folly of allowing homes on the parts of barrier islands that are most likely to flood or wash away, noting in passing the folly of building homes on scenic hillsides subject to rock- and mudslides. In the news lately, there’s much about the costs of rescuing homes built in forests that are just waiting to catch fire. At some point, we have to disincent SALUD, or at least insist that the full cost of risk and rescue and rebuilding be reflected in the market cost of building in Stupid-A** places, and let that expense disincent. It’s very hard to do. As my own dear New Jersey Governor Chris Christie said after Superstorm Sandy, we will rebuild!
Which brings me to the case I’m discussing today. It came down last Friday. The case is Kolbe v. BAC Home Loans Servicing, LP (1st Cir. No. 11-2030, Sept. 27, 2013) (en banc), 2013 WL 5394192. It is a First Circuit en banc decision, on a 3-3 vote, failing to reverse the District of Massachusetts, which granted a motion to dismiss a putative class action seeking an interpretation of a form mortgage contract provision concerning flood insurance. Warning, I’m not an expert in all of the doctrinal areas involved, so please forgive if I miss something, but boy, is it interesting.
The provision in dispute is Covenant 4, a three-sentence paragraph required by the Department of Housing and Urban Development (HUD) to be included in all single family dwelling mortgage contracts insured by the Federal Housing Administration (FHA). Covenant 4 was established by a regulation promulgated in 1989 after notice and comment rulemaking. It allows a lender to require that the homeowner purchase insurance for “any hazards . . . in the amounts and for periods that the Lender requires.” Covenant 4 also requires the borrower to insure against loss from floods to the extent required by the Secretary of HUD. HUD requires flood insurance whenever a property is located in a “special flood hazard area,” the most risky category under the National Flood Insurance Program (NFIP) classification scheme. HUD requires flood insurance at least equal to the outstanding balance of the mortgage, that is, the lender’s stake in the property, but there is a cap of $250,000. Thus, as to hazard (but not flood), the lender clearly has authority under Covenant 4 to require further hazard insurance. But it is, arguably, unclear whether Covenant 4 empowers the lender to require a homeowner to purchase additional flood insurance. Perhaps the provision of Covenant 4 referring to requirements by HUD insulates the homeowner from lender requirements as to purchasing flood insurance. Perhaps Covenant 4′s authorization for lenders to require additional hazard insurance includes flood insurance, because floods are a type of hazard. That’s the interpretation question. Read the rest of this post »
October 3, 2013 at 11:02 am Tags: Auer, climate change, coastal land use, contract interpretation, disasters, flood insurance, forms, homeownership, judicial deference to agency interpretation, mortgages, risk perception, sea level rise, Seminole rock Posted in: Administrative Law, Contract Law & Beyond, Environmental Law, Property Law Print This Post No Comments
posted by Frank Pasquale
The Treachery of Images[,] probably Magritte’s most famous [painting], shows a well-rendered pipe above its own textual disavowal: “ceci n’est pas une pipe” – or, “this is not a pipe.” In the most obvious reading of the painting, Magritte is said to be pointing out the unbridgeable divide between representation and reality.
Contracts and (particularly) advertisements that use fine print operate on a similar level. The ad’s loudly stated, carefully worded attractions are representations of a proposed deal, the legitimacy of which the fine print discretely disavows. “This is not the deal,” the fine print says. On the subject of Magritte’s painting, Foucault speaks of an “operation cancelled as soon as performed,” a line that might as easily apply to advertising that offers deals too good to be true.
Foucault’s second reading of The Treachery of Images is a little subtler. He suggests that what the sentence “ceci n’est pas une pipe” actually refers to is itself: “this is not a pipe” is not a pipe. In recent years it has become common for fine print to include “unilateral amendment provisions” that entitle the company to change the terms of the deal at anytime as long as they give you written notice. In such cases, the fine print is also referring to itself when it whispers “this is not the deal.”
When people ask me why I’m critical of “notice and consent” in privacy law—well, this is why. The language in so many of these “contracts” is so one-sided, and so open to change over time, that trying to “control one’s data” is a mug’s game.
posted by Frank Pasquale
The arbitration revolution rolls along, freshly energized by the 2nd Circuit:
In Duran v. The J. Hass Group, a woman who is essentially on the edge of being destitute alleges . . . that she was the victim of a last-dollar scam, promised services that she didn’t receive. It probably will not surprise anyone who follows consumer law (although it would come as a surprise to nearly any actual consumer) that the defendant had an arbitration clause. What’s striking is that the clause requires consumers (including the New York resident Ms. Duran) to arbitrate their claims across the country in Arizona.
The Second Circuit required Ms. Duran to arbitrate her claim, and enforced the provision requiring it to take place in Arizona. They noted that there is a “logical flaw” and an “unusual” quality to the result, because if Ms. Duran’s only remedy is to argue to the arbitrator that it’s unfair and unconscionable to require her to arbitrate in Arizona, she first has to go to Arizona to do it. Oh well, the Court explains, this is what the Supreme Court would have wanted.
As Margaret Jane Radin observes, the US is once again an outlier: “While [boilerplate clauses grossly advantageous to one party] are validated by courts in the U.S. pretty routinely . . . they’re mostly illegal if used against consumers in the European Union and in some other places, such as Australia.” She goes on to note that many boilerplate “agreements” undermine the very normative ideals of consent, agreement, and promise that contract law is supposed to be based on:
[A] unilateral modification clause is one of the things that bothers me most as a contracts professor because none of these things are really contracts, in the sense of agreements between two parties. . . . I’ve been a law professor for 37 years or 38 maybe, and I’ve been teaching contracts for at least 15. And what the contracts books say is you come to agreement and if somebody says I can do whatever I want at will to your agreement, that contract is not really a contract, but our courts routinely ignore that. And our, you know, Justice Scalia, for our Supreme Court, has a little footnote in one of these cases saying, well, you know, the firm said they could modify at any time, so they modified, so what.
The contract is less an agreement between two parties than the acknowledgment by one of the other’s domination.
posted by Dave Hoffman
[A brief note of apology: it's been a terrible blogging summer for me, though great on other fronts. I promise I'll do better in the coming academic year. In particular, I'd like to get back to my dark fantasy/law blogging series. If you've nominations for interviewees, email me.]
One of the major lessons of the cultural cognition project is that empirical arguments are a terrible way to resolve value conflicts. On issues as diverse as the relationship between gun ownership and homicide rates, the child-welfare effects of gay parenting, global warming, and consent in rape cases, participants in empirically-infused politics behave as if they are spectators at sporting events. New information is polarized through identity-protective lenses; we highlight those facts that are congenial to our way of life and discounts those that are not; we are subject to naive realism. It’s sort of dispiriting, really. Data can inflame our culture wars.
One example of this phenomenon is the empirical debate over minimum wage laws. As is well known, there is an evergreen debate in economics journals about the policy consequences which flow from a wage floor. Many (most) economists argue that the minimum wage retards growth and ironically hurts the very low-wage workers it is supposed to hurt. Others argue that the minimum wage has the opposite effect. What’s interesting about this debate -to me, anyway- is that it seems to bear such an orthogonal relationship to how the politics of the minimum wage play out, and the kinds of arguments that persuade partisans on one side or another. Or to put it differently, academic liberals in favor of the minimum wage have relied on regression analyses, but I don’t think they’ve persuaded many folks who weren’t otherwise disposed to agree with them. Academic critics of the minimum wage too have failed to move the needle on public opinion, which (generally) is supportive of a much higher level of minimum wage than is currently the law.
How to explain this puzzle? My colleague Brishen Rogers has a terrific draft article out on ssrn, Justice at Work: Minimum Wage Laws and Social Equality. The paper urges a new kind of defense of minimum wages, which elides the empirical debate about minimum wages’ effect on labor markets altogether. From the abstract:
“Accepting for the sake of argument that minimum wage laws cause inefficiency and unemployment, this article nevertheless defends them. It draws upon philosophical arguments that a just state will not simply redistribute resources, but will also enable citizens to relate to one another as equals. Minimum wage laws advance this ideal of “social equality” in two ways: they symbolize the society’s commitment to low-wage workers, and they help reduce work-based class and status distinctions. Comparable tax-and-transfer programs are less effective on both fronts. Indeed, the fact that minimum wage laws increase unemployment can be a good thing, as the jobs lost will not always be worth saving. The article thus stands to enrich current increasingly urgent debates over whether to increase the minimum wage. It also recasts some longstanding questions of minimum wage doctrine, including exclusions from coverage and ambiguities regarding which parties are liable for violations.”
I’m a huge fan of Brishen’s work, having been provoked and a bit convinced by his earlier work (here) on a productive way forward for the union movement. What seems valuable in this latest paper is that the minimum wage laws are explicitly defended with reference to a widely shared set of values (dignity, equality). Foregrounding such values I think would increase support for the minimum wage among members of the populace. The lack of such dignitary discussions in the academic debate to date has level the minimum wage’s liberal defenders without a satisfying and coherent ground on which to stand. Worth thinking about in the waning hours of Labor’s day.
September 2, 2013 at 9:02 pm Posted in: Behavioral Law and Economics, Civil Rights, Consumer Protection Law, Contract Law & Beyond, Culture, Current Events, Empirical Analysis of Law, Employment Law Print This Post 2 Comments
posted by Christine Chabot
Historically, skills training was not part of the education students received in law school. Things have changed, of course, and recently many have emphasized the need for practice-ready law grads. Incorporating skills training in substantive courses offers one promising option for improving students’ education. I’m prepping Sales (UCC Article 2) for the fall, and the course seems to lend itself well to a more skills-oriented approach. I plan to use problem-solving exercises and assignments which will not only teach students the law governing sales of goods, but will also enhance their statutory and contractual interpretation, drafting, and client-counseling skills. I have extensive experience litigating contractual disputes, so I know these skills are essential for commercial litigators. And they seem equally important to transactional lawyers.
July 31, 2013 at 11:23 am Tags: practice-ready law grads, Reforming legal education, skills training Posted in: Contract Law & Beyond, Law Practice, Law School, Law School (Teaching), Teaching, Uncategorized Print This Post 6 Comments
posted by Lawrence Cunningham
(Please note: most contracts teachers receive such a question from many students every year; it would be nice if we could all agree on the answer. So I eagerly urge all law teachers to chime in here. Maybe we can develop a single standard response to give to every student in the future.)
(A) Make a list yourself. Doing so is part of the learning process in law school.
(B) Go through our course syllabus and identify all the places where the UCC is cited.
(C) Study our casebook and scour all the “Notes” that highlight the UCC in more than a paragraph.
(D) Make a list of all the cases we read that focus on the UCC.
(E) Happy to hazard a list: Read the rest of this post »
posted by Lawrence Cunningham
Among the many ways that Warren Buffett is unusual is his approach to the role of price in business acquisition negotiations. Other people commonly haggle over price. Tactics include sellers naming an asking price that is higher than warranted or buyers making a low-ball bid. Some people enjoy the give and take and many believe it is a way to produce value in exchange.
Buffett eschews such exercises as a waste of time. One of Berkshire’s acquisition criteria (in addition to size, proven earnings power, quality management in place and relative simplicity of the business) is having a price. Eschewing the games so many negotiators like to play over ranges of values, Buffett wants a single price at which each side can say yes—or walk away. His bid is his bid; when he gives you a bid, what you have is what most people classify as the “best price,” “final offer,” or “highest bid.”
Buffett has repeatedly statesd this policy, along with the other acquisition criteria, in every Berkshire Hathaway annual report since 1983 (and once in a 1986 ad in the Wall Street Journal). Yet I know many people who are skeptical about whether Buffett and Berkshire actually adhere to this policy—doesn’t he engage in price negotiations in at least some cases, they ask? Aren’t there situations in which the value of an exchange is not discovered other than through the dynamic of negotiations, including about appropriate methodology?
To answer such questions, I examined the 16 Berkshire Hathaway acquisitions over the past two decades that involved public company targets. Unlike private company targets, those companies are required by U.S. federal law to publicly disclose the background of the transaction, including negotiation over all material terms, such as price. Read the rest of this post »
posted by Lawrence Cunningham
As a tribute to the actor, James Gandolfini, who died at the age of 51 yesterday in Rome while on vacation, the following is a story about his hit television series, The Sopranos, taken from my 2012 book, Contracts in the Real World: Stories of Popular Contracts and Why They Matter. I did not know Mr. Gandolfini, but I admired his tenacity and skill; I also met him once in my Greenwich Village neighborhood, and had a delightfully memorable chat. The story is not about him but is the best tribute I can offer; and for a great actor such as him, it seems apt.
In 2002, Robert Baer, a former municipal judge and county prosecutor from hardscrabble Elizabeth, New Jersey, claimed a right to half the value of the Emmy Award-winning HBO television series, “The Sopranos,” believing he had a deal with writer David Chase to co-develop it.
Baer’s dream was to write television shows and, eventually, he persuaded a mutual friend to interest Chase in reading one of his scripts. Chase, a native of North Jersey, was already an accomplished figure in television, with several Emmy Awards to his credit, as well as shows such as the “Rockford Files,” “Alfred Hitchcock Presents,” and “Northern Exposure” under his belt.
The two met in June 1995 in California. At the time, Chase was developing an idea for a television series about a mob boss undergoing psychiatric therapy. In this meeting, Baer suggested that Chase shoot it in North Jersey and the two kicked around some other ideas.
In August 1995, Chase submitted a program proposal to Fox Broadcasting, which agreed one month later to finance a pilot for the show. Chase thereafter asked for Baer’s help in compiling information about the mafia’s inner workings. In response, Baer contacted acquaintances in the local prosecutor’s office, including Lieutenant Robert Jones, an organized crime expert. Based on their conversation, Baer prepared notes for Chase profiling some underworld characters and detailing the mob’s role in the sanitation business and gambling activities.
In October of that year, the two met again in New Jersey for Chase to do more research. There, Baer regaled Chase with New Jersey true-crime stories during a three-day tour of the region. Baer also introduced Chase to other experts: Detective Thomas Koczur, a homicide specialist, and Antonio Spirito, an Italian waiter and riveting storyteller. Koczur played the tour guide, driving Baer and Chase around to view area landmarks, mob hangouts, and criminal crannies. Some of these later provided the backdrop for the show’s regular opening sequence, while others appeared in various episodes.
Koczur also arranged for the group to dine with the local mobster, Antonio Spirito, who plied them with personal gangland tales and became the model for the show’s protagonist, Tony Soprano. One tidbit Spirito shared referenced two cat-burglar mob brothers called “Little Pussy” and “Big Pussy,” the latter a name Chase gave to a character in the series. Jones profiled the Jewish Mafioso, Morris Levy, then in prison, who bore a close resemblance to the role of Hesh Rabkin on “The Sopranos.”
After the trip, Chase polished up his pilot and submitted it to Fox, also sending a copy to Baer, who later provided written comments on it. Throughout, there was some discussion of payment between Baer and Chase, but no actual agreement was ever reached and Chase never paid Baer any money. The two had only agreed that Chase would read another of Baer’s scripts in return for the help he had given.
“The Sopranos” launched in 1999 on HBO, became a popular and critical hit, and ran through 2007. In May 2002, Baer sued, claiming the show and its protagonist were his ideas, entitling him to half the millions in profits Chase had received. Baer asserted breach of contract and quasi-contract, among other claims. The suit sickened Chase’s stomach, he sobbed upon learning of it, and five years of litigation followed. Read the rest of this post »
posted by Woodrow Hartzog
The New Republic recently published a piece by Jeffrey Rosen titled “The Delete Squad: Google, Twitter, Facebook, and the New Global Battle Over the Future of Free Speech.” In it, Rosen provides an interesting account of how the content policies of many major websites were developed and how influential those policies are for online expression. The New York Times has a related article about the mounting pressures for Facebook to delete offensive material.
posted by Dave Hoffman
There’s a fantastic symposium issue out of NYU this month, devoted to evolution and innovation in contract terms. There are articles by the ridiculously productive trinity of Choi/Gulati/Posner, a wild piece by Kevin Davis on Contracts as Technology, and a very cool empirical paper by Marotta-Wurgler and Taylor on evolving terms in standard form contracting online. I’m obviously biased toward empirical work on this exact topic, so I’m a sucker for this stuff. But I do think that this kind of empirical and theoretical work is where contract scholarship should be heading in the next 10-20 years. Check it out.
posted by admin
Contracts teachers are asked to complete a brief online survey to help the planning and execution of a symposium Washington Law Review is preparing to host on the exciting new book, Contracts in the Real World: Stories of Popular Contracts and Why They Matter, by Lawrence A. Cunningham of George Washington University (published by Cambridge University Press in 2012).
This innovative text embraces a modern, narrative approach to contract law, exploring how cases ripped from the headlines of recent years often hinge on fundamental principles extracted from the classic cases that appear in contracts casebooks. Such an approach suggests new ways to imagine modern casebooks. In addition to an article by Prof. Cunningham, the WLR will publish in its December 2013 issue a half dozen pieces by many luminaries and notables, including:
Charles Knapp (NYU/Hastings)
Brian Bix (Minnesota)
Erik Gerding (Colorado)
Jake Linford (Florida State)
Jennifer Taub (Vermont)
To help these scholars and WLR editors with this effort, please fill out the online survey today!
posted by Dave Hoffman
For some time, I’ve been mulling over how closely parties can tailor the rules of civil procedure to their own purposes. That is: can parties write enforceable contract terms which state that if they sue each other, the ordinary procedural rules won’t apply? Do such contracts exist? For example, parties might contract to be able to take 5 depositions in a case instead of the default 10. Or they might dispose of the rules of hearsay. The literature on this topic of private procedure arguably started with the Scott/Triantis piece, Anticipating Litigation in Contract Design, and has gotten new momentum from Bone, Kapeliuk/Klement, Dodge, and Drahozal/Rutledge. My contribution, freshly up on SSRN, ended up being slightly more empirical than I’d expected — though I guess this won’t surprise any of our long-time readers. In Why Is Privatized Procedure So Rare?, I try to explain why there is actually so little private procedure in places we’d expect to see it:
“Increasingly we hear that civil procedure lurks in the shadow of private law. Scholars suggest that the civil rules are mere defaults, applying if the parties fail to contract around them. When judges confront terms modifying court procedures — a trend said to be explosive — they seem all-too-willing to surrender to the inevitable logic of private and efficient private ordering.
How concerned should we be? This Article casts a wide net to find examples of private contracts governing procedure, and finds a decided absence of evidence. I search a large database of agreements entered into by public firms, and a hand-coded set of credit card contracts. In both databases, clauses that craft private procedural rules are rare. This is a surprising finding given recent claims about the prevalence of these clauses, and the economic logic which makes them so compelling.
A developing literature about contract innovation helps to explain this puzzle. Parties are not rationally ignorant of the possibility of privatized procedure, nor are they simply afraid that such terms are unenforceable. Rather, evolution in the market for private procedure, like innovation in contracting generally, is subject to a familiar cycle of product innovation. Further developments in this field will not be linear, uniform and progressive; they will be punctuated, particularized and contingent.”
posted by Dave Hoffman
From Redstone Federal Credit Union’s credit card agreement:
“Collection. If your Account should become past due, or otherwise in default, you will accept telephone calls from us regarding collection of your Account. You understand that the calls may be automatically dialed and a recorded message may be played. You agree that such calls shall not be “unsolicited” calls for the purpose of state or federal law.”
Translation: screening us is breach of contract!
posted by Lawrence Cunningham
The Supreme Court continues to reject freedom of contract and the power of contracting and state contract law in favor of its national policy favoring arbitration. Most recently, in a per curium opinion in Nitro-Lift v. Howard, it said Oklahoma is not allowed to apply its own contract law to evaluate the validity of classic contract terms (here covenants not to compete). Instead, due to SCOTUS takes on a federal law and the presence of an arbitration clause in the contract, arbitrators make that decision.
The Court’s opinion stresses its conception of a national policy favoring arbitration, which it has found in recent decades in a century-old statute, the Federal Arbitration Act. That emphasis on this “national policy” marks a retreat from the false pretenses that infect the Court’s precedents on the subject, which pretend to be engaged in the application of contract law.
Despite that improvement in the Court’s honesty, it remains the case that the Court’s approach to this subject diminishes traditional principles of contract laws and the value of contracts. People are held to bargains they did not make or that are recognized by contract law as illegal. But the Court insists that no court is allowed to consider these questions, thanks to its statement of national policy.
In numerous past SCOTUS cases, dissenting opinions were routinely filed exposing the flaws in the Court’s jurisprudence. The recent per curium opinion may signal capitulation, indicating that there are no longer any Justices prepared to object to these mistakes. That defeat means it is clearly time for Congress to rein the Court in. It should make it clear that state courts are responsible for developing and applying state contract law, not SCOTUS, federal courts or private arbitrators.