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Category: Contract Law & Beyond

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A Toast to 50 Cent’s New Series: Power

The rap artist 50 Cent, whose real name is Curtis Jackson, is producing a new series on STARZ called Power. Famed for his entrepreneurial skills in hip-hop and business, not to be overlooked is his important contribution to contract law and knowledge.  Thanks to an intense dispute with his girlfriend a decade ago, students and lawyers have been treated to a saga 50 Cent endured that illuminates the nature of contracts—of legally enforceable bargains. In a tribute to his latest venture, herewith an account of this case from my book, Contracts in the Real World: Stories of Popular Contracts and Why They Matter (Cambridge University Press 2012).

Jackson secured his first recording contract in October 2003. It came with a $300,000 advance.  To boost his professional image as a rapper, he bought a Hummer and a Connecticut mansion once owned by boxer Mike Tyson. The mansion boasted a state-of-the-art recording studio and the rapper hired a full-time caretaker and professional cleaning crew to maintain it.    In 2004 Jackson bought another house in Valley Stream, the small village in New York’s Nassau County where his grandmother lived; in December 2006, he added to his real estate holdings a $2 million house at 2 Sandra Lane, Dix Hills, on Long Island, New York. By then, he had sold tens of millions of recordings, toured the world, and amassed hundreds of millions of dollars in net worth, as chronicled in his 2005 autobiographical film, “Get Rich, or Die Tryin.”  

This success came after hard knocks. Jackson had dealt crack cocaine as a teenager. In 1995, at age 20, he was released from jail and became involved with Shaniqua Tompkins in his hometown of Jamaica in Queens, New York. The two had a son, Marquise, out of wedlock in 1996. Jackson and Tompkins had no money and no real home—living with his grandmother or hers.     In May 2000, Jackson nearly died when he was shot nine times during a gangland ambush. He was in the hospital for weeks, followed by months of rehab spent at his mother’s house, near the Pocono Mountains in Pennsylvania. Though before the shooting Jackson had been negotiating with Columbia Records, the record company stopped returning his calls.

Jackson, however, persevered. In November 2001, he launched a recording company, Rotten Apple Records. The rising rap star Eminem brought Jackson’s 2002 self-produced record to the industry’s attention.  As a result, Interscope Records offered Jackson the 2003 deal that propelled him to fame and fortune. With money flowing in and Jackson leading the high life, Tompkins asserted her right to a share. But Jackson’s relationship with Tompkins was tumultuous. They did not always live together and fought often, sometimes physically.

When Jackson bought the Dix Hills house in 2006, both agreed it was the best place to raise Marquise, then almost 10-years-old, and Tompkins pled with Jackson to put it in her name. Though Jackson promised to do so, he never did. After the relationship soured, Jackson tried to evict Tompkins from the Dix Hills house.  During that battle, the house burned to the ground under circumstances that authorities considered suspicious. The house had been insured against fire, but the policy lapsed for non-payment of the premium a few weeks before. In response to Jackson’s eviction lawsuit, Tompkins asserted a claim of her own: that the two had a contract entitling her to $50 million. Read More

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Judge, Jury, and Arbitrator: The NBA Constitution

nba-releases-its-formerly-secret-constitutionThe NBA has finally made its constitution available online. Notwithstanding the grand title, the document styles itself as a mere contract: “This Constitution and By-Laws constitutes a contract among the Members of the Association . . . The Association and each of its Members shall be subject to the oversight and control of the Board of Governors of the Association as set forth herein and shall be governed by the Constitution and By-Laws, rules, regulations, resolutions, and agreements of the Association, as they may be modified or amended from time to time.”

The justification for Commissioner Silver’s actions turns on this document. Article 24 vests in the Commissioner the power to suspend members, though Don Sterling is permitted an evidentiary contest (which didn’t make the news today):

“Following an opportunity for the affected party to submit evidence and be heard, all actions duly taken by the Commissioner pursuant to this Article 24 or pursuant to any other 39 Article or Section of the Constitution and By-Laws, which are not specifically referable to the Board of Governors, shall be final, binding and conclusive, as an award in arbitration, and enforceable in a court of competent jurisdiction in accordance with the laws of the State of New York. In connection with all actions, hearings, or investigations taken or conducted by the Commissioner pursuant to this Article 24, (i) strict rules of evidence shall not apply, and all relevant and material evidence submitted may be received and considered, and (ii) the Commissioner shall have the right to require testimony and the production of documents and other evidence from any Member, Owner, or Referee, any employee of any Member or Owner, and/or any employee of the Association, and any person or Entity not complying with the requirements of the Commissioner shall be subject to such penalty as the Commissioner may assess.”

Article 13(a) then permits the Commissioner to force a sale:

“The Membership of a Member or the interest of any Owner may be terminated by a vote of three fourths (3/4) of the Board of Governors if the Member or Owner shall do or suffer any of the following: (a) Willfully violate any of the provisions of the Constitution and By-Laws, resolutions, or agreements of the Association. [If 13(a) is triggered, the league will conduct an evidentiary hearing, at which] the Member or Owner so charged  shall have the right to be represented by counsel. Strict rules of evidence shall not apply, and all relevant and material evidence submitted prior to and at the hearing may be received and considered . . . The affirmative vote of three-fourths (3/4) of all the Governors shall be required to sustain the charges.”

Importantly, “The decisions of the Association made in accordance with the foregoing procedure shall be final, binding, and conclusive, and each Member and Owner waives any and all recourse to any court of law to review any such decision.”

Professor Michael McCann has argued that this last “waiver of recourse” clause is probably enforceable in a breach of contract case.  I don’t think that’s right — or at least, I don’t think it’s a home-run of a claim. But what’s even more mysterious to me – and maybe readers can help – is the idea that the contract clause stating that the Commissioner’s decision on the suspension will be treated  “as an award in arbitration” is sufficient to trigger the FAA’s arbitration privilege.

I would have thought that to take advantage of the FAA, there needs to be clear cut language which sends a dispute to arbitration, before an arbitrator who is distinct from the “prosecuting” party. After all, if the NBA can create a self-preserving and self-executing arbitration process, which can’t your credit card company!  But perhaps there’s something special about the NBA’s constitution which suspends the normal rules?

(All of this, obviously, is merely about the procedural merits.  Substantively, the Commissioner’s remarks were correct, nicely delivered and proportionate.)

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Misunderstanding General Mills

On April 15, General Mills added language to its website which purported, “in exchange for benefits, discounts,” to subject consumers’ claims for use of General Mills products to arbitration and a class-waiver. General Mills, notably, was free to sue in court at will. When the Times noted the change, General Mills reversed course, stating:

[W]e never imagined this reaction. Similar terms are common in all sorts of consumer contracts, and arbitration clauses don’t cause anyone to waive a valid legal claim. They only specify a cost-effective means of resolving such matters. At no time was anyone ever precluded from suing us by purchasing one of our products at a store or liking one of our Facebook pages. That was either a mischaracterization – or just very misunderstood.

 Like Jeremy Telman, I found the emphasized sentence to be mysterious. There are only two ways to square the historic facts with “mischaracterization — or just very misunderstood” claim:

(1) General Mills thinks that “suing us” and “brining a claim in our bespoke arbitral forum” are the same thing; or

(2) General Mills believes that liking “one of our Facebook pages” isn’t the same as “joining our sites as a member [or] joining our online community.”

The first claim is sophistry, the second is frivolous. Roderick Palmore, GC of General Mills, Chicago Law grad, and head of compliance, had a bad week.

But what’s triply irritating about this whole saga is the lack of precision in the Times and elsewhere as to what, exactly, is wrong with the terms. General Mills is right to point out that many consumer contracts contain arbitral class action waivers, though many do not.  Contrary to the other speculation, there’s nothing per se illegal about provisions which shift costs in litigation. General Mills’ arbitration proceeding is actually quite generous about cost shifting, waiving a filing fee for disputes under $5000, and paying for the arbitrators themselves. Though proceduralists generally recoil from arbitration trumping procedure, what’s obviously at stake here isn’t individuals losing “their” right to sue, it’s class action lawyers losing their right to act as private attorneys general in quasi-regulatory cases. The ultimate question here – are class actions in federal court required for consumer protection – is harder than the commentariat has acknowledged.

But there is a legal problem with these particular Terms.  I don’t think they create a contract which binds consumers. Here’s the now-deleted triggering paragraph:

In exchange for the benefits, discounts, content, features, services, or other offerings that you receive or have access to by using our websites, joining our sites as a member, joining our online community, subscribing to our email newsletters, downloading or printing a digital coupon, entering a sweepstakes or contest, redeeming a promotional offer, or otherwise participating in any other General Mills offering, you are agreeing to these terms.

The problem is that most people who participate in such activities are probably not actively required to click to agree to these terms, and consequently aren’t bound to them under traditional (or Principles of Software Contracts) doctrinal rules. They will lack notice, and consequently not be contractually engaged. Even the FAA requires a contractually enforceable arbitration clause to subject claims to binding arbitration – such terms can’t be imposed absent agreement. That is, the terms are unenforceable not because of their content but because of the process of their adhesion.

General Mills obviously knows this. Indeed, I bet that Mr. Palmore has a memo in his file from some aGC, or associate at a law firm, saying so.  But he proceeded with the term rollout anyway because he knows that the issue will be required to be presented to an arbitrator first under the FAA. [Update: I'm informed that assent issues are instead usually reserved to courts in the first instance.]  Maybe that arbitrator will ignore the law!  And, he hopes, the in terrorem effects of the purported class-waiver of the clause will sufficiently deter plaintiffs in large false-labeling cases so as to make the terms’ eventual defeat cost-justified.

Or, to put it differently, contract law provides a clear path to enforceability of terms just like these. General Mills attempt to shortcut that path should be seen as an attempt to leverage consumers’ ignorance of the law, and lawyers’ risk aversion, to drive down claims. It’s bad – not good – news for consumer advocates that General Mills withdrew this sally. It would have been a excellent test case of the limits of Carnival Cruise and Concepcion.

Now you can insist on control of your material. You can insist on veto power over everything; down to casting and choice of directors and script approval, you can insist on all those things. J.K. Rowling insisted on all those things. And J.K. Rowling got all those things because there were enough people interested in that. Now if you’re not J.K. Rowling, and you insist on all those things, the studios are not going to be very interested or less studios will be interested in it so you’ll get less money or none at all. Or alternatively, you can not insist on everything and you can just sell them the book and what they do with it is what they do with it and you have to live with it. You no longer have approval over anything, you no longer have…you know what I mean? And those are the two extremes. In between of course there’s a vast area of shades of gray.

— George R. R Martin

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George R. R. Martin on Copyright, Inheritance, and Creative Control

He cares much more about French dynastic history than you do.

He cares much more about French dynastic history than you do.

This is Part 3 of the interview I did with George R. R. Martin in  2007.  For background and part 1, click here.  For Part 2, click here. For the audio file, click here.

HOFFMAN: Yeah, but you just generally right. The trope something that really speaks to folks. I guess maybe that raises a question about your fans generally. You’ve obviously got a huge fan base and I’ve been reading a little bit about them. One question that comes up a bunch of different times is fan fiction and what do you think about fan fiction?

MARTIN: I’m opposed to fan fiction.

HOFFMAN: Why?

MARTIN: Well number one, its copyright infringement and it can potentially endanger my copyrights and my trademarks if I were to allow it. Also, yes maybe it’s a gesture of love that they love your characters and they love your world and all that but it’s not the kind of gesture of love that I really want. And for aspiring writers and some of these people, sure it’s a wide range of fan fiction writers, some who are terrible. Some of them are actually talented writers. I think for the talented writers it’s particularly tragic because they should be doing their own material.

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[If] you read some fantasy, the magic is omnipresent. In Harry Potter the magic is omnipresent, a primarily magic universe. They got magic for everything there. Every time you turn around there’s a new magic thing that’s popping up. A magic hat or a magic sword or a spell to solve something. Because magic is so omnipresent, you don’t have to [resort] to mundane ways to…solve a murder mystery. “Who murdered Joe? Well we’ll just give him the truth spell and he’ll tell us who murdered Joe,” or “We’ll just cast this other spell and open the veil of time and we’ll be able to see who murdered Joe.” If those options exist then it’s very difficult to write a traditional John Grisham type novel or a detective novel or anything that depends on evidence and all that because there are all these magical ways of getting it.

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Lawyers in Westeros

An uncomfortable chair in a modern partner's office?

An uncomfortable chair in a modern partner’s office?

This is Part 2 of the interview I did with George R. R. Martin in  2007.  For background and part 1, click here.  For the audio file, click here.

 HOFFMAN: Are there lawyers in your books that are just in the wings off stage that haven’t yet appeared?

MARTIN: That’s an interesting question. I hadn’t really considered that until I started reading those links that you sent me. There are certainly laws but are there special classes of advocates who make their living by interpreting those laws? My inclination is probably not because the laws my books are administered by lords. In some ways it’s government as much for men than law. We like to say our government in the United States is a government of laws not men. In some ways the Seven Kingdoms I think is the reverse. There is basis of a law but also a lot depends on who is interpreting it and who is sitting in the Lord’s seat, who is sitting on the Iron Throne and how they settle these disputes.

HOFFMAN: Well those are ultimate questions but I think in two places one could have imagine lawyers and one of them again will be this church trial because there were church lawyers in the ecclesiastical church system there were lawyers who specialized in canon law. And the second one was at least twice I can think of in the books there’re trials by combat. And I don’t really know what the other alternative would be but I assume would be trial by jury – the path that Tyrion did not choose both times. And I was thinking –

MARTIN: Well he does choose in the first…in the second…second of his two trials, he is being tried – it’s not by jury – it’s by lord. There’s no jury of his peers, no twelve people that are randomly picked but there are three lords sitting on his case and hearing the evidence.

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Why the Mirror Image Rule Still Matters

This story, which took the academic world by storm, demonstrates the continued vitality of the mirror image rule:

“[A philosophy tenure track job] candidate . . . sent the following email to search committee members at Nazareth College, in Rochester, N.Y., after receiving a tenure-track job offer in philosophy:

“As you know, I am very enthusiastic about the possibility of coming to Nazareth. Granting some of the following provisions would make my decision easier[:]

1) An increase of my starting salary to $65,000, which is more in line with what assistant professors in philosophy have been getting in the last few years.

2) An official semester of maternity leave.

3) A pre-tenure sabbatical at some point during the bottom half of my tenure clock.

4) No more than three new class preps per year for the first three years.

5) A start date of academic year 2015 so I can complete my postdoc.”

She ended the email by saying “I know that some of these might be easier to grant than others. Let me know what you think.”

In a reply, the search committee said it had reviewed the requests, as had the dean and vice president of academic affairs.

“It was determined that on the whole these provisions indicate an interest in teaching at a research university and not at a college, like ours, that is both teaching and student centered,” the email continues. “Thus, the institution has decided to withdraw its offer of employment to you.”

The search committee ended by thanking the candidate for her “interest” and wishing her “the best in finding a suitable position.”

As many have pointed out, an employment lawyer might be able to make some hay if emails within the department discussed #2 in any detail. (Which they likely did, since academics have no email discipline.)

Why did our subjects sometimes behave like 19th century legal formalists, and other times like realists from the Wisconsin School of relational contract theory?

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Intuitions About Contract Formation

Tess Wilkinson-Ryan and I have a new paper up on SSRN, titled Intuitions About Contract Formation.  In the great Redyip tradition, I thought I’d blog about it. From the abstract:

Legally, much depends on the moment that a negotiation becomes a deal.  Unlike torts or civil procedure or any area of public law, the laws of  promissory exchange only apply to parties who have manifested their assent to be bound. Even so, the moral norms of exchange and promise are quite firmly  entrenched and more broadly applicable than just legal contracts. Norms of promise-keeping and reciprocity, interpersonal courtesy, community reputation—these kinds of intangible goods have real effects on contract behavior. For this reason it is especially surprising that intuitions about formation have gotten so little attention from legal and behavioral scholars. This paper offers five new empirical studies of commonsense approaches to contract formation. The first section of this Article surveys intuitions about what the law of formation is. In a world in which the vast majority of contracts are signed without the advice of counsel, most people have to draw inferences based on their background knowledge and beliefs. It turns out that the colloquial understanding of contract formation is about the formalization of an agreement rather than actual assent.

In the second part of the Article, we tease out the intuitive relationship between formation and obligation. The law of contracts is very clear that  parties’ obligations to one another turn entirely on whether or not they have mutually manifested assent to be bound. And, in fact, we find that behavioral results suggest that legal (or legalistic) formation does enhance commitment to a deal irrespective of its power to impose sanctions; it seems that the law has freestanding normative force. However, we also find that the subjective sense of obligation is not as black or white as the law would predict. Parties are influenced by the natural, informal obligations to one another that build over the course of a transaction, increasing their commitment to the partnership in stages rather than all at once at the moment of formation.

To set the paper up a bit, Tess and I had previously found that when subjects are told they are in legally binding contracts, they lower their guard against exploitation & treat contracting parties like partners.  This raised a question that Intuitions tries to answer:  what are subjects’ naive views about formation?  We show that they differ systematically from the operative doctrinal rules, which creates a window for exploitation — when consumers believe themselves to be in contracts but aren’t. For example, individuals think that payment is contract, not agreement.  In one experiment, for example, we asked:

“Peter is ordering new custom speakers from Audionuts, a mail-order sound system retailer. Peter calls the company and speaks at length to a customer service representative, hashing out the details of his order, which include speakers for his main media unit (TV and stereo system) as well as his portable devices (phone and iPad). Peter and the customer service representative arrive at a final product specification, including a price and delivery date. Peter gives the rep his credit card number, and the charge is immediately posted to his account. Eight days later, Peter receives his speakers in the mail. Inside the box is a piece of paper headed “Terms and Conditions.” The Terms and Conditions sheet includes information about the duration of the warranty (90 days), the dispute resolution process (mandatory arbitration) and the return policy (return within 14 days for full refund for any reason). The Terms and Conditions sheet states at the bottom, “If you do not agree to these terms and conditions, please return the product within 14 days for a full refund.” Peter uses the speakers with no problems for two months.”

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Note: payment & acceptance without return dominate over the oral agreement, or reading terms.  (Other experiments replicate this finding on payment, and expand it to signature.)

At the same time, we find that, in the absence of information about law or legal rules, individuals tend to begin to act like partners significantly earlier than the moment where they’ve concluded a deal.  Indeed, a mere offer appears to motivate feelings of reciprocity by the offeree. Why did our subjects sometimes behave like 19th century legal formalists, and other times like realists from the Wisconsin School of relational contract theory? Our tentative conclusion is that subjects themselves draw a distinction between legal and moral obligations. They view their legal obligations as heavily dependent on formal manifestation of assent via signature. But their moral obligations are attendant to both legal formalism and also to more fine-grained moral norms. This is an interesting case in which we see some evidence of a legal context, contract, in which moral norms are not entirely determined by legal norms. But when subjects are told that they are in a contract, in a sense it makes it so.

 

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Some Rather Good Advice

rasberry martiniFrom the 6th edition of the Summers/White/Hillman Treatise on the UCC, section 2:20.

“Under the present state of the law we believe that there is no language that a lawyer can put on a form that will always assure the client of forming a contract on the client’s own terms . . . If a seller must have a term to reduce its liability but cannot strike a bargain for it, the only answer may be to raise the price, buy insurance, or, as a last resort, have an extra martini every evening and not capitalize the corporation too heavily.”

This is exactly correct, though I can’t recommend martinis.

 

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The End of the ABA

The American Basketball Association, that is.  The NBA has finally negotiated a buyout of their crazy contract with the Silna brothers (which I’ve posted about before) that gave these former owners of the St. Louis Spirits a share of the league’s TV revenue in perpetuity.  How much will the buyout cost?  At least $500 million (on top of the money the NBA has shelled out since 1976).

Read those contracts carefully folks.

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Contracts Casebook Survey Results

The frightful stress gripping legal education is one reason why all law professors may be interested in the newly-released results of the Washington Law Review survey of law teachers of Contracts conducted in mid-2013.

Available here, the results from 138 respondents consist of numerical summaries of multiple choice questions and synthesis of their written comments that I culled.  A sampling from the latter appears below.

The results are of inherent interest to those teaching Contracts and speak to broader questions of legal pedagogy of value to others, including the allocation of time in the first year, the utility of the case method of instruction, and desire for change versus the tug of tradition.

(The survey was done in connection with a symposium inspired by my recent book, Contracts in the Real World, which has also just been published, here, featuring contributions from Aditi Bagchi, Brian Bix, Larry DiMatteo, Erik Gerding, Charles Knapp, Jake Linford, and Jennifer Taub.)

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