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Category: Contract Law & Beyond

3

18th Century Venture Capitalists

dismal.jpgAs I posted earlier, of late I have been reading Virginia history. I have one title to suggest: Charles Royster, The Fabulous History of the Dismal Swamp Company. It is an tremendously detailed history of one of the great 18th century land speculations, the attempt to drain and sell the Great Dismal Swamp on the Virginia-North Carolina border. George Washington was one of the movers and shakers in the company, but other characters in the story include names like George Wythe, Richard Henry Lee, Patrick Henry, and a host of other luminaries from the American Revolution, as well as lesser known names like Christopher Gist, a Virginia merchant who helped to found Lloyd’s maritime insurance business.

Royster is a good writer and — for me at least — the narrative works nicely. The research represented by the book is awe-inspiring and the result is an enormous wealth of detail about everything from family politics (everyone who was anyone is colonial Virginia was related to everyone else) to imperial politics. At the center of the story, however, is what amounts to a venture capital deal.

To me one of the most fascinating parts of the story is the role that the events of the American Revolution play in it. The Dismal Swamp Company was founded as the Seven Years War (aka the French and Indian War) was coming to an end and its story twists through the years leading up to independence. Furthermore, given the vast scale of the project it inevitably became entangled in colonial and ultimately metropolitan politics. Hence, the events of the Revolution play out in the story, but in a new angle. They are not at center stage. Rather, the Stamp Act and Patrick Henry’s fiery speeches in the House of Burgesses are secondary characters who come on and off stage only as they impact the unfolding drama of the deal.

If one sees history in legal terms, the plots are often structured around public law stories in general and constitutional ones in particular. Royster’s book is, in a sense, the private law story of the American Revolution. He is not a legal historian, but the law is hardly a bit player in his story. The drama, however, centers less around constitutional arguments about rights and representation than around bills of exchange, maritime insurance contracts, mortgages, debts, collection actions, wrangles over title to land, corporate governance, and the like, all of which propel the characters in the story via various complicated paths to ruin or fortune.

Definitely worth reading.

3

The Foie Gras Wars and the Ideology of Contract

gras.jpgGenerally speaking debates in contract law get played out according to a well-worn ideological script. On one side are the heartless conservatives who think that a contract is a contract is a contract and that folks ought to be able to deal or not deal on whatever terms they wish and that the law should confine itself to enforcing the deal as written. On the other side are the bleeding-heart liberals who insist that the vision of the marketplace as an arena of free choice and personal autonomy is an illusion and that a host of supposedly “voluntary” associations are shot through with coercion that the law ought to be policing. Or at least that is the way that the discussion tends to play out in a first year contracts class. Which is why foie gras is so much fun.

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14

Contracts Revue

This year I decided to do a “musical revue” / “musical review” during the last session of my contracts class. I’d play a song and then students would try to guess the case or contracts concept illustrated by the song. Feel free to try your hand at it in the comments, and I will add answer any that are missed (N.B. I think this list is too easy for contractsprofs or those who were in my class ;)

1. Cab Calloway, A Chicken Ain’t Nothing But a Bird

2. Isaac Hayes, Theme from “Shaft”

3. Naked Eyes, Promises Promises

4. Marvin Gaye, Heard It Through the Grapevine

5. Depeche Mode, Everything Counts

6. Simon & Garfunkel, Bridge Over Troubled Waters (Hint: same case as 7)

7. Talking Heads, Road to Nowhere (Hint: same case as 6)

8. The Rolling Stones, You Can’t Always Get What You Want

[Hat-tip: the ever-awesome AALS contracts listserve]

38

Who Gets to Keep Trover?

A man has a dog, “Trover,” who suddenly becomes ill. Trover loses all interest in chasing tennis balls, running around the park, sniffing, and other normal doggy activities. A visit to the vet ensues, with the result that Trover needs a $7,500 operation or he will die. This is far beyond the owner’s means, so instead he pays the vet $250 to have her put Trover to sleep. The owner, depressed, signs the authorization forms, and leaves the vet’s office.

About six months later, the man visits the park, and there is a dog that looks just like Trover. In fact, it is Trover. Not a ghost dog, but a dog that is alive and well, and out for a romp with… the vet. Upon questioning, the vet admits that Trover was such a sweet dog that she’s couldn’t let him die, and she decided to perform the operation at her own expense. Trover lives at her house and plays with her kids.

The man demands Trover back. The vet refuses, and she claims Trover is her dog now.

In your opinion, who gets custody of the dog?

(p.s. I previously posted this hypo to the fabulous AALS Contracts listserve, but no definitive answer was reached despite a willingness to talk about the law of bailments. Similar facts were reported as part of this news story.)

10

Big (Business) Love Is a Bust

biglove.jpgLarry Ribstein, Ann Althouse, and Christine Hurt all have recently commented on HBO’s new series “Big Love.” To one degree or another, each has focused especially on the business-law themes in the show, which they see variously as a source of weakness (Althouse), social commentary (Ribstein), or tremendous fun (Hurt).

For what it is worth, I’m mostly with A.A. here. The show’s evil character, Roman Grant, and its main hero, Bill Henrickson, are engaged in a long-running conflict which nominally regards the scope of profit-sharing clause in a loan agreement. Does the clause cover only the first store Bill built, or later stores as well? I like these issues well enough when I teach them, but as conflict fodder on a nighttime-soap, this is weak gruel. Compare the contract problems in B.L. to the simmering fight between Swearengen and Bullock and Wolcott (and others) on Deadwood about the proper role of law in constraining business, sex, and violence: the better show stands out by a mile. Plus, the writing on Deadwood is better – product, no doubt, of series creator David Milch’s golden pen. I’d give an example, but they are all profane. Notwithstanding Filler’s example, this is a family-friendly blog. Oh, ok, one link.

However, in the last B.L. episode, there was a hint that the conflict between the protagonists will soon move from accounting tricks to religion, as a character suggested that Bill was forced to leave his home at an early age because of Roman’s worry that he was a true prophet. In my view, this would be a good dramatic move. Contract interpretation, even including a neat parole evidence issue or two, simply isn’t sexy enough to compete with T.V.’s other offerings.

4

Empirical Studies at ALEA

Bill Henderson (at the ELS Blog) has a very useful round-up of empirical papers presented at the recent ALEA conference. Blog-traveller Kate Litvak comes in for special praise:

Kate Litvak [presented] “The Effect of the Sarbanes-Oxley Act on Non-US Companies Listed in the U.S.,” which was an extremely well-done event study that used a natural experiment approach to capture the market reaction to SOX (it was generally negative). In the last couple of years, Kate, who does not have a PhD, has spent a lot of time learning sophisticated econometric techniques. It really showed. Very impressive (and easy to follow) presentation.

To be frank, I’ve been quite skeptical of studies showing a negative relationship between SOX and equity prices, on several grounds: (1) my practice experience managing the creation of event studies that dealt with changing legal regimes suggested that results are rarely as robust as one might hope; (2)) the passage and eventual implementation of SOX were so attenuated that event studies would seem hard to perform; and (3) the debate is quite politicized, with folks already disposed to dislike federalization of corporate law leading the charge on the empirical front as well. But, having read Kate’s paper, I’m inclined to rethink my position. It is well-worth a read.

5

A T-Rex Named Sue

TRexSue.jpg

As Dan S. correctly pointed out here, there are three law review articles that have “Tyrannosaurus” in the title, and all three deal with various aspects of the legal battle for a particular dinosaur named “Sue.” Sue has also been the subject of a Nova documentary and at least two full-length books (one entitled Rex Appeal).

Here is the brief version of Sue’s story. In August 1990, commercial fossil hunters from the Black Hills Institute discovered Sue on a parcel of land within a Sioux reservation in South Dakota. The land was ostensibly owned by a rancher named Maurice Williams. The fossil hunters provided Williams with a check for $5,000, but Sue’s fair market value was later established at over $8,000,000. The fossil hunters, the landowner, the tribe, and the federal government went to court claiming ownership.

The Eighth Circuit eventually ruled that because the land had been held in Native American trust, and because the dinosaur was part of the “land,” Sue could not be sold without government permission, and that the federal government held Sue in trust for Williams. The fossil was eventually put up for auction, with a combination of corporate and non-profit interests joining together in their purchase. Sue now holds court at the Chicago field museum.

With that set of facts, you can take numerous angles on the case. In my article, I chose to describe how I use this case in class to teach contract defenses. In short, the Tyrannosaurus Sue article occupies the intersection of my interest in contract law, teaching theory, and terrible puns:

1) Contract law. Although the Court based its decision on principles of property law and statutory interpretation, it would have been fascinating if the court had examined the case from a contract perspective. Think of all the great contract defenses that could be raised to challenge the transaction, i.e. unconscionability, mistake, misrepresentation, duty to disclose. If you change the facts around slightly in a hypo, you can get into the discussion of defenses even more.

2) Teaching theory. I show my class the Nova Special on the discovery of the dinosaur, and spend a class exploring various theories of the case and talking about the defenses. It’s multimedia, it’s problem-based, it promotes active learning. You know, all the good stuff.

3) Terrible puns. Where to start digging on this one? The article contains numerous puns, the quality of which, er, kept degenerating. As a condition to my contract to publish the article, I insisted that footnote 23 remain:

An arm’s-length transaction with a T-Rex would be an interesting arrangement, given their tiny forelimbs.

So there you have it. Dinosaur law.

3

If anything, they should be rewarded

I’m not a particularly ardent fan of the U.K. version of The Office, but I’ve seen a few bits of it here and there, and they can be pretty funny. One of the classic exchanges is between David and Gareth, on the subject of, well, boobs:

[David is mocking a porn site, and reads off of the computer screen]

David: ” ‘Dutch girls must be punished for having big boobs.’ Now you do not punish someone, Dutch or otherwise, for having big boobs.”

Gareth: “If anything they should be rewarded.”

David: “They should be equal.”

Gareth: “Women are equal.”

David: “I’ve always said that.”

With that background, one can fully appreciate this recent news story: “A dancer has launched a $100 million lawsuit against the American musical Movin’ Out, claiming she was emotionally abused and lost her job because her breasts grew too large for her costume.” Yes, it turns out that, according to the lawsuit, some people are punished for having big boobs. Best of all, however, is her lawyer’s statement to the press, in the same newsclip: “In the ballet world, obviously, people are small-breasted. On Broadway, what happened should be an attribute.”

Or in other words, “if anything, they should be rewarded.”

0

Is a Promise to a 419 Scammer Enforceable?

419.gifVia Andrew Sullivan, I read this not work-safe, and often offensive, site purporting to be the record of correspondence between two satirizing vigilantes and a Prince Soki Mobutu, a scam artist. As Sullivan notes, the two email vigilantes respond to Mobutu’s offer of a hidden hoard of loot from the Congo with the following enticing line: “Hello. My name is Mike. Sorry I didn’t get back to you sooner but I haven’t checked my email in awhile. Your proposal sounds very interesting to me and I want to help . . . I work in the music industry. I’m hoping to cut an album with my boy B-Smooth later next month. I was thinking that if I helped you get this money, then I would have enough to cover our expenses and even make a music video. What do you think?” We can imagine the recipient of this message, in some dingy internet cafe (My bet: in south Jersey), chuckling with evil glee. Little did s/he know.

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7

Netflix and “Throttling”

netflix1.jpgNetflix allows customers to rent movies online — as many as they want. According to the company’s website:

With Netflix you can rent as many DVDs as you want from the comfort of your home and have them delivered to your door in about 1 business day! There are no late fees and no due dates, and shipping is free both ways. Plans start at $9.99 plus any applicable tax. With our most popular plan, 3 at-a-time (Unlimited), you can rent as many DVDs as you want for just $17.99 a month plus any applicable tax. You keep a revolving library of up to 3 DVDs at a time and can exchange them for new available DVDs as often as you like.

Sounds like a great deal, right? Well, if you use it really well to your advantage, Netflix will penalize you. According to the AP:

Manuel Villanueva realizes he has been getting a pretty good deal since he signed up for Netflix Inc.’s online DVD rental service 2 1/2 years ago, but he still feels shortchanged. That’s because the $17.99 monthly fee that he pays to rent up to three DVDs at a time would amount to an even bigger bargain if the company didn’t penalize him for returning his movies so quickly.

Netflix typically sends about 13 movies per month to Villanueva’s home in Warren, Mich. — down from the 18 to 22 DVDs he once received before the company’s automated system identified him as a heavy renter and began delaying his shipments to protect its profits.

The same Netflix formula also shoves Villanueva to the back of the line for the most-wanted DVDs, so the service can send those popular flicks to new subscribers and infrequent renters.

The little-known practice, called “throttling” by critics, means Netflix customers who pay the same price for the same service are often treated differently, depending on their rental patterns.

“I wouldn’t have a problem with it if they didn’t advertise ‘unlimited rentals,’” Villanueva said. “The fact is that they go out of their way to make sure you don’t go over whatever secret limit they have set up for your account.”

Originally, Netflix kept its differential treatment of customers a secret, but after a class-action lawsuit, Netflix now warns about this in the fine print:

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