Category: Contract Law & Beyond

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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2

The Regulatory Imagination

Gordon Smith has a nice post up on the ideological divide among biz org scholars, noting the way that the law professoriate is divided between free-marketeers and progressives, neither of whom seem to be doing a particularly good job at talking with one another. (Larry Ribstein has a similar lament here) In the comments, Scott Moss captures some of my feelings, saying:

I don’t always buy the free-marketeer argument that private institutions are always superior to government institutions — in part because when a private institution gets big enough, it can suffer from the same diseconomies of scale that we see in government institutions. But I certainly don’t agree with their [i.e. the progressives] unstated reverse assumption that government institutions surely will be effective at redressing the problems of private institutions.

Of course, there is a similar debate in contract law, with some insisting that contractual relations and the marketplace are inherently unaccountable, while government intervention represents a kind of deliberative empowerment.

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78

EBay Fraud

I appear to be the victim of EBay fraud. I purchased a Playstation 2 video game system for my older son — yeah, um, my son — and have not received it. A look into the seller’s feedback reveals that he/she fleeced a bunch of other people at the same time (Christmas and surrounding days) and is no longer a registered user.

I wonder if the people who study consumer issues more than I do have ideas as to (a) whether this sort of fraud is significantly hurting EBay in its quest to be the world’s marketplace, and (b) what EBay should do about it. Is it appropriate, for example, to require a bond be posted before selling items?

One never likes to blame the victim, particularly when one is the victim in question, but I could have avoided the whole mess by dealing only with clearly reputable sellers. On the other hand, such a limit would (I suspect) lessen the competitive advantages that a wide-open EBay market provides.

8

DRM, Copyright, and Contract

Cory Doctorow at BoingBoing discusses a post from a blogger about an insert in the new Coldplay CD from Virgin Records. The insert states that the CD contains extensive Digital Rights Management (DRM) restrictions:

coldplay2.jpg

According to some of the restrictions, the CD cannot be copied onto a computer hard drive; songs cannot be converted into MP3 files; and it might not play in some CD players, such as portable CD players, car CD players, and others. I love the special rhetorical touches, such as that by purchasing the CD, you’re helping the anti-piracy cause and that the DRM is “special technology” added “for you to enjoy high quality music.” It reads as if the purchaser should be giddy with excitement that the CD contains this really cool technology that makes the CD less functional. Doctorow writes:

Coldplay’s new CD comes with an insert that discloses all the rules enforced by the DRM they included on the disc. Of course, these rules are only visible after you’ve paid for the CD and brought it home, and as the disc’s rules say, “Except for manufacturing problems, we do not accept product exchange, return or refund,” so if you don’t like the rules, that’s tough.

I’m not a contracts or commercial law expert, but since most CDs do not have such restrictions, it is reasonable for a purchaser to assume that the CD will have a similar level of functionality as other CDs. To the extent that a person is sold a CD with much less functionality, it would strike me that the purchaser would not be out of luck, but would have some potential legal remedies. Since the issue is beyond my range of expertise, I pose the question to readers more well-versed in this area of law: To what extent would a purchaser of the Coldplay CD have any right to return the CD notwithstanding the clause that prohibits returns absent a manufacturing defect?

7

The Gifts You Can No Longer Return

My-Date-With-Drew.jpgIn the fun and light documentary, My Date With Drew, an average guy named Brian Herzlinger chronicles his attempt to get a date with Drew Barrymore. The documentary was made on a shoestring budget of just $1100, and Brian cut costs by buying a video camera at Circuit City, using it until the 30-day return window was up, and then returning it to the store for his money back.

But Herzlinger’s documentary may one day be notable not for his quest to meet a celebrity but for capturing what might be a quaint piece of nostalgia — the easy and hassle-free ability to return merchandise.

Returning merchandise has become much harder these days. Those unwanted gifts you received this holiday season might be much more difficult to return. According to a WSJ article (don’t bother clicking the link, as the article can’t be accessed without paying a massive fee):

Retailers are further clamping down on return policies, imposing penalty fees and using sophisticated computer databases to flag serial returners trying to game the system. Some are also adding exceptions and caveats to their return policies — for instance, making it particularly hard to return certain kinds of products, such as electronics.

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