Source: https://lawprofessors.typepad.com/contractsprof_blog/
Timestamp: 2019-04-23 20:16:55+00:00

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A recent case out of the Second Circuit, Pettibone v. WB Music Corp., 18-1000-cv, caught my eye because I teach the underlying copyright dispute driving this contractual dispute. You can listen to the case's oral argument here.
After the conclusion of the copyright suit, Warner withheld over $500,000 worth of royalties from Pettibone, claiming that under Section 8.1 of the agreement between Warner and Pettibone, it was allowed to withhold the royalties to pay for its defense of the copyright infringement suit. Section 8.1 read in part, "Each party will indemnify the other against any loss or damage (including court costs and reasonable attorneys' fees) due to a breach of this agreement by that party which results in a judgment against the other party . . . ."
Pettibone sued, arguing that he had never breached the agreement and therefore Section 8.1 did not permit Warner to withhold any royalties. The district court found that Section 8.1 "unambiguously requires Pettibone to indemnify Warner for the attorneys' fees and costs," and dismissed Pettibone's complaint.
In another example of ambiguous understandings of ambiguity, the appellate court here reversed the district court's holding, instead finding that Section 8.1 is "pock-mocked with ambiguity." In the Second Circuit's opinion, a better reading of the section was that, if there was no breach, each party should carry its own attorneys' fees and costs. In fact, Section 8.1 went on to read that "each party is entitled to be notified of any action against the other brought with respect to [the song 'Vogue'], and to participate in the defense thereof by counsel of its choice, at its sole cost and expense" (emphasis added). A fair reading of the section, the Second Circuit said, was that it required Pettibone to indemnify Warner if Pettibone breached the contract, but not otherwise.
Warner was the party that drafted the contract, and could easily have stated that indemnification happened in the event of any allegations, not just any breach. That was not, though, how the contract was drafted.
The effect of Warner's argument would be to shift a million dollars' worth of attorneys' fees onto Pettibone, just because there was a lawsuit, "regardless of merit or frivolousness." The Second Circuit found that to be "an extraordinary result" not justified by the section's ambiguous language. Therefore, the Second Circuit ordered reversal of the district court's dismissal, judgment for Pettibone, and calculation of the royalties improperly withheld from Pettibone, as well as consideration of Pettibone's request for attorneys' fees in connection with the instant action and appeal.
A recent case out of the Northern District of California, Sanchez v. Gruma Corporation, Case No. 19-cv-00794-WHO, is a good case to point to to remind students that unconscionability has both procedural and substantive sides, and you need to have both. In the case, the court admits that the plaintiff's account of the signing of the contract raised procedural unconscionability issues: the plaintiff alleged that he was given no choice, was told if he did not sign the contract he could not work at the company, was not told what the contract really meant, and was given no opportunity to review the contract. However, this procedural unconscionability ultimately didn't matter, because the court ruled the contract was not substantively unconscionable. There was one provision the court found unenforceable but the court severed that provision and enforced the rest of the agreement.
When I teach express conditions, we talk a lot about the language that you use to create them. A recent case out of the Northern District of Ohio, Health and Wellness Lifestyle Clubs, LLC v. Raintree Golf, LLC, Case No. 1:17CV2189 (behind paywall), has some examples. The agreement in question read that it was "contingent upon Purchaser's obtaining and delivering to Seller a written unconditional commitment or commitments," and continued that "the obligations of Seller to consummate the transaction . . . shall be subject to the fulfillment on or before the date of Closing of all of the following conditions," both of which created an express condition that a written unconditional commitment needed to be delivered. Because there was never any such written unconditional commitment in this case, the dependent obligations never became due.
Reformation is one of those doctrines that I love to have class discussions over, really interrogating when (and whether) courts should employ it. A recent decision out of Delaware, In re 11 West Partners, LLC, C.A. No. 2017-0568-SG, has a nice reformation discussion in clear, straightforward language that I think could be useful in class. I especially like the Court's remarks about "the conclusions of social scientists and psychologists that witnesses may come to believe in factual scenarios beneficial to them . . . ." It's a gentle and sympathetic decision regarding "honorable" men whose recollections of the truth all differ.
h/t to Eric Chiappinelli at Texas Tech for forwarding us this case!
"In sum, although an ambiguity could, in another scenario, arise from the silence in a contract as to a particular term, Appellees in this case have failed to articulate a basis for finding ambiguity in Paragraph 18 of the lease, e.g., unclear wording or punctuation, the impossibility of enforcement of the contract term as written, or language in another paragraph that would make Paragraph 18 confusing or unworkable."
The majority opinion is here, the partial concurrence/dissent is here.
A class action in the Southern District of New York, Pisarri v. Town Sports International, No. 18 Civ. 1737 (LLS) (behind paywall), has breach of contract claims that survived a motion to dismiss based on the notice requirement to make modifications. The class action has been brought on behalf of a number of members of a chain of gyms. The contract between the gyms and their members stated that the gyms could modify the contract at any time but it also stated that the gyms would notify members of any modifications. The members alleged that they were not notified of the modifications to the contract. This was a plausible allegation of breach of contract and so survived the motion.
However, the members' other breach of contract claim based on the gyms' revocation of their memberships did not survive. The contract allowed the gyms to revoke membership at any time if it was in the gyms' best interest. The court concluded that it was well within the gyms' best interest to revoke the memberships of people who were suing them. Since the members had other gym alternatives available to them, the court found the gyms' actions reasonable and dismissed this breach of contract claim.
A recent case out of Illinois, Brown-Wright v. East St. Louis School District 189, NO. 5-18-0311 (behind paywall), finds that in order for an employee policy to operate as a binding contract, the employee has to have read the policy.
In the case, the plaintiff was suing based on an alleged violation of the sick leave payout policy. The plaintiff, however, did not find out about the policy her case was relying upon interpreting until after her employment ended. Therefore, it was not the case that she learned of the policy and continued to work as acceptance of and consideration for that policy. Because the plaintiff did not read the policy before terminating employment, she could not rely upon it now.
This is a lesson to all of us to read those policies our employers send around.
First. the court had to tackle the question of when a contract was formed and which of the many interactions between the parties was the governing contract. That involved the court reading emails closely to determine if there was ever an offer and acceptance. The court concluded there was not, because the parties always spoke in terms of "fine tuning" the agreement, contemplated a subsequent written document would happen, and did not intend to be bound until then. There was also a consideration issue, because basically in the emails the parties were just agreeing to discuss entering into an agreement.
Subsequent written contracts between the parties on the subject contained merger clauses that in and of themselves would have superseded the emails, even if the emails had constituted binding contracts. The emails also did not satisfy the statute of frauds, as they contemplated a three-year term but did not contain all the material terms nor a signature from the party to be bound. Finally, the plaintiff had not been damaged because the plaintiff did not actually have the rights he was claiming were violated.
When I teach about illegal contracts, I often find myself talking about paid assassins, because for some reason it's the only example I can come up with on the fly (let's not psychoanalyze that too much). A recent case out of California, Lin v. Chiu, B285053, has a different illegality analysis. The case involved a contract concerning an investment of money into the opening of a fast food restaurant franchise. Chiu alleged that Lin used the contract to apply for permanent residency in the United States, even though the contract did not fulfill the requirements for such an application, and therefore the contract was illegal and unenforceable.
The court disagreed. Even if Lin's attempt to use the contract as the basis for residency might be questionable, the central purpose of the contract itself was a straightforward investment, not anything illegal. Nothing about the alleged illegal use of the contract had anything to do with Lin's contractual rights to repayment of his investment, and there were no allegations that the contract was merely a sham to defraud the U.S. government. It was a bona fide contract in and of itself, with the objective of receiving a return on investment, and not the objective of winning Lin permanent residency. Maybe Lin had an illegal motive underlying his actions, but that did not change the fact that his actions were a legitimate business transaction. Enforcing the investment contract, the court found, would not encourage others to use such contracts as an illegal basis for permanent residency.
A recent case out of Texas, Rosenberg Development Corp. v. Imperial Performing Arts, Inc., No. 17-0660, tackles the question of whether economic development corporations are protected by the sovereign immunity doctrine, concluded that they are not. Interesting for its analysis of how to treat economic development corporations in this breach of contract suit.
I have already blogged about one contract dispute over the new stage adaptation of "To Kill a Mockingbird."
Now, with that dispute settled, the former adversaries (Harper Lee's estate and the producers of the current stage adaptation) have joined forces to shut down small productions across the country of the previous stage adaptation of the novel. As the New York Times reports, the problem seems to have arisen from the conduct of Dramatic Publishing Company, which has the right under a contract signed with Harper Lee in 1969 to license theater companies to produce the original stage adaptation of the novel. The problem is that, allegedly, those rights were limited in times when a "first-class dramatic play" of "To Kill a Mockingbird" was playing in New York or on tour. However, Dramatic has apparently continued to license the play's production without adhering to the restrictions that the current play's producers argue should have kicked into place. Many small theater companies have found themselves caught in the fallout of this contractual dispute, through no fault of their own.
h/t to Eric Chiappinelli, Professor of Law at Texas Tech!
Sometimes it can seem so tempting to draft the broadest possible non-competition provision, but a recent case out of the Western District of Arkansas, Foster Cable Services v. Deville, Case No. 1:18-cv-1049, reminds us of why that can be dangerous.
In the case, Deville, a former employee, had signed a contract that classified "all information" given to Deville by the plaintiff as a trade secret and/or confidential, with no time or geographical limitations. Deville left the plaintiff's employment and the plaintiff sued that Deville had breached his employment agreement because he had disclosed confidential information to his new employer.
The court agreed with Deville's contention that the agreement he signed was unenforceable. The contract prohibited Deville from disclosing any information he learned while employed by the plaintiff, forever. The court found this unreasonable. Covenants not to compete should be reasonably drawn to protect genuine confidential information, whereas this agreement was broad enough to cover all experience and knowledge that Deville gained during his employment, forever. Therefore, the court refused to enforce it as an unreasonable restraint on trade.
Both established and early-career legal scholars are invited to submit proposals to present papers addressing the conference theme, either at a general level or in relation to any aspect of the law of obligations broadly conceived – contract, property (including intellectual property), torts, unfair competition, and unjust enrichment, as well as equity and other topics within or closely related to private law. Papers exploring relevant issues from a civil law perspective are also welcome. Anyone wishing to offer a paper should submit a working title and an abstract (of no more than 500 words) by email to obligationsx@lists.law.harvard.eduby August 15, 2019. Papers will be selected on the basis of quality, originality, engagement with the conference theme and fit with other papers being presented at the conference. Those proposing papers will be notified by October 1, 2019 whether their papers have been accepted. A waiting list may be established, depending on the level of interest. Late submissions will be considered for inclusion in the waiting list.
I just blogged about a case in which failure to keep proper records meant there wasn't enough proof of agreement to the arbitration clause, and here's another one out of Texas, Stagg Restaurants, LLC v. Serra, No. 04-18-00527-CV. Stagg tried to compel arbitration, but the employee denied ever receiving notice of the clause or the agreement it was contained in. There was no signature on that particular agreement and none of Stagg's records indicated that it had ever been provided to the employee, even though the records indicated many other documents had been provided to him. Once again: make sure you keep good records.
Among other disputes in this recent case out of Idaho, Dickinson Frozen Foods, Inc. v. J.R. Simplot Co., Docket No. 45580, is a dispute over whether or not a nondisclosure agreement between the parties was violated. There was no dispute that the information in question was confidential. The only dispute was whether it was covered by the NDA. The court ruled that it was not, because the NDA had been drafted while the parties were in the process of negotiating their business relationship with each other. For that reason, it covered information disclosed "in connection with a proposed business relationship," and that the information was only to be used for "discussions relating to a possible vendor relationship." Once the parties had finished negotiating their relationship, it was no longer "proposed" or "possible"; it was fact. Therefore, there needed to be another NDA to cover information exchanged during the fact of the business relationship (of which the information in dispute was some).
There's a lot of really interesting things at stake in this recent case out of the Northern District of California, Batra v. POPSUGAR, Inc., Case No. 18-cv-03752-HSG, including a contract angle. The case concerns an alleged class of influencers suing POPSUGAR for altering their postings in various ways. In addition to copyright and publicity right violations, the purported class alleges contract interference, because influencers can enter into contracts to receive a cut of the revenue generated by the links on their sites, but POPSUGAR's alleged alterations stripped the monetized links from the postings. Therefore, the class alleged that POPSUGAR was interfering with their contracts with the website linked to. The court found that the class's allegations on this count (and every other count in the complaint) were sufficient to survive a motion to dismiss.
A recent case out of the District of Oregon, Sixel, LLC v. Penning, No. 6:17-cv-01846-AA, has a fairly typical fight over whether or not a claim needs to be arbitrated, but in this case it's the employer who doesn't want to arbitrate and the employees who are fighting to enforce the arbitration clause.
The case involves allegations of trade secret theft, and Sixel relies on the fact that the arbitration clause permits it to pursue injunctive relief in the court. However, the employees maintain that that is limited to the pursuit of relief and does not allow the litigation of the underlying claim in court. The court sides with the employees, finding that the exception to the arbitration clause is explicitly in its plain language only in terms of remedies, not any cause of action. The court therefore finds that Sixel can seek injunctive relief in court and pursue the underlying claims in arbitration. The claims in question fall squarely under the arbitration clause, and given the law's preference for enforcing arbitration provisions, the court chooses to enforce the provision.
I had previously blogged about this case involving a dispute between a university and its retired president over his retirement contract during its motion to dismiss phase. Now it's completed its trial, and the jury verdict is in. The jury ruled against the former president Taylor and in favor of the university, finding that the university did not have to pay Taylor under the asserted contract. It seems from the press coverage of the closing arguments that there were two warring versions of the facts: Taylor asserted that the board of trustees approved the contract as a reflection of Taylor's worth to the university. The university, however, asserted that Taylor drafted the contract himself and then had his friend, who happened to be the chairman of the university's board, sign it, meaning that it was never reviewed by university attorneys and never approved by the board of trustees.
h/t to Eric A. Chiappinelli of Texas Tech University School of Law for passing this one along!

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