Impossibility, What

If you're looking for inspiration in the California Civil Code this weekend, look no further than section 1597:

IMPOSSIBILITY, WHAT. Everything is deemed possible except that which is impossible in the nature of things.

The first two words of the statute appear to have been dictated by someone who had expected an impossible contract to be performed, but just learned that the entire contract was void under California law.

I prefer the statute standing alone with no further explanation. But readers interested in learning more can start by knowing that it is not legally impossible to build and operate a sawmill, while ensuring that no sawdust or debris from the mill fall into a stream. Peterson v. Hubbard, 9 P. 106, 107 (1885). It is, however, impossible to grade and level a parcel of land on which there are many trees without removing some of those trees. Greathouse v. Daleno, 57 Cal. App. 187, 190 (1922).

A Lottery Winnings Contract Hypothetical

Due to the overzealous sharing of dubious content, this Facebook Post showed up on my news feed earlier this evening. Here's a photo of the post:

Unless you expand the photo, the writing may be difficult to read. The photo shows several Mega Millions lottery tickets under the following text:

October 22, 2018
Mega Millions Proposition
I Christopher Ferry, herby [sic] agree to equally share 100% of the earnings I win from the Mega Millions drawing on Tuesday, October 23rd, 2018 with all parties that like, share and comment on my Facebook post that states this propostiion [sic]. This is an official legal document that can be used in the court of law. 

It's then signed, presumably by Christopher Ferry. The writing is in all capital letters, so I took the liberty of guessing at the intended capitalization rather than hurt your eyes.

After liking, sharing and commenting on the post (just kidding), I made the foolish mistake of reading the comments. There seem to be many people out there on the Internet who are confused about the basics of contract law. 

To those confused souls, I now say, you're welcome.

A surprising number of very confident commenters on the post noted that the document was not legally binding because it was not notarized. This is nonsense. While notarization may be required for certain documents or agreements, parties can enter into contracts with each other without notarization. Take, for example, oral agreements, or the website terms of service for reading this blog post, which state that by reading this I now own a small, yet noticeable percentage of your soul and that you are required to enter into binding arbitration with me to prove otherwise. This story of a winning lawsuit to claim a portion of lottery winnings as a result of a verbal agreement is yet another example. People can, and do, enter into non-notarized contracts every day. 

A smaller number of commenters speculated that the document may not be legally binding because it had numerous spelling errors. While spelling errors may occasionally be of legal significance (by misidentifying parties or terms, or injecting vagueness into the agreement), the errors here do not appear to have this effect. If spelling errors meant doom for legal documents, than a disturbingly massive percentage of contracts, pleadings, and judicial opinions would be rendered void.

Some other folks point out that the document is not legally binding because there is only one signature on it. A contract, they think, needs to be signed by all parties that are bound by it. This does not appear to be the case here, however, as Ferry's post is an offer that invites acceptance by performance. Ferry indicates that to accept his offer of sharing the earnings he receives, a party need only "like, share and comment on my Facebook post that states this propostiion [sic]." Once a party has done that, that person or entity will have fulfilled their end of the agreement.

On a related note, if Ferry ends up winning, a likely way he will whittle down the number of those who may have a claim against him will be to refuse to compensate anyone who did not completely perform their side of the agreement. Ferry notably requires that parties "like, share and comment" on the post, so anyone who only likes, or only comments would not have fulfilled their end of the bargain. His comments could make this issue a little more interesting, as he states that only those who "LIKE / SHARE / COMMENT" are eligible -- but these comments are parol evidence which some courts may deem inadmissible (particularly since the terms of the contract itself are fairly clear). And even if Ferry's comments are considered, they do not appear to contradict the terms of the agreement.

In short, the offer may give rise to a binding contract, provided that the party claiming to accept the offer has liked, shared, and commented on the post.

Unfortunately for Ferry, if he wins anything in the lottery, he will be required to share those winnings with anyone who fulfilled the requirements that he posted. Whether that is $1.6 billion or $2.00 -- Ferry agreed to share "100% of the earnings" that he would win, rather than limiting his performance only to a situation in which he won the jackpot. At the time of this writing, there are only about 30 minutes to go, but it will be interesting to see if Ferry wins a substantial amount, but less than the jackpot, as this may be enough for certain delightful people on the Internet to seek to recover their $1.32 to which they are entitled.

It's also fun that Ferry states that the document "can be used in the court of law." 

Good luck to Mr. Ferry, and to all others out there who, like me, are excited for their inevitable life of leisure once the winning numbers are announced.

Recent Equifax Breach Prompts Criticism of Arbitration Provisions (Updated)

The credit monitoring firm, Equifax, recently suffered a massive data breach, resulting in the exposure of the personal information of approximately 143 million Americans. This personal information includes names, Social Security numbers, birth dates, and addresses.

Equifax, realizing how terrible this is, has tried to respond by offering free credit report monitoring services to its customers for a year. But this isn't going over very well, as it appears that Equifax may be attempting to get people to waive their class-action rights and agree to binding arbitration provisions by signing up for the credit-monitoring service. From the Wall Street Journal:

The fine print in the Equifax agreement concerning the monitoring services said that consumers who take part waive the ability to bring or participate in a class-action suit, a class arbitration or other similar legal actions. That seemed to suggest that consumers would be bound to an individual arbitration process with the company, which some argue is a more difficult place for consumer to get larger rewards for their problems.

The Washington Post has similar reporting here, and a report from MarketWatch is here.

The Terms of Service that contain the "fine print" can be found here. Here is the relevant provision:

Binding Arbitration. Any Claim (as defined below) raised by either You or Equifax against the other shall be subject to mandatory, binding arbitration. As used in this arbitration provision, the term "Claim" or "Claims" means any claim, dispute, or controversy between You and Us relating in any way to Your relationship with Equifax, including but not limited to any Claim arising from or relating to this Agreement, the Products or this Site, or any information You receive from Us, whether based on contract, statute, common law, regulation, ordinance, tort, or any other legal or equitable theory, regardless of what remedy is sought. This arbitration obligation extends to claims You may assert against Equifax’s parents, subsidiaries, affiliates, successors, assigns, employees, and agents. The term "Claim" shall have the broadest possible construction, except that it does not include any claim, dispute or controversy in which You contend that EIS violated the FCRA. Any claim, dispute, or controversy in which You contend that EIS violated the FCRA is not subject to this provision and shall not be resolved by arbitration.

The key in this paragraph is the definition of "Claim," which is sufficiently broad to cover damages arising from the data breach (as these damages presumably arise from one's relationship with Equifax).

Equifax may claim that the Terms of Service linked to above do not apply to customers who enroll in the "TrustedID Premier" program that Equifax is offering after the breach. That program is linked to from this page (with a URL of www.equifaxsecurity2017.com). The Terms of Service associated with the TrustedID program are here, and while they also contain a pretty stringent-sounding arbitration provision, it does not contain the same, extremely broad "Claim" definition. [NOTE: See update below].

But the Terms of Service that I initially quoted should still apply to those who enroll in the TrustedID service because those Terms are extremely broad in their potential application:

THIS PRODUCT AGREEMENT AND TERMS OF USE ("AGREEMENT") CONTAINS THE TERMS AND CONDITIONS UPON WHICH YOU MAY PURCHASE AND USE OUR PRODUCTS THROUGH THE WWW.EQUIFAX.COM, WWW.IDENTITYPROTECTION.COM AND WWW.IDPROTECTION.COM WEBSITES AND ALL OTHER WEBSITES OWNED AND OPERATED BY EQUIFAX AND ITS AFFILIATES ("SITE"). YOU MUST ACCEPT THE TERMS OF THIS AGREEMENT, INCLUDING THE ARBITRATION AGREEMENT CONTAINED IN SECTION 4 BELOW, BEFORE YOU WILL BE PERMITTED TO REGISTER FOR AND PURCHASE ANY PRODUCT FROM THIS SITE. BY REGISTERING ON THIS SITE AND SUBMITTING YOUR ORDER, YOU ARE ACKNOWLEDGING ELECTRONIC RECEIPT OF, AND YOUR AGREEMENT TO BE BOUND BY, THIS AGREEMENT. YOU ALSO AGREE TO BE BOUND BY THIS AGREEMENT BY USING OR PAYING FOR OUR PRODUCTS OR TAKING OTHER ACTIONS THAT INDICATE ACCEPTANCE OF THIS AGREEMENT.

Sorry for all the capital letters. I strongly suspect that attorneys who draft terms of service agreements are secretly angry people, and sometimes the rage manifests itself in the work product.

In case you cannot read the paragraph above, it applies the terms in the Agreement to all websites owned and operated by Equifax and its Affiliates.

In response to critics pointing out how Equifax appears to be systematically herding potential Plaintiffs' into agreeing to binding arbitration, Equifax has set up this "Progress Update" page where it tries to put out the new fire that it has caused:

2). NO WAIVER OF RIGHTS FOR THIS CYBER SECURITY INCIDENT

In response to consumer inquiries, we have made it clear that the arbitration clause and class action waiver included in the Equifax and TrustedID Premier terms of use does not apply to this cybersecurity incident.

Have they though?

Let's go back to the Terms of Service -- specifically, to the relevant portion of the integration clause near the end:

ENTIRE AGREEMENT BETWEEN US. This Agreement constitutes the entire agreement between You and Us regarding the Products and information contained on or acquired through this Site or provided by Us, including through other linked third party Internet sites.

This appears to exclude Equifax's damage control statements, which appear on a separate page and are not included in the terms of the Agreement. All Equifax would need to do would be to point to this clause and argue that its statements elsewhere about the arbitration agreement not applying are of no legal relevance.

In short, commentators who are criticizing Equifax's response seem to have a pretty good point. Signing up for Equifax's free (for a year) credit report monitoring service may result in a waiver of rights that the average consumer would not expect, and likely would not agree to if it were put into plain English.

All of this may end up being moot, however, as signing up for the credit monitoring service requires customers to give Equifax the last six digits of their Social Security numbers. Perhaps those willing to entrust Equifax with this information following a breach of this magnitude are willing to agree to just about anything, including a waiver of the right to trial and right to join in a class action.

[UPDATE: 9/11/2017]

I have revised the post above to add the link to the TrustedID Program Terms of Use, which I had not linked to in the original post. Additionally, at the time I wrote the initial post, the TrustedID Program's Terms of Use included an arbitration provision, albeit one that was less all-encompassing than the provision in Equifax's general Terms of Service Agreement. The TrustedID Program's Terms of Use have now been updated and no arbitration provision appears in these terms at all. The TrustedID Agreement contains integration clause near the end of the Agreement, which states, in pertinent part:

ENTIRE AGREEMENT BETWEEN US. This Agreement constitutes the entire agreement between You and Us regarding the Products and information contained on or acquired through this website or provided by Us, including through other linked third party Internet sites.

This may have the effect of fulfilling Equifax's promise that their arbitration provisions do not apply to the recent breach. Users affected by the breach could visit the webpage for the TrustedID Program without ever accessing Equifax's general website (say, by linking to the TrustedID page from the link in the post above). And while the broad terms of Equifax's general Terms of Use still apply, Equifax would probably have a harder time arguing in court that customers are bound to the general Terms of Use if those customers could have enrolled in the TrustedID Program without ever visiting (or being prompted to visit) a page containing or linking to Equifax's general Terms of Use.

In short, users looking to enroll in the TrustedID Program now have a much stronger argument that they have not agreed to arbitration and may still pursue claims in court, either as individuals or through a class action. Of course, I just checked the TrustedID page and it is still seeking the last six digits of my Social Security Number ... so users still must decide whether entrusting Equifax with this information following the breach is a prudent action to take.

Wells Fargo Turns to Arbitration Clauses to Neutralize False Account Lawsuits

The New York Times reports that Wells Fargo has been using arbitration clauses in its contracts with customers to defeat claims that the bank set up false accounts for customers:

Ms. Zeleny, a lawyer who lives outside Salt Lake City and opened a Wells Fargo account when she started a new law practice, said it would be impossible for her to agree to arbitrate her dispute over an account that she had never signed up for in the first place.

The bank’s counterargument: The arbitration clauses included in the legitimate contracts customers signed to open bank accounts also cover disputes related to the false ones set up in their names.

Some judges have agreed with this argument, but some lawmakers and others consider it outrageous.

“Wells Fargo’s customers never intended to sign away their right to fight back against fraud and deceit,” said Senator Sherrod Brown, an Ohio Democrat, who introduced a bill last week that would prevent Wells from forcing arbitration in the sham account cases.

Yet even as the bank reels in the court of public opinion, Wells Fargo has been winning its legal battles to kill off lawsuits. Judges have ruled that Wells Fargo customers must go to arbitration over the fraudulent accounts.

In dismissing one large case seeking class-action status in California, a federal judge ruled last year that it was not “wholly groundless” that customers could be forced to arbitrate over accounts they had never agreed to. That case is now being settled, according to legal filings.

An earlier report, also in the New York Times, details Wells Fargo's efforts to compel arbitration in a Federal District Court in Utah:

Wells Fargo has asked a Federal District Court to order dozens of customers who are suing the bank over the opening of unauthorized accounts to resolve their disputes in private arbitrations instead of court, according to legal documents. 

The motion, filed in the United States District Court in Utah on Wednesday, is in response to the first-class action lawsuit filed against Wells since it agreed to pay $185 million in penalties and $5 million to customers for opening up to 2 million deposit and credit-card accounts in their names without their permission. 

. . .

Mandatory arbitration rules inserted into account-opening agreements prohibit customers from joining class actions or suing Wells Fargo. Instead, the agreements require individual, closed-door arbitration. 

Mandating arbitration when signing up for financial products has become standard practice after a Supreme Court decision in 2011 validated the practice. But customer advocates say it improperly denies customers the legal protections of court proceedings, such as the right to appeal, and helps to conceal corporate misconduct from the public and regulators because the related documents and hearings are not made public.

Folks in the media seem to have an unfortunate aversion to linking to actual documents, but I did some searching and you can find Wells Fargo's Motion to Compel Arbitration in the Utah case here. You're welcome, dear reader.

Wells Fargo's position in this motion is that the Plaintiffs admit that they set up at least one account with Wells Fargo voluntarily. In doing so, they voluntarily entered into agreements that their disputes with Wells Fargo would be settled through binding arbitration.

Here is one example of such a set of facts that Wells Fargo sets forth in its motion:

On July 9, 2010, Sbeen Ajmal, a California resident and at the time a Wells Fargo employee, opened a team member checking account (x5671) and a consumer savings account (x6215). Ajmal signed the Consumer Account Application for the two accounts as the primary joint owner on July 9, 2010; Mohammad Nazir was listed as a secondary joint owner. (Declaration of Karen Nelson (“Nelson Decl.”) ¶ 26, Ex. 3-A at 3.) In signing this application, Ajmal confirmed the following: “I have received a copy of the applicable account agreement and privacy brochure and agree to be bound by them… . I also agree to the terms of the dispute resolution program described in the account agreement.” (Id.; see also id. ¶ 26 & Ex. 1-G (March 2010 Consumer Account Agreement).) Ajmal further agreed that “disputes will be decided before one or more neutral persons in an arbitration proceeding and not by a jury trial or a trial before a judge.” (Id. ¶ 26, Ex. 3-A at 3.) Ajmal actively used her team member checking account (x5671), and had her paychecks directly deposited into the account. (Id. ¶ 27, Ex. 3-B.)

Another example references a customer who received a welcome letter stating that if his account remained open past a certain date, it would be governed by terms in the "Consumer Disclosure brochure." Among the terms in the brochure was an agreement that any "dispute" arising between the customer and Wells Fargo would be settled through arbitration. As for the definition of "dispute," the contract provided this definition:

[A]ny unresolved disagreement between you and the Bank that relates in any way to account[**] [emphasis added] or services described in this brochure [including] any claim that arises out of or is related to these accounts, services or related agreements. It includes claims based on broken promises or contracts, torts (injuries caused by negligent or intentional conduct), or other wrongful actions. It also includes statutory, common law and equitable claims. A dispute also includes any disagreement about the meaning of this Arbitration Agreement, and whether a disagreement is a ‘dispute’ subject to binding arbitration as provided for in this Arbitration Agreement.

[**NOTE: The quoted portion in the motion says "account," although it makes more sense if read as either "accounts" or "the account." Each alternative reading, however, significantly changes the potential scope of the arbitration agreement, as described in more detail below.]

Wells Fargo's argument is that the arbitration agreement in the accounts that the Plaintiffs admit to entering voluntarily apply to the dispute arising from Wells Fargo's alleged creation of additional accounts for those Plaintiffs without those Plaintiffs' permission. The Plaintiffs will likely argue that the scope of each arbitration agreement was limited to the account that was voluntarily created, and not to any accounts created without permission.

Wells Fargo's argument has merit because the arbitration provisions cited in its motion are generally quite broad. The bank can argue that once the customers created a contractual relationship with Wells Fargo, they agreed that future actions of Wells Fargo relating to the accounts or services fell under the arbitration provision in that contract. This argument is strongest under the terms of the contract described in the first quoted paragraph above.

But under the terms described in the second quoted paragraph above, Wells Fargo's argument might face more of an uphill battle. There, the "disputes" covered by the arbitration provision may be limited to the customer's account -- or to Wells Fargo accounts in general, depending on whether the term "account" is read as "the account," or "accounts." Based on the remainder of the quote and its context, it looks like the intended word was "accounts," which would strengthen Wells Fargo's position, but the quote as stated is ultimately unclear. If the Court reads the agreement giving rise to the account to extend only to Wells Fargo's actions in providing services under that particular account, the Plaintiffs will have a stronger argument, at least to the extent that the Consumer Disclosure brochure is the only applicable agreement.

The New York Times references some critics and lawmakers who are angry with Wells Fargo's strategy, but from a pragmatic point of view the bank would be foolish not to use these agreements. Arbitration agreements are supported by favorable Supreme Court case law, and because they can thwart Plaintiffs' litigation efforts early in the process. Whether anger by consumers and legislators over Wells Fargo's arbitration maneuvers is enough to prompt changes in the law governing arbitration clauses remains to be seen.

Non-Disparagement Agreements With the Government and the First Amendment

Eugene Volokh wrote yesterday about a settlement agreement between a former employee of a Veterans Affairs Hospital in Washington. The settlement agreement, entered into by the parties in January 2013, contained a provision barring the former employee from:

. . . making any complaints or negative comments to any member of Congress or their staff, or any newspapers or media or their staff, or any other public forums, about the facts of this Settlement Agreement or the facts or conditions that led up to this Settlement Agreement.

Volokh notes that the Equal Employment Opportunity Commission recently found that the provision above violated the former employee's First Amendment rights.  I have written previously about non-disparagement agreements in the context of contracts between private parties. As I argued in that post, non-disparagement agreements hidden in contracts of adhesion between large companies and private consumers may be unconscionable and therefore unenforceable.

Non-disparagement agreements that are parts of settlement agreements between private parties are a different story. Typically, the parties are both represented by counsel and reach the settlement agreement after negotiation over the agreement's terms. If those terms contain a provision prohibiting one of the parties from disparaging the other, or speaking about the facts giving rise to the litigation, the term will likely be enforceable as a negotiated provision of an agreement. From prior research, I am aware of the Maryland Court of Special Appeals opinion in Smelkinson Sysco v. Harrell holding this to be the case, and Volokh cites Cohen v. Cowles Media in support of this claim.

But what of non-disparagement agreements between private parties and government entities? These agreements appear to raise First Amendment concerns because government action is involved. Volokh's post highlights one such example. Julia Craven points out similar provisions in settlement agreements reached in excessive force lawsuits against police officers. Does prohibiting the private party from speaking about the facts giving rise to the litigation violate that party's first amendment rights?

Volokh thinks it might:

Now whether such agreements, entered into by the government, are constitutional is a complicated question. Private parties often do enter into various confidentiality and nondisparagement agreements, and they’re generally enforceable. (See, e.g., Cohen v. Cowles Media Co. (1991).) The government is subject to First Amendment constraints, even when it’s acting as contractor; and I’m inclined to think that such a nondisparagement agreement, aimed solely at preventing embarrassment to the employer (rather than, say, preserving client privacy or national security secrets), is unconstitutional. Still, it’s not completely clear what the rules are here.

I disagree with Volokh's inclination (although I agree that the rules are unclear). If the parties have reached a negotiated settlement agreement in which a private party agrees to curtail his or her speech in exchange for a monetary payment or other action by the government, this strikes me as a negotiated waiver of First Amendment rights. Waivers of constitutional rights may be permitted if they are knowing and voluntary -- consider, for example, the vast majority of criminal cases resolved through plea bargains where defendants give up their right to a jury and right to confront witnesses (see also: DH Overmyer Co. v. Frick Co. for a more general discussion of waivers).

Knowing and voluntary waivers of First Amendment rights may also be constitutional. In Leonard v. Clark, the Ninth Circuit upheld the Portland Fire Fighters Association's agreement with the City of Portland providing in relevant part that legislation supported by the Union that resulted in increased payroll costs to the City would be charged against the applicable salary agreement with the Union. The Union contended that this violated its First Amendment right to petition the government, and the Ninth Circuit disagreed, holding that the Union had made a knowing, voluntary, and intelligent waiver of its First Amendment rights.

Another example is Estate of Barber v. Guilford County in which the Court of Appeals of North Carolina upheld a settlement agreement between a private party and the Guilford County Sheriff's Department in which the private party agreed not to use the term "murder" with respect to a certain Deputy. The Court of Appeals found that the waiver of First Amendment rights was knowing and voluntary, and therefore enforceable.

While I think that there is a decent argument that parties can be permitted to knowingly and voluntarily waive their First Amendment rights in a negotiated settlement with the government, the case law on this topic is underdeveloped. As discussion on these provisions in the public and private context continues, I look forward to seeing how the courts treat these agreements.

On the other hand, should awareness of non-disparagement agreements continue to grow, I would not be surprised if government entities began shying away from them. As Volokh points out, the presence of such agreements raises serious political accountability questions. If more people learn that government entities are requiring parties to sign non-disparagement agreements, speculation over what the government is trying to hide may end up being more damaging than the facts themselves.

The Supreme Court's "Superspecial" Kimble Opinion

Today, the Supreme Court released several opinions, including Kimble v. Marvel Entertainment. Kimble involves the question of whether a party may contract for payment of patent royalties after the patent's expiration. The opinion has attracted a great deal of attention -- not due to its answering this question in the negative and adhering to the precedent set in Brulotte v. Thys Co., 379 U.S. 29 (1964) -- but instead because of its numerous references to Spider-Man and superheroes. The case, after all, includes Marvel Entertainment as a party, and concerns "a toy that allows children (and young-at-heart adults) to role-play as 'a spider person' by shooting webs—really, pressurized foam string—“from the palm of [the] hand.'"

For example, in the concluding paragraphs of the majority opinion, Justice Kagan notes;

What we can decide, we can undecide. But stare decisis teaches that we should exercise that authority sparingly. Cf. S. Lee and S. Ditko, Amazing Fantasy No. 15: “SpiderMan,” p. 13 (1962) (“[I]n this world, with great power there must also come—great responsibility”).

Coverage noting the references in Justice Kagan's majority opinion can be found here, here, here, and here.

Also of note is this paragraph:

As against this superpowered form of stare decisis, we would need a superspecial justification to warrant reversing Brulotte. But the kinds of reasons we have most often held sufficient in the past do not help Kimble here. If anything, they reinforce our unwillingness to do what he asks.

After a bit of searching, it appears that this is the first federal court opinion to use the word "superspecial." A few other opinions contain the hyphenated phrase, "super-special" -- often as part of a quotation -- but Kimble is the first to employ the single-word term. Kimble also appears to be the first Supreme Court opinion to use the term, "superpowered." Several opinions in the lower court have employed this phrase (see, e.g., Twentieth Century Fox Film Corporation v. Marvel Enterprises, Inc., 277 F.3d 253, 255 (2002) ("In 1963, Marvel began publishing a comic book series entitled 'X-Men,' featuring a group of young, superpowered mutants led by Professor X, an older, superintelligent leader who sought to train his students and to protect them from a hostile society.")). But Justice Kagan's majority opinion appears to be the first instance of the Supreme Court using this word.

Kimble concerns a technical subject. But due to Justice Kagan's marvelous writing and references, the opinion is a delight to read.

What is a Pond?

According to the Iowa Court of Appeals, a pond is "a body of water," and a contractor's building "a pond that does not hold water," amounted to nothing more than the construction of a dam.

Via Kevin Underhill's Lowering The Bar, I learned about this story of a recent Iowa Court of Appeals decision holding that a contractor's agreement to construct a pond left the construction company liable when the pond ultimately failed to hold water due to "a porous layer of shale" on the sides of the pond. Additional coverage of the case is available here. A direct link to download a pdf version of the opinion is available here.

The construction company, Reilly, argued that it had abided by the terms of its contract to produce a pond. But the court held that the waterless pond violated Reilly's express warranty of the quality of product it would provide to its customer, Bachelder:

Reilly does not quibble with Bachelder’s testimony that Reilly told him he could “do a pond” at the staked location on Bachelder’s property. In his testimony, Reilly agreed he intended the pond would hold at least enough water so that the tires placed on the bottom for fish habitat would be covered up. By definition, a pond is “a body of water.” See American Heritage College Dictionary 1062 (3d ed. 1993); see also Iowa Code §§ 455B.171(39) (defining “water of the state” as including ponds), 462A.2(15) (defining farm pond as “a body of water”). When Reilly agreed to construct a pond on Bachelder’s property, he was expressly warranting the pond would hold water. Otherwise, Reilly would have simply been constructing a dam, without any anticipation it would capture water to form a pond. (Footnote omitted)

  In the wake of this opinion it appears that a pond without water is not a pond at all under Iowa law.

Arbitration by Combat and Game of Thrones

I am happy to announce that I will be coauthoring an article with my former UCLA Law classmate, Raj Shah, in an upcoming special issue of the Media and Arts Law Review. The issue will contain articles on "Law and Law Breaking in Game of Thrones." Prior posts on the call for papers can be found here and here.

Our article currently has the title, Arbitration by Combat. Here is the article proposal that we submitted:

Trial by combat is a popular method of dispute resolution in the Game of Thrones universe. The trials of Tyrion Lannister and Sandor Clegane stand as some of the most defining moments of the series. However, as the series vividly illustrates through Oberyn Martell’s duel with Gregor Clegane, trial by combat can pose mortal dangers for combatants not endowed with the protection of the god R’hllor. Furthermore, as Tyrion Lannister’s prosecution by the Iron Throne demonstrates, trial by combat can often lead to unjust results.

Trial by combat was also a common method for resolving disputes in medieval Europe. Trials by combat were subject to numerous procedural rules and were often (but not always) less violent than the disputes in Game of Thrones. But trial by combat has since been rejected as an unjust and barbaric ritual. 

The concerns surrounding trial by combat as a means of dispute resolution raise several interesting questions: can agreements to arbitrate disputes by means of a trial by combat be enforced in the United States? And if these “arbitration by combat” provisions are enforceable, what form of combat would be permitted under existing law? The more restrained historic form of trial by combat or the Game of Thrones variety?

In this article, we seek to answer these questions by examining how arbitration by combat agreements might implicate state and federal laws in the United States. First, we explore whether such agreements would run afoul of state laws barring contracts that are unconscionable or against public policy. We argue that savvy drafters of arbitration by combat provisions should avoid the gory proceedings in the Game of Thrones universe. But arbitration by combat based on historic practices may survive judicial review.

Second, we examine whether state regulation of arbitration by combat provisions would be preempted by the Federal Arbitration Act’s protections for arbitration agreements. In particular, we analyze whether the Act would protect an arbitration by combat agreement against state interference, given the U.S. Supreme Court’s recent expansion of the Act’s reach in AT&T Mobility v. Concepcion, 563 U.S. 321 (2011).

We argue that while Game of Thrones–style arbitration by combat may violate state contract laws, arbitration by combat that conforms to historic practices may find more success. We also conclude that there is a strong argument that an arbitration by combat procedure falls under the protection of the Federal Arbitration Act, provided it satisfies certain “fundamental attributes of arbitration” identified in Concepcion. That is, the combat would have to be informal, speedily resolved, and relatively inexpensive to conduct. Hence, state safety regulations of combat proceedings – while permissible – would be preempted to the extent they interfere with such characteristics.

The topic of this paper should not be too much of a surprise to regular readers of this blog. Trial by combat has always fascinated me, and you can find my previous posts on the subject here and here.

I must confess, however, that I am not well-versed in the Game of Thrones literature. Fortunately, my coauthor, Raj Shah, has extensive expertise in that area (as well as in the area of researching and writing about the Federal Arbitration Act). While Raj, like myself, has not published on the subject of Game of Thrones before, he has published a critical race perspective on U.S. standing doctrine in the UCLA Law Review, which you can find here.

As is the case with any post or paper I have announced on this blog, comments and criticism from readers are welcome. Our deadline for completing the full paper is December 19.

Jimmy John's Requires Noncompete Agreements for Sandwich Makers

From the Huffington Post:

A Jimmy John's employment agreement provided to The Huffington Post includes a "non-competition" clause that's surprising in its breadth. Noncompete agreements are typically reserved for managers or employees who could clearly exploit a business's inside information by jumping to a competitor. But at Jimmy John's, the agreement apparently applies to low-wage sandwich makers and delivery drivers, too. 

By signing the covenant, the worker agrees not to work at one of the sandwich chain's competitors for a period of two years following employment at Jimmy John's. But the company's definition of a "competitor" goes far beyond the Subways and Potbellys of the world. It encompasses any business that's near a Jimmy John's location and that derives a mere 10 percent of its revenue from sandwiches.

The full agreement is available here.

The article points out that there have not been any reported instances of the sandwich company attempting to enforce its noncompete agreement. This seems sensible to me, since the geographic, temporal, and practical breadth of the noncompete provision might give courts pause before enforcing the agreement.

While the law of noncompete agreements varies between states, the Jimmy John's provision would almost certainly be struck down in a California court. As this report from White & Case explains, California is notably hostile towards noncompete claims, and only permits them in narrow circumstances, such as when the a partnership, limited liability, or other ownership share in a business is sold. The departure of a sandwich-making employee to a similar business does not seem to fall into any of the exceptions to California's prohibition on noncompetes.

I have blogged about some of Jimmy John's previous legal travails here. Unlike that prior incident (involving a misguided class action lawsuit brought about by the absence of sprouts), this noncompete situation seems to involve a bit more of a misstep on the company's part.

California Passes Law Prohibiting Non-Disparagement Clauses

So reports the LA Times:

Californians offering online opinions or reviews of businesses will have new legal protection under a bill signed Tuesday by Gov. Jerry Brown.

The measure by Assemblyman John A. Pérez (D-Los Angeles) aims to crack down on retailers seeking to stop negative online reviews by requiring consumers not to make negative public comments about the business.

Those requirements, known as non-disparagement clauses, are at times buried in the lengthy terms and conditions that some businesses ask customers to agree to before making a purchase. Pérez's measure makes such clauses illegal in most cases.

The bill is AB 2365. From the text of the bill:

SECTION 1. Section 1670.8 is added to the Civil Code, to read:

1670.8. (a) (1) A contract or proposed contract for the sale or lease of consumer goods or services may not include a provision waiving the consumer’s right to make any statement regarding the seller or lessor or its employees or agents, or concerning the goods or services. 

(2) It shall be unlawful to threaten or to seek to enforce a provision made unlawful under this section, or to otherwise penalize a consumer for making any statement protected under this section. 

(b) Any waiver of the provisions of this section is contrary to public policy, and is void and unenforceable.

The bill goes on to include monetary penalties for businesses violating the law. These penalties take the form of statutory damages which could be recovered in any lawsuit filed by a consumer or by a government agency.

In a previous post, I highlighted an instance where a company engaged in oppressive use of its non-disparagement agreement. In light of the potential for companies to use these clauses to oppress customers and silence criticism, I think that this law is a good idea. Companies remain free to remove any disparaging remarks that are posted on their websites, and they remain free to pursue defamation cases, so there are still legal remedies available for companies that are facing significant harm caused by false criticism.

It will be interesting to see the effect of this bill on non-disparagement agreements throughout the country. I imagine that many companies that employ these clauses do so on their websites. These companies should probably remove those clauses from their online forms, since there is a significant chance that these forms will be signed by customers in California.

UPDATE: 9/12/2014

Eugene Volokh notes that subsection (a)(2) of the bill may prohibit a dangerous amount of conduct. Not only does that subsection prohibit the enforcement of a non-disparagement clause, it also states that businesses cannot "otherwise penalize a customer" from criticizing the business.

Volokh worries that this subsection could be construed to restrict businesses from refusing to do business with customers who make constant, disparaging remarks. And Volokh worries that this subsection could be construed to restrict defamation lawsuits against consumers' statements that are indeed defamatory.

I suspect that the most likely penalty businesses would seek to impose on customers would be liquidated damages that are stated in the non-disparagement clause. But these liquidated damages provisions would presumably be barred by the ban on enforcement of the non-disparagement clause -- a prohibition that is stated in subsection (a)(2) in addition to the broader, "otherwise penalize" statement.

While I think that courts would be hesitant to characterize filing a defamation lawsuit as "penalizing" a customer, Volokh is correct to point out that subsection (a)(2) of the law could have been more carefully drafted.

Contracts Exam Prediction: The Salaita Controversy at the University of Illinois

I've blogged about predicting law school exams and how students can go about predicting exam content, and I've posted some predictions about exam content on this blog and elsewhere on Facebook. As I have mentioned before, students should be on the lookout for stories in the news that have a legal hook, especially those that implicate several areas of a particular area of law. Events this August have led me to make another prediction -- this time in the field of contract law.

I predict that law professors may seek to structure a contracts exam around a recent controversy involving Professor Steven Salaita who was recently denied an offer to teach at the University of Illinois. Inside Higher Ed was one of the first outlets to report on this:

Many faculty job offers (which are well-vetted by college officials before they go out) contain language stating that the offer is pending approval by the institution's board of trustees. It's just a formality, since many college bylaws require such approval. 

Not so with a job offer made to Steven G. Salaita, who was to have joined the American Indian studies program at the University of Illinois at Urbana-Champaign this month. The appointment was made public, and Salaita resigned from his position as associate professor of English at Virginia Tech. But he was recently informed by Chancellor Phyllis Wise that the appointment would not go to the university's board, and that he did not have a job to come to in Illinois, according to two sources with knowledge of the situation. 

The university declined to confirm the blocked appointment, but would not respond to questions about whether Salaita was going to be teaching there. (And as recently as two weeks ago, the university confirmed to reporters that he was coming.) The university also declined to answer questions about how rare it is for such appointments to fall through at this stage. 

. . .

The sources familiar with the university's decision say that concern grew over the tone of his comments on Twitter about Israel's policies in Gaza. While many academics at Illinois and elsewhere are deeply critical of Israel, Salaita's tweets have struck some as crossing a line into uncivil behavior.

The Huffington post covers the story here.

This incident raises a number of questions, including whether there was an offer of employment, and whether Salaita has a promissory estoppel claim against the university. At ContractsProf Blog, Nancy Kim argues that Salaita may have had a valid contract of employment. David Hoffman replies to her claim here. This case also involves a significant promissory estoppel dimension: Michael Dorf argues that Salaita has a strong claim, Hoffman replies, arguing that the claim would be weak, and Dorf responds here.

Admittedly, this case raises a number of other questions, including whether the university violated the First Amendment, as Brian Leiter argues here. But Hoffman takes that into account, and offers an altered hypothetical where he removes a lot of the other issues from the contract law debate.

I think that this may end up being a contracts exam question because this case involves several levels of analysis, including offer and acceptance, promissory estoppel, and possibly good faith. Some of these questions are easy to answer, and others might be a bit tougher -- which is an ideal way to structure a law exam fact pattern. Moreover, while the Salaita case involves a number of non-contracts issues, as Hoffman's later post demonstrates, the fact pattern can be altered to remove those issues.

On the other hand, this controversy is occurring early in the semester, and law professors might not be thinking about using this fact pattern in their exams at the moment. But this may also count in favor of this case, since the attention it is getting now may die out by the time exams roll around, meaning that students will be less likely to have heard of this story.

With major legal blogs like Concurring Opinions, Dorf on Law, and Justia's Verdict covering this case, it is sure to be on the radar of many professors. Students would do well to take note of this case -- especially the debate between Dorf and Hoffman -- in preparing for contracts exams. In the very least, this is a good exercise for students who want to see arguments for and against promissory estoppel applied to a real case.

Who Says The Uniform Commercial Code Isn't Beautiful?

For the beginning of my bar review program, I have been going through Kaplan's review sessions for core subjects. I completed the contracts review sessions the other day, and I found that while I did okay on the common law and remedies questions, I did not perform as well on the portion of the review that covered the Uniform Commercial Code (UCC).

I initially thought that my struggles were due to the cut-and-dry nature of the UCC's rules. The review lectures pointed out that if I didn't remember a rule for a certain scenario, it would be hard to narrow down the potential answers. Since I hadn't reviewed these rules since my first year of law school, I chalked off my struggles as a consequence of rusty memorization.

But perhaps I didn't do as well on the UCC questions because this area of law is too ugly. At least, that's what Kenneth Ching argues in his article, Beauty and Ugliness in Offer and Acceptance (H/T: Legal Theory Blog). Here is the abstract:

This essay applies classical aesthetics to the contract doctrine of offer and acceptance. It argues that contract law can be understood, analyzed, and improved using three criteria of beauty: proportion, integrity, and clarity. Based on these criteria, this essay (1) argues that the traditional doctrine of offer and acceptance is beautiful, (2) argues that UCC §2-207 is ugly and fails to improve upon offer and acceptance, and (3) suggests improvements for UCC §2-207.

I took a break from bar review to look over Ching's article to see if my struggles with the UCC were aesthetic in origin. I have come to the conclusion that they are not, and that further review and memorization of the UCC should get me up to speed on the rules. In fact, I did some of that review while I was reading Ching's article and as a result I developed some serious qualms with Ching's claims.

General Mills Reverses Changes to its Legal Terms, Removing Arbitration Provision

The New York Times reports:

General Mills, one of the country’s largest food companies, on Saturday night announced in a stunning about-face that it was withdrawing its controversial plans to make consumers give up their right to sue it. 

In an email sent after 10 p.m. on Saturday, the company said that due to concerns that its plans to require consumers to agree to informal negotiation or arbitration had raised among the public, it was taking down the new terms it had posted on its website. 

“Because our terms and intentions were widely misunderstood, causing concerns among our consumers, we’ve decided to change them back to what they were,” Mike Siemienas, a company spokesman, wrote in the email. “As a result, the recently updated legal terms are being removed from our websites, and we are announcing today that we have reverted back to our prior legal terms, which contain no mention of arbitration.”

How did General Mills think their terms had been mischaracterized? In its blog, the company elaborates on its legal terms revisions. General Mills' post includes this remark:

We’ll just add that we 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.

I mentioned in this previous post that I thought there was some misinterpretation about what the legal terms said -- some people had been reporting that purchasing General Mills products would result in a forfeiture of the right to sue, but the legal terms only appeared to apply to those customers who received coupons or "joined" the company's "online community" -- not all customers.

But the terms of the legal agreement said that the agreement applied to customers who "joined" General Mills' websites "as a member" and those customers who "joined" the company's "online community." This was the provision that led many to report that the legal terms applied to users who "liked" the company on Facebook, or followed the company on Twitter. And I think this interpretation of the terms follows from the former language in the agreement. So while General Mills is correct to say that the agreement did not preclude customers from suing as a result of a simple purchase, I don't think they are right to say that the agreement did not preclude lawsuits by consumers who liked the company on Facebook.

While I thought that General Mills' legal agreement contained some questionable provisions, and while General Mills' reversal of these changes is probably a good business move, this reversal means that the interesting legal questions I discussed in my previous post will not be explored by the courts.

UPDATE

Dave Hoffman at Concurring Opinions discusses the General Mills legal agreement and its revision here.

In Its New Statement of Legal Terms, General Mills Greatly Restricts Consumers' Rights to Sue

The New York Times reports:

General Mills, the maker of cereals like Cheerios and Chex as well as brands like Bisquick and Betty Crocker, has quietly added language to its website to alert consumers that they give up their right to sue the company if they download coupons, “join” it in online communities like Facebook, enter a company-sponsored sweepstakes or contest or interact with it in a variety of other ways.

Instead, anyone who has received anything that could be construed as a benefit and who then has a dispute with the company over its products will have to use informal negotiation via email or go through arbitration to seek relief, according to the new terms posted on its site. 

In language added on Tuesday after The New York Times contacted it about the changes, General Mills seemed to go even further, suggesting that buying its products would bind consumers to those terms.

General Mills' online agreement certainly seems to go as broad as it told the Times. At the top of its webpage, it states, "Please note we also have new Legal Terms which require all disputes related to the purchase or use of any General Mills product or service to be resolved through binding arbitration." Looking to the legal agreement suggests that the terms apply to a broad range of activities, although they may not apply to all consumers who purchase General Mills products. Here are the portions of the agreement that give me this impression:

1. Your agreement to these legal terms 

These terms are a binding legal agreement (“Agreement”) between you and General Mills. 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.

Of course, your decision to do any of these things (i.e., to use or join our site or online community, to subscribe to our emails, to download or print a digital coupon, to enter a sweepstakes or contest, to take advantage of a promotional offer, or otherwise participate in any other General Mills offering) is entirely voluntary. But if you choose to do any of these things, then you agree to be bound by this Agreement.

. . . 

3. Dispute resolution; binding arbitration 

. . . 

ANY DISPUTE OR CLAIM MADE BY YOU AGAINST GENERAL MILLS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR YOUR PURCHASE OR USE OF ANY GENERAL MILLS SERVICE OR PRODUCT (INCLUDING GENERAL MILLS PRODUCTS PURCHASED AT ONLINE OR PHYSICAL STORES FOR PERSONAL OR HOUSEHOLD USE) REGARDLESS OF WHETHER SUCH DISPUTE OR CLAIM IS BASED IN CONTRACT, TORT, STATUTE, FRAUD, MISREPRESENTATION, OR ANY OTHER LEGAL THEORY (TOGETHER, A “DISPUTE”) WILL BE RESOLVED BY INFORMAL NEGOTIATIONS OR THROUGH BINDING ARBITRATION, AS DESCRIBED BELOW.

Later portions of the arbitration waiver indicate that consumers who go to arbitration cannot consolidate their classes with other consumers, meaning that consumers who agree to the contract waive any class action rights.

This is a pretty notable development in General Mills limitation of its own liability, and I don't think that this contract will stand up in all the situations the contract claims to cover. Also, I don't think that General Mills has accurately stated what its contract actually says in its discussion with the New York Times.

An Exciting Discovered "Opinion" on the Eventual Triumph of Arbitration

Adam Steinman posts at the Civil Procedure and Federal Courts Blog about this paper by Charles Sullivan and Timothy Glynn, The FAA Triumphal: A Modest Opinion.

The paper begins on a dramatic note:

The opinion reproduced below was delivered to us anonymously, with a cover note stating that it had been found on a photocopy machine in the Supreme Court of the United States.  Efforts to identify the source of the note have been unsuccessful; further, we have been unable to confirm that a case denominated Pasquinade v. Quillet Enterprises, Inc., was ever filed in that Court or in any other federal court.

The rest of the paper consists of the Pasquinade opinion, the beginning of which indicates that exciting things are to follow:

We hold both that the failure to refer to arbitration in haec verba does not bar a finding of an agreement to arbitrate under the Federal Arbitration Act, and that arbitration is so much the preferred method of dispute resolution under the FAA that, for all contracts within its ambit, arbitration should be presumptively the sole method of resolving disputes that arise under that contract. Only when the parties have expressly and unmistakably negated arbitration, and insisted on judicial resolution, should a court refuse to order arbitration.

I recommend that you read the entire opinion.  For example, take this passage from the beginning of the opinion:

The dissent’s position that this matter is not an “important question of federal law” is truly jawdropping.  After all, with only mild hyperbole, our decision today will oust both federal and state courts of jurisdiction to decide almost all contract claims. What could be more important?

Non-Disparagement Agreements

Andrew Crocker and Kurt Opshal of The Electronic Frontier Foundation write about a horror story arising from a customer's signing a "non-disparagement agreement."  The customer, Jen Palmer, tried to purchase an item from KlearGear, but the item was never shipped to her.  After receiving a refund, but running into trouble trying to contact the company's customer service representative, she gave a negative review of the product on Ripoffreview.com.

KlearGear wrote to Palmer three years (!) later and demanded $3,500 based on her violation of a non-disparagement clause she had signed when she had tried to purchase the item.  That clause stated:

In an effort to ensure fair and honest public feedback, and to prevent the publishing of libelous content in any form, your acceptance of this sales contract prohibits you from taking any action that negatively impacts KlearGear.com, its reputation, products, services, management or employees. 

Should you violate this clause, as determined by KlearGear.com in its sole discretion, you will be provided a seventy-two (72) hour opportunity to retract the content in question. If the content remains, in whole or in part, you will immediately be billed $3,500.00 USD for legal fees and court costs until such complete costs are determined in litigation. Should these charges remain unpaid for 30 calendar days from the billing date, your unpaid invoice will be forwarded to our third party collection firm and will be reported to consumer credit reporting agencies until paid.

Palmer was unable to pay the fee to remove the comment and was unable to pay the $3,500 demand, and ran into credit problems as a result.

The EFF reports on a number of inconsistencies with KlearGear's claim, including the question of whether this clause had even existed when Palmer had made her purchase.  The EFF also argues that the non-disparagement agreement is unconscionable, noting that consumers typically do not have any say in the provisions of purchase agreements and that the language in these agreements tends to confer substantial privileges to the seller over the consumer.

I am inclined to agree that the non-disparagement provision is unconscionable.  While I don't think that any First Amendment claims can be made here, the vast asymmetry in the agreement and the likely inability of consumers to negotiate the agreement are problematic.  Moreover, the $3,500 payout is all but guaranteed, since the payout is required upfront, and will cover litigation fees that KlearGear ends up paying, even if any defamation suit it files ends up being groundless.

And as a final note on the issue, the non-disparagement clause avenue for punishing critics appears to be a way around insurance protection that many defendants may have in typical libel cases.  Eugene Volokh notes that many standard homeowner's insurance agreements have clauses that guarantee payouts for damages paid out in a libel suit, or costs incurred in defending against such a suit.  He provides an example of one such claim:

If a claim is made or a suit is brought against any insured for damages because of bodily injury … caused by an occurrence to which this coverage applies, we will: 

1. pay up to our limit of liability for the damages for which the insured is legally liable; and 

2. provide a defense at our expense by counsel of our choice even if the allegations are groundless, false, or fraudulent…. 

POLICY DEFINITIONS …. 

“Bodily injury” means; … personal injury … arising out of … libel, slander or defamation of character; or … invasion of privacy.

A non-disparagement claim along the lines of the KlearGear agreement looks like a contract claim, and not a claim for "damages because of bodily injury," which seems to be restricted to tort claims.  And even if KlearGear were to successfully sue Palmer, such an insurance policy would cover the damages she would need to pay in that lawsuit, but not the contractually-required money she would need to pay for KlearGear's costs.