Posts Tagged ‘contracts’

California: please reconsider Traynor’s parol evidence mistake

The traditional parol evidence rule reduces the scope of litigation by providing that unless a completed contract is uncertain or ambiguous, courts will not entertain extrinsic evidence, such as allegations of contrary oral representations, to alter its interpretation. In the 1968 case of Pacific Gas & Elec. Co. v. G. W. Thomas Drayage Co., the California Supreme Court and Justice Roger Traynor adopted a much more liberal alternative rule in which extrinsic evidence could be brought in to create ambiguity even when at variance with clear provisions. In a 1988 case, Judge Alex Kozinski, obliged to apply the doctrine in a diversity case, noted that the confusion created by PG&E and subsequent opinions “casts a long shadow of uncertainty over all transactions negotiated and executed under the law” of California.

In the case of Jibe Audio, LLC v. Beats Electronics, LLC, the Washington Legal Foundation is urging the California Supreme Court to hear the case and use it as an occasion to reconsider its approach to the subject: “California’s conception of the parol evidence rule creates uncertainty for people and businesses engaging in commercial transactions. Allowing this rule to persist will just allow the mass exodus of business from California … to continue,” said WLF’s Richard Samp. [case detail, press release, brief, background (James C. Martin and Benjamin Shatz)]

Why most American businesses pay their vendors, even without loser-pays

As has often been noted, the so-called American Rule on fees in litigation (prevailing party has no right to recover fees from loser) creates an incentive for businesses to refuse to pay the full sums they owe suppliers, since it would appear rational for a vendor to accept, say, 70 cents on the dollar rather than embark on the substantial cost of litigating over nonpayment. And yet deliberate vendor-stiffing (“selling out your good will”) remains uncommon in our system, rather than being the rule. Roger Parloff at Fortune, drawing on the work of the late contracts scholar Arthur Leff, explains why.

Update: “I’ll pay them a million dollars if they can do it.”

We reported five years ago on a contract-law hypothetical come to life: a criminal defense lawyer went on TV and said he’d give a million dollars if anyone could prove the prosecutor’s timeline was consistent with the known facts, whereupon an enterprising law student proceeded to do just that. The Eleventh Circuit said the proper test under Florida law was whether “a reasonable, objective person would have understood [the lawyer’s words] to be an invitation to contract.” And: “The exaggerated amount of ‘a million dollars’ – the common choice of movie villains and schoolyard wagerers alike — indicates that this was hyperbole.” And yet more: “we find it neither prudent nor permissible to impose contractual liability for offhand remarks or grandstanding.” [Ann Althouse, Lawrence Cunningham]

“Did California just make it illegal for businesses to stop dealing with customers who insult them?”

An outcry has lately arisen over consumer contracts that purport to ban disparagement of the company that proffered the contract or its products, especially since a few such companies, seeking to silence customers vocally dissatisfied with products or services, have proceeded to sue them, threaten them with suit, or report them as credit risks. Although it is doubtful that existing law in fact permits practices of this sort, California proceeded to pass a new law protecting consumers from retaliation by companies they criticize — a law that appears to go much farther than just banning the practices that stirred the furor. [Volokh] Contra: Scott Michelman, CL&P.

Labor and employment roundup

  • “Telling Employee He Is ‘Eligible’ For Bonus Not Enough to Create Contractual Obligation” [Chris Parkin/Daniel Schwartz; Connecticut appeals court]
  • Richard Epstein on Obama’s anti-LGBT-discrimination edict for federal contractors [Hoover “Defining Ideas”]
  • D.C. Circuit panel, Janice Rogers Brown writing, strikes down DC tour guide licensing scheme [Ilya Shapiro/Cato, WaPo, Orin Kerr]
  • “Why Progressives Shouldn’t Support Public Workers Unions” [Dmitri Mehlhorn/Daily Beast]
  • “James Sherk of Heritage on Members-Only Bargaining” [On Labor]
  • As discrimination law gradually swallows all else: “Rep. Keith Ellison wants to make union organizing a civil right” [MSNBC]
  • NY Senate committee gives approval to “workplace bullying” law. On thin constitutional ice? [Hans Bader/CEI, earlier]

Adventures in employment agreements

The town of Stratford, Connecticut entered an employment agreement with its director of human resources, stating that his employment would be entirely at-will and further providing:

Based upon the annual performance evaluation, and at the [m]ayor’s sole discretion and recommendation, the base salary may be increased on July 1 of each fiscal year, subject to the approval of the [council], which by Charter fixes the salaries of all mayoral appointees.

Subsequently, the town council voted to reduce the manager’s salary, and the dispute went to litigation. Both a trial court and a Connecticut appeals court agreed with the manager’s argument that even though the document prescribed an at-will relationship, by specifying that the base salary “may be increased” it was implicitly promising that it would never be decreased. [Daniel Schwartz; Adams on Contract Drafting]

Consumer non-disparagement clauses gone wild: the sequel

As we’ve reported earlier in a series of posts, an online supplier named KlearGear inserted into its customer agreement a clause prohibiting “any action that negatively impacts KlearGear.com [or] its reputation.” When a couple nonetheless left a negative review, it billed them $3,500 and reported them for nonpayment to credit raters. The couple filed an action to which KlearGear failed to respond, and a court in Salt Lake City has now granted their request for a total of $306,750 including $250,500 in punitive damages, though the collectibility of that sum is unknown. [CL&P]

Students “told to destroy rare Dodge Viper”

Olympia, Wash.: “A community college says it’s the pride of their automotive technology program: a rare Dodge Viper donated to their school worth hundreds of thousands of dollars.” It’s believed to be the fourth one off the assembly line. But now Chrysler has “ordered the destruction of their entire educational Viper fleet.” It seems that while the prototypes were never meant to be driven on public roads, “two of them somehow got out and into accidents, costing Chrysler’s parent company millions of dollars.” Things might be different if our law respected a sale or other contractual agreement between Chrysler and the school as reason to release the manufacturer from a suit filed by an injured third party. But it doesn’t. Chrysler’s deadline for ordering the cars crushed has now passed; no word at present as to whether any of the cars have been reprieved or otherwise survived. [KING, AutoWeek, Tacoma News Tribune, Motor Trend]

Consumer nondisparagement clauses

A few weeks ago a furor broke out after it was reported that a company called KlearGear had billed customers $3,500 for giving it a negative review, pursuant to a non-disparagement clause prohibiting “any action that negatively impacts KlearGear.com [or] its reputation.” Now it seems a company purveying refrigerated wine cabinets is using a similar clause [Matthew Hunt, Scotch Tape and Duct Whisky via WineBerserkers.com]