Contracts : Week of October 22

Reading for October 22

• Neiss v. Ehlers
  Commentary in class
  They have an agreement to make a plan for Neiss to get an interest in the business. The Hoffman v Red Owl case says that a promise that's not sufficiently specific to be a contract (i.e., steps leading to a contract) can still get you Restatement §90 reliance damages.

  So they note (citing Henderson, a professor) that we've been chipping away at contract law, over time. We're willing to enforce less and less rigorously defined things. Note that Hoffman is cited in the restatement examples, so it must be a good example of §90.

  So if you have definite things, you'd have a contract. So we have some disagreement on what represents consideration here (i.e., was she supposed to put up money or something, for that promised agreement? We don't say ever what the "particular skills and contributions" are. Courts differ on the degree of detail needed to qualify under §90. But if you have a lot of details, you've got a contract, and you don't need this doctrine.

  Not only that, but there are a lot of cases (at least in WI) where §90 doesn't seem to get applied. See the Clark Oil case which says that §90 only gets applied when there's a contribution in cash. Strange and unexpected.

• Franchise protection has an interesting history. It start as just being about the monster companies we love to hate (oil companies) and car dealerships. Auto lobby wants its own statutes. The statutes let you cancel if you have cause. But that means you have to prove you have cause: you may suspect that you do, but can you really show it? If not, you may be kept from canceling the relationship with your frachisees.

  Retail gas dealers make the mistake of their lives: they try to get a federal statute, which would be enforced across all juristictions. It has a mile-wide loophole: you can't cancel except for cause, but you just have to negotiate in good faith about renewal. So they make very short-term agreements. The problem is that this pre-empts all the state statutes. It looked like a great victory, but it wound up being a defeat: can they cancel you if you don't keep your station open 24 hours? if you want to do repairs and not run a convenience mart?

  So then there's litigation, on a state-by-state basis about how far the federal statute blocks state regulations.

  In the meantime, the states start expanding their statutes to all non-auto franchises.

• Collins Drugs, Inc. v. Wallgreen Co.
  Commentary in class
  Justice Crabbe is very smart, and was Macaulay's first woman student.

  Her ruling: the statute isn't retroactive, and must be construed narrowly (i.e., constitutionally). It applies to a statewide termination without good cause. The statute has no exception for a non-discriminatory pullout; it's something the legislature is deemed to know about. We've got to give the dealers clout: it's not perpetual care, but Walgreens is going to have to buy the franchisees out.

  Note that the passage of this act was tricky. Republicans didn't want to have to vote on it: they all had retail franchisees as powerful constituents, but they didn't want to vote against big business. So they tried to keep it in committee, but then there was an end-run around the process, and there had not been any time for compromise, so the statute got passed in its strongest possible form (very pro-franchisee).

  Walgreen is not required to stay in business here, because specific performance is at the discretion of the court, and it would be too much of a burden here. So the case must be settled by damages. The franchisors who want to leave are therefore to buy out the franchisees, since they can' just cancel them.

  So how do you figure the amount of damages caused by the loss of your franchise? What period of time would be "reasonable" for measuring lost profits? Note that lawyers fees come with this statute (judges rarely award the amount that they would like to bill). They come up with over $400K, but that is divided among 11 plaintiffs.

  Note that the damages are based on the "fall in business" precipitated across the board, based on the books of all the plaintiffs. This line of reasoning would probably not have worked if it had not been a class actions.

• Bishop: cherry picking. Only dumb people would buy the inferior lightbulbs-- they've got two brands. Franchisor cancels because the franchisee is not pushing both lines of fluorescent bulbs. But one line is something that nobody should buy in the first place. But according to the court, this kind of cancellation is OK ("good faith" does not mean you are right, just that you are not tricky).
• There are actually very few cases where the issue is whether or not there was cause for termination. Perhaps this is because it is almost always cheaper to buy out the franchisee.
• Note that this is classic special interest legislation: a powerful lobbying group. Note that there are costs here: we are keeping marginal dealers on that we'd otherwise terminate. Who bears this cost? Customers and franchsors. Note also that our rabid anti-franchisor laws don't seem to have kept franchises out of WI. Could we even have any more?
• Tacit assuption: if I'm doing a good job, shouldn't I be able to keep my franchise? Well, sometimes the interests of the franchisor and the franchisee diverge. Your single franchise, although well-run doesn't generate enough income to justify not opening our name-brand big-box store nearby.
• In Rexnord the WI Supreme Court basically says that they'll limit the cases to those who are able to finance the lawsuit. True, you would recover lawyers' fees if you won, but you have to win.
• Anyway, things do get a little better for the dealers. Franchisors will at least supervise the supervisors of franchisees (as opposed to Ford Motor Co. corruption in the 1930s). Now, by the way, Iowa is even more franchise-protecty than WI.
• Auto dealers manage to hammer through a law saying no mandatory arbitration, but there are arbitration clauses in many other franchise contracts
• In Re Trans World Airlines, Inc.
  Commentary in class
  Powerful American symbols: you don't get a union unless you elect one, plus the union bargains on behalf of the workers. The union has many filters to dispose of cases before they get to arbitration.

  Management does not have absolute rights: it traces its rights back to the contract. The worker doesn't have to be an expert or hire a lawyer-- the union can help out. Also, the remedies are different (reinstatement with back pay is the basic remedy).

  Aren't all cases going to be 2-1 (i.e., the public member will always decide the case, because the union rep always sides with the worker, and the management rep always sides with management). This differs a little in the sense that arbitrators are subject matter experts (or at least are knowledgeable about the consequences of their decisions). There is also control over the arbitrators: if they are lame, they won't get asked back (not like judges). Also, arbitrators will start asking questions (i.e., less procedural formality)-- they are not neutral presences.

  Fitzpatrick: you can't specifically perform an employment contract. But here, re-instatement is pretty much a specific performance order (employer: you must continue to employ her!). In court, you'd just get damages (i.e., lost wages). Here, there can be compromise (reinstatement, but no back pay).

  Note that she PASSED the initial inspection. They only think she's got a wig because they think they saw her with long hair on her layover. But maybe she was wearing a wig on the layover! What is the fight really about? Privacy? Wigs? Why does TWA bother with this? It's about authority. She wasn't a brand-new employee or anything like that: she was an international attendant. She knew the ropes (i.e., how serious this or that rule was). Maybe this isn't 100% her grievance-- perhaps is it hand-picked by the union out of many to make a point.

  Oh. Turns out that she was the union president. That changes things a little bit. They are arguing about who can say. Sutds Terkel Working: recommended book. Essentially "stewardess" was a job for people to do while waiting to get married. Stew School: includes 1 week of makeup and cosmetics, classes on how to smoke a cigarette and whether to let a customer light it for you. Average age was 26, but in some shops false eyelashes or nails were mandatory. This was a culture somewhat in flux, for obvious reasons.

  So in a collective bargaining situation, the employees at least have some power. Note that this case serves far more than just what its facts support as an isolated instance: it legitimizes making this topic an issue in the next round of contract bargaining.

  Just as a general note, the question of appropriate dress tends to be highly litigated.

• So if all this collective bargaining is so good, why don't all employees have and want it? Some folks have strong contracts (Jay Leno, civil servants, tenured professors...). Why not grievance arbitration for everyone? Sometimes it is inefficient (i.e., a 3-person firm).

  If it's a franchise, you can't terminate without good cause. If you're talking about someone with a lot of bargaining power (i.e., skilled CEO, etc.), it's hard to terminate them: because they require good contracts. What about the rest of the people? Employment at will.

Reading for 24 October

• The US is quite different from most of the rest of the industrialized world in terms of how workers are treated. In Canada, they pay the workers. In the US, we pay lawyers in order to avoid paying the workers. (research survey of international chemical company)
• One major trouble with employment agreements is that they are often oral; the paperwork is regarded as a formality, sometimes, not the real agreement.
• McIntosh v. Murphy
  Commentary in class
  What is the meaning of a contract that supposedly can't be performed in one year? We mean that it legally can't be performed in one year (i.e., does it involve employment for more than the length of a year-- be wary of leap years), not that some other person couldn't get it done faster.

  There are exceptions to the more-than-a-year-has-to-be-in-writing clause of the statute of frauds (i.e., the promisee might die within a year). These are kind of a long shot, though.

  So the plaintiff here alleges a one-year commitment in the oral contract. The trial court wants to enforce the contract, but needs to do some gymnastics. They claim it's a unilateral contract, and performance didn't start until he gets to Hawaii. In other words, what the dealership was bargaining for was not the plaintiff's promise to come to HI, but his work, so that didn't start until he got there. Supreme court says no: this was a promise-for-a- promise contract, and the contract was formed on the phone prior to his arrival, and therefore more than a year ago.

  However, they find that the principle of Restatement §90 is an attractive exception (this gets used a lot of places, huh?). The principle here is §139: application of §90 to the statute of frauds. So again, if reliance is foreseeable, and injustice can be avoided only by enforcement, we might be ok.

  Here, a lot of plaintiff's commitment (forfeiture of former job, moving to HI, etc.) doesn't directly benefit the defendant. Certainly the reliance was reasonable and foreseeable.

  Note also that most jobs have a trial period built in. Maybe these guys would make a year commitment, though, based on his experience.

  Some courts reject this line of reasoning, and apply the statute of frauds strictly. Note that UCC §2-201 (statute of frauds) has its own exceptions. Could Restatement §90 work in conjuction with this? Well UCC §1-103 picks up a lot of the stuff (infancy, duress, etc.).

  So this is a classic argument that is a tie: if some exceptions are stated, does this mean that they are the ONLY exceptions, or that there could be others as well?

  Also, how far are judges out of bounds when they start making up law? Well, that's where the common law comes from. Hart & Sachs (sp?) approach, out of Harvard Law, emphasizes separation of legislative and judiciary powers, and it's very popular. We demonize activist judges. Even Posner, however, recognizes that you can't be a judge without making choices. Nobody wants to live in a world with 100% strict Statute of Frauds (i.e., iron-clad rule that agreements must be in writing), because injustice results, but all the exceptions make this a sophist's game, which is not so hot either.

  NOTE: the employment here was for a definite term! Without this, you have employment at will, and that's a different ballgame.

• Forrer v. Sears, Roebuck & Company
  Commentary in class
  The same court as Red Owl still thinks that was a great decision, and they'd enforce it if only there had been something to enforce. Permanent employment (i.e., anything other than just employment) would require separate consideration. The separate consideration doctrine is only reliable in railroad accidents (SOP in turn-of-the-century RR work: they'd settle injury claims with permanent employment in simple jobs in exchange for release from tort claims) and sale of a business (i.e., the Buhl clause: I'll only sell you my business if you keep me on as an employee indefinitely). So this court doesn't see the additional consideration here (although the guy did sell his farm, yadda-yadda): it's unreasonable for a person to bind themselves permanently to a position, because there'd be no chance to improve the position later.

  §90 doesn't apply here, they say, because the promise was performed. We apply the same rules, but the results are different.

  Consider non-competes: they are unenforceable in CA, but in WI they're enforceable if they are reasonable in duration and scope. They tend to apply to executives, scientists, and hairdressers.

• Historically, we have debate about why we have employment at will (the British always presumed a 1-year duration. It comes in right after the Civil War: end of slavery, great immigration. Lots of cheap labor, in other words. Interesting thought: employers have to fight to keep good employees, and employers who fire indiscriminately you wouldn't want to work for in the first place. So why do we need law here? It's kind of like the family situations from the previous week: do the courts want to wade into this swamp?
• Note that in statistical analysis of racial discrimination cases in the 7th circuit, many are brought, but few win. You have to prove that you were fired because of $PROTECTED_REASON, not because the employer just didn't like you.
• Note that when there's a big change in the law, inevitably there will be expensive lawyers figuring out how to cope with it. One thing we've seen, for example, is the implementation of hiring/firing procedures (HR/lawyers engineer this as a defense) to take instant discretion away from line managers and protect from suits.
• Note that changes in the law can be unwritten: counting states that have the death penalty on the books doesn't tell you when the penalty gets used. Knowing the statues in a state doesn't necessarily tell you how it gets applied. You also need to know how it gets applied, and knowledge about trends in society wouldn't hurt either. We elect people based on wedge issues (death penalty, abortion), but when they get in, they drag all sorts of other attitudes into things like employment at law will.
• Gordon Tameny v. Atlantic Richfield Company
  Commentary in class
  Note that this is Reagan Republican time, not the time when Earl Warren ran on both the Democrat and Republican ticket, and WON. CA gets its judges by the "Modified Missouri plan," not plain old elections: governor appoints, then judges re-elect. So there's a gateway, plus it's tough to be a sitting judge. Tobriner (majority) is a former labor lawyer. Clark (dissent) went on to become a Reagan cabinet member (just like he said in Marvin: this is for the legislature, not the courts; the courts here are just following their personal agenda).
  • Consent Decree: "I do not admit I did anything wrong, and I won't do it again." It's a way of disposing of a case without admitting anything
  • Demurrer: even if the plaintiff proved everything, it still doesn't amount to a case.

  If you want maximum recovery, you like torts more than contracts. The plaintiff claims he was fired because he refused to pressure dealers into price-fixing (i.e., taking some loss on gasoline sales to cover for surplus gasoline production as a byproduct of other petrochemical refining, like fuel oil).

  So this is a jump beyond Peterman (refusal to perjure), but it takes the extra jump of introducing tort.

• Implied covenant: after you've worked at a place for a certain amount of time, it becomes ever more reasonable for you to expect that the employment will continue. An implied-in-fact contract.
• So what goes on outside the courts, and how does law affect life? The CA economy was weak when these cases came down. Lots of people were getting fired. Plaintiffs won about 68% of the time, but the damages kept shrinking. Even when a jury awards large damages, trial judges can apply remittitur (this award is too large by damages standards-- you can either give some of it back, or we can have a new trial... not really much of a choice). So damages were small-ish, and lawyers got about half. Still, you get employee rights established somewhat, and you get lots of lawyers selling services to employers about how to save the company (by re-drafting the employment manual, etc.).
• Still, the contract-y side of this makes us wonder about damages. There's no term (by definition, else it wouldn't be employment at will), so how do we figure how many wages you lost?
• By giving these people causes of action, are we creating swamps and hot potatoes? Who can use these rights? (generally low-level execs: people with money to go to court, people with enough at stake to have real damages, but people not big enough to have term contracts).
• Compare Monge with Pierce: to what degree do we require a duty of good faith in dealings (commission shuffling vs. whistleblowers).
• Brockmeyer: firing people for refusing to violate the law gets you contract (not tort) damages. Plus the "public policy" exception is narrow. Fired woman has burden of proof in sex discrimination case, and the employer emphasizes that Brockmeyer needs to make things tuen out right (i.e., lie). Oh, and it needs to be a statute, a regulation, or part of the constitution.
• Kempfer v. Automated Finishing, Inc.
  Commentary in class
  Macaulay knows the judges here (Wilcox and Abrahamson).

  Remedies are the real issue here-- the Brockmeyer criteria are met. They say reinstatement is the primary remedy. (front pay issues: for how long would the plaintiff remained at the job? would there have been raises?) Remanded for the circuit court to determine if reinstatement is feasible.

  Abrahamson wants to clarify issues surrounding the strengths and weaknesses of reinstatement as a feasible remedy. How could an employer make reinstatement infeasible? Do away with the job (or its title).

• Gardner v. Loomis (yeah, the armored truck guys). Supreme court of WA follows CA rules and Brockmeyer. But they apply these things differently. Employee manual says if you leave the truck unmanned, it's grounds for immediate termination (they always send two people on missions: one carries money in/out, the other stays in the truck).

  One day the bank manager runs out, pursued by a knife-wielding guy, screaming for help. He knows her (having delivered money there for years), and leaves the truck to help her. He disarms the guy, saves her, is a hero. Is fired.

  There's no legal requirement to go wrestle people with knives. The employer's command (stay in the truck) is perfectly consistent with the law, not in opposition to it. This is a classic difference between moral and legal. So there's no statute or constitutional provision.

  How does he win? The court looks into the structure of the WA law, and sees the protection of human life all over the place (murder is illegal, etc.). So this is an exception to the rule.

  Obviously, the Loomis PR people were asleep on the job.

• Door v. Arnold Worldwide: CA case for an ad firm. Plaintiff is offered and accepts by telephone a contract with some hints that it might be long-term. Then he gets a letter saying there is a 90-day trial period, and it's at will. 2 years, 4 months later, they terminate for no cause. He claims that his length of service implies that he'll only be terminated for cause. So then, how do we read the letter? The court of appeals says the letter is ambiguous, and he ought to have the option to introduce evidence that the "we can terminate" clause means they had to have cause. Loses. Why would "at will" be in there, if not for "at will?" Still, how far do we want to go in bringing the facts home to the employee vs. keeping things happy and optimistic?