Contracts

"STOP PUTTING CLAUSES INTO YOUR CONTRACTS THAT SAY YOU CAN AMEND THE CONTRACT AT ANY TIME IN YOUR SOLE DISCRETION BY POSTING THE REVISED TERMS TO THE WEBSITE" . . .

June 11, 2009

… says Professor Eric Goldman, in his apologetically belated comments on Harris v. Blockbuster Inc., (N.D. Tex. April 15, 2009).  I discussed this case briefly in April, shortly after the decision was published.  To reprise, the court held that an arbitration clause in Blockbuster’s online t’s and c’s was unenforceable because Blockbuster was permitted to unilaterally amend the contract without notice. Prof. Goldman’s take on it (in addition to the title of this post), is – This language has a significant risk of killing the entire contract, which would strip away a lot of very important provisions that should be/need to be in the contract. So far Blockbuster has only lost its mandatory arbitration clause, but it’s possible other important risk management clauses (warranty disclaimer, liability limits, dollar caps, etc.) will similarly fall. If those clauses fail, let the plaintiff feasting begin! Professor Goldman has commented on a Ninth Circuit case to similar effect, Douglas v. US District Court ex rel Talk America, (9th Cir. 2007).  After discussing that case (which is very similar to Blockbuster), he stated: Although I don’t have any great practice-oriented recommendations based on this opinion, I do hope this opinion will help contribute to the demise of the “check back frequently for amendments” provisions in online user agreements. I’ve always considered those among the worst excesses of the dot com era.

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"Sign This Contract. By the Way, We Can Modify It At Any Time." Is This Enforceable?

April 22, 2009

Here’s an interesting case out of the U.S. District Court, Northern District of Texas.  In Harris v. Blockbuster the court refused to enforce an arbitration provision in Blockbuster’s online click-wrap agreement. The reason was that Blockbuster’s click-wrap contract was unilaterally modifiable by Blockbuster.  Here is the key paragraph, which is still on the Blockbuster Online site as of today: These Online Rental Terms and Conditions are subject to change by Blockbuster at any time, in its sole discretion, with or without advance notice. The most current version of the Online Rental Terms and Conditions, which will supersede all earlier versions, can be accessed through the hyperlink at the bottom of the blockbuster.com site. You should review the Online Rental Terms and Conditions regularly, to determine if there have been changes. Continued use of your BLOCKBUSTER Online membership constitutes acceptance of the most recent version of the Online Rental Terms and Conditions. Yep, I’m sure many Blockbuster subscribers check Blockbuster’s online T&Cs regularly to see if they’ve changed.  Shame on you if you don’t! The court wrote: The Court concludes that the Blockbuster arbitration provision is illusory . . . .  There is nothing in the terms and conditions that prevents Blockbuster from unilaterally changing any part of the contract other than providing that such changes will not take effect until posted on the website. The Court concludes that the Blockbuster…

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First Circuit Weighs in on the Law of Unjust Enrichment in Massachusetts

March 3, 2009

The terms “unjust enrichment,” “restitution,” “quasi-contract” and “constructive trust” cause the average lawyer to recoil with apprehension (although she doesn’t show it, of course). We were forced to grapple with some of these ancient legal concepts in law school, but we quickly migrated to more modern legal principles, and although we may have remembered the terms (any lawyer worth his salt can throw around the terms unjust enrichment and restitution), the depth of knowledge of most lawyers on these topics is shallow at best. We were relieved when we could move on to things like the Uniform Commercial Code, which dates back only to the early 1950’s. In fact, it’s easy to trace “unjust enrichment” and related terms back as far as the 1600s, and earlier. A search on Google Book Search reveals a volume titled “Unjust Enrichment in England before 1600.” References to Roman Law are also not difficult to find. When you start dealing with legal principles forged during the Middle Ages or Roman times, you know it’s going to be difficult. Imagine, then, how QLT, Inc., a Canadian-based biopharmaceutical company, felt when it learned that it had been sued in federal court in Massachusetts and that the outcome of the case hinged on the application of these ancient legal doctrines? That was the situation that QLT faced. Even worse, QLT found itself in the courtroom of U.S….

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And Now, a Brief Reminder From the SJC: Employee Handbooks Can Create a Binding Obligation on the Part of the Employer, So Be Careful

January 15, 2009

For more years than I can remember we’ve been warning clients that an employee handbook can create unintended legal obligations.  A case decided by the Supreme Judicial Court late last year (December 2008), serves as a reminder of this hazard. The court found that a sick day policy contained in a handbook bound the Mass Turnpike Authority to pay certain benefits. The case attempts to leave the issue of whether a handbook creates a binding obligation open to a case-by-case analysis (especially when it comes to promises of employment to at-will employees, where it seems less likely that a handbook can get employers in trouble), but the fact remains that this is an area fraught with risk. Who even wants to go through the hassle and expense of defending one of these cases, when they are so easy to avoid? Placing a prominent “disclaimer” at the front of the book will do the job: “This handbook is is presented as a matter of information only and its contents should not be interpreted as a contract or other form of obligation between the firm and any of its employees” Rarely does the law make avoiding a legal headache so simple. Link to the case: LeMaitre v. Massachusetts Turnpike Authority (SJC, 2008).

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The Bill That Would Make Noncompete Agreements Unenforceable in Massachusetts

January 13, 2009

[Update, November 7, 2011]: Almost 3 years later, and still no law. Here is the full text of a bill filed last week that would make noncompete agreements unenforceable in Massachusetts, at least as to employees (as contrasted with noncompete covenants entered into in connection with the sale of a business, the other major category of noncompete covenants): AN ACT TO PROHIBIT RESTRICTIVE EMPLOYMENT COVENANTS Section 1. Section 19 of Chapter 149 of the General Laws of Massachusetts is hereby amended by inserting at the end the following new paragraphs: Any written or oral contract or agreement arising out of an employment relationship that prohibits, impairs, restrains, restricts, or places any condition on, a person’s ability to seek, engage in or accept any type of employment or independent contractor work, for any period of time after an employment relationship has ended, shall be void and unenforceable with respect to that restriction. This section shall not render void or unenforceable the remainder of the contract or agreement. For the purposes of this section, chapter 149, section 148B shall control the definition of employment. Whoever violates the provisions of this section shall be liable for reasonable attorneys fees and costs associated with litigation of an affected employee or individual. This section shall be construed liberally for the accomplishment of its purposes, and no other provision of the General Laws shall be construed…

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Judge Young Lays Down the Law on Earn-Outs

December 30, 2008

[Update: the decision discussed below was reversed by the First Circuit in October 2009.  Decision here] So, you have a great little business, and a large company wants to acquire it. The buyer argues that payment for your company should be determined by an “earn-out” — the buyer’s sales of your product will determine the purchase price (in whole or in part) based on an agreed-upon formula. “Perfectly normal,” your lawyer assures you. “Seen it done in 8 acquisitions out of 10,” he says. You say nothing – your lawyer knows the ropes, right? But, as Massachusetts federal district court Judge William Young made clear in his recent decision in Sonoran Scanners v. PerkinElmer, if you (the seller, in this case tiny Sonoran Scanners) expect the buyer (in this case the much larger PerkinElmer) to market your product (leading to sales and payments to you under the earn-out formula), you’d better make sure that the contract spells out the actions the buyer is expected to take to promote the product. Otherwise, you risk the fate that Sonoran Scanners experienced after it sold its business to PerkinElmer – PerkinElmer did little or nothing to promote the product properly during the five year earn-out period, sales were almost zilch, and in the end Sonoran Scanners was paid nothing. It’s true that sometime you just gotta sell, and you have to take what…

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