Category: Contract Law & Beyond

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The Sound of Awkward Silence: Contract Social Responsibility (Part 6)

I wanted to start this, my final post, by thanking the keepers of CoOp for allowing me to blog here this month, as I try to sort out my thoughts about contract social responsibility (KSR), the idea that contracts might seek a form of social justice, e.g., eliminating slavery through supply chain agreements or racial discrimination through “inclusion riders” in movie production contracts.

My prior post suggested that KSR differs from the private, pre-political and bilateral contracts that dominate the contractualist imagination because it would use private ordering to achieve public and political goals.  I want to talk today about two analytic approaches that might supplement contractualism, institutionalism and relationalism.

Say what?!?

I also want to talk about the awkward silence that may follow asking hard questions about KSR at home.

But start with “institutionalism,” a broad and fancy term.  I mean by it the study of social organizations at a high level of generality, superstructures in which law is a constitutive but not necessarily defining element.  For my purposes, the variant that seems most tractable sometimes travels under the name “experimentalist new governance” (ENG), a literature often associated with Sabel and Simon.

As they and others have observed, states no longer use command-and-control mechanisms to achieve many public policy goals. Instead, social problems are often solved by public-private partnerships, quasi-autonomous standard-setting organizations, voluntary alliances, monitoring, and experimentation.  Examples include food certification, sustainable forestry, and environmental protection. Read More

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What’s Theory Got To Do With It? Contract Social Responsibility (Part 5)

Prior posts have developed the claim that contract is being used to achieve “social responsibility,” e.g., protecting labor-rights and the environment in supply chain contracts, and preventing racial discrimination in “inclusion riders.”  Assuming parties contract for social responsibility (“KSR”), what might legal theory say about it?

An important strain of contract scholars (“contractualists”) would start from a micro-economic analysis, and ask whether KSR should qualify as “rational” market behavior.  Consider, for example, Schwartz and Scott’s influential statement of contract theory.  Their “affirmative claim” is that “contract law should facilitate the efforts of contracting parties to maximize the joint gains (the “contractual surplus”) from transactions.”

I confess at the outset that I think this mode of analysis can be powerful.  But I am not sure how well it works with KSR, which is what I want to talk about here.

Contractualists, per S&S, might argue that KSR “maximizes joint gains” because it cashes in good publicity, avoids losses, or both.  As observed in prior posts, “doing good” apparently has market appeal, leading to “fair trade,” “green sourcing,” and so on.  Moreover, at least in the supply chain context, it appears that buyers may contractually shift losses to parties that violate KSR terms.  These and similar features of KSR might well maximize welfare.  To this extent, contractualist analysis would account for KSR.

So far, so good.  But there’s a problem.  Schwartz and Scott continue:

The[ir] theory’s negative claim is that contract law should do nothing else. . . . [T]he state should choose the rules that regulate commercial transactions according to the criterion of welfare maximization. . . . A simple categorization of the universe of bargaining transactions will clarify the domain of our theory. A transaction involves a seller (whether of goods or services) and a buyer.

That is, contractualism assumes that contract is private, pre-political, and bilateral (that is, between two parties).  But KSR challenges each of those assumptions. Read More

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Get Out! Jevic To Liquidate After Post-SCOTUS Deal Fails

Get your priorities straight

Last Monday (May 21, 2018), the Bankruptcy Court for the District of Delaware converted the chapter 11 bankruptcy of Jevic Transportation Corp. to a chapter 7 liquidation.  This means that the ten-year effort to “reorganize” the former trucking company will become a straight liquidation supervised by a trustee.

I put “reorganize” in quotes because everyone knew from the start of the case, in 2008, that the debtor could not reorganize in a conventional sense because the business had already collapsed.  Instead, the managers (and the senior lenders) would remain in possession and control of the debtor to engage in an orderly liquidation, which is permitted by chapter 11.  Most believed this was better than a straight liquidation under chapter 7 of the Bankruptcy Code because they would have greater expertise in maximizing asset values, and more flexibility in making distributions, than a chapter 7 trustee, who would be a stranger to the company.

This last point—flexibility in distributions—earned the case a trip to the Supreme Court, where a 6-2 majority held last spring that final distributions must follow the Bankruptcy Code’s order of priority strictly, unless (in simple terms) creditors “consent,” e.g., by voting for a deviation under a plan of reorganization, a cross between a contract and a consent decree, and the presumptive way out of chapter 11.  But, because management could not muster support for a plan, they had tried to resolve the case through a so-called “structured dismissal,” a procedural concoction that had many features of a plan but none of its protections, such as voting.

The details of Jevic are complex, but the bottom line, in my view, is that Jevic is about two things, although it receives attention only for one. First, SCOTUS affirmed—yet again—that “absolute priority” applies in final distributions in any kind of bankruptcy absent meaningful consent to an alternative.  Distributive priority was in dispute here because management and senior creditors did not want to honor the priority payment rights of the debtor’s former truck drivers, who objected to this treatment, and who were the successful petitioners in the Supreme Court. [Disclosure: I was co-counsel to a group of academics who were amici curiae in support of petitioners].  On remand, the parties tried, but could not come to a negotiated deal that respected the Supreme Court’s ruling, so Judge Shannon converted the case to one under chapter 7, which permits no flexibility in distributions.

Absolute priority is important, but not really news, since it has been the law of the land for over one hundred years.

Instead, I think Jevic’s more important, but more subtle, contribution reflects concern about the integrity of the chapter 11 process.  Read More

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Enforce This! Contract (as) Social Responsibility (Part 4)

A prior post made two basic points about the ABA’s Model Terms to protect human rights in the supply chain (Model Terms) as an example of “contract (as) social responsibility” (KSR): (i) they say nothing about substantive human rights standards (and that may be OK), and (ii) the desire to implement these standards through KSR terms may conflict with a desire to limit the buyer’s legal exposure for their violation.

Or not. . .

I want to turn now to what I suspect will be a central doctrinal question presented by KSR terms: enforceability.

I don’t mean enforceability in a technical sense—offer, acceptance, consideration (or equitable substitute)—but instead in a remedial sense:  Who can get a remedy for breach, and what would it look like?  Since the architecture of U.S. contract law sits on a foundation of privity and expectation, KSR may be an awkward fit, for at least three reasons.

First, consider the problem of third-party beneficiaries.   Read More

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Contract (as) Social Responsibility (Part 3): Model Contract Terms

My prior posts (#1 and #2) set up the idea that contract appears to be an increasingly attractive way to do some sort of “social justice,” for example by attempting to reduce labor trafficking in supply chain contracts.  I refer to this generally as “contract (as) social responsibility” (KSR).

A contradiction in terms?

I want to turn now to a thoughtful example of KSR terms, the Model Terms (Model Terms) being developed by the Working Group to Draft Human Rights Protections in Supply Contracts of the Business Law Section of the American Bar Association (Working Group).

The Working Group is led by Professor David Snyder (American University) and attorney Susan Maslow.  Although the Model Terms have not yet been posted, they should be shortly and, in any case, are available from David (dsnyder@wcl.american.edu) and Susan (smaslow@ammlaw.com).  The Working Group’s report and the Model Terms are slated to be published in The Business Lawyer later this year.  [Disclaimer:  I am a member of the Working Group and on the editorial board of The Business Lawyer.  Nothing I say on CoOp should be imputed to them.]

While I should probably post a “spoiler alert” here, I thought it would be helpful to summarize certain aspects of the Model Terms in order to identify some of the issues they and, by inference, other KSR terms may raise.

The Model Terms have two goals that are, perhaps, in tension.

Read More

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Contract (as) Social Responsibility (Part 2): Defined Terms

An earlier post set up the month’s agenda:  explore theoretical, doctrinal, and empirical opportunities presented by “contract (as) social responsibility” (KSR).  Before going further, it may be useful to provide some examples and define what I mean by KSR.

Examples

Labor-related terms in supply chain contracts, discussed in the prior post, are a well-known example of KSR, but not the only ones.  Michael Vandenbergh, for example, has argued that supply chain agreements can also be used to advance environmental goals.

But there is a world of KSR beyond supply chain contracts.  Frances McDormand’s speech at the Academy Awards, for example, implored the A-listers in the audience to negotiate for “inclusion riders,” contract terms that would require movie productions to have a certain level of social diversity (e.g., race, gender).  “Impact investing,” according to one enthusiast, “could be one of the most important social innovations in our lifetimes, leveraging the massive power of the capital markets to a higher purpose than maximizing returns for shareholders.” The oldest example I have found so far—and I suspect there are still older ones—is the Beatles’ early performance agreement, which apparently required venues to integrate racially.

Don’t let it be.

KSR can be seen as part of a longer arc of social activism through market action.  From the contested notion that African Americans could use market power to counter the pernicious effects of racism, to Cesar Chavez’s lettuce boycotts of the 1960s, to the South African divestment campaigns of the 1980s, the socially active have long believed that money can do more than talk: it may compel others to walk.  Sometimes, as in apartheid, they may have been right. In other cases, such as black banking, they may not.

Still, we (want to believe that we) can achieve social justice through the beer and coffee we choose to purchase.  Who we see in the media may affect what we believe to be possible in reality, in terms of gender and racial diversity.  Eric Posner and Glen Weyl argue that the “emancipatory force” of “radical markets” “can reawaken the dormant nineteenth-century spirit of liberal reform and lead to greater equality, prosperity, and cooperation.”  Whether or not that is true, there is little doubt that there is demand for social change through market participation.

Because contracting is an important mechanism in market function, the rise of KSR seems, from this perspective, inevitable.  Yet, not all market participation involves contract in any formal sense, and of course most contracting probably does not purport to be socially responsible in the sense that interests me.  So, KSR is at most a (small?) (very small?) subset of contract-based market activity.

Business lawyers love their defined terms–and I am at heart a business lawyer–so what might a definition of KSR look like? Read More

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Contract (as) Social Responsibility (Part 1): Revenge of the Nerds

On a sunny Saturday morning in April I found myself in an airless room in an exceptionally beige Orlando conference hotel discussing what would, to many, be the nadir of contract nerd-dom:  model supply chain terms.

Supply chain agreements set forth the rights and responsibilities of buyers and sellers of goods that lead to products that affect just about everyone who participates in the market economy.  It reportedly takes about 200 contracts to make an iPhone—a number that strikes me as pretty low.

These contracts are important, of course, but only in the same sense that contract terms on indemnification, ERISA, and choice-of-law are important: they are the province of hardcore law junkies because they are so boring no one would really want to spend time thinking about them unless paid to do so.

And, yet, the Orlando conference room was electric.  That’s because these were not the usual supply chain terms dealing with, e.g., quantity, price, delivery, etc.  Instead, this was a meeting of the Working Group to Draft Human Rights Protections in Supply Contracts of the Business Law Section of the American Bar Association (“Working Group”), and the terms we were talking about seek to solve some of the most troubling ethical problems presented by market globalization:  baseline human rights protections for those who work for or with companies in the modern global supply chain.

I will call these terms one of many examples of “Contract (as) Social Responsibility”: efforts to achieve social justice through contract as a formal, legal instrument.

I find just about every word in the preceding paragraph (including “I” and “will”) to be problematic—in an interesting sort of way—and am grateful to the keepers of Concurring Opinions for permitting me to spend the month of May trying to develop my thoughts on this.

 

Read More

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Trump as Litigator-in-Chief and Other Real World Stories

Donald Trump (credit: Business Insider)

Donald Trump (credit: Business Insider)

Miriam Cherry and I are thrilled to announce release of our new book, CONTRACTS: A REAL WORLD CASEBOOK.  We spent the last decade ripping cases from the headlines to show students how classic cases and principles that seem dusty still control today’s contract disputes they hear about.  Seeing the old and the new together engages students and we hope contracts teachers will consider this book.

We pulled this together after years of bringing contracts in the news into our classrooms, onto this blog, into a Cambridge U paperback and now, formally into a casebook that’s both fresh and familiar.  For example, thanks to our country’s litigator in chief, the litigious Donald Trump, students tomorrow morning can work out how ancient principles on liquidated damages control current events, as Jennifer Taub explains over at Slate.

Trump shows up in our casebook multiple times, though we omitted a few stories I’ve written on his legal foibles simply to avoid too many encounters.  But below is a reprise of one I wrote a few years ago that did make the cut.  In our casebook, we turned this example into a problem and then excerpted the relevant case precedents, such as the Kel Kim case discussed below along with the classics Taylor v. Caldwell and Krell v. Henry.  Skimming it and comparing it what we put in the casebook gives a sense of our process which, above all, was fun, and the students can tell.  Read More

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Contract Interpretation 2.0: Not Winner-Take-All But Best-Tool-For-The-Job

In a centuries-old debate among contracts scholars, one group supports a presumption favoring a text-centered approach to the interpretation of a written agreement — the plain meaning taken from the four corners — while opponents urge a broader understanding of context — what the parties intended and the circumstances of their negotiation. The contending positions have so hardened that, in a jarring juxtaposition my new Essay will reveal, recent academic classifications of the same state laws are exactly opposite to each other: contextualists classify certain states as contextualist that textualists say are textualist!

Yet despite the persistence of acute polarization, the author also documents — and applauds — promising trends in the literature toward hybridization and compromise, a search for factors to guide the selection of interpretive tools rather than putting some off limits or setting up default rule presumptions. While scholars have thus long obscured a common-sense reality, a new wave of research is making it clearer to all sides that text and context are both useful, depending on the details of different jobs.

More modern, advanced, and sensible, this new view of contract interpretation replaces a stubborn “winner-take-all” approach to the debate with a flexible and practical “best-tool-for-the-job” approach. To illuminate its importance and value — call it contract interpretation 2.0 — my new Essay turns to Warren Buffett’s contracting philosophy and practices. The famous investor and businessman is also a polyglot teacher, and his approach to contracts, especially acquisition agreements and employment arrangements, illustrates the imperative of using the right tool for the job.

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Major Contracts Symposium at GW

qtq80-Sh2bmhDivergence and Reform in the Common Law of Contracts is the title of this year’s GW Law Review Symposium and anyone interested in contracts and/or comparative law will want to join us for it on  Saturday November 19.  Here is a summary from the official web site for the event (RSVP here):

This Symposium continues a tradition of biennial conferences that began at the University of Sheffield, UK in 2011, followed by a conference held at the University of Edinburgh in 2013. But this 2016 Symposium is not your grandfather’s contract law. Instead, this conference takes a 21st Century approach to comparative issues in contract law, examining the most pressing controversies, debates, and challenges currently shaping the United States and United Kingdom’s shared legal tradition in the area of common law contracts.

Symposium papers from the previous two gatherings have been published as books by Cambridge U. Press and Oxford U. Press; papers from the current symposium will be published in the GW Law Review.

Topics include: Comparative Law and Reform; The Share Economy; Remedies; The State of the Interpretation Debate; Good Faith; and Consumer Contracts

Participants include:

Miriam Cherry, St. Louis U.

Lawrence Cunningham, GWU

Larry DiMatteo,  U. Florida

Hon. Lord Hodge, UK Supreme Court

Martin Hogg, Edinburgh

Geraint Howells, City U. Hong Kong

Judge Barbara Keenan, 4th Circuit Court of Appeals

Judge Carlos Lucero, 10th Circuit Court of Appeals

Blake Morant, GWU

James Nehf,  Indiana U.

Robert Stevens,  Oxford U.

Matthias Storme, KU Leuven

Rolf Weber, U. Zurich