Recent Notable Contract Law Cases
Below are a few recent high-profile cases that you may have heard about in the news that touch on contract law in some way. Readers may be interested in these cases and how they could impact contract law.
McGowan v. Uber Technologies, Inc., No. 17-1565 (3d Cir., 2018) involved an action brought by one of the plaintiffs in the 2017 multidistrict litigation, which consolidated nearly 100 lawsuits filed against Uber Technologies, Inc. relating to several data breaches beginning in 2014. See MDL No. 2750, In re: Uber Technologies, Inc., Customer Data Security Breach Litigation, (N.D. Cal. October 18, 2017). One of the issues here was whether the plaintiff had agreed to arbitrate the dispute, and the court concluded that the plaintiff did not agree to arbitrate the dispute. As explained in this excerpt from the ruling, the Third Circuit’s opinion here is significant as far as contract law goes, because it explains when you as the business may have acceptance based on the actions of the other party instead of requiring the creation of a unique account.
The case of Beem-USA , Ltd. v. Federman Opinion & Strategy Group, P.A., No. 3D18-101 (Fla. App. 3D DCA, February 20, 2019) involved a lawsuit by the maker of a brewing supplement to recover for services provided by a public relations firm and others. [T]he circuit court declined to dismiss all of Petitioner’s claims against [the Appellees] arguing that a contract existed between the parties. The court explained that Florida law recognizes a cause of action for breach of implied contract, although it explained that the essential elements of an implied contract are shown only by the conduct of the parties. It then explained that a contract existed between the parties given this analysis.
Lastly, Believe in Yourself Foundation, et al. v. New York City Housing Authority, et al., 2019 WL 1548781 (N.Y. Sup. Ct. 2019) was a ruling by a New York state court, which found that the defendants waived their right to object to the fact that there wasn’t a written contract, instead agreeing to allow the signature of a plaintiff to be supplied after-the-fact.
Advent of New Technology on Contract Law
Business plays a significant role in contract law: it incentivizes and also regulates contract law. As such, the development of blockchain and AI is currently influencing contract law globally and setting the precedents for future developments. Both are affecting contract law from a substantive perspective as well as a procedural standpoint.
The United Nations Commission on International Trade Law ("UNCITRAL") is dealing with the integration of blockchain and smart contracts into existing commercial law frameworks. To this end, UNCITRAL adopted the UNCITRAL Model Law on Electronic Transferable Records ("MLETR”) in June 2019 in order to provide blockchain-based transferable records and smart contracts the support of a clear legal framework. The MLETR seeks to put blockchain-based transferable records on an equal footing with paper-based transferable records, and effectively removes the obstacles that exist under a traditional "documentation" requirement. Article 8 of the MLETR qualifies any transferable record that satisfies the functional requirements of an "authoritative copy," which includes being unique, identifiable and unalterable, and being the only "source" from which a recipient can "reliably" permanently reproduce an accurate copy of the record. The MLETR also provides preferences in terms of choosing the writing medium, the writing means and the authentication or integrity mechanism; thereby facilitating the use of blockchain.
Smart contracts, however, have generated substantive issues in certain jurisdictions. Mexico’s Federal Digital Strategy ("FDS") of late 2021 revealed that more than half of the smart contracts implemented have not passed the judicial validation tests. However, the FDS concluded that "the use of blockchain does not exempt users from complying with the current legal system, such as the Civil Code, the Commercial Code, the Federal Consumer Protection Law, the Federal Copyright Law, the General Law of Transparency and Access to Public Information of the Federal Government and the General Health Law." In France, there have already been a number of rulings in relation to smart contracts, but the result so far is that France is yet to recognize them in the eyes of the law.
In the U.S., AI requires a more policy-oriented view. Certain courts are reluctant to give AI the independent agency in contracting that would be necessary to create binding contracts with no human intervention. While some have argued that AI requires less intervention than even an agent, the general challenge to this claim is that we expect a contract to be formed via a process where a human being makes a conscious choice (e.g. nodding their head). Courts in the U.S. have been primarily focused on outcomes in jest, like when the Beatles won their trademark dispute with their band’s simulation created by CryptoFame.
As blockchain and AI continue to develop and be used in contract law, the ownership, regulatory, privacy and liability issues that these technologies pose in a broad range of industries, particularly intellectual property, will come into play. The extent to which these technologies can replace humans in their traditional contracting role and the extent to which existing legal frameworks govern or adapt to these technologies, and their interaction with each other, will be crucial in determining what direction contract law heads from here.
International Developments in Contract Law
As the world becomes more intercultural and global, many of us have international dealmaking in mind when planning our business transactions. In recent years, we’ve seen a concerted effort among countries to harmonize contract law and provide more consistency in interpretation. These efforts vary from project to project, but we’re seeing developments in treaties and conventions that affect how commercial contracts are treated from region to region.
In the Asia Pacific region, ASEAN nations met last November to work on a new ASEAN agreement for online dispute resolution (ODR) that was originally proposed at the ASEAN meeting in 2016, which laid out the aspirations and objectives for a regional ODR platform. The meeting agenda last November included language around supporting resolution of cross-border e-commerce disputes, and establishing an online case administration and neutral evaluation services to help bring resolution to those disputes. Of note, unlike some of the UNCITRAL efforts, this agenda touches on these ODR concepts as early as the pre-contract stage of the parties’ relationship, and would extend through resolution stages.
In Europe, two new initiatives are aimed at enhancing standardization and predictability in contract law among EU member states. The Hague Convention on Choice of Court Agreements came into effect in October 2015, and aims to reduce issues surrounding parallel litigation by requiring courts in EU member states to recognize choice of court agreements, and by requiring those courts to defer to the court of choice in a contract. While this approach to predictability may work in some commercial transactions, it remains to be seen whether it will work in consumer transactions, where some consumers may not fully appreciate the import of agreeing to a court of choice. As a result, they may not understand that he or she would still need to deal with the courts of the jurisdiction with choice of court jurisdiction.
Another 2015 initiative, the European Commission’s Common European Sales Law (CESL), is intended to provide a common set of rules governing business-to-business transactions in the EU. However, this has received a lukewarm reception from business, possibly due to uncertainty over whether it would apply to an entire contract or only parts of it. As a result, the Commission received a lukewarm response from business, and plans to hold off endorsing the CESL until there is more support.
Australia and New Zealand consider themselves co-creators of International Commercial Arbitration law. This year, the two countries began considering steps toward creating the International Institute for Commercial Law and Arbitration, located in Sydney, which will oversee uniform rules of international mediation for parties in Australia and New Zealand. The Australia-Asia Resolution Centre (AARC) will house the institute.
Singapore also aims for herself to become a channel for dispute resolution in the region. Singapore’s $1.2 billion New Downtown project in the Bugis area will be home to the Kim Seng River and will house the Singapore International Commercial Court, which aims to provide an alternative to Hong Kong in channeling international transactions to Singapore for resolution.
Contract Law: Balancing Protections for Consumers
Many of the most powerful changes in consumer protections are driven by contract law. For example, the strict liability standard for defective and dangerous products regardless of fault is nothing more than a contract law adjustment to pass liability from the store or manufacturer to the insurer. Other powerful consumer protections, such as the fact that contracts must be presented in plain language and not filled with hidden fees, are also contract law changes designed to protect consumers.
Legislation like Dodd-Frank, which stretches the boundaries of business regulation and consumer protections, is in large part a contract law change. Other contracts laws are designed specifically to protect consumers. The laws requiring retailers to publicly post their policies on returns, exchanges, and refunds are powerful examples of consumer protections that are based entirely on contract laws. There was no need for Congress to pass a law mandating that returns and exchanges are permissible and carry specific warranties or rights; it is inherent in contract law. However, the ability for a consumer to return goods is often a major bargaining chip in negotiating purchase contracts.
The ability of a consumer to void a contract if the terms are deemed "unconscionable" is another protection granted by contract law. However, the substantive requirements of what constitutes an "unconscionable" contract term are new consumer protections, and will likely evolve over the coming years to account for specific behaviors that are deemed objectionable enough to nullify a contract, even one that both parties have signed. The ability of a business to avoid certain types of liability in contracts is another example of how contract law and consumer protections are intertwined.
Recent court decisions have altered what type of liability a business can avoid in a contract. The scope of the liability that can be avoided may be determined by when the contract was signed, but the substantive right that a business can waive liability. Recent decisions have also altered the requirements for class action waivers and mandatory arbitration. In some ways the business community has been the biggest driver of legislative change and judicial decision-making when it comes to contract law and consumer protections.
A good example of this is the arbitration provision and class action waiver. The class action waiver idea was largely a Fen-fugly initiative to reduce the amendment and other ridiculous consumer lawsuits that have proliferated. Class action waivers have been a phenomenal boon to banks and lenders. As such, the only litigation decisions – regardless of level – or legislative actions that impact contract law are those that benefit the business community.
Business groups have aggressively supported legislation that purports to offer consumer protections but often creates the opposite results. To take one example, Dodd-Frank has created significant restrictions on financial services businesses. However, most of these restrictions originated from the passage of the Credit Cardholders’ Bill of Rights. The Credit Cardholders’ Bill of Rights severely restricted specific practices by credit card companies, and the result has been that card holders now receive fewer benefits, lower limits, and more difficult terms.
Corporations and Contract Breaches
It is a busy time for the corporate world where contract breaches are concerned. A recent publicized contract breach in the United Kingdom occurred between a telecommunications company and the British government. The government granted the company a contract for the creation and expansion of mobile phone services in rural areas while also extending the contract beyond its end date. The company was fined 15 million pounds by the UK communications watchdog due to failing to comply with the terms of the contract and the breach of contractual obligations to the public. The number of blackspots went down, but there were still more than 20,000 blackspots, so the company did not do a very good job. The company decided to appeal the oversaw of the discretional powers to do so." The appeal was rejected, the fine stood at 15 million pounds and the company was left with a stain on its character that it will take some time to clean up.
Another telecom giant, AT&T, was recently sued by the government for $23 million dollars. The company reportedly earned more than $100 million dollars in a fraudulent scheme by failing to pay clients for cellphone returns. The company purchased second hand phones from its customers who sell or trade in their phones. However, in this case, AT&T sent fraudulent "ineligible" credits for 300 , 000 clients and made a fortune doing so. The company did not immediately respond to the lawsuit. The complaint states: "AT&T has duped the market at the expense of consumers who trusted it with their old phones."
An Canadian airline was also recently sued by an investment company over a breach of contract. The investment company acquired investment units in the airline in September 2012. However, when the company sold its investment units in the airline, the airline did not compensate the company. The company stated: "This action arises out of [the airline’s] failure to honour its contractual obligations to pay the plaintiff certain cash distributions arising in respect of the plaintiff’s sale of investment units in [the airline]."
It appears that corporate entities that have contractual issues are losing and losing badly. There have been other cases, of which I have been a part of, that were settled before public embarrassment. Some corporations seem to think that they can get away with breaching contracts and not suffer the consequences. There is currently a huge push against corporate greed and this means that fairness in corporate law dictates a stiff penalty for any breaches of contract. This penalty is that much stiffer when the breach of contract is egregious like the three corporations mentioned above.
Good contract law principles dictate that corporate giants are no different than regular citizens when it comes to breaches of contract. They need to pay the penalties and live with the consequences of their actions.
Current Trends in the Contract Law Practice
Some of the most interesting trends we are seeing in law practice today as they relate to contract law are indicative of how much our profession is changing, and how rapidly. Here are four key areas of law practice that I see emerging:
Automated Document Assembly – We have seen the rapid growth of automated document assembly (or automation), and its use to create contracts online between two parties without the involvement of lawyers. In some cases, a lawyer will join the process afterward to review the result, but in others, the parties have no legal guidance, advice, or opportunity to ask questions. Automation is here to stay, and more and more apps are being built to provide document production and other services from almost any device.
Blockchain – It is my opinion that blockchain technology will change the way contracts are formed by defining performance in "code," making the terms and conditions "self-executing," leaving almost no room for interpretation or discretion. I expect to see significant disruption of the contract law practice by 2018.
In-House Counsel – More and more corporations are bringing the contract function, or at least the contract management function, in-house and hiring contract specialists to oversee the process. Companies are also increasing their use of technology to drive contracts into and through the process more efficiently.
Legal Project Management – Law firms struggle to implement project management because of the lack of law firm support and buy-in from law firm leadership. However, there is significant growth in legal project management in-house, and law firms are now feeling the pressure and providing access to some very useful tools for clients.
Insights and Outlook from the Experts
Experts have weighed in on the future implications of these recent contract law events. During interviews and in publications, prominent legal minds have offered a prediction-laden outlook on the fate of the field of contract law.
Harold James, a renowned professor at Princeton University, believes this contract dispute could be the one that brings the United Kingdom to its knees. "The real risk is to the British financial sector," he said. "The leverage on London is going to diminish. The financial sector made a strategic choice to establish itself in London on the basis of the legal underpinnings of the Treaty of Rome. If that disappears, it’s going to be the legal system that actually survives that will be used to re-establish the basic markets."
Forbes senior contributor Peter Cohan believes contract law with regards to identity theft will change as the concept of personal information gets more formalized . "Essentially, contracts will probably get simpler and more standardized. For instance, Uber has instituted bilateral arbitration agreements such that any disputes must be resolved by an arbitrator and not by a court of law," he says. Cohan predicts that with every passing month, newly created contracts will continue to become more standardized while old contracts will be amended.
On the future of American contract law, attorney Christopher Cantrell predicts that useful contract law "tech" will make its way into the mainstream. "In the next five years, there will be some firm, some consortium that figures out how to manage contracts at high efficiency," he says. "People will see the value of it because they will save so much time, and I see a lot of these big firms, there’s the potential for a few of them to team up and do something that just starts to take over the industry." He sees contract management software companies developing into contract tech companies.