Litigation and Trial - Max Kennerly : Philadelphia Trial Lawyer Max Kennerly : Business and Commercial Litigation : Civil Attorney : The Beasley Firm : Philadelphia Pennsylvania

One of the true gems of the Internet is TED (Technology, Entertainment, Design), a nonprofit that invites luminaries from a wide variety of fields to give brief presentations about their signature ideas. A quick googling of "Best TED Talks" is well worth the hours of education and inspiration that will ensue.

I was thus disappointed to see that TED invited Philip K. Howard to talk about "Four ways to fix a broken legal system."

I have debunked Mr. Howard's work before (see my thoughts on his "Life Without Lawyers," his "health courts," and his claims about public support for tort reform). The bulk of his talk presents more of the same argument-by-anecdotes and generalized assertions that don't withstand a moment's scrutiny. Despite his claim around the 14:00 mark, I can safely assure my readers that we, as a society, do in fact still have seesaws, swingsets, and jungle gyms. Moreover, his overall argument that these problems are so insidious that you don't even notice them is, to me, unpersuasive.

About halfway through, Mr. Howard moves onto his four propositions, which are:

1. Judge law mainly by its effect on society, not individual situations
2. Trust in law is an essential condition of freedom. Distrust skews behavior towards failure
3. Law must set boundaries protecting an open field of freedom, not intercede in all disputes
4. To rebuild boundaries of freedom, two changes are essential: simplify the law and restore authority to judges and officials to apply law.

To call these propositions "vague" is an understatement.

That said, I generally agree with the first three. Indeed, it seems the irony of Mr. Howard's first proposition was lost on him; although his talk only mentions the former, for each funny story of a fishing lure with a warning label, there's a car manufacturer that bragged about avoiding a recall and ended up needlessly and carelessly endangering millions of people.

The fourth proposition, however, is where Mr. Howard and I diverge. It's not that I believe the law shouldn't be simple or that judges shouldn't apply the law; of course I do. I just don't believe it how he means it, which is to deny individuals the right to a jury trial.

But there's a bigger problem with his talk: the "authority to judges and officials to apply law" he claims should be "restored" never existed, and for good reason.

As part of his simplification argument, Mr. Howard gives, as an example, the United States Constitution. It's "only 16 pages" yet "worked well for over 200 years." Let's take a look at the Seventh Amendment thereto:

In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.

(See the link for primary sources on the Amendment.)

I don't know what Mr. Howard thinks the words "common law" and "rules of the common law" mean there, but to the Framers of the Constitution, "common law" referred to hundreds of years of confusing — and sometimes contradictory — English court opinions.

So much for simplification.

But simplification isn't really what Mr. Howard wants; he wants to get rid of "the right of trial by jury."

That's not "rebuilding" freedom, nor is it "restoring" the way the Founders intended the civil justice system to work. It is a rescission of the freedoms guaranteed by the Seventh Amendment, which expressly preserved the same right to jury trial that was embodied in the Magna Carta and was recognized long before.

Indeed, the English "common law" of which the Framers were so enamored did not give judges any "authority" to usurp the fact-finding role of the jury. Mr. Howard claims that he wants to give judges the power "to apply law," but they have always had that power -- what Mr. Howard really wants is to give judges the power to determine facts, a power that the Framers of the Constitution expressly denied them.

Mr. Howard doesn't want to fix the legal system, he wants to break it.

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It's no secret: plaintiffs like state court and defendants like federal court.

The reasons include: 

• federal juries, by virtue of their larger geographic range, include fewer urban jurors and more rural jurors, and thus (according to lawyers' lore) will award lower verdicts;
• the Federal Rules of Civil Procedure place express limits on the amount of discovery available;
• federal courts are (and were even before Ashcroft v. Iqbal) more prone to grant motions to dismiss (and motions for summary judgment) than state courts.

Even if a plaintiff files their lawsuit in state court, the defendant can "remove" the case to federal court if the case could have been filed in federal court.

There are two ways a case 'could have been filed in federal court': first, if the claim arises under federal law; second, if all plaintiffs and all defendants are citizens of different states. The latter is called "diversity" jurisdiction, and it has a long history of being "disfavored" by federal courts. As I wrote before, in discussing one of the games defendants play to remove cases, "much like how we prefer federal courts preside over cases bringing federal claims, we prefer state courts preside over cases bringing state claims."

So how do we determine of which States a corporation is a "citizen?" 28 U.S.C. § 1332(c)(1) says, "a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business."

Incorporation is simple enough; all corporations are incorporated in one, and only one, state, most commonly Delaware.

But where is the corporation's "principle place of business?"

The Supreme Court's answered that question yesterday in Hertz Co. v. Friend et al. Here's the facts from the opinion, with substantial edits for clarity by yours truly:

In September 2007, Melinda Friend and John Nhieu, two California citizens, sued the Hertz Corporation in California state court for violations of California’s wage and hour laws as part of a potential class action on behalf of other California citizens similarly-situated to them.

Hertz removed the case to federal court claiming that the plaintiffs and the defendant were citizens of different States, and thus the federal court had diversity jurisdiction over the claims. Friend and Nhieu, however, claimed that the Hertz Corporation was a California citizen, like themselves, and that, hence, diversity jurisdiction was lacking.

To support its position, Hertz submitted a declaration by an employee relations manager that claimed Hertz’s “principal place of business” was in New Jersey, not in California, because — though its California operations accounted for 273 of Hertz’s 1,606 car rental locations, about 2,300 of its 11,230 full-time employees, about $811 million of its $4.371 billion in annual revenue and about 3.8 million of its approximately 21 million rentals — the leadership of Hertz and its domestic subsidiaries is located at Hertz’s corporate headquarters in Park Ridge, New Jersey, where its core executive and administrative functions are carried out, except for some lesser, but still substantial, administrative operations in Oklahoma City, Oklahoma.

Let's start with the big picture: this case has no business being in federal court. It's a class action brought solely by California residents alleging solely California-law claims against a company that has more business in California than anywhere else. None of the concerns underlying federal jurisdiction are present. There is no reason to believe that Hertz would be prejudiced by having the case heard by a California state court, and there are no federal issues in the case.

As the Supreme Court noted yesterday, two-hundred-and-one years ago, the Supreme Court, in a unanimous opinion by Chief Justice Marshall, scoffed at the very notion that a corporation was a "citizen" entitled to diversity jurisdiction: “the term citizen ought to be understood as it is used in the constitution, and as it is used in other laws. That is, to describe the real persons who come into court, in this case, under their corporate name.” Bank of United States v. Deveaux, 5 Cranch 91–92 (1809); see Slip op., p.5. If that was the law today, Hertz would not be entitled to remove any state-law case from any state court, since it would be a "citizen" everywhere.

But that was then, this is now. The statute we have today says Hertz is a citizen "of any State by which it has been incorporated and of the State where it has its principal place of business." If Hertz is sued anywhere else, it can remove the case to federal court. So where is its "principle place of business?"

Prior to the Hertz opinion yesterday, the answer depended upon the Circuit in which the case was brought. Friend's case was brought in the Ninth Circuit,

which instructs courts to identify a corporation’s “principal place of business” by first determining the amount of a corporation’s business activity State by State. If the amount of activity is “significantly larger” or “substantially predominates” in one State, then that State is the corporation’s “principal place of business.” If there is no such State, then the “principal place of business” is the corporation’s “‘nerve center,’” i.e., the place where “‘the majority of its executive and administrative functions are performed.’”

Slip op., p. 3. Other courts, like those in the Seventh Circuit, jumped straight to the "nerve center" approach.

Yesterday, the Supreme Court held that the "nerve center" test is the only test, that "the phrase 'principal place of business' refers to the place where the corporation’s high level officers direct, control, and coordinate the corporation’s activities." Slip op., p. 1.

The opinion is a classic example of Justice Breyer's methodology; long on "administrative simplicity" (p. 13), short on the plain meaning rule. I will leave, as an exercise for the reader, the question of whether the Court's unanimous opinion is consistent with the originalism and formalism pressed by four, sometimes five, members of the Court.

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Hizook.com, "the robotics news portal," relates an unfortunate incident:

Hizook.com has received an amazing flurry of activity in the last 10 days.  We made it to the front page of Slashdot (twice!),  Reddit (twice!), Engadget, Makezine, Hacker News (etc, etc) -- amassing well over 100,000 pageviews!  During the height of the activity, we received an email indicating that Hizook's Google Adsense account was being disabled.  There was no further explanation, no warning, no attempt made to resolve the situation -- in fact, our only recourse was to fill out a web form and hope for a prompt response.  Apparently that is indicative of Google's customer service.  The remainder of our account is chronicled below.  But, as extremely loyal Google users (Search, Gmail, Google Voice, Google Calendar, formerly Adsense, someday Adwords) and Google share holders, we are simply... aghast.

Here is the entirety of the explanation provided by Google, at 11pm on Sunday night, when they unilaterally disabled the account:

Hello,

While going through our records recently, we found that your AdSense
account has posed a significant risk to our AdWords advertisers. Since
keeping your account in our publisher network may financially damage our
advertisers in the future, we've decided to disable your account.

Please understand that we consider this a necessary step to protect the
interests of both our advertisers and our other AdSense publishers. We
realize the inconvenience this may cause you, and we thank you in advance
for your understanding and cooperation.

If you have any questions about your account or the actions we've taken,
please do not reply to this email. You can find more information by
visiting
https://www.google.com/adsense/support/bin/answer.py?answer=57153.

Sincerely,

The Google AdSense Team

I've made the front page of Hacker News twice -- it is indeed quite a traffic spike, and, if I advertised, I would be very upset if my advertiser torpedoed me without notice at the height of the traffic.

So, can they sue?

Let's look at the Google Adsense Terms and Conditions:

9.      No Warranty. GOOGLE MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WITH RESPECT TO ADVERTISING, LINKS, SEARCH, REFERRALS, AND OTHER SERVICES, AND EXPRESSLY DISCLAIMS THE WARRANTIES OR CONDITIONS OF NONINFRINGEMENT, MERCHANTABILITY, AND FITNESS FOR ANY PARTICULAR PURPOSE. TO THE EXTENT ADS, LINKS, AND SEARCH RESULTS ARE BASED ON OR DISPLAYED IN CONNECTION WITH NON-GOOGLE CONTENT, GOOGLE SHALL NOT HAVE ANY LIABILITY IN CONNECTION WITH THE DISPLAY OF SUCH ADS, LINKS, AND SEARCH RESULTS.

10. Limitations of Liability; Force Majeure. EXCEPT FOR ANY INDEMNIFICATION AND CONFIDENTIALITY OBLIGATIONS HEREUNDER OR YOUR BREACH OF ANY INTELLECTUAL PROPERTY RIGHTS AND/OR PROPRIETARY INTERESTS RELATING TO THE PROGRAM, (i) IN NO EVENT SHALL EITHER PARTY BE LIABLE UNDER THIS AGREEMENT FOR ANY CONSEQUENTIAL, SPECIAL, INDIRECT, EXEMPLARY, OR PUNITIVE DAMAGES WHETHER IN CONTRACT, TORT OR ANY OTHER LEGAL THEORY, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY AND (ii) GOOGLE'S AGGREGATE LIABILITY TO PUBLISHER UNDER THIS AGREEMENT FOR ANY CLAIM IS LIMITED TO THE NET AMOUNT PAID BY GOOGLE TO PUBLISHER DURING THE THREE MONTH PERIOD IMMEDIATELY PRECEDING THE DATE OF THE CLAIM. Each party acknowledges that the other party has entered into this Agreement relying on the limitations of liability stated herein and that those limitations are an essential basis of the bargain between the parties. Without limiting the foregoing and except for payment obligations, neither party shall have any liability for any failure or delay resulting from any condition beyond the reasonable control of such party, including but not limited to governmental action or acts of terrorism, earthquake or other acts of God, labor conditions, and power failures.

Google obviously believes the answer is "no," and wrote their contract to prohibit any suits at all.

Yet, like with most tech companies, Google's terms of service provide "This Agreement shall be governed by the laws of California." California is among the most consumer-friendly states in the nation.

So the question isn't so simple:

Under UCC § 2-719(1)(b), '[r]esort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.' However, '[w]here circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this code.' UCC § 2-719(2). ... See id.; RRX Indus., Inc. v. Lab-Con, Inc., 772 F.2d 543, 547 (1985) ('Under the Code, a plaintiff may pursue all of the remedies available for breach of contract if its exclusive or limited remedy fails of its essential purpose.').

'A limited remedy fails of its essential purpose when the circumstances existing at the time of the agreement have changed so that enforcement of the limited remedy would essentially leave plaintiff with no remedy at all.' Computerized Radiological Servs., Inc. v. Syntex Corp., 595 F. Supp. 1495, 1510 (E.D.N.Y. 1984), aff'd in part and rev'd in part, 786 F.2d 72 (2d Cir. 1986) (emphasis added). This theory often is raised where a buyer seeks a refund or rescission of the original agreement, but the seller insists that repair is the only available remedy. See, e.g., Gavaldon v. DaimlerChrysler Corp., 32 Cal. 4th 1246, 1259-65, 13 Cal. Rptr. 3d 793, 90 P.3d 752 (2004)."

Stearns v. Select Comfort Retail Corp., 2009 U.S. Dist. LEXIS 48367, at *16–17 (N.D. Cal. Jun. 5, 2009).

Sure seems like Hizook is left with "no remedy at all" under the contract. It thus seems they could indeed sue for direct and consequential damages, including the lost ad revenue.

The above analysis applies to goods, rather than services, but two points weigh in Hizook's favor: first, the original RRX Indus., Inc. opinion itself found a software system to be a "good," and, second, a number of courts recognize the same analysis for service contracts, too.

Unfortunately, it's probably not worth Hizook's time or energy to sue over it -- which is why some creative Silicon Valley lawyers should be thinking about initiating a class action. Google's search engine shows 16,500 hits for "While going through our records recently, we found that your AdSense account has posed a significant risk to our AdWords advertisers."

As Bruce Schneier has written in the context of security software, liability changes everything. If AdSense users want Google to shape up, it seems they need to sue their way into it.

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The WSJ Law Blog finds easter eggs for consumers of financial products buried in the proposed financial regulation overhaul:

The [not-yet-created Consumer Fraud Protection Agency] should be directed to gather information and study mandatory arbitration clauses in consumer financial services and products contracts to determine to what extent, and in what contexts, they promote fair adjudication and effective redress. If the CFPA determines that mandatory arbitration fails to achieve these goals, it should be required to establish conditions for fair arbitration, or, if necessary, to ban mandatory arbitration clauses in particular contexts, such as mortgage loans.

...

Although arbitration may be a reasonable option for many consumers to accept after a dispute arises, mandating a particular venue and up-front method of adjudicating disputes – and eliminating access to courts – may unjustifiably undermine investor interests. We recommend legislation that would give the SEC clear authority to prohibit mandatory arbitration clauses in broker-dealer and investment advisory accounts with retail customers.

Business Insider worries about the unintended consequences:

That seems a clear way of increasing the costs of broker-dealer and investment advisory costs, which may mean that smaller customers find that brokerages are even less likely to deal with them than before. As usual, there seems to be very little thought given to how brokers will react to having the increased risk of litigation imposed upon them.

What's more, there are serious questions about whether it makes sense to burden the court system with additional litigation that a ban on mandatory arbitration will sure spur. In effect, a part of the costs of disputes between brokers and their customers are being transferred to the taxpayer who will pay the costs for the extra-burden on courts. It's far from clear why this shift in cost from the parties to the agreement to taxpayers is warranted. We can squint our eyes and see this as something of a bailout of customers who wind up unhappy with their broker.

Last I checked, "wind[ing] up unhappy with [your] broker" wasn't worth a dime in a court of law, at an arbitration, or anywhere else. The investors aren't "unhappy" because their broker didn't get them a cheese wheel for Christmas, they're "unhappy" because their broker breached their contractual and fiduciary duties and lost a ton of the investor's money. It takes an awful lot of "squinting" to see a months-or-years-long expensive lawsuit to get back the money that someone else lost as a "bailout."

Most "mandatory arbitration clauses in consumer financial services and products contracts" force the disputes be heard in FINRA's Dispute Resolution process. As The National Law Journal reported at the end of March,

FINRA — the Financial Industry Regulatory Authority — oversees nearly 5,000 brokerage firms, 173,000 branch offices and 659,000 registered securities representatives. It describes its chief role as protecting investors by maintaining the fairness of the U.S. capital markets. ...

"We don't have official projections for 2009, but if the trend continues, we're probably looking at a high that will match what we saw in '03 and '04," said FINRA spokesman Brendan Intindola.

Arbitration cases filed in 2003 and 2004 — the largest number in 14 years — almost reached the 9,000 mark and were driven by the bursting of the dot-com bubble and the subsequent decline in the equity markets. In 2007, slightly more than 3,000 cases were filed, and in 2008, nearly 5,000.

Lawyers who represent customers and industry members generally believe that FINRA will be able to manage the dramatic increase in its arbitration workload, but they are divided on whether its arbitration panels — charged with industry bias in the past — now provide a level playing field to those using the process.

"The general perception is it is very tilted," said one practitioner who asked for anonymity. "Even if only one-third of the panel is from industry, that's the person with alleged expertise and who has disproportionate sway on the panels."

Broker/Dealer arbitrations are common, but banning them wouldn't open the floodgates: financial products consumers file under 10,000 claims filed nationwide. Keep in mind that essentially every dispute you have with your broker/dealer is forced into FINRA arbitration, including no-brainer claims like the return of a promissory note, so these numbers may be inflated to some degree. It's hard to say what percent of these filings claim substantial losses due to malfeasance.

More importantly, though glossed over by Business Insider, full-fledged civil litigation in open court is not fun for anyone involved. Even within confidential arbitration, just last month FINRA quietly withdrew a proposal that would have permitted more extensive discovery into the financial records of investors bringing claims against their financial advisers, in light of numerous complaints that such a change would subject investors to a "financial colonoscopy." Moving these types of cases into the civil court system would permit defendant banks and investment advisers to dig very deeply into the personal and financial histories of investors bringing suit, far deeper than they would be permitted to do in an arbitration.

For most of the individual claims, I am not too concerned about the arbitration process, as it provides wealthy investors (who make up most of the filings) a simple, relatively convenient and very private way in which to seek redress for their losses, and they will be adequately represented by paid counsel throughout the process. The problems for everyone else, however, are twofold:

• It's not clear whether a group of injured inventors may pursue a class action against a broker-dealer, investment bank or investment adviser. FINRA's Code says it is not applicable to class actions, and an increasing number of courts have held in other contexts that bans of class actions are illegal, but the law here is not as clear as it should be.
   
• The selection process for these arbitrators is not transparent. @phila_lawyer is right that FINRA seems to prefer arbitrators familiar with the financial industry; that's not necessarily evidence of bias, but it's nonetheless problematic, since it exposes the process to 'capture' by the industry and, as noted above, such 'insiders' often hold undue sway on panels.

As such, it's certainly worth a look into the issue, which is all the Obama plan proposes.

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The Ninth Circuit just decided Barnes v. Yahoo! (link to PDF opinion). Here are the facts, as summarized by Anita Ramasastry at FindLaw:

The facts begin when plaintiff Cecilia Barnes learned that her ex-boyfriend – pretending to be her – had posted nude photos of her on Yahoo, along with her email address, work address and phone number, and an invitation to men to contact her for sexual purposes. The ex-boyfriend had also gone into Yahoo's member chat rooms to direct men to her profile. Soon, as the Ninth Circuit summarized it, "men whom Barnes did not know were peppering her office with emails, phone calls, and personal visits, all in the expectation of sex."

Yahoo's policy provides for the removal of fake profiles if the person making the request provides a copy of her driver's license, which Barnes says she did. However, Barnes alleges that when she contacted Yahoo on several occasions, in an effort to have the profile removed, the site did not remove them. She says that approximately three months after the first of these contacts, a Yahoo representative contacted her and advised her that Yahoo would now put a stop to this unauthorized profile – yet three more months passed, and Yahoo did nothing. Indeed, according to Barnes, Yahoo took no action to de-post the profile until she sued the company.

Unsurprisingly,

The court dismissed Barnes's negligence claim against Yahoo, based on Section 230 of the federal Communications Decency Act (CDA).

Nothing new about that.

However, it held that Yahoo's promises to her that it would de-post could give rise to a claim under the doctrine of promissory estoppel.

Interesting! Paul Levy at Consumer Law & Policy filed an amicus and attended the hearing, and fills us in on some context:

The argument also revealed that Barnes’ contention is that Yahoo!’s promise to take down her profiles came on the eve of a television report about her situation, after reporters contacted Yahoo! in an effort to avoid negative press, Yahoo! contacted her “on its own” to promise to take the material down, and that even though she could not have sued Yahoo!, there were other steps that she could have taken to obtain redress.  For example, she claims that, at Yahoo!’s direction, she did not testify before the Oregon Legislature about what had happened to her, because Yahoo! told her it would take the material down.  If Barnes proves such facts, one can see a real case here.

Daniel Solove at Concurring Opinions agrees with the result but looks on the horizon:

One of the potential problems with the court’s holding is that it may deter ISPs and other sites from having an explicit policy for removing tortious material.  Yahoo could be penalized with potential liability and a loss of its immunity by having a removal policy.  An ISP or site that has no such removal policy and that would say “get lost” to people who request takedowns would not be subject to promissory estoppel liability.  Is it fair to penalize those who have such policies?

But, Solove notes, we're not at that point quite yet, since the Court's holding was expressly limited, in that "Yahoo is liable not because it had a general removal policy, but because it made specific promises to Barnes." Evan Brown at Internet Cases sees ISPs changing their behavior nonetheless, in advance of the law:

Smart intermediaries (e.g. website operators) are likely to communicate less now with individuals who feel aggrieved, because the intermediary may fear that anything it says could be construed as a breakable promise putting it at risk for liability.

On a more technical issue, but one with big ramifications for the course of these case, Eric Goldman at Technology & Marketing Law Blog worries (much as Levy did) that the opinion on its face holds 230 immunity can not be raised on a motion to dismiss. That implicates the ISP's First Amendment rights to go about their business and permit online speech without fearing the cost of a long, meritless suit that's eventually dismissed anyway. Yahoo! has petitioned for rehearing on that issue alone.

In my humble opinion, I agree with everyone above. There is a very good reason not to apply section 230 immunity to an ISP interjecting itself into a private dispute to avoid negative publicity. At the same time, it does indeed create a precedent that makes other ISPs shy to intervene at all.

Yet, under section 230 immunity, the ISP already can choose to completely ignore anyone it wants to, and there is no good reason to "protect" Yahoo! for yanking Ms. Barnes' chain to avoid negative publicity. If an ISP promises to remove content, it should do so. If the ISP doesn't want to remove content, it shouldn't promise it will.

Simple enough.

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Judge Timothy J. Savage of the United States District Court for the Eastern District of Pennsylvania had a straightforward job.

All he had to do was:

• survey the laws of all fifty states with regard to unjust enrichment and breach of the implied warranty of merchantability,
  • Huber v. Taylor, 469 F.3d 67, 82-83 (3d. Cir. 2006) (consideration of the requirements for certification must be conducted in light of the correct jurisdiction's law); see also In re Sch. Asbestos Litig., 789 F.2d 996, 1010 (3d Cir. 1986).;
• determine whether there were actual or real conflicts between those laws,
  • Hammersmith v. TIG Ins. Co., 480 F.3d 220, 230-31 (3d Cir. 2007)
• where there was such a conflict, assess which state has the greater interest in the application of its law to determining the liability for defective aircraft crankshafts that were allegedly more vulnerable to stresses in their ordinary and foreseeable use,
  • Cipolla v. Shaposka, 439 Pa. 563, 267 A.2d 854, 856 (Pa. 1970); Melville v. Am. Home Assurance Co., 584 F.2d 1306, 1311 (3d Cir. 1978)
• and consider whether applying that law to all plaintiffs and class members violates the Due Process and Full Faith and Credit Clauses through individualized scrutiny of the claims asserted by each member of the plaintiff class.
  • Allstate Ins. Co. v. Hague, 449 U.S. 302, 312-13, 101 S. Ct. 633, 66 L. Ed. 2d 521 (1981) (plurality opinion); see generally, 1 Joseph M. McLaughlin, McLaughlin on Class Actions: Law and Practice § 5:46 (4th ed. 2007).

Simple, right? Apparently not:

Our review of the record persuades us that the choice-of-law examination here had its shortcomings. As one instance, the District Court observed in its unjust enrichment analysis that a true conflict existed between the relevant states' laws because Pennsylvania and some others preclude recovery if the parties had an express contract.  Believing unjust enrichment to be a hybrid of contract and tort law, the Court purportedly weighed the factors from sections 188 (concerning contracts) and 148 (relating to torts involving fraud and misrepresentation) of the Restatement (Second) Conflict of Laws and concluded that Pennsylvania 'has the most significant relationship to the transaction and the parties.' Defendants were sued in Pennsylvania, manufactured the crankshafts there, 'issued service bulletins and instructions . . . about the crankshafts . . . in Pennsylvania, and plan[] to replace [them] [t]here.'"

Powers v. Lycoming Engines, No. 07-4710, 2009 U.S. App. LEXIS 6785, at *10–12 (3d Cir. Mar. 31, 2009).

Unfortunately, the above was in error because:

Pennsylvania, however, does not consider unjust enrichment to be either an action in tort or contract. Unjust enrichment, rather, an equitable remedy and synonym for quantum meruit, is 'a form of restitution.' Mitchell v. Moore, 1999 PA Super 77, 729 A.2d 1200, 1202 n.2 (Pa. Super. Ct. 1999); see also Ne. Fence & Iron Works, Inc. v. Murphy Quigley Co., 2007 PA Super 287, 933 A.2d 664, 667 (Pa. Super. Ct. 2007); Sack v. Feinman, 495 Pa. 100, 432 A.2d 971, 974 (Pa. 1981) (citing Restatement of Restitution § 1 (1937) as a source for the elements of an unjust enrichment claim); Meehan v. Cheltenham Twp., 410 Pa. 446, 189 A.2d 593, 595 (Pa. 1963) (same). The Restatement views restitution as an area of the law 'which is neither contract nor tort.' Restatement (Second) of Conflict of Laws § 221 introductory note (1971)."

If there is a claim under Pennsylvania law that falls within the scope of restitution under the Restatement (Second) Conflict of Laws, [Fn 3] the following factors should have been addressed in the choice-of-law examination: (1) the place where the parties' relationship was centered; (2) the state where defendants received the alleged benefit or enrichment; (3) the location where the act bestowing the enrichment or benefit was done; (4) the parties' domicile, residence, place of business, and place of incorporation; and (5) the jurisdiction "where a physical thing . . . , which was substantially related to the enrichment, was situated at the time of the enrichment." Id. § 221(2) (1971).

Id. Footnote 3 notes:

Although we have found no instance in which Pennsylvania has adopted section 221, our case law, in explaining the state's choice-of-law approach, directs courts to "use the Second Restatement of Conflict of laws as a starting point." Berg Chilling Sys., Inc. v. Hull Corp., 435 F.3d 455, 463 (3d Cir. 2006). "[T]o properly apply the Second Restatement and remain true to the spirit of Pennsylvania's 'flexible approach,' [courts] must . . . characterize the particular issue . . . in order to settle on a given section of the Restatement for guidance." Id. Because Pennsylvania considers unjust enrichment to be a form of restitution, we believe applying section 221 would be proper.

In other words, Judge Savage, having no Pennsylvania precedent at all to rely on, incorrectly predicted which way Pennsylvania would go in making the archaic distinction between claims in law and claims in equity in the choice of law context. The Third Circuit predicted that, if Pennsylvania courts had to decide if unjust enrichment was a tort or contract claim, the Pennsylvania courts would say, "neither, it's a claim in equity," and so should be evaluated under different standards in determining which state's laws should be evaluated for potential application in a class action filed in Pennsylvania.

Oh.

Nonetheless, in light of Judge Savage's lengthy opinion analyzing most of the relevant issues under the similar, but erroneous, standard he used, it's hard to see how the outcome will change by this ruling.

A model of efficiency, class actions are not.

I don't have an easy answer for how class actions should be prosecuted and evaluated. Judge Savage and the Appellate Judges (Ambro, Weis and Van Antwerpen) clearly did the best they could; fact is, class actions are complicated, time-consuming, expensive and just plain hard to litigate and to decide. It's not uncommon to bounce back and forth between the trial court and the appellate court several times prior to even beginning discovery, much less trial. Then comes the "real" post-trial appeal from a final order.

Plaintiff's complaint was filed July 10, 2006, more than two-and-a-half years ago. Plaintiff and his lawyers have gone essentially nowhere since then, and still have years of litigation ahead, all at substantial time and expense to the plaintiff's counsel, who likely represents plaintiff on a contingent fee, a fee that will depend not only on winning, but on the judge's own evaluation of whether the claimed fee is fair and reasonable. All years down the road.

Something to keep in mind when you hear about all these "unfair" counsel fees in class actions.

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You can't click two links on a law practice website these days without getting a good dose of how important it is that lawyers get up to speed with social media. Kevin O'Keefe, head of LexBlog (which hosts this site), suggests focusing on the big three: blogs, Twitter, and LinkedIn.

I got my blog. I got my Twitter.

LinkedIn?

Here's how Gina Rubel, as part of her extensive "Social Media for Lawyers" series at The Legal Intelligencer's blog, described LinkedIn:

Linkedin is one of the oldest and most established professional networking sites on the Web. ... Linkedin is conservative, professional, adheres to a strict set of rules, business-oriented, highly visible in search engines and an easy point of entry for lawyers. For the most part, it serves as an online curriculum vitae (C.V.) or resume which can be linked to your firm’s Web site.

True. It's also true that LinkedIn treats users with same respect in drafting its terms of service that consumers have come to expect from used car dealers, credit card companies, and subprime lenders.

Read their User Agreement:

1.  Your Obligations — What You Must Do

License and warrant your submissions: You do not have to submit anything to us, but if you choose to submit something (including any User generated content, ideas, concepts, techniques and data), you must grant, and you actually grant by concluding this Agreement, a nonexclusive, irrevocable, worldwide, perpetual, unlimited, assignable, sublicenseable, fully paid up and royaltyfree right to us to copy, prepare derivative works of, improve, distribute, publish, remove, retain, add, and use and commercialize, in any way now known or in the future discovered, anything that you submit to us, without any further consent, notice and/or compensation to you or to any third parties. By submitting any information to us, you represent and warrant that such submission is accurate, is not confidential, and is not in violation of any contractual restrictions or other third party rights. You further agree to inform LinkedIn in the event that any such information has changed since your registration with LinkedIn and, if appropriate, you agree to make such modifications yourself to your profile.

It's just as bad as Facebook's hated and rescinded Terms of Use, which claimed to own all of your content forever, with an added bonus in the last two sentences: you agree that everything you submitted is accurate and you agree to keep LinkedIn's information up-to-date.

Got that? Apparently most people don't; I found only one blog post on the subject, a month ago at Web.Tech.Law. Technorati says no one has linked to it. I found one link on a "social media roundup."

That needs to change.

LinkedIn is building its Web 2.0 Yellow Pages, and by ever submitting anything -- like your name, address, place of business, connections, recommendations and content like forum posts -- you agree to let LinkedIn use it forever and that you will take the initiative to update all of it if any of it ever changes.

But what if I terminate my account?

You granted them an "irrevocable" and "perpetual" license to all content and information you ever submit to the site, and imposed a duty on yourself to keep that content and information accurate and current, so what makes you think it could really be a "revocable" or "limited duration" license?

Before you turn those wheels, note that their User Agreement details exactly what happens when you terminate:

7.  Consequences of Termination

Upon termination, you lose access to LinkedIn. The terms of this Agreement shall survive any termination, except Sections 2 and 3 hereof.

The perpetual duty for users to supply accurate and current information for LinkedIn's business is in Section 1. It "survives."

What gets terminated? Section 2, "Your Rights — What You May Do" and Section 3, "Our Rights and Obligations — What We Must And May Do." Termination ends only "Your Rights" and Their "Obligations."

Will LinkedIn ever exercise these rights in an adversarial fashion? 

Probably not. Like I wrote yesterday, "A right with a remedy worse than the harm is not a right anyone will enforce." Trying to enforce these rights would likely cause a mass exodus from the platform.

But that's just theory, contradicted by the plain meaning of the words in the agreement. Moreover, all bets are off if the company goes into distress. Regardless, the core question remains: if LinkedIn doesn't plan on compelling users to keep its professional database accurate and current or to use its users' content commercial without permission, then why does it need these terms?

Ask a used car dealer.

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At The National Law Journal (via How Appealing):

In a case stemming from an employer's theft of e-mails from the personal account of an employee who had sued him for sexual harassment, a panel of the 4th U.S. Circuit Court of Appeals recently became the first circuit to hold that plaintiffs must prove actual damages in order to be eligible for an award of statutory damages under the federal Stored Communications Act.

But the unanimous panel, led by Chief Judge Karen Williams, also ruled that a showing of actual damages is not required for awards of punitive damages or attorney fees. Van Alstyne v. Electronic Scriptorium Ltd., No. 07-1892.

The panel decision reversed a jury award of $150,000 against Bonnie Van Alstyne's employer, Edward Leonard, and $25,000 against Electronic Scriptorium Ltd., of which Leonard was president. The decision leaves intact a $75,000 punitive damages award against Leonard; a $25,000 punitive damages award against ESL; and an award of $135,723.56 in attorney fees and costs to Van Alstyne.

I don't think most non-lawyers recognize they can recover for conduct like this:

During discovery in ESL's suit, Van Alstyne became suspicious that several e-mails presented by Leonard were from her personal account. In a deposition, he admitted he had accessed Van Alstyne's AOL account after she left the company ...

Let's look a little closer at the law, as explained in the opinion (PDF):

Section 2701 of the SCA creates a criminal offense for whoever "intentionally accesses without authorization a facility through which an electronic communication service is provided" or "intentionally exceeds an authorization to access that facility," and by doing so "obtains, alters, or prevents authorized access to a wire or electronic communication while it is in electronic storage in such system." 18 U.S.C.A.
§ 2701(a)(1-2).

Section 2707 provides a private cause of action for "any . . . other person aggrieved" by a violation of § 2701. 18 U.S.C.A. § 2707(a). Under § 2707, a district court may award equitable or declaratory relief, a reasonable attorney’s fee and other costs, and "damages under subsection (c)." 18 U.S.C.A. § 2707(b). Subsection (c) provides:

The court may assess as damages in a civil action under this section the sum of the actual damages suffered by the plaintiff and any profits made by the violator as a result of the violation, but in no case shall a person entitled to recover receive less than the sum of $1,000. If the violation is willful or intentional, the court may assess punitive damages. In the case of a successful action to enforce liability under this section, the court may assess the costs of the action, together with reasonable attorney fees determined by the court.

Id. § 2707(c).

In the face of the plain meaning of the statute, why was the "actual damages" limitation even contested on appeal?

Likely because the defendant argued that, without actual damages, the plaintiff couldn't recover at all. Not punitive damages, not attorney's fees, not anything. The Court disposed of that summarily:

Although "[t]here is no established federal common law rule that precludes the award of punitive damages in the absence of an award of compensatory damages," People Helpers Found., Inc. v. City of Richmond, 12 F.3d 1321, 1326 (4th Cir. 1993), we have held, in accordance with "the majority rule" that, absent statutory language to the contrary, punitive damages are not recoverable absent proof of actual damage, id. at 1327.

The SCA, we believe, provides such language. Section 2707(c) states, "[i]f the violation [of the SCA] is willful or intentional, the court may assess punitive damages." 18 U.S.C.A. § 2707(c). This sentence lacks the limiting language associated with an award of actual damages and statutory damages, with no references to persons "entitled to recover." The sole limitation is that the violation of the SCA be "willful or intentional," a threshold which the jury found to be met in this case.

Accordingly, we find no error in the district court’s award of punitive damages absent a showing of actual damages. See Saunders, 526 F.3d at 152-155 (approving award of punitive damages under the Fair Credit Reporting Act without award of actual damages); Yohay v. City of Alexandria Employees Credit Union, Inc., 827 F.2d 967, 972 (4th Cir. 1987) (noting "[a]ctual damages are not a statutory prerequisite to an award of punitive damages under the [Fair Credit Reporting Act]"). We must vacate and remand this award, however, for the district court to reevaluate in light of our ruling above that Van Alstyne was not entitled to statutory damages in this case absent proof of actual damages.

So there you go.

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TortDeform points us to an excellent article in Mother Jones about systemic fraud in the franchise industry, an article which includes this passage:

Hoping to recoup their losses, Welshans and Williams sued in Maryland federal court. But Coffee Beanery struck back in Michigan; a federal judge there ordered the couple—as required in the fine print of their franchise agreement—to instead take their dispute to a private arbitrator selected by the company. (Such binding arbitration clauses are boilerplate in contracts for everything from cell phones to credit cards.) Welshans had to borrow another $100,000 from his brother-in-law just to proceed with the process, which required steep fees up front.

...

She ordered the couple to pay $187,452 in legal fees and arbitration expenses—not including their own legal tab or the cost of travel to and from Michigan. Among the charges: $16,800 for Barron's services, $35,571 for a court reporter and transcription, even $504 for the Beanery lawyers' lunches.

Arbitration has a place in the American legal system. It is no panacea, but for many businesses it enables a comparatively quicker and less painful (though often more expensive, given the arbitrator's fees) method for resolving disputes with other businesses.

But let's be real: anyone who demands they alone have the right to choose the arbitrator is trying to defraud you.

There is a huge roster of fair and impartial arbitrators who would be happy to hear your case, and multiple services (like AAA and JAMS) willing to provide you options. No business has good reason for demanding they be able to unilaterally choose the arbitrator in advance.

If the parties want to name a particular arbitrator in advance, that's fine, as the parties have an opportunity to explore who that person is, but leaving the option open for an unfettered choice down the line after the wrongful conduct has occurred is unreasonable and should be prohibited by the Federal Arbitration Act (keep in mind -- arbitration is not a "contractual" right, it's a statutorily-prescribed method of dispute resolution, making Congress complicit in these abuses).

I wouldn't buy the time of day from someone who proposed that and neither should you.

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As you've probably heard at sites like Overlawyered and Drug & Device Law, the sky is falling upon us because the Supreme Court didn't override Congress and the FDA and decide to pre-empt state failure-to-warn tort suits against prescription drug manufacturers.

If you don't know the basic facts, see SCOTUSBlog. Some initial commentary at the WSJ.

Wyeth manufactures pharmaceuticals, subject to FDA regulation. The FDA sets a minimum standard for the use of these drugs and their labeling; it does not dictate the text of warning labels, though it does have to approve them, which it does after intense lobbying by the manufacturers, lobbying generally unopposed by anyone at all, where the sole "evidence" are manufacturer-sponsored studies, studies which have repeatedly come under fire for conflicts of interest.

Nonetheless, under the "changes being effected" regulation, a drug company can unilaterally change its warning labels to improve patient safety.

Does this regulatory authority preclude all state tort suits alleging drug companies promoted or failed to warn against unsafe uses of these drugs?

Vested interests have spent a lot of money trying to convince judges (and the public) that this question is so hard to answer on purely legal grounds that it requires the judges start making policy instead of law.

Because the law is very clear, as the Supreme Court ruled, 6-3:

As it enlarged the FDA’s powers to “protect the public health” and “assure the safety, effectiveness, and reliability of drugs,” id., at 780, Congress took care to preserve state law. The 1962 amendments added a saving clause, indicating that a provision of state law would only be invalidated upon a “direct and positive conflict” with the FDCA [Food, Drug and Cosmetics Act]. §202, id., at 793. Consistent with that provision, state common-law suits “continued unabated despite . . . FDA regulation.” Riegel v. Medtronic, Inc., 552 U. S. ___, ___ (2008) (slip op., at 8) (GINSBURG, J., dissenting); see ibid., n. 11 (collecting state cases). And when Congress enacted an express pre-emption provision for medical devices in 1976, see §521, 90 Stat. 574 (codified at 21 U. S. C. §360k(a)), it declined to enact such a provision for prescription drugs.

Slip op. at 10.

Congress has had numerous opportunities, while amending the FDCA, to change that. It didn't.

The FDA has had numerous opportunities, while promulgating regulations with the force of law (as opposed to mere policy positions, which are not binding on courts), to change that. It didn't.

There was no "direct and positive conflict" between plaintiff's claims and the FDA approval.

There's nothing more to say here.

The Supreme Court is to be commended for refraining from telling Congress and the FDA they didn't know how to set policy, and for sticking to basic principles of judicial, statutory and regulatory interpretation.

Thanks for refraining from judicial activism.

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After the firestorm of criticism last week, including on this blog, Facebook CEO Mark Zuckerberg announced (on Facebook's blog and in a media conference call):

Beginning today, we are giving you a greater opportunity to voice your opinion over how Facebook is governed. We're starting this off by publishing two new documents for your review and comment. The first is the Facebook Principles, which defines your rights and will serve as the guiding framework behind any policy we'll consider—or the reason we won't consider others. The second document is the Statement of Rights and Responsibilities, which will replace the existing Terms of Use. With both documents, we tried hard to simplify the language so you have a clear understanding of how Facebook will be run. We've created separate groups for each document so you can read them and provide comments and feedback. You can find the Facebook Principles here and the Statement of Rights and Responsibilities here. Before these new proposals go into effect, you'll also have the ability to vote for or against proposed changes.

Credit where it is due: the new "Statement of Rights and Responsibilities" describes the legal relationship between users and Facebook the way that Facebook's officers have been describing it.

In short: users retain total control over their content, and can terminate Facebook's license at will. Users still can't really sue Facebook for anything, but might be able to sue developers or operators of third-party applications if they breach the new terms.

In long, start with governing law:

14.1 You will resolve any claim, cause of action or dispute (“claim”) you have with us arising out of or relating to this Statement or Facebook in a state or federal court located in Santa Clara County. The laws of the State of California will govern this Statement, as well as any claim that might arise between you and us, without regard to conflict of law provisions. You agree to submit to the personal jurisdiction of the courts located in Santa Clara County, California for the purpose of litigating all such claims.

Good news! As noted before, California has very pro-consumer laws. You'll also notice that Facebook got rid of the class action waiver (which was likely illegal anyway) and the arbitration requirement, too. No longer must you drop $6,000 or more just to start an arbitration against them.

Then, the licensing, the part that caused so much trouble last time:

You own all of the content and information you post on Facebook, including information about you and the actions you take (“content”). In order for us to share your content and provide you with our services, you agree to the following:

2.1 You give us permission to use, store, and share content you post on Facebook or otherwise make available to us (“post”), subject to your privacy and application settings.
2.2 You may delete your content or your account at any time with the understanding that removed information may persist in backup copies for a reasonable period of time (but will not be generally available to other users), and that content shared with others may remain until they delete it.
2.3 For content that is covered by intellectual property rights (like photos and videos), you specifically give us the following permission, subject to your privacy and application settings: you grant us a non-exclusive, transferable, sub-licensable, royalty-free, worldwide license to use, copy, publicly perform or display, distribute, modify, translate, and create derivative works of (“use”) any content you post on or in connection with Facebook. This license ends when you delete your content or your account.
2.4 We always appreciate your feedback or other suggestions about Facebook, but you understand that we may use them without any obligation to compensate you for them (just as you have no obligation to offer them).

(Emphasis mine). Finally! No more fussing around with ambiguity: Facebook twice reiterates that their license is "subject to your privacy and application settings," and that deleting either your content or your account terminates the license to that content.

That is exactly how users expect the system to operate. Facebook also omitted the annoying and erroneous "irrevocable" from the license.

I'll have more to say later. But let me raise one really interesting issue:

9. Special Provisions Applicable to Developers/Operators of Applications and Websites

If you are a developer or operator of a Platform application or a website using Connect (“application”), the following additional terms apply to you:

9.2 When users add your application or connect it to their Facebook account, they give permission for you to receive certain data relating to them. Your access to and use of that data will be limited as follows:
9.2.1 You will only use the data you receive for your application, and will only use it in connection with Facebook.
9.2.2 You will make it clear to users how you are going to use, display, or share their data.
9.2.3 You will not use, display, or share a user’s data in a manner inconsistent with the user’s privacy settings without the user’s consent.
9.2.4 You will delete all data you received from us relating to any user who removes or disconnects from your application unless the user gives you permission to keep it.
9.2.5 You will delete all data you received from Facebook if we disable your application or ask you to do so.
9.2.6 We can require you to update any data you have received from us.
9.2.7 We can limit your access to data.
9.2.8 You will not transfer the data you receive from us without our prior consent.
9.3 You will not give us data that you independently collect from a user or a user’s content without that user’s consent.

...

That would appear to make users "third-party beneficiaries" to Facebook's relationship with developers / operators of Facebook or Connect services. Which means users would likely have standing to sue if that developer / operator violated the terms, including violations of privacy settings (under 9.2.3).

Here's a California appellate court from just two weeks ago:

"Under Civil Code section 1559, a third party can enforce the terms of a contract 'made expressly for the benefit of [the] third person.' 'Expressly' in this context is interpreted to mean 'merely the negative of 'incidentally.'' (Gilbert Financial Corp. v. Steelform Contracting Co. (1978) 82 Cal.App.3d 65, 70 [145 Cal. Rptr. 448].) The contract need not be exclusively for the benefit of the third party in order to permit enforcement, and the third party does not need to be the sole or the primary beneficiary. Further, the third party need not be identified as a beneficiary, or even named, in the contract. (Prouty v. Gores Tecology Group, supra, 121 Cal.App.4th at pp. 1232–1233.) 'If the terms of the contract necessarily require the promisor to confer a benefit on a third person, then the contract, and hence the parties thereto, contemplate a benefit to the third person. The parties are presumed to intend the consequences of a performance of the contract.' (Joson v. Holmes Tuttle Lincoln-Merc. (1958) 160 Cal.App.2d 290, 297 [325 P.2d 193].)"

National Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Services Group, Inc., No. A120072, 2009 Cal. App. LEXIS 170, at *25–26 (Cal. Ct. App. Feb. 11, 2009).

Here's the statute itself:

A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.

Cal Civ Code § 1559 (2008).

That's great for users, but I'm sure developers and operators will have something to say about it Are they ready to be legally bound to users by Facebook's terms?

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Now that Facebook has rescinded its "new" Terms, let's talk about 13 problems with the Terms, 2 questions to consider about the site, and 10 changes Facebook should make.

If you see “new Terms” below, that refers to the Terms Facebook enacted on February 4, 2009, then rescinded. “Old Terms” refers to the Terms in place before then, which are now the current terms.

13 THINGS YOU SHOULD KNOW ABOUT FACEBOOK'S CURRENT TERMS OF USE

1. Facebook wants to make money using your information. That doesn't make them evil; users worldwide are fine with Google, another free service,  reading their searches and emails to target advertising. But Facebook isn't a charity, and their current business model is aimed at sending you targeted advertising or at finding a way to monetize what they know about you. Keep that goal -- and not the goal of "sharing" -- in mind when you consider Facebook's Terms.  Keep in mind, too, what would happen with your information if Facebook was sold to another company. 

2. Facebook has the right to use your  information and content  "for any purpose, commercial, advertising or otherwise." Your use "automatically grants" them "an irrevocable, perpetual, non-exclusive, transferable, fully paid, worldwide license" to anything you  put on the service, and, for the new Terms, anything you enabled someone else to post, like if you put a "Share on Facebook" button on your blog. The old Terms permit you to terminate this license by removing your content from the site. The new Terms did not recognize that right of termination; Facebook could use your content forever, for any purpose, without your permission. That's what the hoopla was all about.

3. Facebook collects information on you from sources other than your posted content. As their Privacy policy says, "We may use information about you that we collect from other sources, including but not limited to newspapers and Internet sources such as blogs, instant messaging services, Facebook Platform developers and other users of Facebook, to supplement your profile."

4. Facebook has, in the past, broadcast user's private information in ways users didn't want or expect. Two notable examples were the "Beacon" service, which defaulted to broadcasting what users did on third-party sites (e.g., what products they bought) and the misleading "deactivation" policy, in which closing an account merely "deactivated" it without prohibiting access to any of the  content . Facebook has also been criticized for confusing privacy settings -- for example, by inputing your location you have automatically joined that locality's "network," and thus by default are accessible through searches by people in that area.

5. Facebook wants to use your name, likeness and image for their commercial purposes. The new Terms had a license not just your content, but your very identity,  which they could use  for commercial  purposes like using your name to endorse or market products.The reason Facebook wanted this additional license seems clear: the "Beacon" service above, which Facebook had to retreat from, likely violated existing laws in many states, particularly New York, prohibiting the use of another's likeness in an advertisement without proper consent and compensation. The new Terms tried to run  around those laws. Recall, too, that Facebook would have had that right forever.

6. Facebook can sell information about you to third parties. Their privacy policy says they may "use" your information "without identifying you as an individual," and that they "do not provide contact information to third party marketers without your permission." Everything else is fair game.

7. Facebook can delete your whole account without warning. Under both Terms, Facebook can pull the plug "for any or no reason, at any time in our sole discretion, with or without notice."

8. The content Terms are so onerous they ban even the "25 Things" meme. "User conduct" says "you agree not to use the Service or the Site to ... upload, post, transmit, share or otherwise make available any ... chain letters." Oops. The old Terms also ban "any content that we deem to be harmful, threatening, unlawful, defamatory, infringing, abusive, inflammatory, harassing, vulgar, obscene, fraudulent, invasive of privacy or publicity rights, hateful, or racially, ethnically or otherwise objectionable." The new Terms went a long way towards cleaning up those ridiculous prohibitions.

9. Facebook does not permit any commercial use whatsoever. The old Terms are very clear: "You understand that except for advertising programs offered by us on the Site (e.g., Facebook Flyers, Facebook Marketplace), the Service and the Site are available for your personal, non-commercial use only." The new Terms changed all that, requiring that your profile be for personal uses but allowing you to create Pages for commercial purposes.

10. Facebook isn't responsible if a third-party application abuses your personal information. From Facebook's privacy page: "However, while we have undertaken contractual and technical steps to restrict possible misuse of such information by such Platform Developers, we of course cannot and do not guarantee that all Platform Developers will abide by such agreements."

11. Facebook isn't liable if they lose your content, give you a virus or allow your account to be hacked. Under both Terms, the "Disclaimers" and "Limitation on Liability" have multiple provisions preventing you from suing them for just about anything. Here's one example: "Under no circumstances will the Company be responsible for any loss or damage, including any loss or damage to any User Content or personal injury or death, resulting from anyone's use of the Site or the Service, any User Content or Third Party Applications, Software or Content posted on or through the Site or the Service or transmitted to Users, or any interactions between users of the Site, whether online or offline."

12. If you can find a way to sue Facebook, you have to go through arbitration. The old Terms made you use the American Arbitration Association in the location determined by the AAA Rules (likely your domicile), whereas the new Terms make you use Judicial Arbitration and Mediation Services in Santa Clara County, California, though you're permitted to appear by phone. It's unclear why Facebook switched from AAA to JAMS; either way, be glad they're not using the National Arbitration Forum, which has been accused of stacking the deck in favor of defendants like credit card companies.

13. If you can find a way to sue and win in arbitration, your compensation is severely limited. The old terms' "limitation on liability" limit you to "the amount paid, if any, by you to company for the service during the term of membership," capped at $1000. The new terms entitle you to a minimum of $100, with a cap of "the amount paid by you, if any, to Facebook during the twelve months immediately preceding the day the act or omission occured that gave rise to your claim."

2 THINGS TO CONSIDER ABOUT FACEBOOK'S SITE:

14. What should the default privacy settings be? Should Facebook presume you want to share everything, some things, or nothing? And with whom should it presume you want to share? Your friends? Their friends? Their friends’ friends? What about people in your location or your former classmates? The default settings are very powerful, since they’re often not changed and because users are often confused by what the changes even mean, so they should be chosen carefully.

15. When one user deletes a post on Facebook, what should happen to other users' comments to that post? This scenario represents a larger issue for Facebook, one they were likely attempting to address with the new Terms. Facebook's primary purpose is to facility communication, usually in the form of one user posting a status update, link or photo and other users commenting in response to that update, link or photo. So who "owns" those comments?  Who "owns" a comment which quotes the original post? Don't look to the law:  the point of Terms is to  establish a relationship and  settle  questions.  How do users want or expect such a deletion to function?

10 THINGS USERS SHOULD ADVOCATE BE INCLUDED IN FACEBOOK'S NEW TERMS OF USE:

16. Users should retain the right to remove their own content from the system. Users expect and should have the right to remove any content from Facebook, and thereby terminate Facebook's license, at any time. That’s what the old Terms permitted, and it’s essential for any artist who, down the road, is asked to grant an “exclusive” license to their content.

17. Facebook should not have any rights to user’s name, likeness or image except where specifically permitted. It’s reasonable for Facebook to get a blanket, revocable license from you for your content; the whole service works by distributing your content to others, and a blanket license enables them to easily introduce new features that distribute your content in new ways. Name and likeness are a completely different matter. Given Facebook’s poor history in the past regarding likenesses (e.g., the “Beacon” service), Facebook should be upfront about when it is going to use your likeness for a commercial purpose and should ask you for permission for that specific use.

18. Facebook’s Terms should be written (or summarized) in plain English. The controversial “licenses” term was a 120-word sentence that “granted” a “license” (a “license” defined by six adjectives) over the course of two subclauses (“(a)” and “(b),” which together included twenty different verbs), two sub-subclauses (“(a)(i)” and “(a)(ii)”), and a modifying end-clause (“each of (a) and (b)”) that ended with a legalese preposition (“thereof”). Possibly worse, the license included an ambiguous clause – “subject only to your privacy settings” – which caused numerous users to conclude, wrongly, that Facebook’s entire license was limited to the user’s privacy settings. The clause, at most, limited the license only for content posted, not content shared or the user’s likeness, and, at worst, actually reinforced that users retained no license control at all, but instead “only” the ability to limit privacy settings.

19. Facebook’s Terms should be built on trust, not distrust. “You agree” appears eleven times in the old Terms and fifteen times in the new Terms; “Facebook agrees” does not appear in either. Both Terms bear far more in common with the release people signed to be ridiculed by Borat than a mutual agreement. If Facebook says, like Gmail, that “We will not use any of your content for any purpose except to provide you with the Service,” they theoretically increase the likelihood of being sued, but they also make the relationship much clearer and more trusting.

20. Facebook should bear some legal and financial responsibility. As noted above, you are essentially a guest on Facebook's servers, and they can kick you off whenever they want, for "any or no reason." Unless the Terms include provisions that are legally enforceable, in an affordable manner, users have no “rights.” When Facebook says, “you can’t sue us, just trust us,” they really mean “we don’t trust ourselves enough not to make mistakes and get sued.” Even if you come up with a way to sue them, your damages are limited to what you paid Facebook ($0), a big problem given how a basic JAMS arbitration costs almost $8,000 just to get the ball rolling. Facebook has cause to be concerned about exposing itself to liability among 175 million users, but there is a comfortable middle ground where Facebook’s liability isn’t open-ended but users are still protected.

21. Facebook should only be permitted to delete or restrict your account for “cause.” As noted above, Facebook both can delete your account without warning and prohibits you from myriad activities online. 175 million users includes a lot of trolls, spammers, harassers, and con artists, and that’s okay – Facebook can reserve for itself broad reason for “cause,” like the new Terms included, such as if a user “intimidates or harasses any user” or “does anything that is illegal, infringing, fraudulent, malicious or could expose Facebook or the Facebook Service users to harm or liability.”

22. Facebook should agree to take reasonable steps to secure user’s personal information and should be required to report any disclosures. Know what happens if Facebook goofs and sends your personal, identifying information to third parties? Nothing. What happens if Facebook knows a third-party application is harvesting personal addresses and selling them to spammers and scam artists? Nothing. The liability here doesn’t have to be unlimited, but it should be something, possibly a set fee, like $250 per violation per user.

23. Facebook should guarantee the security of your content. Facebook expects and wants its users to put a substantial portion of their lives online, including extended conversations with friends. Users have every reason to expect, and to make Facebook responsible for, guaranteeing their data will not be lost or corrupted. Again, Facebook doesn’t have to be completely responsible for every lost customer a business suffers, but they should have a meaningful level of legal and financial responsibility.

24. Facebook should permit a jury trial of class actions against Facebook, with attorneys fees and costs if Facebook loses. The old terms illegally prohibit class actions. The new terms permit class actions, so long as you first arbitrate whether you can bring a class and you waive your right to a jury trial. Such a limitation might be illegal, too, and it flies in the face of Zuckerberg's claim that "we need to make sure the terms reflect the principles and values of the people using the service." There needs to be real, meaningful, enforceable responsibility when Facebook breaches one of the terms above.

25. Facebook should keep many of the new Terms. The new Terms changed the governing law to California (likely out of convenience), one of the most pro-consumer states in the nation. That’s great. It was also great how Facebook came up with specific ways for people to conduct business through Facebook. Finally, Facebook really did shorten the Terms and make them a little bit more coherent (such as in areas like “User Content”) and they shouldn’t shy away from that.

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[Update - see also 25 Things About Facebook's Terms of Use and Your Rights, discussing the current problems and where we go from here.]

Facebook responded swiftly to the social media uproar over its new Terms of Use by reverting to the old Terms.

Great news, with one problem: the old Terms aren't that great. Mark Zuckerberg described Facebook's old Terms as "overly formal and protective," and promised to revise them promptly.

He's being euphemistic.

Some of the "old" (now "current") Terms were downright illegal and unenforceable, like making users responsible for checking for updates to the Terms and making users waive class action status, as covered in my first post.

Other "old" Terms followed the carpet bombing and kitchen sink methods of contract drafting, with the same point made multiple times in multiple excessive ways that rendered the Terms a farce.

Here's one example: in response to the controversy, Facebook started a Group to discuss the Terms, "Facebook Bill of Rights and Responsibilities." The Discussion Board for that Group was promptly swarmed by racist trolls.

That's a problem for the trolls themselves, as the "User Conduct" section says users "agree not to use the Service or the Site to:"

upload, post, transmit, share, store or otherwise make available any content that we deem to be harmful, threatening, unlawful, defamatory, infringing, abusive, inflammatory, harassing, vulgar, obscene, fraudulent, invasive of privacy or publicity rights, hateful, or racially, ethnically or otherwise objectionable;

Awfully broad, no? The "new" (now "rescinded") Terms narrowed that whole paragraph to "intimidate or harass any user."

But under the "old" Terms such trolling is  also a problem for Facebook, since their "User Content Posted on the Site" section says:

You are solely responsible for the photos, profiles, messages, notes, text, information, music, video, advertisements, listings, and other content that you upload, publish or display (hereinafter, "post") on or through the Service or the Site, or transmit to or share with other users (collectively the "User Content"). You may not post, transmit, or share User Content on the Site or Service that you did not create or that you do not have permission to post.

Who "published," "displayed," "transmitted to" or "shared with other users" the messages in that Group? Why, the creators and administrators of that Group, Simon Axten, Mark Zuckerberg, and Barry Schnitt. All Facebook employees, one of them the CEO.

Who are now arguably made responsible for those messages.

Hmmm. Probably not what Facebook intended or what users expect.

I'll have more about what was different in the "new" (now "rescinded" ) Terms and what Facebook should put in their Terms.

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[I've posted a followup in light of Facebook's response, i.e. rescinding the new terms -- Facebook Rescinds Its New, Unfriendly Terms of Use in Favor of Its Old, Unfriendly Terms of Use. Further, 25 Things About Facebook's Terms of Use and Your Rights, discussing the current problems and where we go from here. Also, some thoughts on the even newer, much better Terms Facebook has proposed.]

Now that we've covered whether Facebook can slip new terms into the service and whether they can enforce their terms at all, it's time to look at what the new "Licenses" terms mean.

Facebook's new "Licenses" section says:

You hereby grant Facebook an irrevocable, perpetual, non-exclusive, transferable, fully paid, worldwide license (with the right to sublicense) to

(a) use, copy, publish, stream, store, retain, publicly perform or display, transmit, scan, reformat, modify, edit, frame, translate, excerpt, adapt, create derivative works and distribute (through multiple tiers), any User Content you

(i) Post on or in connection with the Facebook Service or the promotion thereof subject only to your privacy settings

or

(ii) enable a user to Post, including by offering a Share Link on your website

and

(b) to use your name, likeness and image for any purpose, including commercial or advertising,

each of (a) and (b) on or in connection with the Facebook Service or the promotion thereof. 

We'll come back to the bolding. For now, I reformatted it to make the distinct sections clearer* and italicized the portions that aren't unusual, as you can see from Amanda French's comparison of the terms at MySpace, Yahoo's Flickr, Google's Picasa, YouTube, LinkedIn and Twitter. For any of these sites to function, they need at lease some license to use your content.**

The main difference is that MySpace, Flickr, Picasa, YouTube and Twitter all explicitly recognize that their license to such "User Content" ends upon your termination of the service or your removal of content. Facebook and LinkedIn don't -- once you provide content, they have a license to use it forever.

There are three other important licensing differences. Under the new Terms you:

1. grant Facebook a license to all content you enabled someone else to post,
2. grant Facebook a right to use your name and likeness, and
3. grant Facebook the right to use content and your likeness not just for purposes of Facebook's service, but also in Facebook's promotional efforts.

That's a lot to swallow, particularly since you can't ever revoke any of it.

Good thing Mark Zuckerberg, Founder, CEO and Board Member of Facebook (keep those last two in mind), jumped in to respond to the criticism:

One of the questions about our new terms of use is whether Facebook can use this information forever. When a person shares something like a message with a friend, two copies of that information are created—one in the person's sent messages box and the other in their friend's inbox. Even if the person deactivates their account, their friend still has a copy of that message. We think this is the right way for Facebook to work, and it is consistent with how other services like email work. One of the reasons we updated our terms was to make this more clear.

In reality, we wouldn't share your information in a way you wouldn't want. The trust you place in us as a safe place to share information is the most important part of what makes Facebook work. Our goal is to build great products and to communicate clearly to help people share more information in this trusted environment.

We still have work to do to communicate more clearly about these issues, and our terms are one example of this. Our philosophy that people own their information and control who they share it with has remained constant. A lot of the language in our terms is overly formal and protective of the rights we need to provide this service to you. Over time we will continue to clarify our positions and make the terms simpler.

Soothing words, or much more? 

Go back to the bolded portion of the license term above, which limits the license users granted to being used "on or in connection with the Facebook Service or the promotion thereof." What the heck does that mean? The Terms define "Facebook Service" as follows:

The "Facebook Service" means the features, services and properties that Facebook makes available through (a) www.facebook.com or any other Facebook-branded or co-branded website (including, without limitation, any and all sub-domains and all international, mobile versions and successors thereof), (b) the Facebook Platform and (c) other media, devices or networks now existing or later developed.

That doesn't really help -- what does it mean for content to be used "in connection with" Facebook?

Would that include, say, Facebook leveraging the "25 Things" meme and publishing its own book of other people's "25 Things" posts? Or could Facebook, as the founder of Rocketboom worried, use Rocketboom's videos 30 years down the road?

Under the literal meaning of the new Terms, both would appear possible, and there would be nothing users could do about it. Zuckerberg's reference to "email" is a dodge -- email services don't arrogate to themselves any publishing rights beyond your initial sending, certainly no rights to use your emails to promote the email service.

But Zuckerberg's dodgy, soothing email has much more legal meaning than he and his team probably realized. The Terms themselves note that "We reserve the right, at our sole discretion, to change or delete portions of these Terms at any time without further notice."

Did they just do that? That is, does Zuckerberg, the CEO and a Board Member, have the authority to bind Facebook to changes in their Terms?

Recall that disputes under the new Facebook Terms are governed by California law, under which "a corporate officer may have express authority to enter into an agreement on behalf of the corporation." Snukal v. Flightways Mfg., 23 Cal. 4th 754, 779, 3 P.3d 286, 305, 98 Cal. Rptr. 2d 1, 22 (2000).

Even if Zuckerberg doesn't have the express authority to change the Terms, he may have the implied authority given his preeminent role in the company and, perhaps most importantly, he has the apparent authority to bind the company to contractual terms.***

Users thus have every reason to incorporate Zuckerberg's blog post into their interpretation of the terms. Zuckerberg specifically said that "control" over sharing "has remained constant" across the new and old Terms and that "we wouldn't share your information in a way you wouldn't want." 

That is to say, Zuckerberg just clarified what's meant by "in connection with the Facebook Service:" the "Facebook Service" has a philosophy of ensuring user "control" over content sharing, and does not share information in a way users don't want.

Would that fly in front of the JAMS-appointed arbitrators in Santa Clara county?**** Facebook doesn't know the answer to that any better than I do, but I bet it would work. Companies are cross-examined with the words of their CEOs and officers every day in trials and arbitrations across the country.

It's a legal risk I'm personally willing to take.

Until they modify the Terms again, that is.

 

Footnotes:

* Did you catch the typo at the beginning of (b)? They split the infinitive "to use" at subsection (a) but repeated "to" a section (b). Reading the terms literally says you grant Facebook "... worldwide license (with the right to sublicense) to to use your name, likeness ..."

** Facebook has replied that they don't "own" your content, and that's partly true, the Terms don't claim any exclusive license or ownership right to your content, but they do claim a transferrable, non-exclusive license, which is all they could really want from you anyway.

*** Indeed, under the Snukal case it's quite possible that Zuckerberg would be considered as having both "operational" and "recordkeeping or financial duties," making his words irrefutably binding on the company, just as they were for the defendant in that case. 

**** Also a new provision, which I'll discuss tomorrow.

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[Update -- I've posted followups, What Do Facebook's New Terms of Use Mean for Your Content? and Facebook Rescinds Its New, Unfriendly Terms of Use in Favor of Its Old, Unfriendly Terms of Use. Finally, 25 Things About Facebook's Terms of Use and Your Rights, discussing the current problems and where we go from here.]

Yesterday we talked about Facebook's new "Terms of Use," delivered to users by stealth, and how users who wanted to leave could likely enforce the old terms, which didn't include the new controversial licensing provisions.

Right now we'll talk about whether the new terms are enforceable, and later we'll talk about what they mean for your content.

There are two general types of website Terms of Use (or Service): "click wrap" and "browse wrap." Both unfortunately named after "shrink wrap" terms, i.e. the terms of software programs that purported to apply to the buyer the moment they tore off the plastic shrink-wrap around the box the software came in.

And that's about as concrete as the law gets here. As noted by a recent law review article, depressingly not available online, "amazingly few appellate opinions on point exist, and generally, the opinions are unrefined in their analyses." Cyber-Surfing on the High Seas of Legalese, 18 Alb. L.J. Sci. & Tech. 79 (2008).

As noted previously, Facebook's new Terms state that California's laws govern any dispute, so that's where we should look for guidance, but California law isn't much help. The California Supreme Court, which would decide the issue, hasn't spoken on click wrap or browse wrap terms at all.

The most recent case I found was an unpublished California state appellate court opinion upholding a browsewrap agreement, noting that “there was nothing inherently unfair in requiring [the consumer] access contractual terms via hyperlink." Cohn v. Truebeginnings, 2007 Cal. App. Unpub. LEXIS 6232.

But an unpublished state court appellate opinion is among the weakest authorities you can have -- California's own courts frown on even mentioning them in legal briefs.

The most persuasive authority available seems to be Specht v. Netscape Communs. Corp., 306 F.3d 17 (2d Cir. 2002), a ruling on California law by a Federal appellate court that doesn't even serve California (it serves Connecticut, New York, and Vermont):

It is true that ‘[a] party cannot avoid the terms of a contract on the ground that he or she failed to read it before signing.’ Marin Storage & Trucking, 107 Cal. Rptr. 2d at 651. But courts are quick to add: ‘An exception to this general rule exists when the writing does not appear to be a contract and the terms are not called to the attention of the recipient. In such a case, no contract is formed with respect to the undisclosed term.’ Id.; cf. Cory v. Golden State Bank, 95 Cal. App. 3d 360, 157 Cal. Rptr. 538, 541 (Cal. Ct. App. 1979)

...

We conclude that in circumstances such as these, where consumers are urged to download free software at the immediate click of a button, a reference to the existence of license terms on a submerged screen is not sufficient to place consumers on inquiry or constructive notice of those terms.

Specht, 306 F.3d at 32.

Hmmm. Do we go with the unpublished California state appellate court or the published Federal appellate court opinion that has no authority in California?

Neither. The law is simply too unsettled to give a "right" answer one way or the other.

Which means common sense, tempered with caution, prevails: if you were a judge asked to decide whether a user in your shoes was bound to Facebook's new Terms, how would you decide?

If you're reading this post, you're obviously aware of the new terms, so your continued use would appear to demonstrate an acceptance of the Terms.

But what if, as the Facebook Group "People Against the new Terms of Service (TOS)" has recommended, you email or otherwise notify Facebook of the following:

Notice to Facebook: Notwithstanding FB's new Terms of Use, any use of my content is always subject to my privacy settings and FB's use terminates upon my termination of my account or removal of my content, whichever is the earlier, unless longer to display my shared content on the accounts of my friends.

Truth is, no one knows. Keep in mind that, if it comes down to a lawsuit, if you want to enforce those terms you're going to simultaneously argue that your use didn't constitute acceptance of Facebook's Terms while Facebook's providing service to you constituted acceptance of your Terms.

What does your common sense tell you about that argument?

Next up we'll look at the terms themselves and what they mean for your content.

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[Update -- I've posted a few followups: Are Facebook's New Terms of Use Enforceable?, What Do Facebook's New Terms of Use Mean for Your Content? and Facebook Rescinds Its New, Unfriendly Terms of Use in Favor of Its Old, Unfriendly Terms of Use. Finally, 25 Things About Facebook's Terms of Use and Your Rights, discussing the current problems and where we go from here.]

Facebook earned itself the wrath of Twitter by revising its Terms of Use (a/k/a Terms of Service) to grant itself a perpetual license to use all of your content (which is typical of social media sites), even if you leave the site (which is not typical).

We'll get to the substance of the change later. For now, a simple question: can Facebook unilaterally change terms of use without notifying users?

We get hints at the answer by comparing Facebook's old Terms, dated May 24, 2007, to the current Terms, dated February 4, 2009.

Here's what's really the most important change:

The old Terms:

By visiting or using the Site and/or the Service, you agree that the laws of the State of Delaware, without regard to principles of conflict of laws, will govern these Terms of Use and any dispute of any sort that might arise between you and the Company or any of our affiliates.

The new Terms:

You agree that all claims and disputes between you and Facebook that arise out of or relate in any way to the Terms or your use of the Facebook Service will be governed by the laws of the State of California (and United States federal laws applicable therein), without regard to principles of conflict of laws.

That's much better for Facebook users: California has some of the most pro-consumer laws in the nation.

Let's get back to Facebook's unilateral, stealth change.

Old Terms:

We reserve the right, at our sole discretion, to change, modify, add, or delete portions of these Terms of Use at any time without further notice. If we do this, we will post the changes to these Terms of Use on this page and will indicate at the top of this page the date these terms were last revised. Your continued use of the Service or the Site after any such changes constitutes your acceptance of the new Terms of Use. If you do not agree to abide by these or any future Terms of Use, do not use or access (or continue to use or access) the Service or the Site. It is your responsibility to regularly check the Site to determine if there have been changes to these Terms of Use and to review such changes.

New Terms:

We reserve the right, at our sole discretion, to change or delete portions of these Terms at any time without further notice. Your continued use of the Facebook Service after any such changes constitutes your acceptance of the new Terms.

Streamlined? Nope. The difference was probably Douglas v. United States Dist. Court, 495 F.3d 1062, 1066 (9th Cir. 2007), decided a month after Facebook's old Terms, which held:

Parties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side. Fn 1 Indeed, a party can't unilaterally change the terms of a contract; it must obtain the other party's consent before doing so. Union Pac. R.R. v. Chi., Milwaukee, St. Paul & Pac. R.R., 549 F.2d 114, 118 (9th Cir. 1976). This is because a revised contract is merely an offer and does not bind the parties until it is accepted." 

Fn 1: Nor would a party know when to check the website for possible changes to the contract terms without being notified that the contract has been changed and how. Douglas would have had to check the contract every day for possible changes. Without notice, an examination would be fairly cumbersome, as Douglas would have had to compare every word of the posted contract with his existing contract in order to detect whether it had changed.

That is to say, a month after Facebook claimed a unilateral right to modify its Terms without any notice to users of the change, the 9th Circuit (the Federal appellate court for California) ruled that companies were required to give notice. (Tech bloggers, like Ars Technica, picked this ruling up at the time, so I'm sure Facebook did, too.)

Arguably, Douglas does not directly apply to this circumstance, where Facebook and its users nominally agreed to permit such secret changes through the old contract, but it's unlikely such an argument would fly under California law, which often throws out unfair mass contract provisions like these for "unconscionability." See, e.g., Shroyer v. New Cingular Wireless Servs., 498 F.3d 976, 986 (9th Cir. 2007)(throwing out class arbitration waiver as "unconscionable and unenforceable under California law.")

Did I just mention a class arbitration waiver? Note that Facebook changed that part of their Terms, too.

Old:

To the fullest extent permitted by applicable law, NO ARBITRATION OR CLAIM UNDER THESE TERMS OF USE SHALL BE JOINED TO ANY OTHER ARBITRATION OR CLAIM, INCLUDING ANY ARBITRATION OR CLAIM INVOLVING ANY OTHER CURRENT OR FORMER USER OF THE SERVICE, AND NO CLASS ARBITRATION PROCEEDINGS SHALL BE PERMITTED.

New:

With respect to any claims or disputes you intend to bring on behalf of a class, you agree to arbitrate whether a class could be certified before bringing such action in a court of law. If the arbitrator refuses to certify the class, you will continue to resolve your individual claims or disputes through binding arbitration. If the arbitrator finds that a class should be certified, you may file the class action in a court of law provided you waive any right to a trial by jury. Claims for injunctive or other equitable relief may also be brought in a court of law.

Another changed required by law, particularly California law.

So, are these changes valid or not? The plaintiff in Douglas kept using the services for years without noticing the changes, and even so they weren't applied to him. The same may not be true to users, like you, who are aware of these changes and keep using Facebook.

But what about your old content? If you leave now, does Facebook still have an non-exclusive license to use your content?

Likely not, given Douglas above, which holds, in essence, that Facebook's new Terms don't apply to you until you have actually assented to them. Facebook knows that, which is why their new Terms don't have that " It is your responsibility to regularly check the Site" garbage anymore.

But you're going to need to make some choices soon, since your continued use might be considered "assent" to the new Terms. We'll talk about that more tomorrow, as well as the deeper meaning of the Terms, particularly in light of Facebook's response to the controversy.

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Overlawyered leads us to this line from a Posner opinion in Mirafasihi v. Fleet Mortgage Co., decided December 30, 2008:

It is an example of the typical pathology of class action litigation, which is riven with conflicts of interest ...

The case alleged numerous violations of state (every state) consumer protection statutes and the federal Fair Credit Reporting Act. Specifically, Fleet Mortgage Corporation wrongfully used private financial and personal information it had on home mortgages to solicit (with deceptive practices, no less) 1.6 million of its homeowners with offers for financial services. 190,000 of them took the bait and purchased some of these services.

Suit was filed with two proposed classes, one for the 15% who were financial victims and one for the 85% who were 'merely' privacy victims. A settlement was eventually negotiated and approved simultaneously with class certification.

It was an awesome deal: the 1.4 million who merely had their privacy illegally violated so that a national bank could attempt to swindle them received nothing. Nothing despite state statutes imposing an average penalty-per-violation of over $1,000.

Wait, that's not fair, they did get something: they were to be precluded from ever filing suit individually.

Judge Posner was right: the situation presented a huge conflict of interest. Fleet almost certainly exploited the fact that the same lawyers represented both classes, and so likely deliberately negotiated with the intent to split the 190,000 financial victims from the 1.4 million privacy victims. The quote referenced above comes from this passage in Posner’s opinion:

We are disheartened that the litigation by the information-sharing class has been allowed to drag on for eight years, when it had no merit—and that as a matter of law, without need to take evidence. It is an example of the typical pathology of class action litigation, which is riven with conflicts of interest, as we discussed recently in Thorogood v. Sears, Roebuck & Co., supra, 547 F.3d at 744–46. The lawyers for the class could not concede the utter worthlessness of their claim because they wanted an award of attorneys’ fees. The lawyers for Fleet were reluctant to argue the utter worthlessness of the claim because they were able to negotiate a settlement that cost their client virtually nothing—provided they did not take such a strong stand that it jeopardized the class lawyers’ shot at a generous award of attorneys’ fees, and hence the settlement.

That’s all well and good, and it is exactly why we permit members of a proposed class action settlement to file objections to the proposed settlement.

And that is what happened here: some of the 1.4 million homeowners whose privacy was intentionally violated as part of a fraud objected to the settlement on the grounds that they would receive nothing and no steps were going to be taken to ensure that neither Fleet nor anyone else would do this again.

The district court denied the first objection and approved the settlement, so the objectors appealed and won. The district court then approved a newly negotiated settlement with the privacy victims getting nothing, but with a quarter million going to consumer law public interest attorneys.

The objectors appealed again and won again.

The district court then went back, looked at the value of their claims, and concluded it was right the first two times. It also awarded, for the twice-successful appeals, $18,750 to the objectors' attorneys.

For reference, an appeal in a basic slip-and-fall case will cost at least $15,000 in hourly fees. Most humdrum state tort appeals cost between $20,000 and $50,000.

So what did Posner do on the third appeal? Blamed the objectors and their lawyers, forced them to be part of a settlement that extinguishes their claims for nothing, and affirmed the paltry attorneys' fee award for two prior successful appeals to the exact same court for which Posner was writing, the Seventh Circuit Court of Appeals. Then he accused the objectors' attorneys of "chutzpah" for daring to request fees on par with the original attorneys, the one's Posner accused of representing clients amid a conflict of interest.

Posner continued by blaming the district court for insufficiently analyzing the merits of plaintiff’s claims, apparently missing the irony of his own court waiting for the third appeal to point out that plaintiffs’ federal claims were "waived" before the first appeal and that the objectors' state claims had been “worthless” on their face the whole time.

And so the “typical pathology of class action litigation, which is riven with conflicts of interest” continued unabated, with the objectors and their attorneys penalized with foreclosed claims and massive losses in fees for only winning two out of three appeals, on grounds that evaded everyone for years except Posner.

Chutzpah, indeed.

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Yesterday’s Wall Street Journal included an editorial by Dan Slater (who runs the WSJ Law Blog) called "The Debate Over Who Pays Fees When Litigants Mount Attacks," suggesting reconsideration of the “English Rule,” in which unsuccessful litigants are required to reimburse their opponent's legal fees and costs (a/k/a the “loser pays” system), as contrasted to the “American Rule,” in which each party bears their own legal expenses: 

Legal experts think a loser-pays system cuts down on frivolous suits. Those clearly hurt the U.S. The nation's tort system cost $245.7 billion in 2003, amounting to about 2.2% of total gross domestic product, according to a report from professional services firm Towers Perrin. The percentage of GDP spent on litigation was at least twice those in the U.K. and Germany.

At the same time, say experts, the insurance helps mitigate the pitfalls of a loser-pays system. "Insurance does move in to fill the gap for those suits that might not otherwise be brought in a loser-pays system," says Paul Lomas, a London-based litigator at Freshfields Bruckhaus Deringer.

Initially, a few factual corrections are in order.

First, the Towers Perrin study claiming that litigation costs amount to 2.2% of total gross domestic product has been roundly criticized as being baseless and inflated. For example, the study unfairly lumps together actual litigation costs, like attorneys fees, with the routine functioning of our torts and insurance system. As the Wall Street Journal itself noted over two years ago,

But here's the problem: critics of past years' studies -- and there are many -- say the number and the projections that come with it are deeply flawed. For instance, they include payments that don't involve the legal system at all. Say somebody smashes his car into the back of your new SUV and his insurance company sends you a $5,000 check to fix the damage. That gets counted as a tort cost in Tillinghast's number. Critics say it's just a transfer payment from somebody who wasn't driving carefully to somebody who has been legitimately wronged. How is that evidence of a system run amok?

"It's just so inflated," J. Robert Hunter, the director of insurance for the Consumer Federation of America and a former Texas insurance commissioner, says of the Tillinghast figure. Critics also argue that other insurance-industry costs that aren't the fault of a burdensome tort system -- such as the salaries of insurance-industry CEOs -- show up in its calculations.

"Math Divides Critics As Startling Toll of Torts Is Added Up," By LIAM PLEVEN, March 13, 2006; Page A2.

Second, plaintiff’s lawyers are in no sense “accustomed to being the exclusive financier of litigation.” The primary "financier" of litigation in America is the insurance industry, turning its good hands into boxing gloves when injured parties seek more than nominal compensation. Even in the context Slater is thinking about – the plaintiff's side of personal injury tort suits – there are hundreds of companies willing to loan money to plaintiff’s firms and/or plaintiffs for a piece of the eventual recovery. Ordinary business banks also loan to firms after performing the same due diligence they would with an company.

All of these companies, however, have the same restriction that would have to be imposed in a loser pays insurance system: the financier has absolutely no say as to whether the case will be settled or not. Such limitation is appropriate to ensure uncompromised decision-making and is analogous to similar barriers on the defense side, in which the defendant, with limited exceptions, retains control over whether to settle and where the defense lawyer nominally represents only the defendant and not the insurance carrier as well, so as not to divide the lawyer's loyalties and prejudice the defendant.

Third, most states already recognize a form of “loser pays” in the claim for wrongful use of civil proceedings, which permits the victims of frivolous lawsuits to recover damages caused by such frivolous lawsuits. It has bite here in Pennsylvania -- the "Dragonetti Act" has resulted in multi-million-dollar outcomes.

There's also, of course, the "loser pays" already at the heart of contingent fee cases: if I lose a case, I get nothing. No reimbursement for my time. No reimbursement for my expenses. Nothing. A total loss.

Which brings me to my primary objection to the loser pays system. I would not object to receiving a guaranteed income like my brethren of the defense bar instead of bearing the risk that years of effort and tens of thousands – potentially hundreds of thousands – of dollars will be spent in vain, but I would object, on grounds of fairness, to penalizing a party that brought a valid claim merely because they did not meet their burden of proof.

Consider a typical medical malpractice case. Most of the facts are uncontested. The dispute centers on whether the physician-defendant breached the standard of care, whether such breach caused any harm, and what damages resulted.

In all states of which I am aware, the first two elements require expert medical testimony. To even start a lawsuit here in Pennsylvania, I need a certificate of merit from a qualified physician establishing those two elements. To prevail at trial, obviously, I need in-court credible testimony from a qualified physician establishing those elements to a reasonable degree of medical certainty.

No expert testimony, no claim. Period. That is to say, by law the first two elements are matters entirely outside the understanding of any plaintiff except for physicians who happen to be victims of malpractice in the specialty they currently practice or teach.

If, in good faith, my client and I believed our qualified expert's opinion on matters the law says are beyond our understanding, why should we be punished if a jury accepts the defendant’s version instead of our's?

Deterrence? Of what? Claims a qualified expert physician thought were valid? Should I be deterred merely because the defense found someone to say otherwise? In medical malpractice, there's always some doctor somewhere willing to say that my client coincidentally suffered a heart attack or stroke or spontaneous decapitation regardless of the record or the probabilities.

Why would we want to deter valid claims? Isn't the point of a civil justice system to offer people the opportunity to present their claims in fair and open court?

I'm wary, too, of considering the lower litigation costs in Europe as a positive sign of judicial health (if, indeed, they are lower, given the inflated numbers of the US study). Many European countries routinely apply legal doctrines we consider abhorrent in the United States, such as the onerous standards applied to publishers in libel cases in the United Kingdom, standards incompatible with First Amendment principles of free speech.

When all is said and done, the effective result of loser pays, whether insured or not, is to change the civil system from one in which a plaintiff must convince a jury of the rightness of their cause with the preponderance of the evidence to one in which a potential client must convince a lawyer and/or insurance company of the rightness of their cause beyond a reasonable doubt. The client must convince the lawyer/insurer not only that their case is worth their damages, but that their case is worth well beyond their damages, to mitigate the direct loss the lawyer or insurer will incur if they lose.

The practical effect, then, would be to intimidate plaintiffs' lawyers like me into rejecting the vast majority of legitimate cases because, even though I may feel they have a strong likelihood of prevailing, I simply can't afford to test my luck with anything other than the handful of cases I'm sure will win.

UPDATE: Dan Slater got plenty of email, as he relates on the WSJ Law Blog.

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Beck and Herrmann at Drug and Device Law are mostly right:

What, our reader asked, should companies do to minimize the risk that they become embroiled in a mass tort?

Ha!

There's an old political cartoon, maybe from The New Yorker, where a man is strolling down a city street. The caption reads: "Exercises regularly. Eats right. Doesn't smoke. Doesn't drink. Has regular check-ups." In the cartoon itself, you see that a safe has fallen out of a window and is about do this poor fellow in.

...

Do everything right. Obey the law. ... Comply with industry standards. ... Avoid [the need for] recalls.

All well and good: want to avoid liability? Don't cause others harm through a breach in the standard of care.

I'm not so hot on the second part of their advice:

Have a corporate communications policy that instructs employees to communicate only facts -- not unsupported opinions or snide comments -- in e-mails. ...

Draft a document retention policy, and then enforce it. Preserve what you need, and eliminate what's unnecessary.

Unless those policies manage to eliminate 'smoking gun' documents -- which I doubt, given how a 'gun' is normally made 'smoking' by a party failing to "do everything right" -- then they won't reduce the frequency of litigation or size of liability, they'll just create gaps in the documentary record. That's a problem for defendants for two reasons:

First, it may enable plaintiff's lawyers like me to fill those gaps with whatever I think was there. Sometimes that happens by way of circumstantial evidence. Sometimes -- and this situation can be much worse for defendants -- the absence of documentary evidence leaves the defendant's deposition and trial testimony ungrounded, allowing me to set and spring traps for deceptive witnesses, walking them where they don't want to go and making them look like liars when they do it.

Second, I'll get a copy of those communications and document retention policies in discovery, and I will use them to show that the company actually established a policy to discourage employees from recording their own opinions. Add that to the point above and, well, you might have yourself a recipe for disaster. Fact is, whenever there are gaps in the documentary record, it increases the importance of witness credibility. If, by design, your company didn't keep a thorough record and I reveal one of your employees to have been less than candid, then you're toast.

Point is (and this is, I believe, Beck and Herrmann's main point): there's no panacea for litigation/liability avoidance. If you did something wrong or look like you did something wrong, you increase the likelihood of getting sued.

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The United States District Court for the Eastern District of Pennsylvania punts an easy one:

Counts I and II of the complaint arise under the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601, et seq., Home Ownership and Equity Protection Act of 1994 ("HOEPA"), 15 U.S.C. § 1639 and Regulation Z of the Federal Reserve Board ("Regulation Z"), 12 C.F.R. §§ 226.1 et seq. Plaintiff seeks rescission of the loan transaction and actual and statutory damages. ...

Under TILA, a borrower has the right to rescind certain consumer credit transactions [either until midnight of the third business day or, if the consumer was not provided the rescission forms, within 3 years or delivery of those forms] ...

Regulation Z requires the creditor to deliver two copies of the notice of right to rescind to each consumer entitled to rescind and specifies the information that the creditor must include in the notice.

...

Defendants believe plaintiff's rescission claim is untimely because the three-day limitations period under 15 U.S.C. § 1635 (a) applies and plaintiff failed to notify them of her intention to rescind until January 9, 2007. Defendants claim to have complied with 12 C.F.R. § 226.23 (b) (1) by delivering to plaintiff two copies of the required rescission form on January 22, 2004. ...

Defendants support their motion for partial summary judgment with evidence that plaintiff received two copies  of the required rescission form. Exhibit C, attached to Defendants' memorandum of law, is a rescission form dated January 22, 2004 and titled "Notice of Right to Cancel." ... Ms. Gonzales' signature appears below the following sentence: "The undersigned each acknowledge receipt of two completed copies of this Notice of Right to Cancel." Plaintiff does not deny it is her signature.

Counsel for plaintiff contends that, contrary to the written acknowledgment, only one copy of the Notice of Right to Cancel "wound up in the hands of Plaintiff, the borrower." (Plaintiff's Memorandum at 13.) TILA addresses the effect of written acknowledgments of receipt, such as the Notice of Right to Cancel  [*7] produced by Defendants:

Notwithstanding any rule of evidence, written acknowledgment of receipt of any disclosures required under this title ... does no more than create a rebuttable presumption of delivery thereof.

15 U.S.C. § 1635 (c). Plaintiff's written acknowledgment of the Notice of Right to Cancel creates the presumption that plaintiff received two copies of the document. ...

On a motion for summary judgment, the nonmoving party must come forward with evidence setting forth specific facts showing that there is a genuine issue for trial. The nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). Plaintiff has failed present evidence sufficient to rebut the presumption of delivery. Absent from the record is any sworn statement from Ms. Gonzales or other witness that plaintiff received one copy rather than two. Plaintiff relies entirely on the assertions of counsel and the Closing Checklist. No reasonable jury could conclude, on the basis of the Closing Checklist alone, that plaintiff received one copy rather than two. The three-day limitations period under 15 U.S.C. § 1635 (a) applies and commenced on January 22, 2004, the date plaintiff received the Notice of Right to Cancel. Plaintiff is not entitled to rescission because her letter demanding rescission on January 9, 2007 was untimely.

Gonzales v. CIT Group/Consumer Fin., Inc. (E.D.PA, October 30, 2008, Shapiro, J.).

And just like that, the Truth In Lending rescission claim and all the other pendant federal claims are dismissed, with the state law claims remanded back to state court.

The plaintiff's counsel apparently made a complicated argument relying upon words in the agreement itself that arguably reflected their position that the plaintiff had only received one copy.

But there was no need to go down that road: all they needed was an affidavit from the plaintiff saying that she had only received one copy. That's all. At that point, it would've been a fact issue for the jury and would have survived summary judgment.

Federal Rule of Civil Procedure 56(e) provides for exactly this situation:

(e) Affidavits; Further Testimony.

(1) In General.

A supporting or opposing affidavit must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant is competent to testify on the matters stated. If a paper or part of a paper is referred to in an affidavit, a sworn or certified copy must be attached to or served with the affidavit. The court may permit an affidavit to be supplemented or opposed by depositions, answers to interrogatories, or additional affidavits.

(2) Opposing Party's Obligation to Respond.

When a motion for summary judgment is properly made and supported, an opposing party may not rely merely on allegations or denials in its own pleading; rather, its response must — by affidavits or as otherwise provided in this rule — set out specific facts showing a genuine issue for trial. If the opposing party does not so respond, summary judgment should, if appropriate, be entered against that party.

Keep that in mind the next time you get a motion for summary judgment saying the evidence revealed in discovery failed to meet an essential element of your claim: odds are your client or another witness can fill that gap based on their own recollection.

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A Pennsylvania insurance coverage / bad faith question:

I bought my home 5 years ago from estate.  Now, I'm selling my home, the buyer's title insurance company found 3 problems, including a tax lein of 55.00 plus penalties.  My title insurance company offered ademity letter to new title insurance company.  They don't want that, they want problems resolved.  My title insurance company says too bad.  Not worth the money to find my file.  They don't know whether claims are valid or not.  Will not resolve them or see if they need to be resolved.  Won't even look at file!  This seems wrong.  What should I do?  We had a closing date of Sept.29 that will probably have to be moved.  May lose sale.  Do I need a lawyer?

And my response:

You should speak with a plaintiff's attorney experienced in bringing bad faith claims against insurance company.

When an insurance company breaches the terms of the insurance policy the insured can bring a claim for breach of contract and recover the damages resulting from the insurance company's breach. A number of title insurance policies include a requirement that the title insurance company actively work to resolve title issues, and every one I've seen requires the title insurance company at least pay for all damages resulting from such title issues, up to the policy limits. It sure seems like your title insurance company is refusing to do that, which is a breach.

Moreover, in Pennsylvania, every insurance company has a legal duty to promptly and reasonably evaluate and adjust claims in good faith. If they don't, there is a specific legal claim available against them which can include the award of attorneys fees, interest and punitive damages. It does not seem like your claim has been evaluated fairly.
 

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A victory for open governance and consumer safety — there's no good reason to keep this information from the public. Here's the current list:

 

Potential Signals of Serious Risks/New Safety Information Identified by the Adverse Event Reporting System (AERS) January - March 2008

Product Name: Active Ingredient (Trade) or Product Class	Potential Signal of Serious Risk/New Safety Information
Arginine Hydrochloride Injection (R-Gene 10)	Pediatric overdose due to labeling / packaging confusion
Desflurane (Suprane)	Cardiac arrest
Duloxetine (Cymbalta)	Urinary retention
Etravirine (Intelence)	Hemarthrosis
Fluorouracil Cream (Carac) and Ketoconazole Cream (Kuric)	Adverse events due to name confusion
Heparin	Anaphylactic-type reactions
Icodextrin (Extraneal)	Hypoglycemia
Insulin  U-500 (Humulin R)	Dosing confusion
Ivermectin (Stromectol) and Warfarin	Drug interaction
Lapatinib (Tykerb)	Hepatotoxicity
Lenalidomide (Revlimid)	Stevens Johnson Syndrome
Natalizumab (Tysabri)	Skin melanomas
Nitroglycerin (Nitrostat)	Overdose due to labeling confusion
Octreotide Acetate Depot (Sandostatin LAR)	Ileus
Oxycodone Hydrochloride Controlled-Release (Oxycontin)	Drug misuse, abuse and overdose
Perflutren Lipid Microsphere (Definity)	Cardiopulmonary reactions
Phenytoin Injection (Dilantin)	Purple Glove Syndrome
Quetiapine (Seroquel)	Overdose due to sample pack labeling confusion
Telbivudine (Tyzeka)	Peripheral neuropathy
Tumor Necrosis Factor (TNF) Blockers	Cancers in children and young adults

As the FDA says:

 

The table below lists the names of products and potential signals of serious risks/new safety information that were identified for these products during the period January - March 2008 in the AERS database. The appearance of a drug on this list does not mean that FDA has concluded that the drug has the listed risk. It means that FDA has identified a potential safety issue, but does not mean that FDA has identified a causal relationship between the drug and the listed risk. If after further evaluation the FDA determines that the drug is associated with the risk, it may take a variety of actions including requiring changes to the labeling of the drug, requiring development of a Risk Evaluation and Mitigation Strategy (REMS), or gathering additional data to better characterize the risk.

FDA wants to emphasize that the listing of a drug and a potential safety issue on this Web site does not mean that FDA is suggesting prescribers should not prescribe the drug or that patients taking the drug should stop taking the medication. Patients who have questions about their use of the identified drug should contact their health care provider. FDA will complete its evaluation of each potential signal/new safety information and issue additional public communications as appropriate.

So now you know.

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Well, this sounds fair:

Last week, the Senate Judiciary Committee gave the green light to S. 3325, "The Enforcement of Intellectual Property Act of 2008." Among other things, this intellectual property enforcement bill lets the DOJ enforce civil copyright claims and lets the government do the MPAA and RIAA’s intellectual property rights enforcement work for them—at tax payers’ expense.

We've setup Cause Caller to help you talk to Senators that we believe would be receptive to the message, but you should call your Senators, too.

The bill is already out of committee and could get sign-off from Senators for streamlined passage as soon as today, so we need you to call in now!

The bill is opposed by (at least) the following:

American Association of Law Libraries
American Library Association
Consumer Federation of America
Consumers Union
Digital Future Coalition
Electronic Frontier Foundation
Essential Action
IP Justice
Knowledge Ecology International
Medical Library Association
Public Knowledge
Special Libraries Association

Click the first link to contact your Senator and ask if they'll fund and pursue your personal civil litigation, too, in lieu of catching and convicting child predators, terrorists, gangsters, and pension fund embezzlers. Don't forget to ask the same for me, too.

Or just ask they call the whole thing off.

(via Boing Boing)

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Morales v. Sun Constructors, Inc., 2008 U.S. App. LEXIS 18513 (3d Cir., August 28, 2008) reiterated an important point for non-lawyers to know:

The Supreme Court has observed: “It will not do for a man to enter into a contract, and, when called upon to respond to its obligations, to say that he did not read it when he signed it, or did not know what it contained.” Upton v. Tribilcock, 91 U.S. 45, 50, 23 L. Ed. 203 (1875). The “integrity of contracts demands” that this principle “be rigidly enforced by the courts.” 1 Richard A. Lord, Williston on Contracts § 4:19 (4th ed. 2008). As one noted treatise explains:

According to the objective theory of contract formation, what is essential is not assent, but rather what the person to whom a manifestation is made is justified as regarding as assent. Thus, if an offeree, in ignorance of the terms of an offer, so acts or expresses itself as to justify the other party in inferring assent, and this action or expression was of such a character that a reasonable person in the position of the offeree should have known it was calculated to lead the offeror to believe that the offer had been accepted, a contract will be formed in spite of the offeree's ignorance of the terms of the offer. The most common illustration of this principle is the situation when one who is ignorant of the language in which a document is written, or who is illiterate, executes a writing proposed as a contract under a mistake as to its contents. Such a person is bound, in the absence of fraud, if the person does not require the document to be read to him … .

Id. See New York Life Ins. Co. v. Kwetkauskas, 63 F.2d 890, 891 (3d Cir. 1933) (recognizing that “[i]t is true that an illiterate man may bind himself by contract by negligently failing to learn the contents of an instrument which he has executed”); Hoshaw v. Cosgriff, 247 F. 22, 26 (8th Cir. 1917) (holding that every contracting party has the duty “to learn and know the contents of a contract before he signs and delivers it”). Arbitration agreements in the employment context are not exempt from this principle. ...

Morales, in essence, requests that this Court create an exception to the objective theory of contract formation where a party is ignorant of the language in which a contract is written. We decline to do so. In the absence of fraud, the fact that an offeree cannot read, write, speak, or understand the English language is immaterial to whether an English-language agreement the offeree executes is enforceable. ...

Morales is not claiming fraud, see App. 78, 95, and he is not alleging that Sun misrepresented the contents of the Agreement to him. Cf. Am. Heritage Life Ins. Co. v. Lang, 321 F.3d 533, 538 (5th Cir. 2003) (recognizing that “[i]t is a widely accepted principle of contracts that one who signs or accepts a written instrument will normally be bound in accordance with its written terms,” and that a defendant,  “illiterate or not, would be bound by the terms of the arbitration agreements,” but remanding for adjudication of a claim of fraud in the inducement); Pimpinello v. Swift & Co., 253 N.Y. 159, 163, 170 N.E. 530 (1930) (stating that “[i]f the signer is illiterate, or blind, or ignorant of the alien language of the writing, and the contents thereof are misread or misrepresented to him by the other party … unless the signer be negligent, the writing is void”) (emphasis added). Fn1 Further, there is no evidence that Sun tried to hide the arbitration clause; indeed, it comprised about one-half of the Agreement.

Here's Footnote 1:

The dissent analogizes this case to American Heritage Life Insurance Company v. Lang. Unlike Morales, however, the illiterate plaintiff in Lang asked the defendant's agent to explain each of the documents Lang signed, and he submitted evidence that the agent deliberately mislead him as to what he was signing by claiming that the papers were loan or insurance documents rather than an arbitration agreement.

It bears repeating: by and large, only explicit fraud will relieve someone from a material contract condition. If you're going to take someone's word for something, make sure you actually get their word. Silence usually won't work for fraud.

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43(B)log recounts the delicious facts of Pom Wonderful LLC v. Purely Juice, Inc. (C.D. Cal., July 17, 2008).

Apparently there's a law that says your “100% pomegranate juice” that's “all natural” with “NO added sugars or sweeteners” can't be made entirely of corn syrup and fruits other than pomegranate.

Who knew?

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In today's Wall Street Journal there's a great lesson on poor advocacy.

The article's text is indented and italicized.

Bad Legal Argument 1: Rushing Into a Judo Flip

There's a hidden tax imposed on companies that do business in the United States that hinders their international competitiveness and eventually filters down to consumers.

This "tax" takes the form of certain class-action attorneys who, like a roving shadow, look for any opportunity to claim that a business has done something wrong -- for example, provided misleading consumer advertising -- without concern for whether any member of the public actually thinks he or she was harmed. To avoid high legal fees and litigation distractions, corporations very often settle, paying out millions of dollars.

Bolding mine. When choosing themes and images ("if the gloves don't fit..."), always anticipate what happens to your themes and images in your opponent's hands, like so:

There's a hidden tax imposed on customers in the United States ... this "tax" takes the form of the widespread damage caused every year by unsafe, defective or deceptive products. Numerous business, like pickpockets, look for ways to rip off the public in small ways -- for example, providing misleading consumer advertising -- without concern for the cost it imposes upon consomers who are hurt, disappointed, or cheated by these products.To avoid high legal fees and litigation distractions in light of the damages, which are small in individual cases but large in the aggregate, customers usually don't sue even when they have strong claims. That's why class actions are so important.

Bad Legal Argument 2: Failing to Answer "So What?"

What courts often do in these cases [where not all the money is claimed by plaintiffs] is distribute the money, in an ad hoc manner, to people who are not even in the class, who would not have had standing to sue, and who were never even alleged to have been wronged. This alternative remedy is known as cy pres, which translates to "as near as possible," and in theory is supposed to benefit class members.

But often these windfalls go to charities with little or no relationship to what was at issue in the original dispute. A good illustration is a recent California case involving debt collection practices, in which the unclaimed proceeds were designated for distribution to a legal aid society to use in representing or educating consumers .

While a particular fact may bother you to no end -- a completely blank medical record, a deleted email, the defendant blaming an empty chair for what happened -- it doesn't necessarily mean anything to the rest of us. Here's a simple response:

After extensive research, these two litigators, published in the WSJ, couldn't find a more galling example than a legal aid society receiving funds from a wrongful debt collection practices lawsuit. So what? What's wrong with that? What better way to help society prevent the exact wrongdoing that happened in the case?

Bad Legal Argument 3: Getting It Wrong

In our view, this as-near-as-possible remedy in class actions is defective. The Constitution provides for the resolution of "cases" and "controversies" between aggrieved parties. Courts are empowered to resolve those specific disputes, and not to transfer a corporate defendant's assets to an outside organization that has not appeared before the court. The Constitution does not give courts the authority to satisfy notions of "deterrence" by giving institutions like legal aid societies or universities windfalls when those entities are not even parties to the lawsuit.

In most cases, you will have a flash of brilliance where suddenly a difficult issue will become simple and obvious.

When that happens, write your brilliant insight down. Then go to bed and look at it again the next day. If you can, look at it again next week. Or else you get what happened here.

Class actions are, except where Congress has specifically created federal jurisdiction in an attempt to help businesses, state creations. Article III defines the powers and limitations of "the judicial power of the United States."

That's a limitation on federal judicial power. There's no federal limitation on state court power, except where that power violates rights guaranteed by the federal Constitution.

Perhaps that's what the authors meant, that class actions are a due process violation. Except that's not what they said. They said the Constitution didn't empower courts to act that way; well, the Constitution doesn't empower state courts to do anything, the states are sovereign in their own right.

Bad Legal Argument 4: Pretending the Complex is Simple

Let's assume they had done that the right way, and had argued class actions were a due process violation. They would still be open to this attack:

After 232 years of judicial, congressional, presidential and state efforts to interpret the Constitution, including a civil war, these authors have figured it all out in three sentences, without a single reference to anything that transpired before them, not even the hundreds of cases specifically raising their critique, nor the dozens of judicial opinions dismissing that same critique. Do we now decide the law by looking neither to the past nor careful reasoning for guidance, but instead by simply declaring "in our view" before our conclusion?

Perhaps they should have perused the legal scholarship network on SSRN for a little bit before publishing that. "'Class action' AND 'due process'" returns 378 hits.

Whatever else goes your way, I can guarantee that, if you don't put in the time to really prepare and test your argument, something will go wrong. And that's the heart of poor advocacy.

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A great post by f/k/a about the wrongfulness, perhaps even unethical nature, of debt negotiation fees, most of which are excessive in light of the work performed, work that could be done by the client themselves.

If you've ever thought about hiring one of those firms, read this article.

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Drug and Device Law has an exceptionally detailed post about the new voluntary PhRMA guidelines, along with dozens of cases holding that such guidelines don't create negligence per se liability standards, particularly not retroactively.

But what about ordinary, post hoc negligence? Can voluntary industry codes be relevant to the standard of care?

Absolutely! For example, the Eastern District of Pennsylvania case they cited, Knarr v. Chapman Sch. of Seamanship, 2000 U.S. Dist. LEXIS 5351 (E.D.Pa. 2000)(interpreting Florida law), rejected the per se application of ANSI standards, but was happy to cite "Jackson v. H.L. Bouton Co., 630 So. 2d 1173, 1174-75 (Dist.Ct.App.Fl. 1994)(violation of ANSI standards is "merely evidence of negligence.)."

The same is true in Pennsylvania, where evidence of industry standards is clearly relevant to the reasonableness of a manufacturer's conduct, and is thus admissible, except in strict liability cases where reasonableness is irelevant. Lewis v. Coffing Hoist Div., Duff-Norton, 515 Pa. 334, 528 A.2d 590, 594 (Pa. 1987). As you'd expect, if the plaintiff brings in industry standards, so too can the defendant. Daddona v. Thind, 891 A.2d 786, 807 (Pa. Commw. Ct. 2006).

As for whether its plaintiffs or defendants are engaging in what D&D Law calls "foolishness," you can bet your bottom dollar that every PhRMA defendant from here on out will make their compliance with these new standards the centerpiece of future defenses, and that PhRMA took great pains to ensure these codes were easy to comply with and would play well in front of judges and juries.

Seriously, look at these codes and consider the state of the industry in 2008:

Promotional materials should:
(a) be accurate and not misleading;
(b) only make substantiated claims;
(c) reflect the balance between risks & benefits; and
(d) be consistent with all FDA requirements.

...

Decisions regarding the selection or retention of [health care providers] as consultants should be made based on defined criteria such as general medical expertise and reputation, or knowledge and experience regarding a particular therapeutic area.

...

Companies should not use consultant arrangements as inducements or rewards for prescribing a particular medicine or course of treatment.

...

Train representatives to ensure general science and product-specific information so that representatives can provide accurate, up-to-date information, consistent with FDA requirements.

That's voluntary? It should be mandatory. No praise will come from these quarters, I don't consider it a "good deed" to encourage member companies follow FDA requirements. It's the law.

In 2008 we have to remind (it wasn't part of the old code!) pharmaceutical companies not to mislead people with promotional materials. What a shame.

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A Pennsylvania / Federal consumer law question on LawGuru:

My husband & I took our 1st mortgage with [lender1] and our 2nd mortgage with [lender2] and refinanced them into 1 with [lender2] on 4/21/08.  In June we started getting calls that our 2nd mortgage is past due.  We called [lender2] and they said it was a common problem, just ignore it.  We continued getting calls and a letters from an attorney.  WE have the HUD form that says it is paide, but there is an internal problem in the system that says otherwise.  No one knows how to fix it.  We have continued to call [lender2] and they don't return our calls.  WE have to call them back.  We get excuse after excuse.  My husband has lost hours at his job trying to fix them problem, and I, a teacher, have also.  Is there anything ''legally'' that we can do.  I have all calls documented with dates and times, along with several emails.  Four months have almost past. We need help!

My fair debt collection practices response:

You asked about a creditor repeatedly demanding payment of a nonexistent debt.

The Federal Fair Debt Collection Practices Act prohibits creditors from attempting to collect on debts they know are erroneous. As the Federal Trade Commission points out on their website, "A collector may not contact you if, within 30 days after you receive the written notice, you send the collection agency a letter stating you do not owe money. However, a collector can renew collection activities if you are sent proof of the debt, such as a copy of a bill for the amount owed."

In addition to your phone calls, you should send everyone who attempts to collect that debt a written demand they cease all collection activities. If that still doesn't work, you have two options (which you can use simultaneously): sue in Court, where you can receive up to $1,000 for the violation, and/or complain to the FTC at www.ftc.gov.

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Sounds delicious! Oh, wait:

According to CNN, “starting Monday, health inspectors will halt the shipment of ingredients common to Mexican cuisine from Mexico to the United States” – this will include cilantro, jalapeno peppers, Serrano peppers, scallions and bulb onions. I assume that it may still include tomatoes?

As for illnesses, the CDC reports that 943 persons infected with Salmonella Saintpaul with the same genetic fingerprint have been identified in 40 states, the District of Columbia, and Canada. Nearly 150 have been hospitalized. The number of ill persons identified in each state is as follows: Alabama (2 persons), Arkansas (10), Arizona (45), California (8), Colorado (12), Connecticut (4), Florida (2), Georgia (24), Idaho (4), Illinois (93), Indiana (14), Iowa (2), Kansas (17), Kentucky (1), Louisiana (1), Maine (1), Maryland (29), Massachusetts (22), Michigan (7), Minnesota (8), Missouri (12), New Hampshire (4), Nevada (11), New Jersey (9), New Mexico (98), New York (28), North Carolina (10), Ohio (7), Oklahoma (23), Oregon (10), Pennsylvania (8), Rhode Island (3), South Carolina (1), Tennessee (8), Texas (356), Utah (2), Virginia (29), Vermont (2), Washington (4), Wisconsin (10), and the District of Columbia (1). One ill person is reported from Ontario, Canada. 

Thanks for ruining everything, Salmonella Blog.

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43(B)log  refers us to a NYT feature on doctors who give consumers incentives to post doctor-created ads as their own contributions to YouTube:

Trouble is, most marketing videos don’t announce that patients are compensated. Take Jiffy Reed, who posed for a video tribute on YouTube about Dr. Daniel Noor, a New York-based cosmetic dentist who straightened her smile with invisible braces. “I was so happy, I would have done anything,” Ms. Reed said. What the video doesn’t mention is that her physician whitened her teeth at no charge; it usually costs about $700.

Exactly right. Although the article quotes a couple physicians who generally object to unseemly nature of such advertisements, the core problem here is not a medical issue, it's a consumer issue. Paid endorsements used for advertising that aren't identified as such are generally illegal, and there is no medical exception to that.

My own view is that this problem, like a number of problems in the medical profession, are the result of lackadaisical enforcement by most state Boards of Medicine. If even just a handful of physicians were reprimanded for using paid endorsements that were made to appear spontaneous, there likely would not be much of a problem anymore.

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If you're looking for contact information, please go to my Contact page.

The Beasley Firm's main website also profiles our Areas of Expertise.

The Beasley Firm typically represents plaintiffs in civil litigation and trials in Pennsylvania, New Jersey, Delaware and, on occasion, Washington, DC, and New York City. We take difficult plaintiffs' cases and see them all the way through investigation, filing, pleadings, discovery and trial, and through appeal and re-trial, too.

The Beasley Firm is a full-service civil litigation and trial law firm with a forty-year history of excellence. Our reputation as trial lawyers is unparalleled, with multiple record-setting verdicts, and the record (held by the founder) for million-dollar verdicts by a single attorney. Slade McLaughlin and I set a new verdict record -- for punitive damages in a Pennsylvania medical malpractice case -- in May of 2008.

The Beasley Firm is unique in that it has many attorneys who specialize in particular areas like automobile accidents or medical malpractice, multiple appellate attorneys, and many general practitioners who focus on cases that don't fit the normal pattern, all under one roof that retains the nimble energy of a boutique firm where everyone knows each other and bounces ideas off one another. We adapt as the case demands; if a case needs a dozen attorneys and assistants, it gets them.

Most firms put up lists of the types of cases they work on; it's hard to do that for us. In the past year we've worked on automobile accidents, aviation accidents, breach of contract breach of fiduciary duty, business torts, civil rights, commercial litigation, copyright infringement, defamation, dram shop, employment discrimination, fraud, insurance coverage / bad faith denials, medical malpractice, private equity / shareholder disputes, personal injury, product liability, wrongful death, and wrongful use of civil proceedings / abuse of process cases.

We use alternative dispute resolution methods like mediation frequently and have experience in commercial arbitration, including large, complex commercial disputes.

My practice is largely unlimited -- at any given time, I generally have multiple cases representing people who have been physically injured in accidents or through medical malpractice, and multiple cases representing people and businesses who have been financially injured through breaches of contract, breaches of fiduciary duty, or downright fraud.

If you think you have a case, please contact our offices for a case review. We don't charge to review cases and we generally represent plaintiffs on a contingent fee, where our fee depends upon our success. Please see the Contact page for contact info.

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