Commercial Law

Can I pay a "reasonable price" please?

2012-02-17T09:43:00.005-05:00

Sure, Article 2 applies to sales of goods. Sure, it provides a flexible approach to commercial transactions by facilitating deals where the parties have failed to provide all terms. Sure, open prices are filled with a "reasonable price." U.C.C. 2-305. I tell my students the virtues of the reasonable price as a saver of deals where the parties just never get around to deciding. After all, who could complain about paying a reasonable price and what seller would complain about receiving one?

So, here's a toast to the reasonable price. The price of the Friday night libation has surely gotten out of hand. Apparently, a Boston lawyer complained at a Cheesecake Factory about the price of a Margarita, which was not disclosed and the waitress could not provide the actual price. (See ABA Journal). This, of course, comes on the heels of the shocked restaurant patron who received a bill for a $275 spaghetti dinner in New York. (See, New York Times).

The sobering reality is that the Cheesecake Factory will now post prices in advance. A wonderful development for those who don't like to be shocked by the bill at the end of the evening. Otherwise, the reasonable price would seem to be all that is due.

- JSM

Thomas Jefferson to Host International Conference on Contracts

2012-01-02T14:29:00.002-05:00

Happy to report that Thomas Jefferson School of Law in sunny San Diego will be hosting the International Conference on Contracts this year on March 2-3. This is always a good conference4 with a variety of topics and presenters on both scholarly and teaching projects. For more information, click here.

- JSM

What is in a Name? Revised Article 9's Treatment of Individual Debtor Names

2011-10-12T13:19:00.006-04:00

While Article 9 of the UCC is one of the most recently amended articles of the UCC having just undergone revision in 2001 (the “2001 Revision”), the complexity of the code and changing practices in commerce have necessitated further revision. The ALI and ULC have now approved amendments which the states will now adopt toward an effectiveness date of July 1, 2013 (the Revision). All is well on the adoption front, but what does this really mean on key issues? As I am teaching a Commercial Law Survey Spring 2012, I've started to think about what hurdles the the Revision will set up for our students and practicing attorneys.

One of the issues that led to the Revision was disagreement about how a creditor should best specify the name of the debtor on the financing statement, with states such as Texas passing non-uniform amendments to address the problems. See, e.g., TEX.. BUS. & COM. CODE ANN. § 9.503 (2011); TENN. CODE ANN. § 47-9-503 (2011). Section 9-503 generally provides that a financing statement is not seriously misleading if it lists the name of the debtor indicated on the public record or the debtor’s jurisdiction for organizations or simply the name of the individual debtor. The model form provided in section 9-521 added merely that this be the “exact full legal name.” While this might initially appear sufficient guidance, it became apparent that issues remained, such as the inclusion of trade names and how to identify an individual’s name where the individual is commonly known as more than one name. Creditors who incorrectly identified the debtor soon found that their financing statement was ineffective because it was seriously misleading. Quite simply, these name errors can be fatal to the creditor’s attempted filing of a security interest. See, e.g., Peoples Bank v. Bryan Bros. Cattle Co., 504 F.3d 549 (5th Cir. 2007)(Cornerstone Bank obtained a security interest in the cattle, but failed to file a financing statement in the legal name of the debtor, “Brooks L. Dickerson,” having instead named “Louie Dickerson” as the debtor on the financing statement.)

To alleviate this problem with respect to individuals, the rules of the Revision allow for two alternatives. Revision § 9-503(a)(4)-(5) (2011). Alternative “A” sets up a hierarchy for individual names which requires a creditor to use the name on the most recent driver’s license, if the debtor has one. In the event the debtor has no driver’s license, then the creditor can use the individual name or surname and first personal name. Alternative “B” allows the creditor more flexibility in listing the individual debtor’s name, allowing the creditor to identify the debtor on the financing statement by the individual name, the surname and personal name, or the name on the debtor’s most recent driver’s license. Under this alternative, no one name designation takes precedence. Comment 2(b) explains that when driver’s license is required, but contains an error, the creditor must still use the name on the license in full when it is required, despite the error. The challenge that creditors which operate in more than one state will now face with individuals is getting the rules correct such that if the state uses Alternative A, the creditor must use the driver’s license if the individual has one and should not rely on the other manners in which names might be equally acceptable in Alternative B states.

Irrespective of Alternatives A or B for individuals, the use of the most recent driver’s license in the state where the financing statement was filed does not eliminate the potential pitfalls for creditors. First, has the debtor indeed provided the most recent driver’s license, rather than a replaced or expired one? Will creditors be able to search the driver’s license records to make sure the name is the most recent? Second, the name on the driver’s license may not in fact even be the debtor’s correct name, such as errors on the driver’s records or in the case of persons who change their name for marriage or other reasons. This may lead to confusion when later creditors search records. Third, driver’s license names are changed from time to time by the individual. Tying debt records to driving status may not be the most hassle free solution for creditors. Will creditors have to inquire into the marital status of women frequently to guard against name changes that either have or have not been made in driving records? For individuals that don’t have driving records, the Revision has not really changed the rules to address nicknames and similar issues.

When it comes to individuals, it seems that Alternative A and B would pose a potential pitfall for creditors operating in more than one state, unless the creditor simply makes it a practice to use a driver’s license in all instances. The challenges of ensuring that the creditor has the debtor’s correct drivers licenses may pose problems to ensuring a valid filing. Even under Alternative B, determining the debtor’s name and surname can pose difficulties, particularly with surnames comprised of multiple names. Creditors should not attempt to automatically rely on the name on a birth certificate, as the debtor may have changed names and foreign birth certificates sometimes contain different ordering of names. Moreover, filings for unincorporated business entities that are debtors will have the same issues as those for individuals. The pitfalls for individuals is heightened here as creditors will have to get the name correct (often the driver’s license of multiple individuals). Choosing the correct name for a financing statement is not a mechanical task. See, Revision 9-503 cmt. d.

Whether the Revision will ultimately alleviate a substantial amount of litigation in this area over time is uncertain, but the new rules will help resolve some outstanding issues regarding debtor names. Despite any criticisms of the Revision regarding debtor names, the rules at least give some further guidance that should eliminate some of the litigation in this area.

-JSM

Commercial Law has been nominated a top business law blog

2011-10-10T22:29:00.002-04:00

The LexisNexis Business Law Community has nominated Commercial Law as one of its top 25 business law blogs for 2011. Commercial Law very much appreciates the nomination and hopes that its readers will post a comment in support of this honor.

Time to Stop Using Your Debit Card Part II

2011-09-29T14:13:00.005-04:00

In August, I wrote about the prospect of banks charging fees on debit cards that are used in non-ATM transactions (see Time to Stop Using Debit Cards). With several banks testing $3 fees, I predicted there was no way it would end at that. Bank of America has now jumped on the bandwagon announcing a $5 monthly fee beginning next year for all bank customers that use their debit card for purchases. There will be no fee for ATM use. Of course, this is in addition to any other fees already charged on the bank account. The discussion now suggests that debit card use fees are the industry "norm." Wow! Even before the banks implement these new fees, the media is reporting them as the new standard.

Way back when banks first rolled out debit cards as a replacement for the traditional ATM card, I asked to send mine back. My worry, of course, was that there would surely be fees associated with the cards. And, would I know the fee was coming before the bank charged me. Well, it has taken some time for the fees to hit directly on user accounts (rather than indirectly through interchange fees), but welcome to the new world.

NPR ran a piece this week about the ability of small banks to lure new customers as these new fees hit. See Smaller Banks Use Free Checking. My suspicion is that many bank customers will not even notice the new fees . . . at first, but will be unhappy when they find out. Others who keep lower balances at some times during the month will not notice the fees until they've overdrawn their account. Then the bank may collect a $35 additional fee if the customer is enrolled in the bank's debit card overdraft protection program.

As for me, when these fees hit, I will not use my debit card for over the counter purchases. I can write a check at the grocery store or use a credit card for gas. After all, do you really think it will stop at $5 a month?

- JSM

Business Lawyer Seeks Additional Editors

2011-09-06T12:27:00.000-04:00

The Business Lawyer (TBL) plans to appoint at least one additional editor beginning with Volume 67. The responsibilities of an editor will be to:

(i) edit approximately sixty manuscript pages of each of the four issues that TBL publishes in each volume;

(ii) ensure that each statement of fact has an accurate citation that supports it;

(iii) conform all citations to the Blue Book; and

(iv) make sure that manuscripts satisfy TBL Author Guidelines.

Over the course of a volume, each editor should expect to work on a combination of articles, reports, and surveys that are published in TBL.

Since Volume 64, Professor Gregory Duhl of the William Mitchell College of Law has been responsible for all style editing, cite-checking, and Blue-Booking of TBL. Professor Duhl is the current Associate Editor-in-Chief, and the editors would work in collaboration with him, the Editor-in-Chief, who rotates yearly, and the Production Manager, Diane Babal, to ensure that TBL maintains its high quality and timeliness. The editors would also work closely with the Associate Editor-in-Chief to update the TBL Author Guidelines to maintain consistency in the journal.

TBL seeks editors from all business law disciplines, who have experience editing an academic publication, a keen attention to detail, and an ability to meet deadlines. Each editor would receive an honorarium upon completion of his or her work for that issue. If interested in this position, please e-mail a resume to Diane Babal, at Diane.Babal@americanbar.org. Any questions about the position can be addressed to Professor Duhl at Gregory.duhl@wmitchell.edu.

- JSM

Chase and Wells Fargo Waiving Some Fees

2011-08-31T15:32:00.003-04:00

In a world where bank fees are on the rise, Chase Bank and Wells Fargo are waiving overdraft, late payment and other fees for customers in states impacted by Hurricane Irene (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, Vermont and Virginia). For instance, customers who can no longer get to a Chase ATM might have to use one from another bank.

Nice customer move.

- JSM

St. Thomas University Looking for Corporate/Commercial Faculty

2011-08-31T13:04:00.002-04:00

ST. THOMAS UNIVERSITY SCHOOL OF LAW in Miami, Florida, invites applications from experienced and entry-level candidates for tenure-track positions beginning in the 2012/2013 academic year. The Law School especially seeks candidates in the areas of Wills & Trusts, Business Associations, Commercial Paper, Secured Transactions, Family Law, Constitutional Law, and Professional Responsibility. Applicants must possess a distinguished academic record, a dedication to excellence in teaching, and a demonstrated commitment to scholarship. Consistent with the Law School’s tradition of diversity, members of minority groups and women are especially encouraged to apply. Applicants should send a letter of application and a resume. CONTACT: Professor Tamara Lawson, Chair of the Faculty Recruitment Committee, St. Thomas University School of Law, 16401 NW 37th Avenue, Miami Gardens, Florida 33054. Email: tlawson@stu.edu. Fax: (305)623-2390.

Practical Payments Tidbits

2011-08-26T14:52:00.009-04:00

I like to give my first year contracts students a bit of practical knowledge about commercial transactions and consumer issues whenever possible. So, I've taken to putting up articles on the overhead screen at the beginning of class. Sometimes we have a little discussion, other times right onto contracts doctrine. Today, we began class with this little MSN news piece on 5 places to never use your debit card!

Rental or security deposits. This goes to the heart of what a debit card does, it takes money from your checking account. Using a credit card for car rental and similar transactions, these deposits are not charged so you are not out the money at the time.

Restaurants and bars. Just to much risk of fraud with so many people around. And, your card is likely to leave your presence leading to a greater possibility of card skimming. Again, the money comes out of your checking account, so harder to get it back in the event of theft compared to handling potential losses on credit cards. Or use cash . . .

Regular payments. What companies do you really want to have your financial information permanently on file with an ability to hit your checking account at will. Consumers have greater rights under the Truth in Lending Act if you use your credit card. Alternatively, pay them on an automated payment out of your checking account yourself. Of course, some businesses do demand the regular payment system and you might have to give in if it is the only way to secure a wanted service.

Wi-Fi hot spots. Quite simply, unsecured access to your account numbers.

Any retail outlet where you choose the "credit" option. This one doesn't bother me, but the article mentions the less rapid clearing and risk of overdrafts as reasons not to use the debit card.

For my part, it is always nice to see a little consumer education on a regular basis. The big reminder here is while debit cards look like credit cards, the attributes are not the same. Consumers are wise to keep this in mind.

- JSM

What is a BitCoin? Where did Mybitcoin go?

2011-08-24T09:16:00.019-04:00

On the way into St. Thomas University this morning, I heard an NPR piece about the Bitcoin. We live in a world where the value of money is uncertain, so some are looking for alternatives to the dollar, right? See, IMF Calls for Alternatives to the Dollar. The aim is to lessen volatility associated with the dollar as a currency and payment device, those economic and political. Some investors have rushed to gold as the easy alternative causing a rise in the value of gold, only to find that gold also has market swings tied to the dollar. See, WSJ, Gold Ends Lower on Dollar's Strength. I understand the goal. An electronic wallet, no intermediaries, completely anonymous.

So, what about the Bitcoin? A Bitcoin is simply a made up cash in an online universe. You use an online exchange in order to trade dollars for Bitcoins. Apparently, some restaurants in New York city will even accept Bitcoins in payment for lunch. Not so fast, though. "Hackers" allegedly hit MyBitcoin back in June, making off with $500,000 in funds. And now, MyBitcoin itself is processing claims to liquidate the remainder of the accounts. Apparently, that will be somewhere around 49% of their deposits. In the NPR piece, Ron Mann commented (correctly of course) that he would not expect Bitcoin to be around in 5 to 10 years. Well mostly correct, as at least mybitcoin was gone a mere months after the original interview. Perhaps others will take up the space left by mybitcoin, but how secure is any payment system?

Here is the story of one mybitcoin user who lost a substantial amount of money from his e-wallet:

As I advise my students, be wary about any new (or even existing) payment device . . . scammers . . .or anywhere you park your money for that matter. There are no quick fixes or easy roads to avoid market volatility and economic instability.

- JSM

Time to Stop Using Debit Cards?

2011-08-17T09:31:00.002-04:00

While my gripe about debit cards used to be the tricky overdrafts, apparently there is a new fee in town. . . . The debit card usage fee. Now that we've moved to a very cashless society, some banks are now looking to charge customers who want to use a debit card. Wells Fargo is now testing a $3 monthly debit card fee and JP Morgan has already tested the $3 fee! Ouch. Just $3 right? But overtime . . . And, we all know that $3 would just be the start. Surely, I am a cynic.

Banks argue that these new fees are in response to the Fed's cap on the fees they can charge retailers on card transactions. An Associated Press survey, though, says that 61% of consumers will find another way to pay if banks charge for using the debit card. Way to go consumers! I wonder, though, if this will turn out to be a tricky fee. For instance, do you get the monthly fee if you use your card in your own bank's ATM? In other ATMs?

At least at this point, Bank of America has not yet jumped on the debit card fee bandwagon.

Enforcement of Intercreditor Agreements In Bankruptcy

2011-07-28T13:52:00.004-04:00

Enforceability of pre-petition Intercreditor Agreements in bankruptcy has drawn more attention with the increase in restructurings in bankruptcy in the wake of a troubled business climate. Of course, both first priority lenders and second priority lenders both desire protection during a restructuring. Not surprisingly, many lending arrangements involving multiple lenders take into account the potential of disputes and bankruptcy. Section 510(a) of the Bankruptcy Code upholds these arrangements providing that "[a] subordination agreement is enforceable in a case under this title to the same extent that such agreement is enforceable under applicable nonbankruptcy law." When it comes to subordination agreements during bankruptcy reorganizations, though, this provision must be read alongside the power of the bankruptcy court to confirm plans under §1129, approve sales under §363(b) and the mandate that the court appoint examiners in certain cases under §1104(c). Accordingly, whether, and to what extent, an intercreditor agreement falls under the protections of 510(a) and the authority of the bankruptcy court under other provisions has been the subject of several recent cases illustrating the limits of parties’ abilities to make arrangements prior to bankruptcy.

In one recent case, the Bankruptcy Court for the Southern District of New York acknowledged that a second priority lender had standing to object to a proposed sale of assets despite the existence of an intercreditor agreement, but concluded that a secondary lender could not prevent a sale of assets that is supported by “good business reason[s].” In re Boston Generating, LLC, 440 B.R. 302 (Bankr. S.D.N.Y. 2010)(concerned a proposed sale of assets in bankruptcy of a power plant that provides electricity to the Boston, Massachusetts area to a buyer who would take the assets free and clear of creditors’ claims). See also, In re GMC, 407 B.R. 463, 498 (Bankr. S.D.N.Y. 2010)(“[t]his is hardly the first time that this Court has seen creditors risk doomsday consequences to increase their incremental recoveries, and this court – which is focused on preserving and maximizing value, allowing suppliers to survive, and helping employees keep their jobs – is not of a mind to jeopardize all of those goals.”). Ultimately, the court determined that “[t]he Debtors’ assets are simply being sold; the First Lien Lenders will receive most of the proceeds in accordance with their lien priority; and the remaining consideration will be subsequently distributed under a plan."

In another recent case, the the United States Bankruptcy Court for the District of New Jersey held that a court can irrespective of a prepetition subordination agreement confirm a nonconsensual bankruptcy reorganization plan that meets the requirements of §1129(a). In re TCI Holdings, LLC, 428 B.R. 117 (Bankr. D.N.J. 2010)(when “the requirements of section (a) and (b) of [1129] are met with respect to more than one plan, the court shall consider the preferences of creditors and equity security holders in determining which plan to confirm.”). Essentially, the bankruptcy judge acts as a tiebreaker where the parties to the dispute are unable to negotiate an agreement among the competing interests at stake.

The treatment of intercreditor agreements by courts has important implications for lenders when it comes to drafting these agreements. Basically, attorneys should be mindful that general contract principles control issues such as interpretation of agreements and waiver even in the context of bankruptcy. See, e.g., In re Erickson Ret. Cmtys., LLC, 425 B.R. 309, 316 (Bankr. N.D. Tex. 2010)(“Michigan Retirement System Entities are sophisticated commercial entities who knowingly waived all legal and statutory rights that would be in conflict with their obligation to "standstill" until the Ashburn and Concord Project Lenders' indebtedness is paid in full.”). The In re Boston Generating court’s holding that a second lien holder has standing to object to the sale of assets in bankruptcy is a reminder to counsel that if a waiver of such rights is desired, it should be expressly and clearly stated in the agreement. Notwithstanding this holding, bankruptcy courts will enforce waivers when clearly stated in the intercreditor agreement. In re Erickson Ret. Cmtys., LLC, 425 B.R. at 316.

These cases as a whole serve to remind us that these disputes during bankruptcy typically revolve around creditors seeking to enhance returns even in the face of an intercreditor agreement that states otherwise. Pre-bankruptcy lender agreements are typically designed to ensure that lenders obtain specified restructuring benefits. The cases demonstrate that despite the involvement of legal counsel, agreements between lenders are commonly ambiguous and create interpretation issues which can lead to the delay of reorganization plans of the debtor, sales of assets and other bankruptcy decisions that preserve the value of the debtor’s assets. As I remind my students often, clarity in contract language at the outset, when possible, will speed up the resolution of disputes later.

- JSM

FED Issues Final Debit Card Rules

2011-06-30T16:24:00.002-04:00

The Dodd-Frank financial reform legislation required the Federal Reserve Board to regulate debit card merchant fees. Over the past year, the FED has taken comments, issued proposals, delayed the announcement of a final recommendation, and unsuccessfully sought to change or delay this difficult task. This week, the Board adopted a staff recommendation that is in the truest sense a compromise that like most successful compromises is unlikely to please any of the players involved. The result is also an example of administrative law making at its most creative, interpreting the statutory language to most effectively achieve Congressional intent while minimizing the economic risks that the Act's proponents likely did not understand or anticipate.

Section 920(a)(2) of the Act required the FED to limit debit card interchange -- the portion of merchant card acceptance fees that are paid to the card issuer -- to an amount that "shall be reasonable and proportional to the cost incurred by the issuer with respect to the transaction."

A fee meeting this standard, the Act asserted, should include "the incremental cost incurred by an issuer for the role of the issuer in the authorization, clearance, or settlement of a particular electronic debit transaction," but should not include "other costs incurred by any issuer which are not specific to a particular electronic debit transaction."

Early on the FED staff concluded that it should set the fee based on costs for a representative issuer and transaction. Basing fees on the actual costs of particular issuers would impose undue compliance burdens. The Board decided to set a fee cap based on the average per-transaction cost, excluding fraud losses, of the issuer at the 80th percentile based on a survey of the large banks covered by the statute. Each issuer would be permitted to receive interchange fees not exceeding the cap without demonstrating its actual per transaction costs.

Initially, the staff read the statute to permit the Board to take account only of variable per transaction costs. That led to the initially proposed fee cap of $.12 per transaction. Issuers objected that fees at that level would not come close to covering their actual costs of operating a debit card system. The staff responded to those concerns by creatively reinterpreting the statute to include a third type of cost that was neither an "incremental cost" of a debit transaction, nor a cost of the system that was "not specific to a particular transaction." This third type of cost, the staff reasoned, consisted of fixed costs of a debit program that are nonetheless specific to particular transactions. And since the statute did not explicitly require or prohibit including these costs in the regulated fee, the Board could exercise its discretion.

The staff concluded that prohibited costs of a debit system included corporate overhead (e.g., executive compensation, human resources, the issuer's branch network); establishing account relationships; general debit program costs (e.g., production and delivery); marketing; research and development; and network membership fees. Conversely, non-incremental costs that are specific to particular debit transactions -- and that could thus be included in the regulated fee at the Board's discretion -- included (1) network connectivity; (2) software and hardware for processing transactions; (3) operational labor; (4) network processing fees; (5) transaction monitoring costs; (6) reward programs; (7) handling cardholder inquires; and (8) non-sufficient funds handling.

Ultimately, the FED adopted a regulation including the first five of these costs, but not the last three, resulting in a cap of $.24 per transaction. In addition, the FED determined that transaction monitoring as a means of fraud protection also fell within the discretionary category of fixed costs attributable to specific transactions. Because losses vary with the size of the transaction, the regulation permits a fee of up to 5 basis points on top of the $.24 flat fee per transaction.

Finally with respect to fees, the legislation permitted an adjustment for investments in fraud prevention, and the Board included a 1 cent per transaction bonus for issuers that meet the FED's standards to help offset the costs of implementing activities that are effective at reducing fraud looses.

The legislation also required the FED to adopt regulations prohibiting network exclusivity so that merchants had choices with respect to the network on which to process a transaction. The FED required that each card provide access to at least two unaffiliated networks, but it did not require that each card link to multiple networks for both PIN and signature access.

The FED also excluded from the regulation three-party networks that did not have separate entities issuing cards and signing up merchants. American Express, for example, is not covered by the fee limit.

The fee regulation provisions are to go into effect on October 1, 2011, followed by the network exclusivity rules on April 1, 2012. You can read the Board's full report on the regulations here.

Are Larger Down Payment Requirements for Homes Needed?

2011-06-28T14:31:00.009-04:00

This week's news reported another 4% drop in home prices in 20 U.S. cities from the prior year (See Bloomberg). With prices lower than we've seen in some time, shouldn't that necessarily translate into home purchases? Not necessarily so. Of course, even if homes are less expensive, one's ability to buy is not just tied to a credit score. It is tied to cash. Right now, cash buyers are the kings in the weak housing market (See USA Today). These cash buyers are primarily investors who account for about 30% of home purchases in the current market.

So, what is happening to the regular people? Well, credit is still tight. According to the Center of Responsible Lending, high down-payment requirements (20% generally) is enough to keep many who might be good bets on home mortgage repayment from buying a home. First time home buyers and minority home-buyers could be hardest hit At the root of some concern about down payment requirements are portions of D0dd-Frank that require lenders to retain a portion of mortgages they sell, but Qualified Residential Mortgages (QRM) are exempt from this rule. To the extent Congress sets the QRM at 20% down payment for residential mortgages, this rate would be expected to have an impact on how the market views risk on residential mortgages (See, Wall Street Journal). This could in turn affect what mortgages are available to home buyers and the cost of those mortgages.

Currently, the regulators have extended the comment period on QRMs until August 1, 2011 (See Federal Reserve). So, if you have an opinion . . .

- JSM

Richard Nash Delivers Plenary Address

2011-06-24T10:09:00.015-04:00

"Books are social glue."

Today's CALI Conference day began with Richard Nash delivering the Plenary address to the conference participants. For those not familiar with him, Nash is a publisher, having sold the successful Softskull Press to Counterpoint and since then beginning Cursor which promises to help independent publishers. Nash's view of the future of publishing involves a look to the past and the history of the development of printing.

Nash is dedicated to bring printing and publishing to all writers so that they can, in turn, connect with readers. More writers more readers, more readers more writers. . . . Basically, there should be wide access to publishing resources. Nash believes that we've arrived at a time when supply of writing is available widely. The next hurdle will be tackling issues surrounding matching the writings with those who need them. Classic demand issues in the marketplace. Accordingly, the way in which we connect people through the web and otherwise leads to a developing preeminence of readers.

Nash's theory is dependent on recongition that more than content, culture matters. Now that individuals can self publish and distribute materials on the internet through unlimited means of sharing, the emphasis for publishers should be on the connections. The gatekeeping power of publishers controlling the content that arrives at the marketplace is diminished. Material will arrive at the market. The question is how will we find it?

Interesting thoughts on the future of publishing. Surely, it is equally applicable to legal education where, for instance, CALI has Legal Education Commons where faculty can post all types of various educational materials in differing presentations and new E-Langdell e-text project which aims to make a limited number of law textbooks available to students for free. Access is surely present. Nash commented that textbooks help students harness information in a tangible format between class sessions when they need to engage in independent learning. The big question is how that format will change now that alternative materials are available in a widespread manner. The most important facet is simply that they read, not the format.

Nash recommends for summer reading . . . Lynne Tilman's Someday This Will Be Funny. Enjoy.

- JSM

CALI Conference in Milwaukee

2011-06-23T10:23:00.004-04:00

For the next couple of days I am at the CALI Conference in Milwaukee. The theme of the conference is "Unbound," focusing on e-books, social media and electronic resources. I will be presenting tomorrow on Cali's E-Langdell program that is starting to make available electronic casebooks to law students that are free and available in a number of formats.

The first session is a mini-session with a group of speakers highlighting for 5-10 minutes the presentation they will make later. While many of us use social media in both personal and professional capacities, a session I will attend later was Rich Cure's pitch for student's use of social media to enrich their own learning when the classroom component fails to deliver or needs supplementation.

More later for sure. Hopefully, our students are using Facebook, Twitter and Youtube to enrich their commercial law studies, but I wonder . . .

- JSM

New Twists on the Economic Loss Rule?

2011-06-21T11:33:00.008-04:00

What most of us remember: Section 1-103(b) of the Uniform Commercial Code embraces liberal supplementation of the Code by directing that “[u]nless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, Bankruptcy, or other validating or invalidating cause shall supplement its provisions.” What sometimes gets tricky is reading this premise of liberal supplementation alongside Article 2’s remedy provisions and the common law’s economic loss rule which precludes a plaintiff from recovering in tort, for purely economic losses. Even Section 2-721’s directives regarding fraud in the sales of goods that provides that remedies for fraud or misrepresentation under Article 2 include remedies for sales of goods that do not involve fraud is read to constrain non-breaching parties to contract remedies under Article 2 in most cases.

An interesting issue that courts are taking a closer look at is whether plaintiffs can bring client claims for tort damages is whether a second product commonly attached to another to make a whole product constitutes one product in terms of damages for purposes of the economic loss rule. In a decision that appears to expand the economic loss rule, the court in OneBeacon Ins. Co. v. Deere & Co., 2011 U.S. Dist. LEXIS 25156 (E.D. Mo. Mar. 11, 2011) considered the case of a combine that suddenly caught fire and destroyed the combine and damaged an attached cornhead. While the two formed an integrated harvesting unit, the plaintiff purchased the Deere & Co. combine and cornhead on separate occasions secondhand from a reseller with no warranty furnished by Deere & Co. The court reasoned that if the part of the whole could be considered part of the product, then the economic loss doctrine would bar the tort action. If the part of the whole was a separate product, then damage to the part would be “additional damage” and the economic loss doctrine would not apply. The court, examined the relationship of the combine and cornhead under three prevailing tests that look to whether the product is “integrated;” whether a commercial purchaser could foresee the risk of harm at the time of purchase; and whether the object of the bargain was for separate products. Ultimately, with electing any of the three tests, the court determined that because the cornhead could only be used with the Deere & Co. combine, the cornhead was not separate property and the economic loss rule precluded the tort claims.

Moreover, the plaintiff, as a secondhand purchaser of used equipment from another seller, did not have a warranty claim against Deere &Co., the manufacturer in tort. In concluding that the economic loss doctrine applies to secondhand purchasers, the court explained, “[p]laintiff’s reasoning- that the economic loss doctrine should not apply to secondhand purchasers because they cannot negotiate with the manufacturer- would apparently give secondhand purchasers a better warranty and more remedies than the party who originally purchased the equipment new. That cannot be the law.” Id.

The scope of the economic loss rule has important implications for buyers and sellers of goods. The traditional scope of cases governed by the economic loss rule to preclude recovery of tort damages would be those which are (1) governed by UCC Article two, and (2) where the only property damage (if any) is to the product that was purchased itself. But see, Lott v. Swift Transportation Co. Inc., F.Supp.2d 923, 931 (W.D. Tenn. 2010)(court declined to extend the economic loss doctrine, to cases “not involving UCC remedies, especially those concerning the provision of services”). In cases such as Tennis, the court did not apply the rule to damage to the property stored in the nearby warehouse that the vehicle fire destroyed. Yet, other courts such as Deere & Co. have expanded the doctrine when property might be seen as one product. Importantly, the Deere & Co. court observed that some courts have opened the door to allow for possible expansion of the doctrine even to “other nearby property of commercial purchasers who could foresee such risks at the time of purchase.” Deere & Co., supra, at *10 (emphasis supplied). See also, Travelers Indem. Co. v. Dammann & Co., Inc., 594 F.3d 238, 243-44 (3rd Cir. 2010)(tort claims barred “where a plaintiff could have contractually allocated the risk”). This is a potentially significant expansion of the doctrine, because it allows the economic loss doctrine to bar tort recovery even where there is additional harm or damage to other property, other than the product at issue in the lawsuit. As a result, this potential expansion of the doctrines’ application has important implications in the future of the doctrine and the sale of goods as a whole.

- JSM

Consumer Financial Protection Bureau on the Move

2011-06-15T14:59:00.016-04:00

The new Consumer Financial Protection Bureau (CFPB) has a website now that is running with the logo "Know Before You Owe" prominently displayed. Elizabeth Warren, Special Advisor to the Secretary of the Treasury for the Consumer Financial Protection Bureau, has a short video that doesn't speak directly to any particular changes the CFPB will make, but assures all that they are at work and listening to consumer responses.

Also on the website is Elizabeth Warren's testimony from May 24th before The Subcommittee on TARP, Financial Services, and Bailouts of Public and Private Programs Committee on Oversight and Government Reform in order to determine the accountability and oversight for the agency. You may remember the news about this hearing where Representative Patrick McHenry of North Carolina, accused Warren of lying during her March testimony, where Warren had previously appeared to answer questions concerning the CFPA and its function and power structure (See Decorum Breaks Down at House Hearing, New York Times).

Of course, both the CFPB and Warren herself have faced strong opposition from Republican lawmakers. It seems that this time around, the advances in consumer protections were not secured by simply passing the Consumer Financial Protection Act. Appropriations and confirming an official head of the CFPB remain open issues while the CFPB continues its organization. On the consumer front, I am pleased to note that the new website contains a number of consumer oriented videos and outreach to the banking community. Being a big fan of the power of information, it is a good sign that the CFPB has taken their first steps in reaching consumers in the electronic mediums. Oh, and you can even share the videos on Facebook or Twitter, for all you consumer rights junkies . . .

- JSM

Debt Collectors Go on the Offensive

2011-06-14T19:23:00.003-04:00

The New York Times this weekend ran a piece that caught my eye, "Debt Collectors Ask to Be Paid a Little Respect." While the article first laments the rise in business that our struggling economy has brought them and the often rude response debt collectors get from consumers, the debt collectors seem to be on the offensive legally. Like the banking industry, the article notes the concern the debt collectors have about coming under the auspices of the Consumer Financial Protection Bureau (CFPB). After all, the Federal Trade Commission did not concern the debt collectors as the FTC did not have regulatory authority. The CFPB would, though, be able to write regulations to police the industry.

So, the debt collectors want some updating of their own to the Fair Debt Collection Practices Act. After all, why not? Who says consumer protection has to be just for consumers? The debt collectors are asking for access to consumers emails, cell phones and to use auto-dialers. After all, don't consumer's prefer this? My word, don't we all get enough robo-calls already on our cell phones? A robo-call system would seem to violate Section 806(5)'s prohibition on causing a telephone to ring repeatedly in any event. With the coming political season, though, perhaps the debt collectors are right that we all better get used to robo-messages on our cell phones anyways.

ACA International, the trade union for collection agencies, posted a Blueprint for Modernizing Debt Collection on its website. The Blueprint does advocate that debt collectors be permitted to call consumer cell phones (despite the additional charges imposed by some carriers), text and email consumers and even leave pre-recorded messages on cell phones. The Blueprint expressly advocates that debt collectors be permitted to communicate by any method of communication available. How about a consumer's facebook page? Linked-In? What about email accounts that are accessible by a consumer's employer? Of course, there is more there in the Blueprint that troubles me, but this area is full of difficulty for protecting consumers.

Surely, I am skeptical about allowing debt collectors unfettered access to the digital mediums available for use by consumers. The risk and cost to consumers would surely increase, with little exposure to debt collectors who violate the law (currently up to $1000 in most cases). While I am sure that the debt collectors that the New York Times spoke with are genuinely the nicest of people, I had the experience last year of having one of the not so nice debt collectors call me erroneously about a medical bill that had long been paid. Of course, the hospital apologized for the mistake, and wasn't sure how the information even was referred to debt collector. Of course, the lack of documentation that persists the industry at present becomes the first issue to tackle before erroneous robo calls and auto-mated emails flood our accounts. Can I opt-out?

- JSM

Call for Papers: Fringe Economy

2011-06-02T23:16:00.001-04:00

Call for Papers

Regulation in the Fringe Economy

The symposium Regulation in the Fringe Economy represents the most significant attempt to date by legal scholars to address the vexing legal and social issues created by lenders on the fringes of the economy who offer payday, auto title, for-profit college, and refund anticipation loans. A complete list of confirmed participants and their paper topics is available at the conference website: http://law.wlu.edu/fringe.

The Frances Lewis Law Center and the Washington and Lee Law Review are delighted to sponsor this conference which will take place on November 11, 2011 at the Washington and Lee University School of Law in Lexington, Virginia. The Washington and Lee Law Review will publish a symposium issue featuring the conference papers in 2012.

The sponsors’ goal is to encourage and recognize excellent legal scholarship in this area. To advance their goal, the sponsors invite lawyers, judges, and scholars to submit papers on regulation in the fringe economy. Papers on related high-risk consumer financial products are also encouraged. An author should submit his or her manuscript in an exclusive submission on or before August 15, 2011. A submission should be no longer than 50 pages or 15,000 words. A limited number of submissions will be accepted. Authors will be notified of the acceptance of their paper and participation in the symposium no later than August 20, 2011.

Selected authors will present their papers at the November 11 conference. All participants are asked to provide their own travel expenses. Papers specifying the conference may be mailed to the Washington and Lee Law Review or sent electronically to lawreview@wlu.edu. The Law Review Articles Editors and Washington and Lee University School of Law Professor Margaret Howard will review the papers.

Even if you are not able to submit a paper, the sponsors invite you to attend the conference. There will be no charge for attending. The Frances Lewis Law Center is a licensed Virginia Continuing Legal Education provider which will supply Virginia CLE credit for those attending.

Mallory A. Sullivan
Symposium Editor, Washington and Lee Law Review

Christine M. Shepard
Editor in Chief, Washington and Lee Law Review

-JSM

A Car Repossession Gone Awry: A Lender's Good Faith Obligation

2011-05-31T11:27:00.002-04:00

In Engram v. Jpmorgan Chase Bank, 2010 Ariz. App. Unpub. LEXIS 885 (Ariz. Ct. App. 2010), the Arizona Court of Appeals considered a summary judgment granted in favor of the lender by the trial court. The Engrams borrowed $10,977 from the lender for the purchase of car. The security agreement provided for events of default including failure to pay and insecurity of the lender. Upon default the lender could repossess the automobile. The Emgrams were often late in paying the lender and eventually were some $908 in arrears and facing repossession. The lender told the Emgrams that they could avoid repossession if they brought the account current. Emgram went to the local branch and paid the amount owing and asked the tellers to confirm with the main office that the account was in order. The lender assured them it was. Nevertheless, the lender repossessed the car that evening. The lender’s collection department did not learn that the account had been brought current until the next day. The lender then called to check whether the insurance was current on the car, only to find the insurer cancelled for nonpayment. The lender did not have a practice of checking insurance unless they repossessed a car and the borrower wanted to redeem it. The lender sold the car and claimed a deficiency judgment, which the lower court granted.

Reversing the decision of the trial court, the court of appeals held that summary judgment was inappropriate as there were genuine issues of material fact as to whether Chase reasonably believed itself insecure. The court noted that the lender could only accelerate and repossess the car based on an insecurity in good faith (citing UCC 1-309) that future payments were impaired. Moreover, the lender did not discover the problems with the insurance until after it repossessed the car. Without deciding the issue, the court noted other jurisdictions are conflicted over whether lenders must exercise good faith after an event of default. Ultimately the court found that there was “evidence on which a jury could conclude that Chase three times assured Ms. Engram that if she and her husband brought the loan current, the bank would not repossess their car.” For those reasons, a jury could find the lender either estopped from repossession or had waived its right to do so for any events other than the failure to pay the outstanding arrears.

- JSM

Final Rules Amending TILA and Consumer Leasing Act

2011-03-29T16:23:00.006-04:00

The Federal Reserve just adopted final rules pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The rules increase the protections of the Truth in Lending Act (TILA) by extending TILA protections from transactions under $25,000 to those under $50,000. The $50,000 threshold will now fluctuate with the consumer price index, rather than remain static.

The rules also increase disclosure required by lessors of large consumer goods, such as cars, from $25,000 to $50,000. The required disclosures for leases more than four months include information to consumers about the cost of leases.

These rules are effective July 21, 2011.

- JSM

Does Unconscionability Theory Lead to Greater Economic Problems?

2011-02-19T09:36:00.003-05:00

Today is the second day of the International Contracts Conference hosted this year by Stetson University College of Law. Professor Xi George Zhou of the University of Sheffield presented his paper, An Economic Perspective on Legal Remedies for Unconscionable Contracts, where he argues that there are disincentives to trade created by unconscionability doctrine, precaution problems and potential abuse of rights. His paper asks whether a higher deterrence model leads to greater economic problems. He proposes that creating an effective remedy for unconscionable behavior may require a legal remedy that is lower, as a high sanction may result in less economic transactions due to precautions employed by traders. Thus, it is impossible to eliminate bad behavior through deterrence alone. In order to use any legal mechanism we need to focus on the effectiveness of the tactic. There are risks to all deterrence models.

Professor Zhou also presented a call for papers for the Society of Legal Scholars Conference September 5-8. This year's topic is Law in Politics, Politics in Law. All papers on any aspect of contract, commercial and consumer law are welcome, whether on topic or not. Paper proposals are due by March 4, 2011 to Professor Zhou at qi.zhou@sheffield.ac.uk.

-jsm

Card Networks Attempting to Block Debit Card Merchant Fee Regulation

2011-02-18T13:54:00.002-05:00

In a surprise late addition to the financial reform legislation, Congress required the Federal Reserve to regulate the fees that merchants pay to accept debit cards. The statute requires the regulated rate to include only per transaction costs and certain anti-fraud expenses. In December, the FED put out for comment a proposed rate of 12 cents per transaction, nearly 75% below the current average fee of 44 cents. Current rates are based on a percentage of the sale price.

Merchants were pleased with the FED's proposal. Banks were not, claiming that a fee that low would force them to lose money on debit card programs unless they charged their own customers. (Imagine that.) One bank has filed a constitutional challenge to the legislation, arguing that it constitutes a taking of bank property without just compensation and violates the equal protection clause because only the largest banks will have their rates regulated. The period for comment ends next Tuesday, February 22, and the FED must promulgate a final rate by April 21.

In recent testimony before the House Financial Services Committee, FED Governor Sarah Bloom Raskin explained that board members were "reserving judgment on the final rule" until they can consider all of the comments. Some lawmakers have expressed concern the FED has not adequately considered the cost of fraud prevention. Visa has ramped up a vigorous lobbying campaign, urging Congress to enact new legislation delaying the implementation of the regulation. Observers believe that changes at this point are unlikely. Representative Barney Frank, however, told the press that while he would not support the delay that Visa has requested, he would support instructing the FED to include more factors in the fee calculation.

2011 Sales Survey

2011-02-16T10:06:00.002-05:00

I just put the draft of the Sales Survey up on SSRN. It will appear in the Business Lawyer in August or September, but there are some really great cases this year. Yes, some really good examination ideas as well!

- JSM

Suffolk Law Visiting Position

2011-02-16T09:06:00.002-05:00

Suffolk University School of Law is seeking potential visiting professors (assistant, associate, or full) to teach a 6 credit-hour Contracts course beginning Fall 2011. Candidates should have significant teaching experience and strong student evaluations. Suffolk University is conveniently located in the center of Boston. If anyone is interested, please feel free to contact Elizabeth Trujillo, Associate Professor, Suffolk University Law School, 120 Tremont Street, Boston, MA 02108-4977 Tel: 617-305-1672; etrujillo@suffolk.edu.

- JSM

Specific Performance, Parol Evidence and the Naughty Monkey

2011-02-15T16:05:00.002-05:00

Here is a great case about specific performance, parol evidence and a yacht named the "Naughty Monkey!"

U.C.C. section 2-716 provides a more liberal attitude toward the remedy of specific performance of contracts for the sale of goods than the common law traditionally does, and a concomitant broader view about when the goods are unique. In Naughty Monkey LLC v. Marinemax Northeast LLC, No. C.A. 5095-VCN, 2010 WL 5545409 (Del. Ch. Dec. 23, 2010, the court considered a request for specific performance based on language in a yacht sales contract providing “TRADE VALUE GUARANTEED TO 15% LOSS WITHIN 18 MONTHS (PER ANDREW SCHNEIDER) SUBJ. TO MARINE SURVEY AND FINANCING” (the “Buyer Protection Clause”). Michael Stock (“Stock”) contacted Marinemax Northeast LLC (“Marinemax”) about the purchase of a new boat after seeing their boats at the National Harbor Boat Show. Eventually, Stock purchased a 62-foot Azimut yacht, which he named the Naughty Monkey, for $1,825,000 through an entity he named the Naughty Monkey LLC (“Naughty Monkey”). Concerned about losses on a yacht of this price, Stock negotiated some down side price protection in the form of the Buyer Protection Clause. About a year later, Stock decided that he did not want the Naughty Monkey and proposed that he trade the boat back to Marinemax for a boat for $2900 and Marinemax would make a cash payment to him for $1,633.350, the difference under the contract. Marinemax refused this request, taking the position that the agreement only allowed Stock to trade the Naughty Monkey in toward the purchase of a more expensive yacht. Stock brought suit for specific performance on the contract, as well as damages related to financing, insurance and maintenance costs for the yacht.

The first issue the court considered was the meaning of the Buyer Protection Clause. Without any reference to section 2-202, the court instead initially referenced certain traditional notions of interpretation, namely to “effect to the clear terms of agreements, regardless of the intent of the parties at the time of contract formation” and to use the “customary, ordinary and accepted meaning of the language.” Nevertheless, the court considered extrinsic evidence to select a meaning of the Buyer Protection Clause that neither party argued: that Stock could trade in the Naughty Monkey to Marinemax, but not for cash, toward the purchase of any merchandise, not only boats of higher value.

Turning to the issue of specific performance under section 2-716, the court ruled that a “remedy at law would do complete injustice in this case.” The court observed that having Marinemax pay monetary damages would inevitably deprive it of the benefit of the bargain which would permit it to sell Stock another yacht at retail cost which it only paid wholesale. Similarly, if the court were to give Stock monetary relief then he would get a liquid asset, which is more than he would have received under the agreement. Accordingly, specific performance, was the appropriate remedy.

- JSM

Good Faith in the Termination of Sales Contracts

2011-02-10T12:43:00.002-05:00

Courts in several cases addressed claims for breach of contract based on a party’s failure to act in good faith. So, what does good faith require under UCC section 1-304? In the following case, the court did a nice job of tying an arbitration panel's implication of a reasonability requirement in the application of a termination provision in an agreement with the obligation of good faith.

In Burton Corp. v. Shanghai Viquest Precesion Industries Co., Ltd., No. 10 Civ. 3163(DLC), 2010 WL 3024319 (S.D.N.Y. August 03, 2010), the court affirmed an arbitration award in favor of Shanghai Viquest Precesion Industries Co., Ltd. (“Viquest”) to recover for unpaid shipments of snowboard bindings made to Burton Corp. (“Burton”) for use in its snowboards and for wrongful termination of the sales agreement. The agreement permitted Burton to terminate if Viquest’s “financial position pose[d] a risk to Burton's business.” Additionally, the agreement provided that Viquest would, upon request, return Burton’s molds upon termination for any reason. During the term of the agreement and while Burton owed Viquest $1.8 million for unpaid shipments, Burton terminated, claiming financial concerns, and requested return of the molds.

When Viquest did not return the molds, Burton had to replace the molds and filed an arbitration to recover its cost of replacement as the agreement provided for arbitration of disputes. Viquest counterclaimed for its lost profits due to the early termination. The arbitration panel concluded that Burton could only terminate under the financial clause if it reasonably believed that Viquest’s financial position threatened its prospects, which Burton did not prove. Accordingly, the arbitration panel awarded Viquest its lost profits for the early termination and denied Burton’s request for the cost of replacing the molds as Burton was not itself in conformance with the agreement and owed Viquest substantial sums.

The District Court for the Southern District of New York denied Burton’s request to vacate the arbitration award against it, confirming the award in full. The court treated the reasonableness as derived from the covenant of good faith and fair dealing, citing to the U.C.C. section 1-304 obligation of good faith contained in every contract. The court observed that the obligation of good faith required Burton to have a reasonable basis for terminating the agreement. Moreover, Burton’s failure to pay Viquest for outstanding invoices put pressure on Viquest’s financial condition.

- JSM

The Predominant Purpose Test Still Predominates Mixed Goods/Services Transactions

2011-02-09T12:51:00.004-05:00

Here is another little bit from the upcoming Sales Survey in the business lawyer. Here are a couple of nice examples of recent mixed-goods/services transactions under UCC section 2-102. Use of the predominates test has been pretty consistent in cases I've seen of late.

In Blesi-Evans Co. v. Western Mechanical Service, Inc., 72 U.C.C. Rep. Serv. 2d (Callaghan) 115 (W.D.S.D. 2010), the court examined whether a contract for a boiler purchased for installation at the South Dakota School of Mines and Technology (SDSM&T) campus was one for the sale of goods. Western Mechanical Service (Western) had a contract for the replacement of the SDSM&T boiler that required it to pay $500 per day in liquidated damages if the installation was not substantially complete by October 13, 2006. Western ordered the boiler from Blesi-Evans (Blesi), which agreed to also provide start up and training for the boiler. When Blesi failed to deliver the boiler in time to meet the SDSM&T contract, Western installed a temporary boiler. Blesi brought suit for its contract price on the boiler and Western claimed the expense of the temporary boiler. The court correctly ruled that Article 2 governs transactions where goods and services are bundled if the “predominant purpose” of the contract was for the sale of goods and the services are merely incidental. The court noted that Blesi was to provide a boiler, something clearly movable. The court noted that some of the purchase documents failed even to mention the related services and the dispute that actually arose was one related to the provision of the good in a timely manner, not the services.

Similarly in Connie Beale, Inc. v. Plimpton, 2010 WL 398903 (Conn.Super. January 13, 2010), the court considered a claim for breach of an interior decorating contract. Applying the predominant purpose test, the court found a contract for interior design is predominantly one for services, even though the designer would present furniture, upholstery, window coverings, fabrics and flooring to the buyer for consideration. The court noted that “[a] transaction that requires the incorporation of materials does not make it an agreement for a sale . . . .” Moreover, the parties did not label the contract a sale of furnishings, even though decorating services would surely include some goods.

- jsm

2-204 Still Requires Contract Basics

2011-02-08T10:26:00.004-05:00

It is the time of the year when I am working on the ABA's Sales Survey of Article 2 cases from 2010. So, I'll pass along a few nice ones here. Perhaps some of these will make good examination questions or just good basics. And the lesson of today's 2010 case, yes, an Article 2 contract still requires a basic agreement at least some definite terms.

While much litigation and scholarly attention surrounding contract formation under Article 2 centers on section 2 207, the decision in Teter v. Glass Onion, Inc., 723 F.Supp.2d 1138 (W.D. Mo. 2010) turned on the application of section 2 204. Gary Teter (“Teter”), an artist who paints historic scenes, met with the owners of the Glass Onion, Inc. (“Glass Onion”), the purchaser of a gallery with which Teter had done business in the past to discuss the continuation of the business relationship with the gallery under Glass Onion’s ownership. Thereafter, the parties had several sales transactions for original paintings by Teter where Glass Onion purchased the paintings and posted an image on its website. After some period of time, however, Teter’s agent advised that to continue the relationship, Glass Onion would need to execute a Dealership Agreement.

When Glass Onion did not become an authorized dealer, Teter’s agent requested that Glass Onion remove images from its web site and advertising. When Glass Onion did not remove the images, Teter brought suit against Glass Onion on various claims related to Glass Onion’s use of Teter’s works in its advertising. Glass Onion brought counterclaims on the grounds that Teter breached a contract to sell art to Glass Onion and provide it a geographic exclusivity. The court granted Teter’s motion for summary judgment on Glass Onion’s counterclaims. The court noted that while section 2-204 permits the making of a contract based on conduct of the parties, the basic elements of an agreement must still be present. While the eight purchases of artwork constituted contracts, the alleged ongoing agreement to sell artwork to Glass Onion for resale on the same terms as the predecessor owner of the gallery was too indefinite and lacked consideration to constitute a contract under section 2-204. Accordingly, Teter was under no firm obligation with Glass Onion or the previous gallery owner to continue selling artwork and could stop selling or refuse to sell paintings to the gallery without recourse.

For similar lines of reasoning, see Key Items, Inc. v. Ultima Diamonds, Inc., No. 09 Civ. 3729(HBP), 2010 WL 3291582 (S.D.N.Y. August 17, 2010) (companies related to buyer were not responsible on unpaid contract to which they were not a party); Harman Invs., Ltd. v. Shah Safari, Inc., No. C10-0216RSL, 2010 WL 3522517 (W.D. Wash. September 07, 2010)(financier was not party to contract for purchase of goods and not liable for non-payment thereon).

- JSM

St. Thomas University Looking for Business Associations Faculty

2011-01-28T14:56:00.003-05:00

A plug for my school. We are still looking for a new or lateral Business Associations faculty for next year. With Florida now also testing UCC Articles 3 and 9, I suspect there is more room for commercial law as well as traditional corporate subjects. Here is the ad from Fall. We've filled some slots, but are still looking in the business arena. If you are looking or would like to recommend anyone, please contact me directly at jmartin@stu.edu or hiring chair Tamara Lawson, below.

ST. THOMAS UNIVERSITY SCHOOL OF LAW in Miami, Florida, invites applications from experienced and entry-level candidates for tenure-track positions beginning in the 2011/2012 academic year. The Law School especially seeks candidates in the areas of Business Associations, Wills and Trusts, Constitutional Law, Securities Regulations, Property and Civil Procedure. Applicants must possess a distinguished academic record, a dedication to excellence in teaching, and a demonstrated commitment to scholarship. Consistent with the Law School’s tradition of diversity, members of minority groups and women are especially encouraged to apply. Applicants should send a letter of application and a resume. CONTACT: Professor Tamara Lawson, Chair of the Faculty Recruitment Committee, St. Thomas University School of Law, 16401 NW 37th Avenue, Miami Gardens, Florida 33054. E-MAIL: tlawson@stu.edu. FAX: (305) 623-2390.

— JSM

Opportunity for Publishing for Commercial Law Profs

2011-01-13T13:25:00.004-05:00

For those who didn't attend the Annual Conference in San Francisco or visit the CALI booth or simply haven't heard . . . CALI is also sponsoring fellowships in a program called ELangdell whereby professors submit proposals to CALI for law school text books and supplements and, if accepted, CALI publish the work as a digital e-book in multiple formats. CALI pays $500 per chapter to authors, but gives the books away for free to students. This is a great resource for students and professors in a time where book costs are very high and resources slim. CALI is hoping to both have a nice library of free books itself and, perhaps, to put market pressure on the main publishers regarding their pricing of e-books. Several books are in progress and the beta versions of Doug McFarland’s Civil Procedure text (6th edition) and a chapter on Ethics for Tax lawyers are already available. Other proposed texts are in process.

If you are interested in putting in a proposal for something in the Commercial Law area, contact Deb Quentel at CALI at dquentell@cali.org. The next round of proposals are due by February 2, 2011.

- JSM

Arbitration by Door Posting?

2011-01-12T10:21:00.004-05:00

Dan Barnhizer (Michigan State) posted yesterday on the Contracts list serve this photo sent to him from a student that saw it at a Whataburger. The text reads:

"Arbitration Notice"
"By entering these premises, you hereby agree to resolve any and all disputes or claims of any kind whatsoever, which arise from the products, services or premises, by way of binding arbitration, not litigation. No suit or action may be filed in any state or federal court. Any arbitration shall be governed by the FEDERAL ARBITRATION ACT, and administered by the American Mediation Association.
"Arbitration Notice"

Naturally, this raises many questions about consent to abitration, class action arbitrations and rules that might even apply to any such disputes. And, of course, Barnhizer asked "what they do for drive-through customers?"

- JSM

AALS Section on Financial Institutions and Consumer Financial Services

2011-01-12T09:56:00.003-05:00

The section program at the Annual Meeting of the Association of American Law Schools in San Francisco on January 7 this year focused on the "post-crisis" landscape. The Call for Papers panel featured papers by William Birdthistle, Jim Hawkins, Adam Levitin, Alan White and Sarah Woo.

One of my favorites on this panel was James Hawkins' (University of Houston) paper on Regulating the Fringe: Reexamining the Link Between Fringe Banking and Financial Distress forthcoming in the Indiana Law Review. Basically Jim argues that products like payday loans, pawn loans, and rent-to-own leases— might not cause as much financial distress to consumers because of the finality involved in these transactions and the amount. As such, perhaps we might reconsider whether regulators should lump these types of transactions with others. At the heart of this is what constitutes financial distress. While I am not a fan of the fringe banking products, Jim's argument that they might require differing treatment in terms of regulation is worth serious consideration. For my part, I part with him in some of the ideas regarding monetary valuation. I remain unconvinced that one person's financial distress is the same as another's due to relative economic means as a whole. For instance, a person of very limited means may experience serious financial distress when their $750 auto is repossessed and they cannot get to work, then loose their employment, etc. While the event of losing the car may have a finality in and of itself that does not continue to plague the consumer, even smaller dollar transactions can have great impact on the lives of many consumers. That aside, the finality of the transaction is worth further thought when considering regulation of fringe banking products, as is the differing impact of the size of these transactions.

- JSM

6th Annual International Conference on Contracts

2010-12-21T19:42:00.000-05:00

6th Annual International Conference on Contracts. Stetson University College of Law and Texas Wesleyan School of Law are co-sponsoring the 6th Annual International Conference on Contracts, February 18–19, 2011, at Stetson’s beautiful campus in Gulfport, Florida. Similar to prior contracts conferences held at UNLV, McGeorge, South Texas, Texas Wesleyan, and Gloucester, England, this conference is designed to afford scholars and teachers at all experience levels an opportunity to present and discuss recently published papers, forthcoming papers, works in progress, and pedagogical innovations, and to network with colleagues from the United States and around the globe. Stewart Macaulay, Professor of Law Emeritus at the University of Wisconsin, is the keynote speaker. A few places remain available for panelists and moderators at the conference. Proposals for presentations will be considered on a rolling basis until spaces are filled, but no later than January 15. For more information or to register online, visit www.law.stetson.edu/conferences/contracts. Contact person: Associate Dean James Fox fox@law.stetson.edu.

- JSM

What are they teaching kids about finance and budgeting?

2010-12-20T14:25:00.007-05:00

My eighth grade daughter just participated in a program on finances and budgeting sponsored by Junior Achievement. A Junior Achievement teen personal finance survey reports that more than half of teens are not confident that they will make sound choices in terms of credit. Moreover, nearly all teens think they should have a credit card by age 21. The survey observes:

“Teens are admitting that they don’t have knowledge of some of the basic money management skills around investing, budgeting and using credit. Despite the alarming numbers, teens overwhelmingly have high hopes for future financial stability. The poll shows we need to do a better job of ensuring our youth are financially literate. JA offers a broad range of age-appropriate financial literacy curricula, from kindergarten through grade 12.”

So, all of this sounds a little dire. Making the work of Junior Achievement even more important, of course. And perhaps a few basic tips from Suzi Orman are in order? Not surprisingly, we talk to our daughter about making wise choices and living within her means. This would include everything from buying items on sale to purchasing used items on sites like Craigslist. We also talk to her about being a good citizen in terms of the environment as well, including walking and biking when possible. That is, not everyone (particularly college students) needs a car.

I was ready to embrace the Junior Achievement concern to educate teenagers, until my daughter started asking me questions about the workbooks her teacher assigned. She understood her profile to be a college student who has a job earning about $30,000 per year. A little unrealistic for a college student, but all right. The program has the student fill out budgets. This is where my daughter had many questions and I simply could not support the choices the program expected. For instance:

The workbook not only mandated that she purchase a car (whether she could afford it or not), but also required her to take out a five year loan on the car. In the summer Oprah magazine, Suzi Orman yet again blasted this practice advising against car loans more than 36 months or less (7 Deals You Should Never Make). Basically, perhaps one needs to shop for a less expensive car.

The workbook also mandated that she replace $650 of household furnishings and that she must put it on a credit card and pay for it that way. Apparently, no option to save up and buy in cash or to purchase something used.

The workbook required an apartment. While the student could get roommates, there was no easy way for the student to select a less costly alternative of living in a college dormitory where utilities, rent and food are typically included.

In the end, I advised her on how to best fill out her worksheets making the least devastating decisions. She did budget for buying household furnishings with cash and saving most of the money as a down-payment for the car. While I might have been fine with this if it was designed to teach teens the devastating impact of debt, there were no comparisons to other models or advise on better decisions. I also wrote a note in the workbook for the teacher asking him not to teach our children that it is fine to enter into these types of credit and financial situations.

The result of all this? The teacher was angry with her when he saw the worksheets and gave her a D for not following the program requirements. She had waited until the last minute to finish this, so her work was not as neat as it should have been, but really? Maybe the teacher will reconsider. In the end, I'd rather her get a D on the junior achievement and an remain solvent for a lifetime. Isn't all this debt part of what lead to the financial crisis?

- JSM

Thanks from Warren Buffet!

2010-11-17T10:41:00.003-05:00

Warren Buffet wrote a "thank you" letter to the U.S. Government which appeared in the New York Times (see Pretty Good for Government Work). It it, he reminds us that about two years ago our economy was on the brink of disaster. We looked to the government to remedy the situation and it responded with action. I agree with Buffet in this case. While the economy is not where we would like it, where business-oriented regulations are not what we might imagine, and many still lack jobs, the situation is not what it was two years back.

- JSM

Sarah Palin Criticizes Federal Reserve?

2010-11-09T10:42:00.005-05:00

Exit elections, but the politics continue. While we ordinarily see the Federal Reserve as supposedly independent in terms of determining monetary policy, Sarah Palin did not pause to take a swipe at the announcement that the Federal Reserve will buy back government bonds (see Sarah Palin Takes Aim At Fed). In fact, she called on the Federal Reserve to "cease and desist." The rationale is that it will cause an unacceptable level of inflation that will erode our jobs and savings. The monetary policy pursued by the Fed raises more issues to me about simply whether it will work. With interest rates historically low, the Federal Reserve has few tools at its disposal to spark the economy. Let Bernanke do his job and let's hope that the Fed can impact the economy positively.

Palin's claim that prices are already rising simply doesn't bear out reality (see Palin Brawls with WSJ Over Inflated Inflation) in an economy where prices are increasing at notably slow rates. Inflation is not particularly high on the list of concerns that the Federal Reserve has currently, but jobs and the health of the economy generally is (See Dallas' Fed's Fisher: Inflation Low on List of worries).

For a discussion of the mixture of politics and the Federal Reserve, see

- JSM

So, What's in Your Wallet?

2010-11-09T10:26:00.003-05:00

Katie Porter over at Creditslips did a piece on the cards that those who teach payment law might carry! It is an interesting read. See What's in Our Wallets?

As for me? As those who follow this blog know, I am not a fan of any cards. And, I mean that pretty much universally. From high interest rates to deceptive practices, I just don't like them. My recent dispute over an instance of credit card skimming has only increased my suspicions about card practices, even though the issuer finally capitulated and reversed the fraudulent
charge. Despite my widespread condemnation of cards, I find them necessary. Like others, I am not a fan of debt and prefer paying off balances whenever possible. Yet, having bought a home this summer, I've found a Lowe's card particularly useful! This card issued by GE Money Bank comes with many of the aspects like high interest rates that I dislike about cards. But, having a home that needs appliances and quite a bit of do-it-yourself initiative, Lowe's offers of no interest financing on many 6 and 12 month purchases is a plus. The risk is that if you don't pay off the amount in the time frame the interest is high, but for card users with discipline, the no interest deals are a nice way to spread out large home improvements over several months.

- JSM

Bernanke Speaks in Boston

2010-10-15T12:50:00.005-04:00

Fed Chair Ben Bernanke spoke today in Boston at a conference sponsored by the Boston branch of the Federal Reserve Bank about bank policies and options in a low inflation economy (see transcript). Here is the video:

- JSM

Nice Teaching Case: Home Sold Twice

2010-10-07T11:37:00.004-04:00

Ben Davis sent this link out to the contracts professors list serve. http://www.msnbc.msn.com/id/39381416/. The case involves a home sold twice . . . apparently by mistake: once as a short sale and then at foreclosure days later. The new owners, thankfully, recorded their deed and bought title insurance, but it has been quite a headache for them. The lender, not surprisingly, is claiming no wrong-doing in the matter.

I am getting ready to start methods of avoidance in the next couple of weeks and will be sure to mention this one to the class.

- JSM

The Newest Identity Thief: Grandma

2010-10-06T12:09:00.002-04:00

Identity theft by relatives appears to be on the rise. One young lady was shocked to find out that her 71 year old grandmother opened a credit card in the grand-daughter's name: and did not pay the bill (See, Family Credit Card Fraud). While wrong, the difficulty of the whole matter is obvious. Who wants to put grandma in jail for fraud? Other common identity victims are children, whose parents sometimes open accounts in their names and don't pay (See The Newest Identity Thieves: Parents; All in the Family). Crime and wrong-doing in one's own family is not unheard of. After all, I just taught Gimpel v. Bolstein this week where the family ousted one relative from employment at the family farm after he embezzles some $80,000+. The thief ultimately sues on a claim that his stock is worthless in a company without a job or dividends and the court agrees (at least as to dividends or buying him out). So, stealing in one's own family . . . yes it happens.

Here though, the problem is not only might the relative have to shoulder the financial loss, but sustain damage to their credit score if they don't turn in grandma. Most card issuers require a police report in order to document the account fraud. There is definitely a heavier loss here than presented in Gimpel where the thief lost his job but was not prosecuted . . . and the family farm just lost the money. While I condemn the thieves here, card issuers have some responsibility as well for issuing cards in children's names in the first place. While card issuers have responsibility for fraud, they seem to find clever ways to shift it back to consumers (See credit card skimming).

- JSM

DOJ Sues AmEx, MasterCard, and Visa

2010-10-05T18:17:00.001-04:00

The United States Department of Justice, Antitrust Division, has sued American Express, MasterCard, and Visa, alleging that each credit card network imposes anticompetitive rules prohibiting merchants from (1) encouraging customers to use a different form of payment or brand of credit card by offering a discount or any other incentive; and (2) expressing a preference for a particular brand, or informing their customers about the merchant's relative cost to accept, particular card brands. The complaint further alleges that each defendant independently possesses market power and that the merchant restraints thus constitute anticompetitive vertical agreements violating Section 1 of the Sherman Act.

Along with the complaint, the Division filed a proposed consent decree with Visa and MasterCard that broadly prohibits blanket rules that would bar a merchant from incentivizing its customers to use a particular credit card brand or, interestingly, card type. The consent decree defines card type as a category of credit card such as "traditional cards, reward cards, or premium cards." The decree would thus empower merchants not only to steer customers to a particular card brand, but also to steer customers to particular types of cards within a card brand. For example, merchants might attempt to steer card users toward lower priced (for the merchant) traditional cards and away from reward cards. The decree explicitly permits Visa and MasterCard to continue to prohibit merchants from discriminating among particular bank issuers. It also allows the settling defendants to negotiate individual merchant agreements that include the prohibited restraints, so long as acceptance of the card brand is not conditioned on the merchant's agreement to the restraints.

American Express has vowed to fight the case.

By seeking to promote a competitive solution to what many consider unjustifiably high merchant card acceptance fees, the Division has staked out an alternative ground to the regulatory approach to merchant fees that Congress recently imposed for debit cards. The relief sought is cautious, however, in that the card networks may continue to prohibit (1) surcharges for particular brands or card types, and (2) efforts by merchants to discriminate in any way against particular card-issuing banks within the Visa and MasterCard systems.

Making Deposits by Phone

2010-10-05T12:43:00.003-04:00

No need to drive to the bank? Making bank deposits using your phone is here for some banks. Chase has been advertising its service (See, Chase IPhone App) and USAA also has it (See USAA Takes Mobile Banking). While the other large banks haven't yet offered the service, it is sure to be the next big thing. The process takes a few minutes since you have to take a photo of the front and back of the check, so I would not recommend it if you have a few of these to do. And, if the photo is not quite clear enough, it can be unsuccessful. But overall, the draw is clear in terms of saving the run to the bank.

Of course, Check 21 makes the digital image of a check the same as the paper version. The digital imaging of checks by consumers will not prevent the banks from processing the check just like any other as the paper check is not needed in any event already. While the process cuts down the float time for the person writing the check, the advantage of saving time at the bank is a draw. I couldn't find the app on the Blackberry, but would bet that it will come along as well in time.

So, how do you do it? See this video on how to deposit on an IPhone.

- JSM

Piracy in Mexico takes a Different Twist

2010-10-04T10:01:00.003-04:00

One of the aspects or piracy near the Gulf of Aden has been its lucrative commercial nature, the taking of cargo and hostages for ransom (see Fighting Piracy With Private Security Measures). The commercial nature of the piracy has often led to substantial ransoms paid with crews and cargo released afterwards. The possible favorable outcome for individuals lives has led to a sort of capitalistic approach by some pirates (See Ploch, Piracy Off the Horn of Africa). The protocol of piracy off Africa certainly affects the response of governments to the problem of piracy there.

This weekend, though, drug cartel pirates in Mexico killed a jet-skier on a border lake (See, jet-skier and Fox News, Pirates). While this new hot-spot of piracy surely affects businesses on the ground where customers steer clear of the area, it also serves as a reminder of the brutal nature of piracy and that is not a "business"). Pirates, historically, are the enemy of the human race - hostes humani generis - posing a longtime threat to shipping and commerce. The violence in Mexico-U.S. waters is a reminder.

- JSM

Small Business and the Recession

2010-10-01T12:00:00.002-04:00

The New York Times did a short piece on small businesses in New York during the recession, focusing on the problems the current environment presents.

- JSM

Check Processing Statistics

2010-09-28T11:44:00.008-04:00

I head off to a faculty meeting today for final approval on my Payment Systems course, formerly Commercial Paper here at St. Thomas University. So, I thought being armed with some Federal Reserve statistics could be handy or at least a conversation topic. With the multitude of payment methods available, it seems obvious that the Federal Reserve is processing less checks than it did in the past. But how much less? In 2009, commercial checks processed through the Federal Reserve dropped 10.1% (See Federal Reserve History) to a volume of 8,585 (million items). The 2010 Federal Reserve volume is also down on the year. While not the largest annual drop in recent times (a drop of 12.1% was measured in 2005), the decline does underscore the importance of alternative payment methods. Yet, the death of checks is not in sight, as the amount of checks processed by the Federal Reserve still amounted to $13,759 (billion) in 2009.

So, check processing is down, but still important.

- JSM

Spring Contracts Conference - Reminder

2010-09-27T10:42:00.000-04:00

Mark your calendar: The annual spring conference on contract law will be held on February 18 and 19, 2011, at the lovely Stetson Law School. Save the Date!

- JSM

St. Thomas University Looking for Business Faculty

2010-09-27T10:33:00.002-04:00

A plug for my school. With Florida now also testing UCC Articles 3 and 9, I suspect there is more room commercial law as well as traditional corporate subjects.

ST. THOMAS UNIVERSITY SCHOOL OF LAW in Miami, Florida, invites applications from experienced and entry-level candidates for tenure-track positions beginning in the 2011/2012 academic year. The Law School especially seeks candidates in the areas of Business Associations, Wills and Trusts, Constitutional Law, Securities Regulations, Property and Civil Procedure. Applicants must possess a distinguished academic record, a dedication to excellence in teaching, and a demonstrated commitment to scholarship. Consistent with the Law School’s tradition of diversity, members of minority groups and women are especially encouraged to apply. Applicants should send a letter of application and a resume. CONTACT: Professor Tamara Lawson, Chair of the Faculty Recruitment Committee, St. Thomas University School of Law, 16401 NW 37th Avenue, Miami Gardens, Florida 33054. E-MAIL: tlawson@stu.edu. FAX: (305) 623-2390.

- JSM

Wall Street: Money Never Sleeps

2010-09-26T19:56:00.008-04:00

Is greed still good?

The new movie, Wall Street: Money Never Sleeps never quite answers that one, though Gordon Gekko now dubs it "legal." Went to see this over the weekend and found it great. Perhaps out of sheer nostalgia I would have liked it, but Gekko's condemnation of "speculation" and references to tulip mania reminded me of John Galbraith. Set in the time of the current financial crisis, the movie emphasises the decisions that individuals (such as Susan Sarandon's nurse turned over-leveraged real estate investor) and banks (such as the investment firms peddling bad paper) made that led us to the crisis. Though Gekko, without cash and out peddling a book, is still Gekko, the new twist of creating even larger "bad guys" makes him a bad guy to cheer for. Definitely worth seeing.

- JSM

Credit Card Skimming and Card Issuers Behaving Badly

2010-09-23T13:37:00.010-04:00

This past June I attended the CALI Conference, hosted by Rutgers University - Cambden. I stayed in the Philadelphia area for about ten days, since my sister lives there. I have a credit card that I often use for business and did on this particular trip. Not having used the card, which is currently in a locked box in Florida, since that trip, there should be no new charges. Yet, on August 20, 2010 two new charges appeared on my card from convenience stores located well outside of the Philadelphia area. Moreover, the record indicated that the user presented my card for the transactions, which I later learned were made at gas pumps with no receipt or documentation. As the card is here with me in Florida, I know I did not present it in Pennsylvania and that someone replicated my card.

Counterfeiters can replicate your credit card by "skimming" the data information from the card's magnetic strip during an ordinary transaction. (See Visa, Credit Card Fraud). They then use the information to make replica cards and engage in fraudulent transactions. The skimming behavior is just one way that fraud occurs. Of course, TILA 133(a)(1)(B) (Regulation Z 226.12(b)(1))limits the cardholder's liability for unauthorized charges to a maximum of $50 and network rules typically protect the cardholder (me) from liability. See Visa's Zero Liability Policy.

I notified the card issuer, Household Bank, of the unauthorized transactions right away. Within 24 hours, one of the vendors, Wawa, reversed the charge. The other merchant, Turkey Hill gas did not and within 24 hours I received the following email from the card issuer:

This charge represents an automated gas terminal charge. At the time of the
transaction, your credit card was not reported lost or stolen, and this type of
transaction required that your card be present.

In addition, your Account history indicates that this charge is consistent with your spending pattern. For these reasons, we consider this charge to be valid. Although we are unable to assist you, you may pursue this matter further with the merchant.

Note that because the transaction was electronic, we are unable to
provide a receipt.

Unfortunately, we have no recourse to pursue your dispute. Although we are unable to credit your Account, you may still pursue this matter further with the merchant.

If you require additional information, please reply to this message or call us at 1-503-293-4037 and one of our Customer Service Representatives will be glad to help you. To ensure a quick response, please refer to the following reference number: XXXXXXXXX.

For your records, you will receive a separate confirmation letter via
the U.S. Mail.

Sincerely,

Customer Service Department

Knowing I did not authorize the charge, I called the issuer to dispute this denial and to request a new card number. You see, issuers bear the loss generally under network rules in "face-to-face" transactions for unauthorized charges as long as the merchant follows the requisite procedures (often signature and authorization for the transaction). My suspicion is that the issuer would bear the loss in this case, so they wanted to force it back on the consumer. When I called, they told me initially there was nothing they could do, the "documentation" showed that I was in PA and made the charge. I reminded them their own letter said that there was no receipt and the back peddling began. Now, they admitted they were still waiting on a response from the merchant. They had no documentation. They would "reopen" the investigation right away. In addition to talking to them on the phone, I should also respond to the email confirming the conversation.

This type of issuer behavior really gets me going! They knew they did not investigate the transaction, but sent a denial right away of the claim I did not authorize the transaction. The "game" here is to send the denials on fraud claims knowing that only some consumers will pick up the phone and complain. Moreover, when I responded to their email as invited, it turned out to be a "no reply" email address. Since the issuer provides no fax number, I submitted yet another message through their online system. Surely this will take my time in following up on a $25 transaction, but I cannot give a pass to a card issuer attempting to avoid its responsibility under TILA and the Visa network rules regarding fraud. And some wonder why we need a Consumer Financial Protection Bureau . . .

- JSM

Elizabeth Warren spoke to CBS

2010-09-21T13:14:00.001-04:00

Elizabeth Warren spoke to CBS about the Consumer Financial Protection Agency this morning.

- JSM

Warren on the New Consumer Agency

2010-09-20T18:28:00.003-04:00

Elizabeth Warren has been speaking about the new role of the Consumer Financial Protection Agency. Who should be scared? Businesses want to know whether they should be worried about her role. For those that are making money from tricking and trapping people, the new agency will be a problem for them. She's been reaching out to business to let them know that she wants to learn about what will work and wants to "get it right." Basically, we cannot re-build an economy where families cannot pay for goods and services. She's ready to get to work getting the agency up and running.

- JSM

Opportunity for Self Regulation?

2010-09-16T10:45:00.007-04:00

The Financial Crisis Inquiry Commission is examining the causes underlying our current financial crisis. The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling is charged with examining the causes and circumstances surrounding the BP oil spill in the Gulf this year. The Consumer Financial Protection Agency's job might be so large that we can only guess what it might tackle first, including credit scoring, student loans, overdrafts and payday loans (See, Six Problems the Consumer Financial Protection Agency Should Tackle First). Business interests oppose government involvement and oversight pretty broadly across the board (see, Fight Over Consumer Agency Looms, Business Groups, Obama Administration Spar Over Corporate Governance, The Case Against Corporate Social Responsibility, Businesses Buy Ads vs. Health Overhaul, US Must Control Deficit).

Yet, isn't there an opportunity here for businesses to engage in increased self oversight and regulation? One of those the best offense is a defense line of thinking. The Financial Services Forum states relative to financial oversight "[t]he Forum will continue to work constructively with the regulators charged with implementation of the legislation to create a financial supervisory framework that ensures institutional safety and soundness and systemic stability, while also meeting the financial needs of American businesses, workers, consumers, and investors." The Business Roundtable's list of Initiatives stresses outright that corporate leadership is the best way to foster trust in corporations. The Business Roundtable's list includes health care and retirement, education, fiscal policy, globalization and environmental concerns.

An aggressive list of priorities without dispute. But has business come through on these fronts? And, I mean not individual companies, but as a group? Despite the commissions investigating, new agencies and increased regulation, there is always an opportunity for business to head off looming problems, whether it is speculation, an innovation like credit derivative swaps poised to cause the next financial crisis or plain overreaching by businesses with consumers.

Self regulation and coordination is not unknown to business generally or to specific industries. Anil Gupta and Lawrence Lad commented "Researchers generally have viewed non-market regulation of firm behavior as synonymous with direct regulation by the government." Industry Self-Regulation: An Economic, Organizational, and Political Analysis. See also, Toffel, Industry Self-Regulation: What's Working (and What's Not)?. The whole idea, of course, is that self-regulation can either supplement or take the place of government regulation. While industries can engage in self-regulation more or less and in different manners, it has its effectiveness.

When I hear of businesses opposed to government regulation of a perceived problem, a common complaint is that government regulation hampers business growth generally, costs a lot and stifles innovation. While I understand that businesses want to make money off of the newest innovation, self regulation would seem to allow the financial community for instance to head off some of the systemic risks of the "innovation," such as the credit derivative swaps. Just because there is money to be made does not mean that it should be made if the "innovation" will lead to over-speculation causing a financial crisis. Yet, government regulation would not seem to always be the most efficient in these cases due to the time involved in establishing oversight of newer financial products.

Michael Toffel argues there are four main facets to self-regulation: "how the rules are designed, who adopts them, whether and how compliance is monitored, and whether these rules actually achieve what they purport to achieve." I agree that these considerations dictate whether the laudatory goals of the Business Roundtable and Financial Services Forum will have any effect on market participant behavior. Self regulation must be meaningful. While the door is open for financial services companies to show leadership on many open regulatory issues, movement is slow. With so much attention being given to opposing Elizabeth Warren as the new head of the Consumer Financial Protection Agency, perhaps business might be better served by turning to the issues (See, Warren's New Job).

- JSM

Teaching Statute of Frauds

2010-09-15T14:31:00.003-04:00

Today in Contracts we covered the Statute of Frauds. The casebook, by Burton, includes the case of Cloud Corp. v. Hasbro, Inc., 314 F.3d 289 (7th Cir. 2002), a Posner decision. The case involves a toy, the Wonder World Aquarium, governed by our beloved UCC 2-201's Statute of Frauds. Posner, wanting to find that either the parties satisfied the statute of frauds or some exception applied, lays out a multitude of reasons to find an enforceable contract. Surely a delightful opinion helping the students to see that sometimes the formalism of a rule gives way to the realities of business practices. The dispute involved excess gelled filling produced by Cloud for the Hasbro aquariums, which had no other use. Alas, the Wonder World Aquarium was a passing fad.

- JSM

Commerce Hums Along Even in Hard Economic Times

2010-09-15T10:25:00.004-04:00

We hear much news about the trouble with the economy. In today's news alone, there were concerns about cooling in auto manufacturing, losses in technology, slower manufacturing in New York, and double dip risks in Europe. Alongside the financial turmoil and worries, Bloomberg yesterday ran a piece on parents who must not be overly concerned about such things. Apparently, there is quite the market for designer clothing for children, including a $750 Burberry trench coat! Sale of designer coats and jackets for children is expected to be up a whopping 12% this year. Luxury goods generally are expected to be up 10%. Apparently, there are nice Gucci lines for pets as well . . . Not bad in a year with worldwide GDP quite low (see, EU Raises Italian 2010 GDP, Canada's GDP Growth Sets, China's GDP Slows, Oil Spill May End Up Lifting GDP Slightly).

While I am a believer in doing my part for the economy, my group of three kiddos (3, 5 and 13) are not partaking in these really cool clothing options! Not only is this a really lot of money, but my kids grow way too fast for this extravagance! Hope that those who are buying designer children's clothing are not financing the purchases on a credit card. Consumers living beyond their means certainly contributed to the current financial downturn.

- JSM

Two Debit Fee Regulation Issues Emerge as The FED Gathers Information

2010-09-14T13:32:00.007-04:00

The financial reform legislation enacted this summer included the Durbin Amendment requiring the FED to regulate fees that banks charge to merchants when consumers use debit cards to make purchases. The legislation gave the FED until April of next year to come up with the specifics of a plan that will ensure that debit card fees reasonably and proportionally reflect the actual costs of running the banks' debit card programs. Bankers have reported that the FED has begun an information gathering process designed to gather information about the banks' debit businesses. Although the situation is sure to evolve in the coming months, there are two questions that are now drawing a lot of attention.

First, the legislation included the cost of fraud protection in the costs that the banks should be permitted to recover. Banks are arguing that fraud costs should include the costs of data protection and claims investigation in addition to actual losses. Merchants are questioning the propriety of including costs beyond losses. Another question involves how the FED will deal with the differences across institutions with respect to fraud losses. Will it use average costs, stimulating competition among the banks to lower fraud costs. Or will it try to implement a system that will tie recovery more closely to specific institutions.

Second, the legislation exempts banking institutions with less than $10 billion in assets from the regulation. But most small banks issue debit cards using the Visa and MasterCard system. Will those systems, dominated by larger banking institutions, permit the smaller institutions to recover higher merchant fees than the big banks recover? Small banks became part of the Visa and MasterCard systems for complex reasons. Initially, they played a crucial role developing a critical mass of credit cardholders and especially merchants willing to accept credit cards. By the time the debit card systems became serious business, the smaller banks were less important to the systems' success. But by that time, Visa and MasterCard had grown sufficiently that trying to exclude smaller banks would have been seen as a group boycott potentially violating the antitrust laws. The large banks were content to charge the small banks somewhat higher network fees. Small bankers expect that the Visa and MasterCard networks will limit their debit card merchant fees to the same extent as the large banks. It will be interesting to see, however, if one of the major networks, or perhaps one of the on-line ATM networks, makes a competitive play for smaller banks by offering higher debit card merchant fees than the big banks are permitted to charge. SS

Why Do We Teach Commercial Law?

2010-09-14T10:13:00.004-04:00

Among other courses, my new law school home, St. Thomas University in Miami, will have me begin teaching commercial law courses in the spring. St. Thomas has not had a commercial law "die-hard" as regular faculty, but several faculty have taught Sales, Secured Transactions and Commercial Paper from time to time in addition to other courses (for a recent study of course offerings in commercial law, see Mark Roark's Commercial Law Course Survey). Without the dedication of a commercial law faculty member, the course descriptions were not surprisingly out of date.

So, today, I will be off to a curriculum committee meeting to discuss revised course descriptions for the commercial law offerings. This process brings to mind not only Mark's survey of what is being taught, but also Larry Garvin's The Strange Death of Academic Commercial Law, where Larry advocates the rescuing of academic commercial law lest it fall into a void of nothingness crowded out by other new seminars and other nouveau studies. Florida just added articles 3 and 9 to its bar exam (See Florida Bar News), giving commercial law more footing at my law school and more draw to students generally. I hesitate to advocate that we teach a variety of commercial law courses merely because it is examined at bar time. Yet, surely the bar examiners also must believe there is something important here as well.

It is well recognized that so long as we have commerce, there is a need for commercial law. Bar exam or not. We have an obligation to prepare our students for the commercial transactions and disputes that arise naturally in our world of business. Law schools are in "partnership" with the community of judges, businesses, legislatures and communities that expect attorneys who will continue to improve the law and promote new ideas. While there is a temptation in states such as Florida that now test commercial law on the bar exam to teach only what is required on the bar, or for schools in states like Pennsylvania which dropped much of commercial law from its bar exam to not teach it at all, we should resist this urge. There is a richness to the study that goes beyond bar requirements, and is a service to students and community alike.

For my part, I will make my case that the course descriptions here at St. Thomas should go beyond what is required for the Florida bar exam. One of my proposed changes is to rename "Commercial Paper" "Payment Systems," reflecting a course that would go beyond the bar exam's UCC Article 3 to include the multiple ways in which we pay for things in commerce. An intelligent study should include checks, credit cards, debit cards, letters of credit, wire transfers and electronic payment devices, as well as promissory notes and guaranties. Thankfully, I expect the faculty here believes that while we need to prepare students to take a bar exam, our obligation goes deeper than that.

Once I get the course descriptions in order, my next job will be to convince the students that the study is important. I hope to teach Payment Systems here at St. Thomas this Spring. On that score, the bar exam looming before them will help. Once in class, though, I hope they see the richness of the study that affects their own every day lives each time they write a check, pull a card out of their wallet or obtain a student loan. The client needs become more clear to them once they appreciate the importance to ordinary transactions.

So, why do we teach commercial law? The answer is simple. Our students need it personally and professionally. And, the wider community needs them to know it.

- JSM

Business Credit Cards Under the CARD Act

2010-09-02T11:14:00.006-04:00

With the restriction from the CARD Act still coming on-line (see More New Credit Card Rules Take Effect), one can expect the card issuers to look for alternate ways to boost their bottom line. Over the weekend, the Wall Street Journal ran a piece "Beware That New Credit Card Offer" highlighting the differences between personal and business credit cards (see also, CARD Act Doesn't Help Small Businesses). The WSJ reported that mailings of applications for business, rather than personal, credit cards are reportedly on the rise. The reason? The Credit Card Accountability and Responsibility Disclosure Act only applies to consumer cards, not business ones.

About 64% of small businesses use credit cards, giving banks a good opportunity to market cards as business cards to avoid the CARD Act's strictures. With applications and pre-approvals up for business cards, it is easy to see how small business owners will need to be savvy about the differences of the cards in their wallet. The advances made with credit cards are simply not universal. Business cards are still subject to the same practices, like interest rate hikes and excessive fees that used to be the norm for consumer cards. It helps businesses to make sure that expenses are deductible for tax reasons (as well as the interest), so their might be incentive to use a business card after all. Aside from possible tax incentives, small business owners might not want to put business debt on personal credit cards as there is a potential for a negative impact on the personal FICO score by increasing the debt to credit ratio.

So, when is a small business issue also a consumer protection issue? One of the lingering problems all along with cards is consumer confusion over terms. The differences in card types are sure to pose problems over time. Moreover, the WSJ reported that some card issuers may be pushing business card applications toward consumers who otherwise would not be looking at these cards and are not likely to understand the differences under the CARD Act. Senator Charles Schumer has already asked the Federal Reserve to look into the practice of marketing business cards to consumers (see Bloomberg). While the CARD Act made headway in the realm of credit card protections, the failure to include business cards may turn out to pose a problem for consumers and small business alike. Pardon my skepticism about the card issuers and their practices, but my expectation is that we will see a rash of business card complaints over deceptive terms.

- JSM

Bernanke Speech in Jackson Hole, Wyoming

2010-08-30T20:02:00.005-04:00

In case you missed it, Ben Bernanke spoke at the Kansas City Federal Reserve annual meeting in Jackson Hole, Wyoming (see transcript). The bottom line: Bernanke is not too concerned about the slowdown in growth and we should expect some relief in 2011 and beyond in the economy. Basically, just wait it out and hope for the best.

For a recap of the speech,

Visit msnbc.com for breaking news, world news, and news about the economy

-JSM

More New Credit Card Rules Take Effect

2010-08-23T20:00:00.008-04:00

New credit card rules under the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act took effect this week (See Federal Reserve Press Release)! The Fed, in its effort to be more consumer friendly, has put out another "What You Need to Know" about the rules. One of the big improvements is in the area of late payment fees. Under the old system, card issues could charge basically whatever fee they wanted, whether the card holder was late on a $20 payment or a $100 payment. Now, the fee is set at $25, but the card issuer can charge $35 if one of the last six payments was also late or a larger amount if the company can justify the cost for the higher fee. In any event, the fee cannot be higher than the minimum payment due. For instance, if the minimum due was $20, then the fee cannot exceed $20.

Other new rules eliminate fees for inactivity and extra fees for violating more than one part of the cardholder agreement on a single transaction.

Another twist is requiring card companies to reevaluate rate increases every six months after an increase and to reduce the rate 45 days after an evaluation, if appropriate. Remember all those rate increases companies passed onto card holders prior to the CARD Act's implementation in 2009? Issurers are supposed to lower rates for consumers if the reason for the increase no longer exists. Basically, the Fed is supposed to monitor compliance. I've not heard of any credit card issuers widespread lowering interest rates, but here's to hoping.

- JSM

New Rules of Bank Fees Now In Effect

2010-08-10T11:35:00.003-04:00

Now that August has come around, there are new rules coming online to benefit consumers. One of my favorites is the overdraft protection rules for debit cards coming into effect on August 15, 2010 for existing bank customers (See FRB: New Overdraft Rules). In the past banks often charged a $34+ fee to consumers who use their card for debit purchases or ATM withdrawals when they do not have enough money in their account to cover the cost of the purchase or withdrawal. The new rules require banks to get consumer's consent (which they should not give) for these "programs."

While the big accomplishment here is disclosure with an opt-in system to benefit consumers using debit cards, as always, consumers can still make financial mistakes that result in fees (see, WSJ, Getting Going: Ferreting Out Those Hidden Fees). For instance, just because you don't opt-in to overdraft protection, that doesn't mean you cannot overdraw your account or be charged a fee for doing so. The new rules apply to debt and ATM transaction, so consumers can still overdraw their accounts and be charged fees for check and automatic bill payments. While this system may be much superior to the previous one, consumers must still mind their balances. The new rules don't eliminate overdrafts completely, leaving some protection for transactions that consumers typically want overdraft protection.

Is this enough? One worry is that banks may push consumers into opting in or consumers may simply not understand (see, USA Today, Bank Overdraft Fees). When opening an account at Chase Bank recently, I was asked to opt-in to overdraft on my debit card. While the clerk was not pushy, I was asked if I was "sure" and did I really understand. Oh, yes, I told them. While I did not opt-in, if a consumer does opt-in the rules may not go far enough. A consumer who opts-in won't get the warning at the counter that their account is low. They will just get the fee, even for the $4 cup of coffee, rather than the ability to choose another form of payment.

All and all, this is all good news for consumers, but banks will take a hit in revenue. Wells Fargo is expecting a $500 million loss in revenue for 2010 as a result of the overdraft rules (see, Wells Fargo Sees $500 Mln). Of course, banks will find other ways to make up the lost revenue. Hopefully, the banks will clearly disclose any new fees to consumers and keep fees manageable While simple fee disclosure for me is important, those with low incomes can be faced with the choice of paying fees or not having a checking account. Some have chosen not to have accounts at all. (see, USA Today, Many Shun Bank Accounts). Consumers opting out of banking completely because the fees are either undisclosed or too high is a lingering problem beyond the reach of the new rules.

- JSM

Finally a Homeowner in Florida

2010-08-09T13:34:00.006-04:00

Yes, I finally closed on a home in South Florida. Now that the boxes are unpacked (well, mostly), some thoughts on the process. Not to deter any wanting to purchase a home, the real estate market in South Florida is particularly daunting if you are wanting a mortgage (See, South Florida Mortgage Rates At Record Lows, but Who Can Get Them?). And, I was moving to a new area to start new employment adding complication to any mortgage application. The loan approval came less than a week before closing, and I breathed a great sigh of relief that the worst part was over (the tax returns, w-2s, document requests, interviews, etc.).

By the time I closed, though, new lending requirements meant a change in lending product and another round of documents! The closing was also delayed a few days. Since our family's belongings were already en route from two far reaching parts of the country (Oregon and Massachusetts), we were faced with the prospect of furniture arriving before the home closed. While it all worked out well in the end, there was much stress and the specter that it might not close at all. The lender's agent seemed unprepared for the changes in requirements for home mortgages that are ever changing, so that the lender was working last minute on details that should have been addressed much earlier in the process (i.e., calling for employment verifications for all employers for the last 5 years the day before closing). I thought to myself, with all this headache, who would actually want to buy a home in South Florida!

So, what does this all say? It seems to me a sign that changing, strict credit standards will impede the real estate market. (See, Borrowers Hit New Home-Loan Hurdles). While credit standards for home loans may have been too easy, they might now be too hard. Of course, the Florida market still has signs of distress, so it may be one of the last markets to see easing of credit standards in real estate. An excess of care and caution of lenders, though, impedes their own business and the real estate market as a whole, making recovery further off. When I listen to NPR on the drive to the office in the morning and hear reports of the sluggish real estate market, I am not surprised. The core of the problem is confidence in borrowers and the real estate market as a whole. While those in the real estate industry attempt to be optimistic, more marked recovery would seem to require a level of confidence that does not permeate South Florida at this time.

As for me, I'll be finishing off the last of my boxes for another week or so . . . glad that I can now send in that first mortgage payment next month!

- JSM

Tales of a Homeowner Wanna-Be

2010-07-07T22:47:00.005-04:00

Part of my adventure of moving to Miami, Florida to join the faculty at St. Thomas University School of Law involves the purchase of a new home. Yes, I've already written about the beginning of this journey (See Tales of a Prospective Homebuyer). That was back in April! So, what is it really like? Three months later? Well, I am just a week out of closing and don't have an "official," "final" loan approval yet for the mortgage. There was the "first application," the phone interview, the mass of financial documents for the last two years, the changing loan terms, the worry over the home appraising (this is South Florida after all).

Other parts of this adventure? I since discovered that the seller had been behind on taxes and the house was listed for auction, but was just brought current in the last two weeks. There is also a pending issue on a leaking roof that I was told was fixed, but when I had the roof re-inspected found out the broken parts were just glued together! My prospective insurance agent raised the hazard insurance premium by 50% on the spot, even though his quote was only two weeks ago (found new insurance agent!). The new challenge is the documentation on the purchase funds for the mortgage lender, which is very particular.

Seriously, the days of no-documentation loans seem to be past, as far as I can see (See, The Basics: No Doc Mortgages, MSN). So, things are naturally hard out there from a loan perspective. Perhaps they should be . . . The large number of foreclosures and short sales out there also make it difficult for home buyers, even though prices can sometimes be favorable. My limited experience in shopping around for lenders indicates that while mortgage rates might be good (See, Mortgage Rates on 30-Year US Loans Fall to Record), the lenders are being more careful than in the past making it harder to purchase even if you want to in this market. But, with the housing market plunging after the government incentives for home buyers ended in April (See, Pending Home Sales Fell off A Cliff, CNN), one might expect things to be easier on buyers.

In some ways it is easier than back in April. For instance, it was much easier to secure a contract on a home than a couple of months ago. But closing is still difficult. While I have every hope that the home will close on time, my skills as a detail, paper-collecting transactional lawyer have served me well! There is now talk of what "time of day" we might be closing, so the hope is that this homeowner wanna-be will actually be just plain homeowner soon.

-jsm

Albert H. Kritzer, 1928-2010

2010-06-06T23:49:00.007-04:00

My recent posts about the status of the CISG and CUECIC and the possible CISG implications of the McDonald's glassware recall sent me, as is almost always the case when I want to refresh my recollection of CISG text or catch up on recent cases and commentary, to the Pace Law School Institute of International Commercial Law's expansive, free, and always helpful online CISG Database.

Revisiting the site yesterday, I read the sad news that Albert H. Kritzer, the Institute's founder and godfather of the CISG Database, passed away June 1, while in Egypt to receive the 2010 Arab Conference for Commercial and Maritime Law Career Achievement Award. Pace Law School's notice, including comments from Dean Michelle Simon, is available here.

I met Al Kritzer only once, and briefly, in person, during a break in a conference at Pace Law School that his colleague Jim Fishman hosted commemorating Wood v. Lucy, Lady Duff-Gordon. However, Al and I corresponded (mostly by e-mail) and he was kind enough to introduce me (again, via e-mail) to Joseph Lookofsky (another CISG luminary) and to introduce much of the domestic and international CISG community (via the CISG Database) to my work analyzing the then-entire corpus of published U.S. CISG case law in the chapter on the CISG that I comprehensively revised and greatly expanded a few years ago for Howard O. Hunter's Modern Law of Contracts. Al subsequently invited me to contribute substantive case commentaries to the CISG Database, in which I have been largely remiss for a variety of reasons. I hope that his successor will allow me to honor Al's invitation -- and his life's work.

Would you like some cadmium with your soft drink?

2010-06-05T14:17:00.017-04:00

Yesterday, the Consumer Product Safety Commission (CPSC), in conjunction with fast-food giant McDonald’s®, voluntarily recalled about 12 million Shrek Forever After™ collectible drinking glasses sold or awaiting sale at McDonald’s® locations throughout the U.S. after someone in Representative Jackie Speier's (D-CA) office alerted the CPSC that the movie-character illustrations on the glasses contained cadmium, prolonged exposure to which may pose a serious long-term health risk.

Millville, NJ-based Durand Glass Manufacturing Co. (DGMC), a subsidiary of Arques, France-based Arc International, manufactured the movie-themed glasses, which another Arc International subsidiary, Millville-based Arc International North America, distributed exclusively to McDonald's. McDonald's locations nationwide sold the glasses in May and early June 2010.

McDonald's web site addresses the recall through a series of FAQs (and answers). (For the benefit of those with short attention spans, every answer to which the statement would be germane includes the statement "the CPSC has said the glassware is not toxic.") Arc International deployed a press release. Representative Speier posted a statement on her web site, which also includes a link to a Los Angeles Times article about the recall. Only DreamWorks™ appears to be mum on the subject -- so far, at least. (Perhaps the Shrek-iverse's creators didn't retain all of the product licensing-rights like George Lucas did, not so long ago and not so far away, with the original Star Wars™ trilogy or they made McDonald's pay a non-refundable lump sum to market the glassware.) Rumors of a replacement glass featuring an image of McDonald's CEO Jim Skinner that transmogrifies into a Shrek-alike when filled with any non-Coca-Cola® brand soft or sport drink appear to be completely unfounded.

All fun aside, why is a commercial law blog interested in allegedly cadmium-contaminated glassware products introduced into the stream of commerce without any warning about or disclaimer regarding the possibility that they might contain an alleged carcinogen?

If this were a tort law or products liability blog, we might opine about the inevitable class-action product liability lawsuit against some combination of McDonald's, Arc International, Arc International North America, Durand Glass Manufacturing Co., the as-yet undisclosed supplier(s) of the cadmium-contaminated paint or other ingredient Durand used to commemorate Shrek™, Fiona™, Donkey™, and Puss in Boots™ (okay, Puss is probably not trademarked, given that the character's name dates from the late Seventeenth century, but we want to minimize our exposure to IP liability because most of us teach at public universities and neither we nor our employers can afford, in the current fiscal climate, to defend any infringement claim that survives a Rule 12(b)(6) motion) on the glassware (and, perhaps, DreamWorks -- for making a movie about which McDonald's predicted sufficient interest that it undertook to procure the offending glassware for resale).

If this were a civil procedure blog we might weigh whether the terms and conditions (no doubt, conveniently located somewhere on the Internet) purportedly governing McDonald's sale of the collectible glassware unconscionably compel non-class arbitration (assuming facts not in evidence) in light of the Supreme Court's recent grant of certiorari in AT&T Mobility LLC v. Concepcion, No. 09-893 (cert. granted May 24, 2010), about which my friend and UNLV colleague Jean Sternlight and my friend and ContractsProf Blog colleague Meredith Miller have recently blogged here and here, respectively.

If this were a consumer law blog, we might wring our hands or cluck our tongues at yet another clear example of Corporate America's crass exploitation of our children and squeeze-the-last-penny sellers who outsource production of low-priced, lower-cost consumer goods to Third World outposts like ... New Jersey. (Just kidding, Jay.)

But, again, what's the commercial law angle on collectible glassware manufactured for and sold to McDonald's for resale to McDonald's retail customers?

It should go without saying that the most interesting legal issues arising out of this scenario involve (1) what express and implied UCC Article 2 warranties each seller in the chain from DGMC (or DGMC's ingredient supplier) to McDonald's made to anyone who purchased or used the glassware; (2) to what extent, if any, each seller in that chain may have disclaimed some or all of its warranty liability, limited the remedies available to the buyer, user, or other person affected by the glassware's use, or both; (3) whether one or more warranty-making sellers breached one or more warranties to one or more buyer, user, or other person affected by the glassware's use; and (4) what remedies Article 2 affords any person to whom any seller is liable for breach of warranty.

For those wanting to add some international spice to the mix, the CBC reports here that the recall has spread to include all Canadian McDonald's restaurants. Information from the Associated Press and Reuters, reported here, indicates that recalling the glassware sent to Canadian McDonald's restaurants raises the total number of recalled glasses to 13.4 million. Both the U.S. and Canada are parties to the U.N. Convention on Contracts for the International Sale of Goods (CISG). To the extent that the Canadian McDonald's restaurants purchased their Shrek Forever After™ collectible glassware from New Jersey-based DGMC or New Jersey-based Arc International North America, that transaction constituted a sale of specially-manufactured goods (CISG art. 3(1)), purchased for resale, rather than personal, family, or household use (CISG art. 2(a)), by a buyer located in one CISG "contracting state" from a seller located in a different "contracting state" (CISG art. 1(1)(a)). Therefore, unless the Canadian McDonald's buyers and New Jersey-based DGMC or New Jersey-based Arc International North America effectively opted out of the CISG (CISG art. 6), any breach of warranty claim the Canadian buyers might have (CISG art. 35), the extent to which any U.S. seller disclaimed any warranty or limited its liability for breaching any warranty (CISG arts. 6 & 35), and the available remedies (CISG arts. 45-52 & 74-78), will be matters for the CISG to resolve.

Meanwhile, on the UNCITRAL Front

2010-06-03T08:21:00.006-04:00

Having recently updated you on the status of the various official UCC revisions and amendments (nothing new to report on that front, by the way), I thought it would be worthwhile to take UNCITRAL's pulse and see how the U.N. Conventions on Contracts for the International Sale of Goods (CISG) and on the Use of Electronic Communications in International Contracting (CUECIC) are faring.

Both strike me as profoundly relevant to anyone teaching Contracts, Sales (or a UCC survey course that includes sales), International Sales (or an International Commercial Transactions survey course), or -- at least in the CUECIC's case -- an Electronic Commerce course. The CUECIC's fortunes might also shed some light on the likelihood that the ALI Principles of the Law of Software Contracts will influence contracting practices, contracting disputes, and the evolution of contract law outside the U.S.

CISG

The U.N. first approved the CISG 30 years ago, and it had gathered the requisite ten ratifications and accessions to take effect ("enter into force" to use the U.N.'s terminology) on January 1, 1988. As of June 1, 2010, when Albania's accession entered into force, the CISG was in effect in 74 countries, including Australia, Canada, China, France, Germany, Italy, Japan, Mexico, the Russian Federation and ten of the other fourteen former Soviet republics, Singapore, and South Korea. Great Britain and most of OPEC's member-states are notable non-signatories.

CUECIC

The U.N. General Assembly adopted the CUECIC in November 2005. Despite the International Chamber of Commerce's endorsement, only 18 countries have signed the convention, and none has acceded to, accepted, approved, ratified, or succeeded to it. Consequently, it is not yet in effect anywhere. Moreover, nearly 2-1/2 years have passed since Honduras became the most recent signatory in January 2008. The United States and most of its major trading partners -- excluding China, the Russian Federation, Singapore, and South Korea -- have not signed the CUECIC.

FED Introduces Credit Card Agreement Tool

2010-06-01T14:58:00.003-04:00

After a relative lull in payment card regulation news over the past few months, cards are back front and center. The big news, of course, is that the financial reform bill passed by the Senate would limit debit card interchange rates and provide merchants more flexibility in steering customers toward various means of payment. More on that as the final legislation takes shape.

Today, I wanted to highlight the FED's credit card agreement tool. A little publicized provision of the Credit Card Holders Bill of Rights required the FED to establish a website providing ready access to the credit card agreements of major issuers. In theory, such a tool would permit inexpensive comparison shopping. In reality, the website is of limited utility to consumers. The agreements are long and complex, making comparison shopping difficult for everyone and probably impossible for non-lawyers. In addition, very small card issuers are not included.

Still, the tool may be of use to consumer groups who could review the offerings and make recommendations to consumers in language that would be easier to understand.

The New Math?

2010-05-31T03:11:00.006-04:00

Q: When do 731 + 451 = 38?

A: When the subject is state enactments of Revised Article 7.

I reported earlier this month on recent state enactments of Revised Article 1 and the 2002 amendments to Articles 3 and 4. I didn't forget Revised Article 7; I was simply waiting for definitive action on bills in two states that had made their way to their respective governor's desk, but on which neither governor had yet acted.

Last Thursday (May 27) and Friday (May 28), Florida Governor Charlie Crist and Georgia Governor Sonny Perdue, respectively, signed Florida HB 731 and Georgia HB 451, making Florida and Georgia the 37th and 38th states to enact Revised Article 7. Both enactments will take effect on July 1, 2010.

Additional bills are pending in Massachusetts, Ohio, Washington, and Wisconsin. As of May 28, Massachusetts HB 89 and Ohio HB 490 are showing some signs of life; but Washington SB 5154 and Wisconsin AB 688 do not appear to be going anywhere in 2010.

Mississippi Makes Ten

2010-05-19T19:52:00.004-04:00

Mississippi became the tenth state to enact the 2002 amendments to UCC Articles 3 and 4 when Governor Haley Barbour signed SB 2419* into law on April 13. SB 2419 will take effect on July 1, as will Indiana SB 501 (now Pub. L. No. 135-2009), enacted last year with a delayed effective date of July 1, 2010.

* - If SB 2419 looks familiar, it's the same bill by which Mississippi enacted Revised Article 1 -- making it a 1-3-4 bill, which is even more rare than a 1-3-4 double play!

UCC Article 1 Legislative Update

2010-05-19T15:08:00.007-04:00

As I predicted in my last legislative update, Mississippi and Wisconsin are the 38th and 39th states to have enacted Revised Article 1.

As introduced on January 11, 2010, Mississippi SB 2419 initially included a choice-of-law provision similar to the original version of Revised § 1-301 that every enacting state has rejected and that the ALI and NCCUSL replaced in 2008. Subsequently amended to replace the introduced version of § 1-301 with language tracking the now-official version, SB 2419 passed the Mississippi Senate on February 10 and the Mississippi House on March 9, and Governor Haley Barbour signed it into law on April 13. Mississippi SB 2419, which adopts uniform Revised § 1-201(b)(20), defining good faith as "honesty in fact and the observance of reasonable commercial standards of fair dealing," takes effect on July 1.

As introduced on January 22, 2010, Wisconsin SB 472 initially included uniform Revised 1-201(b)(20), but was subsequently amended to substitute the pre-revised § 1-201(19) "honesty in fact in the conduct or transaction concerned" definition in existing Wisconsin law. So amended, SB 472 passed the Wisconsin Senate on April 13 and the Wisconsin Assembly on April 22, and Governor Jim Doyle signed it into law on May 12. Wisconsin Act 320 (née SB 472) should take effect on August 1.

As of July 1, the effective date for Mississippi SB 2419 and the delayed effective date for last year's Indiana SB 501 (which I previously discussed here and here), which replaces the existing "honesty in fact in the conduct or transaction concerned" good faith definition in Indiana's version of Revised Article 1 with the uniform Revised 1-201(b)(20) definition, will tilt the balance in favor or uniform Revised 1-201(b)(20) -- as opposed to retaining the pre-revised 1-201(19) definition -- to 28-10 in favor of uniform Revised 1-201(b)(20). When it takes effect on August 1, Wisconsin Act 320 will tilt the balance back slightly to 28-11 in favor of uniform Revised 1-201(b)(20).

Inexpensive Mother's Day Gifts.

2010-05-08T17:54:00.004-04:00

There are 83 million moms in the United States! I just came home from the florist with my children ($10.47 in flowers), am getting ready to order pizza ($25 for two extra large at Pappa John's), and settling in for a movie night with my children ($40 for new dvds) for our little Mother's Day celebration! Mother's Day is a billion dollar business just behind the winter holidays! The cost in jewelry for moms is $2.5 billion,$1.9 billion for flowers for moms and $2.9 billion for eating out! Wow! (See CNN, Cost of Mother's Day). Just saw this piece on inexpensive gifts for Mother's Day!

Hopefully some of this consumer spending helps the economy. Happy Mother's Day to all the moms out there!

- JSM

So as Starbucks goes goes the economy?

2010-04-23T17:44:00.002-04:00

Is Starbuck's success an indicator for the economy? Bloomberg had an interesting article today suggesting just that (See Starbuck's Results Prove Recession's Over). From the piece by Dan Mitchell:

Traffic in Starbucks (SBUX) stores increased by 3 percent. And the average bill grew by 4 percent. More people are going to Starbucks, and, once there, they're spending more. This marks the first time that traffic has grown in more than three years—since before the recession began. The company's operating margins were the highest in its history, growing to 13.4 percent. Of course, that's thanks largely to massive store closings and layoffs during the recession. But it can't happen without top-line growth.

While I'm not convinced that coffee sales at Starbuck's necessarily indicate market recovery, there might be an aspect to higher sales of comfort items that does indicate healthier markets. After all, when the economy is bad, the $3-5 cup of coffee might be the first thing to go for tight-budgeting consumers. More of a luxury or discretionary item that returns when finances are better. The return of consumer spending on discretionary items seems like a good thing. No hard science here, but the idea makes sense.

- JSM

Tales of a Prospective Homebuyer

2010-04-22T15:32:00.003-04:00

Today's news reported that the tax credit is helping boost the market for existing home sales (See Bloomberg, U.S. Economy: Tax Credit Helping). The market for existing homes was up 6.8% in March. The homebuyer incentive runs through the end of April and provides an $8000 credit for new home buyers and $6500 for some other homebuyers who meet income requirements. (See, IRS: First-Time Homebuyer Credit).

The housing market is struggling for many reasons that affect current home owners and buyers alike. We are in the market for a new home as I will be joining the faculty at St. Thomas University in Miami next school year. So, we are looking for a home in South Florida. Weston, Florida to be precise. While I don't own a home in my name, I am not eligible for the tax credit as my spouse owns a home in Boston that we now rent out. And the income requirements on the lower credit put that out of reach. But, I am not complaining about that here today. So, what is it like to purchase a home in this market?

After spending a week over spring break viewing homes and making offers on several, we haven't yet secured a home. Well, we don't really need one until August anyways, but shouldn't this be easy with a housing market in crisis? The good news is that existing home sales in Florida are also up 24% over March 2009. (See, Florida's Existing Home). But, homeowners are in crisis in South Florida, with projections that recovery will not hit there meaningfully until 2011. See, Bloomberg: Florida's Housing Market). Despite the increase in sales, prices are down 3% over last year. The number of foreclosures and short sales are high. Due to depressed prices, people who don't have to sell their homes are not entering the market.

So, what did we find? A low inventory of existing homes and not too much to look at. Many homeowners in South Florida seem to have either bought high and are under water or bought low but have taken out additional mortgages on their homes making them underwater. That all ends with even homeowners who are not in trouble with their banks having difficulty selling because they either need to find a buyer who will way overpay over market (not overly likely) or come to a home sale closing with lots of cash. We saw plenty of homes where the seller must ask an over-market price because their mortgages are high, they don't have cash to close and don't qualify for a short sale. Other home owners have cash to close but are bitter at having to spend it this way on a home that is worth much less than two years prior.

Add to all of this short sales and foreclosures. We went to see one shortsale home that was unapproved by the bank where as we walked through the home the agent told us of all the things the current owner was going to remove from the home (appliances, light fixtures . . .). Shortsales can also take months to close if they ever do. We also saw a foreclosed home where the prior owner trashed the home before leaving, taking fixtures, ac units and just doing general damage to the home probably costing $100k to fix. (See, Some Ex-Owners Trashing; Owners of Foreclosed Homes Steal Appliances). Challenges indeed as this is more than I am interested in tackling at this point in time.

I've purchased homes before and always found it a pretty easy process. Most people tend to act rationally and agreeing to a deal for a home after some negotiation. While I am sure we will secure a home before August, tackling South Florida's real estate challenges is not the same as prior home purchases. If the federal government does not extend the tax credit, we may see this little increase dissipate. There are also plenty of foreclosures still in the pipeline that will continue to depress prices and hamper the market for some time. Homebuyers can purchase, but the market is just not the same.

- JSM

Obama Weekly Address on Financial Regulation

2010-04-20T19:52:00.005-04:00

In case you missed Obama's address this past weekend on financial regulation, here it is:

No more taxpayer bailouts because a financial company is too big to fail was one of the key messages. Can this really happen? I am skeptical, but I guess we'll have to wait and see what the politicians agree to. Obama is correct in his assertion that something has to change in order to prevent the same crisis from reoccurring. Apparently, there will be much more coming on this issue in the near term.

- JSM

Federal Reserve Consumer Information on Overdrafts

2010-04-03T00:53:00.002-04:00

With its new focus on being consumer-friendly, the Federal Reserve has published a circular on what consumers need to know about the new debit card overdraft rules. Remember, as of August 15th, banks cannot include customers in their overdraft services for ATM/Debit card transactions without their opting-in. The rules apply to new accounts opened beginning July 1. The Fed has even provided a copy of the standard form disclosure that it approved for banks to use, so that consumers can (hopefully) recognize the form when they get it in the mail (see Form). With an emphasis on consumer "choice" and education, it is good to see the Fed getting the word out.

Will consumers understand what this is all about? I suspect so. Just this last week, our 20 year old baby-sitter commented that she wished her bank, Chase, would follow Bank of America and give up on overdraft fees (See Hooray for Bank America). Apparently the word has gotten out positively for BOA. She'd been hit $35 on a debit card overdraft of less than $5. Expensive lesson, yes, but just one example where the new rules will help. Better to be denied at the counter, rather than get the hefty fee. I told her not to worry, the new rules are coming soon.

- JSM

Hooray for Bank of America's New Overdraft Rules?

2010-03-10T20:11:00.003-05:00

Is the end of the $39 cup of coffee in sight (See How Your $4 Cup of Coffee Can Cost You)? Today, Bank of America announced that it is doing away with debit card overdraft fees and will just decline consumer transactions that result in an overdraft on their debit card (See Bank of America to End Bank Overdraft Fees). Seems that is just what consumer groups have said for some time that banks should do, but that some banks claimed they couldn't technologically do. Bank of America is crediting itself with listening to consumer preferences on debit cards and their desire to help customers avoid unexpected fees. Bank of America has turned into the kinder, consumer friendly bank? Apparently, they are even notifying customers now when an ATM withdrawl will result in an overdraft (and a $35 fee), rather than just pushing the transaction through. But not to worry, Bank of America will continue to have overdraft coverage that most consumers want on their checks and routine account payments. Rather than trying to convince customers that they really want the $39 cup of coffee, Bank of America has apparently caved on this one. Good for them. Doing the right thing by customers (even if under pressure from the Federal Reserve) is a big step. Hopefully, this will set the tone for other large banks to follow suit. Apparently Citibank has stopped charging overdrafts on debit and ATM transactions.

For those banks not doing away with these fees, the Federal Reserve's new opt-in rules on debit cards are due to come into effect on July 1, 2010. The Federal Reserve’s Final Rules came down on the side of the consumer on many issues. Because the Truth-in-Lending Act applies to credit cards, but does not apply to debit cards, the Federal Reserve’s Final Rules are under the Electronic Funds Transfer Act (15 U.S.C. 1693 et seq.) (EFTA). The thrust of the Final Rules is primarily disclosure and consent based, rather than tackling some of the troublesome banking practices involved in the processing of overdrafts for enrolled customers and the amount banks charge for overdraft services. Specifically, the Final Rules ensure that:

(1) banks cannot enroll customers in overdraft services for ATM and one time debit card transactions without their consent (an opt-in);
(2) banks do not condition the payment of overdrafts on other items, such as checks and ACH transactions, on the customer opting-in for ATM and debit card services and cannot decline overdrafts on checks and ACH transactions for this reason;
(3) banks provide the same account terms, conditions and features to customers whether or not they opt-in; and
(4) the opt-in approach applies to existing and new accounts beginning July 1, 2010.

The Final Rules specifically declined proposals regarding the practice of debit card holds, suggesting instead that banks, networks, and merchants should address this problem.

With any luck, we'll see other large banks doing away with the debit and ATM overdrafts over the coming months. Seems easy enough just to deny the transaction at the counter. Not sure I'd say this, but good job Bank of America.

- JSM

FunnyorDie.com Presidential Reunion

2010-03-04T12:15:00.003-05:00

In case you've not seen it, former Presidents Bush, Clinton, Bush, Ford, Carter and Reagan wake up President Obama in the middle of the night to urge him to pass the Consumer Financial Protection Agency (CFPA). One of the funniest parts is President Bush commenting that he had no idea that when he put the Iraq war on his credit card, he'd be paying 28%! Here it is:

- JSM

New Sales Survey Available!

2010-03-03T20:08:00.004-05:00

I've just put the new Sales Survey up on SSRN. It will be out in the Business Lawyer sometime next summer. An excerpt regarding a a fun warranty case, Nigro v. Lee, 63 A.D.3d 1490 (N.Y.A.D. 3 Dept. 2009) about a car sold on Ebay:

Whether a seller’s statements made during negotiations or through advertising constitute an express warranty is a common point of contention between disgruntled buyers and their sellers. The Supreme Court, Appellate Division, of New York upheld summary judgment in favor of the defendant seller from Nevada who advertised a 1995 Mercedes Benz automobile on Ebay as “gorgeous” and with just minor blemishes, but sold the car “as is.” Upon arrival of the car to the buyer in New York, the buyer discovered the car had been damaged in an accident and had been painted, the upholstery was stained, the undercoating was worn out and parts were rusted, and that body work would cost $1,741.66. While the court recognized that any description of the goods could create an express warranty, the seller’s generalized expression was merely the seller's opinion of the car and constitutes “no more than ‘puffery,’ which should not have been relied upon as an inducement to purchase the vehicle,” particularly in light of the fact that this was a used car transaction. Moreover, the plaintiff could have discovered any deficiencies in the car by performing a routine inspection, which he did not do.

See U.C.C. 2-313.

- JSM

New Credit Card Rules Go Into Action

2010-03-02T17:46:00.006-05:00

Happily, the CARD act provisions are in full effect now. So, what to look for on your statements? I think the disclosure about how long it will take you to pay off your credit card if you only pay the minimum is helpful, especially when coupled with how much you need to pay in order to pay off the debt in just three years. But, consumers must actually read the statements to get the disclosure . . .

CNN has a good piece on credit card reform (click here, as I could not embed it). With card companies increasing rates, there has been a greater proliferation of high rate cards. First Premier has a card for high risk customers that carries a 59.9% interest rate! Yikes! Interestingly, the National Credit Union Administration caps credit unions at 18% interest on credit union cards by law, but private card companies have no such similar limit (See LA Times, Seattle Times). Of course, its all about access to credit, according to the American Banker's Association. While I can understand access to credit and the need for people to build credit, 59.9% is over-the-top and at that rate perhaps some people should not be getting credit, as the cost is too high. Perhaps there is a role for the traditional usury statutes again.

Whose to blame for all this mess? Well, the Supreme Court had a part to play with its 1978 decision in Marquette vs. First Omaha Services making it legal under the National Bank Act for banks to locate in states without interest rate restrictions. Although the Court recognized that this would impair the effectiveness of state usury laws, the problem is "better addressed to the wisdom of Congress than to the judgment of this Court." Despite the passage of the CARD Act, Congress has not addressed the interest rate differential. Perhaps the increases in rates after the CARD Act might provide some impetus for changes to the extent banks overreach in their charging of customers.

- JSM

UCC Legislative Update

2010-03-02T17:00:00.005-05:00

It has been a fairly quiet eight months on the UCC legislative front since my last update.

Revised Article 1

As of March 1, 2010, Revised Article 1 was in effect in thirty-seven states: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, and West Virginia.

State legislatures continue to grapple with the definition of "good faith," although the uniform § R1-201(b)(20) definition has the upper hand. Of the 37 enacting states, 26 have adopted the uniform definition, while 11 have retained the pre-revised definition that, in conjunction with § 2-103(1)(b), imposes a different good faith standard on merchants and non-merchants. Effective July 1, 2010, one of those eleven minority states (Indiana) will join the majority as SB 501, enacted in 2009 primarily for the purpose of amending Articles 3 and 4, also revises Ind. Code § 26-1-1-201(19) to require all parties to act honestly and to observe reasonable commercial standards of fair dealing. (At present, Indiana's Revised Article 1 requires only “honesty in fact.”) This change will take effect July 1, 2010, and further tip the balance among enacting states in favor of the unitary good faith definition in uniform R1-201(b)(20).

With many state legislatures occupied with more pressing issues of the moment, 2009 yielded only three new adoptions -- Alaska, Maine, and Oregon -- down from five in 2008, and seven in 2007. While a downward trend in new enactments eventually becomes inevitable once two-thirds of the states have signed on, 2009's three enactments were the fewest in a year since 2003 (when Idaho became the third state overall to enact Revised Article 1).

As of March 1, only two states -- Mississippi and Wisconsin -- appear to be serious candidates to enact Revised Article 1 in 2010.

Mississippi SB 2419, introduced and amended (to replace a choice-of-law provision that appeared to have derived from the original § R1-301 that all 37 enacting states have declined to adopt and the ALI and NCCUSL have disavowed with one that reflected the substitute § R1-301 the ALI and NCCUSL promulgated in 2008) in January, unanimously passed the Mississippi Senate on February 10. It is presently before the House Judiciary Committee.

Wisconsin AB 687, introduced on January 25 and amended on February 16 to replace the uniform R1-201(b)(20) "good faith" definition with the pre-revised 1-201(19) version, received the Assembly Committee on Financial Institutions's unanimous approval on February 26. It is presently before the Assembly Rules Committee.

Two other bills, Massachusetts HB 89 and Washington SB 5155, seem less likely to produce results.

Massachusetts HB 89, the fifth attempt to enact Revised Article 1 in the Commonwealth, was assigned to the Joint Committee on Economic Development and Emerging Technologies on January 20, 2009. No further action had been reported as of March 1, 2010.

Washington SB 5155, introduced on January 15, 2009, appeared to be drawn directly from the language of official Revised Article 1 circa 2001, including the original version of § R1-301. At an initial public hearing on January 23, 2009, all those testifying in support of and in opposition to the bill opposed the choice-of-law provision. The Washington Senate appears to have taken no further action except to "reintroduce and retain [the bill] in present status" on January 11, 2010.

Article 2 and 2A Amendments

As of March 1, 2010, only three state legislatures (Kansas, Nevada, and Oklahoma) have considered bills proposing to enact the 2003 amendments to UCC Articles 2 and 2A. The Kansas and Nevada bills died on the vine.

In 2005, Oklahoma amended Sections 2-105 and 2A-103 of its Commercial Code to add that the definition of “goods” for purposes of Articles 2 and 2A, respectively, “does not include information,” see 12A Okla. Stat. Ann. §§ 2-105(1) & 2A-103(1)(h) (West 2009), and amended its Section 2-106 to add that “contract for sale” for purposes of Article 2 “does not include a license of information,” see id. § 2-106(1). The net effect is similar to having enacted Amended §§ 2-103(k) & 2A-103(1)(n), both of which exclude information from the meaning of “goods” for purposes of Article 2 and 2A, respectively. Otherwise, no state has enacted any of the 2003 amendments.

While the list of states enacting any of the 2003 amendments may not change in the near future, the number of amendments Oklahoma enacts may. Introduced on February 1, 2010, Oklahoma HB 3104 proposes amendments to forty-nine sections of Article 2 and four sections of Article 2A. The bill includes neither the reformulation of Sections 2-206 and 2-207 nor the addition of Sections 2-313A and 2-313B included in the 2003 Article 2 amendments. Many of the amendments appear designed to facilitate electronic signatures and transactions and to accommodate the terminology surrounding them that grows out of UETA, E-SIGN, and Revised UCC Articles 1 and 7, or to otherwise align Article 2 and 2A terminology with that used in Revised Articles 1 and 7. That is not to say that HB 3104 proposes only cosmetic changes to Oklahoma's versions of Articles 2 and 2A. Several of the proposed amendments alter existing substantive rights, obligations, or remedies. Some of those alterations (e.g., raising the § 2-201 floor from $500 to $5,000) do not seem to be inherently controversial; some (e.g., granting/recognizing a right to cure after a justifiable revocation) may or may not be controversial depending on how courts have interpreted the current Article 2; and some (e.g., giving sellers the right to recover consequential damages) do seem inherently controversial. More on this if the bill progresses.

Article 3 and 4 Amendments

As of March 1, 2010, the 2002 amendments to Articles 3 and 4 were in effect in eight states: Arkansas, Kentucky, Minnesota, Nevada, New Mexico, Oklahoma (for a second time), South Carolina, and Texas. They will take effect in Indiana on July 1, 2010.

As of March 1, 2010, the only pending Articles 3 and 4 bill is Massachusetts HB 90, which has been languishing for more than a year.

Revised Article 7

As of March 1, 2010, Revised UCC Article 7 was in effect in thirty-six states: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Virginia, and West Virginia.

Additional bills are currently pending in Georgia, Massachusetts, Washington, and Wisconsin; but only the Wisconsin bill appears to be making any progress.

First introduced on February 18, 2009, Georgia HB 451 won unanimous approval in the Georgia House on March 12, and the Senate Judiciary Committee recommended passage on March 26. However, the legislature adjourned on April 3 without a third reading and final action in the senate. HB 451 was "recommitted" to the Georgia Senate on January 11, 2010. No further action has been reported.

Massachusetts HB 89, which also proposes adopting Revised Article 1, was assigned to the Joint Committee on Economic Development and Emerging Technologies on January 20, 2009. No further action has been reported.

Washington SB 5154 was introduced on January 15, 2009, scheduled for a public hearing on January 23, 2009, and then stalled, like its Revised Article 1 counterpart, but without as compelling a reason. It was "reintroduced and retained in present status" on January 11, 2010. No further action has been reported.

Wisconsin AB 688 was introduced on January 25, 2010. On February 22, the Assembly Committee on Jobs, the Economy and Small Business unanimously recommended passage. The bill is now before the Assembly Rules Committee.

ESPN on How to Create Markets

2010-03-02T13:15:00.002-05:00

Humorous link on supply and demand. Though I must agree. Mike Greenberg is far more valuable than Kenny Mayne!

The Roller Coaster Ride of Bankruptcy

2010-02-24T01:13:00.004-05:00

When this news story popped into my feeder today, I knew Google understands me. Roller Coasters, Fixtures, Bankruptcy, Creditor priority challenges... Its all there.

Six Flags Inc., currently in chapter 11 Bankruptcy, has decided to close its Louisville Park -- Kentucky Kingdom. The dispute relates to the ownership of certain rides in the park. The creditors are Six Flags America and the State of Kentucky. The state of Kentucky (in what appears to be a futile argument) alleges that the rides are affixed to the realty and therefore belong to the state of Kentucky. (The park leased the real property from the State of Kentucky for a term of years). The state also argues that the lease provides that if Six Flags terminates the lease with the state, the landlord will accede to the ownership of the rides.

Taking these issues separately, its clear that the lease agreement between Six Flags and the State of Kentucky establishes certain privileges to personalty on behalf of Six Flags (the tenant). Under the common law trade fixtures doctrine, a tenant has the right to remove those things he attaches to the realty in furtherance of his trade. (I believe its pretty clear that amusement rides would be in furtherance of Six Flag's trade). The single caveat is if the fixtures cannot be removed without damage to the realty. Thus, the rides are not treated as realty, but rather as personalty.

Taking the state's argument that a provision in the lease grants it an interest in the rides if Six Flags terminates its contract with the state, there seems to me to be a question of what type of interest the state obtains. First, in theory the state could obtain such a right, at least in as much as lessees may grant an interest in its property to its lessor. The question is what kind of transaction does this grant create. It seems that when a creditor (in this case a landlord) reduces its claim to a debtor's (in this case a tenant's) property, that is a security interest, and therefore must comply with the provisions of Article 9 -- the problematic point being if there is another creditor in the picture. The state may very well have a security interest, but may lose out in the priority scheme if other creditors have a claim.

If the state's position is that it has a state possessory lien on the tenant's possessions for failure to pay rentals (which does not appear to be the state's theory), the case may be more clear cut -- particularly given the preference for liens under Article 9-333.

Whichever it is, we will keep an eye on this case to see what the bankruptcy court does with the various roller coasters. If the Court needs (after a safety evaluation) a thrill description of the roller coasters in Kentucky Kingdom park, I would be happy to offer my services; though I suspect I would need to include at least four other theme parks in my assessment in order for my report to be complete.

Image is of the Chang Roller Coaster, Courtesy of Coaster Gallery. Chang's statistics are:

Built: 1997

Composition: Steel

Height: 154 Feet

Drop: 144 Feet

Top Speed: 63 mph

Ride Time: 2 Minutes, 30 seconds

MLR (Marc )

Odel Initiative on Consumer Protection Legislation

2010-02-12T16:54:00.004-05:00

Professor David Oedel over at Mercer University Law School is heading up a legislative proposal that some of you might be interested in signing onto:

Dear Senators and Congresspersons,

As law professors concerned about encouraging the most thoughtful, effective and flexible forms of financial reregulation, we urge that federal law should permit states also to protect financial consumers. In other words, any new financial regulation emerging from Congress this year should include a provision that would allow states the freedom to protect financial consumers with state rules that are stricter than (but consistent with) the minimum consumer protection standards established by federal law. This basic model of state regulatory freedom to protect state interests in ways that do not conflict with federal law has worked well in a number of other arenas, such as in some areas of environmental protection and insurance. Our sense is that many recent financial troubles could have been averted had the states been freer to regulate on behalf of their consumers on the main streets of their states.

We do not propose to alter the current law of federal preemption as it relates to national systemic safety and soundness. Our proposal is only to free up state innovation on matters of consumer financial protection.

Thank you for your consideration.

If you are interested in being a part of this initiative, contact Dave at oedel_dg@law.mercer.edu with e-mail, including your name, title, and institution.

- JSM

The CISG and the Vis International Moot: Twin Ideas for Effective Lawyering in a Globalized World

2010-02-08T15:12:00.007-05:00

This year marks the 17th anniversary of the Willem C. Vis International Commercial Arbitration Moot (The Moot.) The Moot takes place annually in the Spring in Vienna, Austria with participants from over 100 law schools hailing from civil and common law countries. The journey is not only a milestone for the student participants, but a bridge to international understanding through the rule of law. The Moot engages students in the art of effective advocacy, and conveys the important message that the adversarial process is not necessarily an arena for gladiators.

The stated goal of the Moot is "to foster the study of international commercial law and arbitration for the resolution of international business disputes through its application to a concrete problem of a client and to train law leaders of tomorrow in methods of alternative dispute resolution." (www.cisg.law.pace.edu/vis.html).

I was privileged to participate in the Ninth Moot in 2001-2002, while a student at the University of Pittsburgh School of Law. One year later, I served as coach to a group of students at the Meiji Gakuin University in Tokyo, Japan. Both events galvanized the premise that law schools in the United States need to engage students in this level of competition to enhance legal education. Specifically, participation in the Moot will bolster legal writing and advocacy skills. The message is being heard as each year, more law schools are discovering the Moot. Some law schools in the United States and Europe have incorporated the Moot into the curriculum. For example, Touro Law School and the University of Pittsburgh have collaborated with schools in Central and Eastern Europe to offer a summer program structured around the Moot. (www.law.pitt.edu/academics/cile/jdprogram/studyabroad).

In the area of advocacy, preparation for the Moot will be extremely beneficial, even to first year law students. In this critical area, the Moot provides students with skills in the art of persuasion. Not only do particpants learn to write persuasive arguments, but they develop, and hone the nuances of rhetoric on the international stage. The Moot is organized around a contractual problem, which asks students to analyze the articles of the United Nations Convention on the International Sale of Goods (CISG) (www.uncitral.org). As such, students are exposed to the work of the United Nations Commission on International Trade Law, and acquire the added bonus of exposure to comparative legal systems. Specifically, for U.S. law students comparing the rules of Article 2 of the UCC with the CISG is both challenging and exciting. As a result, participants in the Moot develop critical skills in international commercial law that even seasoned lawyers lack.

Moreover, the CISG is at the heart of the Moot. This treaty espouses the theory that economic rights are human rights. The treaty provides uniform rules governing certain aspects of the making and performance of everyday commercial contracts for the sale of goods. Article 7 of the CISG provides that "the adoption of uniform rules, which govern contracts for the international sale of goods should take into account the different social, economic and legal systems." The CISG was created to foster the development of international trade on the basis of equality and mutual benefit as an important element in promoting friendly relations among states. The CISG aims to promote international trade by removing legal barriers in international trade, and to unify the sales law of international trade.

Although the focus of the moot is commercial arbitration, the format of the Moot serves several pedagogical needs. Foremost among them is a focus on the representation of clients from diverse backgrounds and diverse legal systems. In this age of globalization and multiculturalism, the Moot provides ample opportunity for students' exposure to crucial interpersonal lawyering skills. Participation in the Moot exposes students to principles of fairness in international contracts, which will instill an awareness of multiculturalism and widen the lenses of their worldview. In addition, the Moot provides students with the opportunity for research and writing, oral adovacy and treaty interpretation.

Each year, the Moot problem focuses on issues of contract drafting, which helps students understand choice of law issues. In the practical context, students learn the importance of effective drafting. These issues allow students to grapple with civil and common law systems of procedure. Although the advocacy space is based primarily on arbitration principles, this forum provides participants with the rhetorical skills needed for effective advocacy, albeit in a non-confrontational and less adversarial manner. In addition, preparation for the Moot can bolster student confidence, and help prepare them for oral advocacy.

Finally, the tenets of multicultural lawyering form the bedrock of the CISG. As outlined in its preamble, the overarching goal of the CISG is to erase disparities in international trade. The CISG espouses the principles of effective lawyering through its emphasis on the use of simpler, clearer language in international contracts. According to Professor Harry Flechtner, the CISG seeks the "ommission of awesome relics through its push for a unified language in the drafting of international contracts." See John Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention 30 (Harry Flechtner ed., 4th ed. 2009). This transformative capacity of the Vis Moot and the CISG to improve communication across cultures and transfer the rule of law around the globe will enhance the law school experience, and add value to the lawyering process for law students and practitioners.

Citibank's Promise of Free Checking

2010-02-02T00:49:00.008-05:00

What does it mean to be free? When many of us open up a new checking account, it is with the intention of doing business with that bank for a period of time. After all, I've not got my online banking set up to send up bill payments. I've ordered printed checks for when I need them. I've got my debit card. It is a hassle to switch banks and have to redo all this. So, it is important that banks disclose account fees at the outset.

So might have believed customers over at Citibank who opened checking accounts advertised as free. Despite the free-hook, Citibank announced that it would begin imposing account fees on these same customers. Apparently about 1 million free accounts were included. The Truth In Savings Act requires banks to disclose account fees. So, free means free. Moreover, one might expect the free status to last for some time. Not surprisingly then, New York Attorney General Andrew Cuomo's office complained about the Citibank fee increase. Today, Citibank announced that free will remain free, putting aside overdraft and other fees, for the time being. (See Citibank to Keep Free Checking).

- JSM

Interchange Fees: the Silent Visa Tax

2010-01-31T20:05:00.008-05:00

As we've seen the federal government tackle credit, debit and gift cards, new attention is gearing up toward card network interchange fees. Interchange fees are the cost of using debit and credit cards charged to merchants for use of the network (Visa, Mastercard, etc.). The fees are about $.75 for every $100 spent and more than if the consumer uses the a debit card and enters their pin number. The GAO's November 2009 report on Rising Interchange Fees found the fees are posing a problem for merchants as they comprise a larger amount of the revenue earned with some merchants complaining that the benefit of cards such as lower labor costs and increased sales are outstripped by the cost of the interchange fees. The fees are enough that some discount retailers, like Costco, don't accept credit cards, but will allow the debit card usage. Of course, retailers cannot possibly refuse to accept VISA cards, for instance, so the fees are here to stay. While the fees may be here to stay, I suspect that the size of the fees will cause them to come under regulatory supervision at some point in the not so distant future. That seems to be the common result when greed and overreaching get to a point that complaint is loud enough. With small business owners trying to keep their businesses afloat during a recession, it is easy to see why there is more compaint about the size of interchange fees.

The New York Times just did a nice video (and article) giving a pretty good overview of the tension between the networks, merchants and ultimately consumer interests.

Visit msnbc.com for breaking news, world news, and news about the economy

- JSM

The Politics of Bernanke's Reappointment

2010-01-28T16:51:00.002-05:00

The Senate today confirmed Chairmen Bernanke's reappointment to a second term at the Federal Reserve by a vote of 70 to 30 (See Bernanke Confirmed). As concerns abounded about the extent of the Federal Reserve's independence, Senator Schummer commented: “If you don’t like monetary policy when the Fed does it just wait until the politicians get their hands on it.” Well said. Bloomberg did a nice (and short) piece about the politics of the reappointment and the need for the Federal Reserve Chariman to go visiting with the politicians to keep his job.

- JSM

Are Mobile Payments the Next Big Thing?

2010-01-25T17:04:00.011-05:00

Forget all this business about credit cards (What You Need to Know About the CARD Act), debit cards (What the Fed's New Overdraft Rules Don't Do) and gift cards (Fed Targets Gift Cards). Here comes mobile payments! Mobile what? At least that is what I said to myself when Jim Chen sent me a link to a CBS article The Mobile Triple Threat (Jan. 22, 2010). Perhaps I've just been in denial that this was coming down the pipeline for real (or too busy complaining about the drawbacks of debit cards). Without knowning more, I found myself reacting "don't even think about doing this . . ." Well, perhaps that is a tad harsh. Merchants are serious about opening this door as handheld phones and readers have increasing amounts of applications for them. And, tighter credit and debit card rules couldn't hurt their motivation either, right?

The whole idea here is that the consumer could be in a store looking at merchandise and not only do research on the product using their mobile device, but also check inventory and make payment for the product (by a charge to their cell phone bill). Other possibilities include small credit card terminals that small merchants could plug into their own mobile device in order to run a customer's credit card (See, Twitter Co-Founder Tackles Mobile Payments). Pretty cool and technically beyond my expertise (See, Discover: Contactless Payment Sticker Users Inadvertently Crippling Performance). But . . . payments wise, this presents the same (and more) problems than consumers just paying at the register with their credit or debit cards. Surely, there are issues about how well the application transfers money and what to do about errors. One would hate to be walking through Best Buy with your phone in your pocket and accidentally purchase several televisions. Moreover, the risk of credit card data being misused or misappropriated is already a problem without the involvement of mobile devices. Poor reliability and speed follow along as potential pitfalls.

Apparently, Paypal, Google and Amazon already have mobile payments capability, so mobile payments appear to be upon us. Mobile payments companies are beginning to receive funding for their ventures, so this will be an area to watch develop (Mobile Payments Startup Boku Lands $25 million). Always a big question regarding payment methods is the cost associated with its use and disclosure to consumers. For me, it will be a while before I pay using my phone.

- JSM

The Big One!

2010-01-24T23:13:00.006-05:00

Bless them boys, Who Dat! and Geaux Saints! As someone that spent most of my life in Louisiana, the Saint's getting to the Superbowl feels like an impossible dream that just came true. As someone who lived in New Orleans most of my adult life, who watched from afar after moving away from Louisiana the city that was the state's most visible symbol destroyed by the "big one," that no one thought would come seeing the Saints eligible to play in the "Big Game," that again, no one thought would come, seems surreal. In New Orleans before Katrina, the newscasts would advertise for hurricane preparedness, asking proverbally "what if the big one hit New Orleans." Well it did, and the city has never been the same. For many, the New Orleans Saints represented a break from the reality of mold covered homes and lost possessions -- a way to forget that the city they loved was now forever marked by the eye of a perfect storm, that destroyed lives, houses, and hopes. No symbol was more emblematic than the Superdome -- a building whose exterior mirrored the cities pain for so long.

Tonight's game was bigger than football. It seemed to confirm that the past is over. And maybe that's ok. In New Orleans, the past, before Katrina seemed ideal. It was the after-Katrina world that was so scary. But tonight's win in the same dome where people's lives in the city were forever changed, maybe offers a glimmer of hope. Perhaps the future can be better than the past was. The past was filled with inequality and political cronyism. Maybe that has not changed, but with every new day lies new hope. The Saint's showed that the future does not have to be worst than the past.

In reality, the last few minutes of the game seemed to encapsulate the Saint's and New Orleans' history. The Saint's offense seemed more like the aints' after the first half; the defense gave up first downs and big plays; and the season seemed like so many others of late -- lots of promise, but just short of the big one. And then, as if by divine intervention, the Big Ones came -- the biggest interception; the biggest forty-yard kick-off return; the biggest fourth and inches conversion, and the biggest forty-yard field goal; and, perhaps, the biggest win that the team and the city of New Orleans needed. The future is bright. The only thing I think I can say to match my thoughts -- Bless them Boys! And Geaux Saints.

And now, pulling a trick from Dean Chen's book, I can think of no better song to offer you than U2 and Greenday's The Saints are Coming

Marc (MLR)

Bankers Without a Clue?

2010-01-15T16:06:00.004-05:00

Paul Krugman wrote a nice op ed piece in today's New York Times titled Bankers Without a Clue. Krugman observes disappointingly that the bankers just don't get it. In truth, comments like the financial crisis was just a perfect storm (Goldman Sachs’s Lloyd Blankfein) and that no one could have predicted its coming (Jamie Dimon of JPMorgan Chase & Co.) are pretty unbelievable. I hope that the executives of these large financial insitutions aren't and weren't really that clueless. That said, I agree with Krugman that I don't expect the banks to give much concrete advice on financial reform. The distrust the banks have of regulators (and desire to protect their own pocketbooks) has resulted in many of the banks repaying the TARP funds as soon as possible.

Bill Thomas who is Vice Chairman of the Financial Crisis Inquiry Commission has assured us that at least the questions will be asked. Question is, whether any meaningful financial overhaul will come from this?

-jsm

What You Need to Know About the Card Act

2010-01-13T00:18:00.006-05:00

For consumers looking for basic information about the CARD Act, the Federal Reserve just published What You Need to Know: New Credit Card Rules. What credit card companies must tell you:

when they plan to increase your rate and fees
how long it will take you to pay off your balance.

The circular also covers all the new rules on fees, rates and limits:

no rate increases for new cards in the first year
rate increases only apply to new charges
restrictions on over-the-limit transactions
caps on high fee cards
protections for underage consumers (under 21)

Finally, the circular contains some new rules on billing and payments:

standardized payment dates and times (i.e. payments due on the same day each month)
payments applied to highest risk first
no two-cycle billing.

All and all, the circular is easy to read and even contains handy definitions and links to other information. Hopefully, consumers will be able to find this easily on the Internet (and will read it). Three cheers to the Fed for trying to get the word out.

- JSM

Spot Light Shines on Debit Card Interchange (Finally)

2010-01-05T14:31:00.003-05:00

For several years now the hot payment card story has been the rising interchange fees effectively paid by merchants to card-issuing banks on credit card transactions. A major class action attacking those fees is well underway, and the Department of Justice, Antitrust Division, has an open investigation.

Commentators have disagreed about whether market competition between Visa, MasterCard, American Express and Discover could yield an appropriate interchange fee or whether more aggressive industry regulation is required. Some say that the only competition is to increase fees to encourage banks to issue a particular network's cards. But some historical evidence suggests that competition among networks does create pressure to lower interchange fees to increase merchant acceptance. There has also been considerable debate about whether interchange fees constitute an unfair tax on those who do not use credit cards.

Surprisingly, however, debit card interchange fees have coasted under the radar since the 2003 settlement in which Visa and MasterCard agreed to pay merchants $3 billion and permit the acceptance of credit cards but not off-line signiture debit cards. At that time, Visa also significantly lowered the interchange fee on its signiture debit cards.

Today's New York Times has a front page story Visa's Strategy in Debit Cards: Push Up Costs by Andrew Martin taking Visa to task for its more recent debit card pricing practices. This attention is long overdue. In contrast to credit cards, the case against Visa and MasterCard's interchange fee pricing practices and the need for regulation are much stronger in the debit arena. Under the right conditions, American Express and Discover could possibly serve as a competitive check on credit card fees, but neither has a significant enough presence in the debit market to challenge the banks issuing Visa and MasterCard. And while the spending flexibility created by credit cards creates significant benefits for consumers and potentially increased sales for merchants -- benefits that may outweigh the cost of credit cards -- debit card benefits are considerably more limited for both consumers and merchants, and their costs are thus significantly less likely to be justified.

The development of debit cards is quite interesting. They began as extensions of ATM cards issued by regional networks of banks with the goal of saving costs by encouraging consumers to switch away from paper checks. Interchange fees were virtually non-existant and, in some cases, banks even paid merchants and consumers to stimulate use of the cards. But banks faced two problems. Like ATM cards, these early debit cards required the entry of a PIN, and most merchants did not have card acceptance systems that could handle PIN entry. Second, because the cards did not generate significant revenue for the banks, they could not justify investing in the advertising necessary to educate consumers about the cards.

Visa responded in the mid-1980s by creating a signiture-based debit card that could run over the Visa credit card network. It permitted any merchant accepting credit cards to also accept debit. And because the card was priced at near credit card levels, the banks were willing to support heavy advertising to stimulate debit card use. The scheme worked. Debit card use exploded.

An initial period of competition arose between Visa and the regional networks (as well as MasterCard) which argued that on-line PIN-based debit was a safer, lower cost option compared to Visa's signiture debit. During this era, Citibank's representative on the Visa board reportedly called the regional network operators "through-put jockeys" because they cared only about increasing volume on the network without paying sufficient attention to bank profits. The campaign thus began to encourage consumers to use signiture debit -- despite the greater potential for fraud and higher processing costs -- through rewards programs and other methods.

These practices led to a mid-1990s major class action led by Walmart and Sears, arguing that Visa and MasterCard illegal tied acceptance of signiture debit cards to credit cards. Six years later, Visa and MasterCard agree to settle the case by permitting merchants accepting credit cards to reject signiture debit and to reduce signiture debit interchange fees.

Although PIN acceptance is now widespread, expensive signiture debit remains a significant market force shifting billions of dollars annually from the retail industry to the banking industry. Why? After the settlement, very few merchants refused to accept signiture debit, fearing that they could lose customers. Today, Costco limits acceptance to PIN debit, and a few other major retailers try to steer customers to PIN, but most do not. In addition, even before the settlement, Visa began a strategy of increasing the interchange fees on its own PIN debit cards, including a major jump in 2007 that left its PIN system's interchange only slightly below its signiture debit interchange. The strategy has had the dual benefit of (1) forcing MasterCard and the regional networks to increase their PIN debit interchange to avoid losing bank support to Visa, and (2) discouraging merchants from disfavoring signiture debit by reducing the pricing spread. A former regional debit network CEO, Ronald Congemi, bemoaned Visa's strategy in the Times article: “What we witnessed was truly a perverse form of competition. They competed on the basis of raising prices. What other industry do you know that gets away with that?”

Critically, debit card issuance is much less costly for card issuers than credit card issuance. Debit cards are issued virtually costlessly to checking account holders as part of the ATM card package. Moreover, they carry virtually no credit risk for the issuer, as the money for the charge is removed from the checking account promptly for signiture debit and immediately for on-line PIN debit. On-line PIN debit also dramatically reduces fraud risk.

Perhaps because credit interchange fees have increased so much, debit cards may appear to be a good deal for merchants. But given the cost differences for card issuers, debit card fees may be much less justifiable and thus a more appropriate target for regulatory attention.

Commercial Law Course Survey Update

2009-12-07T18:58:00.003-05:00

I have received 70 responses so far. Once again, I am only reporting the raw numbers to this point, so the percentages reflect the number of times the course option was selected as against the other options (including write in variations). I also include a list of institutions in which someone has posted a response, so if your institution is not represented, please take two minutes to complete the survey by clicking here.

Thanks

Marc (MLR)

Martin, Evans, Wright and More on Consumer Issues in New Lydian Payments Journal

2009-12-07T13:07:00.004-05:00

A little self promotion and more. Take a look at the new Lydian Payments Journal. The December issue features:

David Evans and Joshua Wright: How the Consumer Financial Protection Agency Act of 2009 Would Change the Law and Regulation of Consumer Financial Products
Jennifer S. Martin: What You Should Know about the Debit Card in Your Wallet: Where the Federal Reserve's New Overdraft May Fall Short
Francesc Prior Sanz and Javier Santomá: Banking the Unbanked Using Prepaid Platforms and Mobile Telephones in the U.S.
Ulf Mattsson: Demystifying PCI Technologies

Happy reading! Yes, after reading all the examinations. I've got a stack of first year Contracts exams coming my way this afternoon.

- JSM

Commercial Law Welcomes Glenys Spence!

2009-12-06T21:49:00.003-05:00

Commercial Law is pleased to announce Professor Glenys Spence as our newest guest blogger. Professor Spence practiced civil litigation and immigration law both as a solo practitioner as well as with JBM Immigration Group. In her practice she has represented clients in family-based immigration and deportation defense since 2007. Glenys is an Assistant Professor at Phoenix School of Law. Professor Spence's research focuses on the United Nations Convention on the International Sale of Goods. We hope to hear her thoughts on the CISG and other commercial topics!

- JSM

What the Fed's New Overdraft Rules Don't Do

2009-12-02T14:24:00.006-05:00

Now that classes are over, I've been wanting to turn back to the Federal Reserve's new rules bank overdraft programs (See Hooray for the New Overdraft Rules). Here's a portion of an essay that I've put together for the Lydian Payments Journal:

The largest problems facing regulation of consumer depository accounts are ones created by the need to keep regulations in pace with innovation. That is, bank innovation results in products on the marketplace that are either completely new or are comprised of such variation that the products might as well be new. Services associated with debit cards are a perfect example because debit cards were not commonplace until the late 1990s. Debit cards attach to regular bank depository accounts, yet are not checks, pure ATM cards, or even credit cards. Due to the changing nature of banking products, any regulation must be flexible, rather than static. With respect to debit cards, innovation has progressed unchecked in the wake of consumer excitement for the innovation itself, without creating a parallel regulatory framework. Accordingly, any discussion of the issues consumer depository accounts should take up an examination of the relationship between consumers and banks and explore possible improvements to existing regulatory structure so it may better adapt to innovations in banking products.

Full disclosure of the benefits and detriments of the overdraft programs prior an active enrollment decision is the best approach. If under the Final Rules a consumer enrolls in overdraft protection, resolution of assent and fairness hinges upon the disclosure of the terms of the overdraft service and the practices involved in securing assent. For instance, even though Regulation DD affirmatively requires disclosure of fees, a GAO study found that consumers have difficulty obtaining account terms and conditions and complete fee information even when requested. Moreover, even if the bank discloses the fees, the government does not regulate the reasonableness of fees or the manner in which they are imposed. The terms of overdraft fees are most likely ones of “adhesion,” in that they are offered or imposed without the ability to negotiate them, “take it or leave it” terms. If the GAO is correct, then Banks often fail to disclose the terms at all, even when asked. So, will the Final Rules result in substantial changes in banking practices?

Disclosure is at the cornerstone to most consumer regulations and is the primary prong of financial regulation. The Final Rules address disclosure issues primarily through the model opt-in form that accompanies the rules (the “form”). Importantly, the form: (i) requires that banks affirmatively give customers knowledge of enrollment in overdraft services; (ii) specifies the fee amounts that a bank charges per overdraft transaction, any daily fee charged for the account being overdrawn, and any daily limits on overdraft fees; and (iii) contains information about other, less costly banking services and where the consumer can obtain more information. These changes are significant because under current practice banks enroll many consumers without their knowledge or consent and without such disclosures. Up front disclosure is a key feature of the Final Rules, especially since consumers sometimes have difficulty obtaining fee terms at many banks despite Regulation DD requirements of fee disclosure. Of course, no form is perfect and there remains the potential for consumer confusion.

Curbing bank practices that disadvantage consumers by increasing the amount of overdraft fees incurred is the second prong in the solution to the problems with overdraft protection services banks currently offer. On this point, the Final Rules fall short. Although the Proposed Overdraft Rules addressed the issue of debit card holds by reducing many of the holds from days to just hours, the Final Rules contain no restrictions on holds, leaving wide discretion for the length and size of holds. It is doubtful that a consumer who goes out to gas up the car and buy groceries will know that in order to avoid an overdraft fee caused by a two hour gas pump hold on their card, he or she may want to buy groceries before gas when account balances are low. The Final Rules also do not take up other banking practices that increase the amount of overdraft fees, such as batch reordering of transactions from largest to smallest.

The final prong of any solution regarding overdraft fees must address the size and numerosity of fees imposed for consumers who opt-in the service. While banks typically impose credit card over the limit fees on a monthly basis, banks charge overdraft fees on a per transaction basis. Some consumers may continue to believe that credit and debit cards work the same in this respect. Consumers also tend to believe that government regulation is merit oriented, rather than disclosure based. While some in Congress have urged restrictions on overdraft fees to a “proportional” amount, the Final Rules do not take up fee size (see Dodd Says Senate May Expand Beyond Fed Overdrafts). To the extent that some banks charge overdraft fees on NSFs of less than $5, the size of the fee imposed is clearly material to consumers. Some banks have altered current practices to address this issue.

While the Final Rules represent an improvement over the status quo in terms of informing consumers about enrollment in overdraft services, they do not represent a complete solution to open issues of debit and ATM overdrafts. From the industry perspective, there are genuine operational issues at some banks that will require retooling of existing systems. Much of this must take place by July 1, 2010. Despite the successes in the Final Rules, consumers should not believe that they represent a panacea for overdrafts. If they do, disappointment will follow. This type of regulation is long overdue, probably owing to the more recent development of the product and regulatory system’s inability to respond effectively and promptly to developing issues in newer products. At its simplest, a solution to the problems of consumer choice and disclosure in debit card overdrafts favors a default rule system that gives the consumers an arrangement with the lowest cost. Despite the criticisms herein, the Final Rules go a long way toward that goal.

- JSM

Call for Papers: February 2010 Contracts Conference at UNLV

2009-11-19T13:48:00.003-05:00

UNLV's William S. Boyd School of Law will host a two-day conference, February 26 & 27, 2010, designed to afford scholars and teachers at all experience levels (including those preparing to enter the academy and those whose primary teaching appointment is not in a law school) an opportunity to present/demonstrate and discuss (formally and informally) recently-published and accepted-but-not-yet-published scholarship, works-in-progress, as-yet-fully-formed ideas for scholarship, and pedagogical innovations, and to network with colleagues -- and potential collaborators or mentors -- from around the country and the rest of the (predominantly) common-law world.

Invitation: We invite paper, presentation, and panel proposals exploring any aspect of contract law, theory, and policy writ large (including, but not limited to, bankruptcy/insolvency, commercial law, consumer law, dispute resolution regimes, family law, insurance law, legal systems, and restitution, in addition to more traditional contract topics) from a behavioral, comparative, critical, doctrinal, economic, empirical, equitable, historical, institutional, interdisciplinary, jurisprudential, pedagogical, philosophical, policy-driven, or political perspective. We also solicit volunteers to serve as moderators or discussants for panels that are not "packaged deals."

The CFPs issued earlier this year for the AALS Section on Contracts' January annual meeting program on New Approaches to Teaching Contracts: A "Teach-In" and the AALS Section on Commercial and Related Consumer Law's January annual meeting program on The Principles of the Law of Software Contracts: A Phoenix Rising from the Ashes of Article 2B and UCITA? each yielded more excellent proposals than either section could accommodate in New Orleans. Both topics remain quite relevant, and I hope to assemble one or more panels on each that will continue the conversations begun in New Orleans. I am also working on the opening plenary, my UNLV colleague Jeff Stempel is organizing a panel on insurance contracts, and Wayne Barnes (Texas Wesleyan) is organizing a panel on comparative contract law and theory. Those efforts, if all bear fruit, still leave room for many more presenters, moderators, and discussants.

We will try to accommodate as many presenters, moderators, and discussants as possible. We particularly encourage junior scholars and those who work in non-U.S. legal systems to propose papers or panels and to volunteer to serve as a discussant or moderator. We also welcome anyone who wishes to attend the conference without presenting or serving as a discussant or moderator. The educational and networking benefits alone are worth the price of admission.

Publication: There is no publication requirement for conference participants, although experience suggests that individual papers and panels often find good homes. The Nevada Law Journal encourages participants to submit individual and panel papers and hopes to publish several works from the conference in upcoming issues.

Likely Attendees: In addition to me, Jeff Stempel, and Wayne Barnes (mentioned above), as of November 18, the following have committed to attend, or expressed a strong desire to attend: Eniola Akindemowo (Thomas Jefferson), Roy Anderson (SMU), Wayne Barnes, Dan Barnhizer (Michigan State), Charles Calleros (Arizona State), Hazel Glenn Beh (Hawaii), Barbara Bucholtz (Tulsa), Gerald Caplan (McGeorge), Miriam Cherry (McGeorge), Carol Chomsky (Minnesota), Karen Cross (John Marshall), Sidney DeLong (Seattle), Larry DiMatteo (Florida, Warrington College of Business), Jay Feinman (Rutgers-Camden), Marjorie Florestal (McGeorge), David A. Friedman (Willamette), Larry Garvin (Ohio State), Danielle Kie Hart (Southwestern), Nicholas Johnson (Fordham), Yong-Sung Jonathan Kang (U. of Washington), Tadas Klimas (Lithuania), Chuck Knapp (UC-Hastings), George Kuney (Tennessee), Peter Linzer (Houston), Charles Martin (Florida Coastal), Jennifer Martin (Oregon), Meredith Miller (Touro), Marcy Peek (Whittier), Joe Perillo (Fordham), Deborah Post (Touro), Michael Pratt (Queen's University/Ontario), Cheryl Preston (BYU), Scott Pryor (Regent), Val Ricks (South Texas), Caprice Roberts (West Virginia), Irma Russell (Tulsa), Adam Scales (Washington & Lee), Andrew Schwartz (Colorado), Sean Scott (Loyola-L.A.), Jeff Stempel, Otto Stockmeyer (Cooley), Howard Walthall (Cumberland), Jarrod Wong (Pacific), and Debbie Zalesne (CUNY). All this without a proper CFP until now. I expect attendance will be at least double this number.

Submitting a Proposal: If you would like to propose a presentation or panel, please e-mail a title, brief description, and any supporting materials by January 4, 2010 to keith.rowley@unlv.edu or snail-mail it to me at 4505 S. Maryland Pkwy., Box 451003, Las Vegas, NV 89154-1003. If you would like to discuss or moderate, please let me know your interests and availability by January 4. We will evaluate proposals as they come in and will consider on a space-available basis any we receive after January 4.

Preliminary Schedule: The conference program will begin both Friday and Saturday morning no later than 9:00 a.m. (grazing and conversational opportunities will start earlier) and will run until 5:00 or 5:30 p.m. each day.

Accommodations: The Hyatt Place next to campus (4520 Paradise Road, Las Vegas, NV 89169) is holding a block of rooms at the rate of $118.00 per night (plus tax). The official deadline for hotel registration at the conference rate is January 25, 2010. However, I encourage you to book sooner, as we blocked a limited number of rooms (due to the The Hyatt Place requiring the law school to guarantee at least 80% occupancy and pay the difference if actual registration was less than we anticipate) and will be more likely to get the Hyatt Place to make the conference rate available to additional attendees if early registration is robust.

To book a conference-rate room at The Hyatt Place, go to http://www.lasvegas.place.hyatt.com/; choose a check-in date no earlier than February 25, 2010 and a check-out date no later than February 28, 2010; enter group code G-BOYD for Boyd School of Law Contracts Conference in the box labeled Group/Corporate #; hit the check availability button; if a room is available, verify that your group name is specified next to rate details and if everything matches, then hit book. If you have trouble booking online, or if you prefer to reserve a room over the phone, please call the hotel at (702) 369-3366.

Transportation: For attendees who stay at the conference hotel, The Hyatt Place provides airport shuttle service and we'll provide transportation between the Hyatt Place and the law school for those not wanting to walk the mile or so. Attendees who prefer to stay on The Strip or elsewhere are responsible for their own transportation.

Sustenance: Your registration fee will cover the costs of lunches both days and a reception and dinner Friday evening, as well as coffee, fruit, and baked goods each morning and cold beverage service and morsels each afternoon. The Hyatt Place also offers a complimentary continental breakfast, which might be particularly attractive to those whose body clocks are on Eastern or Central Time.

Registration: We're still finalizing the conference registration fee and process. The registration fee will be no more than $250. This is higher than past spring contracts conferences. Fortunately, the lower conference hotel rate than at prior conferences, free airport transportation for those staying at the conference hotel, and the relative ease and low cost of flying into and out of Las Vegas's McCarran Airport (which is less than two miles from the hotel) compared to the last three venues, will offset the higher registration fee.

Commercial Law Course Survey

2009-11-19T13:39:00.002-05:00

I have received 43 responses to the survey on Commercial Law Courses that I posted yesterday. See below for the results so far (note that right now I am only reporting the raw numbers, but I may break the numbers down further as information continues to come in). Also the percentages at this point reflect the number of courses offered, not the number of institutions offering the course. As more numbers come in, I will break down the numbers to reflect institutional offerings, rather than mere occurrences. If you have not entered information on behalf of your school, please do so by clicking here. Its a very short survey and only takes two minutes to complete, if that.

Commercial Law Offerings

2009-11-18T20:23:00.004-05:00

I am doing a quick curriculum survey of commercial law offerings at various schools in an effort to see how commercial law courses are taught in a variety of configurations. The survey is only two questions long and will require less than a minute of your time (maybe less than two minutes -- but I offer no warranties as to the time). Please click the link, identify your school and check all of the boxes that apply to your institution regarding the commercial law courses offered by your school. And for those curious as to the overall results, I will post results as they come in updating as appropriate. I will not post by school, but rather will likely group the results according to tiers or by overall group size.

Marc (MLR)