Ding, Dong, the Which* is Dead

At its annual meeting last week, the American Law Institute approved an amendment, which NCCUSL (a.k.a. the Uniform Law Commission) had previously approved, replacing the oft-jilted text of Revised UCC § 1-301 with language consistent with pre-Revised UCC § 1-105:

§ 1-301. Territorial Applicability; Parties’ Power to Choose Applicable Law.
  (a) Except as otherwise provided in this section, when a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties.
  (b) In the absence of an agreement effective under subsection (a), and except as provided in subsection (c), [the Uniform Commercial Code] applies to transactions bearing an appropriate relation to this state.
  (c) If one of the following provisions of [the Uniform Commercial Code] specifies the applicable law, that provision governs and a contrary agreement is effective only to the extent permitted by the law so specified:
    (1) Section 2-402;
    (2) Sections 2A-105 and 2A-106;
    (3) Section 4-102;
    (4) Section 4A-507;
    (5) Section 5-116;
    [(6) Section 6-103;]
    (7) Section 8-110;
    (8) Sections 9-301 through 9-307.

In so doing, the bodies responsible for the Uniform Commercial Code followed the lead of thirty-two of the thirty-three states that have enacted Revised Article 1 to date. Only Louisiana — deferring to its Civil Code to ascertain the applicable law where the transaction does not fall within the scope of a more specific choice-of-law provision elsewhere in the UCC — has enacted a version of Revised § 1-301 that differs non-trivially from the new official version.

* - As in, "Which state's law do you want to govern our contract?"

2009 AALS conference on transactional law

Transactional law in Long Beach, California

To: Faculty Members interested in Transactional Law

From: Planning Committee on 2009 AALS Conference on Transactional Law

• Lisa Fairfax, University of Maryland, Chair
• Victor Fleischer, University of Illinois
• Peter Pitegoff, University of Maine
• D. Gordon Smith, Brigham Young University
• Alfred Chueh-Chin Yen, Boston College

Subject: Requests for Proposals on Transactional Law Scholarship and Innovative Methods of Teaching Transactional Law

We are planning the AALS 2009 Mid-year Program on Transactional Law, which will be held on June 10-12, 2009 in Long Beach, California. "Transactional law" refers to the substantive legal rules that influence or constrain planning, negotiating, and document drafting in connection with business transactions, as well as the "law of the deal" (i.e., the negotiated contracts) produced by the parties to those transactions. We are seeking proposals from (1) faculty members interested in presenting on innovative methods of teaching transactional law, and (2) faculty members interested in presenting new scholarship that relates to transactional law.

About the Program

In 1994, the AALS held a Workshop on Transactional Approaches to Law which inspired significant innovation and experimentation in transactional teaching and scholarship. This Program provides a unique opportunity to take stock of developments in this area since that influential workshop. One important goal of the Program is to bring together faculty from different doctrinal areas of law to exchange ideas and information on teaching and scholarly innovations in the area of transactional law. Toward this end, we encourage proposals from faculty members with an interest in transactional law in any discipline including such specialties as bankruptcy, business associations, clinical law, contracts, commercial law, intellectual property, international business, labor and employment law, real estate transactions, securities regulation, and taxation.

Please note that the AALS 2009 Mid-Year Meeting will include three programs: A Program on Business Associations: Taking Stock of the Field, followed by Concurrent Programs on Transactional Law and Work Law. As a result, you may have received, or be receiving, Request for Proposals in connection with these other Programs. We would encourage you to submit proposals to any or all of the programs in which you have an interest in participating. We also encourage submissions from junior faculty.

Request for Proposals on Transactional Law Scholarship

In keeping with the conference theme, the Program will host a series of concurrent works-in-progress sessions designed to give interested faculty members an opportunity to present new scholarship related to transactional law. We are seeking works-in-progress proposals on transactional law scholarship broadly understood. Thus, we are seeking proposals on scholarship that focuses on the legal, financial, and practical implications of business transactions in a variety of different settings. In addition, we welcome proposals on the transactional side of the legal profession and the role of lawyers in consummating such transactions. We do not mean to limit the range of proposals in this area, and would welcome proposals on transactional scholarship of all types.

Request for Proposals on Innovative Methods of Teaching Transactional Law

We are planning a 75 minute plenary session on innovative methods of teaching transactional law, and are seeking proposals for faculty members interested in presenting in the session. Many law professors teach transactional skills in a variety of contexts, from stand-alone "Deals" or Business Planning courses to in-class exercises as part of doctrinal classes. A number of law schools have developed innovative courses or programs in transactional law. We are interested in hearing discussion of the various approaches with an eye towards discovering what works and what doesn't. To anchor the discussion, participants may wish to explore how they use (or choose not to use) case studies as a method for teaching transactional law. We welcome proposals from faculty members who wish to share their insights on using case studies and other innovative techniques and the manner in which those techniques enhance student development of transactional skills. As with the request for works-in-progress, we do not mean to limit the range of proposals in this area.

Submission Guidelines

Interested faculty should submit a 300-500 word written proposal of the proposed work-in-progress or proposed presentation not later than July 15, 2008. Faculty may submit proposals for both the work-in-progress and the presentation. In addition, as noted above, faculty who has submitted proposals in connection with the Business Association's Request for Proposals also may submit to the Program on Transactional Law. Please submit the description by email to transactional@aals.org. The presentations will not be published.

Chosen presenters must register for the Workshop and will be responsible for their own travel and other expenses. Any questions should be directed to Professor Lisa M. Fairfax, University of Maryland School of Law, Lisa M. Fairfax.

Tennessee Enacts Revised UCC Article 1; Illinois SB 2080 Makes Further Progress

On May 15, Tennessee Governor Phil Bredensen signed SB 3993, subsequently designated Chapter 930, making Tennessee the thirty-third state to enact Revised UCC Article 1 since the ALI and NCCUSL promulgated it in 2001.

Prospects look reasonably favorable for Illinois to follow suit in the near future. The Illinois Senate unanimously passed SB 2080 on April 9. On May 20, the Illinois House Judiciary Committee recommended passage and the bill was placed on the House's "short debate" calendar. On May 23, the House extended the final action deadline until May 31.

Revised Article 1 is already in effect in twenty-eight states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Indiana, Iowa, Kentucky, Louisiana, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Rhode Island, Texas, Utah, Virginia, and West Virginia. It will take effect in Pennsylvania on June 15 and in Kansas, South Dakota, Tennessee, and Vermont on July 1.

As I have discussed previously, the two primary bones of contention during the enactment process have been uniform R1-301's choice-of-law rules and uniform R1-201(b)(20)'s "good faith" definition. None of the thirty-three enacting states has adopted uniform R1-301; instead, all have chosen to either leave their pre-revised 1-105 in place or to enact a substitute 1-301 with language consistent with pre-revised 1-105. (Louisiana subsequently amended its substitute 1-301 to diminish the distinction between choice-of-law rules applicable to UCC and non-UCC transactions; but, a fuller exploration of that amendment is another topic for another day.) There had been less uniformity with regard to defining "good faith." Twenty-three states have enacted uniform R1-201(b)(20)'s "honesty in fact and the observance of reasonable commercial standards of fair dealing" definition; while ten states — including Tennessee — have retained pre-revised 1-201(19)'s "honesty in fact in the conduct or transaction concerned" definition, reserving the requirement of commercial reasonableness for merchants under 2-103(1)(b) & 2A-103(3). If enacted as it currently reads, Illinois SB 2080 would make uniform R1-301 0-for-34 and would make Illinois the eleventh enacting state to retain the bifurcated good-faith standard.

Loaded Questions

On April 2, the Institute for Legal Reform released the results of a consumer survey that indicated consumers oppose legislation regulating the use of binding arbitration in consumer disputes (the proposed Arbitration Fairness Act). The telephone poll found that 71 percent of likely voters oppose efforts by Congress to ban arbitration agreements from consumer contracts. 82 percent actually prefer arbitration to litigation as a means to settle a serious dispute with a company. The American Association for Justice says its survey shows the opposite. 81 percent of Americans express disapproval of mandatory binding arbitration. 64 percent of voters favor the legislation, 26 percent oppose it. How can this be?

Here's one of the statements made as part of the American Association for Justice poll:

"As you may know, consumers are sometimes required to sign a contract with a company when they buy certain services or products such as automobiles, cell phones, or nursing home care. Today, these contracts often include a binding arbitration provision, which says that the consumer agrees to have any dispute with the company decided by an independent arbitrator in binding arbitration, rather than by a judge or jury in a civil legal proceeding. Do you approve or disapprove of these binding arbitration provisions in consumer contracts?"

Now here's one from the Institute for Legal Reform poll:

"Now suppose for a moment you had to sign a contract with a company when you purchased their goods or services. If you could choose the method by which any serious dispute would be settled between you and the company, which would you choose? Arbitration, which does not require going to court ...or... Litigation, which does require a lawsuit and going to court. "

Hat tip to Consumer Law and Policy Blog.

Neither statement provides an intelligent person with the information necessary to answer the question. If I ever get a call from a poll taker, I'd want to know what my "right to go to court" costs me in terms of the price I pay for consumer goods and services. I'd ask about the odds for consumers in arbitration vs. judicial resolution of their disputes. I'd want to know what was in it for me — apart from empty rhetoric about my right to "go to court" or vague inferences about the relative "fairness" of arbitration vs. adjudication. And, in the extremely unlikely event that I did not hang up on the poll taker within seconds after he mispronounces my name, I'd resent being used as a tool for others whose stake in the controversy dwarfs that of the average consumer.

Good results for Visa

Despite troubles in the economy and the financial sector generally shares of Visa are up forty-six percent (46%) since going public just two months ago. Quarterly profits for Visa came in at $314 million, or 52 cents a share. Not bad results. The position of Visa and Mastercard is different from Discover and American Express in that the two former companies do not lend money to consumers. Visa and Mastercard only process charges made by companies that use their systems. Since they don’t lend, Visa and Mastercard don’t assume the risk of consumer default during harsh economic times. Instead, that risk is taken by the banks that issue the cards. It would seem that these companies should experience business success so long as people continue to use their credit and debit cards with the Visa and Mastercard label.

For my part, I often find little cash in my wallet. No worries. I know that I will be using the ‘ole debit card to pay for gas, groceries and the like. About half of Visa’s profits come from debit card purchases (a quarter for Mastercard). As payments become increasingly dependent on electronic systems, Mastercard and Visa should continue to do well. Of course, there is that nagging issue of the staggering consumer debt that could dull the continued success of the system operators. The primary issue that comes to my mind, though, is that of the per transactions fees Visa and Mastercard set for merchants and banks that use their systems. Will Visa and Mastercard begin to turn profits that resemble the big oil companies? Should the government regulate the fees set by the system operators?

Although more than twenty countries, including the EU and Australia, have taken up the interchange fee issue in terms of anti-competitive behavior, the issue is not resolved here in the United States. About $30 billion of interchange revenue is at stake according to a recent report by the Kansas City branch of the Federal Reserve Bank. The many lawsuits over the fees have been consolidated before the U.S. District Court of the Eastern District of New York for trial later this year. Moreover, the “Credit Card Fair Fee Act of 2008” is currently pending in Congress. This seems to set up the classic conflict between market forces and regulation. With a recent National Retail Federation report that the interchange fees cost families about $400 per year, I find myself surprisingly drawn to the idea of regulation. Hidden fees always get my ire going. Just something else for me to think over as I pull out my debit card to fill up the gas tank again.

Phishing in International Waters: The New Phace of Organized Crime

The U.S. Justice Department and Romanian authorities announced two federal indictments (C.D. Cal. and D. Conn.) against 38 people who allegedly participated in two international phishing operations with ties to organized crime. The charges include conspiracy to violate the Racketeer Influenced and Corrupt Organizations (RICO) Act, and a host of hacker crimes such as conspiracy in connection with account access devices (credit or debit cards), unauthorized access to a protected computer, bank fraud and aggravated identity theft. U.S. Attorney for C.D. Cal., Thomas O'Brien said experts estimate losses at more than $3 million.

Romanian based "suppliers" phished for and obtained credit and debit card account data and personal information from cardholders by baiting more than 1.3 million e-mails. The "suppliers" sent the data to U.S. based "cashiers" who did the tech work, encoding the account data onto magnetic strips on access devices (including hotel key cards that work nicely for this purpose). "Runners" tested the cards and used the ones that worked to draw cash. U.S. participants took a cut and transferred the balance to the Romanian suppliers.

International organized crime is deep into the world payment system and just about everything else. Last month, U.S. Attorney General Michal Mukasey announced the Justice Department's Law Enforcement Strategy to Combat International Organized Crime . He said that mafia-style organized crime as Attorney General Robert Kennedy saw it in 1961 is a thing of the past. Organized crime is international, but that's not all. "They are more sophisticated, they are richer, they have greater influence over government and political institutions worldwide, and they are savvier about using the latest technology, first to perpetrate and then to cover up their crimes. . . . They touch all sectors of our economy, dealing in everything from cigarettes to oil; clothing to pharmaceuticals. These criminals invest some of the millions they make from illegal activities in the same publicly traded companies as we hold in our pension plans and 401(k)s. They exploit the internet and peddle their scams on eBay, and they're responsible for a significant chunk of the spam email we get."

Leave the gun. Take the cannoli. (Clemenza to Rocco)

Testing Secured Transactions Part II

My exams are all taken and graded now, so I wanted to report back my observations from my earlier post on Testing Secured Transactions. I ended up using a three hour examination with 30 true/false questions and five short answer essays. I actually offered up six short answer essays with the students getting to pick five to answer. The true false questions included all the basics of creating and perfecting security interests and priority. Topics on the short answer essays included: double debtors; new debtors; powers of the bankruptcy trustee; PMSI’s and general collateral descriptions in preexisting financing statements; and priority, proceeds, accounts and chattel paper. I must have had old-time television on my mind, as many of the hypos involved Gilligan's Island, Green Acres and Spiderman. Oh, and a little bit of politics thrown in too. After all, it was the "season" in Pennsylvania as I was drafting this exam.

The exam certainly was hard and rigorous from a time perspective. That said, I am a big believer in law school examinations serving the dual purpose of testing and teaching. I would certainly use this format of examination again. The true false gave me coverage of differing fact patterns, as did the short answer. The students had many situations to contend with, but also had to draft some short essays (typically about a page each) and cite to the appropriate code provisions. As for student performance, with a few exceptions, the students tended to do about the same on each part of the examination. The students who did well on the true/false mostly did about the same on the short answer essay.

Overall, I was also pleased with the quality of the answers given by the students. The rules of double debtors and new debtors probably gave the students the most trouble, but this did not surprise me. I find that the rules of 9-325 and 9-326 are hard for students to grasp (even with the examples in the code). But I did give the students a hint in the review session that these rules might appear on the examination. The next time I teach Secured Transactions, I will be mindful of my approach on these issues to see if there are better ways to make this easier for the students. With this exception, though, I am confident that the students do understand the basics of Article 9.

Most of my students this year will be taking the bar examination in Pennsylvania where Article 9 is no longer on the bar exam. But as these issues come up routinely in practice, the examinations give me confidence that they will be able to solve these issues when they arise. I would use this format of examination again, though it was a close call to pair multiple-choice with a long format traditional essay. I hope that you all had a good semester and have your grading done (or at least almost).