Thursday, March 27, 2014

Skeptical about Bitcoin: No Old White Man Here

Warren Buffet advised investors to stay away from Bitcoin, dubbing it a "mirage."

Yet, he took some hits from capitalist Marc Andreeseen for being an "old white m[a]n crapping on new technology [he doesn't] understand."   See Bitcoin: Both Buffet and Andreeseen are Right

But, about three years ago, I said much the same thing, commenting there are "no quick fixes or easy roads to avoid market volatility and economic instability."  See, What is a Bitcoin? Where Did My Bitcoin Go?  I see Bitcoin much in the way that Buffett does, basically it is a way to transmit money.  It is not a currency of the sort that we expect to be backed by government.  The IRS has come out explicitly and classified the Bitcoin as not a currency, but property.  See IRS: Virtual Currency Guidance

If investors expect to make money investing in Bitcoin, there would be costs on the users of the system, much in the way that the credit and debit card system works.  But, I have more confidence that losses arising under the debit and credit card system are not ordinarily borne by the consumer.  Moreover, those investing in the Bitcoin system expecting their investment to rise would be wise to remember that any investment is speculation.  It is reminiscent to me of Gordon Gecko's reminder in Wall Street: Money Never Sleeps:

Back in the 1600s, the Dutch, they got speculation fever to the point that you could buy a beautiful house on a canal in Amsterdam for the price of one bulb. They called it 'Tulip Mania.' Then it collapsed. You could buy 10 bulbs for two dollars. People got wiped out, but who remembers?

But, I seem to recall a whole lot of people recently losing money on Bitcoin.  See, Bitcoin's Mt. Gox Goes Offline.  Perhaps my memory is starting to fade with old age.

- JSM    

Tuesday, March 25, 2014

Determining Predominate Purpose in Multiple Transaction Dealings

Its the time of the year for the ABA's Sales Survey that will come out by August.  Each year, there are noteworthy cases involving the scope of Article 2.  Deciding whether Article 2 of the U.C.C. applies, of course, rests on whether the transaction involves a sale of goods under 2-105.  In many cases this determination is pretty straightforward, but is complicated when there the transaction is one with mixed goods and services.  In such cases, most courts employ the predominate purpose test to see whether the goods or services aspect of the transaction eclipses the other.  See, Predominate Purpose Test Still Predominates.  This inquiry is more complicated, though, when the dealings of the parties involves multiple transactions.

Such was the case in Whitecap Investment Corp. v. Putnam Lumber & Export Company,  where the District Court for the Virgin Islands considered whether certain transactions involving lumber were sales of goods.   Great Southern Wood Preserving, Inc. (“GSWP”) and Putnam Lumber & Export Company (“Putnam”) contracted for the treatment of lumber by GSWP, which Putnam would resell to others, including Whitecap Investment Corp. (“Whitecap”).   As there was no overriding contract, GSWP and Putnam would enter into each transaction independently, with GSWP providing treatment services only in nearly all cases.  Putnam would purchase wood and provide it to GSWP for treatment in accord with the customer’s specifications.  In some transactions, GSWP would also sell to Putnam its own lumber, treated according to industry specifications.   Following a dispute over the premature decay of the lumber, Whitecap filed suit against Putnam for breach of contract and breach of warranty, and Putnam filed a cross–claim against GSWP for indemnity and contribution.   On GSWP’s motion for summary judgment, it argued that it was entitled to summary judgment on any breach of warranty claim that arose under Article 2 because GSWP claimed it sold no goods to Putnam.   The court denied the motion, holding that since the parties did not have one overriding agreement, the court would need to examine each transaction separately to determine if the sale of goods predominated.    As some of the contracts did involve the sale of lumber governed by Article 2, summary judgment was improper.

The lesson of this case is that the structuring of the parties overall arrangement can make a difference in coverage by Article 2 in mixed goods/sales transactions.  Surely, those transactions that involved only sales of treated lumber would be sales of goods for purposes of Article 2.  It would seem on the facts at summary judgment that the other transactions that involved lumber treatment only would not be transactions in goods under Article 2.  Viewing the transactions independently is more time consuming from a fact perspective and may lead to a different outcome on than if the parties had one overriding contract under which there were isolated sales, but predominantly treatment services contemplated and delivered by the provider. 


Monday, March 24, 2014

CFPB takes on Predatory Student Loan Practices

The Consumer Financial Protection Bureau (“CFPB”) recently filed a lawsuit against ITT Educational Services (“ITT”) for predatory student loan practices. See CFPB Press Release.  The CFPB complaint makes a number of allegations against ITT under the Truth in Lending Act ("TILA"), including:
  1. pressuring students into high interest loans without affording them the opportunity to understand their loan obligations;
  2. offering credits that are non-transferable to community or non-profit colleges;
  3. misleading students into thinking that they would be securing gainful employment after graduation in order to payoff their private loans; and
  4. knowing that a majority of the students would default on their private loans.
Apparently, the Securities and Exchange Commission ("SEC") is also looking into the practices of ITT and some of the state attorney generals are also investigating its practices.  See, WSJ Online

Investigation into ITT is hopefully just the beginning into the lending practices involving students.  It is not unusual that students have very high student loan balances that take a long time to pay or they struggle with at times.  This is especially true for graduates who are unemployed or underemployed.  See, American Student Assistance, Student Loan Debt Statistics. Yet, the protections afforded to borrowers under the Credit Card Responsibility and Disclosure Act ("CARD Act") in terms of account statement disclosures and loan transparency were not extended to student borrowers.  This is true in the face of complaints from consumers about receiving account statements and documentation upon request.  Moreover, students do not get regular billing statements while they are in school since they are not in repayment.  The same strong tabular disclosure that is the gold standard in other areas surely should apply in the student arena.  Plenty of fodder for the CFPB to tackle.

- JSM (with Ray Alvarez)

Tuesday, March 18, 2014

Auto-Bill Pay Can Pay Your Bills Even After You are Dead

In a news story that looks like it should be reported in a law school casebook, a Detroit woman died in her home, yet her bank continued to pay the automatic payments from her account until the money ran out. Then came a foreclosure on her home.  All of this occurred over a period of about six years. 

A few points worthy of discussion beyond the obvious problem that her family and friends were not able to discover her death. First, is that the perpetual nature of recurring payments may result in payments to creditors proceeding even after death. In terms of the basic assent and authorization of the payments from the account under U.C.C. 4-401, it would seem to be a valid question whether she continued to "authorize" these payments under the properly payable rule after death.  Second, a contractor discovered the death after authorities foreclosed on the house due to non-payment of taxes.  One of the lingering issues with foreclosures is the access to the property available to buyers, contractors and even governmental agents.  One might wonder how the foreclosure possibly proceeded without any response from her or suspicion as to the reality of her demise.

ABC US News | ABC Business News


International Conference on Contracts Proceedings

Video from the proceedings the of the International Conference on Contracts are now available in case you miss the conference this year. One of the more interesting presentations was the planetary session where Kingsley Martin of KM Standards spoke about how technology will change the way that lawyers practice as it allows for the emergence of contracts standards in a variety of key agreements that attorneys use. Kingsley used the analogy of physicians using MRI machine to show how the work of attorneys will also be aided through technological developments. I agree with him that technological advances in the law are going to continue to impact the practice. Not only does this have the possibility of making agreements better for clients, but should also increase the availability of legal services in the contract area to a greater number of clients. I will be looking forward to seeing how his product ultimately changes the way my students will draft a variety of contracts for clients.