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Business Law

IX. Contracts

A.      Formation, Electronic Contracts, Scope and Modification

Norcia v. Samsung Telecommunications America, LLC, _ F.3d _ (9th Cir. 2017) – The court concluded (applying California law) that a customer had not “agreed” to an arbitration provision with a cell phone manufacturer included in an in-the-box brochure. The court first considered whether it was analogous to a shrinkwrap agreement. The court concluded that California probably would enforce a shrinkwrap agreement, but that the requirements for enforcement here were not met due to inadequate notice. The court then considered the Hill in-the-box decision and concluded that California had not accepted (or rejected) this rule and that, in any event, the provision in the brochure did not become part of a contract, again due to notice insufficiencies. Finally, the manufacturer was not a party to or third party beneficiary of a contract with the service provider.

Jacobs v. Locatelli, _ Cal.App.4th _ (2017) – California law requires that an agreement for the payment of a commission for the sale of real estate must be in writing. An allegation that one of the co- owners – who signed a commission agreement – was acting for other owners who had allegedly formed a joint venture was sufficient to allow parol evidence on that issue.

Noble v. Samsung Electronics America, Inc., _ F.3d _ (3d Cir. 2017) (not precedential) – An arbitration proviso “tucked” away on page 97 of a warranty brochure included inside the box for the purchased product (a smart watch) did not give the buyer reasonable notice of the provision and was not enforceable.

Hickcox-Huffman v. US Airways, Inc., _ F.3d _ (9th Cir. 2017) – An airline’s terms of transportation were a “routine offer of a unilateral contract subject to being accepted by flying on” the airline. The passenger flew, but the baggage was not available when the passenger arrived and the passenger sought the return of her fee. The court interpreted the airline’s “commitment” that for the $15 baggage fee it would “timely” deliver the baggage to mean delivery upon arrival. The terms of transportation provide that “[t]ravel on [the airline] shall be deemed acceptance by the customer of [the airline’s] terms of transportation.” The court rejected the airline’s argument that the passenger did not have a remedy because the contract did not specify a remedy. The court stated that a “contract may be enforceable even if it does not specify a remedy for a breach.” The court also rejected the argument that a contractual limit on consequential damages also limited the availability of other damages. The court held that a return of the fee was an appropriate remedy, stating “Though restitution may be sought as an equitable remedy where there is no enforceable contract, it is also an available remedy where there is an enforceable contract that has been breached by non- performance.”*

James v. Global TelLink Corp., 852 F.3d 262 (3d Cir. 2017) – The provider of a phone system to prisoners argued that an audio statement during the telephone account set-up process referring to online terms of use were assented to by the prisoners. The court held that the terms were not reasonably conspicuous and that the terms were not reasonably accessible. Thus they did not become part of the agreement.

In re Crystal Waterfalls, LLC, 2017 WL 4736707 (C.D. Cal. 2017) – The assignee of a secured loan was bound by the original lender’s waiver of the right to collect interest at the default rate. Although the loan agreement provided that the original lender “shall not be deemed to have waived any rights . . . unless such waiver is given in writing and signed [by the original lender],” such a non-waiver clause can itself be waived if enforcing it would be inappropriate or unconscionable. In this case, the original lender had provided the debtor with an estimated payoff amount that was based on the non-default interest rate, the Purchase and Sale Agreement between the original lender and the assignee, in stating the amount owing, reflected interest calculated at the non-default rate, and the original lender continued to accept monthly interest payments from the debtor at the non-default rate until the loan was transferred.*

Shields Limited Partnership v. Bradberry, 526 S.W.3d 471 (Tex. 2017) – Although a no-implied-waiver clause can normally be waived, a term in a commercial lease providing that the landlord’s “acceptance of late installments of Rent shall not be a waiver and shall not estop Landlord from enforcing that provision or any other provision of this Lease in the future” was specific enough to prevent the landlord’s acceptance of late payments from being a waiver of default. Because the tenant was in default, the tenant had not properly exercised its contractual right to extend the lease term.

Kanno v. Marwit Capital Partners II, L.P., 2017 WL 6547078 (Cal Ct. App. 2017) – Evidence of an oral agreement by the buyer of a business to redeem preferred stock provided to the seller in connection with the sale was not barred by the parol evidence rule. Although each of the three documents executed in connection with the sale – a Contribution and Purchase Agreement; a Stock Subscription Agreement; and a Stockholder Agreement -contained an integration clause, such clauses are merely rebuttable evidence that the agreements were fully integrated. The fact there were three agreements intended to be part of the same transaction in fact demonstrated that the parties did not intend for any one agreement to be a complete integration. Moreover, the alleged existence of the oral stock redemption agreement was not inconsistent with the terms of any of the three written agreements.*

First Bank and Trust v. Fitness Ventures, L.L.C., 2017 WL 6031783 (La. Ct. App. 2017) – The trial court has sufficient evidence to support its finding that a term sheet executed by a secured party and a defaulting debtor, which provided for the secured party to take control of the debtor, run the debtor’s business, credit income earned therefrom to the secured obligation, and during such time refrain from pursuing the obligors, was merely an agreement to agree, pending completion of the secured party’s due diligence.

Thus, the secured party could pursue the obligors after the debtor lost its lease and ceased operations.

Kolchins v Evolution Markets, Inc., 28 N.Y.3d 1177 (NY 2018) – Does “mazel” mean “luck” or “congratulations” sufficient to indicate assent to enter into a contract?

Enterprise Products Partners LP v. Energy Transfer Partners LP Court of Appeals of The State of Texas., _ SW _ _ (Texas Court Appeals 2017) – A document did not create a binding agreement where it provided “Neither this letter nor the JV Term Sheet create any binding or enforceable obligations between the Parties and . . . no binding or enforceable obligations shall exist between the Parties with respect to the Transaction unless and until the Parties have received their respective board approvals and definitive agreements memorializing the terms and conditions of the Transaction have been negotiated, executed and delivered by both of the Parties. Unless and until such definitive agreements are executed and delivered by both of the Parties, either [Enterprise] or ETP, for any reason, may depart from or terminate the negotiations with respect to the Transaction at any time without any liability or obligation to the other, whether arising in contract, tort, strict liability or otherwise.”

Meyer v. Uber Technologies, Inc., _ F.3d _ (2d Cir. 2017) – A contested provision of an online agreement was enforceable where notice of the provision was “reasonably conspicuous” and where the manifestation of assent was “unambiguous”. After a detailed analysis of the screens involved, the court found both on the facts before it.

CSH Theatres, L.L.C. v. Nederlander of San Francisco Associates, _ WL _ (Del.Ch. July 31, 2018) – Oral statements will not form an agreement unless there was a “promise”. Disclaimer of fiduciary duties must be “plain and unambiguous.” The court may consider extrinsic evidence if the contract is ambiguous, which means that the contract is “reasonably or fairly susceptible” of different interpretations.

Cullinane v. Uber_, _ F.3d _ )(1st Cir 2018) (applying Massachusetts law) – As a general matter, the rules of contract enforcement that apply to written contracts apply to online contracts (“‘no reason to apply different legal principles [of contract enforcement] simply because a forum selection clause . . . is contained in an online contract.’”). The touchstone is that the terms have been “reasonably communicated and accepted”, which in turn means there is “‘[r]easonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent to those terms by consumers are essential if electronic bargaining is to have integrity and credibility.’” (emphasis in original). The court used the UCC’s definition of “conspicuous” for this purpose. The court then engaged in “contextualized” discussion of whether the particular notice was conspicuous, taking into account the kinds of factors (location and content of notice, etc.). On the facts, the court concluded that the consumers “were not reasonably notified of the terms of the Agreement.” As a result, the consumers “did not provide their unambiguous assent to those terms.”

Armiros v Rohr, 243 Ariz. 600 (Ct.App. Ariz. 2018) – Buyer who clicked “Buy It Now” button on eBay formed a contract binding the seller and was entitled to benefit of the bargain damages, even though the buyer had not yet paid for the ring subject to the contract before the seller breached the contract.

B.       Interpretation and Meaning of Agreement

Umbach v. Carrington Investment Partners (US) LP, _ F.3d _ (2d Cir. 2017) – A limited partner sought to withdraw its capital from the limited partnership. At the time that the limited partner made its request, it was entitled to do so. The LP agreement provided that it could be amended by a two-thirds vote of the limited partners and the vote of the GP. A separate provision provided that the GP could not take any action in “contravention” of the LP agreement. The requisite number of limited partners and the GP approved an amendment to the LP agreement delaying the withdrawal rights. The court held that the GP’s approval of the amendment was in “contravention” of the LP agreement and thus ineffective. The
court conceded that all amendments “changed” the LP agreement, but that this amendment was “inconsistent” with the LP agreement and therefor in “contravention” of the LP agreement. The court summarized its conclusion: “Thus, giving these terms their ordinary meanings, all amendments to an agreement are changes; but not all changes are contraventions.”

O’Connor v. Oakhurst Dairy, _ F.3d _ (1st Cir. 2017) – The absence of the Oxford comma in a list of items in a statute was interpreted to mean that the last two words should be read as a unit. Similarly the fact that all words in the list, except the last two, were gerunds gave rise to a similar interpretation. The court wryly began its opinion with “For want of a comma, we have this case.”

Spirit Broadband, LLC v. Armes, 2017 WL 384248 (Tenn. Ct. App. 2017) – Because the bill of sale for a small cable company covered “any and all assets owned by Sellers and utilized in the operation of the cable television system[ ] … including, but not limited to . . . those certain Operating Contracts listed on Schedule III attached hereto,” the seller’s contract with DirectTV was included in the sale even though the Schedule contained only the word “none.”

The bill of sale conveyed “any and all assets” and the introductory phrase, “including, but not limited to,” used in reference to operating contracts served a descriptive, not a restrictive, function.

Lyon Financial Services, Inc. v. Illinois Paper and Copier Co., 247 F. Supp. 3d 923 (N.D. Ill. 2017) – A term in a “Partnership Agreement,” under which one party purchased copiers from the other for the purpose of leasing them to a town, by which the supplier warranted to the purchaser that all “lease transactions” are “valid and fully enforceable,” applied to the transaction with the town even though that transaction was really a sale and secured transaction, rather than a lease. The agreement had to be interpreted consistently with the parties’ intent and, given that there were only two transactions, the term had to refer to the lease transaction with the town.

United Leasing, Inc. v. Balboa Capital Corp., 2017 WL 3674926 (S.D. Ind. 2017) – Because the phrase “to Seller’s knowledge:” preceded a list of representations and warranties in an agreement for the sale of leases, it modified all of them, even though it arguably made no sense with respect to some of them. Because the buyer’s complaint did not allege that the seller knew of the defects in some lease documents, the complaint had to be dismissed.

LSVC Holdings, LLC v. Vestcom Parent Holdings, Inc., 2017 Del. Ch. LEXIS 865 (Del. Ch. 2017) – Court may consider extrinsic evidence when contract’s plain meaning, in the context of the overall structure of the contract, is susceptible of more than one reasonable interpretation.

Plaze v. Callas (Del.Ch. March 29, 2018) – “In giving sensible life to a real-world contract, courts must read the specific provisions of the contract in light of the entire contract.”

Kanno v. Marwit Capital Partners II, L.P., 18 Cal.App.5th 987 (2017)

– Under California and Delaware law, integration clause creates only a presumption of integration and, under facts of the matter, parol evidence allowed.

C.       Adhesion Contracts, Unconscionable Agreements, Good Faith and Other

Public Policy Limits, Interference with Contract

Poublon v. C.H. Robinson Company, _ F.3d _ (9th Cir. 2017) – The court applied the usual “sliding scale” analysis to determine if an arbitration provision in an employment agreement was unconscionable. That test requires that there exist both procedural and substantive unconscionability, where if one element is low, the other must be high. Here the only element of procedural unconscionability was the existence of an adhesion agreement. The court held that in the circumstances, the adhesive nature of the contract , without other “oppressive” facts, created a low level of procedural unconscionability, thus requiring a “high” level of substantive unconscionability (a term being “unreasonably favorable” to the other party. The court found substantive unconscionability as to some terms of the arbitration provision and did not find it as to others. The court severed those terms with a high level of substantive unconscionability and enforced the others.

The Williams Companies, Inc. v. Energy Transfer Equity, L.P., 2017 WL 1090912 (Del. Sup. Ct. March 23, 2017) – Non-delivery of opinion that was a condition to closing was not a breach where the law firm acted in good faith. An agreement in an agreement to use “commercially reasonable efforts” to cause the agreement to close required, as appropriate, the use of affirmative action and would not be satisfied by avoiding taking action that did not interfere with the transaction.

Hardwick v. Wilcox, _ Cal.App.4th _ (2017) – A lender and borrower entered into usurious notes. They then settled a dispute concerning the notes by entering into a forbearance agreement that included a release of “unknown” claims. The court held that the forbearance agreement itself was usurious (because it extended the usurious obligation) and thus it would violate public policy to allow it to release the existing usury claims. The court also held that the release of “unknown” claims did not encompass the usury claim because the borrower did not know that it had a usury claim. Applying California’s usury laws, the court reduced the principal of the loans by the full amount of interest paid.

Brinckerhoff v. Enbridge Energy Company, Inc., _ A.3d _ (Del. 2017) – A limited partnership agreement replaced traditional fiduciary duties with a contractual duty of good faith. The court held that the LPA’s general good faith standard did not displace the contractual agreements.

Family Security Credit Union v. Etheredge, 2017 WL 2200364 (Ala. 2017) – Even if the trial court correctly concluded that the arbitration provision in vehicle financing contracts was substantively unconscionable because the financier reserved the right to avail itself of the courts while forcing the borrowers to arbitrate every conceivable claim, the provision was nevertheless enforceable because there was no evidence of procedural unconscionability. By referring to “[a]ny controversy or claim arising out of or relating to this Agreement,” the arbitration provision covered the borrowers’ claims that the financier negligently failed to ensure that they obtained good title to the purchased vehicles.

D.      Risk Allocation

BNSF Railway Co. v. Tyrrell, _ U.S. _ (2017) – A corporation was not “at home” in a state where it was not incorporated or headquartered. Nor was the employment of 2,000 persons in that state enough to make the corporation “essentially” “at home”, taking into account “an appraisal of a corporation’s activities in their entirety.” Thus the courts of the state did not have general personal jurisdiction over the corporation. There might have been specific personal jurisdiction had the claims “related” to activity in the state.

In re Simplexity, LLC, 2017 WL 65069 (Bankr. D. Del. 2017) – The Chapter 7 trustee for a limited liability company stated a cause of action against the company’s principals for breach of their fiduciary duties – despite the exculpatory clauses in the debtor’s operating agreement – for their failure to file bankruptcy until after the company’s secured creditor swept the company’s deposit accounts and left the company with no funds to pay the WARN Act claims of its employees.

Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc., 2017 WL 6327110 (N.Y. 2017) – Although the seller of mortgage loans breached representations and warranties relating to some loans, the seller could not be liable for general contract damages because the sales agreement provided for cure or repurchase as the sole remedies for breach of loan-specific representations and warranties. While the seller also represented and warranted generally that the “documents . . . do not contain any untrue statement of material fact,” and the agreement did not purport to limit the remedy for breach of this provision, the alleged defects were on loan-specific and thus the provision limiting remedies applied.

Willhide-Michiulis v. Mammoth Mountain Ski Area, LLC, _ Cal.App.4th _ (2018) – A release of a duty of care is effective with respect to activities within the scope of the release. The release is not effective with respect to gross negligence.

E.       Personal Jurisdiction

Bristol-Myers Squibb Co. v. Superior Court of California, _ U.S. _ (2017) – A state does not have specific jurisdiction over a person unless the claim arises out of activity in the forum. Here the defendant did not develop or manufacture the allegedly defective drug in the forum state.

F.       Choice of Law and Forum

Rincon EV Realty LLC v. CP III Rincon Towers, Inc., 2017 WL 429267 (Cal. Ct. App. 2017) – Even though a loan agreement selected New York law as the governing law, and a contractual clause waiving the right to the jury is enforceable in New York, the agreement’s jury waiver clause was unenforceable in California litigation because it violates fundamental policy of the state and California has a materially greater interest in the matter than does New York even though California did not have an interest in the parties or the transaction.*

Madden v. Midland Funding, LLC, _ F.Supp.3d _ (S.D.N.Y. 2017) – A note provided for the application of Delaware law, which has no interest rate limit. The borrower asserted that the note was usurious under NY law. The court applied Restatement (Second) of Conflict of Laws § 187 and held that the application of Delaware law would violate a “fundamental” policy of New York. The court did not discuss whether New York had a “materially greater” interest in applying its law than Delaware did in applying its law.

In re Sterba, _ F.3d _ (9th Cir. 2017) – A promissory note provided generally that Ohio law would apply. The court applied federal common law choice-of-law rules, which generally follow the Restatement (Second), Conflict of Laws. The court applied § 142 (1988 version) and first concluded that a contractual choice-of-law provision did not apply to determine the applicable statute of limitations, unless it did so expressly. This particular provision did not. The court then concluded that the default rule was to apply the statute of limitations of the forum.

Bautista Cayman Asset Co. v. Desarrollos Bucana, S.E., 2017 WL 3610497 (D.P.R. 2017) – Language in three promissory notes, which were incorporated into a loan agreement, by which the borrowers “submit ourselves expressly to the competency of the state courts of the City of San Juan, Puerto Rico,” was a mandatory forum selection clause that bound both parties to litigate in the named courts.

Throckmorton v. Soria, 2017 WL 5793819 (Cal. Ct. App. 2017) – The seller of Mexican real property was bound by the choice-of-forum clause in the purchase and sale agreement, which selected the courts of the city of Tijuana as the exclusive forum, even though her action was based solely on the promissory note issued in connection the sale, the note was not contemporaneous with the purchase and sale agreement, and the note lacked a choice-of- forum clause.

First Home Bank v. Raut, LLC, 2017 WL 6729178 (M.D. Fla. 2017) – A creditor’s federal action in Florida on a promissory note and the associated guaranty were not subject to the Florida choice-of- forum clause in the security agreement. Consequently, there was no personal jurisdiction over the defendants, and the case would be transferred to federal court in Kentucky, where the defendants were located.

Ha Thi Le v. Lease Finance Group, LLC, 2017 WL 2915488 (E.D. La. 2017) – Even if a lease of equipment located in Louisiana would be treated as a sale with a security interest under the law of New York, a clause in the lease agreement selecting New York as the forum for all litigation was not enforceable because it violated fundamental policy of Louisiana, as expressed in the state’s Lease of Movables Act, that invalidates a consent to jurisdiction in another state or a fixing of venue.

Madden v. Midland Funding, LLC, 237 F. Supp. 3d 130 (S.D.N.Y. 2017) – Application of Delaware law pursuant to a choice-of-law clause in the parties’ credit card agreement would violate a fundamental public policy of New York because Delaware does not cap the interest rate that parties may agree to whereas New York has a criminal usury statute.

Shanghai Commercial Bank v. Kung Da Chang, 404 P.3d 62 (Wash. 2017) – A bank that had a Hong Kong judgment against a borrower could enforce the judgment against the borrower’s community property in Washington because the loan agreement chose Hong Kong law – which does not recognize community property – to govern enforcement, application of Hong Kong law does not offend Washington policy, and Hong Kong Law would have otherwise applied in the absence of a chosen law because Hong Kong had the most significant relationship to the transaction.

Orgone Capital III, LLC v. Daubenspecksw, 2018 WL 1378182 (N.D. Ill. 2018) – Forum’s statute of limitations applies to claims governed by the law of another state under choice-of-law provision.

Cita Trust Co. AG v. Fifth Third Bank, 879 F.3d 1151 (11th Cir. 2018)

– Applies statute of limitations of state whose law governs the relevant substantive claim; provision shortening statute of limitations must be “reasonable,” “clear” and “unambiguous”; one year is reasonable; provision that referred to when claim “arose” means when it “accrued.”

Petrucci v. Esdaile, 2017 WL 3080555 (Mass. Super. Ct. 2017) – Contractual choice-of-law provision determines which state’s statute of limitations applies only if it does so expressly; citing decisions in many other jurisdictions to the same effect).

Aranda v. Philip Morris USA Inc., 2018 WL 1415215 (Del. Sup. 2018) – existence of an “available alternative forum” is a factor, but not a threshold question, in forum non conveniens analysis.

Quanta Computer Inc. v. Japan Communications Inc., 2018 WL 1357461 (Cal.App. 2018) – Inbound, mandatory choice-of-forum provision based on statute still subject to forum non conveniens analysis.

In re Howmedica Osteonics Corp., _ F.3d _ (3d Cir. 2017) – Under Atlantic Marine a court generally must enforce valid forum selection clauses. When not all parties have signed a forum selection agreement, there is not personal jurisdiction over all parties, and other similar issues, the court should apply a series of factors.

G.      Damages and Remedies

Stella v. Asset Management Consultants, Inc., _ Cal.App.4th _ (2017) – An investor could not avoid the running of the statute of limitations by invoking the delayed discovery rule. A private placement memorandum gave the investor actual knowledge that the investors would bear the cost of a commission paid by the issuer to acquire property (which related to the alleged misrepresentation). The investor had notice that it should have made additional inquiry.

Wall v. Altium Group, LLC, 2017 WL 123779 (W.D. Pa. 2017) – A couple who purchased payments under a structured settlement from an intermediate buyer but who received no payments when a court vacated the order approving an earlier sale had no cause of action against the intermediate buyer for breach of transfer warranties because the initial assignment of the annuity was not a negotiable instrument and the couple was not a party to it. However, the couple did state a cause of action against the intermediate buyer for breach of contract.

Magnusson v. Ocwen Loan Servicing, LLC, 2017 WL 6261482 (D. Utah 2017) – Although credit documents provided for the borrower to pay the lender’s attorney’s fees “in enforcing the note,” in litigation that “that might significantly affect Lender’s interest in the property,” or incurred “for the purpose of protecting Lender’s interest in the Property,” the lender was not entitled to attorney’s fees incurred in successfully defending against the borrower’s action for violation of the Home Affordable Modification Program. The litigation did not involve an effort to enforce the note and did not relate to the lender’s lien on the collateral.

Coastal Investment Partners, LLC v. DSG Global, Inc., 2017 WL 3605502 (S.D.N.Y. 2017) – A corporation that provided a $72,500 promissory note with 8% interest in return for a $10,000 loan, the agreement for which provided that $62,5000 of the debt could be “redeemed” for $1 and which gave the holder a right to convert the note to equity, raised a plausible defense that the note was criminally usurious.*

In re 8110 Aero Drive Holdings, LLC, 2017 WL 2712961 (Cal. Ct. App. 2017) – An increase in a loan’s interest rate from 5.977% to 10.977% after default was an invalid penalty rather than an enforceable liquidated damages clause. The higher rate was not an alternative performance but applied only after breach. The agreement had numerous other provisions to protect the lender from the added perils and overhead costs in the event of default, including funding reserve accounts, late charges, and a broad indemnity clause, and thus the increase in the interest rate was not a reasonable measure of the lender’s damages.

Susaraba v. Bates, 2017 WL 3723366 (Tex. Ct. App. 2017) – A man who, following his divorce, remained liable for half of the debt represented by a promissory note to his former mother-in-law, was not released therefrom when his ex-wife provided to her mother a security interest in business property “in lieu of judgment.” There was no accord and satisfaction with the ex- husband because he did not sign the document. There was no release because nothing in the document unambiguously indicated that either the ex-husband or the ex-wife was released of personal liability.

White Winston Select Assets Funds, LLC v. Intercloud System, Inc., – 2017 WL 4390104 (D.N.J. 2017), appeal filed, (3d Cir. Nov. 6, 2017) – A prospective borrower that signed a term sheet for a $5 million loan from a private investment company before obtaining alternative funding from another lender was liable for the $500,000 breakup fee provided for in the term sheet. The investment company was excused from satisfying the conditions to close because the prospective borrower had made those conditions impossible to fulfill. The breakup fee was not a penalty because it was not grossly disproportionate to the $600,000 maximum return that the investment company might have obtained from making the loan.*

In re Ultra Petroleum Corp., 575 B.R. 361 (Bankr. S.D. Tex. 2017) – The make-whole premium that noteholders were entitled to upon prepayment was not an unenforceable penalty under New York law, even though the amount was enormous, but was instead an enforceable liquidated damages clause. The damages resulting from prepayment were not readily ascertainable at the time the parties entered into the Note Agreement but instead would have been all future interest under the notes minus the proceeds from reinvestment in an alternative investment. It is extremely difficult to ascertain what an appropriate alternative investment would be and it was reasonable for the parties to choose, as they did in the Note Agreement, 0.5% in excess of the yield on U.S. Treasury securities having a maturity equal to the remaining term on the notes.

Vitatech International, Inc. v. Sporn, 2017 WL 4876175 (Cal. Ct. App. 2017) – An agreement to settle a contract dispute that required the defendant to pay $75,000 and which provided that, if payment was not made by a specified date, the plaintiff could file a stipulated judgment for the $166,000 amount claimed plus prejudgment interest and attorney’s fees, created an unenforceable penalty because the defendant never admitted to liability on the underlying claim and the increase in liability for not timely paying the settlement amount was disproportionate to the harm caused.*

Russell City Energy Company v. City of Hayward, _ Cal.App.4th _ (2017) – A contract between a municipality and a private person prohibited the municipality from imposing taxes on the private person’s development and operation of a power plant. That provision violated a provision of the California Constitution that prohibited the municipality from “surrender[ing]” its taxing power. Because the clause was malum prohibitum (and not malum in se), the private party was allowed to recover money it had paid on the contract under a theory of unjust enrichment.

H.      Arbitration

Kindred Nursing Centers Limited Partnership v. Clark, _ U.S. _ (2017) – A person holding a power of attorney entered into an arbitration agreement on behalf of a person in a nursing home. The Kentucky Supreme Court held that under Kentucky law a power of attorney did not authorize the holder to waive the principal’s right to go to court unless it did so specifically. The specificity requirement did not apply to most other powers granted under the power of attorney. The Supreme Court held that the specificity requirement did not put arbitration agreements on an “equal footing” with other contracts and thus the Kentucky rule was invalid under Concepcion.

Santander Consumer USA, Inc. v. Mata, 2017 WL 1208767 (Tex. Ct. App. 2017) – A secured party sued by the debtor for actions relating to a repossession, and which moved to compel arbitration pursuant to a clause in the security agreement, could not compel the repossession agent it hired or the agent’s subcontractors to arbitrate the secured party’s claims against them for indemnification and contribution. There was no arbitration clause in the secured party’s agreement with the repossession agent, nor did that agreement incorporate by reference the terms of the security agreement.

Sanders v. JGWPT Holdings, LLC, 2017 WL 4281123 (N.D. Ill. 2017) – The individuals who sold to a factor some of their rights to payment under structured settlements were bound by the arbitration clause in their agreements.

Burcham v. Ford Motor Credit Company, LLC, 2017 WL 2773697 (S.D. Ill. 2017) – Although it was not clear whether the debtor’s class action against the secured party for failing, pursuant to a state statute, to timely release its security interest on purchased vehicles was subject to the arbitration clause in the parties’ agreement – which excepted actions to “enforce the security interest” – the issue of arbitrability was for the arbitrator because the agreement contained a “delegation provision” indicating that the arbitrator was to decide “the arbitrability of any issue.”

Sargon Enterprises, Inc. v. Browne George Ross LLP, 223 Cal. Rptr. 3d 588 (Cal. Ct. App. 2017) – Although a court may not normally review an arbitrator’s ruling for legal error, it may review an award for exceeding that arbitrator’s authority by violating one of the parties’ nonwaivable statutory rights. Accordingly, the trial court should not have confirmed an arbitrator’s award that held a party liable for breach of contract for filing a complaint despite have agreed to arbitrate. Parties have a statutory right – even if they have entered into an arbitration agreement – to bring an action in court and let the court decide whether the dispute is arbitrable.*

Harshad & Nasir Corporation v. Global Sign Systems, _ Cal.App.4th _ (2017) – A court may review an arbitrator’s decision for errors of fact or law if the parties agree to that. The court found such an agreement where the parties agreed that the arbitrator should follow the law and that any award was subject to judicial “review”. The relevant contract did not include some services mentioned during discussions because any “offer” concerning those services was not sufficiently definite. The arbitration agreement did not cover a claim for lost profits because it gave the arbitrator only power to reach a decision for amounts owed for services “performed.”

Benaroya v. Willis, _ Cal.App.4th _ (2018) – An arbitration agreement does not bind a non-party, except in limited circumstances. Only a judge (and not an arbitrator) can make the determination of whether those circumstances exist.

Epic Systems Corp. v. Lewis, _ U.S. _ (2018) – An arbitration provision can be defeated by the exclusion for revocation under other law only if the right to revocation would apply to “any” contract. This cannot be done by provisions that by “subtle” means undermine the arbitration provision.

2017-2018 Commercial Law Developments

I. PERSONAL PROPERTY SECURED TRANSACTIONS 
II. REAL PROPERTY SECURED TRANSACTIONS
III. GUARANTIES
IV. FRAUDULENT TRANSFERS AND VOIDABLE TRANSACTIONS
V. CREDITOR AND BORROWER LIABILITY
VI. U.C.C. – SALES AND PERSONAL PROPERTY LEASING
VII. NOTES AND ELECTRONIC FUNDS TRANSFERS
VIII. LETTERS OF CREDIT, INVESTMENT SECURITIES, AND DOCUMENTS OF TITLE
IX. CONTRACTS
X. OTHER LAWS AFFECTING COMMERCIAL TRANSACTIONS



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