Law School Case Briefs: September 2016

SALLY BEAUTY CO., INC v. NEXXUS PRODUCTS CO., INC. 801 F.2d 1001 (7th Cir. 1986). CASE BRIEF

SALLY BEAUTY CO., INC V. NEXXUS PRODUCTS CO., INC.

801 F.2d 1001 (7th Cir. 1986)

NATURE OF THE CASE: Sally (P) appealed from a summary judgment for Nexxus (D) in a contract action, upon the court's ruling that an exclusive distributorship contract between D and P's predecessor was one for personal services and therefore not assignable.

FACTS: In July 1981 P acquired Best Barber & Beauty Supply Company, Inc. in a stock purchase transaction and Best was merged into P, which succeeded to Best's rights and interests in all of Best's contracts. P, a Delaware corporation with its principal place of business in Texas, is a wholly-owned subsidiary of Alberto-Culver. P, like Best, is a distributor of hair care and beauty products to retail stores and hair styling salons. Alberto-Culver is a major manufacturer of hair care products and, thus, is a direct competitor of D in the hair care market. Best had an exclusive best efforts agreement to distribute and promote D hair care products in the Texas market. D refused to continue its agreement with Best after the merger. P sued D for breach of contract and a violation of antitrust laws. D moved for summary judgment on the breach of contract claim. That motion was granted because the trial court reasoned that the contract was not an ordinary commercial contract, but a contract based upon a relationship of personal trust and confidence between the parties. P appealed.

ISSUE:

RULE OF LAW:

HOLDING AND DECISION:

LEGAL ANALYSIS:

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CONTINENTAL PURCHASING CO. v. VAN RAALTE CO. 251 App.Div. 151, 295 N.Y.S. 867 (1937) CASE BRIEF

CONTINENTAL PURCHASING CO. V. VAN RAALTE CO.

251 App.Div. 151, 295 N.Y.S. 867 (1937)

NATURE OF THE CASE: This was a suit to recover payments made to the wrong party after a written notice of assignment was made. Continental (P), assignee, challenged a decision, which affirmed a judgment in favor of Van Raalte (D), employer. P contends that D had notice of an employee's assignment of wages to P.

FACTS: Mrs. Potter owed money to a sporting goods firm which sold her account to Continental Purchasing (P). Mrs. Potter assigned her right to receive wages from her employer, Van Raalte (D), to P. P notified D of the assignment and D began deducting about $1.50 per week from Mrs. Potter's wages and paid that amount to P. D ceased making deductions from her wages when it learned of Mrs. Potter's dire financial condition. P formally notified D of the wage assignment for the second time; D did not pay the wages to P. P sued D to recover the wages paid to Mrs. Potter. The lower courts ruled in D's favor. P appealed.

ISSUE:

ALLHUSEN v. CARISTO CONSTRUCTION CORP. 303 N.Y. 446,103 N.E.2d 891 (1952). CASE BRIEF

ALLHUSEN V. CARISTO CONSTRUCTION CORP.

303 N.Y. 446,103 N.E.2d 891 (1952).

NATURE OF THE CASE: This was an action by an assignee to recover damages for a breach of contract. Allhusen (P), assignee, appealed from a judgment, which affirmed an order granting Caristo's (D) motion for summary judgment dismissing P's complaint seeking to recover from D money owing for work done by a subcontractor.

FACTS: Caristo (D) subcontracted with Kroo to do painting. The subcontract contained the following provision: The assignment by the second party (Kroo) of this contract or any interests therein, or of any money due or to become due by reason of the terms hereof without the written consent of the first party [Caristo] shall be void. Kroo assigned the rights including monies due and to become due to a third company which in turn assigned them to Allhusen (P). P sought to recover on the assignment, but D contended that the contract prohibition against assignments must be given effect.

ISSUE:

MICHAEL-CURRY CO. V. KNUTSON SHAREHOLDERS 449 N.W. 2d 139 (1989) CASE BRIEF

MICHAEL-CURRY CO. V. KNUTSON SHAREHOLDERS

449 N.W. 2d 139 (1989)

NATURE OF THE CASE: This was a dispute over the application of an arbitration provision in a contract. Knutson (D) petitioned for review of a judgment that was granted in favor of Michael (P) that reversed the trial court judgment that the arbitration clause in the parties' stock purchase agreement (agreement) did not compel, pursuant to Minn. Stat. 572.09(a) (1988), arbitration of the issue of whether the amendment to that the agreement was fraudulently induced.

FACTS: D shareholders agreed to sell the stock of D & L Building, Inc. ('D & L'), to P. P and D then entered into an amendment, which guaranteed that P would have a minimum of $125,000 profit on ongoing D & L construction projects. It also contained a provision limiting indemnity by D to P to $250,000. After the amendment was executed, P claimed the projects experienced serious losses and demanded reimbursement under the guaranty of profitability. D refused to reimburse, claiming that the losses on the projects were largely attributable to problems which arose after P purchased D & L but before the parties executed the amendment. D maintains that P knew before execution of the amendment that D & L's business was deteriorating, but failed to disclose these facts to D. D alleges that P was therefore guilty of fraud in the inducement of the amendment. The trial court issued an order on June 14, 1988 which stayed the arbitration. The court of appeals reversed the trial court, holding that the arbitration clause was broad enough to comprehend arbitration of fraud in the inducement of the amendment.

ISSUE:

TRIDENT CENTER V. CONNECTICUT GENERAL LIFE INSURANCE. CO., 847 F.2d 564 (9th Cir 1988) CASE BRIEF

TRIDENT CENTER V. CONNECTICUT GENERAL LIFE INSURANCE. CO

847 F.2d 564 (9th Cir 1988)

NATURE OF THE CASE: Trident (P) appealed a decision that dismissed P's complaint and, sua sponte, sanctioned P for the filing of a frivolous lawsuit.

FACTS: Trident (P) was the partnership of an insurance company and two large law firms. The partnership's goal was to build an office building. P entered into a loan agreement for a building with Connecticut (D). The written agreement stated that P would borrow $56 million to construct an office building. The contract provided that the loan could not be paid off in the first 12 years. If P defaulted in the first 12 years, D could accelerate the payments and add a prepayment fee. The loan rate was 12.5%. After the building was completed, interest rates began to fall and P sought to repay the loan in full after four years. D refused to allow the prepayment. P brought a declaratory relief action to determine the meaning of the contract. Despite the clear meaning on the face of the contract, P claimed that the parties had intended to allow prepayment at any time if a penalty was paid. At the hearing, P was not permitted to present parol evidence of the meaning of the contract but at the same time admitted that the contract was unambiguous. The court dismissed the suit and imposed sanctions against P for filing a frivolous lawsuit. P appealed.

ISSUE:

PACIFIC GAS & ELEC. CO. V. G. W. THOMAS DRAYAGE & RIGGING CO. 69 Cal.2d 33, 442 P 2d 641 (1968) CASE BRIEF

PACIFIC GAS & ELEC. CO. V. G. W. THOMAS DRAYAGE & RIGGING CO.

69 Cal.2d 33, 442 P 2d 641 (1968)

NATURE OF THE CASE: Drayage (D) appealed from a judgment holding that an indemnity clause covered damages to all property, regardless of ownership, in Pacific's (P) action to recover damages to property under the indemnity clause.

FACTS: G.W. Thomas (D) contracted to replace an upper metal cover on Pacific's (P) steam turbine. D agreed to do the work 'at its own risk and expense and to indemnify' P against 'all loss, damage, expense, and liability resulting from injury to property' or from any act of D connected with performing the contract. D agreed to procure not less than $50,000 in insurance to cover liabilities for injuries to property. P was to be listed as an additional insured. A cover fell and damaged an exposed turbine rotor. The damage would cost $25,144.51 to fix. D refused to pay for the damage and P sued. D offered proof that the indemnification of property was supposed to be for third parties only and was not to cover P's property. This proof was in the form of admissions by P's agents and of the course of dealing between P and D. After determining that the contract had a plain meaning, the court refused to admit any extrinsic evidence that would contradict its interpretation. The court awarded P damages; the contract had a plain meaning such that D's parol evidence was not admissible. D appealed.

ISSUE:

W.W.W. ASSOCIATES, INC. V. GIANCONTIERI, 566 N.E.2d 639 (1990) CASE BRIEF

W.W.W. ASSOCIATES, INC. V. GIANCONTIERI

566 N.E.2d 639 (1990)

NATURE OF THE CASE: W.W.W. (P) brought an action for specific performance against Giancontieri (D). The Appellate Division of the Supreme Court reversed the trial court's order granting summary judgment to P after considering extrinsic evidence regarding the history of a clause allowing either party to cancel the contract. P appealed.

FACTS: Ds were owners of a two-acre parcel of land and they contracted for its sale to P a real estate investor and developer. The purchase price was fixed at $750,000 with $500,000 to be secured by a purchase money mortgage payable two years later. The parties signed a printed form Contract of Sale supplemented with several of their own paragraphs. They added a reciprocal cancellation provision and another paragraph gave P alone the unconditional right to cancel the contract within 10 days of signing and that option again to cancel at closing if D was unable to delivery building permits for 50 senior citizens housing units. It was taken as fact that D had been served with process concerning the real property in question. The contract did not close on December 1 and as June 1, 1987 neared with the litigation still unresolved, P wrote D on May 13 telling D that it was ready to close on May 28th and P also sued for specific performance on May 13th. On June 2, 1987, D canceled the contract and returned the down payment, which P refused. D sought summary judgment; the contract gave him an absolute right to cancel. P's claim to specific performance rested upon its recitation of how paragraph 31 got into the deal. The details of that affidavit are on page 588 Farnsworth 6th; D was doing nothing to defend a lis pendens lawsuit against the property and was just waiting until it could cancel on June 2nd. D made no response to these assertions but relied solely on its right to cancel in the contract. D got the motion granted and the trial court dismissed the complaint. The appeals court reversed granting summary judgment to P and directing specific performance.

ISSUE:

HUNT FOODS AND INDUS., INC. V. DOLINER 26 A.D.2d 41, 270 N.Y.S.2d 937 (1966) CASE BRIEF

HUNT FOODS AND INDUS., INC. V. DOLINER

26 A.D.2d 41, 270 N.Y.S.2d 937 (1966)

NATURE OF THE CASE: This was a dispute over the exercise of an option. Doliner (D) appealed a grant of summary judgment, which awarded specific performance to Hunt (P) in his attempt to acquire D's corporation based on a written contract option to purchase D's stock.

FACTS: Hunt (P) sought to acquire the assets of Eastern Can Company. The stock of Eastern was owned by Doliner (D). D and his family owned 73% of the stock of Eastern Can. Negotiations resulted in an early stage agreement to pay almost $6 million in cash or Hunt stock for P's stock. Several important items remained including the form of the acquisition and the negotiations were recessed for several weeks. P became concerned that D would shop its bid and requested an option for P to buy all of D's stock at $5.50 per share. The option was prepared and signed by D and the family. The option was to be exercised by giving notice on or before June 1, 1965 and if notice was not given, the option was void but if given P had to pay the price and D had to deliver the stock in seven days. P paid $1,000 for that option. D claims that when his counsel called attention to the fact that the option was unconditional he obtained a verbal understanding that it was to be used only in the event that D solicited an outside bid as was originally agreed and that P insisted that unless the option were signed in unconditional form, negotiations would terminate. P contends that there was no such condition. Following the resumption of the negotiations, and their failure, P exercised the option. D objected. P moved for a summary judgment based on the parole evidence rule. It was granted and D appealed.

ISSUE:

MITCHILL V. LATH 160 N.E. 646 (NY 1928) CASE BRIEF

MITCHILL V. LATH

160 N.E. 646 (NY 1928)

NATURE OF THE CASE: Lath (D), sellers, appealed a decision requiring them to specifically perform under an oral agreement asserting that the parole evidence struck such accessions.

FACTS: Mitchill (P), wanted to buy property from Lath (D). Across the road, on property belonging to another, D had an icehouse, which they might remove. P found the icehouse objectionable and wanted it removed. D had made an oral agreement with P that D would remove the icehouse on the adjoining property. Relying on this promise, P bought the property. The written contract was completely integrated. P moved onto the property and got her deed and spent considerable sums improving the property for a summer residence. D refused to remove the icehouse that next spring as promised. P sued to compel removal under specific performance. Judgment was entered for P. The appellate court affirmed. D appealed.

ISSUE:

MONETTI, S.P.A., V. ANCHOR HOCKING CORPORATION 931 F.2d 1178 (7th Cir. 1991) CASE BRIEF

MONETTI, S.P.A., V. ANCHOR HOCKING CORPORATION

931 F.2d 1178 (7th Cir. 1991)

NATURE OF THE CASE: Monetti (P) appealed a summary judgment to Anchor (D) on P's suit for breach of a contract to purchase $27 million worth of P's goods over ten years being barred by the statute of frauds.

FACTS: P began negotiations with the Schneiders to grant the Schneiders the exclusive right to distribute P's products in the United States. P would turn over to them all of P's USA Subsidiary's (Melform) assets as part of the deal. During the negotiations, the Schneiders sold their importing firm to D. Their firm became a division of D and the Schneiders remained in charge. D sent P a telex requesting preparation of an agreement 'formalizing our exclusive for the United States.' P terminated all of Melform's distributors and informed all of Melform's customers that D would become the exclusive U.S. distributor of P products on December 31, 1984. P and D met and P submitted a draft the principal provisions: D would be the exclusive distributor in the U.S., the contract would last for ten years, and during each of these years D would make specified minimum purchases of Monetti products, adding up to $27 million over the entire period. D did not sign this or any other draft of the agreement. D did prepare a memo where it agreed to everything except they also wanted Canada as part of the deal. Shortly after the meeting, P turned over to D all of the inventory, records, and other physical assets, together with trade secrets and know-how for Melform. In May 1985, D fired the Schneiders. P requested a meeting between the parties, and it was held on May 19. A memo dated June 12, 1985, from Raymond Davis, marketing director of D's food services division, to the law department of D, states that 'In the middle to latter part of 1984 Irwin Schneider and his company were negotiating an agreement with P to obtain exclusive distribution rights on Melform's plastic tray product line in the United States'; 'later, this distribution agreement was expanded to also include Canada, the Caribbean and Central and South America'; there had been many meetings between the parties, including the meeting of May 19 (at which Davis had been present); 'Exhibit A (attached) represents the summary agreement that was reached in the meeting. You will notice that I have added some handwritten changes which I believe represents more clearly our current position regarding the agreement. . . . Now that we have had our 'New Management' [i.e., the management team that had replaced the Schneiders] meeting with P, both parties would like to have a written and signed agreement to guide this new relationship.' Exhibit A to the Davis memo is identical to Attachment #1 to Steve Schneider's memo, except that it contains the handwritten changes to which the Davis memo refers. The agreement collapsed and P sued D for breach of contract. D invoked the statute of frauds.

ISSUE:

MCINTOSH V. MURPHY 469 P.2d 177 (Hawaii 1970) CASE BRIEF

McINTOSH V. MURPHY

469 P.2d 177 (Hawaii 1970)

NATURE OF THE CASE: This was an appeal from a breach of an oral one-year employment contract. Murphy (D), employer, sought review from an order, which entered judgment for McIntosh (P), former employee in a claim for breach of a one-year oral employment contract.

FACTS: Murphy (D) orally hired McIntosh (P) to work in D's auto dealership. P telegrammed D that he would arrive in Honolulu the next day from Los Angeles. P arrived and began work the next day. No writing of their oral contract was made. D fired P two months later. P sued for damages claiming that the contract was for one-year. D claimed that the contract violated the Statute of Frauds. D's motion for a directed verdict was denied. The jury verdict was for P. D appealed.

ISSUE:

SEABROOK V. COMMUTER HOUSING CO. 338 N.Y.S.2d 67 (1972) CASE BRIEF

SEABROOK V. COMMUTER HOUSING CO.

338 N.Y.S.2d 67 (1972)

NATURE OF THE CASE: Seabrook (P) filed an action against Commuter (D) for the return of a security deposit and one month's rent.

FACTS: P and D entered into a written lease agreement for an apartment in D's building. The lease and occupancy were to commence on March 1, 1972. The building was under construction. D's printed form lease contained a clause which provided that if the building was not completed on the date occupancy was to commence, occupancy would begin on the day the building was completed and the three-year period of the lease would commence with occupancy. On June 29 D notified P that the apartment would be ready for occupancy on July 1 four months after the lease was to commence. On May 12, P notified D that because of the delay in construction she was forced to vacate her premises and seek shelter elsewhere. P requested that the lease be canceled. D refused to cancel and refused to return the rent and security deposit. P sued D and testified that neither D nor his renting agent explained the construction clause to her before she executed the lease. She also testified that she was not represented by an attorney.

ISSUE:

IN THE MATTER OF BABY M 537 A.2d 1227 (N.J. 1988) CASE BRIEF

IN THE MATTER OF BABY M

537 A.2d 1227 (N.J. 1988)

NATURE OF THE CASE: The surrogate mother (D) challenged the order of the Superior Court that enforced the terms of a surrogate parent contract on behalf of father (P). D claimed that the surrogacy contract was invalid; that the trial court improperly terminated her parental rights and awarded sole custody to P, and improperly allowed the adoption of the child by P's wife, all pursuant to the terms of the contract.

FACTS: This was a contract wherein a woman agreed to be artificially inseminated with the semen of another woman's husband; she is to conceive a child, carry it to term, and after its birth surrender it to the natural father and his wife. The wife is to adopt the child and she and the natural father are to be regarded as its parents for all purposes. William Stern (P) and Mary Whitehead (D) entered into such a contract because P's wife was infertile. P agreed to pay D $10,000 on the birth of the child and another $7,500 to the Infertility Center of New York. There was no evidence that any of the parties to the contract entered under duress of any sort. However, from the moment of birth, D realized that she could not part with Baby M. D suffered substantial despair and a dispute about possession of the baby ensued wherein D regained possession and refused to give it up for over four months while she was on the run from authorities. P filed a complaint to enforce the contract. The trial court held the contract valid and ordered that D's parental rights be terminated. D appealed.

ISSUE:

WATTS V. MALATESTA 186 N.E. 210 (N.Y. 1933) CASE BRIEF

WATTS V. MALATESTA

186 N.E. 210 (N.Y. 1933)

NATURE OF THE CASE: Malatesta (D) appealed a judgment, which reversed the trial court's order granting his motion to dismiss Watts; (P) complaint and for judgment on a counterclaim, and granted judgment in favor of P for the entire amount of the wagers lost.

FACTS: The action is under section 994 of the Penal Law to recover money paid by P to D upon the event of prohibited wagers or bets. From April 28, 1928, to April 17, 1930, P had paid D, a bookmaker $37,535 for wagers lost upon a series of horse races. D presented evidence that during the same period D lost and paid to P like wagers aggregating a much larger sum. D counterclaimed for the return of monies he had lost. The trial court agreed but the Appellate Division granted judgment for the entire amount of the wagers lost and paid by P to D with nothing being returned to D. D appealed

ISSUE:

FABER V. SWEET STYLE MFG. CORP. 242 N.Y.S.2d 763 (1963) CASE BRIEF

FABER V. SWEET STYLE MFG. CORP.

242 N.Y.S.2d 763 (1963)

NATURE OF THE CASE: This was a dispute over the sale of land.

FACTS: Faber (P) was diagnosed as a manic-depressive. While in the various states of this mental disease, P did a lot of business and had plans to develop property with hotels, coops, and drug and merchandise marts. P was eventually hospitalized between transactions and during this time frame the issue of the validity of a contract he had entered into was challenged on the grounds that P was incompetent to contract. The testimony of the experts was in conflict. The issue before the court was the mental state when incompetency to contract had been reached.

ISSUE:

KIEFER V. FRED HOWE MOTORS, INC. 39 Wis.2d 20, 158 N.W.2d 288 (1968). CASE BRIEF

KIEFER V. FRED HOWE MOTORS, INC.

39 Wis.2d 20, 158 N.W.2d 288 (1968)

NATURE OF THE CASE: Fred Howe (D) appealed a decision on the issues of whether Kiefer (P), emancipated minor, was legally responsible for his contract with D, whether that contract was disaffirmed, and whether P was liable for misrepresentation.

FACTS: Kiefer (P), a 20-year-old married man with a child, bought a used car from Fred Howe Motors (D). The contract that P signed stated; 'I represent that I am 21 years of age or over.' P became dissatisfied with the car after engine trouble. P claimed the engine block was cracked. D refused to take the car back. After P turned 21 he tried to return the car. It was refused. P sued for rescission. The trial court determined that P was a minor when the contract was made and he was entitled to disaffirm that contract. The court ordered rescission. D appealed.

ISSUE:

PACKGEN V. BERRY PLASTICS CORPORATION 973 F. Supp. 2d 48 (2013) CASE BRIEF

PACKGEN V. BERRY PLASTICS CORPORATION

973 F. Supp. 2d 48 (2013)

NATURE OF THE CASE: Berry (D) moves for summary judgment claiming that Packgen's (P) claims are barred by the contractual statute of limitations.

FACTS: P sued D alleging breach of contract, breach of express warranty, breach of implied warranty of fitness for a particular purpose, breach of implied warranty of merchantability, and negligence. P manufactures intermediate bulk containers used by petroleum refineries for the transportation and storage of fresh and spent catalyst. On September 25, 2007, P sent D a purchase order for 61-inch laminated polypropylene foil. On November 26, 2007, P sent a purchase order to D requesting 48-inch laminated polypropylene. In the second half of November 2007, D told P that everything was all set with the purchase order for the 61-inch laminated polypropylene and that D had ordered the raw materials. On November 28, 2007, D sent P an e-mail concerning the purchase orders for the 61-inch laminated polypropylene and the 48-inch laminated polypropylene. The 61' order will be shipping on 12/7 and be ready to ship to P on 17th or 18th. The 48' order has not yet been scheduled for production. On December 13, 2007, D sent P an update by email: the 61' will likely ship by Monday/Tuesday and the 48' still has not shipped from Mexico. The 61-inch laminated polypropylene was received by P on December 27, 2007. On December 28, 2007, D sent P an invoice for the 61-inch material by regular, first class U.S. Postal Service mail. D attached its standard terms and conditions to the invoice. Prior to its September 25, 2007 order, on at least seven occasions when P ordered, no terms and conditions were attached or included with D's invoices. On January 17, 2008, D updated the 48-inch laminated polypropylene by email: The 48' order is in slitting and will be ready to ship tomorrow and we estimate an ETA delivery to D on Monday, 1/21. Berry shipped the 48-inch order on January 18, 2008 and P received it on January 21, 2008. On January 21, 2008, D mailed the invoice which included D's Terms and Conditions. The front of the invoice stated, 'all sales are subject to the standard terms and conditions attached herewith.' The Terms and Conditions contained a provision stating that '[t]o the extent it may apply,' the limitations period in Indiana's statute of limitations is reduced to one year. The earliest date that P would have received the invoice for the 61-inch laminated polypropylene by mail is January 2, 2008. The earliest date that P would have received the invoice for the 48-inch laminated polypropylene by mail is most likely January 24, 2008. On February 11, 2008, P submitted two non-conformance reports identifying alleged defects in the products. P claims it was not aware before the failure of Berry's goods that D's terms and conditions contained a provision reducing the statute of limitations period for claims to one year. P did not expressly agree to the terms and conditions attached to D's invoices. On December 9, 2011, P filed suit and D motioned for summary judgment as per the terms of its invoices. P claims that D accepted its purchase order offers either (a) when it purchased raw materials and began production or (b) when it shipped the finished goods to P; Since, D's 'terms arrived after the contracts were formed, P's purchase orders govern the terms of the transactions between the parties . . . [and] the four-year limitations period controls. The Court finds that D accepted P's offer within a reasonable time. P contends, the parties did not form valid contracts under section 2-207(1); rather, they formed their contracts under section 2-207(3). P argues that even if the Court determines the parties' contract was formed under section 2-207(1), D's statute of limitations term does not apply because it materially alters the contracts. P claims it was surprised by D's reduced statute of limitations term because it was inconspicuous-stapled to the back of the invoice-and D never alerted P to the term. P asserts that 'a reasonable merchant cannot be presumed to have consented to the greatly reduced limitations period. D argues that even if the contracts were formed when it shipped its terms and conditions still become part of the contract under section 2-207(2) as a confirmation sent after the goods are shipped. Because P did not seasonably object to D's terms and conditions, it argues that '[t]he additional terms included in the invoices, even if sent after shipment of goods, must be analyzed under UCC 2-207 rather than some other provision of the UCC.

ISSUE:

CALLIMANOPULOS V. CHRISTIE'S INC. 621 F. Supp. 2d 127 (2009) CASE BRIEF

CALLIMANOPULOS V. CHRISTIE'S INC.

621 F. Supp. 2d 127 (2009)

NATURE OF THE CASE: Callimanopulos (P) seeks a declaratory judgment that he entered into a binding contract with Christie's (D) for the purchase of the painting 'Grey' and that he holds title to the Work, subject to his payment of $ 3 million and any applicable fees or charges. P also sues for breach of contract and seeks performance of the contract by transfer of title and possession of the Work.

FACTS: P participated in the Auction by telephone. Casacchia curator of P's collection, and Waumboldt P's assistant, attended the Auction in person. P was connected by telephone to Jacobs. Burge was the auctioneer, who has been an auctioneer for over 34 years and has conducted more than 1,000 auctions. Heyler, the Director/Chief Curator of the Broad Art Foundation, attended the Auction as Eli Broad's representative. Broad and P were determined to bid on the Work. Heyler raised concerns about being seated in the front row because it can be a blind spot for the auctioneer. Two Christie's employees-paid attention to Heyler during the auction. Jacobs was seated at a bank of telephones located along the side wall, many rows back and to the left of Burge. Jacobs did not have a clear view of the first row of bidders. P entered a bid at $ 2.9 million. After P bid $3 million, Burge surveyed the room for other bids, before stating: 'Sold to the phone for three million dollars' and dropping the hammer. Jacobs told P that they had secured the Work. Seconds later, Jacobs informed P that Burge had re-opened the bidding and accepted a bid for $3.1 million from Heyler. P protested the re-opening through Jacobs.Burge rejected his challenge and P bid $ 3.15 million, with the intention of disputing the additional $150,000 later. Heyler bid $3.2 million, Burge called the sale to Heyler. Burge stated that at the time he called the sale to P, Christie's employees signaled to him that Heyler had raised her paddle prior to the fall of the hammer. The use of spotters to signal to the auctioneer is common practice at auctions. Burge admits that he did not see Heyler's bid. The Court reviewed a video of the relevant portion of the Auction. P moves for a preliminary injunction.

ISSUE:

MIAMI AVIATION SERVICE V. GREYHOUND LEASING & FINANCIAL CORP. 856 F.2d 166 (1988) CASE BRIEF

MIAMI AVIATION SERVICE V. GREYHOUND LEASING & FINANCIAL CORP.

856 F.2d 166 (1988)

NATURE OF THE CASE: Miami (P) appealed a decision that held Greyhound's (D) auction of an airplane and airplane engines was with reserve, thereby making it appropriate for D to bid on the items.

FACTS: This was about an auction of an aircraft and two aircraft engines. The auction was advertised by D through public notice. At the auction, the auctioneer stated that sale would be to the highest bidder and that no minimum bid would be required. P bid $1 million dollars. Thereupon, D bid $3.3 million dollars and took the aircraft and engines. The court held that the action was without reserve and D could bid. P appealed.

ISSUE:

PETTERSON V. PATTBERG 161 N.E. 428 (1928) CASE BRIEF

PETTERSON V. PATTBERG

161 N.E. 428 (1928)

NATURE OF THE CASE: Pattberg (D), bond owner, appealed a decision requiring performance of an agreement in favor of Petterson (P), executrix, from the Appellate Division of the Supreme Court in the second judicial department, asserting that the contract was not binding as a matter of law.

FACTS: Petterson, of whose last will and testament, the plaintiff is the executrix (P), was the owner of a parcel of real estate in Brooklyn. Pattberg (D) was the owner of a bond executed by Petterson which was secured by a third mortgage upon the property. On April 4, 1924 the sum of $5,450 remained unpaid. This amount was payable in installments of $250 on April 25, 1924 and upon a like monthly date every three months thereafter. There was still five more years to run before the entire sum became due. Under the date of the 4th of April, 1924, D wrote Petterson as follows: 'I hereby agree to accept cash for the mortgage which I hold against premises 5301 6th Ave., Brooklyn, N. Y. It is understood and agreed as a consideration I will allow you $780 providing said mortgage is paid on or before May 31, 1924, and the regular quarterly payment due April 25, 1924, is paid when due.' On April 25, 1924, Petterson paid D the installment of principal due on that date. A day in the latter part of May, 1924, Petterson presented himself at D's home, and knocked at the door. D demanded the name of his caller. Petterson replied: 'It is Mr. Petterson. I have come to pay off the mortgage.' D answered that he had sold the mortgage. D partly opened the door. Petterson exhibited the cash and said he was ready to pay off the mortgage according to the agreement. D refused to take the money. Prior to this, Petterson had made a contract to sell the land to a third person free and clear of the mortgage to D. Meanwhile, D had sold the bond and mortgage to a third party. Petterson had to pay the new owner the full amount of the bond and mortgage. P claimed that he thereby sustained a loss of $780, the sum which the defendant agreed to allow upon the bond and mortgage if payment in full of principal, less that sum, was made on or before May 31st, 1924. P has had a recovery for the sum thus claimed, with interest. This appeal resulted.

ISSUE:

ORLOWSKI V. MOORE 181 A.2d 692 (Pa. Super. 1962) CASE BRIEF

ORLOWSKI V. MOORE

181 A.2d 692 (Pa. Super. 1962)

NATURE OF THE CASE: This was an appeal from a dismissal of a complaint for specific performance of a real estate contract.

FACTS: Orlowski (P) sued Moore (D) and her husband and the Apollo Trust Company for the specific performance of a contract for the sale of real estate. D were the owners of property and they offered that property for sale at $5,500. There were several prospects but none was willing to pay that price. On September 1, 1959, the property was leased to P for a period of one year for a rental of $35 per month. The lease was in writing and had a provision that P had the first chance to buy in case of a sale of the property. P knew that D intended to sell the property. In the middle of January 1960, Apollo advised D that it would purchase the property for $5,000. P was notified that there was a purchaser for $5,000 and it would be sold to them unless P exercised his right of first purchase. The rent for December and January was not paid on time and at the payment of rent in February, P was again notified that the property would be sold unless P arranged for the purchase. P notified D that he had tried to secure a loan from the bank but had been unsuccessful, and that he would continue to try. D did not believe that P could secure the loan and gave an option to Apollo to purchase the property within 60 days for $5,000. Apollo exercised the option and the deed was executed and delivered to Apollo on March 9, 1960. Before title was conveyed, P notified D that he had secured the purchase money and asked that the property be conveyed to him. The trial court dismissed the complaint for specific performance. P appealed.

ISSUE:

STARLITE LIMITED PARTNERSHIP V. LANDRY'S RESTAURANTS, INC. 780 N.W.2d 396 (2010) CASE BRIEF

STARLITE LIMITED PARTNERSHIP V. LANDRY'S RESTAURANTS, INC.

780 N.W.2d 396 (2010)

NATURE OF THE CASE: Landry (D) appealed a decision which held that a lease was enforceable under the doctrine of waiver despite a condition precedent for acceptance of the lease not being fulfilled.

FACTS: Seafood House extended a written, signed offer to Starlite (P) to lease P's property. Seafood House's parent corporation, Landry's (P) executed a written guaranty of Seafood House's April 30 lease agreement that presumed D's acceptance. The written offer set out the general lease terms over its twenty-year duration. P was to execute multiple copies and returned at least one fully executed copy to Seafood House within six (6) days after the date of execution hereof by Seafood House, or the offer shall be deemed withdrawn, and this lease shall be null, void, and of no force and effect. P signed and returned five days after the deadline. Seafood House occupied and paid rent and taxes from 1998 until May 2007 when it vacated the property. P sent notices of past due amounts to P and Seafood house demanding P as guarantor pay the amounts. P sued D and moved for summary judgment. P argued that Seafood House waived its deadline for acceptance by occupying the property and paying rent. The court gave judgment to P and D appealed.

ISSUE:

SYNNEX CORPORATION V. ADT SECURITY SERVICES, INC. 928 A.2d 37 (2007) CASE BRIEF

SYNNEX CORPORATION V. ADT SECURITY SERVICES, INC.

928 A.2d 37 (2007)

NATURE OF THE CASE: ADT (D) appealed the verdict for Synnex (P) on P's negligence claim. P appealed the dismissal of its claims of breach of implied warranties, wanton and wilful misconduct, and violation of the New Jersey Consumer Fraud Act.

FACTS: P asked D to design and install a burglar alarm system for its warehouse building. After the parties reached an agreement concerning the burglar alarm system and purchase price, D's sales representative submitted a form contract to P, which they both signed on July 11, 2001. The agreed purchase price was $7,154 plus an annual service charge of $1,142 for a five-year term. The form contract contained a clause: 'This Agreement is not binding unless approved in writing by an authorized Representative of ADT.' It was never signed by an 'authorized Representative of ADT.' Two subsequent riders to the contract were executed by a person designated as an 'authorized Representative of ADT.' The form contract also contains a very broad exculpatory clause wherein P was to rely solely on its insurance for any loss from theft. P got robbed of a substantial quantity of computers and computer equipment. The intruders disabled or destroyed parts of the alarm system, including the cellular backup. After the break-in, P installed additional security features, including a two-way radio and more motion detectors in both the warehouse and control room. Mitsui Sumitomo Insurance Group, paid P $7.1 million and then brought this subrogation action against D. The complaint alleged that D had been negligent both in designing the burglar alarm system and in communicating with P after it received alarm signals on the night of the burglary. P asserted claims for breach of express and implied warranties, strict liability, wanton and wilful misconduct, negligent misrepresentation and violations of the Consumer Fraud Act. D moved for summary judgment quoting the exculpatory clause. The court ruled that the absence of the signature of an 'authorized Representative of ADT' on the original contract precluded D from relying upon the exculpatory clause. It also ruled that such a clause was contrary to public policy. The jury returned a verdict finding P and D each 50% negligent and the court and entered a judgment for $3,822,740 in P's favor. The court denied D's motion for judgment notwithstanding the verdict. Everyone appealed.

ISSUE:

INTERSTATE INDUSTRIES, INC. V. BARCLAY INDUSTRIES, INC. 540 F.2d 868 (1976) CASE BRIEF

INTERSTATE INDUSTRIES, INC. V. BARCLAY INDUSTRIES, INC.

540 F.2d 868 (1976)

NATURE OF THE CASE: Barclay (D) appealed a judgment which denied D's motion to dismiss Interstate's (P) action to recover damages for breach of an alleged contract.

FACTS: P was involved in numerous business transactions with D. Goods manufactured by D were delivered in P's facility in Indiana. On August 23, 1973, D sent a letter from New Jersey advising P that it would be able to manufacture fiberglass panels in accordance with certain specified standards. The letter included the prices and expressly stated that the 'price quotation is based on orders of 75,000 sq. ft. or more (truckload quantities) freight prepaid. Order less than 75,000 sq. ft. add $.01/sq. ft., F.O.B. Lodi.' In November, P mailed two purchase orders to D's New Jersey office with 'F.O.B. Delvd.' notations in the upper right hand corners. On January 16, 1974, D sent a letter from its New Jersey office informing P that it would be unable to provide the panels requested in the purchase orders. P sued D for breach of contract. D filed a motion to dismiss the complaint as the court lacked personal jurisdiction over D. The motion was denied. Eventually D was permitted to appeal.

ISSUE:

ZANAKIS-PICO V. CUTTER DODGE, INC. 47 P.3d 1222 (2002) CASE BRIEF

ZANAKIS-PICO V. CUTTER DODGE, INC.

47 P.3d 1222 (2002)

NATURE OF THE CASE: Pico (Ps), customers, sued Dodge (D), automobile dealer, for various statutory violations related to false advertising and deceptive trade practices. The Court granted in part, and denied in part, D's summary judgment motion. Ps and D appealed.

FACTS: D placed a newspaper ad for $0 cash Down!*' At the bottom were five lines of text, including two asterisks, in a much smaller type-face. The first asterisk was followed by the qualification: '$0 Cash Down on all Gold Key Plus pymnt. vehicles.' The main body of the advertisement, between the introductory text and the fine print, included pictorial depictions of and specific terms for fourteen different model vehicles. In each instance, the advertisement stated the number of vehicles of the particular model available at the stated terms or price and listed what appear to be their inventory identification numbers. Five of the models were listed with a cash price, while nine were simply advertised for '$0 Cash Down,' subject to varying monthly payments over various periods of time. Four of the models with a cash price could also be had for '$0 Cash down' and a monthly payment plan. The first and most prominently displayed vehicle was a 'NEW '97 GRAND CHEROKEE LAREDO,' priced at '$229 Month* 24 Mos. $0 Cash Down or $20,988.' A second asterisk in the fine print at the bottom of the advertisement read: 'Rebate and APR on select models, not combinable, prices incl. $400 Recent College Grad, $750-$1000 Loyalty Rebate on Grand Cherokees & Loyalty Rebate on Caravans & Grand Caravans on pymnts & prices & all other applicable rebates. On approved credit. All pymnts/prices plus tax, lic. & $195 doc fee.' Ps alleged that they had traveled to D's lot in response to the advertisement. One of the advertised Jeep Grand Cherokee Laredos was still available, and Ps test drove the vehicle. Ps stated they wanted to buy but were informed that they would have to make a down payment of $1,400.00. The sales agent explained that the '$0 cash down/$229 per month' offer was only available to recent college graduates who were entitled to a 'loyalty rebate.' Ps left without purchasing the vehicle. Ps sued D on a number of different grounds on a number of different amended complaints. Ps prayed for general, special, and punitive damages, as well as for specific performance (i.e., the sale of the vehicle to them as advertised). D denied that the advertisement was false or misleading. After approximately eight months of discovery, D filed a motion for partial summary judgment as to damages. The circuit court ruled as a matter of law that the Ps were not entitled to damages for emotional distress or 'benefit-of-the-bargain' in connection with their HRS 480-2 claim, but denied D's motion without prejudice with respect to other damages. D moved for summary judgment. The court rules as a matter of law, Ps had failed to establish damages. The circuit court ordered Ps to file a more definite statement regarding such claims for relief as remained in their third amended complaint. D filed a motion to dismiss the third amended complaint or, in the alternative, for a directed verdict. The court granted it, ruling that there were no genuine issues of material fact and that D was entitled to judgment as a matter of law on all of Ps' claims. D's request for costs of $3,781.25 were allowed.

ISSUE:

ARBITRON, INC. V. TRALYN BROADCASTING, INC. 400 F.3d 130 (2nd Cir. 2005) CASE BRIEF

ARBITRON, INC. V. TRALYN BROADCASTING, INC.

400 F.3d 130 (2nd Cir. 2005)

NATURE OF THE CASE: Arbitron (P) filed suit against Tralyn (D) seeking to recover damages for breach of contract. The United States District Court granted summary judgment in favor of the D and P appealed.

FACTS: P entered into a license with D to use P's listening data reports. The monthly rate of was $1,729.57 for a single station. A clause of the agreement stated that P was given the right to increase the license fee as D purchased additional stations or as entities owning additional stations purchased D. D was purchased by JMD, a Mississippi corporation. JMD also controlled at least four other stations in the Gulf port, Mississippi market. The purchase agreement between JMD and D assigned to JMD the License Agreement. Neither JMD nor D obtained P's prior written consent to the License Agreement's assignment. Nor did they provide P with notice of a change in ownership. From November 1999 until June 2002, JMD simply paid the original single-station monthly license fee ($1,729.57) directly to P. P discovered, through its own diligence, that JMD had purchased D and that the terms of the License Agreement had been breached. P notified JMD by letter that it was exercising its right to increase the monthly licensing fee under the escalation clause of the License Agreement. Arbitron determined JMD's new annual license fee by multiplying the single-station license fee ($1,779.57) by five ($8,897.85) to reflect the five JMD stations that could now share Arbitron's listener data. It then reduced that figure by 35% to reflect the typical volume discount for licenses covering five or more stations. The result was a revised monthly charge of $5,784.93. P sent an invoice for 'incomplete' payments made between October 1999 and June 2000. It also sent an invoice indicating the additional payments that would be due for the next quarter's listening reports. JMD never paid these invoices, and subsequently refused to pay anything - even the $1,779.57 due each month. P stopped sending JMD its listening data reports. P sued D and JMD for breach of contract. P sought $172,394.22, representing all moneys due under the Licensing Agreement to the end of the contract's five-year term. JMD moved for summary judgment in its favor (as well as monetary judgment against P for its decision to cease delivery of its listening reports after JMD refused to pay the increased monthly licensing fee) was now appropriate. The court granted summary judgment to JMD - but not monetary damages. The court concluded that the escalation nor any other section of the Agreement, contains any basis for determining the new rate to be paid the escalation clause was unenforceably vague under New York law. Before the power of law can be invoked to enforce a promise, it must be sufficiently certain and specific so that what was promised can be ascertained. P now challenges the district court's decision.

ISSUE:

BALFOUR V. BALFOUR 2 K.B. 571 (1919) CASE BRIEF

BALFOUR V. BALFOUR

2 K.B. 571 (1919)

NATURE OF THE CASE: This was an appeal from a contract action awarding support.

FACTS: Mr. Balfour (D) and Mrs. Balfour (P) lived in Ceylon until 1915. In 1915, they came to England on a vacation where doctors advised P to stay because of her rheumatic arthritis. D agreed to send P a specific sum of money each month until she could return to Ceylon. Eventually D suggested that they remain separated. P sued for restitution of her conjugal rights and for alimony (the amount that D has already agreed to pay). She obtained a decree nisi on July 30, 1918. On December 16, 1918, she got an order for alimony. The lower court held that the agreement was valid and gave the judgment to P. That judge held that D was under an obligation to support his wife and the parties had contracted for that support. The consent of the wife was sufficient consideration to constitute a contract, which could be sued upon. P got the judgment and D appealed.

ISSUE:

BASIC INC. v. LEVINSON 485 U.S. 224 (1988) CASE BRIEF

BASIC INC. V. LEVINSON

485 U.S. 224 (1988)

NATURE OF THE CASE: Action under Rule 10b-5. This was an appeal disputing the certification of a class action alleging a violation of Rule 10b-5.

FACTS: Basic Incorporated (D) was a publicly traded company engaged in the business of manufacturing chemical refractories for the steel industry. Combustion Engineering, Inc. expressed some interest in acquiring D, but was deterred from pursuing because of antitrust concerns. Regulatory action opened the way and Combustion representatives had meetings and telephone conversations with D officers and directors. During 1977 and 1978, Basic made three public statements denying that it was engaged in merger negotiations. On December 18, 1978, D asked the New York Stock Exchange to suspend trading in its shares and issued a release stating that it had been 'approached' by another company concerning a merger. On December 19, D's board endorsed Combustion's offer of $46 per share for its common stock, and on the following day publicly announced its approval of Combustion's tender offer for all outstanding shares. Levinson (Ps) are former D shareholders who sold their stock after D's first public statement of October 21, 1977, and before the suspension of trading in December 1978. Ps brought a class action asserting that D and its directors issued three false or misleading public statements and thereby were in violation of 10(b) of the 1934 Act and of Rule 10b-5. The District Court adopted a presumption of reliance that enabled the court to conclude that common questions of fact or law predominated over particular questions pertaining to individual plaintiffs. The District Court therefore certified Ps' class. On the merits, it then granted summary judgment for Ds. It held that, as a matter of law, any misstatements were immaterial: there were no negotiations ongoing at the time of the first statement, and although negotiations were taking place when the second and third statements were issued, those negotiations were not 'destined, with reasonable certainty, to become a merger agreement in principle.' The Court of Appeals for the Sixth Circuit affirmed the class certification, but reversed the summary judgment, and remanded the case. It held that Ds were under no general duty to disclose their discussions with Combustion, any statement the company voluntarily released could not be '`so incomplete as to mislead.'' D's statements that no negotiations were taking place, and that it knew of no corporate developments to account for the heavy trading activity, were misleading. The court rejected the argument that preliminary merger discussions are immaterial as a matter of law, and held that 'once a statement is made denying the existence of any discussions, even discussions that might not have been material in absence of the denial are material because they make the statement made untrue.' It accepted the 'fraud-on-the-market theory' to create a rebuttable presumption that Ps relied on petitioners' material misrepresentations, noting that without the presumption it would be impractical to certify a class under Federal Rule of Civil Procedure 23(b)(3). The Supreme Court granted certiorari, to resolve the split among the Courts of Appeals as to the standard of materiality applicable to preliminary merger discussions, and to determine whether the courts below properly applied a presumption of reliance in certifying the class, rather than requiring each class member to show direct reliance on D's statements.

ISSUE:

DORAN V. PETROLEUM MANAGEMENT CORP. 545 F.2d 893 (5th Cir. 1977), CASE BRIEF

DORAN V. PETROLEUM MANAGEMENT CORP.

545 F.2d 893 (5th Cir. 1977)

NATURE OF THE CASE: This case involves the so called 'private offering exception' of section 4(2) of the SEC Act of 1933, which is targeted at small corporations that wish to raise capital. In essence, the exception allows small firms to avoid the costly and time consuming process of filing a registration statement to the SEC. The registration statement is a form of disclosure to potential investors. In this case, the Court tries to balance the burden (in terms of money and time) of filing the registration statement versus the benefit of filing the statement (full disclosure to investors). Doran (P) appealed from denial of relief to rescind purchase of limited partnership interest under 4(2) of the Securities Act of 1933.

FACTS: Doran (P) bought a piece of a limited partnership and took out a loan to fund his commitment. Business declined and P defaulted on the loan. The lender (D) sued P for damages. P argues that he was not given full disclosure from the D when he took out the loan. The district court held that the sale of the partnership to P qualified under the private offering exception and P was denied relief.

ISSUE:

ROBINSON V. GLYNN 349 F.3d 166 (4th Cir. 2003) CASE BRIEF

ROBINSON V. GLYNN

349 F.3d 166 (4th Cir. 2003)

NATURE OF THE CASE: Robinson (P) sued Glynn (D), telecommunications designer, design company, and development company, alleging that D committed federal securities fraud when he sold the individual a partial interest in the development company. The District Court dismissed the claim on a motion for summary judgment. P appealed.

FACTS: D and his associates contacted P, a businessman with no prior telecommunications experience, in an effort to raise capital for GeoPhone. GeoPhone was a limited liability company. In July 1995, P agreed to loan D $1 million so that D could perform a field test of the GeoPhone system and the CAMA technology. P and D executed a 'Letter of Intent,' in which P pledged to invest up to $25 million in GeoPhone, LLC if the field test indicated that CAMA worked in the GeoPhone system. Engineers hired by D performed the field test, but, apparently with D's knowledge, they did not use CAMA in the test. Nevertheless, D allegedly told P that the field test had been a success. Consistent with the Letter of Intent, P and D executed an 'Agreement to Purchase Membership Interests in GeoPhone' P agreed to convert his $1 million loan and his $14 million investment into equity and subsequently to invest the additional $10 million. They also entered into an 'Amended and Restated GeoPhone Operating Agreement.' This detailed the capital contribution, share ownership, and management structure of GeoPhone. P received 33,333 of GeoPhone's 133,333 shares. On the back of the share certificates a restrictive legend referred to the certificates as 'shares' and 'securities.' It also specified that the certificates were exempt from registration under the Securities Act of 1933, and stated that the certificates could not be transferred without proper registration under the federal and state securities laws. A seven-person board of managers that was authorized to manage GeoPhone's affairs. Two of the managers were to be appointed by P with the remaining five appointed by D and his brother. The agreement vested management of GeoPhone in P and D based on each member's ownership share. P was named GeoPhone's treasurer, and he was appointed to the board of managers and the company's executive committee. D served as GeoPhone's chairman and was intimately involved in the company's operations and technical development. By April 1996, P sued D alleging breach of fiduciary duty, fraud, and conversion from D's mismanagement of GeoPhone funds. They settled the state court action, and entered into a 'Membership Interest Purchase Agreement.' P purchased all of Glynn's shares in GeoPhone. In 1998, P allegedly learned for the first time that the CAMA technology had never been implemented in the GeoPhone system - not even in the field test that had provided the basis for P's investment. P then filed suit in federal court, claiming violation of the federal securities laws, specifically 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The district court granted summary judgment to D, because it found that P's membership interest in GeoPhone, LLC did not constitute a security under the federal securities laws. P appealed.

ISSUE:

STONE V. RITTER 911 A.2d 362 (Del. 2006) CASE BRIEF

STONE V. RITTER

911 A.2d 362 (Del. 2006)

NATURE OF THE CASE: Stone (P), shareholders, appealed a judgment of the Court of Chancery, which granted Ritter (D), current and former corporate directors' motion to dismiss the shareholders' derivative action alleging a violation of the directors' duty of good faith regarding banking law violations. The chancery court dismissed the derivative complaint under Del. Ch. Ct. R. 23.1.

FACTS: P owned AmSouth common stock 'at all relevant times.' AmSouth, is a Delaware corporation with its principal executive offices in Birmingham, Alabama. AmSouth's wholly-owned subsidiary, AmSouth Bank, operated about 600 commercial banking branches in six states throughout the southeastern United States and employed more than 11,600 people. AmSouth and Amsouth Bank paid $40 million in fines and $10 million in civil penalties to resolve government and regulatory investigations pertaining principally to the failure by bank employees to file SARs, as required by the federal BSA The government investigations arose from an unlawful 'Ponzi' scheme operated by Hamric, II and Nance. In August 2000, Hamric, then a licensed attorney, and Nance, then a registered investment advisor with Mutual of New York, contacted an AmSouth branch bank in Tennessee to arrange for custodial trust accounts to be created for 'investors' in a 'business venture.' Nance had convinced more than forty of his clients to invest in promissory notes bearing high rates of return, by misrepresenting the nature and the risk of that investment. AmSouth agreed to provide custodial ac-counts for the investors and to distribute monthly interest payments to each account upon receipt of a check from Hamric and instructions from Nance. The scheme was discovered in March 2002, when the investors did not receive their monthly interest payments. Hamric and Nance were indicted on federal money-laundering charges, and both pled guilty. AmSouth was advised that it was the subject of a criminal investigation. AmSouth agreed to pay a $40 million fine. AmSouth failed to file SARs in a timely manner. In neither the Statement of Facts nor anywhere else did anyone ascribe any blame to the Board or to any individual director. A Cease and Desist Order required AmSouth to (among other things) engage an independent consultant 'to conduct a comprehensive review of the Bank's AML Compliance program and make recommendations, as appropriate, for new policies and procedures to be implemented by the Bank.' KPMG Forensic Services ('KPMG') performed the role of independent consultant and issued its report on December 10, 2004 (the 'KPMG Report'). FinCEN and the Federal Reserve jointly assessed a $10 million civil penalty against AmSouth for operating an inadequate anti-money-laundering program and for failing to file SARs. Fin-CEN found that 'AmSouth violated the suspicious activity reporting requirements of the Bank Secrecy Act,' and that '[s]ince April 24, 2002, AmSouth has been in violation of the anti-money-laundering program requirements of the Bank Secrecy Act.' If found that AmSouth's program lacked adequate board and management oversight,' and that 'reporting to management for the purposes of monitoring and oversight of compliance activities was materially deficient.' AmSouth neither admitted nor denied Fin-CEN's determinations in this or any other forum. P sued Ds and the chancery court dismissed the derivative complaint under Del. Ch. Ct. R. 23.1. P appealed.

ISSUE:

IN RE WALT DISNEY CO. DERIVATIVE LITIGATION 906 A.2d 27 (2006) CASE BRIEF

IN RE WALT DISNEY CO. DERIVATIVE LITIGATION

906 A.2d 27 (2006)

NATURE OF THE CASE: This is another chapter in the never ending saga of the derivative litigation over the firing of Ovitz at Walt Disney company over a decade ago.

FACTS: All of these facts are necessary. Eisner at Disney first approached Ovitz about joining Disney. Ovitz gave the cold shoulder. Then Meyers announced his decision to leave CAA, and Ovitz, concluded that to remain with the company he and Meyer had built together was no longer palatable. Ovitz became receptive to Disney. Ovitz came to believe that he and Eisner would run Disney, and would work together in a relation akin to that of junior and senior partner. Ovitz was mistaken. Ovitz owned 55% of CAA and earned approximately $20 to $25 million a year from that company. Ovitz made it clear that he would not give up his 55% interest in CAA without 'downside protection.' Ovitz would receive a five-year contract with two tranches of options. The first tranche of three million options vesting in equal parts in the third, fourth, and fifth years, and if the value of those options at the end of the five years had not appreciated to $50 million, Disney would make up the difference. The second tranche consisted of two million options that would vest immediately if Disney and Ovitz opted to renew the contract. Neither party could terminate the agreement without penalty. If Ovitz, for example, walked away, for any reason other than those permitted under the OEA, he would forfeit any benefits remaining under the OEA and could be enjoined from working for a competitor. If Disney fired Ovitz for any reason other than gross negligence or malfeasance, Ovitz would be entitled to a non-fault payment, which consisted of his remaining salary, $7.5 million a year for unaccrued bonuses, the immediate vesting of his first tranche of options and a $10 million cash out payment for the second tranche of options. Russell, a director who assisted in the negotiations expressed his concern that the negotiated terms represented an extraordinary level of executive compensation. Russell acknowledged that Ovitz was an 'exceptional corporate executive' and 'highly successful and unique entrepreneur' who merited 'downside protection and upside opportunity.' Graef Crystal, an executive compensation consultant, and Raymond Watson, a member of Disney's compensation committee also evaluated the terms. Crystal concluded that the OEA would provide Ovitz with approximately $23.6 million per year for the first five years, or $23.9 million a year over seven years if Ovitz exercised a two-year renewal option. This actually approximated Ovitz's current annual compensation at CAA. Crystal was opposed to a pay package that would give Ovitz the best of both worlds-low risk and high return. Eisner and Ovitz reached a separate agreement. Eisner told Ovitz that: (1) the number of options would be reduced from a single grant of five million to two separate grants, of three million options for the first five years and the second consisting of two million more options if the contract was renewed; Ovitz would join Disney only as President, not as a co-CEO. Ovitz accepted those terms. The next day, Disney's General Counsel, and its Chief Financial Officer, Litvack and Bollenbach, voiced concerns that Ovitz would disrupt the cohesion that existed between Eisner, and them. They indicated they would not report to Ovitz. Ovitz then became concerned about his 'shrinking authority' as Disney's future President. Eisner reassured him and Ovitz acceded the new terms. Public reaction was extremely positive: Disney was applauded for the decision, and Disney's stock price rose 4.4 % in a single day, thereby increasing Disney's market capitalization by over $1 billion. The Disney compensation committee met for one hour to consider, among other agenda items, the proposed terms of the OEA. The committee voted unanimously to approve the OEA terms, subject to 'reasonable further negotiations within the framework of the terms and conditions' described in the OEA. The Disney board met in executive session. It was told about the reporting structure to which Ovitz had agreed, but the initial negative reaction of Litvack and Bollenbach was not recounted. It would delay the formal grant of Ovitz's stock options until further issues between Ovitz and the Company were resolved. The stock options were approved. Ovitz began on October 1, 1995, the date that the OEA was executed. By the fall of 1996, however, it had become clear that Ovitz was 'a poor fit with his fellow executives.' Disney directors were discussing that Ovitz would have to be terminated. After 14 months Ovitz was terminated without cause by Eisner, resulting in a severance payout of $130 million. Attempts were made to trade Ovitz off to Sony so no severance would be owed but they failed. Ovitz even reassured Eisner that he was now a company man willing to appreciate the unique character of Disney management. Eisner even examined if Ovitz could be filed for cause or to negotiate a lower payout but they were deemed to create further legal liability. On December 10, the Executive Performance Plan Committee met and awarded a $7.5 million bonus to Ovitz for his services performed during fiscal year 1996, despite Ovitz's poor performance and the fact that the bonuses were discretionary. The Committee knew that Ovitz was to be terminated without cause. That bonus was later rescinded after more deliberate consideration, following Ovitz's termination. Disney shareholders (Ps) brought derivative actions in the Court of Chancery, on behalf of Disney. Ps claimed that the $130 million severance payout was the product of fiduciary duty and contractual breaches by Ovitz, and breaches of fiduciary duty by the Disney defendants (Ds), and a waste of assets. The Court of Chancery dismissed the original complaint in 2000. On appeal, this Court affirmed the dismissal in part and reversed it in part, remanding the case to the Court of Chancery and granting the plaintiffs leave to replead. Ps filed their second amended complaint in January 2002. Eventually, after extensive discovery, Ovitz moved for summary judgment. That motion was granted in part and denied in part in September 2004. Ps have appealed from that judgment.