Articles Posted in Contracts

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Former Howmedica Sales Representatives, all California natives, signed employment agreements with confidentiality, non-compete, and forum-selection clauses, designating New Jersey (or Michigan) as the forum for any litigation arising out of the agreements. After clashes with Howmedica, the Sales Representatives resigned and became independent contractors representing Howmedica’s competitor, DePuy. Some of Howmedica’s customers, previously assigned to the Sales Representatives, followed them. Howmedica suspected that the Sales Representatives and DePuy conspired to convert those customers before the Sales Representatives’ resignations. Howmedica filed suit in New Jersey, joining DePuy’s regional distributor, Golden State as a “necessary party.” The defendants successfully moved to transfer the case to California under 28 U.S.C. 1404(a), which, for “the convenience of parties and witnesses” and “in the interest of justice,” allows transfer to a district where the case “might have been brought.” The Third Circuit directed the district court to transfer claims against only the two corporate defendants who did not agree to any forum-selection clause. Where contracting parties have specified the forum in which they will litigate disputes arising from their contract, federal courts must honor the forum-selection clause “[i]n all but the most unusual cases.” In this case, all defendants sought transfer to one district; some, but not all, defendants are parties to forum-selection clauses. View "In re: Howmedica Osteonics Corp" on Justia Law

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GRC, a manufacturer and supplier of refractory products designed to retain strength when exposed to extreme heat, previously included asbestos in its products. GRC was the defendant in 31,440 lawsuits alleging injuries from “exposure to asbestos-containing products manufactured, sold, and distributed by GRC” dating back to 1978. GRC’s insurers initially fielded these claims. During the 1970s and ‘80s, GRC had entered into primary liability insurance policies with several different insurers. GRC also secured additional excess insurance policies. In 1994 GRC’s liabilities from thousands of settled claims far exceeded the limits of its primary insurance coverage. In 2002, after years of continued settlements, GRC tendered the underlying claims to its excess insurance carriers. All denied coverage on the basis of a policy exclusion: It is agreed that this policy does not apply to EXCESS NET LOSS arising out of asbestos, including but not limited to bodily injury arising out of asbestosis or related diseases or to property damage. The district court ruled in favor of GRC. The Third Circuit reversed. The phrase “arising out of,” when used in a Pennsylvania insurance exclusion, unambiguously requires “but for” causation. The losses relating to the underlying asbestos suits would not have occurred but for asbestos, raw or within finished products. View "General Refractories Co. v. First State Insurance Co." on Justia Law

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In bidding to strip and repaint the Commodore Barry Bridge, the Delaware River Port Authority (DRPA) rejected the lowest bidder, Alpha, as not a “responsible” contractor under its guidelines because Alpha failed to remit accident experience forms (OSHA 300) and insurance data (Experience Modification Factors) in its bid package. DRPA also declared that Corcon was actually the lowest bidder because of a “miscalculation” that DRPA perceived in Corcon’s bid. DRPA awarded the contract to Corcon. After its bid protest was denied, Alpha filed suit, seeking an injunction. The district court held a trial, concluded that DRPA acted arbitrarily and capriciously, and directed DRPA to award the contract to Alpha. The Third Circuit agreed that DRPA acted arbitrarily and capriciously, but concluded that the court abused its discretion by directing that the contract be awarded to Alpha. DRPA did not establish a rational basis under its policies for labeling Alpha “not responsible” and ”the decision to modify Corcon’s bid appeared out of thin air.” DRPA’s Board of Commissioners gave virtually no attention to Alpha’s protest. Alpha should be restored to competition; DRPA should evaluate Alpha’s bid and affirmatively determine, per its guidelines, whether Alpha, the lowest bidder, is a “responsible” contractor. View "Alpha Painting & Construction Co., Inc. v. Delaware River Port Authority" on Justia Law

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In New Jersey, GTL is the sole provider of telecommunications services that enable inmates to call approved persons outside the prisons. Users can open an account through GTL’s website or through an automated telephone service with an interactive voice-response system. Website users see GTL’s terms of use and must click “Accept” to complete the process. Telephone users receive an audio notice: Please note that your account, and any transactions you complete . . . are governed by the terms of use and the privacy statement posted at www.offenderconnect.com.” Telephone users are not required to indicate their assent to those terms, which contain an arbitration agreement and a class-action waiver. Users have 30 days to opt out of those provisions. The terms state that using the telephone service or clicking “Accept” constitutes acceptance of the terms; users have 30 days to cancel their accounts if they do not agree to the terms. Plaintiffs filed a putative class action alleging that GTL’s charges were unconscionable and violated the state Consumer Fraud Act, the Federal Communications Act, and the Takings Clause. GTL argued that the FCC had primary jurisdiction. Plaintiffs withdrew their FCA claims. GTL moved to compel arbitration. The district court denied GTL’s motion with respect to plaintiffs who opened accounts by telephone, finding “neither the knowledge nor intent necessary to provide ‘unqualified acceptance.’” The Third Circuit affirmed. The telephone plaintiffs did not agree to arbitration. View "James v. Global TelLink Corp." on Justia Law

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In August 2012, Aliments, a Canadian snack purveyor, contacted its American broker, Sterling, to purchase thousands of pounds of raw pistachios. Sterling contacted Pacific, another broker, which called Nichols, a California pistachio grower, who agreed to the proposed quantity and price. In September, Sterling contacted Pacific with another order from Aliments. Pacific contracted with Nichols again. Sterling sent sales confirmations to Aliments and Pacific. Pacific did not forward the Sterling sales confirmations to Nichols but issued its own confirmations to Nichols and Sterling. Neither Aliments nor Nichols was aware that two confirmations existed, with the same terms, including a 30-day credit term. However, while Sterling’s confirmations contained arbitration clauses, not all of the confirmations generated by Pacific contained arbitration clauses. Aliments believed that the Sterling confirmations, though unsigned by either party, represented binding contracts to purchase pistachios from Nichols, with payment due 30 days from delivery, “as usual.” Nichols thought that the 30-day term was but a placeholder. The parties were unable to agree to payment terms. Despite being notified of an arbitration, Nichols did not attend. Aliments was awarded $222,100 in damages. Nichols refused to pay. The district court denied Aliments’ petition to enforce the award and granted Nichols’s cross-petition to vacate because no genuine issue of material fact existed as to whether the parties failed to enter into “an express unequivocal agreement” to arbitrate. The Third Circuit vacated, finding multiple issues of fact. View "Aliments Krispy Kernels Inc v. Nichols Farms" on Justia Law

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In 2010, EFIH borrowed $4 billion at a 10% interest rate, issuing notes secured by its assets; the Indenture states that EFIH may redeem the notes for the principal amount plus a “make-whole premium” and accrued, unpaid interest. It contains an acceleration provision that makes “all outstanding Notes . . . due and payable immediately” if EFIH files for bankruptcy. Interest rates dropped. Refinancing outside of bankruptcy would have required EFIH to pay the make-whole premium. EFIH disclosed to the Securities and Exchange Commission a “proposal [whereby] . . . EFIH would file for bankruptcy and refinance the notes without paying any make-whole amount.” EFIH later filed Chapter 11 bankruptcy petitions, seeking leave to borrow funds to pay off the notes and to offer a settlement to note-holders who agreed to waive the make-whole. The Trustee sought a declaration that refinancing would trigger the make-whole premium and that it could rescind the acceleration without violating the automatic stay. The Bankruptcy Court granted EFIH’s motion to refinance. EFIH paid off the notes and refinanced at a much lower interest rate; the make-whole would have been approximately $431 million. The Bankruptcy Court and district court concluded that no make-whole premium was due and that the noteholders could not rescind acceleration. The Third Circuit reversed. The premium, meant to give the lenders the interest yield they expect, does not fall away because the full principal amount becomes due and the noteholders are barred from rescinding acceleration of debt. View "In re: Energy Future Holdings Corp." on Justia Law

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In 2008, the workers’ compensation insurance policy for South Jersey (SJ), a trash-removal business, neared expiration, SJ, through its insurance agent, entered into a three-year Reinsurance Participation Agreement (RPA) with Applied Underwriters. The RPA stated that any disputes would be arbitrated in Tortola or in an agreed location and indicated that it would be governed by Nebraska law. The RPA and its attachments total 10 pages. SJ claims that it believed the RPA was a workers’ compensation insurance policy; that Applied fraudulently presented it as such; that the RPA is actually a retrospective rating insurance policy under which premiums would be based on claims paid during the previous period; and that it was promised possible huge rebates. SJ acknowledged that Applied is not an insurer and cannot issue workers’ compensation insurance. Applied represented that SJ purchased a primary workers’ compensation policy from Continental, which entered into a pooling agreement with California; all are Berskshire Hathaway companies. The pooling agreement was a reinsurance treaty. According to Applied, the RPA was not insurance, but an investment instrument. For 34 months, SJ paid monthly premiums of $40,000-$50,000, expecting a rebate. Claims paid on its behalf were $355,000 over three years. After the RPA expired, Applied declared that SJ owed $300,632.94. SJ did not pay. Applied filed a demand for arbitration. SJ sought declaratory relief as to the arbitration provision and rescission of the RPA. The district court denied the motion to compel arbitration. The Third Circuit reversed. SJ’s challenges to the arbitration agreement apply to the contract as a whole, rather than to the arbitration agreement alone; the parties’ dispute is arbitrable. View "South Jersey Sanitation Co., Inc v. Applied Underwriters Captive Risk Assurance Co., Inc." on Justia Law

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Jani-King, the world’s largest commercial cleaning franchisor, classifies its franchisees as independent contractors. Its cleaning contracts are between Jani-King and the customer; the franchisee is not a party, but may elect to provide or not provide services under a contract. Jani-King exercises a significant amount of control over how franchisees operate and controls billing and accounting. Two Jani-King franchisees assert that they are misclassified and should be treated as employees. On behalf of a class of Jani-King franchisees in the Philadelphia area (approximately 300 franchisees), they sought unpaid wages under the Pennsylvania Wage Payment and Collection Law (WPCL), 43 Pa. Stat. 260.1–260.12. The Third Circuit affirmed certification of the class under Federal Rule of Civil Procedure 23(f). The misclassification claim can be made on a class-wide basis through common evidence, primarily the franchise agreement and manuals. Under Pennsylvania law, no special treatment is accorded to the franchise relationship. A franchisee may be an employee or an independent contractor depending on the nature of the franchise system controls. View "Williams v. Jani-King of Philadelphia Inc" on Justia Law

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Eaton manufactures truck transmissions for sale to Original Equipment Manufacturers (OEMs), which offer “data books,” listing the options for truck parts. Customer choose among the options; the OEM sources the parts from the manufacturers and uses them to build custom trucks then sold to that customer. Eaton was a near-monopolist in supplying Class 8 truck transmissions. In 1989, ZF emerged as a competitor. Eaton allegedly sought to retain its market share by entering agreements with the OEMs, with increasingly large rebates on Eaton transmissions based on the percentage of transmissions a given OEM purchased from Eaton as opposed to ZF. ZF closed in 2003. In 2006, ZF successfully sued Eaton for antitrust violations. Separately, indirect purchasers who bought trucks from OEMs’ immediate customers brought a class action; that case was dismissed. In this case, Tauro attempt to represent direct purchasers in an antitrust suit was rejected because Tauro never directly purchased a Class 8 truck from the OEMs, but rather purchased trucks from R&R, a direct customer that expressly assigned Tauro its direct purchaser antitrust claims. The Third Circuit reversed. An antitrust claim assignment need not be supported by bargained-for consideration in order to confer direct purchaser standing on an indirect purchaser; it need only be express. That requirement was met. The presumption that a motion to intervene by a proposed class representative is timely if filed before the class opt-out date applies in this pre-certification context. View "Wallach v. Eaton Corp" on Justia Law

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Plaintiffs are trust funds and employee benefit plans for construction industry employees. MRS constructs commercial buildings. In 1997, MRS signed “me-too agreements” binding it to collective bargaining agreements (CBAs) bestowing rights on Plaintiffs. Under the agreement, MRS agreed to be bound by the 1997-2001 CBA in force between a multiemployer association and the union. According to Plaintiffs, MRS also agreed to be bound by later CBAs because the 1997 agreement contains an “evergreen clause” and MRS never gave the notice required to terminate the clause. MRS conceded that it never gave notice, but denied that the letter continuously granted bargaining rights. Under each CBA, employers had to make specified contributions to various Plaintiff funds and permit audits of records relevant to those obligations. Plaintiffs sent MRS requests for audits, believing that MRS had failed to make contributions required by the 2012-2015 CBA. When MRS did not comply, Plaintiffs sought post-audit relief under 29 U.S.C. 1145 for unpaid ERISA contributions and injunctive relief compelling MRS to comply with the 2012-2015 and subsequent CBAs. The Third Circuit reversed dismissal, rejecting an argument that all me-too agreements must satisfy two criteria in order to bind non-signatories to future CBAs. Absent that requirement, the plausibility of the complaint should be assessed under contract law principles and states a plausible claim for relief. View "Carpenters Health & Welfare Fund v. Mgmt. Res. Sys., Inc." on Justia Law