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A carefully-worded “non-disparagement” clause can limit a former employer’s potential exposure.  See Gallo v. Mayo Clinic Health Sys.-Franciscan Med. Ctr., Inc., No. 17-1623, slip op. (7th Cir. Nov. 1, 2018) (af­firm­ing summary judgment in favor of former employer).  According to the Seventh Circuit:

  • Dr. Gallo, a dermatologist, resigned from the Mayo Clinic after less than a year due to “performance issues and conflicts with her supervisor[.]” Id., slip op. at 2. The parties signed a separation agree­ment, which included a pro­vi­sion (quoted below) specifying what Mayo could say in re­sponse to future employers’ reference requests.
  • Several years later, as part of seeking a job at a suburban health center in New York, Dr. Gallo applied for privileges at the Mount Sinai hospital, which sent a routine credentialing form to Mayo.
  • Dr. Gallo’s former supervisor filled out the Mount Sinai credentialing form and rated Dr. Gallo as “fair” in two areas: “accepting feedback and ability to work with others.”  Id. at 3-4. (The former supervisor later followed up with an email stating that he rec­om­mended Dr. Gallo and thought she was a good physician but that he was not willing to artificially inflate his rating of her. Id. at 4.)
  • Some months later, Dr. Gallo received her license to practice medicine in New York; her prospective employer sent her a new form of employment contract. Id. at 4.
  • Ultimately, though, the prospective employer rescinded its job offer to Dr. Gallo “because of her over-demanding neg­o­t­i­a­tions and the av­ail­a­bil­ity of another individual to take the position.”  Id. at 12.
  • Dr. Gallo sued the Mayo Clinic for allegedly breaching the separation agree­­­ment pro­vi­sion concerning the reference letter. The district court granted summary judgment in favor of Mayo; the Sev­enth Circuit affirmed the lower court’s decision — after discussing in some detail just why Dr. Gallo didn’t get the job.

This is interesting from at least two perspectives:

First: Dr. Gallo lost her case in part because Mayo didn’t actually breach the rele­vant pro­vi­sion in her separation agreement, which the Seventh Circuit quoted:

The parties have agreed upon a letter of reference for Employee to be pro­vi­ded to potential employers seeking a reference. The letter of reference is at­tached hereto as Exhibit A and incorporated herein… . Employer will state nothing that will be inconsistent with the letter of reference (Exhibit A) at­tached hereto. No reference will be made to any performance issue and nothing derogatory will be stated.

Id., slip op. at 2.

Second:  If you sue for breach of a non-disparagement clause, you might lose in court — and you might not like the resulting public record.  Here, in a var­i­a­tion of the “Streisand effect,” Dr. Gallo will now have the Seventh Circuit’s dis­cussion of her job history as part of her permanent personal record on the Internet.

(Cf. the right to be forgotten, which has taken hold in some areas of Europe but not so much in the U.S.)

 

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A business lawyer and his business partner started a “vaping” wholesale busi­ness. The lawyer orally hired a photographer at $800 per day to take pictures of e-cigarette hardware, supplies, and liquids — but then the vaping company didn’t pay the photographer’s $2,400 invoice; instead, the partners asked the photographer to reduce his price in return for the promise of more work in the future. (The photographer declined their offer.) The state supreme court upheld a judgment that the lawyer was personally liable for the $2,400, on grounds that the lawyer hadn’t disclosed that he was acting as agent for his com­pa­ny. Thomas Grady Photography, Inc. v. Amazing Vapor, Ltd., No. S-17-818 (Neb. Oct. 26, 2018).

Possible lessons:

  • Some parties will try to re-trade a deal (that’s putting it politely); it’s not uncommon for first-time customers or -clients to try the gambit, “I know we agreed to pay you $X, but if you’ll reduce the price now, we’ll give you more business in the future.”

(I’m probably dating myself, but Wimpy’s famous phrase from the Popeye cartoons comes to mind:  I’ll gladly pay you Tuesday for a hamburger today.)

  • The photographer might have helped his case if he’d sent the customer even a bare-bones advance email confirmation that set forth: (i) what the photographer was going to do, and (ii) what the cost would be.
  • It’s interesting that the lawyer-vaping partner, faced with personal liability, elected to take the case to trial and then all the way to the state supreme court. The supreme court’s opinion doesn’t shed any light on why the lawyer didn’t just pay the photographer’s $2,400 invoice.
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For several years, global accounting firm KPMG did audits for a county-owned community hospital in Mississippi. After switching firms, the hospital sued KPMG for malpractice.  KPMG invoked an arbitration clause contained in the firm’s signed en­gage­ment agreements with the hospital.  The trial court, how­ever, denied KPMG’s motion to compel arb­i­tra­tion, on grounds that the terms of the engagement agreements were not sufficiently “spread upon the min­utes” of the hospital’s board of trustees as required by state law. The state’s supreme court affirmed, observing that:

The Board failed to recite a single term and/or condition of the 2008 [audit engagement] pro­po­sal in its minutes.

For example, the minutes are silent as to the date of the letter; the term or length of the service; the scope of work or service to be performed; the fees, expenses, or charges to be paid by the hospital; and other contractual provisions, including a now disputed resolu­tion clause.

Al­though the minutes reflect that copies of the vaguely de­scribed docu­ments were included in the Board’s agendas in advance of the meeting, the min­utes are unclear what meeting the minutes are referencing, i.e., the Board’s meeting or the Committee’s meeting on May 7.

Finally, although the minutes state that the 2008 letter had been presented and in­corp­orated by reference in the minutes, the letter was not attached to the Board’s minutes.

KPMG, LLP v. Singing River Health Sys., No. 2017-CA-01047-SCT, slip op. at 4  (Miss. Oct. 25, 2018) (footnote omitted, extra paragraphing added).

The supreme court summarized Mississippi law on the point, concerning contracts entered into by public boards:

The obligations and liabilities of KPMG and Singing River cannot be de­ter­mined either by the Board’s or by the [Audit] Committee’s minutes. Ac­cord­ingly, KPMG’s 2008 letter cannot be enforced, nor can the separately at­tached dispute-resolution provision.

Id. at 15.

The supreme court was unmoved by the fact that it was the hospital board, not KPMG, that had prepared the inadequate minutes:  “It was KPMG’s folly to rely upon the Board to record the terms and conditions of the letters in its min­utes.” Id. at 20.

I did a Google search for “spread upon the minutes”; only one other non-Mississippi reference popped up, namely a 1996 Florida statute, Fla. Stat. 230.23(2), concerning the power of school boards to contract to buy property, sell it, etc.

Lesson for drafters: When dealing with any kind of governmental- or quasi-governmental entity, it might be wise to double-check the requirements for con­tracts with such entities to be binding — and then make sure those re­quire­ments are met.

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Never knew this:

But in California non-compete agreements were illegal. That prohibition had been inserted into the state’s commercial code almost by accident, in the eighteen-seventies, when California lawmakers—seeking to save time—virtually copied a set of statutes that had been proposed (and then rejected) by New York’s legislature. When California’s early legislators outlawed “every contract by which anyone is restrained from engaging in a lawful profession,” none of them could have foreseen that, a century later, their decision would transform the global economy.

Charles Duhigg, Did Uber Steal Google’s Intellectual Property?, NewYorker.com

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In a case involving a software sale gone wrong, the federal district court in Min­ne­sota provides a nice recap of how courts analyze whether or not a given soft­ware-license transaction is governed by Article 2 of the Uniform Com­mer­cial Code (which covers sales of goods):

<BEGIN QUOTE>

Article 2 of the UCC applies to “transactions in goods.”  Under Illinois law, whether a sale of software constitutes a “transactions in goods” depends on various considerations.

One consideration is the rights conferred to the purchaser by the Agreement. A transaction that nominally involves a mere license to use software will be considered a sale under the UCC if it involves a single payment giving the buyer an unlimited period in which it has a right to possession.

Another consideration is whether the components of the software package were developed from scratch.  Off-the-rack software is almost always a good. Customization or modification of a standard software product is generally considered the manufacture of a good rather than a service.

Additionally, contracts for the sale of software often include provisions of services, such as training and technical support. Where there is a mixed contract for goods and services, there is a transaction in goods only if the contract is predominantly for goods and incidentally for services.  Article 2 applies to sales of software where the ancillary services offered are similar to those generally accompanying sales of computer systems, such as installation, training, and technical support.

Here, the Agreement is the sale of software that has been customized for Prairie River’s business.

  • First, Prairie River purchased a perpetual enterprise license, meaning that Prairie River has a non-transferable right and license to perpetually access and use the Software.
  • Second, the Complaint and the Agreement suggest that the Software is a standard Procura product. Customization of the Software is considered the manufacture of the Software in this case.
  • Third, the ancillary services provided in the Agreement are the sorts of services — installation, training, and technical support — expected to accompany a sale of software.

Accordingly, the Court concludes that the Agreement governs a sale of goods subject to Article 2 of the UCC.

<END QUOTE>

Prairie River Home Care, Inc. v. Procura, LLC, No. 17-5121 (D. Minn. July 30, 2018) (denying defendant’s motion to dismiss) (cleaned up, bullets added).

Hat tip:  Richard Raysman and Elliot Magruder, Potentially Unconscionable Warranty Precludes Licensor’s Motion To Dismiss (Mondaq.com Oct. 5, 2018).

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