Category Archives: contracts

Langley v. FDIC

484 U. S. 86

December 1, 1987

The Langleys borrowed a massive amount of cash from a local bank in order to purchase some land. When the loan came due, the Langleys refused to pay, on the grounds that the bank had allegedly lied about the size and quality of the land, though no formal writing contained this information. Eventually, the bank failed, and the FDIC took over. The FDIC tried to collect from the Langleys, arguing that they could not refuse to pay unless the alleged misrepresentations about the land were present in a formal agreement between them and the bank.

The Court backed the FDIC, and it was unanimous. Scalia wrote the opinion. Federal law said that any agreements used as a defense against loan collection had to be in writing. The Langleys claimed that the misrepresentations were not part of any ‘agreement,’ but Scalia thought otherwise. Statements about a land’s quality could be considered express warranties, and thus a component of an agreement. He stressed that the FDIC needs to be able to have certainty about their right and ability to collect when they take over a bank. He also said that agreements involving fraud could not be exempted from the general rule of requiring writing. I feel a little bit sorry for the Langleys, but must admit that the Court ruled correctly.

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Ricketts v. Adamson

483 U. S. 1

June 22, 1987

In exchange for testifying against two co-defendants in a car bombing case, Adamson would be spared the death penalty. This understanding was formalized in a plea agreement. If Adamson ever refused to testify though, the the agreement would be voided, and he could be tried again. When the convictions of the co-defendants were reversed on appeal, Adamson was asked to testify at a retrial. Adamson stated his belief that testimony at retrial was not covered by the agreement. Nonetheless, the State of Arizona deemed Adamson in breach of the agreement. Accordingly, Adamson himself was retried, found guilty, and sentenced to death. He appealed on double jeopardy grounds.

The Court ruled 5-4 that double jeopardy did not pose a barrier to his new conviction. Justice White explained that the double jeopardy privilege could be waived in a plea agreement, and that Adamson’s plea agreement did just that. The lack of an explicit waiver provision was of no consequence, because the agreement own terms unequivocally presumed waiver. White was unsympathetic to the claim that Adamson believed he had not breached. Breach of plea agreements was a question for courts to decide, and White was loath to second guess the findings of the Arizona courts.

Brennan dissented, and was joined by Marshall, Blackmun, and Stevens. He hotly contended that the state had treated Adamson with gross unfairness. Adamson’s interpretation of the plea agreement was in fact quite reasonable textually – and one could argue that he was attempting to see the agreement honored rather than breached by adhering to his interpretation. More than that, even accepting Arizona’s construction of the agreement, Adamson still never breached it. At best, he had merely stated an intention to breach it. While double jeopardy could be waived by agreement, Brennan thought it could not be waived without intent, and Adamson clearly never intended through any of his actions to actually void the agreement. Adamson’s retrial was all the more unfair because the prosecutors decided to drop the retrial of his co-defendants right after the alleged breach.

This decision is a poignant example of what famed legal scholar John Hart Ely once called “The Wages of Crying Wolf.” Brennan and Marshall dissent so automatically in capital punishment cases that one might forgive the five more conservative Justices for ignoring their whines of unfairness in any given case. The problem is, Ricketts v. Adamson was one of those rare instance where the liberal cry of “Wolf!” should have been taken seriously. Adamson was flat out screwed by the prosecution, and one of the Justices from the majority should have been able to realize it. Why is it instead cases like Booth or Cruz where a conservative Justice defects?

Texas v. New Mexico

482 U. S. 124

June 8, 1987

Texas and New Mexico had a long running dispute about who got to use the water of the Pecos River. A compact was finally signed in 1949, which said that Texas should be able to take water from the river as it could in 1947. What the “1947 condition” meant was endlessly debated, until the Supreme Court stepped in during the 1980s, and appointed a Special Master to figure out how to interpret the compact. The Special Master decided that New Mexico had been cheating Texas for a while, and ordered that the Land of Enchantment deliver a large amount of extra water to the Lone Star State for ten years as compensation. New Mexico balked, and said the Special Master should only have the power to interpret the compact prospectively.

White wrote for a unanimous Court (Stevens did not participate). He said that a compact was essentially just like any other contract, and that retrospective damages could be awarded by the Special Master, even if New Mexico was not aware at the time of what the compact entailed. Nonetheless, the Court reject the Special Master’s contention that monetary damages would be insufficient as a remedial measure under the compact. White disagreed, and noted that specific performance is hardly the only remedy for breach of contract. The case was remanded to determine what sort of remedy was most appropriate. To further ensure that New Mexico’s riparian obligations to Texas would be correctly fulfilled, the Court called for the appointment of a River Master. Finally, the Court promised that a more extensive decree would be forthcoming soon.

Fort Halifax Packing Co. v. Coyne

482 U. S. 1

June 1, 1987

Maine had a law that required companies to give employees enormous severance pay in the event of mass layoffs. After making such a mass layoff, Fort Halifax Packing argued that this law was preempted by the Employee Retirement Income Security Act (ERISA), which superseded all state laws relating to “employee benefit plans.”

The Court ruled 5-4 that the Maine law was not preempted. Brennan, writing for the Court, argued that requiring severance pay for mass layoffs did not affect “employee benefit plans.” The Maine law did not force companies to change their standard plans – it only imposed an easy to calculate requirement that would only accrue in rare situations. He tried to show through legislative history that the main purpose of ERISA was to make the law respecting the actual written retirement policies of companies more uniform. Brennan also turned back a claim that the National Labor Relations Act (NLRA) prohibited states from imposing laws that upset the balance between employee and employer, finding the minimal regulation of Maine’s law not troubling on that front

White, joined by Rehnquist, O’Connor, and Scalia, dissented. His argument was short and too the point – Maine’s law directly regulated and controlled the employee benefits that companies had to provide, and these companies would have to take administrative steps to do so. He found nothing in ERISA to suggest that only laws affecting a company’s formal written policies would be preempted. And I absolutely agree. This strikes me as very much a results-oriented judgment – had the Maine law favored employers rather than employees, I have no doubt the case would have gone the other way.

Electrical Workers v. Hechler

481 U. S. 851

May 26, 1987

Sally Hechler was injured on the job, and sought to sue her union, the International Brotherhood of Electrical Workers (IBEW), for negligently failing to make sure that her employer provided her with safe employment. The Labor Management Relations Act (LMRA) says that any state law claim which requires interpretation of a collective bargaining agreement is preempted by federal law. Hechler tried to argue that her claim did not involve contract interpretation, and was based purely on non-contract negligence.

The Court unanimously concluded that Hechler’s complaint necessarily involved her collective bargaining agreement, and that her state suit was thus preempted by federal law. Blackmun wrote for the Court, explaining that this law was passed in order to provide for uniform national interpretations of collective bargaining agreements. Under traditional tort law, only employers could be liable for negligence claims, so any attempt to sue her union had to rest on some contractual arrangement. Indeed, her original complaint referred indirectly to the collective bargaining contract. Because it was unclear whether the applicable federal claim could even be heard any longer due to the statute of limitations deadline, Blackmun remanded the case. Stevens dissented from that last holding, finding that the deadline for the relevant claim had definitely passed.

Based on the apposite law, this was clearly the correct ruling. As is often the case in preemption cases though, I’m not entirely sure whether Congress really had the Article I authority to pass the LMRA. Regardless, I am disgusted by the cynicism and hypocrisy of the IBEW. Just eight days ago, the Court supported that very union’s right to fine members who worked for employers without collective bargaining agreements. Here, the union is trying to get out of having to abide by the collective bargaining agreement it made. Kind of belies the idea that the union truly cares about the welfare of the workingman and not just its own self-interest, doesn’t it?

Keystone Bituminous Coal Assn. v. DeBenedictis

480 U. S. 470

March 9, 1987

To prevent damage to homes, public buildings, and cemeteries from coal mining, the Pennsylvania legislature prohibited mining above a certain distance below the surface, and required mining companies to compensate those whose buildings were damaged anyway. Coal companies argued that this law violated both the takings clause and the contracts clause, and that a Supreme Court case from 1922 known as Mahon controlled.

Stevens wrote for the Court, which ruled 5-4 that the Pennsylvania law was Constitutional. The majority said that Mahon could be distinguished, because the mining law there was intended to benefit private parties rather than society as a whole. Stevens cited precedents to show that legislation enacted to serve compelling societal interests did not require that owners be compensated for corresponding diminution in their property values. Mahon could also be distinguished because the law at issue in that case would have made mining impracticable Рsomething not asserted by the coal companies in DeBenedictis.

Turning from Mahon, the petitioners also argued that the law deprived them of 27 million tons of coal. Stevens replied that this was only about 2% of the coal in the mines, and that it ought not be seen as a separate parcel of property under Court precedents. Finally, the petitioners argued that the law destroyed the value of a unique feature in Pennsylvania property law known as the Support Estate. Stevens contended that strange features of state property law did not matter, and that the Support Estate lacked appreciable independent economic value. In response to the contracts clause challenge – the law abrogated contracts where surface owners had waived the right to claim compensation against the coal companies – the Court held, citing the horrendously activist Blaisdell ruling from 1934, that contracts could be abrogated if the societal interests in doing so were significant enough.

Rehnquist wrote the dissent, which was joined by Powell, O’Connor, and Scalia. He first pointed out that the law in Mahon, contrary to the majority’s intimations, actually was geared toward the general societal welfare, and thus could not be so easily distinguished. Rehnquist also faulted the majority treating coal mining as if it were a public nuisance. Moving on to address the 27 million tons of unusable coal, Rehnquist argued that it was a discrete amount of physical matter that was just as effectually taken from the companies as it would have been if the government had literally confiscated it. Compensation was thus required. Finally, Rehnquist showed that the Support Estate most certainly did have economic value, and that this value was totally destroyed by the Pennsylvania law.

I remember well the outcry when Kelo v. New London came down in 2005. It’s the most universally hated decision I can remember in my lifetime. Even in that case though, Kelo still got compensated. This decision appears to be several degrees worse. In one fell swoop, coal companies had 27 million tons of coal effectually taken from them without any compensation at all, and the economic value of all Support Estate was obliterated. When I award the prize for worst decision of the term, this figures to be a strong contender.

Justice Stevens, keeping it classy: “it is petitioners’ position that, because they contracted with some previous owners of property generations ago, they have a constitutionally protected legal right to conduct their mining operations in a way that would make a shambles of all those buildings and cemeteries.” Guy doesn’t sound biased at all, does he?