Introduction to US business law

VI. Torts FS 2018

Prof. Dr. Andreas Kellerhals

Programm – Please come! Suzi Le Vine, United States Ambassador to Switzerland and Liechtenstein (ret.) Eric LeVine, Entrepreneur «Manipulating electoral boundaries and how the 200 year old practice of gerrymandering broke our democracy» Donnerstag, 26. April 2018, KOL-F-117, 12.15-13.45 Uhr Dr. Elke König, Chair of the Single Resolution Board (SRB) of the EU (Abwicklungsausschuss für insolvenzbedrohte Finanzinstitute) «Resolution Planning – Now, the next steps» Montag, 7. Mai 2018, KOL-G-217, 17.00-18.15 Uhr Daniel Levin, Beobachtungen des Autors zu menschlichen Verhaltensmustern in der verschlossenen und oft absurden Welt der Mächtigen «Alles nur ein Zirkus – Fehltritte unter Mächtigen» Dienstag, 8. Mai 2018, KOL-F-104, 12.15-13.45 Uhr Judge Diane P. Wood, Chief Judge of the United States Court of Appeals for the Seventh Circuit «Resolution Planning – Now, the next steps» Mittwoch, 16. Mai 2018, KOL-F-101, 18.30-19.45 Uhr

Overview

I. Repetition - Last week

II. What’s left from previous session

III. Torts – definition, intent

IV. Torts Law

V. Three general categories

VI. Relevance of Torts Law

VII. Tort Reform

3 20. April 2018

I. Repetition – Last week (I)

> Jurisdiction > Personal

> In personam/ in rem/ quasi in rem /over international defendants (principle: territorial/nationality/passive personality/protective/universal)

> Forum shopping

> Federal Courts subject matter jurisdiction («federal question»)

> State Court jurisdiction

> US Civil Procedure > Federal Rules of Civil Procedure / 4 Stages of the Trial (pleading, pre-trial, trial, post-

trial)

> Role of judge

> Specialities of US civil procedure (jury, class action, discovery, punitive damage, etc.)

4 20. April 2018

I. Repetition – Last week (II)

> Contracts > State/Federal/UCC

> Contract Formation (offer, acceptance, consideration)

> Contract nature

> no fixed form required, except formality prescribed by law

> Unilateral/bilateral

5 20. April 2018

I. Repetition – Last week (III)

> Consideration > Bargain-for exchange of legal value

> Benefit to promisor

> Detriment to promisee

> Consideration can be anything of value

> Each party has to agree to exchange if contract is to be valid

> If only one party offers consideration, agreement is not a legally binding contract

> „something must be given or promised in exchange or return for the promise“

> Also mutual promises

> Adecuancy of consideration can not be questioned as long as parties bargained for it

> Bad deal can not be challenged, parties are assumed to be best judges of value

> “Quid pro quo”

> UCC introduced good faith modification

> Promissory estoppel

6 20. April 2018

Promissory Estoppel

> Reasonable reliance on otherwise (non enforceable) promise

> A promise on which someone reasonably can rely

> To avoid „unjust enrichment“

> Fairness

> Paying for goods that someone did not order but is using

> Needs interpretation of contract

7 20. April 2018

Interpretation

> When interpreting a contract, assess what the parties intended

> Factors:

> Terms of contract

> Course of performance

> Course of dealing

> Trade usage

> Ambiguity: such terms will be interpreted in favor of the party who had less reason to know of the ambiguity

> All contracts are assumed to include a term requiring performance in good faith

8 20. April 2018

Form

> Generally no specific form needed

> Some contracts need written form

> Promise to marry

> Bailment (Bürgschaft)

> Real estate (rights for longer than a year)

> Case Buffaloe v. Hart, 114 N.C. App. 52 (1994)

9 20. April 2018

Case Buffaloe v. Hart, 114 N.C. App. 52 (1994)

> Homer Buffaloe verbally agreed to buy five tobacco barns from Hart

> Buffaloe had previously rented the barns based on verbal agreement

> Agreement to sell based on handshake without any written document

> Buffaloe sent check with purpose written but got check back as seller had found someone who paid more

> Buffaloe sued for breach of contract

> Contract?

> Court found, that there was substantial relevant evidence that a reasonable mind might accept as adequate to support the conclusions reached by the jury that there was a "contract between the plaintiff»

10 20. April 2018

Carlill v. Carbolic Smoke Ball Company (1892) (1) > http://www.youtube.com/watch?v=vYRcKQGadRo

11 20. April 2018

Carlill v. Carbolic Smoke Ball Company (1892) (2) > English decision

> Carbolic smoke ball

> In advertisment buyer would guaranteed that it works against influenza, if not reward £ 100

> Is this a contract?

> Court said (in inventive ways) YES, all essential elements are there, including offer, acceptance, consideration and intention to create legal relations

12 20. April 2018

Carlill v. Carbolic Smoke Ball Company (1892) (3) Court of Appeal

> Fully binding contract – all elements

> Advert unilateral offer to all

> Satisfying conditions for using ball = acceptance

> Purchasing and using ball = good consideration, benefit to Carbolic

> Claim of £1000 deposit showed serious intention to be legally bound

13 20. April 2018

Breach of Contract (1)

> Unjustifiable faulure to perform a contractual duty

> Also only partially

> Defenses

> No valid contract

> Lack of capacity (drunk)

> Mistake (mutual/unilateral)

> Changed circumstances

> Fraud

> Duress/intoxication

> Public policy

14 20. April 2018

Breach of Contract (2)

> Remedies

> General damages = Money damages

> Including consequential damages

> Sometimes punitive damages

> Restitution (f.e. overship of house)

> Specific performance (duty to perform)

> Only when monetary damages do not adequately redress the injury

> Exception, specially for unique goods – f.e. selling antiques, realestate)

> Liquidated damages

> Damages specified in the contract by agreement

15 20. April 2018

Uniform Commercial Code (UCC) (1)

> First published in 1952

> Idea: to harmonize the law of the sale and other commercial transactions

> Secure interstate trade

> Created by American Law Institute (private organization)

> Not binding, only recommendation

> Permanent editorial board

16 20. April 2018

Uniform Commercial Code (UCC) (2)

> In one or another form enacted in all 50 states

> Even Louisiana mostly

> But some differences remain

17 20. April 2018

Uniform Commercial Code (UCC) (3) Art. 2 (1)

> Contract formation

> Firm offers (offers that can not be revoked for a set time) are valid without consideration and irrevocable for time stated (or up to 3 months)

> What is a firm offer?

> Price

> No price?

> Failure to set price will not prevent formation of contract if parties original intent was to form a contract. A reasonable price will be set by the court

18 20. April 2018

Uniform Commercial Code (UCC) (4) Art. 2 (2)

> Sending non-conforming goods = counteroffer

> Good faith requirement

> FOB – (free on board by seller) place of business

> Reclamations within 20 days

> Insolvency

> Battle of forms - when multiple forms with varying terms are exchanged

> Etc.

19 20. April 2018

Uniform Commercial Code (UCC) (5) Art. 2 (3) - § 2-204. Formation in General > (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including

offer and acceptance, conduct by both parties which recognizes the existence of a contract, the interaction of electronic agents, and the interaction of an electronic agent and an individual.

> (2) An agreement sufficient to constitute a contract for sale may be found even if the moment of its making is undetermined.

> (3) Even if one or more terms are left open, a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

> (4) Except as otherwise provided in Sections 2-211 through 2-213, the following rules apply: > (a) A contract may be formed by the interaction of electronic agents of the parties, even if no

individual was aware of or reviewed the electronic agents' actions or the resulting terms and agreements.

> (b) A contract may be formed by the interaction of an electronic agent and an individual acting on the individual's own behalf or for another person. A contract is formed if the individual takes actions that the individual is free to refuse to take or makes a statement, and the individual has reason to know that the actions or statement will:

> (i) cause the electronic agent to complete the transaction or performance; or > (ii) indicate acceptance of an offer, regardless of other expressions or actions by the individual to

which the electronic agent cannot react.

20 20. April 2018

Uniform Commercial Code (UCC) (6) Art. 2 (4) - § 2-205. Firm offers

> An offer by a merchant to buy or sell goods in a signed record that by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but in no event may the period of irrevocability exceed three months. Any such term of assurance in a form supplied by the offeree must be separately signed by the offeror.

21 20. April 2018

Uniform Commercial Code (UCC) (7) Art. 2 (5) - § 2-301. General Obligations of Parties

> The obligation of the seller is to transfer and deliver and that of the buyer is to accept and pay in accordance with the contract.

22 20. April 2018

Uniform Commercial Code (UCC) (8) Case: Payne v. Stalley (1995)

> Lawyer relied on official text of UCC and failed to check the Florida statute

> As result, he missed a filing deadline in an important case

> Court hold „we cannot rewrite Florida law to accomodate a Michigan attorney more familiar with UCC“

23 20. April 2018

Uniform Commercial Code (UCC) (9)

> Adopted in all 50 states

> in whole or in part

> Dealing with sale of goods (contract law)

> Not real estate or services

> Other sources

> Consumer protection law

> Judge-made law

24 20. April 2018

Elements of offer

> Expression of intent to enter into contract

> Actual knowledge of offeree (communication)

> Indetified offeree (advertising, invitation)

> Definite suject matter (quantity, etc.)

> Duration (how long?, firm offer, max. 3 months)

> Objective and circumstanes (offer if believed by reasonable person)

> Quasi-contract (law imposes obligation which appears just and fair)

25 20. April 2018

Elements of acceptance

> Common law

> Acceptance must mirror terms

> New terms = counteroffer

> Unilateral accept by performance

> Mailbox rule

> Contract formed at moment of posting

> Silence is not acceptance

> General rule

> UCC: battle of the forms

> Different terms

26 20. April 2018

Drafting US Contracts

> Fact: longer than continental European ones

> Plain language Contracts

> Why?

> Key issues relating to negotiating contracts in the USA :

> Contracts in writing («freedom of contract»)

> Date

> Parties

> General Provisions (Governing Law & Jurisdiction, Entire Agreement, Notices, Costs of Legal Action, Arbitration, Force Majeure, etc)

> Signature

> https://lrus.wolterskluwer.com/store/product/drafting-effective-contracts-a-practitioner-s-guide-second-edition/

27 20. April 2018

VI. Torts

III. Torts – definition (I) > Tort = civil wrong which can be redressed by awarding damages

> Tort = civil wrong recognized by law as ground for a lawsuit

> Torts include

> injuries to persons (medical malpractice)

> injuries to property (trespasses)

> injuries to reputation

29 20. April 2018

III. Torts – definition (II) > Non contractual damage to someone

> Damages

> Loss of earnings capacity, pain ans suffering, reasonable medical expenses

> Present and future expected losses

> Specific torts

> Trespas, assault, battery, negligence, products liability, intentional infliction of emontional distress

30 20. April 2018

III. Torts – intent? > Voluntary act

> Intentional torts/negligence

> Intent

> Deliberate and purposeful state of mind or knowledge with substantial certainty that consequences would result from that act

> Distinguished from negligence, which requires a forseable risk which a reasonable person would avoid

31 20. April 2018

IV. Torts Law > State law

> Created primarly through judges (common law) but more recently also by legislatures (statutory law)

> Supremacy of statutory law over common law

> Restatement of Torts (2nd)

> Influential guide used by many judges

> Prepared by American Law Institute

> Aim: some kind of harmonization

32 20. April 2018

IV. Torts Law 3 elements must be established in tort action > Plaintuff must establish that defendant was under a legal duty to act in

particular fashion (standard of care) > Plaintiff must demonstrate that defendant breached this duty > Plaintiff must prove that he/she suffered injury or loss as a direct result of

defendant‘s breach of duty > causation

33 20. April 2018

V. Three general categories > Intentional torts

> Know or should have known

> Ex: Intentionally hitting a person > Negligent torts

> Actions were unreasonably unsafe

> Ex: Causing an accident by failing to obey traffic rules > Strict liability

> Do not depend on degree of carefulness

> Requirement to make safe

> Ex: Producing dangerous goods (nuclear power)

> Product liability / animals / ultra-hazardous activities

34 20. April 2018

Intentional torts (I)

> Actions that are intentional and voluntary and are made with knowledge and intent

> Prima facie case > Act (voluntary/legal duty) > Intent of consequences > Causation > Damages

35 20. April 2018

Intentional torts (II)

> Intentional torts include: > Battery (Körperverletzung) > Assault (Drohung) > False imprisonment (Freiheitsberaubung) > Intentional infliction of emotional distress > Malicious prosecution > Abuse of process > Trespass to land (Grundstückbetretung) > Trespass to chattels (Besitzentziehung) > Conversion (Zerstörung von Eigentum/Besitz)

36 20. April 2018

Defense

> Mistake (Irrtum) > Self-defense > Defense of others > Defence of property and chattel > Necessity > Authority of law/immunity > Consent (most important)

> Ice-hockey game > Puck hits sprectator > Liability? > Consent?

37 20. April 2018

Trespass – Expl.

> Intel Corp. v. Hamidi (2003)

> Former employee Hamidi sent critical e-mails about Intel to current employees which caused discussions.

> Intel: trespass to chattels

> Court rejected Intel

> Declined to extend common law trespass claims to computer context

> Claimed injury nor related to the possession or value of personal property

38 20. April 2018

Assault and battery- Expl.

> Katko v. Briney (1971)

> Briney installed shotgun in his unoccupied house which severly injured Katko.

> Court ruled that using deadly force on unoccupied property was not reasonalbe or justfied

> No duty for landowner to make his land safe, but no right to install deadly traps

> Out of proportion (human life v. property)

39 20. April 2018

Defamation – Expl.

> In US less plaintiff-friendly (due to 1. Am.) > Barret v. Rosenthal (2006)

> Barret sued women‘s health advocate Rosenthal because of publication of libelous information about him in the internet > Publishing critical letter (twice)

> Question: immunity under Section 230 of Community Decency Act? > Against claims which primarly try to chill valid exercise of freedom of

speech > Only originator should be liable, not internet user

> Court: immunity for both (intent legislator)

40 20. April 2018

Negligent torts (I)

> Negligence torts most common source of common law = extracontractual liability based upon a failure to comply with the duty of

care of a reasonable person > Reasonable person standard

> Person acts negligent when behaviour departs from ordinary (reasonable) conduct > Cause of damages = damage would not have occured without that cause and damages

were reasonably foreseeable

41 20. April 2018

Negligent torts (II)

> Prima facie case

> Duty of care

> Obligation to protect

> Duty of care

> Objective standard (reasonable, ordinary prudent person)

> Breach of duty

> Burden of proof

> Failure to perform

42 20. April 2018

Negligent torts (III)

> Proximate (legal) cause & cause in fact

> Close causal connection between action and injury

> Even if plaintiff would not have been injured but for defendant’s action, was defendant unter duty to proctect plaintiff?

> Damages

> Actual losses suffered

> Duty to mitigate, punitive

43 20. April 2018

Donoghue v. Stevenson

> England 1932

> Mrs. Donoghue consumed drink (gift from a friend) and fould dead snail

> Claimed that got ill

> No contractual basis

> Torts? Product liability?

> The House of Lords held that the manufacturer owed a duty of care to her, which was breached, because it was reasonably foreseeable that failure to ensure the product's safety would lead to harm of consumers

> http://www.youtube.com/watch?v=yLleV7XhkRI

44 20. April 2018

MacPherson v. Buick Motor Co. (1916) > MacPherson got injured when one of the wooden wheels of his Buick collapsed > Wheel was bought by Buick > Defective wheel could have been discovered upon inspection > Buick: no liability because from dealer > Court said yes to liability, when someone sales risky products (general duty of

care) > first product liability case!

45 20. April 2018

Product liability

> Negligence

> Legal duty for manufactorer/distributor/retailer/seller

> Breach (negligent conduct, lack of reasonable care)

> Causation

> damages

46 20. April 2018

Breach of duty (I) U.S. v. Carroll Towing Co (1947)

> Standard of care for tort of negligence > Boat was parked together with other boats at public pier > Harbor master arrived with one boat to resolve problem next

morning > He went on board without permission because nobody was there > During this, boat and six others broke away, drifted, hit a tanker and

sank > US, owner of boat, sued harbor company

47 20. April 2018

Breach of duty (II) U.S. v. Carroll Towing Co (1947) > Judge used algebra

> Standard is not met if burden of adequate precautions is smaller than probability that someting happens multiplied by cost of injury

> Leaving a boat unattended during daylight poses significant risk such that it would be fair to require someone on the boat.

> Thus, liability is given, negligent for being absent from the ship without excuse

48 20. April 2018

> http://www.youtube.com/watch?v=u6ynTbY944Q

Emotional distress (I) Miller v. National Broadcasting Co. (1986)

> NBC camera crew followed a firefighter and paramedics team on night shift

> Call from Miller (hart attack)

> Camera crew entered home without consent, filmed Miller dying, aired film without consent

> Millers widow sued for invastion of privacy and infliction of emotional distress

> Question: does media have same access privilege like police or paramedics?

50 20. April 2018

Emotional distress (II) Miller v. National Broadcasting Co. (1986)

> Court said:

> „one seeking emergency medical attention does not thereby ‚open the door‘ for persons without any clearly identifiable official reason who may wish to enter“

> Clear line between public interest and privacy must not be obscured

51 20. April 2018

Medical malpractice (I) Ewing v. Goldstein (2004)

> Former police officer C received medical treatment by Dr. Goldstein for loss of girlfriend

> Dr. Goldstein learnt that he was considering harming Ewing who was his ex-girlfriends new boyfriend

> Goldstein recommended volutary hospitalization to C but did not warn Ewing or police

> When C was released he murdered Ewing and committed suicide > Was Dr. Goldstein wrong?

52 20. April 2018

Medical malpractice (II) Ewing v. Goldstein (2004)

> Court ruled that Goldstein was negligent and gulity of wrongful death

> He did not sufficiently discharge his duty to protect by initiating voluntary hospitalization but only by warning the potential victims

> Not only duty to protect but also duty to warn!

53 20. April 2018

Damages (I) Walt Disney World Co. v. Wood (1986)

> Joint liability > Wood was injured in a bumper-car ride at Walt Disney when then-

fiance rammed her car

> Jury verdict: liability

> Wood 14% fault, Fiance 85%, Disney 1%

> Damages accordingly

54 20. April 2018

Damages (II) BMW of North America v. Gore (1996)

> Punitive damages – (exceptionally bad) > Mostly common law (judges)

> Gore bought new BMW and later discovered that car had been repainted

> BMW:policy to sell damaged cars as new if damage <3% of car costs

> Jury: $4‘000 compensatory damages (lost value of car), $4 million punitive damages

> Later reduced to $2 million, excessive punitive damages violates Due Process clause of USC

55 20. April 2018

Excessive damages? Liebeck v. McDonnald (1994)

> 79-year-old woman bought coffee in drive-through

> Placed coffee between her knees and pulled over to parking

> She spilled entire cup on her lap

> Suffered third-degree burns, 2 years of medical treatment

> Award: 2.86 million (case was later settled)

> https://www.youtube.com/watch?v=9rbKywI3ww8

56 20. April 2018

Strict liability (I)

> Liability without fault for activities that create exceptional dangerous risks to society

> Prima facie case

> Absolute duty to make safe

> Creation of undue risk of harm

> Breach

> Casue

> Damages

57 20. April 2018

Strict liability (II)

> Cases

> Animals

> Liable for reasonably foreseeable damage

> Ultra hazardous activity

> Activity not commonly engaged in which involves risk of serious harm and cannot be performed with complete safety

> Storing of explosives in populated area

> Building a water reservoir on own property that can flod neighbouring coal mine

58 20. April 2018

Product liability (I)

> The majority of product liability laws are determined at the state level and vary widely from state to state.

> Each type of product liability claim requires different elements to be proven to present a successful claim.

> Section 2 of the Restatement (Third) of Torts: Products Liability distinguishes between three major types of product liability claims:

> manufacturing defect

> design defect

> a failure to warn (also known as marketing defects)

59 20. April 2018

Product liability (II)

> Negligence

> Legal duty

> Breach (lack of reasonable care)

> Causation

> Damages

> Defenses (contributory negligence, assumption of risk)

> Strict liability

> Liability of commercial supplier

> Consumer expectations/warnings/reasonable standard

60 20. April 2018

Escola v. Coca-Cola Bottling Co (1944)

> Important product liability case! > Escola was waitress, putting aside glass bottle of Coke when that

bottle spontaneously exploded in her hand

> One of Coke‘s delivery drivers confirmed that bottles had exploded

> Court:

> bottle was in some manner defective

> Although no negligence proved strict liability

61 20. April 2018

Escola today

> Today Escola is widely recognized as a landmark case in American law

> “Even if there is no negligence, however, public policy demands that responsibility be fixed wherever it will most effectively reduce the hazards to life and health inherent in defective products that reach the market. It is evident that the manufacturer can anticipate some hazards and guard against the recurrence of others, as the public cannot. Those who suffer injury from defective products are unprepared to meet its consequences. The cost of an injury and the loss of time or health may be an overwhelming misfortune to the person injured, and a needless one, for the risk of injury can be insured by the manufacturer and distributed among the public as a cost of doing business. It is to the public interest to discourage the marketing of products having defects that are a menace to the public”.

> In the 40 years after Greenman, the highest courts of nearly all U.S. states and territories followed California's example in imposing strict liability on manufacturers, distributors, and retailers for defective products.

62 20. April 2018

VI. Relevance of torts law

> Today is touching nearly all aspects of life in USA

> Remedy for business against unfair competitiors

> To protect employees from emotional distress

> To regulate environment (air pollution, etc.)

> Surviving family members in case of wrongful death to recover pecuniary loss

63 20. April 2018

VII. Tort reform

> Damages often very high

> Limitation of damages

> President Clinton (cap. of 250’000)

> States (currently in effect)

> Antitrust damages have come under special scrutiny

> Punitive damages?

64 20. April 2018

http://www.youtube.com/watch?v=jlzsIME4p38

Next time

> 25. April

– Company Law

66 20. April 2018