The Covenant Of Good Faith And Fair Dealing Can Turn A Small Case Into A Big One.

Most non-lawyers understand the basics of a breach of contract claim. The two sides make a deal, and if one side does not honor his obligations, the other side can sue for damages.

The problem with a contract claim, from a practical point of view, is that the damages are limited. Basically, you can get what you lost based on the contemplation of the parties at the time the contract was formed. For instance, if you contract to provide a service, you provide it, and the other side does not pay, you can sue for the value of those services. Depending on the contract, you might get interest on that money, and you might get back some or all of your attorney’s fees.

But that’s it. If the contract provides for future exchanges of services for money, which are now lost to you, you might or might not get something for that. You don’t get money for pain and suffering. You don’t get damages for the ripple effect that runs through your business. You can’t get punitive damages, even if the other side’s conduct was particularly egregious. Sometimes, the result of all this is that, from a cost-benefit point of view, it doesn’t make sense to file your lawsuit. The attorney’s fees and costs may even exceed what you stand to win.

However, most non-lawyers do not know about another legal concept that arises in a contract setting. Every contract includes an implied term – in other words, not an express term of the contract – requiring compliance with the covenant of good faith and fair dealing. The covenant says that neither side can do anything, whether expressly prohibited in the contract or not, which destroys the other side’s fundamental reason for entering the contract.

For instance, we are doing a case right now regarding an employment-type contract gone bad. A ran a series of stores offering a service. A wanted to open a new store. So A entered a 2-year contract with B under which, if B made the new store successful, B would get a 49% interest after two years. The store was successful. But after one year, A terminated the contract with B. The termination was arguably permitted by the express terms of the contract, which required no reason for termination. But the effect of the termination was to deprive B of his main reason for entering the contract, namely, getting the vested ownership interest after two years. This amounts, potentially, to a breach of the covenant of good faith and fair dealing, even though permitted by the express terms of the contract.

The real significance of the resulting claim for breach of the covenant is that, increasingly under Arizona law, B can now claim not just contract damages, but what are called tort damages. In other words, he can claim future lost profits, pain and suffering, and even punitive damages. Suddenly, a lawsuit that might not have been worth bringing becomes more than worth it.

This is not something that laymen would know about. But both A and B would have benefitted by going to see an attorney specializing in fraud or business litigation at the very outset. There, they would have learned about the covenant, which may end up determining the outcome of this case.

Four Magic Words That Could Wipe Out Your Credit Card Debt

(Reprinted from The Oxford Communique at oxfordclub.com)

There are “four magic words” you can say if a collection agency ever comes after you for any unpaid debt. You say the words . . . and your debt can get eliminated all at once.

I know that sounds unbelievable, but NPR did an investigation of this for its show This American Life. In it, a couple got a $3,762.20 credit bill instantly wiped out because of this special sentence.

Here’s how the scenario unfolded . . . It involved a couple named Frederick and Keanne. Fred was buying houses, rehabbing and selling them, which was going great until the housing market fell apart in 2008. As a result, the couple ended up taking on some debt.

Ultimately, they got a notice in the mail saying they owed $3,7672.20 to a company called LVNV Funding and were being summoned to appear in court.

Frederick and Keanne knew nothing about LVNV. The main reason they went to court was to figure out what was going on.

At the court hearing, they learned that, when they failed to pay off their American Express bill, the credit card company sold that IOU to LVNV. Obviously, those kinds of sales to collection agencies make for big business. There are lots of companies that do this.

But here’s where it got interesting . . . Fred and Keanne wanted to know what the specific unpaid charges were, so they said four words that turned out to be magical.

“Show me the evidence.”

It turns out the lawyer representing LVNV didn’t know what the specific charges were . . . which isn’t unusual. When uncollected debts are turned over to firms like this, they often only receive a statement giving the total amount owed, no specific transactions. Nor does the collection firm have the original contract from when the credit card was initiated.

The bottom line is: If you show up in court and say the magic words, and the collection firm can’t come up with it, the case is dismissed. The debt is expunged.

So when these companies take people to court, they’re betting you won’t show up . . . because people usually don’t. The no -show rate is between 80% and 90%.

What that happens, you lose. But when you do show up and say the magic words, there’s a good chance you’ll win.

TIPS FOR LANDLORDS WITH NEW TENANTS

Some landlords hold multiple properties and have been doing so for years. These individuals often know the law as well as most landlord-tenants lawyers.

But the greater number of landlords own one or two rental properties, and this number will grow as the economy declines, making purchase and sale of homes more difficult. This group lacks the sophistication of the first group and is much more likely to walk into rental traps. I have both represented and litigated against these individuals, and this article represents my attempt to identify some of their more common problems.

Let go of the attitude of many inexperienced landlords, especially those who used to live in the rental home, that the house belongs to them and they can darn well do what they want with it. For instance, you cannot just go on the property when you want to. You must give 48-hour notice, except in the case of emergency or requested repair or clear abandonment. You have no other right of entry, and there are sanctions under the Landlord-Tenant Act.

Be sure to take photos of the premises before the new tenants move in. And make sure you give them a move-in inspection list. If you do not, you will have a difficult time attributing end-of-term damage to the tenants. It would be wise to take your own photos of the damage the tenants allege in their inspection list, and if you repair any of that damage, make sure you retain proof of doing so.

If the tenants attempt to exercise any of their rights under the L-T Act, be careful about trying to evict them, because the sanctions for retaliation are substantial. If you attempt to evict, make sure your case against the tenants is slam dunk.

At the end of the term, when you do your inspection, make it as close to the move-out date as possible and be sure to give the tenants notice so that they can attend.
If the tenants demand their security deposit back, make sure your response is postmarked no later than 14 days thereafter. Some judges require that the tenants’ demand be written, but the statute does not say that, so the wise move is to honor any demand for the deposit. You must move quickly so that the estimates for repair of damage are dated prior to your response.

If there are clauses in the lease that call for the parties’ initials, make sure those places are initialed. For instance, I’ve seen more than one landlord lose the right to attorney’s fees he/she would otherwise have had because these boxes were not initialed.

This is not a complete list. The wise moves would be to have a L-T lawyer review your lease before using it and to keep that lawyer on retainer for future questions.

SOME TIPS FOR TENANTS MOVING IN

My tenant clients – like most my clients – come to me too late in the game. Often, they have done things during the tenancy, or failed to do other things, which make my defending them almost impossible.

On the other hand, I recognize that few people have money trees, and no one likes to go to a lawyer until they feel they have no choice.

So this article represents my attempt to give some of the advice I would give if the tenant did come to me at the beginning of the term.

Never rely on oral communications with the landlord (or his/her property management company). I know that’s the way we all do it in normal life. But oral promises get denied a lot in court. If you have a significant oral conversation with the landlord, memorialize it afterwards with an email.

If the landlord gives you a move-in inspection list, pay careful attention and be detailed in filling it out. If there is a dispute at the end of the term, this will be critical since it will be compared with the move-out inspection list. And take photos of all the problems you note. If the landlord does not give you a move-in list, do not ask for one. He is required to provide it to you, and if he does not, he will have a harder time charging you for alleged damage at the end of the lease.

Problems going to the habitability of the house (like roofs, plumbing, AC and heat) are the landlord’s responsibility. But when they arise, be sure to give the landlord written notice. Although the law does not require you to do so, I have had clients penalized in court for not doing so because the judge decides on his own that notice should have been given.

If the problem continues and the landlord does not take care of it, and you want out and have another place to go, there is a specific notice you have to give. It must be written and it must identify the problem and it must say that the problem must be fixed in five days or the lease is terminated. If the landlord does not fix it in that time, you are not responsible for any further rent or penalties and you get your deposit back (though the landlord may fight it).

Check out the neighborhood before you rent. You are not going to be able to hold the landlord responsible if it turns out to be a bad one.

Also, before signing the lease, read it. I know the usual lease is an intimidating document, but it will serve you later to know what it says. Look especially at some of the following clauses: Who is responsible for utilities, yard maintenance, pool upkeep? If there are big trees, are you responsible if they die? What are the provisions for subleasing? You cannot just move someone in because you want to. And never allow a drug user to move in. What deposits are refundable and which are non-refundable? If they are not marked non-refundable, they are refundable. What are the provisions regarding pets and pet damage? Landlords like to blame things on pets.

This is not a complete list of important points for tenants moving in. But these are some of the issues which frequently cross my desk.

HOW AGGRESSIVE SHOULD YOUR LAWYER BE?

Most people looking for a lawyer, because a fight is brewing, have never had any prior involvement with a lawyer. You would be surprised how many of these new litigants come in with impressions formed from movies and TV. But the media depiction of lawyers is about as accurate as the media’s depiction of everybody else . . . not very accurate.

So what should you be looking for when you think you might need a lawyer.

Many think they should be looking for the most “aggressive” lawyer they can find. After all, “litigation is war”, right? And you need a ferocious warrior. At some point, litigation does become war, so it is true you need someone who is capable of taking the gloves off when that time comes.

But it is well into litigation before the process becomes war-like, and very few cases get very far into that stage of the process. For the most part, litigation is more about relationships than it is about war, and your lawyer, if he/she is going to be effective, must be capable in that area as well.

So take a look at the relationships in your life. What works and what does not? Do you vibe to people who are extremely knowledgeable, able to talk at length about any subject, and always sounds right? Or do you gravitate to the person who listens to what you have to say and then speaks to what you have to say rather than just his/her own thoughts? If your lawyer cannot hear you, and feel your situation, get away, even if that person is “impressive”.

And when confrontation arises in life, what seems to work? If you want someone to do something for you, does it work better to pin that person in a corner and browbeat them? Or is it more effective to stand by your position but back off enough for the other person to have the freedom to make his/her own choice about what you want? Not many – or any – people respond well to being cornered. It is the same in law: unless your goal is simply to get your rocks off, you’re far more likely to get the result you want by respecting the other person’s point of view as well. Good lawyers know this.

Law is a people business. Both between attorneys and their clients, and between opposing parties. Pick your lawyer like you pick the people you want to keep around you in life.

When the service you need gets switched from one provider to another

Occasionally, I will get a call from someone who has purchased a service from one provider and is then told that another provider has taken over the contract.  Might be a pool service, or a security system provider, or a marketer, or a lawyer.  I don’t get more calls because a lot of people don’t care.  But the ones who call are the ones who do care. 

They usually want to know how to get away from the new provider.  Maybe the new provider does not have a great record.  Maybe the new provider starts deemphasizing or taking away aspects of the service that the customer liked. 

My answer usually contains three parts . . .

First, what does the contract say about “assignment” from one provider to another?  If it says nothing, you can just leave.  If it gives the provider the right to assign his interests, you are stuck. .

Second, . . . unless the new provider breaches the contract in some way.  Those services the new provider is cutting back on?  Check the contract.  If those services are provided for in the contract, refusing to provide them constitutes a breach, and the customer can walk away.

Third, do not sign a contract in the first place without first at least skimming that fine print to see if there is an assignment section giving the provider the right to assign the contract. 

And, of course, I will always recommend that you spend the few dollars needed to get a consultation with a lawyer who does contract litigation, because every situation is different, and sometimes the difference matters.

WHAT DO YOU DO WHEN THE OTHER GUY BREACHES YOUR CONTRACT

WHAT DO YOU DO WHEN THE OTHER GUY BREACHES YOUR CONTRACT

When the other side breaches its contract with you, what are your legal remedies? There are three. Breach of contract, rescission and specific performance. Which one or ones are available to you depend on circumstances and the value of the subject of the contract.
Breach of Contract
The contract you signed to buy the car said the car had 30,000 miles. It turns out the car has 45,000. This is not enough of a discrepancy to want to unload the car, but it does mean the car has less value than you paid for. Or your company buys 1000 widgets. 90 of them are defective and unusable. There is no point in sending back all 1000, but you want to be compensated for the 90 bad ones. In short, situations where you don’t want to repudiate the whole contract, but you want to be compensated to the extent the other side fell short on some portion of its promised performance.
Your remedy is breach of contract. What can you recover? The value of the defective items, interest if it applies, consequential damages (like the costs of shipping back the 90 bad widgets and possibly lost profits), reasonable attorney’s fees and court costs. You cannot recover for any emotional distress or inconvenience caused by the whole incident.
Rescission
Let’s say the car you bought which you thought had 30,000 miles actually has 100,000 miles. Now the discrepancy is so great that you effectively received an entirely different car than you thought you were buying. You don’t want money for the difference: you want the car returned to the seller and all your money returned. Or let’s say there are 600 faulty widgets, you were buying them to resell to a regular buyer, but that buyer refuses to receive lots of less than 500. Effectively, the 1000 widgets are useless to you. You want them all sent back and all your money returned.
This total repudiation of the contract is called rescission. Because the remedy is more extreme than breach of contract, you will have to show the court that the value of the deal has been completely or almost completely destroyed for you. If you win, you get back all your money, minus any damage you may have done to the car or widgets, plus interest if it has been a while, consequential damages, reasonable attorney’s fees and court costs.
Specific Performance
Let’s say you ordered 1000 widgets, but the seller, citing some excuse, only provides you with 400. You still need 500 at least to satisfy your buyer. You don’t want to just rescind because that would not enable you to satisfy your buyer. Rather, you want to force your seller to provide you with the other 600 widgets.
What you want is specific performance. Essentially, you are asking the court to issue an order forcing the other side to fully perform. In addition, you can get your consequential damages (which may or may not include costs incurred with your buyer) along with reasonable attorney’s fees and costs.
Understand that this is a very elementary explanation. Do not try to pursue any of these claims without a lawyer. The short term savings of doing it yourself will undoubtedly result in a much larger loss in the long term when you lose.

BE CAREFUL PUTTING PHOTOS IN YOUR BLOGS OR ADVERTISING.

BE CAREFUL PUTTING PHOTOS IN YOUR BLOGS OR ADVERTISING

Many of us have done it. We write a blog, or make an entry on Facebook, or put together a marketing brochure or email. Just words on the page gets hard to read. So we spice up the message with photos we pull off the internet or from our cellphone camera. But even though this is done frequently, there can be consequences. Not only are some of those photos copyrighted (the subject of another blog), but in Arizona, the use of those photos may subject you to a cause of action called Appropriation.
The tort of Appropriation (also known as the Right of Publicity) can arise when you:

  • Use another person’s name or likeness,
  • For your own advantage,
  • Without that person’s consent, and
  • Injury to the other person results.

The tort can arise even when the only damage is hurt feelings. So if you use a photo that embarrasses someone, you may be looking at a lawsuit. Specifically, you may be looking at damages for mental anguish.
And if you are using the photo for commercial purposes, you may end up paying that person for a proportion of the profits attributable to the unauthorized use. The burden will be on you, not the other person, to show that the profits were the result of other factors besides the photo.
If, however, the purpose of the photo was “communicative”, rather than “commercial”, you are protected by the First Amendment. That is the defense that would save many of us. But the difference between the two is often a thin line, and hard to prove. The court will look at factors like whether the use of the photo has unique value to the person photographed, the relationship between the photo and the purpose of the work you insert it in, and how frequently the photo or photos are used in the work.
Also, once the subject of the photo is dead, there is no claim.

JUST WHAT IS FRAUD?

JUST WHAT IS FRAUD?

“Fraud” is one of those words that gets thrown around a lot. When something goes wrong in dealings with another person, and you feel like you weren’t treated fairly by the other person, you’re likely to assume what happened was fraud.
But in the law, fraud is a little more than you probably think it is. In fact, it is probably one of the hardest cases to prove. Why? Because it involves deciding what was going on in the other person’s mind when they said or did what they did. A person who does wrong is not likely to admit it out of his own mouth. So you have to find other ways to prove what he was thinking at the critical time.
So in the law, what constitutes fraud?
First, the person (or company through its agents or, maybe, its advertising) has to say something untrue. Second, and this is where it gets difficult, you have to prove that that person knew, when he made the statement, that it was untrue.
And sometimes it gets even harder because the statement in question is actually a non-statement. This is when the circumstances required that the person say something, and he doesn’t say it. This is called material omission, and it is also fraud. It’s just hard to prove. For instance, the owner of the used car had been told by his mechanic that the car only has a few hundred miles to go before it dies, and then the buyer asks if the car is drivable. If the owner responds that the car is just fine, this might be a material omission and, therefore, fraud.
Third, the person making the statement must know that the other person is relying on him for the truth. The car owner above knew that the buyer was relying on him, as the only person who knew the condition of the car, to tell the truth.
And there is another aspect to this reliance which also makes fraud hard to prove, namely, the person who relies on the statement must be justified in that reliance. For instance, if that buyer is a certified mechanic and would have been able to tell just by driving the car a few miles that something was not right, but he didn’t take the test drive, the reliance might not be justified.
Fourth, the misrepresentation, or the problem that was the subject of the misrepresentation, must be the proximate cause of the damage to the buyer. For instance, if the buyer takes the car and it is badly damaged in an accident before dying, the misrepresentation may not be the cause of the damage, or not all of it anyway. The accident would.
And finally, there must be damage to the buyer. There is no lawsuit if there is a misrepresentation but no damage is done. If the car ends up lasting for a good while, it may be that there was no damage from the misrepresentation.
One more thing . . . in Arizona, there is also a consumer fraud statute. It is a powerful weapon because it removes the reliance requirement. If someone lies, and that lie or the problem becomes the proximate cause of damage, there is a claim whether your reliance was reasonable or not.
The only problem is that the consumer fraud statute requires you to bring your action within one year from the time you discover or should have discovered that you’ve been lied to, as opposed to the three years you would have with non-statutory fraud.
Finally, because fraud is so complicated, do not try and litigate it without the help of a lawyer.

LIABILITY OF EMPLOYEE WHILE ON OUT-OF-TOWN ASSIGNMENT

LIABILITY OF EMPLOYEE WHILE ON OUT-OF-TOWN ASSIGNMENT

Who bears the burden when an employee is working out-of-town and gets in trouble in some way? If the employee commits an intentional tort of some kind – for instance, an assault – he is on his own. But what about something less egregious, like a car accident?
In one fairly recent case, a DPS officer who normally worked in Phoenix, was assigned to work for a period of time in Douglas. The distance required him to live in a Douglas motel. After work, he asked for a restaurant recommendation, and left for dinner with his temporary supervisor. On the way, he negligently ran into the plaintiff, causing injuries. The officer made a motion to get himself out of the case, saying he was working for the State when it happened, and that any liability should fall on the State, not him. The trial court granted his motion, and the Court of Appeals agreed.
The Court of Appeals held that the employee was acting for the employer if, at the time of the accident, he was “doing any reasonable thing which his employment expressly or impliedly authorizes him to do or which may reasonably be said to have been contemplated by that employment as necessarily or probably incidental to the employment.” The court listed three factors to consider when deciding whether the employee was acting for his employer.

  • Was the activity the kind the employee was authorized to perform?
  • Did it occur substantially within the authorized time and space limits?
  • Was the employee acting for the purpose of serving the employer?

The Court held that going for a meal on an out-of-town assignment was expected and incidental to the assignment. The Court also held that, if the trip was for the dual purpose of serving the employer and the employee, the employee would still be protected. But the Court also held that, if the employee had already eaten but was then making a second trip to a bar for entertainment, there would be no protection.

What does this mean for you?

For the employee, this means that she needs to remember this distinction between expected actions within the assignment (e.g., meals) and those which serve just the employee (e.g., the bar). Of course, the distinction is not always clear. For instance, what if the employee is a salesperson and is going to the bar, at least in part, to drum up customers?
For the employer, this means that your employee manual should clearly delineate what activities are considered authorized by the assignment and which are not.