Articles Posted in Contract Law

Picture of a stethoscopeWe recently posted an article discussing Senate Bill 417, which revised Indiana’s statute on noncompete agreements between physicians and their employers, Indiana Code 25-22.5-5.5. A physician in northern Indiana may be the first to attempt to use the statute.  The case is Lankford v. Lutheran Medical Group, filed in Allen County Commercial Court.

Dr. David Lankford was employed by Lutheran Medical Group, LLC to work at Lutheran Hospital in Fort Wayne as a pediatric intensivist treating patients in its pediatric intensive care unit. In addition to pediatric intensivists, Lutheran employed neonatologists to treat patients in the neonatal intensive care unit and pediatric hospitalists to treat patients elsewhere in the hospital.

According to Dr. Lankford’s complaint, in October 2022, Lutheran eliminated the jobs of the hospitalists and required the intensivists to assume their responsibilities, in addition to their previous responsibilities in the pediatric intensive care unit. In December, Dr. Lankford notified Lutheran that he believed the increase in his responsibilities constituted a breach of his employment contract. He resigned in January 2023.

Picture of a stethoscopeA few months ago, we wrote an article about a bill in the Indiana General Assembly, Senate Bill 7, that would essentially ban noncompete agreements[1] between medical doctors and their employers. The General Assembly enacted the bill and Governor Holcomb signed it, but only after considerable revision. The ban was narrowed, but remaining covenants not to compete will be enforceable less often.

Summary

After July 1, 2023:

A picture of the Chicago Picasso

The Chicago Picasso in Daley Plaza, copyright 2023 Harshman Ponist Smith & Rayl

Lawyers and others often say that “may” is permissive and “shall” is mandatory.  By that, they mean that when a statute says a person “may” do something, that person has the discretion to do it or not, but when a statute says a person “shall” do something, the person has no choice. Or, as the Drafting Manual for the Indiana General Assembly puts it:

To create a duty, say “shall.”

Update:  Senate Bill 7 dealing with physician noncompete agreements was signed into law by the governor but in a form that differs significantly from the originally introduced version described in this article.  Click here for a discussion of the final version of Senate Bill 7 that goes into effect on July 1, 2023.

Covenants not to compete, or noncompete agreements, between employers and employees prohibit an employee from competing with the employer after the employment relationship ends. Noncompete agreements are common in some industries or professions, particularly those that rely heavily on proprietary information or ongoing relationships with clients or customers.

Noncompete agreements are are part of a larger category of contracts, those that restrain the freedom of trade in one way or another. For covenants not to compete, the restraint is the restriction of a person’s right to make a living. If the restrictions are too severe, they can run afoul of public policy or federal or state antitrust statutes, in which case they are unenforceable.

istockphoto-477779010-170x170-2-150x113From a legal perspective, auctions are interesting transactions.

Offer and acceptance in most sales

Let’s start by discussing an ordinary contract for the sale of goods, one not created at auction. Law students learn in their first year that the formation of a contract requires, among other things, offer and acceptance. Generally speaking, an offer must include all the essential elements of a contract and may include other terms. An acceptance must be the “mirror image” of the offer. That means, to form a contract from the offer, the person to whom the offer is made must accept it exactly as presented, without changing any of the terms or introducing new ones. A purported acceptance that changes, removes, or adds terms is not an acceptance at all. It is a rejection of the offer and the extension of a counteroffer.

Deceptive Consumer Sales ActIn a recent post, we discussed Rainbow Realty Group Inc., v. Carter, in which the Indiana Supreme Court considered whether a particular “rent-to-buy contract” was a land contract or a rental agreement. The court held that the transaction was a rental agreement, notwithstanding language in the contract that the transaction was a purchase and not a lease. Accordingly, the property was subject to the statutory requirement that a dwelling unit subject to a rental agreement must be in clean, safe, habitable condition. Because the house was clearly uninhabitable, Rainbow Realty violated that requirement.

Next, the Court considered the claim of the Carters that Rainbow Realty’s unsuccessful attempt to disclaim the statutory warranty of a safe, clean, habitable dwelling violated the Indiana Deceptive Consumer Sales Act (or “DCSA”), Ind. Code ch. 24‑5‑0.5. In particular, the Carters relied on Ind. Code § 24‑5‑0.5‑3(a)(8)*, which (at the time the rent-to-buy contract was signed) provided that a supplier’s representation that a “consumer transaction involves or does not involve a warranty, a disclaimer of warranties, or other rights, remedies, or obligations, if the representation is false and if the supplier knows or should reasonably know that the representation is false” is a deceptive act actionable under Ind. Code § 24‑5‑0.5‑4(a), which provides a private cause of action for consumers who are the victims of deceptive acts.  The court held that the tenants had no DCSA claim, for no less than three distinct reasons.

First, a false representation that Subsection 3(b)(8) defines a deceptive act as including a false representation that a transaction does or does not involve a warranty only if the supplier (i.e., Rainbow Realty) knows that its representation is false. In this case, the Supreme Court held that Rainbow Realty did not know its representation was false and, therefore, did not commit a deceptive act. Indeed the Supreme Court pointed to the fact that three members of the Court of Appeals agreed that the transaction was a land contract and, therefore, that Rainbow Realty’s representation of the absence of a warranty of habitability was, in fact, true. In essence, the Supreme Court held that no one could have known whether the representation was false until the court held that it was false.

If you’re as old as I am, you might remember the television commercial in which twin sisters argued about the nature of Certs.  One said, “Certs is a candy mint,” iStock-947147792-300x200and her sister countered, “Certs is a breath mint.”  A booming male voice over said, “Stop. You’re both right. Certs is a candy mint and a breath mint. Certs is two, two, two mints in one.”*

In Rainbow Realty Group, Inc. v. Carter, the Indiana Supreme Court  encountered a real estate transaction in which one litigant said, “It’s a land contract,” and the other countered, “It’s a rental agreement.” Unlike the twins in the Certs commercial, only one was right.

Rainbow was a property manager for a trust that owned multiple houses for sale or rent in Marion County, Indiana. It offered four different types of transactions to its customers.  The first three were fairly standard:

Until recently, almost all trade secret law was furnished by state law, not federal law. Absent federal diversity jurisdiction, lawsuits for misappropriation of trade secrets had to be brought in state court. Even though the vast majority of states (including Indiana) have adopted the Uniform Trade Secrets Act (“UTSA”), there are nonetheless variations in trade secret law from one state to another. However, in May 2016 President Obama signed the Defend Trade Secrets Act (or “DTSA”), creating at 18 U.S.C. § 1836 a new federal civil cause of action for misappropriation of trade secrets.  Even so, the federal statute does not pre-empt state law, and state causes of action under the UTSA remain viable.

Definitions of Trade Secret and Misappropriation

Two crucial components of trade secret law are the definitions of trade secret and misappropriation.  The DTSA definitions, found at 18 U.S.C. § 1839, are not identical to the familiar UTSA definitions, but there are no major surprises. At least for the most part, information that is a trade secret under the UTSA is also a trade secret under the DTSA, and vice versa.  Similarly, there are likely very few acts that qualify as misappropriation under one statute but not the other.

This begins an occasional series of posts on basics of business contracts, principles that apply broadly to most types of business and commercial contracts, regardless of the subject — merger agreements, stock purchase agreements, asset purchase agreements, construction contracts, professional service contracts, generic independent contractor agreements, advertising agency agreements, software and other intellectual property licenses, publishing contracts, equipment leases, office and retail property leases, procurement contracts (both master agreements and single-purchase agreements), employment contracts, and others. Although there can be a subtle legal distinction between a “contract” and an “agreement,” I will use terms interchangeably.

Let’s start at the beginning, with the preamble clause, the first paragraph that appears after the title of most business and commercial contract. There is no universally recognized name for that part of a contract, but preamble is a good descriptive name. Here’s an example:

This Consulting Agreement (“Agreement”), dated March 22, 2018, is between John J. Doe, an individual with a place of business located at 3650 N Washington Blvd Indianapolis, IN 46205 (dba J.J. Doe Consulting) (“Consultant”) and Jane Roe & Associates, LLC, an Indiana limited liability company (“Client”).

I am a fan of the radio show, A Way with Words.  Over the weekend, I ran across a clip on their website discussing an experiment run by a company in London to demonstrate the risks of using public WiFi.  The company set up a hotspot that offered free service to anyone who accepted a user agreement.  Buried in the agreement was what the company calls a “Herod Clause,” a promise by the user to assign his or her first-born child to the company for all eternity. Six people accepted the agreement.  Presumably those people fell into one of three categories:

  1. People with no children and no intention of ever having any children.
  2. Lawyers who knew that the clause would be unenforceable.
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