PHILADELPHIA – At a virtual meeting this week, the Philadelphia-based American Law Institute is scheduled to continue work on a Restatement meant to give legal clarity to consumer contracts – a project yielding “significant concerns,” according to a member of the legal scholarship organization, especially since it may come up for a final vote at the group’s annual meeting this spring.
While the ALI publishes the Restatement of Torts and other projects that aim to serve as summaries of certain areas of law that judges can use, some have accused the group of straying from that goal by trying to create law instead of summarize it.
For example, its insurance liability law Restatement was called “litigation fuel," leading a number of judges and lawmakers in several states to reject it.
As for the “Restatement of the Law, Consumer Contracts,” it has been in the works for nine years and is currently on its sixth draft.
The project is helmed by its Reporters, professors Owen Barr-Gill of Harvard Law School, Omri Ben-Shahar of the University of Chicago Law School and Florencia Marotta-Wurgler of the New York University School of Law. The trio is advised by more than 30 fellow professors, practitioners and judges.
Containing nine sections, the project seeks to address and close a perceived inherent information gap between the business and consumer parties to a contract, through reference to “the Restatement Second of Contracts, the Uniform Commercial Code, and on court opinions in cases involving disputes between businesses and consumers,” according to the organization.
The Restatement has sections on unconscionability, deception and promises not included in standard contract terms. Other sections include discretionary obligations and effects of derogation from mandatory rules, in addition to contract items consumers may encounter in online transactions, such as software licensing terms, privacy policies and potentially costly conditions of sale, such as restocking fees and early-cancellation charges.
Two specific areas of consumer contract law specifically addressed by the Restatement are the doctrine of mutual assent – rules that determine how contractual terms are adopted and the processes a business uses to introduce and to modify terms in the agreement – and the use of mandatory restrictions governing the contract, such as rules that limit business’ discretion in drafting contractual terms and setting boundaries for permissible contracting.
According to ALI’s Deputy Director Stephanie Middleton, the Restatement of Consumer Contracts is no different than any of the group’s projects, in that ALI “welcomes specific comments and input on the drafts” as they proceed.
“That is why the drafts improve as the project progresses. As to the project’s objectives and purposes, our Restatement projects all have the same purpose they always have had for nearly 100 years, which is to clarify and simplify the law,” Middleton previously said.
Concerns Persist On Consumer Contracts Restatement, Says One ALI Member
Some who have viewed the project with concern advised the ALI to turn the Restatement into a Principles Project instead, which in their opinion would allow its Reporters and the ALI to take a more aspirational view of the subject matter, especially when it comes to emerging areas of law, such as consumer contracts. However, this was not done.
According to Victor Schwartz of Shook Hardy Bacon in Washington, D.C. and an ALI Life Member, those concerns are well-founded.
Schwartz explained that on Wednesday, a collective group of general counsels representing major corporations - such as Comcast, Verizon, General Motors and General Electric, as well as trade associations like the Pennsylvania Chamber of Business and Industry and Pennsylvania Coalition for Civil Justice Reform - sent a letter to the ALI explaining why, in their view, the Restatement of Consumer Contracts should be dropped altogether.
“Our collective prior submissions, as well as numerous submissions by ALI members and others, explain why this proposed Restatement is conceptually flawed and may cause lasting reputational harm to the ALI if adopted. Unfortunately, these concerns remain unaddressed,” the letter stated, in part.
“The project continues to purport to ‘restate’ an area of contract law in which it does not appear any court has articulated a separate set of ‘consumer contract’ rules that operate differently from the general law of contracts. The project’s basic premise, though, is that a different set of legal rules should govern contracts between a business and a consumer.”
In May 2019, the attorneys general of 23 states, led by the State of New York, also sent a letter to the ALI opposing the proposed Restatement. They contended it ignores “established precedent and black-letter law, deprives consumers of a meaningful benefit and offers them no real protection.”
Schwartz opined that despite a two-year hiatus taken on the project, there remains a lack of precedential foundation to the work.
“There is no law of consumer contracts. There is not one court in America, and there’s a lot of courts in this country, that has ever recognized a separate area of contracts for consumers. Just like there’s no separate area of consumer property law or consumer tort law. So it’s built on a fiction, it doesn’t exist,” Schwartz said.
“Restatements are supposed to restate existing law. It’s not, ‘What do we think today?’ It’s restating something. And key provisions of this draft of a so-called Restatement are not based on any case law whatsoever, none.”
According to both Schwartz and the aforementioned general counsels, expansion of the doctrine of unconscionability, which serves to nullify a contract between a business and a consumer if unfair conduct is proven (contained in the Restatement’s fifth section), and the introduction of a new common law rule pertaining to deceptive practices (found in its sixth section), represent “unneeded” provisions in the document.
Schwartz also pointed to the Restatement’s proposed elimination of the parol evidence rule (which prevents the reinterpretation of a contract’s terms after it is finalized) for contracts between a business and a consumer, as another unnecessary departure from the law.
“I’ve been a member of the ALI for almost 50 years, there’s never been anything like this. I love the ALI, it’s been good to me. But I think this hurts the organization very badly,” Schwartz said.
Schwartz further referenced the widespread historical influence carried by the ALI and its Restatements upon judges and courts.
“Judges looks to Restatements the way a rabbi looks at the Torah, or a Christian minister looks at Matthew, Mark, Luke and John. It’s considered the perfection of thinking. Members of the ALI are a very select group: It has prominent judges, members of the U.S. Supreme Court are members of the ALI, your top law professors in America are members and leading private practitioners are members,” Schwartz said.
“It’s a big deal, it’s going to be 100 years old in 2023. It’s a great institution, and it’s unfortunate that they have gone on this boat of a Restatement of the Law of Consumer Contracts. At least there was insurance law when we dealt with that, right? There is no law of consumer contracts. How many ways can I state it?”
At the ALI’s annual meeting in Washington in 2019, members voted to approve the initial section of the 134-page proposed Restatement. The session also featured vigorous debate among the gathered group of lawyers, judges and legal scholars, over whether consumer contracts should be considered different from business-to-business contracts and how vigorously courts should police the agreements.
In a key development, Schwartz stated that if the ALI Council approves the current project draft at this week’s meeting, the Restatement on Consumer Contracts is likely to be up for a final vote at the ALI’s annual meeting, which will be held virtually this spring.
“Most of the time, in my 48 years at the ALI, the membership approves whatever the council has put forward. Once in a while, it’s very rare, they may reject a part or a section of a Restatement. But it will be a very difficult thing to stop,” Schwartz said.
“Judges may see this as a Restatement of Contracts (Third), which it isn’t. The Restatement of Contracts has had great respect. It’s been cited thousands of times, it goes back to the 1920’s. I think [this project] is on fluid drive, if the council approves it.”
Schwartz cautioned as the ALI moves towards a century of existence next year, the Restatement of Law for Consumer Contracts may serve to do the group harm.
“I feel it will hurt the ALI’s image. I am pushing for the ALI to, as it approaches 100 years, keep its prestige and keep its respect. And this is an anchor,” Schwartz said.
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com