Instructions:

1. The exam consists of 7 pages, including this cover sheet. Please check now to ensure your copy is complete.
   
2. The exam is open book; you are free to consult any written materials, and you should have available to you all the assigned course materials.
   
3. You may not communicate with any person about the contents of the exam while it is being administered, even if you have turned in or not yet picked up your own copy. If during the exam you have any questions regarding its administration, you should contact the office of Academic Services and they will contact me if necessary.
   
4. Your exam is due 24 hours after you pick it up, or at 4 pm on Friday, December 15, whichever is earlier. You must return your exam in person, and also must return your copy of the exam questions at the same time.
   
5. There are two questions on the exam, each with a separate 1500–word limit. You may not use any leftover space from one question in answering another; and any attempt to use shorthand or nonstandard abbreviations will be counted as if full words were used. Answers exceeding the word limit will be penalized by reducing their score in proportion to the excess.
   
6. To ensure compliance with the word limit, you must provide a word count for each question. You may have your word processor program perform the count, or alternatively you may make a good faith estimate by counting the words in a sample paragraph or page and extrapolating to the length of the entire exam.
   
7. To ensure that you receive full credit for your answer, please: (a) write or print your exam ticket number on all parts of your exam; (b) begin your answer to each question on a new sheet of paper; (c) use double spacing and 1-inch margins, so that I have enough room to make notations on your exam; (d) if you write your exam by hand, write legibly.
   
8. I will post grades on the class website as soon as they are ready, and will post a feedback memo as soon as possible after that. Good luck on the exam; and have a good holiday.

QUESTION 1:  50% of exam; limit of 1500 words

Garner Goldbrick, your new client, has over the past two decades appeared in a variety of roles on local and network television, including as a sportscaster and talk show host, and in the occasional guest appearance on comedy programs. In the past few years, he has become well-known as the host of "Good Day," a daily morning show on the Popular Broadcasting System (PBS) that features light news, conversation, diet and health tips, and celebrity interviews. "Good Day"s ratings have doubled since Goldbrick took over as host, permitting PBS to earn substantially increased advertising revenues — both for the time period in which the show ran, and for the subsequent hour in which PBS broadcast another, more sensationalist talk show, "Shock-a-rama."

In June 1997, Goldbrick and PBS entered into an employment agreement which had a termination date of July 15, 2000. The agreement was negotiated by Goldbrick’s then lawyer, Selena Schuster, and contained what is commonly referred to in the broadcasting industry as a "good faith negotiation and first refusal" clause. This clause provided:

You agree, if we so elect, during the last ninety (90) days prior to the expiration of the extended term of this agreement, to enter into good faith negotiations with us for the extension of this agreement on mutually agreeable terms. You further agree that for the first forty-five (45) days of this negotiation period, you will not negotiate for your services with any other person or company other than PBS. In the event we are unable to reach an agreement for an extension by the expiration of the current contract term, you agree that you will not accept, in any market for a period of six (6) months following expiration of this agreement, any offer of employment as a program host, reporter, sportscaster, commentator, or analyst in broadcasting (including television, cable television, pay television and radio) without first giving us, in writing, an opportunity to employ you on substantially similar terms and you agree to enter into an agreement with us on such terms. We shall have five (5) business days following receipt in which to accept such offer as it is made or make changes that are not, in the aggregate, material; and we shall be required to match the character of employment only in substance and not in every particular.

At his request Goldbrick met with PBS executives in February 2000 — two months before the start of the negotiations period provided under the contract — to discuss a renewal. At that meeting Goldbrick, who was receiving a salary of $950,000 for the last year of the 1997 agreement, requested a two-year contract at an annual salary of $2.2 million for the first year and $2.5 million for the second year. He also wanted the opportunity to do a number of interview specials, to be aired during evening prime time, at additional compensation. PBS countered with a three-year offer at an annual salary of $2 million, $2.1 million, and $2.2 million, did not offer any prime-time interview specials, and orally asked for additional time to negotiate until April 15. Goldbrick agreed to this extension.

Unknown to PBS, Goldbrick subsequently met in late March with representatives of a rival network, Turncoat Entertainment Distributions (TED), and expressed interest in joining TED. At this meeting, Goldbrick discussed the good faith negotiation and first refusal provisions of his PBS contract and even gave a copy of the first page of his PBS contract containing those provisions to TED's representatives. When Goldbrick and PBS's representatives met again on April 1, Goldbrick expressed willingness to reduce his salary demands if PBS would commit itself to the prime-time specials. PBS increased its salary offer, refused to agree to the other terms, but promised to get back to Goldbrick in 10 days. Four days later, on April 5, also unknown to PBS, Goldbrick again met with TED's representatives. At this meeting, TED for the first time raised the possibility that Goldbrick would, in addition to hosting TED’s morning show, also host a semi-regular prime-time game show, tentatively to be called "Who Wants to Be on Television."

Despite its promise, PBS did not contact Goldbrick again until May 18, at which time Goldbrick refused to alter his salary demand of $2.2/2.5 million. A subsequent meeting took place on May 26, and the next day Goldbrick was given a written proposal which provided for a three-year contract at an annual compensation of $2.2/2.35/2.5 million, with a commitment for eight additional half-hour prime-time interview specials per year. This additional commitment, however, was subject to approval by PBS's board of directors. Goldbrick stated that he would not accept the offer because of PBS's delay in getting back to him and because of the imminent expiration of the 45-day exclusive negotiation period. He also told PBS that his lawyer had advised him to "see what the other options are," though he did not mention any of his previous contacts with TED. Goldbrick did say that he would get back to PBS "within a week or so."

On June 5, Goldbrick and Schuster met with TED's representatives, advising them that Goldbrick wanted to work at TED at the earliest possible date. By the close of the meeting TED and Goldbrick had agreed on the terms of Goldbrick's employment, and the parties shook hands on the deal. No discussion took place about Goldbrick's freedom to accept an off-air position prior to January 2001. The oral understanding was $2.2 million for hosting the morning show, and another $1 million for the game show.

That weekend, Schuster called Goldbrick and advised him that TED had prepared two different contracts, one a producer's agreement for immediate execution, and the other an agreement to host the talk and game shows. Schuster stated, "To get around PBS’s refusal clause, TED’s going to divide up the money between an on-the-air performer’s contract, and another off-the-air producer's contract. We'll divide the $3.2 million in half", to which Goldbrick replied "Fine, it makes no difference to me."

On Monday, June 12, Goldbrick was presented with two contracts, one a 12-page draft performer’s agreement signed by TED, annexed to which was a one-page letter, also signed by TED, providing that in return for $100 paid by Goldbrick TED agreed to hold open its offer of employment until January 16, 2001, under the terms and conditions set forth in the attached draft agreement. The second contract, a producer's agreement, related to Goldbrick's services as an off-air producer of talk and entertainment offerings, and was to take effect July 16 for a six-month period followed by an additional two-year term. This agreement contained a standard exclusive dealing clause providing that during its term, Goldbrick would not perform services of any nature for any person or company without TED’s prior approval. It also contained the following less standard clause:

Garner Goldbrick agrees not to voluntarily participate or cooperate in any litigation against Turncoat Entertainment Distributions arising out of events which have occurred from June 1997 to the date of the execution of this agreement. Should Goldbrick violate the terms or conditions of this agreement by the institution of any lawsuit or by the voluntary participation or cooperation in any lawsuit by anyone against either of the undersigned, both parties agree that the amount of damages resulting from such violation will be difficult to ascertain or calculate. For that reason the parties therefore agree that such damages shall be stipulated to be a minimum of five hundred thousand dollars ($500,000) in addition to attorney fees and court costs incurred by either of the undersigned in the defense of such a suit.

That same day, after discussing the exclusivity and liquidated damage provisions with his lawyer, Goldbrick signed the producer's agreement, and gave TED a $100 check for the irrevocable option on the performer’s agreement. The next day, June 13, Goldbrick submitted a letter of resignation to PBS. Then, on June 14, he called Bridget O'Malley, an PBS executive, and asked if PBS would compromise on its six-month first refusal right. In neither this discussion nor a similar one the next day did Goldbrick mention his contractual arrangements with TED. On June 23, O'Malley advised Goldbrick that PBS wanted him to work for part of this six-month period but that it was unwilling to waive any of its contractual rights. On June 24, Goldbrick, at Schuster's suggestion, sent PBS a handwritten letter stating: "It is clear that effective July 16, 2000, or thereafter, I am free to accept an offer to work elsewhere, upon the expiration of the six-month period, which is January 15, 2001". Thereafter, a letter agreement providing for a three-month extension of Goldbrick’s contract with PBS was drafted by an PBS lawyer. It provided in pertinent part: "The term shall be for the period from July 16 through September 15, 2000. It is agreed that on or after January 15, 2001, you may accept an offer of employment with anyone of your choosing and immediately begin performing on-air services."

Goldbrick continued to host "Good Day" until the end of September, pursuant to the letter agreement. Shortly after he left the show, however, Goldbrick's anticipated switch to TED became public, drawing great attention in the entertainment press. Stung by the unfavorable publicity, PBS reacted by filing suit against Goldbrick for breach of contract and against TED for interference with contractual relations. At this point, Goldbrick discharged Schuster as his attorney, and hired you to represent him instead.

You have been in contact with PBS executives and have learned that they are willing to discuss settling their lawsuit with Goldbrick. They have even hinted that they are willing to consider rehiring Goldbrick for the "Good Day" show, as well as for a new reality-based prime-time show they have on the drawing boards. While they say they are unwilling to drop their suit against TED at this point, you are not sure whether they really mean to take the suit all the way to trial, or whether this is just a hard-nosed negotiating tactic.

Advise Goldbrick on whether he should settle with PBS, and on what terms.

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QUESTION 2:  50% of exam; limit of 1500 words.

You have been hired as legal counsel to a new Internet company, ConstructionContractors.com. This company plans to create an online auction Website where general contractors from around the country can solicit bids from, and contract with, suppliers of building materials and various construction services. The company’s underlying business concept is that the use of information technology will enable more accurate and more competitive bidding, thus allowing contractors to assemble bids and to put together production teams more rapidly, flexibly, reliably, and cheaply. It plans to earn profits by charging its users a small premium on all contracts formed through its intermediation, and later on, after the success of the site is established, by charging an entry fee to contractors and subcontractors who wish to log onto the site. In addition, the company also hopes to earn revenues from architects, lenders, and consulting firms seeking to advertise to the Website’s principal customers. The company’s short-run survival, however, depends on developing a large user base and establishing a position as the primary auction site for the construction trade. Accordingly, during the startup period in which the company is building up its business, there will be no entry fee and the premium charged will be lower than would be required to cover the company’s operating costs.

You have researched the main legal and practical problems encountered by other electronic auction houses, including general-purpose and consumer auction sites such as Ebay, and more up-market sites such as Sotheby’s. You have discovered that the most significant problems fall into a recurring set of categories, including:

1. Problems caused by inexperienced bidders, who tend to submit a high rate of mistaken bids and bids that inaccurately describe the underlying goods or services. They also tend to withdraw bids at an above-average rate. This problem is magnified in the situation where bids are submitted by human rather than electronic agents, since a slip of the finger on a computer keyboard can easily change a bid by an order of magnitude. For instance, during recent ongoing bidding for wireless telephone licenses at the Federal Communications Commission, one bidder mistakenly placed a bid totaling $180 million for a small market that includes Norfolk and Newport News, Va., where the next lowest bid was $16 million. This error, which necessitated the shutdown and restarting of bidding, occurred notwithstanding a computerized bidding system that gave contestants three opportunities to confirm their bid, followed by a final chance to get a paper printout.
   
2. Problems caused by opportunistic bidders. These include the establishment of bidding rings, which attempt to reduce competition by coordinating bids among rival contestants, strategic or "phantom" bidding, which is intended to mislead competitors about costs or about the state of competition, and predatory bidding, which seeks to deter rivals by driving down their profits, often by running up the bidding and then pulling out at the last minute. Many of these practices are illegal under the antitrust laws, but there is no guarantee that governmental authorities will attach a high priority to their prosecution, or that such government prosecution will provide an effective level of deterrence on its own.
   
3. Long-distance contract enforcement. Enforcing contracts through legal means is plainly more difficult and expensive when parties deal at a distance. While it is possible to require bidders to deposit all or a portion of their bids in escrow, this is costly and tends to discourage business. On the other hand, with no deposit there is a large temptation to walk away from a bid that turns out after the fact to be unfavorable. Some online auction sites, such as Ebay, have experimented with reputation ratings as an inducement for contractual performance, but such ratings are often difficult to evaluate and are themselves subject to manipulation by opportunistic participants.

All of these problems, together with substantial legal uncertainty about the rules that would apply to online construction bidding, threaten to reduce the accuracy of the bidding process, to create uncertainty for bidders and for those who might rely on their bids, and thus to drive away business. Some of these problems will be mitigated by the factors that the company will cater to a specialized trade and that construction markets tend to be local, so that many of your customers will know each other. But other problems may be exacerbated by such factors.

You have been asked to write a short memo to the vice president for business planning outlining what policies you would recommend to deal with such problems. In your memo, you should be sure to discuss any disadvantages of the policies you propose, as well as their advantages. You should also be sure to keep in mind the company’s main goal, which is to establish its business through the development of a large customer base.