Memorializing an agreement in a written contract serves two primary purposes. First and foremost, a written contract should clearly set out the deal terms so that there is little or no chance of a misunderstanding as to what the parties’ rights and obligations are. Further, to be sure that they get the deal terms right, in-house counsel often turn to business people involved in the deal because they are the experts on the deal terms.
The second reason to have a written contract is to set out the “Rules of Engagement” that will apply if a dispute arises between the parties. Such Rules, on which I have written in other posts, include choice of law provisions, forum selection clauses, liquidated damages provisions, and arbitration clauses, just to name a few. Surprisingly, however, and in contrast to in-house counsels’ willingness to consult with business people about the deal terms in a contract, in-house counsel often are reluctant to consult with experts on the Rules of Engagement, i.e., experienced litigators. Whether the reason for this is a psychological aversion to placing too much emphasis on what might go wrong with a deal before it is fully in … Keep reading
While no in-house attorney drafting a business contract wants to focus on being in litigation with her business partner, as I discussed in a 2013 blog post, thinking like a litigator at the drafting stage is critical in order to avoid potential surprises. A good example of this comes in the context of crafting a forum selection clause that truly achieves your objectives.… Keep reading
No doubt, ensuring that any agreement is consistent with judicial precedent is critical if you want to enforce that agreement at some point in the future. Nevertheless, merely incorporating precedential concepts or language into an agreement may not be enough to get your client to where it wants to be, and may even result in your client being put in a more difficult position than if the precedent had been ignored. Nowhere is this more apparent than when a company seeks to draft and implement a standard and seemingly straightforward noncompete covenant.… Keep reading
More than once, an in-house counsel has called me up wanting to sue a former employee because s/he has been “bad-mouthing” the company despite having agreed not to disparage the company as part of a settlement or severance agreement. Nevertheless, I Often have had to give the client the bad news that, in light of the actual contractual language, there would be little chance of prevailing and/or, even if we did prevail, the legal fees probably would exceed the damages we might reasonably expect to recover. The good news for those of you reading this post, however, is that there are three simple steps you can take to greatly enhance the effectiveness and enforceability of any non-disparagement clauses you would like to implement in the future. … Keep reading
One size most certainly does not fit all when it comes to noncompetition agreements. Every state has its own requirements when it comes to the enforceability of employee noncompetition agreements. In some, such as California, noncompetition agreements are unlawful by statute. In other states, such as Colorado, noncompetition agreements may only be enforced in certain specific settings, such as the sale of a business. In many states, however, noncompetition agreements will be enforced if they protect the company’s legitimate business interests and are reasonable in time, geographic scope and the scope of the limitations on the employee’s ability to perform his profession. Where noncompetition agreements are not void as a matter of law, they are great fodder for litigators because there is no uniform definition of “legitimate business interest” and no consistent test to determine if the time, geographic scope and the scope of limitations on the employee’s ability to perform his profession are “reasonable.” These criteria are very fact and case specific.
Although most litigation of noncompetes focuses on whether the business interests of the employer are “legitimate,” and/or if the geographic and temporal scopes of the limitations are “reasonable.” Equally important to the enforceability of a … Keep reading
Sometimes, when business people can’t directly negotiate (or re-negotiate) favorable deal terms, they are tempted to withhold a payment or some other obligation in an effort to leverage the other party into an agreement it otherwise would not make. In-house counsel should be wary of endorsing such conduct, as this could result in exposing their companies to liability going far beyond simply having to lose face and/or doing what they should have done in the first place. Take, for example, the following scenario:
Acme engaged Alpha as its exclusive manufacturer for widgets and gidgets for two years. Four months later, Acme tries to negotiate a similar deal with Beta to manufacture didgets, and, if consummated, such a deal would provide Acme with ten times the revenue that the Alpha contract was expected to provide. While Beta expresses interest, it eventually makes clear that unless it also can manufacture gidgets, there will be no deal. While Acme tries to buy out of the gidget portion of the Alpha contract so that Acme can give Beta what it wants, Alpha refuses. Acme’s CEO realizes that the Beta deal is going to fall apart if something does not change quickly, so she … Keep reading
In addition to having a choice of law provision in a contract (a topic on which I posted last week), many contracts also include what is commonly known as a forum selection clause. Such clauses can be extremely important and can have an impact that goes well beyond simply setting up one party as the “home team” and the other an outsider.
For instance, even if a contract has a choice of law provision calling for the law of New York to apply to all contract disputes, if a forum selection clause requires suit to be brought in Massachusetts, the procedural law of Massachusetts applies. Consequently, while New York law does not have a trustee process attachment rule like we have in Massachusetts, a plaintiff should be able to obtain a freeze on the defendant’s bank account as long as a showing is made that the plaintiff is likely to succeed on the merits of its claim. The logic behind this is that, freezing a bank account (known as a “trustee process attachment”) is governed by procedural law (Rule 4.2 of the Massachusetts Rules of Civil Procedure), not by substantive law. Alternatively, if a suit was … Keep reading
Often, one of the last provisions in a contract will say:
This contract shall be governed and construed in accordance with the laws of the State of ______.”
Most courts will abide by the parties’ choice and apply the law designated by them – even if the law selected is not from the state where the case is being tried. It is only in limited situations, such as (i) where application of the selected law would undermine a significant public policy of the jurisdiction where suit is filed, or (ii) if the locale of the law selected has no relation to the parties or the dispute, that a court is unlikely to abide by the parties’ choice of governing law.
Why should in-house counsel care about choice of law? Well, while most states may have similar common law with respect to garden variety contract or tort claims, all states have statutory claims that only can be pursued if their own law is applicable.… Keep reading
After having read Mediation 101 and Mediation 201, you should have a solid understanding of what mediation is and how it works. Now, let’s discuss when it makes sense to mediate.
While different types of cases get resolved through mediation every day, mediation is not likely to be successful in every case. As a general rule, when parties agree to mediate, it is implied that they are willing to at least consider some sort of compromise or “outside the box” resolution to the dispute (it is for this reason that I believe court mandated mediation often leads to nothing more than a waste of time and money). Part of the reason for this is that no matter how reasonable a party’s position may be, mediators are wired to be impartial, and telling one party from the outset that it must capitulate goes against mediator DNA. Another reason for this is that all but the most inexperienced litigators know that mediation implies some sort of compromise. Thus, if a party claims at the mediation that it will not compromise one bit, such a position is not likely to be taken seriously – even if it is genuine. Likewise, a … Keep reading
In an earlier post, “Is Arbitration Quicker, Cheaper and Better for You?” I discussed why having a faster and less expensive dispute resolution mechanism may not be in your best interest. Make no mistake, however, the differences between traditional litigation and arbitration go well beyond the time and expense it takes to complete the respective processes. The following are a few of the more notable substantive distinctions between these two dispute resolution mechanisms:
- Litigation allows for extensive “discovery” (e.g., depositions, document requests and interrogatories) from parties and non-parties. Discovery in arbitration often is limited to document requests, but can be broadened by the arbitrator or agreement of the parties.
- Because arbitrators are not required to abide by any Federal or State Rules of Evidence, they routinely consider information that never would be admissible in court.
- A “bad” decision in a court of law almost always can be appealed. An arbitrator’s decision, on the other hand, rarely can be appealed – even if it obviously is contrary to the applicable law.
- Notwithstanding a lack of empirical data, most litigators agree that arbitrators are much more likely than a judge/jury to issue a compromise decision and/or one based on fairness principles
… Keep reading