Presenting a live 90-minute webinar with interactive Q&A Boilerplate Clauses in Commercial Contracts: Avoiding Unintended Consequences and Implementing Practical Solutions Navigating Common Pitfalls With Choice of Forum, Choice of Law, Force Majeure, Dispute Resolution, Assignment and Other Key Clauses TUESDAY, JANUARY 24, 2017 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Timothy Murray, Partner, Murray Hogue & Lannis , Pittsburgh Steven M. Richman, Member, Clark Hill , Princeton, N.J. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Boilerplate Clauses in Commercial Contracts Timothy Murray, Esq. Steven M. Richman, Esq. Murray, Hogue & Lannis CLARK HILL PLC 3400 Gulf Tower 210 CARNEGIE CENTER Pittsburgh, PA 15219 PRINCETON, NJ 08540 412-263-5245 609.785.2911 tmurray@mhandl.com srichman@CLARKHILL.COM DISCLAIMER: THE MATERIALS HEREIN ARE NOT LEGAL ADVICE BUT PRESENTED FOR GENERAL INFORMATIONAL PURPOSES, AND NO ATTORNEY-CLIENT RELATIONSHIP IS ESTABLISHED HEREIN. FOR SPECIFIC AND APPLICABLE LEGAL ADVICE, CONSULT AN APPROPRIATE LEGAL PROFESSIONAL LICENSED TO PRACTICE LAW IN YOUR JURISDICTION 5 DM1/3735893v2
The 7 Ps All agreements can be divided into seven basic components: Preliminary – the basic governing principles Parties – who they are and the impact of location and status Purpose – business versus legal Payment – satisfying both sides Parol – impact of extra-contractual acts and statements Practicalities-getting from A to B Penalties-dispute resolution All drafting and negotiation should keep the "big picture" in mind. 6
Pitfalls As stated in the program brochure: “Boilerplate provisions are often simply cut and paste from one contract to another without much thought about the potential impact of their use. However, these clauses conceal significant legal and business implications that can produce unwanted future results if not tailored to the specific circumstances of the transaction.” We will cover pitfalls and the unintended consequences, and how to avoid, throughout this presentation using the “7 Ps” as an outline. 7
1. PRELIMINARY Law is territorial Boilerplate is not boilerplate You are responsible for what you sign (even if in a different language) You break it, you own it Digital is forever Prevention "We have this in all our agreements" — NOT Contract as roadmap Contract as legal rights and obligations The more specific governs over the more general 8
1. PRELIMINARY: Read it You need to understand the transaction and make sure the contract reflects it. Do not assume any of the "legal stuff" is standard; make sure you understand it. Make sure you know whose law applies so the enforceability of terms is understood up front. Do not settle for ambiguity and if there is pushback, rethink your transaction. Understand the cultural context and signals. 9
1. PRELIMINARY: "The Form" "[S]ome documents do use meaningless boilerplate and, in our view, the rule should not be carried to absurd lengths to imbue meaning into every legalistic jotting." Schron v. Troutman Saunders LLP , 2012 NY Slip Op 3966 (1 st Dept. 2012) Forms are a starting place, not a finish, and once size does not fit all — Distinguish from consistent documents in similar circumstances. 10
1. PRELIMINARY: Best practices Clarity is better than ambiguity in most cases: unless “eyes wide open” and informed decision. Run down the "what ifs." Anticipate the obvious. Use plain, understandable language. Use definitions and be consistent. The "backyard barbecue" test: how would you explain it to your half-drunk neighbor? 11
1. PRELIMINARY: Best practices Clarity is paramount — you will never hear a judge complain that a contract is too clear for him or her. No one wants to hear a court say this about their contract: “[W]e have no idea what it meant.” Orlander v. Staples, Inc. , 802 F.3d 289 (2d Cir. 2015). AVOID – legalese, redundancy, inconsistency. Common problem: dealing with the same subject matter in more than one place in the document — and using different language. 12
2. PARTIES: Overview Different jurisdictions yield different expectations. Civil law versus common law. United States also involves different legal cultures, legal regimes (Louisiana: civil law). Territorial application of law. Different idioms and word meanings of law. Parent/subsidiary and affiliate issues. "Piercing veil" and "alter ego". Agency and estoppel. 13
2. PARTIES: Why it matters Identify correctly the parties to the contract. If not done, can be repercussions. Corporate structure presumptively respected, but if "pierced," affects: Personal jurisdiction Liability — individual and affiliates Pool of recoverable assets Available discovery Statutory qualification — e.g., threshold for WARN Act, discrimination laws 14
PARTIES: Why it matters Defining the parties too broadly: “. . . including its subsidiaries, divisions, parent, and affiliates.” Do you have authority to contract on behalf of subsidiaries and parents? If you have the authority, is it a good idea? What is an “affiliate”? Without definition, it’s been held to be ambiguous: Omnicom Group, Inc. v. 880 West Long Lake Assocs. , 504 Fed. Appx. 487 (6th Cir. 2012). Do you even know all of the “affiliates” of the other party? Example of alternative to respect the corporate separateness of affiliates: have the supplier agree to offer same terms to affiliates — each affiliate that accepts contracts separately. 15
2. PARTIES: Choice of law Tells the parties which substantive law governs. US and foreign courts generally enforce. Affects substantive rights of parties. Applies in arbitration as well as court litigation. If not specified, courts do their own analysis. Important to determine choice of law up front. 16
2. PARTIES: Choice of law matters The "legal stuff" affects you. E.g., choice of law is not esoteric. Finnish Fur Sales Co., Ltd. v. Juliette Shulof Furs, Inc. , 770 F. Supp. 139 (S.D.N.Y. 1991)(substantive law of New York contrasted with that of Finland; a corporate officer was liable for the corporation's debt under Finnish law, but not under New York law. Court concluded that Finnish law applied.) 17
2. PARTIES: If no choice of law clause If no contractual choice of law clause, court chooses. Creates uncertainty. Courts generally first look to see if a conflict; if not, don't choose law. Tests: "traditional," the "significant contacts," the Restatement 2d," "lex fori," "better law" and "combined modern." Governs substance, not procedure. 18
2. PARTIES: Choice of law enforcement US courts generally enforce; if not specified, various tests (substantial relationship, e.g.). Exceptions: – against public policy – no reasonable relationship to forum US courts also apply foreign law (F.R.C.P. 44.1). Can affect ability to terminate contract or amount of damages, entitlement to interest, and others. Scope: tort and contract, "relating to and arising out of" versus "interpretation," e.g. 19
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