Contract Drafting (Spring 2020)

By D. C. Toedt III
Attorney & arbitrator — tech contracts & IP
Adjunct professor, University of Houston Law Center

Updated Wednesday April 22, 2020 19:27 Houston time

Here are links to:

• The Syllabus (PDF)

• The TANGO Terms 2020A course book (PDF, 600-plus pages)

• The virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section )

1 Class plan - Day 27 (Wed. Apr. 22)

1.1 Final exam is canceled

I'll be sending the Registrar a note saying everyone gets a Satisfactory grade.

1.2 Drafting fail: An NDA

BACKGROUND: One of my clients is contemplated being acquired. A potential acquiring party has proposed a confidentiality agreement (a.k.a. nondisclosure agreement a.k.a. NDA).

TEXT: "provided, however, that in the event that a court of law shall determine that a fixed duration of survival is required, said [confidentiality] obligations shall survive for a period of five (3) years from the later of the following: the date of termination or expiration of this Agreement, or the date that either party notifies the other party that it has decided not to enter into the transaction or agreement contemplated by the parties."

1.3 Group review

In groups, use the virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ) to create an outline of the course's substantive highlights.

1.4 Drafting fail: Hurt by own "conspicuous" language

From this tweet by Boston-area tech lawyer turned entrepreneur Luis Villa: "Love to see an ALL CAPS AND BOLD section of a contract that is so typographically painful to read that the company’s lawyers didn’t actually proof it, and made a substantive error in my favor as a result."

1.5 Jeopardy!

House rules:

  1. You know the Jeopardy rules
  2. Use the "raise hand" function on Zoom to "buzz in."
  3. No buzzing in until I finish reading the question.
  4. If one team gets too far ahead, I'll ask them to hang back for a few questions; ditto if one person answers too many. (Want to give everyone a chance to win!!!!)
  5. All game decisions by the benevolent dictator (me) are final!

(Old one as a backup: a Jeopardy! game.)

1.6 Feedback on the course

Please use virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ) to make notes on what worked well with the course and what could be improved next semester. (Keep in mind that having too many questions on the quizzes is what enables them to be open-book.)

1.7 Course evals

Please do the evals on Access UH.

1.8 Vale

It's been a pleasure!

2 Class plan - Day 26 (Mon. Apr. 20)

2.1 Ambiguity rewriting exercise

From a tweet encouraging attendance at an anti-lockdown protest in Maine: "[T]here will be a caravan around the Capitol … Monday. … Remain in your vehicles but masks, bandanas, flags and signs on cars are encouraged."

QUESTION: In your view, why are caravaners being encouraged to put masks and bandanas on cars?

EXERCISE: Using the virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ), rewrite to clarify.

2.2 Assignment of contracts: Oil futures below zero (first time)

See this Bloomberg story — here's an excerpt:

The price on the futures contract for West Texas crude that is due to expire Tuesday fell into negative territory – minus $37.63 a barrel.

That’s right, sellers were actually paying buyers to take the stuff off their hands.

The reason: with the pandemic bringing the economy to a standstill, there is so much unused oil sloshing around that American energy companies have run out of room to store it.

And if there’s no place to put the oil, no one wants a crude contract that is about to come due.

(Emphasis and extra paragraphing added.)

See also the Hacker News discussion w/ tl;dr explanations.

HYPOTHETICAL: Suppose that:

  1. Alice buys a May oil futures contract.
  2. Alice later sells the contract to Bob.
  3. Bob defaults on the contract, i.e., he refuses to take delivery.

QUESTION: Under ordinary contract-assignment rules, would Alice be liable for Bob's default? (Use the Zoom "yes" and "no" buttons on the Participant list.)

2.3 Brief lecture: Best efforts

Best efforts (Tango Terms p. 469, § 9.08)

2.4 Rewriting exercise: "Provided that …" (revisited)

A contract contains the following provision: "Alice will pay Bob USD $100 no later than December 25; provided, however, that if Alice pays Bob no later than December 21, the amount to be paid will be $75."

TRUE OR FALSE: Professor Toedt regards the "provided …" as an acceptable form.

Answer: False. The term "provided that …." is commonly used in wall-of-text provisions but should be avoided in favor of breaking up the sentence (and possibly even the paragraph).

(This clause could be turned into a table, but it's short enough not to be worth bothering.)

EXERCISE: In the virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ), rewrite this. (Hint: Consider using romanettes.)

2.5 Minimalist drafting exercise: Jury trial waiver

FACTS:

  1. You represent MathWhiz.
  2. You've sent Gigunda a draft master services agreement.
  3. On a "page-turn" negotiation call, Gigunda's lawyer says that they'd like for MathWhiz to waive its right to jury trial.
  4. Mary, the CEO of MathWhiz, responds — to all on the call — that MathWhiz will agree to that.

EXERCISE: In the virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ), draft a short, "minimum-viable provision" (MVP).

QUESTION: What do you think about the one-sided waiver?

QUESTION: Do you think the jury waiver would be enforceable?

2.6 Review: Material breach – calling it out

TRUE OR FALSE: For a contract provision to be considered "material," the contract normally must so state.

2.7 Minimalist drafting exercise: Entire agreement

FACTS:

  1. You represent MathWhiz.
  2. Gigunda's lawyer has sent over a draft services agreement for your review.
  3. You notice that Gigunda's draft agreement doesn't include an entire-agreement provision.
  4. Gigunda's draft otherwise looks OK.

EXERCISE: In the virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ), draft a short, "minimum-viable provision" (MVP).

2.8 Review: Battle of the Forms

FACTS:

(A)  Seller regularly sells generic widgets. Buyer regularly buys widgets and incorporates them into, among other products, the pottery wheels that are manufactured and sold in Buyer's factory.

(B)  Buyer sends Sally Sales Rep a purchase order for 10,000 widgets at stated price- and delivery terms.

(C)  The P.O. contains a lot of detailed fine print — including a provision in which the seller warrants that the seller's goods will be fit for the purpose for which Buyer's customers use Buyer's goods; the P.O. doesn't identify those goods and Seller doesn't know that Buyer has pottery wheels in mind.

(D)  On the front, the P.O. says, in big bold letters, that the seller must sign the P.O. and return it with the ordered goods; the P.O. also says (i) that shipment constitutes acceptance of the terms, and (ii) that Buyer rejects any additional or inconsistent terms in any sales confirmation or other document that Seller provides.

(E)  Sally sends a copy of the P.O. to Seller's fulfillment department and tells them to ship the 10,000 widgets as specified in the P.O., but Sally doesn't sign or return the P.O.; Seller invoices Buyer for the stated price.

QUESTION 1: Was a binding contract formed? Why or why not?

QUESTION 2: If a binding contract was formed, is the fit-for-Buyer's-customer's purpose warranty provision part of the contract? (Hint: This is Contract Law 101.)

ALTERNATIVE FACTS: Seller doesn't ship the widgets, but instead sends back a "sales confirmation" form with Seller's own version of detailed fine print, including a conspicuous, legally-adequate disclaimer of all warranties, express and implied, AND a rejection of any additional or different terms. Buyer then cancels the order, which shocks and disappoints Seller.

QUESTION 3: Was a binding contract formed? Why or why not? If yes, is the fit-for-purpose warranty provision part of the contract? (Hint: This is Contract Law 101.)

ALTERNATIVE FACTS: Seller ships the widgets and includes with the shipment the sales confirmation form mentioned in the previous paragraph, but Seller does not sign or return the purchase order.

QUESTION 4: Was a binding contract formed? Why or why not? If yes, what are the warranty terms of the contract? (Hint: See Battle of the Forms.)

ALTERNATIVE FACTS: Sally — whose title is "Account Manager" — signs and returns the purchase order to Buyer.

QUESTION 5: Was a binding contract formed? Why or why not? If yes, what are the warranty terms of the contract?

3 Class plan - Day 25 (Wed. Apr. 15)

3.1 Quiz 4

Quiz 4 is up on Canvas; it's due this Sunday at 6 p.m. Open-everything, untimed, one attempt. Do your own work.

3.2 Review of selected items from Quiz 3

Note the following very-specific sales targets for the

During the Reseller Relationship, Reseller must achieve the following performance targets: (i) fulfillment of the $350,000 minimum payment to Supplier per quarter of the term (ii) $500,000 gross sales per quarter of the term in the predetermined territory; (iii) 5 new customer acquisitions per quarter of the term; and (iv) establishment of 3 high level customers per term.

If Reseller does not achieve those targets, then (i) reseller may lose 5% of its territory for each performance target not met per quarter; and (ii) increase in quarterly fulfilment requirement to Supplier per quarter, to increase by no more than $5,000 per quarter.

3.3 It's vs. its

Know the difference — "it's never a good thing to assume that a party will always act in its own best interest."

3.4 Ambiguity: Ambassador Taylor's Vietnam service

From the Washington Post: "Rep. Sean Patrick Maloney (D-N.Y.) walked [acting ambassador to Ukraine William] Taylor through his U.S. Military Academy and military career, including that he was No. 5 in a class of 800 and took a tough infantry assignment in Vietnam, in an apparent effort to embarrass Republicans."

QUESTION: Who, exactly, did what, "in an apparent effort to embarrass Republicans"? How could the ambiguituy be fixed?

3.5 Review: Notices clauses

The following have been harvested from various notices clauses.

  1. Keep in mind that for simpler contracts the notices provision can be succinct.
  2. Remember that a notice might be undeliverable — or might be refused.
  3. "A copy of any notice required under this Agreement shall also be sent to the law firm representing the party to be noticed." COMMENT: This is a good idea in general, but the specific implementation assumes facts not in evidence. QUESTION: How else could this be approached?
  4. "Notice will be effective … after two reasonable attempts at serving notice." COMMENTS: (A) Good idea to put a number on it. (B) I wouldn't call it "serving" notice, because that creates an impression of litigation and thus of hostility. Try instead "after two reasonable attempts at delivery"; this would be softer-sounding.
  5. "An email notice under this Agreement will be deemed received when sent." DISCUSS.
  6. "Notices are effective when (a) sent via certified mail and (b) upon receipt, refusal, or reasonable efforts at delivery." QUESTION: Would notice by FedEx, with confirmed receipt, be effective under this provision?
  7. "12.02. Mechanics. To be effective, notice must be: (i) in writing; (ii) addressed to the attention of the receiving party; (iii) accompanied by a copy to the legal department; and (iv) sent by Certified Mail." DISCUSS.
  8. "Notices may be sent to either party's registered agent." COMMENT: This might delay actual receipt. Registered agents are mainly for service of process, e.g., a summons and complaint.
  9. "If either party changes their address during the duration of this Agreement, they shall promptly notify the other party of the address change via certified mail." COMMENT: Should be "it shall promptly notify the other party …." (Pronoun choice hasn't made its way to the business-contract-drafting world yet.)
  10. "If a Notice regards a possible dispute, the notifying party must provide a copy of the Notice to the notified party’s legal counsel." (Emphasis added.) DISCUSS.
  11. A notice will be effective "five business days after the date it is sent by domestic registered or certified mail, with postage and charges prepaid, …." COMMENT: I'm really not a fan of saying that notices are effective X days after transmission, even if it's by registered- or certified mail.
  12. "All notices required under this Agreement must be in writing and sent by any method with written verification of receipt. [¶] To reduce the chances of Notices going astray, any Notice to an organization must be addressed to the attention of the position of responsibility in the organization." COMMENT: This is commendably succinct — although it would help to state what happens in case of an undeliverable notice.
  13. "If a party changes its address for Notice, then such party must provide written notice to the other party of its new address within 15 calendar days." QUESTION 1: So what would happen if this requirement were not met? QUESTION 2: Is there a better way to approach this?
  14. Notices by FAX / email are effective upon confirmaion of receipt — but what if the confirmation is automatic from the addressee's email system or FAX machine? Does that mean that a responsible human actually received the notice?

3.6 Review: Assignment of Mickey-Dee franchise agreement

FACTS:

  • You represent Smith, LLC, a family business that operates three Mickey-Dee franchised restaurants in Houston.
  • Smith, LLC owns the land and buildings of the restaurants, which are built to specifications developed by the global franchising firm Mickey-Dee Incorporated.
  • The restaurants all use trademarks owned by Mickey-Dee Incorporated, including the signage, logos, the name "Mickey-Dee," uniform styles etc.
  • The franchise agreement is silent about assignability of the agreement.
  • Smith, LLC wants to sell its three franchised restaurants to Jones, Inc., another family business.

QUESTIONS:

  1. What if anything could Mickey-Dee Incorporated do if your client Smith, LLC were to assign the franchise agreement to Jones, Inc.?
  2. What changes might you request in the franchise agreement?

3.7 Clause phrasing

FACTS:

  1. You are drafting a contract between your client Alice, and Bob, who owns a sole-proprietorship yard maintenance company that employs a number of workers.
  2. Under the contract, Bob's workers are to replace the sod in Alice' front yard.
  3. Bob won't be personally doing any of that work — and the contract will be between Alice and Bob, not Alice and Bob's workers.

QUESTION: How can you phrase this obligation so that it's clear that Bob is responsible for making this happen, without making it a false imperative?

3.8 Nickname for a "this is acceptable" provision

A lease states that

1.  Tenant must pay the rent by a means reasonably acceptable to Landlord, and

2.  Venmo is to be conclusively deemed an acceptable means of payment.

QUESTION: Subdivision (2) is an example of a xxxx-yyyyyy provision.

3.9 "Provided that …"

A contract contains the following provision: "Alice will pay Bob USD $100 no later than December 25; provided, however, that if Alice pays Bob no later than December 21, the amount to be paid will be $75."

TRUE OR FALSE: Professor Toedt regards the "provided …" as an acceptable form.

3.10 Use of other contract provisions in interpretation

TRUE OR FALSE: Parol evidence for interpreting Provision A of a contract can include the text of Provision B of the same contract.

3.11 Review: Parol evidence — when is it relevant?

QUESTION: In the U.S., courts generally will look to parol evidence to interpret a contract provision only if the provision is [BLANK]:

3.12 Employment agreement salary frequency

FACTS: You're drafting an employment agreement for a salaried employee. The parties have agreed on the starting salary, and you've been instructed to put that starting salary into the agreement.

QUESTION: You'll want to state that the salary will be paid:

A.  Monthly

B.  Biweekly

C:  Per the company's standard payroll procedures

4 Class plan - Day 24 (Mon. Apr. 13)

4.1 Ambiguity and the Easter service booklet

FACTS: This is adapted from my church's Easter Sunday service booklet of a few years ago (with the family's name changed):

Easter flowers and decorations are given
to the glory of God
and in memory of their grandmother Jane Doe
In honor of all Christians,
Especially those persecuted
By the Doe family

QUESTION: How could this be fixed with just one additional character?

4.2 Poll: Effective date

DCT to put up a poll question.

4.3 Backdating: Questions for discussion

In your groups, discuss: When (if ever) might it be appropriate to do the following:

  1. Appropriate to backdate the effective date of a contract
  2. INappropriate to backdate the effective date of a contract
  3. Appropriate to backdate the signers' signatures
  4. INappropriate to backdate the signers' signatures

4.4 Issue spotting exercises: Termination

Discuss the following in your small groups:

  1. "If (1) either Party breaches this Agreement, and (2) the breaching party fails to cure the breach within 5 business days after receiving written notice of the breach from the non-breaching party …." DISCUSS.
  2. "“Good Reason” [for termination] means (i) a transfer of all, or substantially all of Client’s business assets to another entity, and (ii) a contraction of Client’s business eliminating Client’s need for Service Provider’s data analytic services." (Emphasis added.) DISCUSS.
  3. "The solvent Party may Terminate upon the filing by the other Party (the insolvent party) …." DISCUSS.
  4. "If the Termination at will is for a material breach, …." DISCUSS.
  5. "Except for material breach or legal violation, Client may terminate this Agreement at-will where Client gives written notice: …." DISCUSS.
  6. "However, if the Terminating Party and the Nonterminating Party fail to cooperate, in a professional manner, both the Terminating Party and Nonterminating Party may agree to a shorter effective termination date." QUESTION: What are the odds that there'd be such an agreement if, by hypothesis, the parties failed to cooperate in a professional manner?
  7. Question: If termination is at-will, would the notice of termination need to state a basis for termination?

4.5 Drafting fail: Chris Tomlinson column

From Chris Tomlinson, Facebook could learn better practices from newspapers, Houston Chronicle: "Here’s what everyone needs to know about the First Amendment: It only protects people from government interference and does not apply to private people or companies. No media organization has an obligation to publish anything and is legally liable for what they do publish." QUESTION: Is that really what he meant to say?

5 Class plan - Day 23 (Wed. Apr. 8)

5.1 Attorney fees in Texas: Who d'ya gotta be?

QUESTION: Under Texas law, when a plaintiff successfully asserts a contract claim against a  defendant, if the plaintiff wishes to recover its attorney fees under Tex. Civ. Prac. & Rem. Code sec. 38.001, the defendant must be a[n] [BLANK] or a[n] [BLANK].

5.2 Ambiguity and Jewish grandmothers

In honor of the first night of Passover tonight, from Joshua Rothman in The New Yorker: "My grandmother is ninety-three and, to my knowledge, has never kept kosher."

DISCUSS.

5.3 Ambiguity rewrite: Swearing to defend the Constitution 11 times

Here's a tweet I saw retweeted: "I’ve sworn to defend and uphold our Constitution 11 times."

QUESTION: What exactly does "11 times" refer to — defending and upholding the Constitution 11 times, or swearing to do so?

EXERCISE: Rewrite to clarify.

5.4 Attorney fees: The American Rule

QUESTION: Under the so-called "American rule," this party can recover its attorney fees if it prevails in contract-related litigation if the contract does not say otherwise:

5.5 Discussion exercise: Assignment

FACTS: Your client MathWhiz has grown considerably and expanded into other lines of business. They're negotiating a contract to provide commodity data-processing services for BigWhale Corporation.

BigWhale wants the contract to state that MathWhiz won't assign the contract without BigWhale's consent.

QUESTION: How might MathWhiz respond?

5.6 Planning exercises: Warranty duration

FACTS: Consider a contract for the purchase of 1,000 small electric motors, which Buyer intends to use in manufacturing small, battery-powered nose-hair trimmers. (Yes, there is such a thing.) All parties are in Texas. The contract, drafted by Seller, states in part as follows:

Seller warrants to Buyer, for 30 days after delivery, that the motors will have a service life of at least one hundred (100) hours.

QUESTION 1: What if anything is wrong with this provision?

MORE FACTS: A summer associate is reviewing and redlining Seller's draft contract for you on behalf of your client Buyer. The summer associate notices that there is no disclaimer of implied warranties in the draft. After looking up the the Common Draft implied-warranty disclaimer language, the summer associate inserts the following text into the draft (with redlining, of course):

Seller DISCLAIMS all other warranties, express or implied.

QUESTION 2: What if anything is wrong with this provision?

5.7 Exercise: Reaction to a bad contract provision

FACTS: For a client, you're reviewing a contract drafted by The Other Side. Your client does not have much bargaining power and would really like to see this contract signed. You see a provision that outrages you.

QUESTION: What should be your first action?

A.  Delete the provision.

B.  Put yourself in The Other Side's shoes and ask what problem they were trying to solve.

C:  Revise the provision to make it acceptable to your client.

D.  Accept the provision and advise your client about it.

5.8 Review: Can liability for fraud be disclaimed?

QUESTION: An entire-agreement provision, by itself, won't preclude an aggrieved party from claiming misrepresentation unless the entire-agreement provision includes a disclaimer of this:

6 Class plan - Day 22 (Mon. Apr. 6)

6.1 "Flashcards" for review

See if these "flashcards" will help with your review: https://toedtclassnotes.site44.com/flashcards.html

6.2 A sad story

DCT to recount an arbitration case:

  • "Alice" signs a contract with "Bob LLC" to provide marketing for a new, Web-based store.
  • Contract is signed electronically for Bob LLC by "Billy, authorized agent."
  • Contract calls for Alice to pay Bob LLC $25K up front, AND 30% commission on sales.
  • Contract says that if Alice's Web store doesn't make "reasonable sales" within 90 days, then Alice gets her money back.
  • Unbeknownst to Alice: Bob LLC engages a third party, "Carol," to do the actual work and (supposedly) pays the $25K to Carol.
  • No sales at all for a year — "Carol" hasn't been heard from.
  • In text messages, Billy (Bob LLC's "authorized agent") agrees that Alice should get her money back, says he's working on getting it back from Carol — then, silence.
  • Alice brings an arbitration claim.
  • AAA duly "serves" Bob LLC, but Bob LLC never appears in the case.
  • In due course, arbitrator (DCT) finds in favor of Alice, awards her the full $25K.

QUESTIONS:

  1. With the arbitration award in hand, what's Alice's next step — can she take the award to Bob LLC's bank and get the bank to give her the $25K?
  2. Can Bob LLC appeal the arbitration award on grounds that the arbitrator screwed up the law?
  3. What could Alice have done to help her recover her money?

6.3 Ambiguity rewriting exercise: Lemley's pants

From a Facebook post by Stanford law professor Mark Lemley:

Things I appear to like more than my Facebook friends:

1. Pants

EXERCISE: What are the two possible meanings here?

6.4 Review: Must a warranty specify a remedy?

FACTS: A contract states that "Alice warrants that the car is in good condition," but it is otherwise silent about what will happen if the car isn't in good condition.

[Zoom poll:] TRUE OR FALSE: This contract provision isn't really a warranty because it doesn't specify a remedy if the warranty were to be breached.

6.5 Baseball arbitration

FACTS: Gigunda wants MathWhiz to agree to "baseball" (last-offer) arbitration.

QUESTION: As counsel for MathWhiz, what are some pros and cons of this approach?

6.6 Lecture: IP ownership

DCT to screenshare a PowerPoint deck

6.7 Status conferences and internal escalation

DCT brief lecture

6.8 Jury trial waivers

FACTS: Gigunda's proposed contract states that the parties waive the right to trial by jury.

QUESTION: As MathWhiz's counsel, what are some factors that you should take into account in making a recommendation to the client about this proposal?

6.9 Attorney malpractice insurance: What type?

QUESTION: Attorney malpractice insurance is an example of a type of coverage that, in the business-insurance context, is normally referred to by this name:

A.  Client liability coverage

B.  Professional liability coverage

C:  Commercial General Liability coverage

D.  Umbrella coverage

6.10 Arbitration exercise

FACTS: Gigunda wants MathWhiz to agree to arbitrate any dispute arising out of or relating to their agreement.

QUESTION: As counsel for MathWhiz, what are some pros and cons you might want to discuss with MathWhiz about this Gigunda request? Feel free to use the virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ).

6.11 Clause analysis

  1. "This Agreement may be terminated by either party upon no less than 30 calendar days written notice, without cause, unless a lesser time is mutually agreed upon by both parties. Said notice shall be delivered by certified mail, return receipt requested, or in person with proof of delivery." QUESTION: Any issues
  2. "Either Buyer or Seller may terminate the Agreement if the other party commits any act or omission that: a. is material to the other party’s rights or responsibilities under the Agreement, and b. violates any applicable law where the violation is likely to materially and adversely affect the other party." QUESTION: Does this allow termination for breach?
  3. "11.1 Any termination of the agreement does the following: [¶] 11.1.1 cancels any right that a party has to continue its performance [¶] 11.1.2 cancels any relevant post-termination rights of the parties …." COMMENT: Use (1), (2), etc., for subdivisions that aren't complete sentences.
  4. "X.1. Each party may, at its sole discretion and with at least 30 days written notice, terminate this Agreement at-will. All amounts due must be paid within 30 days of termination." QUESTION: Any thoughts about the italicized part?
  5. "Upon the occurrence of a material breach, as that term is defined in this Agreement and as it is defined under the laws of the State of Texas, the party not responsible for said material breach may, at its option, terminate this Agreement." QUESTION: Would that work for you if your client might someday be a breaching party?
  6. "This provision will apply if the Agreement, or applicable law, provides for termination at will." QUESTION: So is termination-at-will allowed, or not?
  7. "Should either party desire to terminate the Agreement, that party will provide a minimum of thirty-days’ written notice to the other before doing so." QUESTION: Any thoughts about the drafting style of the italicized part?
  8. "… any termination of the Agreement has the effect of releasing both parties of all obligations and rights – except for those regarding confidentiality – that exist under the Agreement." COMMENT: Whoa!
  9. "For a termination to be effective, the terminating party must give the non-terminating party 30 days notice of termination (separate from notice of breach, if any)." QUESTION: Would this work for you if your client was the terminating party?
  10. Timing: Conventionally, you'd give notice with X days opportunity to cure, then notice of termination — and the latter would take effect immediately.

6.12 Passive voice problem

QUESTION: An apartment lease agreement states (in part): "The apartment shall be regularly serviced by a professional pest-control service." This is an example of a|an [TWO WORDS] (not "passive voice"):

7 Class plan - Day 21 (Wed. Apr. 1)

7.1 In the news: A SCOTUS opinion about contract interpretation!

See this blog posting about CITGO Asphalt Refining Co. v. Frescati Shipping Co., 589 U.S. _, No. 565 (Mar. 30, 2020) (Sotomayor, J.).

7.2 In the news: Be careful what you prohibit or allow

From my tweet today about a 14th-Court opinion from yesterday: "Med-mal settlement agreement language prohibited disclosing fact or terms of settlement but did NOT stop plaintiff from talking about doctor's alleged malpractice - summary judgment affirmed."

7.3 Confidential Information exercise

FACTS:

Gigunda wants MathWhiz to sign a separate confidentiality agreement ("NDA," i.e., nondisclosure agreement) before Gigunda will disclose technical details about a new oilfield project that Gigunda will be undertaking.

Gigunda's draft NDA says that it's a two-way NDA, i.e., it will protect each party's confidential information — but MathWhiz doesn't plan to disclose any confidential information to Gigunda.

QUESTION (with Zoom poll): MathWhiz's project director asks you whether the NDA is safe to sign "as is," because it's a balanced NDA that applies equally to each party's information and each party receiving another party's information — what would you say?

MORE FACTS: MathWhiz's project director wants to know if you can add a clause to Gigunda's NDA, to the effect that MathWhiz's confidentiality obligations as to Gigunda's information will expire in one (1) year.

QUESTIONS:

  1. How do you think Gigunda might react?
  2. Is there a way to compromise?
  3. Any drafting issues in the way the "More Facts" paragraph is set out above?

7.4 Letter of intent exercise

FACTS: Gigunda is proposing to acquire MathWhiz. Mary, the CEO of MathWhiz, asks you to draft a letter of intent ("LOI").

EXERCISE: In virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ) in your breakout rooms, draft a list of bullet points that should be covered in the LOI.

7.5 Ambiguity in an obituary

From the obituary of Inez Neill Winton, who died at age 97:

In early 1942, when American's [sic] of Japanese ancestry were taken from their homes and relocated to internment camps, Inez went to the camp at Amache, Colorado to teach the children and open a library. She still received Christmas cards from several of the children she taught well into the 1960s including two who fought in the 442nd Infantry Regiment Brigade [sic].

QUESTION: What are two possible interpretations of the italicized portion? How could this be rewritten to clarify?

7.6 Review: Interest rate

QUESTION (with Zoom poll): What if anything is wrong with this provision? (Assume that the payment terms are adequately specified elsewhere.)

Past-due amounts will bear interest at 5% per month, compounded monthly, beginning on the day after the due date until paid.

7.7 Rewriting exercise: The case of LeBron's tattoos

FACTS: Here's a quote from this S.D.N.Y. opinion:

Familiarity with the facts underlying this case, which have been detailed in prior decisions of the Court, including the August 2, 2016, Memorandum Opinion and Order, the May 16, 2017, Memorandum Order, and the March 30, 2018, Memorandum Opinion and Order, is presumed.

(In the lawsuit, the owner of the copyrights in various NBA players' tattoos filed a lawsuit against the maker of an NBA-licensed video game that showed animated images of the players. The court granted the video-game maker's motion for summary judgment dismissing the case.)

EXERCISE: Right here, right now, each student "chat" me a rewrite of the above quote to make it more readable.

Hints:

  • Could the sentence be broken up into multiple pieces?
  • Why so much verbiage between the start of the sentence and the "punch line"?

Then we'll discuss.

7.8 Rewriting exercise: Termination

From this license agreement:

12. TERMINATION

If the royalties due hereunder have not been paid within the time allowed by this Licence Agreement or if either party shall breach of any of the representations, warranties, covenants, promises or undertakings herein contained and on its part to be performed or observed and shall not have remedied such breach within thirty (30) days after notice is given to the breaching party by the non-breaching party requiring such remedy or if either party shall have an Examiner appointed over the whole or any part of its assets or an order is made or a resolution passed for winding up of such party unless such order is part of a scheme for reconstruction or amalgamation of such party then the other party may forthwith terminate this Licence Agreement without being required to give any or any further notice in advance of such termination but such termination shall be without prejudice to the remedy of such party to sue for and recover any royalties then due and to pursue any remedy in respect of any previous breach of any of the covenants or agreements contained in this Licence Agreement.

EXERCISE: Rewrite to clarify — don't mess with the substance.

HERE'S DCT'S VERSION [DCT to show]:

7.9 In the news: McDonald's CEO fired, gets six months' severance pay

The separation agreement, providing for six months of severance, is here.

The McDonald's Corporation Officer Severance Plan is here — with a carve-out for termination for "cause," which is defined in Article II of the document.

According to the McDonald's 2018 proxy statement, the company does not have employment agreements, nor does it have change-of-control agreements.

7.10 Review: Under Armour financial statement problems

From the Wall Street Journal — recall our discussion about backdating contracts:

Federal authorities are investigating Under Armour Inc.'s accounting practices in a probe examining whether the sportswear maker shifted sales from quarter to quarter to appear healthier, according to people familiar with the matter. * * * 

Justice Department prosecutors are conducting a criminal inquiry into the matter in coordination with civil investigators at the Securities and Exchange Commission, another person said. * * * 

When examining what are known as revenue-recognition practices, authorities generally focus on whether companies record revenue before it is earned or defer the dating of expenses to make earnings appear stronger, among other possible infractions.

8 Class plan - Day 18 (Mon. Mar. 30)

8.1 Review time for quiz

Use virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ) for your groups — what questions did you have?

8.2 Ambiguity rewriting exercise: Nestle and Starbucks

From this BBC.com article: "Nestle has announced that it will pay Starbucks $7.1bn (£5.2bn) to sell the company's coffee products."

QUESTION: Which company will sell which company's coffee —

  • Will Nestle sell Starbucks coffee? or
  • Will Starbucks sell Nestle coffee?

(Which do you think is more likely?)

EXERCISE: In your breakout rooms and the virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ), rewrite twice — once for each possible interpretation.

8.3 Services exercise

FACTS: You represent MathWhiz and are helping to negotiate its services agreement with Gigunda. Gigunda objects to your draft of a "Services" section of the agreement because it says, in effect, that all "scope changes" to the agreed services must be in writing. Giguna's negotiator says, we don't want to have to bother with a writing — we're in a time-sensitive business where we often have to move fast, so we need to be able to call up MathWhiz and just tell them what changes we need to the services.

QUESTIONS:

  1. If MathWhiz were to accept Gigunda's proposed change, what risks could that pose to MathWhiz?
  2. What kind of language could you propose to address Gigunda's concerns while still providing MathWhiz with protection?

8.4 Audits exercise

FACTS: Gigunda wants MathWhiz to undertake a time-and-materials project. (What's that?) Gigunda is proposing a draft contract in which MathWhiz must keep records for five years and allow Gigunda to audit the records.

QUESTION: What kind of fences might you want to try to put around Gigunda's audit right in order to save MathWhiz from unnecessary burden and expense? Use the virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ) to make a list (no need for exact language).

8.5 In the news: 5th Cir. case about indemnities (oil well blowout)

See the contract diagram in Certain Underwriters at Lloyd’s, London v. Axon Pressure Prods. Inc., No. 18-20453, slip op. (5th Cir. Feb. 21, 2020).

The points here are:

  1. Contracts get assigned.
  2. Companies do invoke indemnity provisions in assigned contracts.

8.6 Referrals exercise

FACTS: MathWhiz is all excited because Gigunda wants to refer potential clients to MathWhiz — but Gigunda wants to be paid a referral fee for each referral.

QUESTIONS:

  1. From MathWhiz's perspective, what should have to happen before MathWhiz is obligated to pay Gigunda a referral fee?
  2. What what Gigunda prefer to be the trigger for getting a referral fee?
  3. Is there any way to compromise between 1 and 2 above?
  4. Is there any way that MathWhiz could avoid paying a referral fee?

8.7 Ambiguity rewriting exercise: AOC

From a Politico article of this morning "Both candidates — Jessica Cisneros in Texas and Marie Newman in Illinois — were taking on conservative Democrats who oppose abortion rights and later earned the support of several prominent national Democrats."

QUESTION: Who earned the support of several prominent national Demcrats —

  • Cisneros and Newman? or
  • conservative Democrats?

(Which do you think is more likely?)

EXERCISE: In your breakout rooms and the virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ), rewrite twice — once for each possible interpretation.

9 Class plan - Day 18 (Mon. Mar. 30)

9.1 Review time for quiz

Use virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ) for your groups — what questions did you have?

9.2 Ambiguity rewriting exercise: Nestle and Starbucks

From this BBC.com article: "Nestle has announced that it will pay Starbucks $7.1bn (£5.2bn) to sell the company's coffee products."

QUESTION: Which company will sell which company's coffee —

  • Will Nestle sell Starbucks coffee? or
  • Will Starbucks sell Nestle coffee?

(Which do you think is more likely?)

EXERCISE: In your breakout rooms and the virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ), rewrite twice — once for each possible interpretation.

9.3 Services exercise

FACTS: You represent MathWhiz and are helping to negotiate its services agreement with Gigunda. Gigunda objects to your draft of a "Services" section of the agreement because it says, in effect, that all "scope changes" to the agreed services must be in writing. Giguna's negotiator says, we don't want to have to bother with a writing — we're in a time-sensitive business where we often have to move fast, so we need to be able to call up MathWhiz and just tell them what changes we need to the services.

QUESTIONS:

  1. If MathWhiz were to accept Gigunda's proposed change, what risks could that pose to MathWhiz?
  2. What kind of language could you propose to address Gigunda's concerns while still providing MathWhiz with protection?

9.4 Audits exercise

FACTS: Gigunda wants MathWhiz to undertake a time-and-materials project. (What's that?) Gigunda is proposing a draft contract in which MathWhiz must keep records for five years and allow Gigunda to audit the records.

QUESTION: What kind of fences might you want to try to put around Gigunda's audit right in order to save MathWhiz from unnecessary burden and expense? Use the virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ) to make a list (no need for exact language).

9.5 In the news: 5th Cir. case about indemnities (oil well blowout)

See the contract diagram in Certain Underwriters at Lloyd’s, London v. Axon Pressure Prods. Inc., No. 18-20453, slip op. (5th Cir. Feb. 21, 2020).

The points here are:

  1. Contracts get assigned.
  2. Companies do invoke indemnity provisions in assigned contracts.

9.6 Ambiguity rewriting exercise: AOC

From a Politico article of this morning "Both candidates — Jessica Cisneros in Texas and Marie Newman in Illinois — were taking on conservative Democrats who oppose abortion rights and later earned the support of several prominent national Democrats."

QUESTION: Who earned the support of several prominent national Demcrats —

  • Cisneros and Newman? or
  • conservative Democrats?

(Which do you think is more likely?)

EXERCISE: In your breakout rooms and the virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ), rewrite twice — once for each possible interpretation.

9.7 Confidential Information exercise

FACTS:

Gigunda wants MathWhiz to sign a separate confidentiality agreement ("NDA," i.e., nondisclosure agreement) before Gigunda will disclose technical details about a new oilfield project that Gigunda will be undertaking.

Gigunda's draft NDA says that it's a two-way NDA, i.e., it will protect each party's confidential information — but MathWhiz doesn't plan to disclose any confidential information to Gigunda.

QUESTION: MathWhiz's project director asks you whether the NDA is safe to sign "as is," because it's a balanced NDA that applies equally to each party's information and each party receiving another party's information — what would you say?

FACTS: MathWhiz's project director wants to know if you can add a clause to Gigunda's NDA, to the effect that MathWhiz's confidentiality obligations as to Gigunda's information will expire in one (1) year. QUESTIONS:

  1. How do you think Gigunda might react?
  2. Is there a way to compromise?
  3. Any drafting issues in the way the facts are set out above?

9.8 Letter of intent exercise

FACTS: Gigunda is proposing to acquire MathWhiz. Mary, the CEO of MathWhiz, asks you to draft a letter of intent ("LOI").

EXERCISE: In virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ) in your breakout rooms, draft a list of bullet points that should be covered in the LOI.

9.9 Ambiguity in an obituary

From the obituary of Inez Neill Winton, who died at age 97:

In early 1942, when American's [sic] of Japanese ancestry were taken from their homes and relocated to internment camps, Inez went to the camp at Amache, Colorado to teach the children and open a library. She still received Christmas cards from several of the children she taught well into the 1960s including two who fought in the 442nd Infantry Regiment Brigade [sic].

QUESTION: What are two possible interpretations of the italicized portion? How could this be rewritten to clarify?

9.10 Review: Must a warranty specify a remedy?

FACTS: A contract states that "Alice warrants that the car is in good condition," but it is otherwise silent about what will happen if the car isn't in good condition.

EXPLAIN IF FALSE: This contract provision isn't really a warranty because it doesn't specify a remedy if the warranty were to be breached.

9.11 Review: Interest rate

QUESTION: What if anything is wrong with this provision? (Assume that the payment terms are adequately specified elsewhere.)

Past-due amounts will bear interest at 1.5% per month, compounded monthly, beginning on the day after the due date until paid.

9.12 Rewriting exercise: Termination

From this license agreement:

12. TERMINATION

If the royalties due hereunder have not been paid within the time allowed by this Licence Agreement or if either party shall breach of any of the representations, warranties, covenants, promises or undertakings herein contained and on its part to be performed or observed and shall not have remedied such breach within thirty (30) days after notice is given to the breaching party by the non-breaching party requiring such remedy or if either party shall have an Examiner appointed over the whole or any part of its assets or an order is made or a resolution passed for winding up of such party unless such order is part of a scheme for reconstruction or amalgamation of such party then the other party may forthwith terminate this Licence Agreement without being required to give any or any further notice in advance of such termination but such termination shall be without prejudice to the remedy of such party to sue for and recover any royalties then due and to pursue any remedy in respect of any previous breach of any of the covenants or agreements contained in this Licence Agreement.

EXERCISE: Rewrite to clarify — don't mess with the substance.

HERE'S DCT'S VERSION [DCT to show]:

10 Class plan - Day 17 (Wed. Mar. 25)

10.1 Quiz 3: Change of plans

Given the unusual change of circumstances of this semester (the COVID-19 pandemic), Quiz 3 will now be:

  • untimed
  • due this Sunday, March 29 at 6:00 p.m. Central time
  • open-everything
  • honor code to do the work yourself

10.2 Order fulfillment (continued)

FACTS: You represent Supplier. Customer wants its "affiliates" to be listed in the preamble as parties to the agreement, e.g., "The parties are ABC Inc. ('Supplier') and XYZ Inc. and its affiliates ('Customer')."

QUESTIONS: (numbering is continued from Monday)

  1. As Supplier's lawyer, what do you think of this — what do you think Customer really wants?
  2. How might you structure the contract to accommodate Customer's likely desires — and to protect Supplier?
  3. What are the INCOTERMS? What does "EXW" mean?
  4. Tango § 3.04.2–1, stocking-point delivery: As Supplier's lawyer, what do you think of having risk of loss pass to Customer only when the goods are released for final delivery to Customer?

    (What kind of fences might Supplier and Customer want?)

10.3 Referrals

QUESTIONS for small-group discussions:

  1. What do you think are the major issues for a referring "agent"?
  2. Is "agent" a good term?
  3. What do you think are the major issues for the party paying commissions?

10.4 Preview lecture: Assignment consent

10.5 Ambiguity exercise: Making babies

From a spring-2016 student: Mice Breeding Chinese Scientists Say Making Babies in Space Is Possible (Inverse.com). The student's comment: "TL;DR: Hyphens are important, yo."

10.6 Ambiguities and vagueness: Selected examples

  • Prostitutes appeal to Pope
  • No litigation against Borrower is pending or threatened to Borrower's knowledge.
  • The Trust may donate funds only to charitable and educational institutions.

10.7 Exercise: Atari indemnification provision

(We'll only do this if we didn't do it before; I'm not sure about that.)

From section 11 of an Atari consulting contract at https://goo.gl/TvfYKa (onecle.com via archive.org):

Consultant agrees to indemnify and hereby does indemnify, defend and hold harmless Atari, its affiliates, and their respective officers, directors, employees, distributors, agents, customers and licensees from and against any liability, damage or expenses (including without limitation attorneys' fees) based on the untruth or breach of any representation, warranty or covenant contained in this agreement.

QUESTIONS:

  1. Given the meaning of indemnify, what does the phrase, "and hereby does indemnify" literally mean, and does that make business sense?
  2. The end of this provision refers to the "untruth" of any "covenant"; any thoughts about that?
  3. Does Atari gain anything by asking for this indemnity obligation, as opposed to relying on straightforward breach-of-contract remedies?
  4. If you were representing Consultant, what might you say about the list of beneficiaries of this indemnity obligation?
  5. If you were representing Consultant, how might you try to negotiate less-onerous terms for this provision?

10.8 Finish homework review (6 p.m. only)

See the class plan for this past Monday.

10.9 Review exercise: Indemnity 1 (Stanford-Tesla lease)

The provision below, at https://goo.gl/Qn2e9m (edgar.sec.gov), is from a 2007 real-estate lease in which Tesla Motors, Inc., leased a building from Stanford University:

12.5 Indemnity. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect and hold Landlord and Landlord’s trustees, directors, officers, agents and employees and their respective successors and assigns (collectively, “Landlord’s Agents”), free and harmless from and against any and all claims, liabilities, penalties, forfeitures, losses or expenses (including reasonable attorneys’ and consultants’ fees and oversight and response costs) to the extent arising from (a) Environmental Activity by Tenant or Tenant’s Agents; or (b) failure of Tenant or Tenant’s Agents to comply with any Environmental Law with respect to Tenant’s Environmental Activity; or (c) Tenant’s failure to remove Tenant’s Hazardous Materials as required in Section 12.4. Tenant’s obligations hereunder shall include, but not be limited to, the burden and expense of defending all claims, suits and administrative proceedings (with counsel reasonably approved by Landlord), even if such claims, suits or proceedings are groundless, false or fraudulent; conducting all negotiations of any description; and promptly paying and discharging when due any and all judgments, penalties, fines or other sums due against or from Landlord or the Premises. Prior to retaining counsel to defend such claims, suits or proceedings, Tenant shall obtain Landlord’s written approval of the identity of such counsel, which approval shall not be unreasonably withheld, conditioned or delayed. In the event Tenant’s failure to surrender the Premises at the expiration or earlier termination of this Lease free of Tenant’s Hazardous Materials prevents Landlord from reletting the Premises, or reduces the fair market and/or rental value of the Premises or any portion thereof, Tenant’s indemnity obligations shall include all losses to Landlord arising therefrom.

ASSIGNMENT: As the attorney for Tenant:

  1. Break up the provision.
  2. In your groups, consider what if anything you'd want to negotiate if you represented Tesla.

11 Class plan - Day 16 (Mon. Mar. 23)

Welcome "back"; I hope each of you and your families are safe and healthy.

This will be our first class using Zoom. Since we don't do pure lecture here, there's likely to be a learning curve for all of us, so please be patient.

11.1 Breakout-room setup for small groups

For the "first" person (alphabetically) in each of our groups: Please send me, via chat, the names of the people in your group. I'll use those names to set up Zoom small groups.

While I'm doing that, take a look at the following:

11.1.1 The Onion

The Onion on the COVID-19 crisis: "Nation Close To Getting Videoconferencing Software To Work"

"WASHINGTON—Explaining that they almost had the online communication application fully figured out, the nation reportedly announced Monday that they were close to getting their videoconferencing software to work."

11.1.2 Cautionary tale: Video conferencing

See this — keep an eye on row 2, column A.

11.1.3 Cautionary tale: Supply chains (and human nature generally)

This one is going in my SPP file, from this Hacker News comment:

So so many websites and factories can supposedly sell you millions of cheap BFE 99% or N95 masks yet did not even exist 2 weeks ago. Certificates can be photoshopped.

Most of the countries that manufacture these days have no legal recourse if they scam you.

We have local offices in all the countries we import from, did multiple visits in person, tested out larger and larger sample orders and they still tried to scam us by switching out the masks for used ones 3 weeks in.

(Extra paragraphing added.)

11.1.4 Plain-language lesson from a COVID-19 tweet

From this tweet:

LESS CLEAR
"Practice social distancing"

New term
Unclear
Not specific
Conceptual [emphasis by DCT]

MORE CLEAR
"Stay home. Get groceries once per week."

Use known words
Be clear
Be specific
Be concrete

11.2 Discussion of the reading for this week

In the breakout rooms, talk amongst yourselves and use the virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ):

  • What surprised you?
  • What do you think is especially important for a new associate to know?
  • What questions do you have?

11.3 Rewriting exercise: COVID-19 and the government

From this opinion piece (from a couple of weeks ago): "Trump has allowed the virus to circulate widely in the United States rather than allow public-health professionals free rein to contain it in a way that might have contributed to a stock market panic and harmed his re-election odds."

QUESTION: What action, by whom, "might have contributed to a stock market panic …."?

EXERCISE: In the virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ): Rewrite twice, once for each possible meaning. [Hint: Punctuation can be useful here.]

11.4 Rewriting exercise: A force majeure clause

In recognition of the SARS-CoV-2 / COVID-19 pandemic, let's look at the following force-majeure clause was posted on redline.net, a very-useful online discussion forum for lawyers:

Force Majeure. If either party is rendered unable, wholly or in part, by Force Majeure to carry out its obligations under this Agreement, other than the obligation to make money payments for work that was approved and delivered prior to the Force Majeure, such party will give the other party prompt written notice of the Force Majeure with reasonably full particulars concerning it. Thereupon, the obligations of the party giving notice, so far as they were affected by the Force Majeure, will be suspended during, but no longer than, the continuance of the Force Majeure. The affected party will use all possible diligence to remove the Force Majeure as quickly as possible. By definition, Force Majeure will mean an act of God, strike, lockout, or other industrial disturbance, act of the public enemy, terrorism, war, blockade, public riot, lightening, fire, flood, hurricane, earthquake, explosion, quarantine restrictions, epidemics, pandemics, failure to timely receive government approvals, government restraint, unavailability of equipment and any other cause, whether of the kind specifically enumerated above or otherwise, which is not reasonably within the control of the party claiming suspension. If a party affected by the Force Majeure is unable to provide reasonable assurance that the Force Majeure will be removed in a timely manner so as to permit the affected party to carry out their obligations contemplated in this Agreement, the other party shall have the right to terminate this Agreement and secure alternative services. Neither party shall be entitled to claim relief under this section in respect of any period during which it could have complied with any obligation (or any part thereof) under this Agreement by using its best endeavors to avoid, overcome or minimize wholly or partly the effects of the said event or combination of events. In the event the right of termination is exercised under this Section, the party affected by the Force Majeure shall not be responsible for any costs or damages associated with the termination or alternative service.

FIRST: In your breakout rooms, discuss the following:

  1. How could you make this easier to read?
  2. What do you think about the phrase "all possible diligence to remove the Force Majeure" and "best endeavours"?
  3. In the last sentence, who is responsible for costs and damages associated with termination? Does this sentence adequately set that out?

SECOND: We'll discuss as a whole.

THIRD: In your groups in the virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ), see about rewriting it. Make it as plain-language as you can. Feel free to try out using second-person language, e.g., "you must do X."

11.5 Order fulfillment

In the Tango Terms, see p.103.

QUESTIONS — discuss in the breakout rooms first, then as a whole:

  1. What are some pros and cons of spelling out, in the contract, the information that Customer must submit in an order?
  2. What are some pros and cons of:
    • having each order become an addition to the master agreement, versus
    • having each order be a separate agreement that incorporates the master agreement by reference.
  3. Why might Supplier want a quotation to have an expiration date?
  4. What are some pros and cons of allowing orders to be modified orally and not requiring written modifications?

12 Class plan - Day 15 (Wed. Mar. 4)

12.1 Rewriting exercise: Ambiguity about COVID-19

From this tweet: "The US had time to prepare for this [the COVID-19 outbreak]. We didn't."

QUESTION: What are the two possible meanings of this?

EXERCISE: Rewrite for each meaning.

12.2 Redrafting an ambiguity in a trademark license termination clause

From General Nutrition Investment Co. v. Holland & Barrett Int'l Ltd (Rev 1) [2017] EWHC 746 (Ch), ¶ 15:

5.2 The Licensor may terminate this Agreement by notice in writing if:

     (a) The Licensee [i] materially breaches this Agreement or [ii] any other member with the H&B Group commits an act which would amount to a material breach of this Agreement or [iii] (without prejudice to the Licensor’s other rights to terminate under this Agreement) otherwise infringes the Licensor’s rights under the Trade Marks [iv] to an extent likely to cause material lost [sic] to the Licensor; or …

(Bracketed romanettes added; hat tip: IP Draughts.)

QUESTION 1: Does the materiality qualifier in clause iii apply to all of clauses i through iii or just to clause iii? EXERCISE: Rewrite to clarify.

QUESTION 2: What's the problem with the phrase followed by "[sic]" in clause iv?

QUESTION 3: What do you think the legal effect is of "terminat[ing] this Agreement"?

12.3 Tango Terms Webinar

With your indulgence, I'd like to do a dry run of my IACCM Webinar tomorrow morning.

12.4 Discussion topics: Indemnity clauses

Discuss these from your perspective as MathWhiz's counsel — but keep in mind what Gigunda's reaction might be (because MathWhiz wants to get to signature).

  1. "Beneficiary must request Payer to defend an applicable claim in writing on or before 10 days after Beneficiary learns, by any means, of the claim. If the Beneficiary fails to follow this provision, then Payer is released from their [sic] indemnity obligation." (Emphasis added.) QUESTION: What might Beneficiary propose as a counteroffer?
  2. "The Payer will maintain indemnity insurance in the amount of $1,000,000." QUESTION: What exactly is "indemnity insurance"?
  3. "Provider agrees to indemnify, defend, and hold harmless Customer and its directors, officers, agents, and employees from and against any and all losses, settlements, damages, judgments, expenses and costs (including reasonable attorneys’ fees and court costs) resulting from any third-party claim, action or suit arising from Customer’s performance of the services in accordance with this Agreement …." QUESTION: Does this cover damage done to Customer by Provider screw-ups?
  4. "In cases of a breach of a warranty listed in Article 4, the Payer is obligated to reimburse the Beneficiary for direct losses and expenses that occur. The Payer must pay the Beneficiary for covered losses and expenses as follows: …."
  5. "a. Each party agrees to indemnify, defend, and hold harmless the other party from and against any loss, cost, or damage of any kind to the extent arising out of its breach of this Agreement, and/or its negligence or willful misconduct. [¶] b. Each party agrees to indemnity [sic], defend, and hold harmless up to the amount of the applicable insurance policy. If the party does not have an insurance policy, the party agrees to indemnity the other party for the full amount of any loss, cost, or damage." QUESTION: Does subdivision b limit the obligation of subdivision a?
  6. "The Provider shall be liable hereunder only for its own gross negligence, willful misconduct or bad faith. The Company agrees to indemnify the Provider and save it harmless against any and all liabilities, including judgments, costs and reasonable counsel fees, for anything done or omitted by the Provider in the execution of this Agreement, except as a result of the Providers gross negligence, willful misconduct or bad faith." QUESTION: How might Customer respond to this clause if proposed?
  7. "The Company’s pay-for obligations are not limited to third-party claims against the Provider, and do not exclude the Provider’s own claims against the Company." QUESTION: How might Gigunda — which presumably has greater power than MathWhiz — respond to this clause if MathWhiz were to propose it?
  8. "If Payor chooses to take control of Beneficiary’s defense, they [sic] may not relinquish control of the defense without written consent of Beneficiary." COMMENT: While choice-of-pronouns is "a thing" in some settings, you probably don't want to go there in a contract.
  9. "Company may retain its own counsel to defend or assist in defending any claim, action or proceeding involving potential liability of $5,000,000 or more, and Contractor shall pay the reasonable fees and disbursement of such counsel." DISCUSS.
  10. "It is expressly understood that Company shall not have any obligation to defend, indemnify and hold harmless Contractor or its Agents with respect to any Contractor Indemnified Claims except to the extent that the aggregate Indemnified Claims exceed $1,000,000.00. Company will not have any such indemnity and hold harmless obligation for the first $1,000,000.00 of the aggregate Indemnified Claims." QUESTION: What's the legal-jargon term for this kind of provision?
  11. "§ 7.2 The aggregate liability of each Party arising out of this Agreement will not exceed $100.000." QUESTION: Is this a limitation on just the indemnity obligation, or on all liability?
  12. "5.1 To the fullest extent of any applicable laws, Gigunda will pay for, defend, and hold harmless Math-Whiz, its officers, employees, agents, representatives, and contractors from and against any and all loss, costs, penalties, fines, damages, claims, expenses (including attorney’s fees) or liabilities arising out of, resulting from, or in connection with the services of this Agreement, notwithstanding subsection 5.1 through 5.5." QUESTION 1: How broad is this obligation? QUESTION 2: What effect does the "notwithstanding …" language have?
  13. "7.2 Buyer will indemnify and hold harmless the Seller, its officers, directors, employees, shareholders, agents, representatives and other advisors (“Seller Indemnitees”) against all actions, proceedings, claims or demands made by any third party for losses, costs, damages and expenses which may be brought against or suffered by the Seller or which it may sustain, pay or incur by reason of anything arising out of or in any way attributable to the Services carried on or to be carried on by the Seller Indemnitees, except when and to the extent that losses, costs, damages or expenses are a result of the gross negligence or willful misconduct of the Seller Indemnitees. QUESTION: How broad is this?
  14. From the same student as the preceding paragraph: "7.3 Buyer will defend and indemnify Seller Indemnitees against any claim or action brought by a third party against Seller Indemnitees, alleging that Services infringes [sic] a patent, copyright, trademark, trade secret, trade name, trade dress, mask work or other intellectual property right."
  15. The student in the previous two paragraphs put a border around the entire Indemnities § 7. DISCUSS.
  16. "Service Provider will indemnify, defend, and hold harmless the client and its officers, directors, employees, agents, and representatives, and their respective successors and assigns (“Service Provider Recipient Indemnitees”) in connection with any (i) losses, (ii) claims, (iii) damages, and (iv) liabilities and expenses, including reasonable attorneys’ fees incurred by Client as a result of any act or omission by the Service Provider in connection with the performance of the services contemplated by the Agreement." DISCUSS.
  17. "[Indemnity obligation for monetary awards] in a final judgment arising out of or resulting from any third-party claim, suit, action, or proceeding arising out of or resulting from: (a) bodily injury, death of any person, or damage to real or tangible, personal property resulting from the willful, fraudulent, or negligent acts or omissions of Service Provider or Service Provider Personnel; and (b) Service Provider’s material breach of any representation, warranty, or obligation of Service Provider set forth in this Agreement."
  18. "Both Gigunda and Math-Whiz will be indemnified against Errors and Omissions done by the other party." DISCUSS.
  19. "(e) Gigunda will indemnified against any employee claims"
  20. "(f) Gigunda will indemnify Math-Whiz at a cap of $1,000,000"
  21. "Both parties will ensure insurance coverage is available in the event of dispute."
  22. "If any of the parties got sued by a third party, the payer will pay for the defense."
  23. "The Payer will reimburse the Beneficiary in net 30 days …."
  24. "Each party indemnifies the other against …."
  25. "… arising out of a party’s breach of its obligations, representations, warranties, or covenants under this Agreement."
  26. "[The protected party must] deliver to the indemnifying party all documents reasonably necessary to indemnify the proceeding."
  27. "… already payed for …."
  28. "An indemnifying party’s obligations are limited to the amount covered by its insurance policy."
  29. "If either Party’s representation(s) under this agreement are defective, inaccurate, or false, that party will defend the other party against any and all claims (subject to exclusions set forth below) and assume all costs and liabilities for the injury."
  30. "Percentages of fault will be determined by agreement of the parties. Should an agreement fail, a neutral mediator will make the decision."

12.5 Reps and warranties review (Part Deux)

The following are examples of reps and warranties drafted by students. Review and note any that "speak to you." (The paragraph numbering below is a continuation from last week's review.)

  1. "Math-Whiz warrants to Gigunda Energy that Math-Whiz’s seismic data analysis will come from the oil field in Outer Mongolia." DCT COMMENT: Does this do much good for Gigunda, in terms of allocating risk and providing assurance that MathWhiz will do something that Gigunda finds useful?
  2. "Contractor represents [and warrants] that it has the experience and knowledge required to perform its obligations under this Agreement in a commercially reasonable manner." DCT COMMENTS: (A) QUESTION: Instead of "in a commercially reasonable manner," what should the drafter have said? (B) This is a good representation in principlr, but the student didn't include an actual commitment (warranty or otherwise) that MathWhiz would do the work properly.
  3. "Contractor warrants that any employees or contractors hired while this Agreement is in effect will be required to pass a background check, approved by Company, before working on any matter associated with this Agreement." DCT COMMENTS: (A) Good point about the background check. (B) QUESTION: What could this have been, instead of a warranty?
  4. "Each Party has made reasonable investigation concerning the matters in this section four." QUESTION: What two things are issues here?
  5. "The Supplier will make commercially reasonable efforts to furnish a report that is complete and accurate in every material respect." QUESTION: How could this be improved, from Gigunda's perspective?
  6. "The Supplier acknowledges that the Report is proprietary to the Customer. Accordingly, the Report will not be shared with any third parties without the Customer’s express written authorization." QUESTION: How could the second sentence be improved? (Hint: Think active vs. passive voice.)
  7. "Unless otherwise provided below, the representations and warranties herein are made only after the representing party has personal knowledge, or has inquired, researched, or otherwise confirmed that the items represented are true." QUESTION: Any issues here?
  8. "Provider represents and warrants it will exercise commercially reasonable efforts, and follow industry standards when analyzing Company’s data." QUESTION: How could this be improved?
  9. "Upon Company’s request, Contractor will provide Company with evidence reasonably satisfactory to Company confirming the foregoing representations and warranties." DCT COMMENT: This is creative thinking. QUESTION: What other, analogous provisions could be included for Gigunda's benefit in this regard?
  10. "Supplier represents to Client that, so far as Supplier is aware, the following assertions are true: [¶] a. Supplier is a limited liability company, duly organized, validly existing, and in good standing under the laws of the Texas; [¶] b. Supplier is duly qualified to do business and is in good standing in every jurisdiction in which such qualification is required for purposes of this Agreement, except where the failure to be so qualified, in the aggregate, would not reasonably be expected to adversely affect its ability to perform its obligations under this Agreement; …." QUESTION: How might Gigunda react to the preamble of this provision?
  11. "Supplier has all of the requisite resources, skill, experience, and qualifications to perform all of the Services under this Agreement in a professional and workmanlike manner, in accordance with generally recognized industry standards for similar services …." QUESTION: Any issues here for Gigunda?
  12. "Math-Whiz represents and warrants that: … (ii) It will provide Gigunda a detailed report on potential oil or gas deposits in a timely manner." QUESTION: How could this be improved?
  13. "Math-Whiz and Gigunda represents and warrants that all information obtained in accordance with this Agreement will be kept confidential." QUESTION: What issues do you see here?
  14. "Math-Whiz and Gigunda represents and warrants that knowledgeable and experienced personnel in the type of services to be rendered in this Agreement will perform such services in a professional, workman-like manner consistent with industry standards and such services will meet all specifications set forth in this Agreement." QUESTION: What issues do you see here?
  15. "Math-Whiz and Gigunda represents and warrants that all information obtained in accordance with this Agreement will be kept confidential." QUESTION: What issues do you see here?
  16. "Company represents to Analyst that if has full ownership of the seismic data collected from the OM Field ('Outer Mongolia Data')." DCT COMMENT: Good job proposing that Gigunda represent its ownership of the data — that'll help MathWhiz smoke out any issues that might be lurking there.
  17. "The Contractor represents that any analyst performing work for the Client is minimally competent and received the requisite education required to perform adequately prior to performing their work for the Client." QUESTION: Any issues here for Gigunda?
  18. "The Contractor represents that it will not grant, directly or indirectly, any right or interest in the Client’s intellectual property to any other person or entity. "QUESTION: Any issues here for Gigunda?
  19. "The Client represents that it will not grant, directly or indirectly, any right or interest in the Contractor’s intellectual property to any other person or entity." QUESTION: Any issues here for either party?
  20. "1. Math-Whiz represents that: (a) it has the legal power to enter into and perform its obligations under the Agreement; and (b) it has experience in analyzing seismic data for oil companies; and (c) so far as it knows, the service provided does not infringe third-party patent rights. [¶] 2. Math-Whiz warrants that: (a) it will not make any unauthorized use of any confidential or proprietary information of any other person or entity; and (b) the analysis of data will be performed in a workman-like manner." DCT COMMENT: Commendably succinct, and gets the job done.
  21. "1. Math-Whiz’s Representations and Warranties. Math-Whiz represents and warrants to Gigunda Energy: (i) represents that it will not grant, directly or indirectly, any right or interest in the (“Intellectual Property”) received from its analysis to any other person or entity; …." QUESTION: Any issues here?
  22. "1. Math-Whiz’s Representations and Warranties. Math-Whiz represents and warrants to Gigunda Energy: … (ii) represents that it will perform the services to the best of their ability and not use the Intellectual Property for personal gain …." QUESTION: Any issues here?
  23. "5.1 REPRESENTATIONS. … 5.4 During the term of this Agreement, neither party will enter into any agreement that would interfere with that party’s performance of its obligations under this Agreement." QUESTION: Any issues here?
  24. "Service Provider represents to Customer that, so far as Mary, the “Representing Party”, is aware, the following assertions are true: …." QUESTION: Any issues here for Gigunda?
  25. "Service provider is qualified to do business under the Laws of every other jurisdiction in which such qualification is necessary under applicable Law, except where the failure to be so qualified or otherwise authorized would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect." DISCUSS.
  26. "… this Agreement has been executed and delivered by Seller …." QUESTION: Does this make sense?
  27. "… [Seller] has obtained all licenses, authorizations, approvals, consents, or permits required by applicable laws … to perform its obligations under this Agreement …." DISCUSS.

13 Class plan - Day 14 (Mon. Mar. 2)

13.1 "No obligation" clauses in the news: SCOTX

Chalker Energy Partners III, LLC v. Le Norman Operating LLC, No. 18-0352 (Tex. Feb. 28, 2020):

  1. A confidentiality agreement stated that "unless and until a definitive agreement has been executed and delivered, no contract or agreement providing for a transaction between the Parties shall be deemed to exist."
  2. Trial court granted summary judgment: as a matter of law, subsequent email exchanges between the parties could not create a binding agreement.
  3. Court of appeals (1st Court, Houston) reversed, saying there's a fact issue.
  4. SCOTX reverses court of appeals, agreeing with the trial court.

13.2 R.O.O.F. in the news: Could romanettes have saved the day?

From a Ken Adams blog post comes an "interesting" interpretation of a severance provision in an executive employment agreement:

The company may terminate the employment of the Managing Director by providing the Managing Director the greater of the Managing Director’s entitlement pursuant to the Ontario Employment Standards Act or, at the Company’s sole discretion, either of the following:

  1. Two (2) months working notice, in which case the Managing Director will continue to perform all of his duties and his compensation and benefits will remain unchanged during the working notice period.
  2. Payment in lieu of notice in the amount equivalent of two (2) months Base Salary.

Andros v. Colliers Macaulay Nicolls Inc., 2019 ONCA 679 at [5] (Emphasis added.)

The employee argued — and the trial- and appellate courts held — that this language was unenforceable because it would have allowed the employer to pay the (soon to be former) employee less than what he was entitled to under the Ontario Employment Standards Act. These holdings are "puzzling" (which is the deferential way of saying "nonsensical").

R.O.O.F. lesson: Quaere whether the outcome might have been different if the contract term had used romanettes: "… by providing the Managing Director the greater of (i) the Managing Director’s entitlement pursuant to the Ontario Employment Standards Act or, (ii) at the Company’s sole discretion, either of the following: …."

13.3 Group discussion: Risk planning

FACTS:

  1. MathWhiz makes a dumb mistake in its data-processing calculations, and doesn't do any second-checking to verify its work.
  2. Because of MathWhiz's mistake, Gigunda does horizontal drilling in the wrong place in Mongolia — and penetrates an abandoned, subterranean, biowarfare laboratory left over from Cold War days. The drill bit chews up some steel containers; this eventually leads to a release of a weaponized, airborne version of smallpox into Ulan Bator (capital of Mongolia). Many deaths ensue.
  3. Seeking to capitalize on local rage about the smallpox, a terrorist group sends a suicide bomber into a group of Gigunda employees who were staying in Ulan Bator to oversee the drilling project. Five employees are killed, ten more grievously wounded.
  4. When the cause of the smallpox release is traced back to MathWhiz's dumb mistake, the wounded Gigunda employees, and the surviving families of the dead employees, file a lawsuit against MathWhiz in Houston, seeking personal-injury and wrongful-death damages.
  5. Separately, Gigunda sues MathWhiz for breach of MathWhiz's warranty of workmanlike performance. Gigunda claims that, because of MathWhiz's dumb mistake, Gigunda chose to drill in Mongolia and sold off its offshore lease in Suriname — where another oil company recently made a huge discovery. Gigunda seeks recovery of the profits that Gigunda would have made if it had drilled offshore of Suriname instead of going to Mongolia.

QUESTIONS:

  1. What jurisdiction's law would likely apply to the breach-of-warranty lawsuit? (Assume the facts given are the only relevant ones — for example, assume that the MathWhiz-Gigunda contract does not specify a choice of forum or choice of law.)
  2. What should MathWhiz's trial counsel consider doing in court in response to Gigunda's breach-of-warranty lawsuit?
  3. What would be the likely result of such an action by MathWhiz's trial counsel?
  4. Same questions about the the personal-injury / wrongful-death lawsuit.
  5. As MathWhiz's contracts counsel, what recommendations might you make in negotiating the contract with Gigunda?

13.4 Topics for group discussion: Indemnities

We'll go as far as we can tonight, then pick up on Wednesday.

  1. What exactly does an indemnity obligation commit a party to actually do?
  2. True or false: The following is an acceptable conventional phrasing: Alice hereby indemnifies Bob against any damage Bob might incur if it rains tomorrow.
  3. Are indemnity obligations limited to third-party claims, as opposed to first-party claims?
  4. Is a "hold harmless" obligation any different?
  5. How does an indemnity relate to a warranty?
  6. True or false: IF: Alice agrees to indemnify Bob against damage arising from occurrence of Event X; THEN: This reduces the risk to the parties associated with the (possible) occurrence of Event X.
  7. Must a protected party prove negligence or other fault by the indemnifying party?
  8. FACTS: A. Big company ABC is hiring small company XYZ to do some work in Alice's factory. B . Alice’s draft of the contract requires XYZ to indemnify ABC for any harm that might occur to any of XYZ's employees while at ABC's factory. FILL IN THE BLANK: ABC should also consider inserting a provision requiring XYZ to enter into and maintain this type of ancillary contract to make sure there is a pot of money available if necessary to support XYZ's indemnity obligation.
  9. Does an indemnity obligation extend to the protected party’s own negligence?
  10. Do indemnity obligations extend beyond foreseeable, ordinary-course losses (etc.)?
  11. Will a contractual indemnity be excluded from the indemnifying party's insurance coverage?
  12. Is an indemnity obligation even a good idea?
  13. Should consequential damages, etc., be indemnified?
  14. Must an indemnifying party carry insurance to cover the indemnity?
  15. Can liability for an indemnity obligation be limited?
  16. Must an indemnifying party provide a defense against third-party claims?
  17. How can a protected party invoke a defense obligation?
  18. What if the protected party doesn't timely ask for defense?
  19. What must an indemnifying party do to defend against a claim?
  20. How much must an indemnifying party do to defend against a claim?
  21. What if a protected person never asks for a claim defense?
  22. What must a protected person do in its own defense?
  23. Who pays for a protected person's cooperation in a claim defense?
  24. Should an indemnifying party allow the protected party to conduct its own defense?
  25. May a protected person engage its own counsel?
  26. When may a protected person take over control of its defense?
  27. Who should call the shots in settlement talks?
  28. Can an indemnifying party agree to a consent judgment?
  29. What may a protected party admit or waive in the case?
  30. May a protected person settle a defended claim?
  31. Can liability for a defense obligation be limited?

13.5 Redrafting an ambiguity in the Amazon

From Smithsonian.com: "Researchers Discover the Tallest Known Tree in the Amazon"

Discuss.

13.6 Redrafting an ambiguity from President Trump

From a presidential tweet of April 3, 2017: "Such amazing reporting on unmasking and the crooked scheme against us by @foxandfriends. …" (Hat tip: Chris Richardson.)

QUESTION:

13.7 Redrafting an ambiguity in the "B.C." comic strip

See the strip of July 17, 2017].

EXERCISE: Rewrite.

13.8 Negotiation exercise: Warranties – who can sue?

FACTS:

  • You have been asked to represent Gigunda USA in negotiating a master purchase agreement under which Gigunda USA and its various affiliates can issue purchase orders to buy widgets from Widgets Inc. You've been asked to review a draft of the master agreement, prepared by Widget's lawyers.
  • The preamble of the master purchase agreement begins: "This 'Agreement' is between Gigunda USA Corporation ('Gigunda'), a California corporation …."
  • One provision of the draft states that "Widgets warrants to Gigunda that the widgets, as delivered, will be free from defects in materials and workmanship."

HYPOTHETICAL: Suppose that one of Gigunda USA's affiliate corporations, Gigunda Europe, were to order widgets under this master agreement, and it turned out that those widgets did have defects.

QUESTION 1: Would Gigunda Europe be able to sue Widgets for breach of warranty? [1]

QUESTION 2: As Gigunda USA's lawyer, how could you improve the warranty provision on this point? [2]

14 Class plan - Day 13 (Wed. Feb. 26)

14.1 In the news: A home buyer's lawsuit in Maine

Noteworthy about Wuestenberg v. Rancourt, No. 2020 ME 25 (Me. Feb. 25, 2020):

  • Sellers — a married couple who were homebuilders as a sideline — built a house for themselves using "canned" architectural plans.
  • Sellers sold the house after living there for ten years.
  • Buyers asked for the blueprints; Sellers couldn't find them (but did find them during discovery searches).
  • Buyers closed on the house without the blueprints — and did only one inspection, vice the 14 that the contract allowed them to do.
  • The house turned out to be defective because the architectural plans were to southern building code vice northern.
  • Buyers sued, claiming:
    • Breach of contract
    • Fraud
    • Negligent misrepresentation
    • Breach of implied warranty of workmanlike construction
    • Breach of implied warranty of habitability
  • Trial court held a 15-day bench trial (!), ruled in favor of Sellers; seller (husband) testified for 22 hours.
  • Trial court rules for Sellers, says they didn't know about defects in the house -> no fraud, etc.
  • Maine supreme court affirms.

DISCUSS (briefly): What might seller's attorney(s) have considered doing (or checking for) in the contract documents to create "sound bites" for use in the litigation?

14.2 Services - topics for discussion (part deux)

  1. What's a sensible "default" payment schedule for services?
  2. Under what circumstances might Customer want to prohibit Provider from suspending services, even for nonpayment?
  3. Why might Customer want to specify that failing to start the services on time is a material breach? (What makes a material breach special?)
  4. More generally: Why list specific events of material breach?
  5. Should Customer have the right to terminate a statement of work "at will" (synonym: "for convenience")? What factors would go into that analysis?
  6. Should Customer own the IP rights in deliverables created by Provider under the statement of work?

14.3 Independent contractors — topics for discussion

  1. Will courts generally honor a contractual statement that the parties are independent contractors? When might they not, and why?
  2. If courts won't always honor a contractual statement that the parties are independent contractors, why bother including the statement?

14.4 Confidential Information — topics for discussion (and drafting exercise)

  1. If a confidentiality provision is written to protect each party's confidential information, does that pretty much guarantee that the provision will be "fair and balanced"?
  2. FACTS: You represent MathWhiz. Gigunda wants access to MathWhiz's proprietary algorithms (data-processing methods) so that Gigunda can decide whether to pay MathWhiz to crunch Gigunda's Mongolia data. Gigunda is willing to sign an "NDA," but its draft NDA states that the term of the NDA will be two years. QUESTION: Any issues here for MathWhiz?
  3. Now suppose you represent Gigunda: What if it turns out that MathWhiz's proprietary algorithms are just a collection of known techniques?
  4. DRAFTING EXERCISE: In your groups, come up with a minimal confidential-information provision (maybe three or four sentences?) to protect Gigunda's confidential information. Then paste onto virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ); we'll discuss.

14.5 Ambiguity exercise: Prime rate plus 2%

TEXT (from a dispute that I arbitrated): A contract states that payments remaining past due more than 30 days after the due date will bear interest at “a rate per annum equal to the prime rate published by the Wall Street Journal on the business day before the date on which such interest begins to accrue, changing with each change in such published rate, plus two percent (2%)."

FACTS: On the relevant date, the Journal's published U.S. prime rate was 4.00%.

QUESTION: On its face, from a drafting style perspective, what's wrong with this interest-rate provision?

QUESTION: What interest rate should be applied to the late payment — 6%, or 4.08%?

QUESTON: How could the interest-rate language be clarified?

14.6 Audits and inspections — topics for discussion

  1. When a customer wants the contract to say that it can audit the supplier's invoices and billing records, who should pay for any audit that gets conducted?
  2. Who should be a permissible auditor?
  3. Should any supplier information be off-limits to an auditor?

14.7 Ambiguity exercise: Hillary's email server

Since this keeps coming sort-of back in the news ….

SOURCE: A Politico piece titled FBI could leak Clinton email investigation, Grassley warns.

TEXT: "A hypothetical leak could occur, he said, if officials believed Clinton was not being prosecuted for political reasons." (Emphasis added.)

EXERCISE: There are two possible meanings of the italicized portion of the above sentence. Discuss.

14.8 Ambiguity and lawyer spin

TEXT: From this comment (by a brilliant lawyer) in an on-line forum: "A classic lawyering tactic is to use the most favorable (to your side) characterization of something you can justify."

EXERCISE: Rephrase this to make it clear that the term "you can justify" applies to the characterization and not to something.

15 Class plan - Day 12 (Mon. Feb. 24)

15.1 Reshuffle group assignments AND table positions

In each of groups 1 through 3, the students are "A" through "D," alphabetically by last name.

Swap as follows:

  • 1A swaps with 3D
  • 2B swaps with 3C
  • 2C swaps with 1B

THEN:

  • Former Group 3 moves to the front;
  • Former Group 2 moves to the back;
  • Former Group 1 moves to the middle.

15.2 Tango Terms input wanted

I've been asked to do an IACCM Webinar on Thursday March 5. The topic will be the Tango Terms. I'm working on finishing a releasable draft that can actually be adopted in a short-form contract for small deals, along the lines of the ISDA Master Agreement or the IADC Master Service Contract.

QUESTION 1: What title do you think is likely to make the most favorable impression on business people and lawyers —

  1. Tango Terms Master Agreement
  2. Tango Terms Framework Agreement
  3. Tango Contract
  4. Tango Agreement
  5. Tango Terms

QUESTION 2: Should the commentary to the Tango Terms be:

  1. In footnotes
  2. In interspersed commentary
  3. In commentary at the end of each major section

15.3 Services — recent piece: Contractor has a right to finish work

See this (UK) piece, tweeted about by Sarah Fox (@500WordLawyer), about the limited ability that a customer / client has to take work away from a contractor or subcontractor unless the contract so specifies: Claire King, Can I Omit That? (FenwickElliott, undated). Quoted from a UK case:

As stated by HHJ Humphrey Lloyd QC in Abbey Developments Ltd v PP Brickwork Ltd:

#+beginquote “A contract for the execution of work confers on the contractor not only the duty to carry out the work but the corresponding right to be able to complete the work which it contracted to carry out. To take away or to vary the work is an intrusion into and an infringement of that right.”3 [Emphasis added]

This is important because a contractor may have diverted resources from elsewhere or invested significant money into providing specialist equipment. It will have done this in the expectation of earning back that investment based on how much work it is entitled to carry out under the Construction Contract. If this changes significantly then this can leave a contractor substantially out of pocket.

If an employer wants to omit works from the scope of a contractor they must therefore have an express power to do so provided for within their Construction Contract. #+endquote

Cf. Miller-Davis Co. v. Ahrens Constr., Inc., 495 Mich. 161, 848 N.W.2d 95 (2014), in which the court’s recitation of facts noted that “Miller-Davis gave Ahrens notice of default, terminated Ahrens’s right to perform the contract, and demanded the bonding company perform under the bond.” Id., 848 N.W.2d at 99 (emphasis added). In other words, the Ahrens company was fired and presumably was replaced by another contractor hired by the bonding company— presumably at Ahrens’s expense, which almost surely cost Ahrens more than just finishing the job would have cost it.

15.4 "Meatball surgery": A Twitter debate

This tweet thread, started by Ken Adams. Noteworthy comments:

Adams: Agreement, lease, whatevs. [Attached: A screen grab of a portion of an Equipment Lease Agreement with the preamble saying "This Equipment Lease Agreement (this 'Agreement' or 'Lease'), dated as of …."]

Ryan Juliano: I’ll take “Signs Your Lawyer Merged Two Precedents Without Much Effort” for $800, Alex

JRo: Someone’s too lazy to fix their cut and paste provisions or recycled Exhibits.

DCT: Most contracts are never looked at again after signing, so this particular lazy approach to cutting and pasting 1) gets to signature sooner, and 2) saves clients money 3) with little or no downside.

Adams: A single find-and-replace should fix it, in which case saving time and money would have nothing to do with it. If more effort is required, that would be because the models used were inconsistent. That would be worth fixing.

DCT: Agreed about model consistency. But search-and-replace can be overinclusive, leading to undesired changes.

Adams: Sure, you have to be a little careful about it. But the effort involved is still trivial compared with the benefit of eliminating the weirdness of referring to a contract two different ways.

Sarah Fox: If the writer can't decide (be consistent) with the name of their agreement, what chance is there that they're consistent elsewhere?

DCT: True. But sometimes you're under the gun at EOQ [end of quarter] and have lots of contracts to finalize. You might have to do triage: Business people prefer THREE deals DONE even with ugly wording, vice just one that looks pretty. (Look up "meatball surgery.")

RickColosimo: Objection: assumes facts not in evidence. You’re glossing over or assuming away the problem identified by @500wordlawyer: we dislike this because it’s a sign that if the copy & paste has created other problems, you’re not even looking for them.

DCT: I'm speaking from experience as solo GC for public software co. At end of quarter ("EOQ"), the business folks want their "done" deals SIGNED by, e.g., March 31 so they can make quota, get bonuses, file earnings reports. 1/2

DCT: Signatures on April 1 won't cut it for these purposes, so the business folks are willing to risk unpretty but workable language as an acceptable trade-off for getting to signature by March 31. That's their call to make, not the lawyer's. 2/2

[Adams seems to have deleted a tweet of his saying, IIRC, "you can take five minutes to do Ctrl-H magic"]

DCT: When the shot clock is running down on EOQ and 10 other deals MUST be signed by March 31 or the company will "miss," the business people DON'T want me spending even 2 minutes fixing little s**t (as opposed to major stuff). Again: look up "meatball surgery."

[DCT to explain "meatball surgery" and provide an example from a client negotiation today.]

15.5 Signatures: The Addams family in Hawai'i

FACTS:

  • Your client is Addams Investments, L.P., a "family" limited partnership of the very-wealthy Addams clan in Galveston. The sole general partner of the limited partnership is Addams Operations, Inc.
  • It's 12:00 noon Houston time on March 31. The president of Addams Operations, Ms. Wednesday Addams, is on the phone. It's a bad connection, but she wants to talk about a contract that you and she have been negotiating for Addams Investments, L.P.
  • Under the contract, will buy a large quantity of widgets from Widgets, Inc., a Houston company that recently went public. (Family patriarch Gomez Addams is convinced the family will make a killing in the widget market.)
  • Wednesday Addams says that she has talked by phone with her opposite number at Widgets, Inc.; she reports that Widgets, Inc., has agreed to the last contract draft that you sent over, and that everyone is ready to sign.
  • The Widgets, Inc. people really, really want to get the contract signed and delivered today, March 31. They've told Wednesday Addams that they're willing to make significant pricing concessions to make that happen.
  • There's a problem, though: As you learn from Wednesday Addams over the bad phone connection, she and the rest of the Addams family are at the end of a rugged backpacking vacation on a small, primitive island in Hawai'i. The island has no Internet service and barely has cell phone service.
  • The family has just emerged from the back country. The plan is for everyone, smelly as they are, to take a private plane from a dirt landing strip on the island to the Honolulu airport. A shuttle bus will take them to a nearby hotel for a quick shower and change of clothes. The family will then board a United Airlines "redeye" overnight flight that will land in Houston on the morning of April 1.
  • One more thing, she says: In the interest of traveling as light as possible, no one in the group brought a laptop.

QUESTION: How should the contract signature block for Adams Investments, L.P., be written? INSTRUCTIONS: Develop a consensus, then post your version on virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ).

QUESTION: Why might the Widgets sales rep be so eager to get the contract signed on March 31? (Hint: It has to do with the fact that Widgets, Inc. is a newly-public company.)

QUESTION: What about just signing it on April 1 when the family gets back to Houston?

QUESTION: Is it physically possible for you to "make it happen" for the contract to be signed and delivered to Widgets, Inc. today, March 31? If so, how might you go about it?

QUESTION: If Wednesday Addams asks you to sign it as the company's lawyer, how should you respond?

15.6 Service agreements – topics for discussion (part 1)

  1. Is it a good idea to require that statements of work must be in writing?
  2. Is it a good idea to require that changes to statements of work must be in writing?
  3. How much time should a lawyer spend reviewing the statement of work for a client?
  4. Should Provider agree to obtain all permits and licenses needed related to the performance of services? (Careful: Think broadly about what permits and/or licenses might be needed "related to" the services.)
  5. What could happen if Provider failed to get required occupational licenses, e.g., construction-contractor licenses?
  6. FACTS: A home builder finishes a new house and turns the keys over to a young couple, who move in with their new baby (and the wife's in-laws, visiting from out of town). BUT: The builder failed to get the final city inspection done, so the city orders the family to move out, and they have to spend three days in a hotel. QUESTION: Who pays the hotel bills?
  7. Why would a customer/client want to require a contractor to use people who are "competent and suitably trained for the task"? (Think: Litigation proof.)
  8. What does "workmanlike performance" mean? Why is that typically used as a standard of performance for services?
  9. Why might a customer want to state that the service provider is responsible for determining the "means and manner" of the work?
  10. What are "the Three Rs" for defects in deliverables?
  11. Under what circumstances might Provider want to prohibit Customer from modifying deliverables?

16 Class plan - Day 11 (Wed. Feb. 19)

16.1 Quiz 2

On Canvas.

16.2 A redlining-representation dispute

(DCT to recount an in-house lawyer who had never seen a redlining representation and said "we can handle rereading the [agreement].")

16.3 From the trenches: BigCo gets to decide ….

[DCT to recount a contract draft — reviewed this morning — where BigCo's draft said that BigCo had the sole right to decide whether SmallCo (DCT client) would report data breaches.]

16.4 Next Monday: Reshuffle groups

In each of groups 1 through 3, the students are "A" through "D," alphabetically by last name.

Next Monday we will swap as follows:

  • 1A swaps with 3D
  • 2B swaps with 3C
  • 2C swaps with 1B

THEN: Former Group 3 moves to the front; former Group 2 moves to the back; former Group 1 moves to the middle.

ASSIGNMENT NOW: Work out where you should sit on Monday.

16.5 Implied-warranty disclaimers: Drafting fails

In your groups, discuss the following:

  1. "The Disclaimed Implied Warranties disclaims any implied warranties and representations that may otherwise apply to amendments and waivers of this (i) Agreement, and (ii) any documents relating to this Agreement, unless this Section is expressly waived in accordance with Paragraph C below."

    QUESTION: Does this make sense?

  2. "Each Party may revoke this disclaimer, in whole, or in part as provided below."

    QUESTION: Does this make sense from a business perspective?

  3. "This Disclaimer has the effect of diminishing – without limitation – any and all Implied Warranties concerning the following: (a) merchantability; (b) …."

    QUESTION: What does it mean to "diminish" an implied warranty?

  4. "No person except an officer of Client at the vice-president level or higher is authorized to agree to any other Implied Warranty on behalf of Client."

    QUESTION: Does this make any sense?

  5. "Except as expressly provided in this Agreement neither party makes any other representation or warranty, express or implied, either in fact or by operation of law, statute, or otherwise, and each party specifically disclaims any and all implied or statutory warranties including warranties of merchantability, of fitness for a particular purpose and non-infringement."

    REVIEW QUESTION: What are the warranties of merchantability and fitness for a particular purpose?

  6. "Each party acknowledges and agrees to the foregoing and that the foregoing disclaimer is 'Conspicuous.'"

    QUESTION: Does "Conspicuous" need to be capitalized?

    QUESTION: Is it legally meaningful for parties to agree to a definition of conspicuous?

  7. "Disclaimer. Except as set forth in this Agreement, each party disclaims any express, statutory, or implied warranty or representation of any kind, including warranties or representations relating to:
    (i) The condition of [maybe either the “Specific Location” or the “Seismic Data”]
    (ii) Any implied or express warranty of noninfringement
    (iii) Any implied or express warranty of merchantability
    (iv) Any implied or express warranty of fitness for a particular purpose …."

    QUESTION: Is this likely to fly with Gigunda?

16.6 Preview: Services — reps and warranties

Next week's reading includes services provisions. The following are examples of reps and warranties drafted by students relating to services. Review and note any that "speak to you."

  1. "Service Provider warrants that there are no copyright infringement or trade secret violations in the work that Service Provider will provide to Customer." DCT COMMENT: I'd be inclined to say that there will be no copyright infringement, etc. Also: Good job on the "will provide" — MathWhiz will want to warrant only its work as provided, not as perhaps later modified by Gigunda.
  2. "Service Provider warrants that the work will be performed in a professional manner that is serviceable (“Work-Man Like Manner”)." DCT COMMENT: This is three different standards, which could be confusing. "Workmanlike" is pretty much a standard term, as discussed in the reading, so there's no need to define the term (also, it's a single, non-hyphenated word).
  3. "Service Provider represents and warrants that Service Provider’s business includes analyzing seismic data." DCT COMMENT: This doesn't really do much for Customer, and wouldn't normally be included.
  4. "Service Provider represents and warrants that in the past, to individuals and organizations that are not Customer, Service Provider has successfully predicted where oil or natural gas deposits might be." DCT COMMENT: This is creative thinking. One possible problem: If a problem were to arise, Gigunda might demand to see examples of MathWhiz's prior work for other customers — and MathWhiz might be violating confidentiality obligations to its other customers if it were to produce such information.
  5. "Service Provider warrants that Service Provider is headed by Mary." DCT COMMENT: Another interesting idea — although if Mary signs the document on behalf of MathWhiz, does it really do anything significant for Gigunda?
  6. "So far as Service Provider is aware, some individuals have called Mary an “expert” in analyzing seismic data to determine where oil and gas natural deposits may be." DCT COMMENT: Good job in saying "some individuals," but that would open the door to Gigunda's asking (in litigation or arbitration), just who are those individuals, and when can we depose them?
  7. "Service Provider warrants that Service Provider employs several junior associates and subcontracts with others to do specialized tasks to determine where oil and gas natural deposits may be." DCT COMMENT: This doesn't seem necessary; if anything it'd be a disclosure that MathWhiz would want Gigunda to acknowledge so that Gigunda can't later claim that it thought Mary would be doing all the work.
  8. "Unless otherwise provided below, the representations and warranties herein are made only after the representing party has personal knowledge, or has inquired, researched, or otherwise confirmed that the items represented are true." DCT COMMENT: This raises the bar for each representing party; I'd be more inclined to reverse the presumptions.
  9. "The Parties represent that they are not a party to any other agreement or involved in any pending litigation that could reasonably pose a risk of materially interfering with performance of its obligations under this Agreement." DCT COMMENT: I'd change this to say that "Each party represents to the other …." As written, it could arguably be ambiguous, as I'll explain.
  10. "Service Provider represents and warrants it will exercise commercially reasonable efforts, and follow industry standards when analyzing Client’s data." DCT COMMENT: I'd just make this a covenant: Service provider will use commercially reasonable efforts and follow industry standards …. [What standards would those be?]
  11. "Each party to the agreement represents to each other party of the agreement that, so far as the representing party is aware, the following are true:" DCT COMMENTS: (A) Repeating "to the agreement" seems a bit much. (B) I'd be more "granular" in stating the knowledge qualifier: It might be appropriate for some reps and not for others.
  12. "The representing party has made a reasonable inquiry concerning the [above] matters." DCT COMMENT: Same comment as above: This raises the bar.
  13. "Contractor warrants that all of Client’s seismic data relating to the Mongolian Field and all related work product, as well as any other proprietary information shared by Client, will not be shared with any third party unless expressly instructed in writing by Client." DCT COMMENT: I'd make this a covenant, not a warranty — it's a prohibition.
  14. "Client represents and warrants that all seismic data from the Mongolian Field was lawfully obtained and that Client has the legal power to share the data with Contractor." DCT COMMENT: I like this.
  15. "So far as Client knows, without any particular investigation, Client is the true and undisputed owner of the Data at any such time that the Data is submitted to Contractor for analysis." DCT COMMENST: (A) This is a representation — MathWhiz would probably want a warranty. (B) "… true and undisputed owner" seems a bit redundant.
  16. "Contractor represents that all Deliverables will be completed by using Data provided by Client in compiling such Deliverables." DCT COMMENT: It's not clear to me how this works or how it would benefit Client; it seems to state the obvious.
  17. "So far as Contractor knows, Contractor will use only standard industry practices to analyze such Data in completing the Deliverables and will not rely on unproven techniques or methods without Client’s expressed consent." DCT COMMENT: Gigunda would want this to be a covenant, not a knowledge rep. (The student also added a consultation requirement, which is good.)
  18. "[MathWhiz represents that] Math-Whiz LLC employs several junior analysts and selectively engages subcontractors." DCT COMMENT: Same as before: This is more a disclosure, to be acknowledged by Gigunda, than a repreasentation.
  19. "Math-Whiz LLC represents to Gigunda that, so far as it is aware, the following assertions are true: …" (emphasis in original). DCT COMMENT: If I were drafting on behalf of a representing party, I wouldn't italicize "represents"; no point in raising a possible red flag any more than necessary.
  20. "Math-Whiz represents and warrants to Gigunda Energy that: … (iv) that its products do not infringe on any third party’s patent." DCT COMMENTS: (A) "That" is duplicated. (B) MathWhiz would normally not want to represent and warrant that its "products" (meaning what, exactly) don't infringe on third-party patents.
  21. "3.0 GENERAL REPRESENTATIONS AND WARRANTIES [¶] 3.1 During the term of this Agreement, neither party will enter into any agreement that would interfere with that party’s performance of its obligations under this Agreement." DCT COMMENT: Section 3.1 is not a representation, nor is it really a warranty — it's a prohibition.
  22. "Seller represents and warrants that it has or can obtain the necessary tools and expertise to analyze Seismic Data in a manner commensurate with the industry standard at the time of the Seller’s signing of this Agreement." DCT COMMENTS: (A) What industry standard? (B) If I were Gigunda, I'd be nervous about this — I'd want to hire someone who already has "the necessary tools and expertise" to get the job done.
  23. "Seller warrants that it will make a good faith effort to remain in compliance with applicable laws throughout the term of the Agreement." DCT COMMENT: Gigunda will probably want MathWhiz to flat-out commit to remaining in compliance. QUESTION: How might MathWhiz counter such a request?
  24. "Service Provider represents [and warrants] that it has the experience and personnel necessary to perform its obligations under this Agreement in a commercially reasonable manner." DCT COMMENTS: (A) Good idea for Gigunda to ask for this kind of rep — think of the Hill of Proof and how easy it'd be for a judge, jury, or arbitrator to determine (i) that the work wasn't done properly, vs. (ii) that the MathWhiz people didn't know what they were doing. (B) Instead of "in a commercially reasonable manner," use "in accordance with this Agreement" or "in accordance with the Statement of Work." QUESTION: Why B?
  25. "Service Provider represents [and warrants] that it is not infringing on any intellectual property rights." DCT COMMENTS: (A) Gigunda can ask for this, but MathWhiz should be reluctant to agree. QUESTION: Why? (B) "… it is not infringing …." is vague; what should Gigunda want to nail down?
  26. A couple of students wrote really-skimpy warranties that didn't address either (i) performance of the work, nor (ii) infringement risks. Gigunda would definitely want those to be addressed, so it would behoove MathWhiz to offer up something that has a reasonable chance of getting by Gigunda's contract reviewer. Otherwise, Gigunda might copy and paste its preferred language, which might be very onerous to MathWhiz.

16.7 Preview lecture: Intellectual property ownership

17 Class plan - Day 10 (Mon. Feb. 17)

17.1 Drafting fail: American Girl

17.2 Signature authority: From the trenches

(DCT to recount signing of a "MathWhiz" agreement where "Gigunda's" signer was an individual contributor — with a Ph.D. degree in geophysics ….)

17.3 Abbreviations to know

See Tango Terms § 12.11. KNOW THE FOLLOWING:

  1. A.T.A.R.I.
  2. D.R.Y.
  3. R.O.O.F.
  4. W.I.D.D.
  5. W.I.D.A. — When In Doubt, Ask! (new)

17.4 "Open mike" to prepare for Quiz 2

Talk to your neighbors, come up with any questions you'd like to address before the quiz.

NOTE: Quiz 2 will be cumulative — anything covered in the reading so far, or in class, will be fair game.

17.5 Notices discussion

QUESTIONS FOR DISCUSSION:

  1. What do you think about having notices be effective three business days after mailing?
  2. What do you think about allowing notices by email?
  3. Consider the email address specified for notices: Does what email address is used make any difference?
  4. Should a change of address for notice require a formal notice?
  5. Should formal notice be used for all communications?

17.6 Ambiguity & notice: Pricing term extension

FACTS:

  1. A supply contract between Provider and Customer includes a price schedule that is to be effective for one year, expiring December 1 (the "Pricing Term"), but Customer can extend the Pricing Term once, for one more year.
  2. The extension provision says: Written notice of extension of the Pricing Term must be given no later than 30 days before its then-current expiration date. The contract does not contain any other relevant notice provision.
  3. On October 31, Customer mails Provider a written notice of extension by certified mail, return receipt requested. A week later, Customer receives back the "green card" from the U.S. Postal Service confirming receipt by Provider on November 2.
  4. Provider later tells Customer that the Pricing Term expired and that Provider's prices will increase to Provider's published list prices.

QUESTION: Has Customer effectively extended the Pricing Term? Why or why not? [3]

Exercise: Rewrite the Pricing Term extension provision to clarify it. [4]

(The same issues can come up with terms such as, for example, submit for bids — is a bid "submitted" when sent, or when received?)

17.7 Rewriting exercise: Confidential information (Atari agreement)

In your two- or three-person groups, rewrite the following to make it more readable; it's from an Atari consulting agreement, at https://goo.gl/ukMKTr (onecle.com via archive.org), between an individual and Atari. START BY BREAKING IT UP.

7.    Confidentiality and Security.

Consultant recognizes and agrees that in the course of performing services hereunder Consultant will generate or otherwise become privy to written or orally conveyed information that is proprietary or confidential to Atari, its affiliates, or their customers and/or to other parties to whom they may have confidentiality obligations. This information may include, without limitation, plans to introduce new products or services (including in this regard the existence of the Project), methods of doing business, planned transactions, market information, pricing information, supply sources, license and contract terms, information pertaining to customers' businesses, non-public financial data and operating results, system and component designs, specifications, computer software and technical information. Consultant understands that Atari and/or such affiliates, customers and other parties regard such information as trade secrets, and Consultant will employ Consultant's best efforts to assure the continued confidentiality thereof. Consultant will not disclose such information to anyone or use it for any purpose other than the performance of Consultant's services hereunder. Consultant will take all reasonable measures to prevent any unauthorized person from gaining access to such information and to prevent such information from being accessed, disclosed or used in any unauthorized manner, including complying strictly at all times with all applicable physical and computer system security procedures. Consultant will not break or attempt to break any of Atari's (or such affiliates’, customers' or other persons’) security systems, or obtain, or attempt to obtain access to any program or data other than those to which Consultant has been given access in writing. Upon any termination, cancellation or expiration of this agreement or at Atari's request at any other time, Consultant will deliver to Atari all materials in tangible form containing any of the information referred to in this Section 7, shall purge any and all copies thereof from all files and storage media retained by Consultant, and shall retain no archival or other copies thereof whatsoever. Further in such event, Consultant shall return any keys, security passes, equipment or other items or property supplied to Consultant by Atari or by any such affiliate, customer or other person.

QUESTION 1: If you're representing Consultant, why should the phrases "best efforts" and "all reasonable measures" cause you some concern?

QUESTION 2: How is Consultant supposed to know just what Atari information is subject to the confidentiality restriction?

QUESTION 3: Why should the penultimate sentence be of concern to Consultant?

[DCT to show his first pass]

DCT's first pass: (to show on his computer)

17.8 Drafting fail: "Consummated"

FACTS:

  1. Alice and Bob enter into a referral agreement.
  2. Under that agreement, Alice must pay Bob a finder's fee for every contract that Alice "consummates" with anyone referred to her by Bob during a specified time period.
  3. During the specified time period, Bob refers Carol to Alice.
  4. Before the specified time period ends, Alice signs a contract with Carol.
  5. BUT: Alice does not actually begin performing her obligations under the contract with Carol until after the specified time period ends.
  6. Alice claims that she therefore does not owe Bob a finder's fee for her contract with Carol.

QUESTIONS FOR DISCUSSION:

  1. What result?
  2. How could the finder's-fee agreement have been clarified?

The real-world part: See Fed Cetera, LLC v. Nat’l Credit Servs., Inc., 938 F.3d 466 (3d Cir. 2019) (reversing and remanding summary judgment in favor of "Alice").

18 Class plan - Day 9 (Wed. Feb. 12)

18.1 Ambiguity: How life will turn out when you're young

See this Pearls Before Swine cartoon. (The author, Stephan Pastis, is a non-praticing lawyer.)

QUESTION: How could the first panel's wording be "improved"?

18.2 Amendments & waivers discussion

QUESTIONS FOR DISCUSSION:

  1. Which party or parties should sign an amendment? Why that choice?
  2. Will courts typically enforce a provision requiring amendments and waivers to be in writing? When might a court not do so?
  3. When might a provision for unilateral amendment be handy? [DCT to relate a client story from today]
  4. What are some dangers of a badly-drafted unilateral-amendment provision?

18.3 Entire-agreement discussion

QUESTIONS FOR DISCUSSION:

  1. What happens if parties negotiate sign a master sales agreement — but then one party sends a purchase order with additional, more-onerous terms?
  2. FACTS: In a contract, an entire-agreement provision states that there are no representations other than those set forth in the agreement. QUESTION: In Texas, will that provision preclude a party's claim that the other party fraudulently induced the claimant to enter into the contract?

18.4 Forum-selection discussion

  1. When might a court not give effect to a forum selection provision?
  2. How might an exclusive forum-selection provision affect an arbitration provision?
  3. Any issues with saying that the exclusive forum is to be "the courts of Houston, Texas"?
  4. When might it make a difference if the forum-selection clause applies to actions:
    • arising out of the agreement, versus
    • arising out of or relating to the agreement?
  5. What's a really broad "arising out of …" expression you could use in a forum-selection provision?

18.5 BLUF exercise: Doctor practice bylaws

EXERCISE: In your drafting pairs (or triples), break up the following provision — and put the "bottom line up front" (BLUF) — from Lynd v. Marshall County Pediatrics, P.C., 263 So. 3d 1041 (Ala. 2018). (Hint: Look for the "then ….")

If any shareholder of the corporation for any reason ceases to be duly licensed to practice medicine in the state of Alabama, accepts employment that, pursuant to law, places restrictions or limitations upon his continued rendering of professional services as a physician, or upon the death or adjudication of incompetency of a stockholder or upon the severance of a stockholder as an officer, agent, or employee of the corporation, or in the event any shareholder of the corporation, without first obtaining the written consent of all other shareholders of the corporation shall become a shareholder or an officer, director, agent or employee of another professional service corporation authorized to practice medicine in the State of Alabama, or if any shareholder makes an assignment for the benefit of creditors, or files a voluntary petition in bankruptcy or becomes the subject of an involuntary petition in bankruptcy, or attempts to sell, transfer, hypothecate, or pledge any shares of this corporation to any person or in any manner prohibited by law or by the By-Laws of the corporation or if any lien of any kind is imposed upon the shares of any shareholder and such lien is not removed within thirty days after its imposition, or upon the occurrence, with respect to a shareholder, of any other event hereafter provided for by amendment to the Certificates of Incorporation or these By-Laws, [here we finally get to the bottom line:] then and in any such event, the shares of this [c]orporation of such shareholder shall then and thereafter have no voting rights of any kind, and shall not be entitled to any dividend or rights to purchase shares of any kind which may be declared thereafter by the corporation and shall be forthwith transferred, sold, and purchased or redeemed pursuant to the agreement of the stockholders in [e]ffect at the time of such occurrence. The initial agreement of the stockholders is attached hereto and incorporated herein by reference[;] however, said agreement may from time to time be changed or amended by the stockholders without amendment of these By-Laws. The method provided in said agreement for the valuation of the shares of a deceased, retired or bankrupt stockholder shall be in lieu of the provisions of Title 10, Chapter 4, Section 228 of the Code of Alabama of 1975.

18.6 Governing law discussion

QUESTIONS FOR DISCUSSION:

  1. When might a court refuse to give effect to a choice of law?
  2. When might you not want to choose the law of your client's jurisdiction?
  3. When might you want to choose different laws to apply to different provisions in a contract?

19 Class plan - Day 8 (Mon. Feb. 10)

19.1 In the news: SCOTX on liquidated damages

Liquidated damages aren't part of the syllabus; this is a just review of 1L Contracts doctrine.

From Atrium Medical Center, LP v. Houston Red C LLP, No. 18-0228, slip op. (Tex. Feb. 7, 2020) (affirming court of appeals):

We hold that [the plaintiff carried its burden of showing that],

at the time the parties’ agreement was made,

(1) the harm that would result from a breach was difficult to estimate and

(2) the liquidated damages provision reasonably forecast just compensation.

We further hold that the breaching party failed to demonstrate an “unbridgeable discrepancy” between liquidated and actual damages, measured at the time of the breach, to invalidate an otherwise valid contract provision.

Accordingly, we affirm the judgment of the court of appeals.

Id., slip op. at 14 (emphasis and extra paragraphing added).

Notice the "hill of proof" here:

  • Plaintiff must "get up the hill" by showing what things looked like to the parties at the time the agreement was made;
  • Defendant can try to "force the plaintiff off the hill" by showing that as things turned out, there was an "unbridgeable discrepancy."

19.2 Homework review

19.2.1 Example 1

16. Warranty

16.1 Math-Whiz warrants to Gigunda that during the entire Warranty Period specified below, all Services provided will[:] [need a colon to introduce the list]

(a) conform to applicable specifications furnished or specified by Gigunda as referenced in Exhibit A. [Better: Just refer to Exhibit A — leave out the italicized part (why?)]

(b) comply with all pertinent laws and regulations, [QUESTION: Could this be dangerous?]

(c) the services will be performed in accordance with applicable and acceptable standards in the industry. [QUESTION: Why isn't this grammatically correct?] [QUESTION: Any issues with the "standards" language?]

Services that fail to meet the above standards are collectively known as “incomplete Services.” [NOTE: It's fine to have this be an unnumbered paragraph; you could even have two or three such paragraphs(but don't go overboard). Why is it OK? Because the only reason to use paragraph numbering in the first place is for easier cross-referencing.]

16.2 … In addition to the warranties described above, Math Whiz warrants all services to the same extent and for the same time period if for any reason they are found to be an incomplete Service. [QUESTION: Any issue here?]

Math Whiz is responsible for the costs of repairing, replacing, or correcting nonconforming services or crediting them to Gigunda, and to have the nonconforming services repaired, replaced, or corrected at Math Whiz’s expense or credited to Gigunda.

Any replacement service is warranted for the same period as the original service. [QUESTION: Any issues here?]

17. Representations

17.1 [Omitted]

17.2 Math Whiz’s method for analyzing seismic data is contingent on receiving proper data collection from Gigunda. [QUESTION: Should this really be a representation?]

17.3 Math Whiz uses a professionally tested and verified method for analyzing seismic data. [QUESTION: What if anything does this add, for anyone?]

17.4 Math Whiz represents that the services rendered will not infringe any patent, published patent application, or other intellectual property rights of any third party as far as Math Whiz knows. [Suggestion: For readability change to "MathWhiz represents that, so far as MathWhiz is aware, the services rendered will not infringe ….]

19.2.2 Example 2

16. Warranty

16.1. Provider warrants to Gigunda, its successors, [no comma needed here]and assigns, that during the entire Warranty Period it will provide professional quality Services. [QUESTION: What are some pros and cons of including successors and assigns?] [QUESTION: What are some pros and cons of using "professional quality Services" as the standard of performance?]

Services that fail to meet the preceding standards are collectively called “incomplete Services.”

16.2. The Warranty Period [Note the capitalization] is 24 months from the date of completion of each report required by Gigunda, or such longer period of time mandated by any longer government requiring covering the Services. [QUESTION: What will Gigunda's reaction likely be to "date of completion of each report"?]

Claims for breach of warranty do not accrue until nonconformance is discovered or when nonconformance could have been reasonably discovered. [QUESTION: Is this a good idea for MathWhiz to propose? Why or why not?]

If conforming Services are not completed within the time specified by Gigunda then Gigunda may, at its election, have the option of:

(a) Terminating the services Agreement with reimbursement of fees already paid for the incomplete Services; OR

(b) Having Services completed at a discounted rate of 10% per week late, for a maximum of 4 weeks.

[DCT COMMENT: I don't know how workable these alternatives would be, but good job in trying to come up with a useful Plan B]

16.3. For any Services discovered to be materially deficient within the warranty period, Provider is responsible for the costs of correcting said deficiencies, up to and including a revision of the deficient aspect of the Services. This excludes interpretations due to professional opinions and technological advancements within the warranty period. [QUESTION: Does it make a difference that "warranty period" isn't capitalized here? See the Tango Terms § 9.62.2 at the bottom of p.566]

If, following completion, Services exhibit a material deficiency:

(a) the party discovering the failure will promptly notify the other and Provider will provide to Gigunda apreliminary plan for problem diagnosis within seven business days of such notification;

(b) Provider will diagnose the problem and provide a revision of the deficient aspect of the Services;

(c) Provider is responsible for costs associated with preparing revisions of the deficient aspect of the Services. [QUESTION: Stylistically, how well does this mesh with the first grammatical paragraph of 16.3?]

19.2.3 Example 3

See this PDF (this group submitted a Word document, which is fine).

19.3 Editing exercise: Who's afraid of Apple?

From Matt Stoller, Will Spotify Ruin Podcasting? (Substack.com Feb. 8, 2020): "Fear of Apple, which has a powerful spot in podcast distribution through its podcast app as well as its app store, is rife."

Possible rewrite #1: "Fear of Apple is rife, because the company has a powerful spot in podcast distribution through its podcast app as well as its app store."

Possible rewrite #2: "Fear of Apple is rife: The company commands a powerful spot in podcast distribution, thanks to its podcast app and its app store."

19.4 SCOTX: Reliance disclaimer kills fraudulent-inducement claim

From IBM Corp. v. Lufkin Industries, LLC, 573 S.W.3d 224 (Tex. 2019): IBM told Lufkin that IBM could adapt a particular software system to Lufkin's needs:

In this case involving a contract to purchase a business-management software system, we hold that contractual disclaimers bar the buyer from recovering in tort for misrepresentations the seller made both to induce the buyer to enter into the contract and to induce the buyer to later agree to amend the contract.

Id., slip op. at 1. What did IBM do wrong?

IBM made numerous representations about its Express Solution that turned out to be false.

  • IBM represented that the Express Solution was a preconfigured system that could be implemented for Lufkin within four to six months and meet eighty percent of Lufkin’s requirements without any enhancements.
  • IBM knew, however, that its Express Solution would require extensive customization before it could meet most of Lufkin’s needs.
  • Yet IBM continued to represent the Express Solution as a “fit” for Lufkin, hoping it could land the sale and then figure out how to provide what Lufkin needed.

In September 2009, IBM presented a demonstration of the Express Solution for Lufkin.

  • During this demonstration, IBM’s representatives again represented that the Express Solution would meet eighty percent of Lufkin’s needs without any customization.
  • In fact, the representatives knew that Express Solution was designed for much smaller operations and could not meet Lufkin’s requirements without extensive and costly enhancements.

Relying on IBM’s misrepresentations, Lufkin agreed to a written contract with IBM in March 2010. The contract— called the “Statement of Work,” or “SOW”—gave IBM about a year to finalize and implement the system, projecting that Lufkin could “go live” with IBM’s Express Solution system on March 1, 2011.

The implementation did not go well. …

Id., slip op. at 2-3 (extra paragraphing and bullets added).

What saved IBM from a $21 million verdict for fraudulent inducement was the following reliance-disclaimer language:

In entering into this SOW, Lufkin Industries is not relying upon any representation made by or on behalf of IBM that is not specified in the Agreement or this SOW, including, without limitation, the actual or estimated completion date, amount of hours to provide any of the Services, charges to be paid, or the results of any of the Services to be provided under this SOW.

This SOW, its Appendices, and the Agreement represent the entire agreement between the parties regarding the subject matter and replace any prior oral or written communications.

Id., slip op. at 6 (extra paragraphing added).

19.5 Review: "They lied!" is a go-to phrase for trial counsel

When a big contract fails, trial counsel will pretty much always try hard to find opportunities to accuse the other side of having misrepresented facts. Why? Because it can work, sometimes spectacularly well. Jurors and even judges might not understand the nuances of the dispute, but they will definitely undertand the accusation that "they lied!"

Consequently, every contract drafter should be mindful of the possibility that if a serious dispute were ever to arise concerning the contract, the other side might claim that the drafter's client engaged in fraudulent behavior. We see this in the civil complaint filed by the state of Oregon against Oracle, in which the second paragraph said, in its entirety (with extra paragraphing added for readability):

Oracle lied to the State about the “Oracle Solution.”

Oracle lied when it said the “Oracle Solution” could meet both of the State’s needs with Oracle products that worked “out-of-the-box.”

Oracle lied when it said its products were “flexible,” “integrated,” worked “easily” with other programs, required little customization and could be set up quickly.

Oracle lied when it claimed it had “the most comprehensive and secure solution with regards to the total functionality necessary for Oregon.”

As another example, consider BSkyB Ltd. v. HP Enterprise Services UK Ltd., [2010] EWHC 86 (TCC). In that case:

  • British Sky Broadcasting ("Sky") contracted with EDS to develop a customer relationship management (CRM) software system.
  • Things didn't go as planned, and Sky eventually filed suit.
  • In the (non-jury) trial, the judge concluded that EDS had made fraudulent misrepresentations when one of EDS's senior UK executives, wanting very much to get Sky's business, lied to Sky about EDS's analysis of the amount of elapsed time needed to complete the initial delivery and go-live of the system. See id. at ¶ 2331 and ¶¶ 194-196.
  • The judge also concluded that during subsequent talks to modify the contract, EDS made additional misstatements that didn't rise to the level of fraud, but still qualified as negligent misrepresentations. See id. at ¶ 2336.
  • A limitation-of-liability clause in the EDS-Sky contract capped the potential damage award at £30 million.
  • By its terms, though, that limitation did not apply to fraudulent misrepresentations; the judge held that the limitation didn't apply to negligent misrepresentations either. See id. at ¶¶ 372-389.

(One of the most interesting aspect of the judge's opinion, it seems to me, is its detailed exposition of the facts, which illustrate the ‘sausage factory' by which technology deals sometimes get made — and how even just one vendor representative can make a deal go terribly wrong for his employer.)

In early June 2010, EDS reportedly agreed to pay Sky some US$460 million — more than four times the value of the original contract — to settle the case. See Jaikumar Vijayan, EDS settles lawsuit over botched CRM project for $460M, Computerworld, June 9, 2010.

Still another example is Waste Management, Inc.'s lawsuit against SAP over a failed enterprise resource planning (ERP) software implementation, reported to have settled for an undisclosed sum. At the heart of Waste Management's case was its allegation, not just that SAP had breached the contract, but that it was guilty of fraudulent inducement, fraud, and negligent misrepresentation. See Chris Kanaracus, SAP, Waste Management settle lawsuit, Computerworld, May 3, 2010.

19.6 Scan: Representations and warranties from Verizon-Yahoo deal

The excerpt below illustrates how reps and warranties plus a disclosure schedule are used to "take a snapshot" of a company (or situation):

  • The reps and warranties describe a Platonic ideal;
  • The disclosure schedule lists variations from that ideal.

Except (i) as otherwise set forth in the Disclosure Schedules or (ii) as set forth in the SEC Documents filed or furnished and publicly available prior to the date of this Agreement [emphasis added]

(excluding any disclosures set forth under the heading “Risk Factors” and any disclosures included in any “forward-looking statements” section or that are similarly cautionary, predictive or forward-looking in nature),

Seller represents and warrants to Purchaser as follows: [emphasis added]

Disclosure Schedules: Negotiation of the Disclosure Schedules can be of the most time-consuming parts of an M&A transaction.

Schedule numbering: In the paragraphs below, notice how each referenced Disclosure Schedule is numbered to match the Agreement section where it is introduced.

19.6.1 2.01 Organization

(a) Seller is a corporation, duly incorporated, validly existing and in good standing under the Laws of the State of Delaware.

Seller is qualified to do business under the Laws of every other jurisdiction in which such qualification is necessary under applicable Law,

except where the failure to be so qualified or otherwise authorized would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(b) Each of the Business Subsidiaries is a corporation or other entity duly incorporated or organized, validly existing and, to the extent legally applicable, in good standing under the Laws of the jurisdiction of its incorporation or organization.

Each of the Business Subsidiaries is qualified to do business under the Laws of every other jurisdiction in which such qualification is necessary under applicable Law,

except where the failure to be so qualified or otherwise authorized would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

Seller has made available to Purchaser a true and correct copy of the Company's certificate of incorporation and bylaws,

and the comparable constituent or organizational documents for each other Business Subsidiary that constitutes a “significant subsidiary” as defined in Section 1-02 of Regulation S-X under the Exchange Act,

in each case as in effect as of the date of this Agreement.

19.6.2 2.02 Authority and Enforceability

(a) Seller (to the extent related to the Business) and the Business Subsidiaries have all requisite corporate or other organizational power and authority to own, lease and operate their properties and to carry on the Business as now conducted,

except where the failure to have such power and authority would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(b) Seller has all necessary corporate power and authority to enter into, execute, deliver and, subject to obtaining the Seller Stockholder Approval, perform its obligations under this Agreement, the Reorganization Agreement and the License Agreement.

The execution, delivery and, subject to obtaining the Seller Stockholder Approval, performance of this Agreement, the Reorganization Agreement and the License Agreement by Seller have been duly authorized by all requisite action on the part of Seller.

This Agreement has been duly executed and delivered by Seller and, assuming due authorization, execution and delivery of this Agreement by Purchaser, this Agreement is a legal, valid and binding obligation of Seller, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, general equity principles, other similar Laws of general application affecting enforcement of creditors' rights generally and rules of Law governing specific performance, injunctive relief and other equitable remedies (the “Enforceability Limitations”).

The Reorganization Agreement and the License Agreement have been duly executed and delivered by Seller and are legal, valid and binding obligations of Seller, enforceable against it in accordance with their terms,

except as such enforceability may be limited by the Enforceability Limitations.

(c) The Company has all necessary corporate power and authority to enter into, execute, deliver and perform its obligations under the Reorganization Agreement.

The execution, delivery and performance of the Reorganization Agreement by the Company have been duly authorized by all requisite action on the part of the Company.

The Reorganization Agreement has been duly executed and delivered by the Company and is a legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, except as such enforceability may be limited by the Enforceability Limitations.

Excalibur has all necessary limited liability company power and authority to enter into, execute, deliver and perform its obligations under the License Agreement.

The execution, delivery and performance of the License Agreement by Excalibur have been duly authorized by all requisite action on the part of Excalibur.

The License Agreement has been duly executed and delivered by Excalibur and is a legal, valid and binding obligation of Excalibur, enforceable against it in accordance with its terms, except as such enforceability may be limited by the Enforceability Limitations.

(d) At a meeting duly called and held, the board of directors of Seller[:]

(i) determined that this Agreement, the Reorganization Agreement and the Sale and the Reorganization Transactions are expedient and for the best interests of Seller and its stockholders,

(ii) approved this Agreement, the other Transaction Documents and the Transactions,

(iii) resolved, subject to the terms of this Agreement, to recommend that the stockholders of Seller adopt a resolution authorizing the Sale and the Reorganization Transactions (the “Seller Recommendation”)

(provided that any change, modification or rescission of such recommendation by the board of directors of Seller in accordance with Section 4.06 shall not be a breach of this Section 2.02(d)),

and

(iv) directed that such matter be submitted for consideration of the stockholders of Seller at the Stockholders' Meeting,

which resolutions, subject to Section 4.06(f), have not been rescinded, modified or withdrawn.

19.6.3 2.03 Capitalization and Title

(a) The Shares represent all of the issued and outstanding shares of capital stock of the Company. Seller is the sole record and beneficial owner of the Shares,

and, at the Closing, Seller will transfer and deliver to Purchaser valid title, in each case free and clear of any Encumbrances,

other than[:]

(i) any Encumbrance arising out of, under or in connection with the Securities Act or any other applicable securities Laws,

(ii) any Encumbrance arising out of or in connection with this Agreement or

(iii) any Encumbrance created by or through, or resulting from any facts or circumstances relating to, Purchaser or its Affiliates.

The Shares have been duly authorized, validly issued, and are fully paid and nonassessable and not subject to preemptive rights.

(b) As of the close of business on July 18, 2016 (the “Capitalization Date”),

(i) 4,959,526 shares of Seller Common Stock were issuable upon exercise of outstanding and unexercised Seller Stock Options and

(ii) 28,427,473 shares of Seller Common Stock were subject to Seller RSU Awards that were held by Employees and were outstanding and unvested,

assuming, in the case of clause (ii), achievement of all applicable performance goals at the maximum level.

Since the Capitalization Date through the execution of this Agreement, there have been no issuances, repurchases or redemptions of any Seller Equity Awards, other than

(A) the issuance of shares of Seller Common Stock upon the exercise of Seller Stock Options or the settlement of Seller RSU Awards, in each case, outstanding as of the Capitalization Date in accordance with their terms,

(B) the acquisition by Seller of shares of Seller Common Stock in connection with the surrender of such shares by holders of Seller Stock Options outstanding on the Capitalization Date to be able to pay the exercise price of such options in accordance with the terms of such options,

(C) the withholding or disposition of shares of Seller Common Stock to satisfy withholding tax obligations with respect to any Seller Stock Options or Seller RSU Awards (collectively, “Seller Equity Awards”) outstanding on the Capitalization Date, and

(D) upon the forfeiture of any Seller Equity Award outstanding on the Capitalization Date pursuant to its terms.

(c) Except as set forth in this Section 2.03, there are no options, warrants, convertible or exchangeable securities or other rights or Contracts obligating Seller or the Business Subsidiaries to issue or sell any shares of capital stock, or other equity or voting interests in, or securities convertible into, or exchangeable or exercisable for, shares of capital stock, or other equity or voting interests in, any Business Subsidiary and no capital stock, equity securities or other equity interests of any Business Subsidiaries are reserved for issuance for any purpose. There are no outstanding obligations of Seller or the Business Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock, or other equity or voting interests in, or securities convertible into, or exchangeable or exercisable for, shares of capital stock, or other equity or voting interests in, the Business Subsidiaries. Other than as set forth in Section 4.15, none of Seller or the Business Subsidiaries is a party to any voting trust, proxy, voting agreement or other similar Contract with respect to the voting of any shares of capital stock, or other equity or voting interests in, Seller or the Business Subsidiaries.

(d) There are no outstanding bonds, debentures, notes or other indebtedness of Seller or the Business Subsidiaries having the right to vote (whether on an as-converted basis or otherwise) (or convertible into, or exchangeable or exercisable for, securities having the right to vote) on any matters on which stockholders of Seller or the Business Subsidiaries may vote. Excalibur IP, LLC does not hold or own or otherwise have the right to license any assets other than the Intellectual Property Rights that are the subject of the License Agreement (and any ministerial or miscellaneous assets that are not material and that are ancillary to such Intellectual Property Rights).

(e) Section 2.03(e) of the Disclosure Schedules sets forth a true and complete list, as of the close of business on the Capitalization Date, of (i) each Seller RSU Award that was held by an Employee, (ii) the employee identification number of the Seller RSU Award holder, (iii) the number of shares of Seller Common Stock underlying each Seller RSU Award, (iv) the date on which the Seller RSU Award was granted and (v) the Seller Equity Plan under which the Seller RSU Award was granted.

19.6.4 2.04 Business Subsidiaries

(a) All the outstanding shares of capital stock of, or other equity or voting interests in, each Business Subsidiary (other than the Shares) have been duly authorized and validly issued, are fully paid and nonassessable and are owned, directly or indirectly, as of the date hereof, by Seller, and, as of the Closing, by the Company, in each case free and clear of all Encumbrances, other than (i) any Encumbrance arising out of, under or in connection with the Securities Act or any other applicable securities Laws, (ii) any Encumbrance arising out of or in connection with this Agreement or (iii) any Encumbrance created by or through, or resulting from any facts or circumstances relating to, Purchaser or its Affiliates. Section 2.04 of the Disclosure Schedules sets forth a true and complete list, as of the date hereof, of all Business Subsidiaries and any joint ventures, partnerships, minority investments (other than Excluded Assets) or other arrangements in which Seller or any Business Subsidiary has a limited liability company, partnership or other equity interest (and, to the Knowledge of Seller (except with respect to wholly-owned Subsidiaries), the percentage of any such interest). None of the Business Subsidiaries has any obligation to acquire any equity interest or other security in, or any commitment to make any capital contribution or investment in, or loan to, any Person (other than another Business Subsidiary).

19.6.5 2.05 No Conflicts

Assuming that the Seller Stockholder Approval and all Consents contemplated by Section 2.06 have been obtained, the execution, delivery and performance of this Agreement and the other Transaction Documents by Seller and/or its applicable Subsidiaries (including of the Reorganization Agreement by the Company) do not and will not:

(a) violate or conflict with the organizational documents of Seller or any of its Subsidiaries (including the Business Subsidiaries);

(b) conflict with or violate any Law or Governmental Order applicable to Seller or its properties or to any of its Subsidiaries (including the Business Subsidiaries) or their respective properties; or

(c) violate, conflict with or result in a breach of or default under (with or without due notice or lapse of time or both), require any consent, waiver or approval under or give rise to any right of termination, amendment, acceleration or cancellation of, or result in the creation of an Encumbrance, other than a Permitted Encumbrance, upon any of the properties or assets of Seller or any of its Subsidiaries (including the Business Subsidiaries) pursuant to, any Material Contract or other material Contract (other than a lease or sublease of real property) or Lease, except, in the case of clauses (b) and (c), as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

19.6.6 2.06 Governmental Consents and Approvals

Assuming the accuracy of Purchaser's representation in Section 3.04, the execution, delivery and performance of this Agreement and the other Transaction Documents by Seller and/or its applicable Subsidiaries (including of the Reorganization Agreement by the Company) do not require any Consent of any Governmental Authority, except:

(a) pursuant to the requirements of the Antitrust Laws of the jurisdictions set forth on Section 2.06(a)(i) of the Disclosure Schedules;

(b) for any notification, or where appropriate, consultation or negotiations with a labor union, labor board, works council or relevant Governmental Authority concerning the transactions contemplated hereby pursuant to the Contracts set forth in Section 2.14(a) of the Disclosure Schedules;

(c) as required by the Securities Act, the Exchange Act and any other applicable state or federal securities Laws;

(d) as required by Nasdaq; or

(e) to the extent that the failure to obtain any such Consents would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

19.6.7 2.07 SEC Documents

(a) Since January 1, 2014, Seller has filed or furnished with the SEC all material forms, schedules, prospectuses, registration statements, reports and other documents required to be filed or furnished by it with the SEC (the “SEC Documents”).

For the avoidance of doubt, the SEC Documents do not include any forms, schedules, prospectuses, registration statements, reports and other documents filed or furnished by Aabaco Holdings, Inc.

As of their respective dates, or, if amended or superseded, as of the date of such amendment or superseding filing or document so furnished,

(i) the SEC Documents complied in all material respects with the requirements of the Securities Act, the Exchange Act or the Sarbanes-Oxley Act, as the case may be, and the applicable rules and regulations promulgated thereunder and

(ii) none of the SEC Documents[:]

  • contained any untrue statement of a material fact or
  • omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading in any material respect. [Bullets and extra paragraphing added.]

No executive officer of Seller has failed to make the certifications required by him or her under Section 302 or 906 of the Sarbanes-Oxley Act, with respect to any SEC Document, except as disclosed in certifications filed with the SEC Documents.

As of the date hereof, there are no outstanding or unresolved comments in any comment letters of the staff of the SEC received by Seller relating to the SEC Documents.

(b) The consolidated financial statements (including all related notes and schedules) of Seller included in the SEC Documents[:]

(i) complied as to form, as of their respective dates of filing with the SEC, in all material respects with the published rules and regulations of the SEC with respect thereto,

(ii) fairly present in all material respects[:]

  • the consolidated financial position of Seller and its consolidated Subsidiaries as at the respective dates thereof and
  • their consolidated results of operations and consolidated cash flows for the respective periods then ended [Bullets and extra paragraphing added]

(subject, in the case of unaudited statements, to normal year-end audit adjustments, to the absence of notes and to any other adjustments described therein, including in any notes thereto),

(iii) have been prepared in all material respects in accordance with the Books and Records of Seller and its consolidated Subsidiaries, and

(iv) have been prepared in accordance with GAAP applied on a consistent basis during the periods indicated (except as may be indicated therein or in the notes thereto and subject, in the case of unaudited statements, to normal year-end audit adjustments and to the absence of notes).

(c) Neither Seller (to the extent related to the Business) nor any of the Business Subsidiaries is a party to, nor does it have any commitment to become a party to material “off-balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K of the SEC).

19.6.8 2.08 No Undisclosed Liabilities

Except[:]

(a) as reflected or expressly reserved against in Seller's financial statements, or the notes thereto, included in the SEC Documents filed with the SEC and publicly available prior to the date of this Agreement,

(b) for Liabilities incurred in the ordinary course of business consistent with past practice since the date of such financial statements,

(c) for Liabilities arising out of or in connection with this Agreement and

(d) Retained Liabilities,

neither Seller nor any of the Business Subsidiaries has any Liabilities that would be required to be reflected or reserved against in a consolidated balance sheet of Seller and its consolidated Subsidiaries prepared in accordance with GAAP, as in effect on the date hereof,

other than those which would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

19.6.9 2.09 Disclosure Controls and Procedures

Seller has established and maintains disclosure controls and procedures and internal control over financial reporting (as such terms are defined in paragraphs (e) and (f), respectively, of Rule 13a-15 under the Exchange Act) as required by Rule 13a-15 under the Exchange Act. Seller's disclosure controls and procedures are designed to ensure that information required to be disclosed in Seller's periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the required time periods. Seller's management has completed an assessment of the effectiveness of Seller's internal control over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act for the year ended December 31, 2015, and such assessment concluded that such controls were effective. Seller is in compliance in all material respects with the applicable listing and corporate governance rules and regulations of Nasdaq. Since January 1, 2014 through the date hereof, Seller has not identified (i) any significant deficiencies or material weakness in the design or operation of internal control over financial reporting which reasonably could adversely affect Seller's ability to record, process, summarize and report financial information or (ii) any fraud or allegation of fraud, whether or not material, that involves management or other employees who have a significant role in Seller's internal control over financial reporting.

19.6.10 2.10 Litigation

As of the date hereof, there are no Actions pending or, to the Knowledge of Seller, threatened against Seller (to the extent related to the Business), any of the Business Subsidiaries or any of their respective assets, rights or properties, by or before any Governmental Authority, and Seller (to the extent related to the Business), the Business Subsidiaries and their respective assets, rights and properties are not subject to any Governmental Orders, in each case which would, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

19.6.11 2.11 Compliance with Laws; Permits

Except with respect to those matters described in Sections 2.12 (Taxes), 2.13 (Employee Benefit Plans; ERISA), 2.14 (Labor Matters), and 2.17 (Environmental Matters):

(a) Since January 1, 2014, each of Seller (to the extent related to the Business) and the Business Subsidiaries has been in compliance with all Laws applicable to Seller or any of its assets and properties (in each case, to the extent related to the Business) and the Business Subsidiaries or any of their assets and properties, and none of Seller or the Business Subsidiaries has received any written notice from a Governmental Authority alleging noncompliance, except in each case as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(b) Since January 1, 2014, Seller (to the extent related to the Business) and the Business Subsidiaries are and have been in possession of, and in compliance with, all Permits necessary to carry on the Business as currently conducted, and all such Permits are in full force and effect and are not subject to any Action that would result in any modification, termination or revocation thereof, except, in each case, as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(c) None of Seller or its Subsidiaries, or to the Knowledge of Seller, any director, officer, employee, agent or other person acting on behalf of Seller or its Subsidiaries has, directly or indirectly, (i) used any funds of Seller or its Subsidiaries for unlawful contributions, unlawful gifts, unlawful entertainment or other unlawful expenses relating to political activity; (ii) made any unlawful payment to foreign or domestic governmental officials or employees or to foreign or domestic political parties or campaigns from funds of Seller or its Subsidiaries; (iii) violated or is in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any other applicable Law that relates to bribery or corruption; (iv) established or maintained any unlawful fund of monies or other assets of Seller or its Subsidiaries; (v) made any fraudulent entry on the books or records of Seller or its Subsidiaries; or (vi) made any unlawful bribe, unlawful kickback or other unlawful payment to any person, private or public, regardless of form, whether in money, property or services, to obtain favorable treatment in securing business to obtain special concessions for Seller or its Subsidiaries, except in each case as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

19.6.12 2.12 Taxes

(a) All material Tax Returns required to be filed by Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) or any Business Subsidiary have been timely filed (taking into account extensions), and all such Tax Returns are true, correct and complete in all material respects.

(b) All material Taxes required to be paid with respect to the Transferred Assets, the Assumed Liabilities or the Business and all material Taxes required to be paid by or with respect to the Business Subsidiaries (including any consolidated, combined, unitary or affiliated group of which any of them is or has been a member), whether or not shown as due and payable on any Tax Return, have been duly and timely paid.

(c) There are no material audits, claims, proceedings or assessments regarding Taxes pending or threatened in writing as of the date hereof against Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities), the Business Subsidiaries or the Business.

(d) Each of Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) and the Business Subsidiaries has collected, deducted and withheld and timely paid to the appropriate Governmental Authority all material Taxes required to be collected, deducted, withheld or paid in connection with amounts paid or owning to, or received or owing from, any employee, independent contractor, creditor, stockholder or other third party.

(e) There are no Encumbrances for material Taxes on any asset of Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) or of any Business Subsidiary other than Permitted Encumbrances.

(f) Neither the Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) nor any Business Subsidiary is a party to any Tax sharing agreement or Tax indemnity agreement pursuant to which it will have any obligation to make any payments for or in respect of Taxes after the Closing Date.

(g) Neither the Seller nor any Business Subsidiary has been either a “distributing corporation” or a “controlled corporation” in a distribution during the last two (2) years that was purported or intended to be governed in whole or in part by Section 355 of the Code.

(h) During the past three (3) years, no jurisdiction in which neither the Seller nor any Business Subsidiary files Tax Returns has asserted that the Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) or such Business Subsidiary is liable for a material amount of Taxes in that jurisdiction.

(i) Neither the Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) nor any Business Subsidiary has extended or waived the application of any statute of limitations applicable to any claim for, or the period for the assessment or collection of, any material Tax.

(j) Neither Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) nor any Business Subsidiary is or has been a party to any “listed transaction,” as defined in Treasury Regulations Section 1.6011-4(b)(2).

(k) None of the Business Subsidiaries (i) has ever been a member of an affiliated, combined, consolidated, unitary, loss sharing or similar group for purposes of filing any Tax Return or paying Taxes (other than any such group of which Seller is or was the common parent), or (ii) has any liability for Taxes of any other Person under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign Law), or as a transferee or successor, by contract or otherwise.

(l) None of the assets held by any Business Subsidiary that is not a “U.S. person” within the meaning of the Code is a “United States real property interest” within the meaning of Section 897(c) of the Code.

19.6.13 2.13 Employee Benefit Plans; ERISA

(a) Section 2.13(a) of the Disclosure Schedules sets forth a complete and accurate list, as of the date of this Agreement, identifying each material Benefit Plan and each material Non-U.S. Benefit Plan. With respect to each material Benefit Plan and each material Non-U.S. Benefit Plan, Seller has furnished or made available to Purchaser (or, with respect to Non-U.S. Benefit Plans, will furnish or make available to Purchaser within sixty (60) days following the date of this Agreement), as applicable, accurate and complete copies of (other than any documents that are prohibited from being made available as a result of applicable Laws regarding the safeguarding of data privacy) (i) such Benefit Plan or such Non-U.S. Benefit Plan, as applicable, and all material amendments thereto; and (ii) to the extent applicable, (A) the most recent annual report on Form 5500 filed and all schedules thereto filed with respect to such Benefit Plan, (B) each current trust agreement, insurance contract or policy, group annuity contract and any other funding arrangement relating to such Benefit Plan or such Non-U.S. Benefit Plan, as applicable, (C) the most recent actuarial report, financial statement or valuation report relating to such Benefit Plan or such Non-U.S. Benefit Plan, as applicable, (D) a current IRS opinion or favorable determination letter with respect to such Benefit Plan, (E) the most recent summary plan description, if any, required under ERISA with respect to such Benefit Plan, and (F) all material correspondence to or from any Governmental Authority relating to such Benefit Plan or such Non-U.S. Benefit Plan, as applicable, during the past twelve (12) months; provided, that any such correspondence with respect to Non-U.S. Benefit Plans will be furnished by Purchaser within sixty (60) days following the date of this Agreement.

(b) With respect to each Benefit Plan and Non-U.S. Benefit Plan, as applicable, except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect: (i) if intended to be qualified under Section 401(a) of the Code, such Benefit Plan is the subject of an unrevoked favorable determination or opinion letter from the IRS, and, to the Knowledge of Seller, nothing has occurred since the date of the most recent such determination that would adversely affect such qualification, (ii) such Benefit Plan has been established, maintained and administered in accordance with its terms and in compliance with applicable Law, including ERISA and the Code, and (iii) no disputes are pending, or, to the Knowledge of Seller, threatened against such Benefit Plan or such Non-U.S. Benefit Plan (or any assets or fiduciary thereof) other than routine claims for benefits made in the ordinary course of the Benefit Plan's or Non-U.S. Benefit Plan's, as applicable, operations, and there are no current or threatened audits, investigations or non-routine requests for information by any Governmental Authority with respect to such Benefit Plan or such Non-U.S. Benefit Plan.

(c) Except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect, none of Seller, any of the Business Subsidiaries nor any of their respective ERISA Affiliates sponsors or contributes to, or has any liability (whether actual or contingent) with respect to, (i) a “defined benefit plan” (as defined in ERISA Section 3(35)) that is subject to ERISA; (ii) a “multiemployer plan” (as defined in ERISA Sections 4001(a)(3) and 3(37)(A)) that is subject to ERISA; (iii) a pension plan subject to Section 302 or Title IV of ERISA or Section 412 or 4971 of the Code, in any case, either directly or through any ERISA Affiliate; (iv) a multiple employer welfare arrangement (as defined in Section 3(40) of ERISA) that is subject to ERISA; (v) a “multiple employer plan” (as defined in Section 413(c) of the Code) that is intended to be qualified under Section 401(a) of the Code; or (vi) any plan, program or arrangement that provides for post-retirement or other post-employment health or welfare benefits (other than health care continuation coverage as required by Section 4980B of the Code or similar applicable Law).

(d) During the immediately preceding six (6) years, (i) no Liability under Section 302 or Title IV has been incurred by Seller, the Business Subsidiaries or their respective ERISA Affiliates or their respective predecessors that has not been satisfied in full, and no condition exists that presents a risk to Seller, the Business Subsidiaries or any such ERISA Affiliates of incurring any such Liability; and (ii) no event has occurred and, to the Knowledge of Seller, there currently exists no condition or circumstances that would subject Seller or the Business Subsidiaries to any Controlled Group Liability with respect to any employee benefit plan that is not a Benefit Plan, except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(e) All contributions required to be made under the terms of any of the Benefit Plans or Non-U.S. Benefit Plans have been timely made or, if not yet due, have been properly reflected on the most recent consolidated balance sheet filed or incorporated by reference in Seller's financial statements, except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(f) The consummation of the Transactions will not (either alone or together with any other event, whether contingent or otherwise, and including a subsequent termination of employment or services) (i) entitle any current or former employee, director or independent contractor of Seller (to the extent related to the Business) or any of the Business Subsidiaries to any material payment or benefit, (ii) accelerate the time of payment or vesting, trigger any material payment of funding (through a grantor trust or otherwise) of compensation or benefits under, or materially increase the amount payable or trigger any other material obligation pursuant to, any Benefit Plan or Non-U.S. Benefit Plan, or (iii) result in any “excess parachute payment” (within the meaning of Section 280G of the Code) becoming due to any current or former employee, director or independent contractor of Seller or any of the Business Subsidiaries, except, in the case of clauses (i) and (ii), as provided in this Agreement or as required by applicable Law.

(g) There is no Contract, Benefit Plan, Non-U.S. Benefit Plan or other plan, policy, program or arrangement by which Seller or any of the Business Subsidiaries is bound to compensate any employee, director or independent contractor for excise taxes paid pursuant to Section 409A or 4999 of the Code.

(h) Each Non-U.S. Benefit Plan (i) has been established, administered and maintained in accordance with all applicable requirements (including applicable Law and the terms of such plan), except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect and (ii) that is intended to qualify for special Tax treatment meets all material requirements for such treatment, and, to the Knowledge of Seller, no condition exists and no event has occurred that would reasonably be expected to result in the loss or revocation of such qualification.

(i) This Section 2.13 and Section 2.14, together with Section 2.03, Section 2.06(b), and the second sentence of Section 2.18, contain the sole and exclusive representations and warranties provided with respect to all matters relating to employee benefits, employment and employment practices with respect to each of Seller, the Business Subsidiaries and the Business.

19.6.14 2.14 Labor Matters

(a) Section 2.14(a) of the Disclosure Schedules sets forth a complete and accurate list, as of the date of this Agreement, of each collective bargaining agreement or other material Contract with any labor organization, works council, union or similar employee representative body with respect to the Employees. Except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect, (i) there are no strikes, work stoppages, work slowdowns, lockouts, picketing or other similar labor activities pending or, to the Knowledge of Seller, threatened in writing against Seller (to the extent related to the Business) or any of the Business Subsidiaries, and (ii) there are no unfair labor practice charges, grievances or complaints pending or, to the Knowledge of Seller, threatened in writing by or on behalf of any Employee or group of Employees of Seller (to the extent related to the Business) or any of the Business Subsidiaries against Seller (to the extent related to the Business) or any of the Business Subsidiaries before the National Labor Relations Board or any other similar labor tribunal or authority.

(b) Except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect, Seller (to the extent related to the Business) and the Business Subsidiaries are, and since January 1, 2015 have been, in compliance with all applicable Laws respecting employment and employment practices, including all Laws respecting terms and conditions of employment, health and safety, wages and hours, immigration, employment discrimination, disability rights or benefits, equal opportunity, plant closures and layoffs, worker classification, affirmative action, workers' compensation, labor relations, employee leave issues and unemployment insurance.

(c) Prior to the date of this Agreement, except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect, Seller (to the extent related to the Business) and the Business Subsidiaries have satisfied any legal or contractual requirement to provide notice to, enter into any consultation procedure with or obtain an opinion from any labor or trade union, works council, employee forum or other employee representative body recognized by Seller or any of the Business Subsidiaries for collective consultation purposes in relation to any Employee, in connection with the execution of this Agreement or the Transactions.

(d) Section 2.13 and this Section 2.14, together with Section 2.03, Section 2.06(b) and the second sentence of Section 2.18, contain the sole and exclusive representations and warranties provided with respect to all matters relating to employee benefits, employment and employment practices with respect to each of Seller, the Business Subsidiaries and the Business.

19.6.15 2.15 Real Property

(a) (i) Each material lease or sublease (a “Lease”) pursuant to which Seller (to the extent related to the Business) or any of the Business Subsidiaries leases or subleases real property (excluding all leases or subleases for data centers) (the “Leased Real Property”) is in full force and effect and Seller or the applicable Business Subsidiary has good and valid leasehold title in each parcel of the Leased Real Property pursuant to such Lease, free and clear of all Encumbrances other than Permitted Encumbrances, except in each case where such failure would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect and (ii) there are no defaults by Seller or a Business Subsidiary (or any conditions or events that, after notice or the lapse of time or both, would constitute a default by Seller or a Business Subsidiary) and to the Knowledge of Seller, there are no defaults by any other party to such Lease (or any conditions or events that, after notice or the lapse of time or both, would constitute a default by such other party) under such Lease, except where such defaults would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(b) (i) Seller and the Business Subsidiaries have good and marketable title to all of the real property owned in fee by Seller (to the extent related to the Business) or any of the Business Subsidiaries (the “Owned Real Property”), free and clear of any Encumbrances other than Permitted Encumbrances; (ii) there are no leases, licenses or occupancy agreements pursuant to which any third party is granted the right to use the Owned Real Property; (iii) there are no outstanding options or rights of first refusal to purchase the Owned Real Property, except, in each case, as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect; and (iv) neither Seller nor any of the Business Subsidiaries has received written notice of any default under any restrictive covenants affecting the Owned Real Property and the Leased Real Property that remains uncured, and no event has occurred that, after notice or the lapse of time or both, would constitute such a default, except, in each case, as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(c) Section 2.15(c) of the Disclosure Schedules contains a complete and correct list of the (i) Owned Real Property and (ii) Leases. Seller has made available to Purchaser a true, correct and complete copy of each Lease with respect thereto (including all material amendments, modifications and supplements thereto).

19.6.16 2.16 Intellectual Property

(a) To the Knowledge of Seller, Section 2.16(a) of the Disclosure Schedules sets forth a true and complete list of all Owned Business Intellectual Property that, as of the date hereof, is issued by, registered with, or subject to a pending application for issuance or registration with, any Governmental Authority (“Registered Owned Business IP”).

To the Knowledge of Seller, except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect, Seller (to the extent related to the Business) or one of the Business Subsidiaries exclusively owns the Owned Business Intellectual Property.

(b) To the Knowledge of Seller,

except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect,

Seller or one of the Business Subsidiaries has the right to use, all Seller Licensed Software.

All material issued Patents and material Mark and Copyright registrations included in the Registered Owned Business IP are

(i) to the Knowledge of Seller, subsisting, valid and enforceable, and

(ii) free and clear of all Encumbrances, other than Permitted Encumbrances;

provided that the foregoing representation and warranty does not apply to any Intellectual Property Rights owned by any Person acquired by Seller after January 1, 2013 that Seller paid less than $100 million dollars of total consideration to acquire such Person

(with any non-cash consideration being valued at the fair market value thereof as of the consummation of such acquisition).

Except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect, as of the date hereof,

there are no Actions pending, or, to the Knowledge of Seller, threatened in writing since January 1, 2013 and not resolved, against Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) or the Business Subsidiaries contesting the validity, enforceability, use or ownership of any Owned Business Intellectual Property.

(c) To the Knowledge of Seller, neither Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) nor the Business Subsidiaries, nor any of their respective products or services, or the manufacture, use, sale, offer for sale, importation, and other commercial exploitation of any such products and services by or on behalf of Seller or the Business Subsidiaries, nor the conduct of the Business

infringes or misappropriates any Intellectual Property Rights of any third party

(provided that the foregoing representation and warranty does not apply to any third party products or services sold or otherwise provided or made available through any products or services of Seller or any of the Business Subsidiaries).

As of the date hereof, to the Knowledge of the Seller, there are no Actions pending, or threatened in writing since January 1, 2013 and not resolved

(other than any such threatened Actions with respect to which there has been no communication for over one (1) year between Seller or any Business Subsidiary and the threatening party),

against Seller (to the extent related to the Business) or any of the Business Subsidiaries

that involve a claim against Seller (to the extent related to the Business) or any of the Business Subsidiaries

of infringement or misappropriation of any Intellectual Property Rights of any Person.

Notwithstanding any other representation, warranty or other provision in this Agreement, this Section 2.16(c) contains the only representations and warranties made by Seller with respect to infringement or misappropriation by Seller or any of the Business Subsidiaries of any Intellectual Property Rights of any other Person.

Notwithstanding any of the foregoing in this Section 2.16(c), the representations, warranties and other provisions in this Section 2.16(c) do not apply to any Intellectual Property Rights owned by any Person acquired by Seller after January 1, 2013 that Seller paid less than $100 million dollars of total consideration to acquire such Person (with any non-cash consideration being valued at the fair market value thereof as of the consummation of such acquisition).

(d) To the Knowledge of Seller,

except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect,

as of the date hereof, no Person is infringing or misappropriating any Owned Business Intellectual Property as of the date hereof.

Except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect,

as of the date hereof, there are no Actions pending, or, to the Knowledge of Seller, threatened in writing since January 1, 2013 and not resolved,

by Seller (to the extent related to the Business, the Transferred Assets or the Assumed Liabilities) or any of the Business Subsidiaries

that involve a claim against any Person of infringement or misappropriation of any Owned Business Intellectual Property.

(e) Except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect,

Seller and the Business Subsidiaries have taken commercially reasonable steps to protect and preserve the confidentiality of all Trade Secrets included in the Owned Business Intellectual Property.

To the Knowledge of Seller,

except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect,

no Trade Secrets included in the Owned Business Intellectual Property have been authorized to be disclosed or actually disclosed by Seller or any of the Business Subsidiaries to any other Person other than pursuant to a written confidentiality agreement that imposes restrictions on the use and disclosure of such Trade Secrets.

(f) To the Knowledge of Seller, the execution, delivery and performance of this Agreement and the Reorganization Agreement and the consummation of the Transactions

will not, pursuant to any Contract to which Seller or any of the Business Subsidiaries is a party, require Seller or any of the Business Subsidiaries to assign or exclusively license to a third party any material Owned Business Intellectual Property.

(g) Except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect, since January 1, 2013,

all Persons (including current and former employees and independent contractors) who have created or contributed to the creation of any Owned Business Intellectual Property

have executed enforceable written agreements that validly and irrevocably assign to Seller or one of the Business Subsidiaries, to the extent permitted under applicable Law, all of their rights in and to such Owned Business Intellectual Property,

or Seller and the Business Subsidiaries own all such Owned Business Intellectual Property pursuant to applicable Law.

Seller and the Business Subsidiaries have taken commercially reasonable actions to maintain the validity and enforceability of any material issued Patent or material Mark or Copyright registration included in the Registered Owned Business IP under applicable Law.

(h) To the Knowledge of Seller, neither Seller nor the Business Subsidiaries has included, incorporated or embedded any Open Source Software that is subject to any Copyleft License in any Owned Business Software that is distributed by Seller or any of the Business Subsidiaries to any Person (other than Seller or any Business Subsidiary).

(i) ["eye"] To the Knowledge of Seller, except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect,

neither Seller nor any of the Business Subsidiaries has disclosed or delivered or authorized to be disclosed to any escrow agent or any other Person (other than an employee) any of the source code for any Owned Business Software

other than pursuant to a written Contract that imposes restrictions on the use and disclosure of such source code.

(j) The Intellectual Property Rights licensed to Seller and the Business Subsidiaries under the License Agreement and the Business Intellectual Property constitute, in all material respects, all Intellectual Property Rights necessary to operate the Business as currently conducted.

(k) Seller and the Business Subsidiaries post policies with respect to Personal Data in their possession or Processed on their behalf on any websites or online services operated by Seller or the Business Subsidiaries in conformance in all material respects with all applicable Privacy Laws.

To the Knowledge of Seller, Seller and the Business Subsidiaries' written public-facing privacy policies fully and accurately disclose how the Business Processes Personal Data except where the failure to disclose would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(l) ["ell"] To the Knowledge of Seller, Seller and the Business Subsidiaries are, and in the past have made themselves, in compliance, in all material respects with: (i) all applicable Privacy Laws; (ii) all of Seller's and the Business Subsidiaries' written public-facing policies regarding privacy and data security; and (iii) any existing and currently effective written contractual commitment made by Seller or the Business Subsidiaries with respect to Personal Data;

in each case (i), (ii) and (iii) except where the failure to be in compliance would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(m) To the Knowledge of Seller, Seller and the Business Subsidiaries have contractually obligated all third-party service providers, outsourcers, processors, or other third parties Processing Personal Data, in each case on behalf of Seller or the Business Subsidiaries to[:]

(i) comply with applicable Privacy Laws

(except where the failure to obligate such third-party would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect);

and (ii) take reasonable steps to protect and secure Personal Data from loss, theft, unauthorized access, use, modification, disclosure or other misuse.

(n) Seller and the Business Subsidiaries have obtained or will obtain any and all necessary rights, permissions, and consents to permit the transfer of Personal Data in connection with the Transactions, and such transfer will not violate in any material respect any applicable Privacy Laws.

(o) To the Knowledge of Seller, Seller and the Business Subsidiaries have implemented and maintain organizational, physical, administrative, and technical measures applicable to Personal Data that are reasonably consistent with[:]

(i) reasonable practices in the industry in which Seller and the Business Subsidiaries operate,

(ii) any existing and currently effective written contractual commitment made by Seller or the Business Subsidiaries that is applicable to Personal Data, and

(iii) any written public-facing policy adopted by Seller or the Business Subsidiaries related to privacy, information security or data security,

in each case (i), (ii) and (iii) that are intended to protect the integrity, security and operations of Seller or the Business Subsidiaries' information technology systems (and data therein) against loss, theft, unauthorized access or acquisition, modification, disclosure, corruption, or other misuse,

except in each case (i), (ii) and (iii) where the failure to have implemented and maintain any such measures would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

Seller and the Business Subsidiaries maintain,

and contractually require any third parties acting on their respective behalf to maintain,

a written public-facing information privacy and security program that maintains reasonable and appropriate measures to protect the privacy, operation, confidentiality, integrity, and security of all Personal Data against any Security Breach.

Seller and the Business Subsidiaries use reasonable efforts to inform all employees of and consultants to Seller and the Business Subsidiaries who have access to or Process Personal Data of Seller's or the Business Subsidiaries' applicable current written public-facing privacy and security policies.

Seller has delivered or made available true and complete copies of all current written public-facing policies and procedures relating to the Processing and security of Personal Data.

(p) To the Knowledge of Seller, there have not been any incidents of, or third party claims alleging,

(i) Security Breaches, unauthorized access or unauthorized use of any of Seller's or the Business Subsidiaries' information technology systems or

(ii) loss, theft, unauthorized access or acquisition, modification, disclosure, corruption, or other misuse of any Personal Data in Seller's or the Business Subsidiaries' possession, or other confidential data owned by Seller or the Business Subsidiaries (or provided to Seller or the Business Subsidiaries by their customers) in Seller's or the Business Subsidiaries' possession,

in each case (i) and (ii) that could reasonably be expected to have a Business Material Adverse Effect.

Neither Seller nor the Business Subsidiaries have notified in writing, or to the Knowledge of Seller, been required by applicable Law or a Governmental Authority to notify in writing, any Person of any Security Breach.

To the Knowledge of Seller, neither Seller nor the Business Subsidiaries have received any notice of any claims, investigations (including investigations by a Governmental Authority), or alleged violations of Laws with respect to Personal Data possessed by Seller or the Business Subsidiaries, in each case that could reasonably be expected to have a Business Material Adverse Effect.

(q) This Section 2.16, Section 2.05, the second sentence of Section 2.18, Section 2.19 and Section 2.20 contains the sole and exclusive representations and warranties provided with respect to all matters relating to Intellectual Property Rights or the collection, use, storage, retention, disclosure or disposal of personally identifiable information with respect to each of Seller, the Business Subsidiaries and the Business.

19.6.17 2.17 Environmental Matters

Except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect: (a) Seller (to the extent related to the Business) and the Business Subsidiaries are, and their activities at the Owned Real Property and Leased Real Property are, in compliance with all applicable Environmental Laws; (b) since January 1, 2012, Seller (to the extent related to the Business) and the Business Subsidiaries have obtained and are in compliance with all Permits required for the operation of the Business under applicable Environmental Laws; (c) since January 1, 2012, neither Seller (to the extent related to the Business) nor the Business Subsidiaries have been subject to any pending or, to the Knowledge of Seller, threatened Environmental Claim; (d) there has been no Release of Hazardous Materials at, from, to, on or under any of the properties that are currently or formerly owned, leased, or operated by Seller or any of the Business Subsidiaries or, any properties to which Seller or any of Business Subsidiaries has sent Hazardous Materials for which Release Seller or any of the Business Subsidiaries could reasonably be expected to have liability under Environmental Laws; (e) since January 1, 2012, neither Seller (to the extent related to the Business) nor the Business has paid any material fine or penalty relating to any Environmental Law, Hazardous Materials or an Environmental Claim; and (f) neither Seller (to the extent related to the Business) nor the Business have entered into any agreement to indemnify, any Person for any conditions or claims involving any Releases of Hazardous Substances into soil or groundwater that remains legally binding. This Section 2.17, Section 2.05, Section 2.06, Section 2.08 and the second sentence of Section 2.18 contain the sole and exclusive representations and warranties in this Agreement relating to environmental matters, including matters arising under Environmental Laws or otherwise relating to Hazardous Materials.

19.6.18 2.18 Absence of Certain Changes

Except[:]

(i) in connection with the negotiation and execution of this Agreement, the Reorganization Transactions, the Debt Tender Offer, or, for the avoidance of doubt, the IP Monetization

or

(ii) as otherwise contemplated or permitted by this Agreement,

since December 31, 2015 through the date hereof, the Business has been conducted in the ordinary course consistent with prior practice.

Since December 31, 2015, there has not occurred a Business Material Adverse Effect.

19.6.19 2.19 Material Contracts

Section 2.19 of the Disclosure Schedules contains an accurate list as of the date of this Agreement of all the Contracts, excluding any Leases, currently in effect of the following types to which Seller (to the extent related to the Business) or any of the Business Subsidiaries is a party or to which any of their assets or properties is subject (the “Material Contracts”):

(a) any Contract that (i) is a “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the Exchange Act other than any such Contract that is not required to be filed under clause (iii)(C) thereof) or (ii) that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act;

(b) any Contract that restricts or prohibits, or purports to restrict or prohibit, Seller (to the extent related to the Business) or any of the Business Subsidiaries (i) from engaging or competing in any business or soliciting any client or customer in any geographic area (in each case, other than (A) non-exclusive, inbound licenses to Intellectual Property Rights that are subject to territorial limitations and (B) covenants not to assert, sue or challenge), including Contracts that contain a “exclusivity” or similar term, or acquiring or disposing of securities of another person (or that following the Closing would materially restrict Purchaser or its Subsidiaries in any such manner) or (ii) from soliciting individuals for employment;

(c) any loan, guarantee of indebtedness or credit agreement, note, mortgage, indenture or other binding commitment (other than those solely between or among Seller and/or the Business Subsidiaries) relating to indebtedness for borrowed money in an amount in excess of $25,000,000;

(d) (i) any Contract establishing or governing the management of any joint venture or partnership that is material to the operations of the Business, and (ii) any Contract material to the operations of the Business with (A) SoftBank Group Corp. and its controlled Affiliates, (B) Yahoo Japan Corporation and its controlled Affiliates, (C) Seven Network Limited and its controlled Affiliates, (D) Microsoft Corporation and its controlled Affiliates and (E) Alphabet Inc. and its controlled Affiliates, in each case of (A) through (E), other than Contracts entered into in the ordinary course of business consistent with past practice on standard terms;

(e) any Contract pursuant to which Seller (to the extent related to the Business) or the Business Subsidiaries (i) was obligated to pay more than $25,000,000 for the year ended December 31, 2015 or may be obligated to pay such amount for the year ended December 31, 2016 (other than revenue share arrangements) (excluding any Contract covered in the immediately following clause (ii)), (ii) is obligated to pay the counterparty a minimum price or revenue guarantee amount involving amounts reasonably expected to be greater than $25,000,000 annually, or (iii) received, net of traffic acquisition costs, revenues of greater than $25,000,000 for the year ended December 31, 2015 or that is expected to result in the receipt, net of traffic acquisition costs, of revenues of greater than $25,000,000 for the year ending December 31, 2016;

(f) any Contract (i) that contains a “most-favored-nation” clause or similar term pursuant to which Seller or any of the Business Subsidiaries provides preferential pricing or treatment to any other Person or (ii) that grants any put, call, right of first refusal, right of first offer or similar right with respect to any material assets, rights or properties of Seller (to the extent related to the Business) or the Business Subsidiaries;

(g) any Contract with a sales representative with expected aggregate annual payments by or to Seller (to the extent related to the Business) or the Business Subsidiaries in excess of $25,000,000;

(h) any Contract providing for the acquisition or disposition, including on a contingent basis, of any assets, business, securities or otherwise outside the ordinary course of business by Seller (to the extent related to the Business) or the Business Subsidiaries or for consideration in excess of $25,000,000, other than Contracts for transactions that have closed for which there are no remaining holdback or deferred purchase obligations, earn-out obligations, pending indemnification obligations that are not secured by funds held in escrow or other contingent or similar obligations (other than obligations with respect to time-based retention) that would reasonably be expected to result in Liabilities in excess of $25,000,000;

(i) any Contract that obligates Seller (to the extent related to the Business) or any of the Business Subsidiaries to make any loans, advances or capital contributions to, or investments in, any Person in excess of $25,000,000;

(j) any Contract that is material to the Business under which Seller (to the extent related to the Business) or any of the Business Subsidiaries: (i) is a party to an express cross-license under or to any Patents that are material to the Business; (ii) has received an express license under or to any Patents that are material to the Business (excluding implied licenses to Patents in connection with the purchase or licensing of Software, hardware or services); or (iii) has received an express license under or to any Software owned by any other Person that (A) is material to the Business and (B) has an annual cost of greater than $15,000,000 (excluding any licenses for generally available, unmodified, commercial Software or “click-wrap,” “shrink-wrap” or freely downloadable Software (including Open Source Software) or licenses included in advertising insertion orders);

(k) any Contract that is material to the Business under which Seller (to the extent related to the Business) or any of the Business Subsidiaries has granted an express license under or to any Patents included in the Registered Owned Business IP that are material to the Business;

(l) any Contract pursuant to which (i) any third Person creates, develops, supports, maintains or customizes for or on behalf of Seller (to the extent related to the Business) or any of the Business Subsidiaries any Intellectual Property Rights or Software material to the Business for aggregate annual or one-time fees in excess of $15,000,000 or (ii) Seller or any of the Business Subsidiaries, for aggregate annual or one-time fees in excess of $15,000,000, creates, develops or customizes any Intellectual Property Rights or Software for any third Person; and

(m) any outstanding commitment or agreement to enter into any of the foregoing.

Seller has made available to Purchaser prior to the date of this Agreement a complete and correct copy of each Material Contract as in effect on the date of this Agreement. Neither Seller nor any Business Subsidiary is in breach of or default under the terms of any Material Contract, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a breach or default thereunder by Seller or any Business Subsidiary, in each case where such breach or default would reasonably be expected to have, individually or in the aggregate, a Business Material Adverse Effect. To the Knowledge of Seller, no other party to any Material Contract is in breach of or default under the terms of any Material Contract and, to the Knowledge of Seller, no event has occurred that with the lapse of time or the giving of notice or both would constitute a breach or default thereunder by any other party thereto, in each case where such breach or default would reasonably be expected to have, individually or in the aggregate, a Business Material Adverse Effect. Each Material Contract is a valid and binding obligation of Seller or the applicable Business Subsidiary and, to the Knowledge of Seller, a valid and binding obligation of each other party thereto. Each Material Contract is in full force and effect and enforceable against the other parties thereto, except (i) as would not reasonably be expected to have, individually or in the aggregate, a Business Material Adverse Effect, (ii) as such enforceability may be limited by the Enforceability Limitations and (iii) for any Material Contract that has expired or been terminated in accordance with its terms other than as a result of a breach thereof or default thereunder by Seller. Except as would not reasonably be expected to have, individually or in the aggregate, a Business Material Adverse Effect, (x) there are no disputes pending or, to the Knowledge of Seller, threatened with respect to any Material Contract or counterparty thereto and (y) neither Seller nor any of the Business Subsidiaries has received any written (or to Seller's Knowledge, oral) notice of the intention of any such counterparty to terminate for default, convenience or otherwise any Material Contract, nor, to the Knowledge of Seller, is any such party threatening to do so.

19.6.20 2.20 Rights and Obligations

Assuming receipt of all Consents that are required in connection with the consummation of the Transactions,

the Business Subsidiaries (for the avoidance of doubt, including (if applicable) SaleCo2 and its Subsidiaries) (after giving effect to the Reorganization Transactions (including the transactions contemplated by Section 1.7 of the Reorganization Agreement))

will have substantially the same rights and obligations (excluding the Excluded Assets and the Retained Liabilities)

with respect to the Business immediately following the Closing

as Seller and the Business Subsidiaries had immediately prior to consummation of the Reorganization Transactions.

19.6.21 2.21 Seller Stockholder Approval

Assuming the Seller Stockholder Approval is obtained, no other vote of stockholders of Seller is required in connection with the consummation of the transactions contemplated hereby.

19.6.22 2.22 Information Supplied

The Proxy Statement will not,

as of the date of filing and at the date it is first mailed to the stockholders of Seller and at the time of the Stockholders' Meeting,

contain any untrue statement of a material fact

or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading.

The representations and warranties contained in this Section 2.22 will not apply to statements or omissions included in the Proxy Statement based upon information furnished to Seller by Purchaser specifically for use therein.

19.6.23 2.23 State Takeover Statutes

No “fair price,” “moratorium,” “control share acquisition” or other similar antitakeover statute or regulation enacted under state or federal laws in the United States applicable to Seller or the Company is applicable to the Sale and the Reorganization Transactions.

19.6.24 2.24 Brokers

Seller shall be solely responsible for the fees and expenses of any broker, finder or investment banker entitled to any brokerage, finder's or other fee or commission in connection with the Sale and the other transactions contemplated by this Agreement, based upon arrangements made by or on behalf of Seller or the Business Subsidiaries.

19.6.25 2.25 Insurance

Seller and the Business Subsidiaries maintain insurance in such amounts and against such risks in all material respects as is customary for the industries in which Seller (to the extent related to the Business) and the Business Subsidiaries operate and as the management of Seller has in good faith determined to be reasonable. Except as would not reasonably be expected to have, individually or in the aggregate, a Business Material Adverse Effect, all material insurance policies maintained by or on behalf of Seller (to the extent related to the Business) and the Business Subsidiaries are in full force and effect, all premiums and other payments due on such policies have been paid by Seller and the Business Subsidiaries and all claims thereunder have been filed in due and timely fashion.

19.6.26 2.26 Disclaimer

Except as set forth in this Article II or the other Transaction Documents, none of Seller, its Affiliates or any of its Representatives makes or has made any other representation or warranty, express or implied, at law or in equity, in respect of Seller, the Business Subsidiaries or their respective Affiliates. Any such other representation or warranty is hereby expressly disclaimed. In particular, without limiting the foregoing disclaimer, except for the representations and warranties made by Seller in this Article II or the other Transaction Documents, none of Seller, its Affiliates or any of its Representatives makes or has made any representation or warranty to Purchaser or any of its Affiliates or Representatives with respect to (a) any financial projection, forecast, estimate or budget of future results or future financial condition relating to Seller, any of the Business Subsidiaries or the Business, or (b) any oral or written information presented to Purchaser or any of its Affiliates or Representatives in the course of their due diligence investigation of Seller, any of the Business Subsidiaries or the Business, the negotiation of this Agreement or in the course of the transactions contemplated hereby.

19.7 Drafting exercise: Payment terms

In pairs or triples, draft terms for Gigunda to pay MathWhiz. CONSIDER:

  • Will Gigunda insist on being invoiced?
  • How often should MathWhiz invoice for its services? Should there be any kind of progress payments?
  • What about expense reimbursement?
  • Any concern about guaranties or security interests?

20 Class plan - Day 7 (Wed. Feb. 05)

20.1 In the news: Energy Transfer Partners v. Enterprise Products Partners

[DCT to summarize SCOTX holding]

20.2 In the news: Fraudulent misrepresentation

From a Delaware supreme court case: KnighTek, LLC v. Jive Communications, Inc., No. 570, 2018 [sic], slip op. (Del. Jan. 27, 2020) (reversing district court):

As alleged in the complaint, when Erik Knight sold KnighTek, LLC to Jive Communications, Inc., Jive agreed to pay Knight $100,000 upfront and a revenue-based payment stream capped at $4.6 million. The continuing payments would convert to a lump sum payment if Jive’s ownership changed.

Years later, Jive offered to cash out KnighTek for $1.75 million, a substantial discount from the remaining cap amount. According to Knight, Jive’s representatives told him the buy-out money depended on KnighTek accepting the proposal right away. If it did not, Jive would use the funds for other buyouts. Jive’s representatives also told Knight if he turned down the offer, it would take five years for Jive to make the remaining payments.

Two days after KnighTek agreed to accept $1.75 million, Jive announced publicly it was being acquired by LogMeIn for $342 million—a change of control that according to KnighTek would have netted it a $2.7 million immediate payment under their earlier agreement.

Believing it had been misled and shorted about $1 million, KnighTek filed suit against Jive, alleging that Jive fraudulently induced KnighTek to take the discounted payout. According to KnighTek, Jive and its representatives knew about the imminent change of control, misrepresented the availability of buyout funds, and duped KnighTek into accepting a discount when KnighTek could have received almost $1 million more and an immediate payment after the LogMeIn transaction.

Id., slip op. at 2 (extra paragraphing added).

The opinion also quotes the applicable law (of Utah) about fraudulent misrepresentation, which requires proof:

(1) that a representation was made

(2) concerning a presently existing material fact

(3) which was false and

(4) which the representor either (a) knew to be false or (b) made recklessly, knowing that there was insufficient knowledge upon which to base such a representation,

(5) for the purpose of inducing the other party to act upon it and

(6) that the other party, acting reasonably and in ignorance of its falsity,

(7) did in fact rely upon it

(8) and was thereby induced to act

(9) to that party’s injury and damage.

Id. at 12 (footnote omitted).

20.3 Drafting exercise: MathWhiz reps and warranties

Take a stab at drafting reps and warranties for MathWhiz that you think Gigunda would be satisfied with.

20.4 "Flow" exercise: Carbolic acid and Queen Victoria

From this NPR piece:

[Joseph] Lister was the closest surgeon to [Queen Victoria's] residence in Scotland, Fitzharris says, so she directed Lister to come drain a large abscess growing under her armpit. Before the surgery, Lister's assistant sprayed carbolic acid with a machine Lister invented called the donkey engine all over the operation area, sterilizing it but also accidentally spraying the queen in the face.

QUESTION: How could the italicized text be rewritten to "flow" better? (Hint: Consider rewriting it so that it would sound more-natural if read aloud — which isn't bad advice for any writing.)

20.5 Preview lecture

[DCT to talk about next week's reading assignment]

20.6 Rewriting exercise: Confidential information (Atari agreement)

Rewrite the following to make it more readable; it's from an Atari consulting agreement, at https://goo.gl/ukMKTr (onecle.com via archive.org), between an individual and Atari. START BY BREAKING IT UP.

7.    Confidentiality and Security.

Consultant recognizes and agrees that in the course of performing services hereunder Consultant will generate or otherwise become privy to written or orally conveyed information that is proprietary or confidential to Atari, its affiliates, or their customers and/or to other parties to whom they may have confidentiality obligations. This information may include, without limitation, plans to introduce new products or services (including in this regard the existence of the Project), methods of doing business, planned transactions, market information, pricing information, supply sources, license and contract terms, information pertaining to customers' businesses, non-public financial data and operating results, system and component designs, specifications, computer software and technical information. Consultant understands that Atari and/or such affiliates, customers and other parties regard such information as trade secrets, and Consultant will employ Consultant's best efforts to assure the continued confidentiality thereof. Consultant will not disclose such information to anyone or use it for any purpose other than the performance of Consultant's services hereunder. Consultant will take all reasonable measures to prevent any unauthorized person from gaining access to such information and to prevent such information from being accessed, disclosed or used in any unauthorized manner, including complying strictly at all times with all applicable physical and computer system security procedures. Consultant will not break or attempt to break any of Atari's (or such affiliates’, customers' or other persons’) security systems, or obtain, or attempt to obtain access to any program or data other than those to which Consultant has been given access in writing. Upon any termination, cancellation or expiration of this agreement or at Atari's request at any other time, Consultant will deliver to Atari all materials in tangible form containing any of the information referred to in this Section 7, shall purge any and all copies thereof from all files and storage media retained by Consultant, and shall retain no archival or other copies thereof whatsoever. Further in such event, Consultant shall return any keys, security passes, equipment or other items or property supplied to Consultant by Atari or by any such affiliate, customer or other person.

QUESTION 1: If you're representing Consultant, why should the phrases "best efforts" and "all reasonable measures" cause you some concern?

QUESTION 2: How is Consultant supposed to know just what Atari information is subject to the confidentiality restriction?

QUESTION 3: Why should the penultimate sentence be of concern to Consultant?

DCT's first pass: (to show on his computer)

21 Class plan - Day 6 (Mon. Feb. 03)

21.1 Ambiguity: Euthanasia

TEXT: From a BBC News tweet: "Belgium court clears three doctors accused of unlawfully poisoning a woman whose life they helped to end in landmark trial."

QUESTION: What exactly happened at the "landmark trial"?

21.2 Ambiguity: Iowa caucuses

TEXT: From Ezra Klein on Monday morning: "Iowa Democrats want to be fair to candidates but also have a clear winner of the #IowaCaucuses." (The caucuses are tonight.)

QUESTION: What are the two possible meanings of the italicized portion?

21.3 Drafting fail: Smokin' in the building

TEXT: "From a commercial lease: 'Tenant’s Occupants will be required to smoke outside the Building in compliance with the Utah Indoor Clean Air Act.' [Cut to view of bewildered occupants corralled outside the building and forced to smoke.]" (From Ken Adams.)

SUGGESTED REVISION (from Neil Brown): "Tenant's Occupants may not smoke inside the Building. If they wish to smoke outside the Building, they must [insert rules]. The Tenant is responsible for enforcing this." (Notice how this uses shorter, crisper sentences.]

21.4 Wharton researchers: Hardball negotiations often lead to worse overall outcomes

From this interview with Wharton professor Maurice Schweitzer and postdoctoral researcher Einav Hart: "If people start with a high anchor and concede slowly, use aggressive tactics, express some anger, they end up achieving favorable negotiated deal terms. But what we’re finding — and this is our central thesis — is that sometimes by being more assertive, by being more aggressive, you might end up with a better negotiated outcome … but ultimately, through that process, create conflict that causes you to end up with worse value overall."

(Their paper: Getting Less: When Negotiating Harms Post-Agreement Performance)

To get others' perspectives, see the Hacker News discussion.

21.5 In the news (last semester): Fraudulent inducement

In Harris County District Court, a natural-gas provider was hit with a judgment for some $9 million for fraudulent inducement and negligent misrepresentation for recklessly representing to a customer that the provider had certain capabilities, when the provider "did not do any investigation as to whether [it] could satisfy this obligation …." (At ¶ 54.)

See also: Hewlett-Packard's EDS division had to pay USD $460 million to settle a claim by British Sky Broadcasting; see the Tango Terms commentary [FIX] at 392-93.

21.6 Appendix: Honeywell warranty text

From this purchase-order form:

  1. Warranty

16.1. Supplier warrants to Honeywell, its successors, assigns, customers, and end users that during the entire Warranty Period specified below, all Goods furnished (including all replacement or corrected Goods or components and regardless of whether all or any part of such furnished Goods or any replacement or corrected Goods was manufactured, distributed or otherwise commercialized by a third party prior to delivery by or on behalf of Supplier to Honeywell) will (a) be free from defects in material, workmanship, and design, even if the design has been approved by Honeywell, (b) conform to applicable drawings, designs, quality control plans, specifications and samples and other descriptions furnished or specified by Honeywell, (c) be merchantable, (d) be fit for the intended purposes and operate as intended, (e) comply with all laws and regulations, (f) be free and clear of any and all liens or other encumbrances, and (g) not infringe any patent, published patent application, or other intellectual property rights of any third party and not utilize misappropriated third party trade secret information. Goods that fail to meet the preceding standards are collectively called “non-conforming Goods.” Supplier must obtain third party warranties consistent with Section 16 for all raw materials, components, and services required by Supplier to perform under this Agreement (“Components”) and Supplier is solely responsible for ensuring that all Components meet these requirements. Any Component that fails to meet these requirements will be deemed to be a non-conforming Good.

16.2. As to services, in addition to any express or implied warranties, Supplier warrants that (a) it possesses the requisite expertise, facilities and equipment necessary and appropriate to perform the services, (b) the services will be performed in a safe and workmanlike manner, and (c) the services will be performed in accordance with the highest standards in the industry.

16.3. The Warranty Period is 36 months from the date of delivery to the end user or such longer period of time mandated by any longer government requirement covering the Goods. In addition to the warranties described above, Supplier also warrants all Goods to the same extent and for the same time period (if extending beyond 36 months) as the warranties provided by Honeywell to Honeywell’s customers relating to such Goods. These warranties are for the benefit of Honeywell, Honeywell’s customers, and any other person claiming by or through Honeywell. These warranties will survive any delivery, inspection, acceptance, or payment by Honeywell. Claims for breach of warranty do not accrue until discovery of nonconformance, even if the Goods were previously inspected. Any applicable statute of limitations runs from the date of discovery. If conforming Goods are not furnished within the time specified by Honeywell then Honeywell may, at its election, have the nonconforming Goods repaired, replaced, or corrected at Supplier’s expense or credited to Honeywell. Supplier is responsible for the costs of repairing, replacing or correcting nonconforming Goods or crediting them to Honeywell, and for all related costs, expenses and damages including, but not limited to, the costs of removal, disassembly, failure analysis, fault isolation, reinstallation, re-inspection, and retrofit of the nonconforming Goods or of Honeywell’s affected end-product; all freight charges, including but not limited to incremental freight expenses incurred by Honeywell for shipments of repaired, replaced, or corrected Goods to Honeywell and for shipments of repaired, replaced, or corrected Goods or finished product containing or incorporating repaired, replaced, or corrected Goods from Honeywell to any customer of Honeywell; all customer charges; and all corrective action costs. Unless set off by Honeywell, Supplier will reimburse Honeywell for all such costs upon receipt of Honeywell’s invoice. Any replacement Goods are warranted for the same period as the original Goods. Additionally, if any services are found not to be performed as warranted within a period of 36 months after the conclusion of the performance of the services by Supplier, Honeywell may direct Supplier to either refund to Honeywell the amount paid for the services, or perform the services again in a proper manner to the extent necessary to provide Honeywell with the result originally contemplated by Honeywell. The warranties and rights provided are cumulative and in addition to any warranty provided by law or equity.

16.4. If, following delivery, Goods exhibit a substantially similar repetitive root cause, failure mode or defect indicating a common or systemic failure (“Epidemic Failure”), then, without prejudice to Honeywell’s rights under Section 22: (a) the party discovering the failure will promptly notify the other and Supplier will provide to Honeywell a preliminary plan for problem diagnosis within one business day of such notification, which plan Supplier will revise at Honeywell’s request; (b) Supplier and Honeywell will diagnose the problem, plan an initial work-around and effect a permanent solution; (c) Supplier and Honeywell will agree on a plan for customer notification, replacement scheduling and remediation, including identification of suspect population, field removal, return and reinstallation, work in process (“WIP”), inventory replacement, and repair, or retrofitting, regardless of location or status of WIP completion; and (d) Supplier is responsible for all costs and damages associated with any Epidemic Failure. Honeywell and Supplier will work together in good faith to establish and expeditiously implement an Epidemic Failure action plan. If Supplier or any of its Component suppliers initiate any Product or Component recalls, retrofits, or service bulletins that affect Product quality, Supplier will immediately communicate this information to Honeywell.

16.5. [Omitted]

16.6. Goods and Services covered by this Purchase Order will comply with all applicable treaties, laws, regulations of the place of manufacture and Canadian, European Union and U.S. state and federal laws, regulations and standards (a) concerning the importation, sale, design, manufacture, packaging and labeling of its Goods, (b) regulating the sale of Goods, and (c) relating to the environment and/or the toxic or hazardous nature of Goods or their constituents, including (without limitation) the U.S. Toxic Substances Act, the U.S. Occupational Safety and Health Act, the U.S. Hazardous Communication Standard, the Federal Hazardous Substances Act, the California Proposition 65, European ROHS standards, and other current and subsequently applicable requirements; and Supplier agrees that it shall furnish promptly on request and provide all information and certifications evidencing compliance with such laws, regulations, standards and requirements.

21.7 Study guide for the Honeywell warranties

Suggestion: Copy and paste these terms into a Word document, then break them up into "chunks" to make them easier to read and study.

QUESTIONS:

  1. Who could sue Supplier for breach of warranty?
  2. How long do Supplier's warranties last?
  3. Do Supplier's warranties say that:
    • goods will be in a specified condition at delivery; and/or
    • goods will perform in a certain way for a certain period of time? Does that make any difference?
  4. What if goods are bad due to a design flaw for which Honeywell is responsible?
  5. In 16.1(c), what does "merchantable" mean?
  6. In 16.1(d), what is "the intended purpose"?
  7. In 16.1(g), what would it take for Supplier to know whether goods infringed a patent?
  8. In 16.2, is there any inconsistency between (b), "safe and workmanlike," and (c), "in accordance with the highest standards in the industry"?
  9. In 16.2(a), why does Honeywell want Supplier to warrant Supplier's skill, etc. — why not just ask for a warranty of results?
  10. In 16.2, what is the implication of "in addition to any express or implied warranties"?
  11. In 16.3, second and third sentences: Any issues here?
  12. In 16.3, what could be the significance of the following:
    • "These warranties are for the benefit of Honeywell, Honeywell’s customers, and any other person claiming by or through Honeywell"
    • "Any applicable statute of limitations runs from the date of discovery."
    • Any replacement Goods are warranted for the same period as the original Goods." Any ambiguity here?
    • "The warranties and rights provided are cumulative and in addition to any warranty provided by law or equity."
  13. In 16.3, do you see any potentially-enormous financial exposure for Supplier?
  14. In 16.4(c): "Supplier and Honeywell will agree on a plan for customer notification, replacement scheduling and remediation, including identification of suspect population, field removal, return and reinstallation, work in process (“WIP”), inventory replacement, and repair, or retrofitting, regardless of location or status of WIP completion[.]" QUESTION: Any issues here?
  15. In 16.6: Any potential problems here?

21.8 Drafting exercise

  1. In pairs (or triples), representing MathWhiz, draft a set of reps and/or warranties that you think:
    • contains the bare minimum that Gigunda will insist on – use the Honeywell warranty provisions above as a guide to what a tough set of customer T&Cs might require; and
    • has terms that you think MathWhiz should be able to support operationally.
  2. Draft a disclaimer of other reps and warranties.
  3. Copy and paste your work into virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ); we'll go over them in class. (Do this anonymously if you want.)

21.9 Homework: Comments on background section (last semester)

  1. A student wrote in the background section: "For all purposes, the Data is owned by Client and is provided to Contractor for completion of services under this Agreement."

    DCT COMMENT: This shouldn't go into the Background section, but into a substantive section (e.g., concerning IP ownership).

  2. A student used "WHEREAS" several times.

    DCT COMMENT: That's OK if the partner wants it, but it's archaic.

  3. A student described Mary as an "expert."

    DCT COMMENT: As we discussed in class last time, if I were Mary, I wouldn't want that.

  4. A student wrote: "Analyst desires to be retained by Company, and Company desires to retain Analyst, to analyze or cause to be analyzed the seismic data of the OM Field in accordance with the terms and conditions of this Agreement."

    DCT COMMENT: That seems superfluous: It's more or less self-evident, and it makes for one more paragraph for the reviewer(s) to have to read.

  5. A student included a section: "Concurrently with the execution and delivery of this Agreement, the Recipient and the Company are entering into a Service Agreement."

    DCT COMMENT: No, the agreement we're drafting IS the service agreement.

  6. Several students wrote variations on, e.g., "Gigunda desires for MathWhiz to analyze data, and MathWhiz desires to do so."

    DCT COMMENT: I wouldn't phrase it that way; instead, I'd let the rest of the contract speak for itself. (And in any case, the parties' subjective desires don't enter into contract interpretation except in cases of a lack of meeting of the minds or mutual mistake.)

  7. A student wrote that "Gigunda will pay MathWhiz as stated in this Agreement."

    DCT COMMENT: I think I'd leave that out — the payment provisions will speak for themselves, and it's not really needed for an "executive summary" (readers will assume that MathWhiz will be paid).

  8. A student writes: "The parties have agreed that Client will compensate Provider with a flat monthly fee of $20,000 for up to 200 staff hours of work per month, with additional work hours being billed at $150 per hour."

    DCT COMMENT: As long as this is the only place that the specific compensation details are discussed (D.R.Y.), this would work (like the lease details in the Stanford-Tesla lease being up front in the document).

  9. A student writes: "Client and Service Provider enter into the Agreement for the term of one year from the effective date of the Agreement."

    DCT COMMENT: This is another item that would go into a substantive provision further down, not into the Background section.

21.10 Ambiguity: Julia Louis-Dreyfus's early career

From a NY Times piece about Julia Louis-Dreyfus's being awarded the Mark Twain Prize for American Humor:

When she was still in college, Louis-Dreyfus was cast on “Saturday Night Live,” where she played a televangelist with a raunchy retelling of the Nativity. She has said those years were grim — a young woman trying to prove herself in a male-heavy cast — and missing the camaraderie of her work in Chicago. And on Sunday, she said it was not appropriate for her work there to be honored in a celebration of comedy.

(Emphasis added.)

QUESTION: In the italicized portion, which exactly is the "her work there" to which Louis-Dreyfus was supposedly referring — was it her work at SNL, or her work in Chicago?

21.11 Ambiguity alert: Kellyanne Conway

From the Washington Post: "Tapper said that Conway’s boss, the president, has been the subject of numerous sexual assault allegations and has said that those women lied about them."

Q: Who, exactly, said "those women lied" — was it Tapper, or Conway's boss? How could this be clarified?

22 Class plan - Day 5 (Wed. Jan. 29)

22.1 Quiz #1

Ten questions, ten minutes, 20 points.

22.2 Ambiguity exercises

  1. Consider the following sentence: "Alice says that Bob is cold." Is this more likely to be considered vague, ambiguous, or both?
  2. Consider the following sentence: "Alice says that Bob's forehead feels warm." Is this more likely to be considered vague, ambiguous, or both?
  3. What's a principal danger of an ambiguous contract term?
  4. FACTS: In a contract draft prepared by The Other Side, you see a term that's vague — it says that your client must pay The Other Side a certain amount by a certain date, but doesn't specify the time of day for that deadline.

    QUESTION: Is this worth asking The Other Side to fix? Discuss your reasoning.

  5. MORE FACTS: In this contract, your client is located in Vancouver, Canada and The Other Side (which drafted the contract) is located in Houston. The contract states that the amount your client must pay is $1 million.

    QUESTION: Is this an issue? If so, is it worth burning up negotiation time by asking The Other Side to fix it? Discuss your reasoning.

  6. MORE FACTS: In the above situation, your client really wants to get the contract to signature as soon as possible, like yesterday. You've tentatively concluded that it's not worth raising either of the above points (time of day and amount due) with The Other Side.

    QUESTION: To be on the safe side and keep your malpractice-insurance carrier happy, what might you want to do about these points before sending your markup to The Other Side?

  7. QUESTION: If all else fails in trying to interpret a contract provision, what Latin maxim will courts often follow, and what does it mean?

22.3 Preview: Read-along lecture (next week's reading)

22.4 Review question: Key difference between rep and warranty

From a litigation perspective, what is likely to be the most-significant difference between a representation and a warranty, in terms of being able to get summary judgment?

22.5 Ambiguity and the impeachment trial

TEXT: From a tweet: "Republicans are seemingly days away from voting to assert that presidents have dictatorial power to cheat in their own elections (if they're Republican presidents) and there needs to be a mass uprising about it."

QUESTION: There needs to be a mass uprising about what, exactly?

22.6 Ambiguity exercise: Success

From a Facebook posting: "A man's success has a lot to do with the kind of woman he chooses to have in his life. (Pass this on to all great women.)"

QUESTION: What's another, grossly-sexist interpretation of this quote? (Please don't be offended by this example; we're learning here to spot — and fix — unintentional ambiguities that can be subject to intentional, motivated misinterpretation.)

22.7 SPP: An LNG plant customer walks away

From Gulf LNG Energy, LLC v. ENI USA Gas Marketing LLC, No. 2019-0460-AGB (Del. Ch. Dec. 30, 2019):

  • Gulf spent over $1 billion to build a liquified natural gas ("LNG") terminal in Pascagoula, Mississippi, where LNG ships could offload their cargos.
  • ENI signed a 20-year contract to pay Gulf various fees to use the terminal to receive, store, regasify, and deliver LNG to various downstream pipelines.
  • But: The price of LNG plummeted due to fracking. ENI filed a demand for arbitration saying that it was entitled to terminate the contract because the purpose of the contract had been "substantially frustrated."
  • The arbitral tribunal agreed with ENI — but ordered ENI to pay Gulf $462 million and change.

DRAFTING LESSON: For a long-term contract, it's worth considering what might change and cause a party to try to walk away from the deal (or at least try to retrade it).

23 Class plan - Day 4 (Mon. Jan. 27)

23.1 Syllabus updated with reading assignments

See the revised syllabus (PDF) (updated 1/27/20)

23.2 Homework review

We'll go over:

1.  This draft from the 6:00 p.m. class (scroll down to the end)

2.  This draft

3.  This draft

23.3 Lecture: Summary judgment from 50,000 feet

Reference: Fed. R. Civ. P. 56.

23.4 Ambiguity: "… was clearly executed" vs. "clearly was executed"

From an email I received from the American Arbitration Association: "For unknown reasons, the reports generated that reflected completions of the Standards & Responsibilities form failed to include your entry even though the form was clearly executed." (Emphasis added.)

QUESTION: What are the two possible meanings for the italicized version?

23.5 Discussion: Title and preamble (Stanford-Tesla lease)

COMMERCIAL LEASE

THIS LEASE is entered into as of July 25, 2007 (the “Effective Date”), by and between THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, a body having corporate powers under the laws of the State of California (“Landlord”), and TESLA MOTORS, INC., a Delaware corporation (“Tenant”).

1.  BASIC LEASE INFORMATION. The following is a summary of basic lease information. Each item in this Article 1 incorporates all of the terms set forth in this Lease pertaining to such item and to the extent there is any conflict between the provisions of this Article 1 and any other provisions of this Lease, the other provisions shall control. Any capitalized term not defined in this Lease shall have the meaning set forth in the Glossary that appears at the end of this Lease.

Address of Premises: 300 El Camino Real, Menlo Park, California

Term: Five (5) years

Scheduled Date for Delivery of Premises: August 1, 2007

Commencement Date: August 1, 2007

Expiration Date: July 31, 2012

Base Rent:

Year One: $60,000 ($5,000 per month)
Year Two: $90,000 ($7,500 per month)
Year Three: $120,000 ($10,000 per month)
Year Four: $165,000 ($13,750 per month)
Year Five: $165,000 ($13,750 per month

QUESTIONS FOR CLASS DISCUSSION:

  1. Is "Commercial Lease" the proper term, or should it be "Commercial Lease Agreement"? [5]
  2. Why state that the Lease is entered into "as of July 25, 2007"? [6]
  3. Why do you think the names of the parties are capitalized? [7]
  4. What might be some of the pros and cons of including this kind of "Basic Lease Information" at the beginning of the agreement document, instead of including it "in-line" in the appropriate section(s) of the agreement? [8]
  5. To what extent is the "Each item in this Article 1 incorporates …" worth including? [9]
  6. What could go wrong with the italicized portion, "to the extent there is any conflict …"? [10]
  7. Note the mention of the Glossary in the last sentence of the first paragraph — where are some other places to include definitions for defined terms? [11]
  8. Any comments about the way the "Term: Five (5) years" portion is stated? How about the way that the Base Rent amounts are stated? [12]

23.6 Review of reading

In your groups, in ONE PLACE in the virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ), list some of the things you found in the reading, or in last week's discussion, that were one or more of the following:

  • unclear, as in, what questions do you still have?;
  • surprising;
  • memorable; and/or
  • important for clients / new lawyers to know

23.7 From the SPP file: Apple's way with suppliers

23.8 Review: Title and signature block

From a prior semester:

23.8.1 Title

• One student's title was: "CONSULTING SERVICES AGREEMENT Among Gigunda Energy and Math-Whiz LLC"

What's less-than-ideal here? [13]

• Title: "SEISMIC DATA ANALYSIS SERVICE AGREEMENT BY AND BETWEEN GIGUNDA ENERGY AND MATH-WHIZ LLC"

QUESTION: What could be improved here? [14]

• Title:

CONSULTANT SERVICES AGREEMENT
BETWEEN
GIGUNDA ENERGY,
a California [corporation]
(“Client”)
AND
MATH-WHIZ LLC,
a Texas limited liability company
(“Contractor”)

QUESTION: What's a potential concern here? [15]

23.8.2 Signature block

• One student had MathWhiz's signer as "Mary [Last Name], Member." QUESTION: What could be improved here? [16]

• One student had:

AGREED:
GIGUNDA ENERGY
By: ---------------------–—
Name:
Title:
Date Signed:

QUESTION: What could be improved here? [17]

• One student's MathWhiz signature block read as follows:

AGREED: PROVIDER
MATH-WHIZ LLC, by:
---------------------–—
Signature
---------------------–—
Date Signed

QUESTION: What could be improved here? [18]

• One student had the sig blocks as, e.g.:

AGREED: CLIENT
Gigunda Energy, LLC,
a California limited liability company

By: -----------------–—
            John Snow, Manager

--------------------–—
Date signed

QUESTION: What could be improved here? [19]

• One student's sig blocks were thus:

AGREED:
Gigunda Energy, Inc., by:

-----------------------------
Signature

-----------------------------
Print Name

-----------------------------
Date

QUESTION: What could be improved here? [20]

23.9 Reps and warranties: The Hill of Proof

[DCT to draw on the board]

23.10 Vagueness vs. ambiguity

QUESTION: What is a "vague" term? What is an "ambiguous" term?

QUESTION: Is "cool" an ambiguous term? A vague term? Both?

24 Class plan - Day 3 (Wed. Jan. 22)

24.1 Review of reading & last week

In your groups, in the virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ), list some of the things you found in the reading, or in last week's discussion, that were one or more of the following:

  • surprising;
  • memorable; and/or
  • important

24.2 Ambiguity and traffic signs

See this sign.

Better: This sign

Better still: This sign

24.3 Canvas accounts

I use the Canvas system for quizzes. Please do the following:

1. sign up for a (free) Canvas account at https://canvas.instructure.com/register_from_website; then

2. sign up for this course on Canvas at https://canvas.instructure.com/courses/1814046

24.4 From the real world: Termination of a finder agreement

Scan through this finder agreement.

QUESTION: Can "Company" unilaterally terminate the agreement, i.e., fire "Advisor"? What's the best way?

24.5 Read-along lecture: Titles, preambles, backgrounds

From the Tango Terms:

• Titles (page 599)

• Preambles (page 606)

• Background of the Agreement (page 628)

24.6 Demonstration: Drafting problems with a contract

From a contract drafted by The Other Side of an actual deal (sanitized):

Within thirty (60) days of the close of previous quarter term, ABC shall provide XYZ with a revenue report that provides a total amount of Data Revenue and Software Revenue obtained by ABC during the referenced quarter term, minus any associated costs or expenses and customer returns or refunds ("Revenue Report").

QUESTIONS:

  1. Any drafting problems with this?
  2. Ignoring the substance, how might this be otherwise improved to make it more readable?
 :

DCT COMMENTS:

  1. "Within thirty (60) days …" is a mismatch, illustrating the reason for the D.R.Y. (Don't Repeat Yourself) principle.
  2. "Within 30 days of the close …" is ambiguous — it could mean within the 30 days preceding the end of the quarter.
  3. In the first phrase, it should be "… days of the close of the previous quarter term.
  4. "Quarter term" is not a conventional phrase — consider "calendar quarter," or perhaps "fiscal quarter," instead.
  5. "ABC shall provide XYZ with a revenue report" is OK, and some practitioners prefer it, but "ABC will provide" would be softer and more collaborative-sounding.

DCT REWRITE:

(a) Each quarter, ABC will provide XYZ with a revenue report. The revenue report is to state the following:

(1)     the total amount of Data Revenue and Software Revenue obtained by ABC during the referenced quarter term,

(2)     minus any associated costs or expenses and customer returns or refunds.

Each such report is referred to as a "Revenue Report."

(b) Each Revenue Report is due no later than 30 days after the close of the previous quarter term.

24.7 Drafting exercise: Title, preamble, signature blocks

For the MathWhiz-Gigunda "deal," draft a title, a preamble, and signature blocks.

25 Class plan - Day 1

25.1 Course startup

  1. Student introductions:
    • Name
    • 2L? 3L? LLM?
    • Career intentions
    • Undergraduate school & degree
    • Work experience
    • Previous contract experience
  2. First in-class exercise: Where did Professor Toedt go to law school? Reason: It's a good idea to look up the people on the other side of a contract negotiation — or for that matter, anyone else you'll be dealing with. Google and LinkedIn are extremely useful for that purpose.
  3. Read-along lecture: Course info
  4. Email addresses in virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ) for a Google Groups list
  5. PSA requested by the University: Counseling is available (see the course book)

25.2 Exercises

25.2.1 Streamlining the sentence: The team meeting

In your small groups, discuss how to trim out the "fat" from the following sentence:—

Before:  
The team held a meeting to give consideration to the issue.

After: ???

25.2.2 Ambiguity exercise: Lola, by The Kinks

From The Kinks' famous song Lola (YouTube):

Well I'm not the world's most masculine man
But I know what I am and I'm glad I'm a man
And so is Lohhh-lahhh
Lo lo lo lo Lohhh-lahhh. Lo lo lo lo Lohhh-lahhhh

(Emphasis added.)

QUESTION: When the artists sing, "And so is Lola," what exactly is Lola?

EXERCISE: In your small groups, discuss how this could be clarified (don't worry about rhyme or meter).

25.3 Thumbsucker questions: Goals, etc.

For discussion, in small groups:

  1. In your practice, do you expect you'll be doing more drafting of contracts, or more review of drafts that others have prepared? Explain.
  2. What do you think are the main goals of a contract drafter or reviewer?
  3. In abstract terms, what do you think is the client's overarching goal in negotiating a contract?
  4. What do you think is likely to be the worst bottleneck in getting a contract to signature?
  5. What kind of contract language do you think business lawyers should aspire to write?
  6. TRUE OR FALSE: A contract drafter should strive to anticipate and address all harms to the client that might occur in the course of the parties' relationship.

25.4 Read-along lecture

25.5 In-class drafting exercise

26 DCT notes

7. Confidentiality and Security.

Consultant recognizes [DELETE: and agrees] [OR: acknowledges] that in the course of performing services hereunder Consultant will [DELETE: generate or otherwise] become privy to written or orally conveyed information that is proprietary or confidential to Atari, its affiliates, or their customers and/or to other parties to whom they may have confidentiality obligations.

This information may include, without limitation, • plans to introduce new products or services (including in this regard the existence of the Project); • methods of doing business; • planned transactions; • market information; • pricing information; • supply sources; • license and contract terms; • information pertaining to customers' businesses; • non-public financial data and operating results; • system and component designs; • specifications; • computer software and technical information. [Note the bullets that I added for greater readability.]

Consultant understands that Atari and/or such affiliates, customers and other parties regard such information as trade secrets[DELETE: ,].

Consultant will employ [DELETE: Consultant's best efforts] commercially-reasonable efforts to assure the continued confidentiality [DELETE: thereof] of such information.

Consultant will not disclose such information to anyone or use it for any purpose other than the performance of Consultant's services hereunder.

Consultant will take [DELETE: all reasonable measures] prudent measures [(i)] to prevent any unauthorized person from gaining access to such information and [(ii)] to prevent such information from being accessed, disclosed or used in any unauthorized manner,

including complying [DELETE: strictly at all times] with all applicable physical and computer system security procedures.

Consultant will not break or attempt to break any of Atari's (or such affiliates’, customers' or other persons’) security systems,

[DELETE: or] nor obtain, or attempt to obtain access to any program or data other than those to which Consultant has been given access in writing.

Upon any termination, cancellation or expiration of this agreement or at Atari's request at any other time, Consultant[:]

will deliver to Atari all materials in tangible form containing any of the information referred to in this Section 7,

[DELETE: shall purge any and all copies thereof from all files and storage media retained by Consultant,] and

[DELEE: shall retain no archival or other copies thereof whatsoever].

Further in such event, Consultant shall return any keys, security passes, equipment or other items or property supplied to Consultant by Atari or by any such affiliate, customer or other person.

Footnotes:

[1]

Possibly not, because the warranty is to Gigunda USA. In any case, that's a conversation you don't want to have.

[2]

One possibility, with two steps: (1) Define a term such as Buyer (or perhaps Purchaser) as, whichever entity is making purchases under the master agreement; and (2) Rewrite the warranty provision to read, "Widgets warrants to Buyer" instead of "Widgets warrants to Gigunda USA …."

[3]

Arguably not; it depends on whether notice is "given" when mailed or when received.

[4]

The extension provision could be rewritten to say, e.g., To extend the Pricing Term, Customer must give Provider written notice of extension, which must be effective no later than 30 days before its then-current expiration date.

[5]

"Commercial Lease" is appropriate — a lease is a contract that creates a leasehold interest. See Black's Law Dictionary, 10th ed.

[6]

A contract can state that it is effective as of an earlier- or later date if that's what the parties want. CAUTION: Signers should never backdate their signatures to make it appear that the contract was signed earlier- or later than it was; doing so sent a number of senior executives to prison.

[7]

Party names are sometimes capitalized in a preamble so as to make them easy for a skimming reader to spot.

[8]

Defining key "business" terms (e.g., "Base Rent") at the beginning of an agreement — and then consistently using those defined terms elsewhere in the agreement — makes it convenient for reviewers and safer for revisers, who need only revised the definitions.

[9]

Including "Each item in this Article 1 incorporates …" is probably unnecessary.

[10]

Including the italicized portion, "to the extent there is any conflict …" is dangerous because it could lead to inconsistencies during revision of the draft during negotiation.

[11]

Defined terms and their definitions are typically set forth (i) in a separate section at the beginning of the agreement; (ii) in a separate section at the end of the agreement; and/or (iii) "in-line" at the place in the agreement that the defined term is principally used.

[12]

Both "Term: Five (5) years" and "Year One: $60,000 ($5,000 per month)" violate the "[BROKEN LINK: DRY]" (Don't Repeat Yourself) rule, which can cause major problems if the words are changed but not the numerals, or vice versa; the linked section tells the sad tale of a bank that lost $693,000 because of such a drafting screw-up.

[13]

For the title of a two-party agreement, I'd use "between" instead of "above."

[14]

"By and between" is overkill; I'd just say "between."

[15]

The title has a bit more information than needed for an index, and there's always the D.R.Y. concern.

[16]

If an LLC member is to sign, you'd want to be sure it's a member-managed LLC, as opposed to a manager-managed LLC. See Tango Terms § 173.3.6

[17]

In the signature block, it's better to have actual underscores for each field of information that needs to be filled in. Otherwise, sure as heck someone will forget to fill in the needed information.

[18]

For MathWhiz's signature block, you'd want to include blank lines for the signer to fill in her (or his) printed name and title, to establish signature authority.

[19]

If we've recited in the preamble that Gigunda is a California LLC, then we don't want to repeat that in the sig block in case it gets revised — it might turn out that Gigunda is in fact a California corporation, or perhaps a Delaware corporation or LLC.

[20]

1. In the signature blocks you want the title of each signer, to establish at least apparent authority. 2. I'd say "Date signed" and not just "Date."