Day-by-Day Class Plans: Contract Drafting Spring 2023

Group 1 sits to my left, other groups in order after that.

This grouping is alphabetical by last name, BUT only first names are used here for privacy.

NOTE: I will reshuffle the groups twice during the semester.

6:00 p.m. class:

Group 1: Grace, Megan, Kaveri, Kathleen, Emma
Group 2: Lisette, Aaron G., Rebecca, Aaron H., Bryce
Group 3: Harrison, Stephen, Allanah, Hunter, Caroline
Group 4: Araceli, Amberley, Christopher, Jason, James

7:30 p.m. class:

Group 1: Clarissa, Tony, Tyler, Lanny
Group 2: David, Hannah, Muriel, Ajita
Group 3: Samuel, Alyssa, Saayem, Alexia
Group 4: William, Kathleen, Jake, Beau

From Twitter: "Elon Musk predicts he will rocket people to Mars in less than 10 years" – does that mean people will depart for Mars in less than ten years, or that it'll take them less than ten years go get there?

QUESTION: How could this be rewritten to clarify?

In the the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4, please tell us a little bit about yourself:

• Name
• Class year (3L, 2L, LLM)
• Undergrad school and major
• Work experience?
• Contract-related experience?
• Something boring about yourself?

Here's how I usually do Socratic-method questioning:

• I pose a question — usually pre-positioned on this Web page, see this example from today's class plan — and ask you to discuss the question for a minute or two in your small groups.
• Then, for that question, I spin a wheel to call on a student by number — see your assigned number below.
• After each spin, I remove the number that came up, so that students won't be repeatedly cold-called in any one class session until everyone else has been called on.

That way:

• Neither the students nor I know who will be cold-called to answer a question.
• Each student must be ready to answer each question — but gets to discuss the question with his/her group before I cold-call on anyone.

I haven't done any kind of scientific study, but my sense is:

• that students like being able to discuss the question before I ask a student to answer the question; andn
• that students get more out of it when each student prepares to answer each question.

Spinning-wheel number assignments – 6:00 p.m. class

1. Aaron G.
2. Aaron H.
3. Allanah
4. Amberley
5. Bryce
6. Caroline
7. Christopher
8. Emma
9. Grace
10. Harrison
11. Hunter
12. James
13. Jason
14. Kathleen
15. Kaveri
16. Lisette
17. Megan
18. Rebecca
19. Stephen

Spinning-wheel number assignments – 7:30 p.m. class:

1. Ajita
2. Alexia
3. Alyssa
4. Beau
5. Clarissa
6. David
7. Hannah
8. Jake
9. Kathleen
10. Lan
11. Muriel
12. Saayem
13. Samuel
14. Tony
15. Tyler
16. William

Canvas setup: Be sure you're enrolled at https://canvas.uh.edu/courses/2190

[From a PowerPoint slide deck]

DCT to talk through the syllabus and the introductory parts of the Notes on Contract Drafting (a work-in-progress of mine). BE SURE TO READ these materials.

See this tweet thread

See this blog entry.

Read along: Chapter 1: Introduction

QUESTION: Most contract preambles identify the parties as, e.g., "ABC Corporation, a Texas corporation."

• How would we identify MathWhiz?
• How would we identify Gigunda Energy?

From a Facebook post shared by one of my former law partners: "I made it through the day without needing an AR-15 again!"

QUESTION: Does "again" relate:

• to "made it through the day"? or
• to "needing an AR-15"?

I'll bring them to class; that way, you won't forget them ….

From CNN (since changed): "New US dietary guidelines include babies and toddlers for first time"

A friend posted a screen grab on Facebook with the comment, "Thanks for the offer, but I’m vegan."

Here's a tweet from the @TexasDemocrats Twitter account: "PRESS RELEASE: Chairman @HinojosaTX Releases Statement on Federal Judge in Texas Siding with AG Paxton, Against Texas Women"

QUESTIONS:

1.  Suppose you didn't know Texas politics, and you also didn't know that this tweet came from the Texas Democratic Party — might you be confused about who was siding with whom?

2.  How could this be clarified?

DCT to talk through some key points in the syllabus; BE SURE TO READ these materials.

From this article: "Anti-vaccination sentiment was once more evenly distributed between parties and ideologies …." (Emphasis added.)

QUESTIONS:

1.  Are there two ways to interpret the above quote?

2.  How could this be clarified?

From the Houston Chronicle (article by Katherine Feser): "Houston-based Fidelis Realty Partners acquired Shadow Creek Ranch, a 613,468-square-foot, H-E-B-anchored retail center at 2805 Business Center Drive in Pearland’s Shadow Ranch community. …."

QUESTION: What kinds (plural) of contract documents are likely to be involved here?

QUESTION: What sorts of business- and legal issues might the different parties be concerned about? Think about:

• What would the buyer primarily want? The seller?
• What "what-if?" concerns might be on the buyer's mind? The seller?

Pro tip: Think about using the TOP SPIN tool, at NCD § 19.3, to help think of what-if scenarios that might need to be addressed. (You don't need to go into great detail about possible covenants, reps and warranties, etc. — here, we're just looking for what-ifs of possible concern.)

Feel free to use the the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4 for your notes.

Do Exercises 1, 3, 4, and 5 of Chapter 2 — you can use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4 if you think it'd be helpful, but you might want to just make private notes.

DCT to recount an episode for a wealthy individual client renegotiating his compensation package as CEO of a company.

(We'll be doing a lot of ambiguity drills.)

TEXT, from a Maureen Dowd column in the NY Times, March 5, 2016: "Like Bill Clinton, Trump talks and talks to crowds. … [H]e creates an intimacy even in an arena that leaves both sides awash in pleasure." (Emphasis added.)

QUESTION: What, exactly, leaves both sides awash in pleasure? How could this be clarified?

From an article in The Guardian:

There will be plush lecture theatres with thick carpet, perhaps named after companies or personal donors.

Martin Parker, Why we should bulldoze the business school, [BROKEN LINK: sc:], Apr. 27, 2018 (https://perma.cc/F5N6-46RE).

QUESTION: What, exactly, is named after companies or personal donors?

QUESTION: How could this sentence be rewritten to clarify it?

In this exercise:

• Groups 1 and 3 represent MathWhiz
• Groups 2 and 4 represent Gigunda.

Use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4 — in groups: Draft a short letter of intent between MathWhiz and Gigunda, including the following:

1. Title
2. Preamble
3. Statement that the parties are negotiating for MathWhiz and Gigunda to enter into a ten-year (!) consulting agreement but haven't agreed on all the terms yet.
4. A brief statement of:
   • what part of the LOI is binding
   • what's not binding but the parties are going in that direction — feel free to be creative from your client's point of view
   • what it would take for the final agreement to be binding
5. Include a list of items that the parties expect to discuss but that aren't yet agreed to.
6. Signature blocks — just do them one after another vertically, don't worry about table format (unless you're a whiz with Google Docs).

Go ahead and make up legal names, entity types, and jurisdictions as needed.

Optional: Skim through the LOI discussion in the course material to get ideas.

Just for grins, here's what ChatGPT came up with:

We'll look through the Agreement and Plan of Merger at the SEC.gov Website.

Some points to note from a 10,000-foot view:

1. This is an all-stock deal.
2. The definitions are both "inline" and in Annex A at the back, with Article I, "Definitions" being an index.
3. There's a Section 2.4, "Effect of the Mergers," but also an Article III, "Effect of the Mergers; Exchange," addressing what happens to various stock- and equity classes — so the heading of Article III could have been better chosen.
4. Sections 2.1 and 2.4: The initial merger seem to be planned as what's known as a "reverse triangular merger," which is generally done for tax reasons.
5. Section 2.3 sets out how the "Closing" is to take place:
   • All "conditions" to closing (i.e., walkaway prerequisites) must have been either satisfied or waived (see Article VII)
   • Closing will happen electronically by PDF document exchange
   • The involved companies file "certificates" with the Secretary of State of Delaware.
   • All assets of the involved companies — inclucing any existing contracts — automatically "vest" in the "surviving" company; that might or might not result in an "assignment" of the assets of the other company.
6. Article IV sets out the "reps and warranties": "Except as set forth in the disclosure letter dated as of the date of this Agreement and delivered …."
7. Section 4.29 and 5.31 – "No Additional Representations": These are "roadblock" clauses.
8. Article VI - "Covenants and Agreements" [sic]
   • Section 6.1 Conduct of the Company Business Pending the Mergers
   • Section 6.3 No Solicitation by the Company — a "no-shop clause" (with "fiduciary out")
   • Breakup fees of $87.5 million (if Earthstone terminates) or $175 million (if Permian terminates).
9. Article VII: Conditions to Closing — these include:
   • shareholder approvals
   • regulatory approvals
   • no "Material Adverse Effect" (that would allow termination)
   • "bringdown certificates" about reps and warranties
10. Section 9.2, Survival: "Except as otherwise provided in this Agreement, none of the representations, warranties, agreements and covenants contained in this Agreement will survive the Closing; …" (but with a lot of exceptions).
11. Section 9.3, Notices: Includes names and addresses of outside counsel (Kirkland, V&E), thus making the representations a matter of public record (normally that'd be client confidential information).
12. Section 9.7, Governing Law, etc.: Multi-topic "barf clauses" in all-caps.
13. Section 9.13, Non-Recourse — no right of action against officers, directors, employees, etc.
14. Section 9.14, Debt Financing Sources: Another barf clause.
15. Exhibit D-1: "PERMIAN RESOURCES OPERATING, LLC || SEVENTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT || Dated as of [•]"

Of general interest: ChatGPT produced an interesting list of most-negotiated terms in a merger agreement.

(Try this link as well.)

A corporate-lawyer colleague once said that the only things really negotiated are:

• the price;
• the amount of the breakup fee; and
• what constitutes a "material adverse effect" or "material adverse change" A.K.A. the MAC Clause, that would allow the buyer (or seller) to walk away.

Do Exercise 3 of Chapter 2.

Long story short:

1. A Czech company enters into a contract with a Minnesota company.
2. The MN company allegedly breaches the contract.
3. A few months before the statute of limitation is about to expire for the breach, the Czech company's Kansas-based U.S. subsidiary files suit for breach, in Kansas, against the MN company.
4. Problem:
   • The Czech company's U.S. subsidiary isn't a party to the contract, nor is it an intended third-party beneficiary.
   • So, the Czech company's U.S. subsidiary has no Article III standing to sue the MN company.
   • Thus, the Kansas district court has no subject-matter jurisdiction over the case.
5. It gets weirder: In the Kansas lawsuit, the Czech parent company files a motion:
   • to amend the complaint to substitute itself in as the sole plaintiff; and
   • to transfer the case to MN — because without the Czech company's U.S. subsidiary, there was neither personal jurisdiction nor venue in Kansas.
6. The Kansas court dismisses the Czech parent company's lawsuit on standing grounds.
7. The Czech parent company re-files in MN — where the MN company moves to dismiss on limitation grounds.
8. The MN court — which is in the 8th Circuit — stays the motion pending the outcome of the 10th Circuit appeal.
9. The 10th Circuit affirms the Kansas district court's dismissal:

We affirm.

As a non-party, CZ Czech could not amend CZ USA’s complaint. Only a party may amend its complaint under Rule 15.

And because the only party—CZ USA—lacked an injury under the contract, it lacked standing to sue.

Accordingly, the district court lacked subject-matter jurisdiction and correctly dismissed the lawsuit.

Česká Zbrojovka Defence SE ("CZ") v. Vista Outdoor, Inc., No. 22-3095, slip op. (10th Cir. Aug. 22, 2023) (extra paragraphing added).

Lesson for contract drafters: When dealing with corporate "families," consider thinking ahead to which member of the "family" you might want to be a party to related litigation — and where the lawsuit might be desired.

Here's the Houston Chronicle headline for an op-ed by former Secretary of Labor Robert Reich: "Private investments are destroying things we do out of love and passion" (emphasis added).

So: Private equity's destructiveness is a result of the private-equity owners' love and passion?

Negotiate the LOI:

• Group 1 with Group 2
• Group 3 with Group 4

See this Piled Higher and Deeper comic.

Do Exercises 9-12 of Chapter 2.

From an Aug. 11, 2023 First Circuit decision:

Plaintiff-appellant Brian Klauber strives to persuade us that the district court erred in entering summary judgment in favor of his quondam employer, defendant-appellee VMware, Inc. (the Company), with respect to his contention that he was wrongfully deprived of hundreds of thousands of dollars in commissions allegedly due to him ….

After first upholding the district court's application of Federal Rule of Evidence 408 and thus confirming the dimensions of the summary judgment record, we turn to the meat of the district court's thoughtful rescript and affirm its entry of summary judgment on all of the plaintiff's claims.

Klauber v. VMware, Inc., No. 22-1417, slip op. at 2 (1st Cir. Aug. 11, 2023) (cleaned up, emphasis and extra paragraphing added).

And:

The plaintiff does not go quietly into this dystopian night. He raises (or at least suggests) a plethora of other arguments aimed at resuscitating his Wage Act claims. Without exception, these arguments are unpersuasive, undeveloped, or in some instances, both unpersuasive and undeveloped. We reject them out of hand, pausing only to offer three brief comments.

Id. at 23.

See this post.

Do Exercises 9-12 of Chapter 2.

Do Exercise 14 of Chapter 2 — you can use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4 if you think it'd be helpful, but you might want to just make private notes.

QUESTION: From Chapter 2:

• What surprised you (if anything)?
• What struck you as important for summer associates and new lawyers to know?

Feel free to use the the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4

FACTS:

• Mary Marvel (CEO of MathWhiz) emails you to say that she wants to buy a barely-used, top-of-the-line laptop computer from Jane Jones, who lives in River Oaks (i.e., in the Harris County part of Houston) and is "a friend of a friend" of Mary, but Mary doesn't know her.
• Jane bought the laptop a few weeks ago but decided she didn't like the feel of the keyboard, so she wants to sell it and get a different one. (She's gone past the no-questions-asked return period from where she bought it.)
• The purchase price will be $3,000.
• Jane's address for notice is at 1600 River Oaks Blvd, Houston, TX 77019.

EXERCISE: In your groups — and you might want to divide up the work — in the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4:

1. Put together a skeleton for a contract, with a title, preamble, and signature blocks (don't worry about formatting the signature blocks, just put the necessary information in).
2. Draft a simple background section (a.k.a. recitals).
3. Put together a series of short, simple paragraphs with just the "mechanics" of getting the sale done: Pricing, delivery — the bare-bones requirements to make a contract. (Make up whatever information you think you need that isn't provided.)
4. Then add whatever "representations and warranties" you think might be useful — but remember, one of your goals is to get Jane to sign the agreement quickly.

Do Exercise 14 in Chapter 2.

DCT to recount a "MathWhiz" client episode: A "Gigunda" customer sent two, 100-page master services agreement forms, purportedly "95% identical," for two "rush" projects in the Middle East and East Africa.

QUESTION: What to do without spending a ton of MathWhiz's money?

FACTS:

• Your client MathWhiz asks you to review a draft contract sent by a potential customer of MathWhiz.

• You notice that the draft spells out all kinds of numbers, e.g., "twenty thousand dollars."

• The draft doesn't also include the corresponding numerals in parentheses, i.e., it doesn't say "twenty thousand dollars ($20,000.00)."

QUESTION 1: When reviewing and revising the draft contract, do you change "twenty thousand dollars" to "$20,000.00"? Why or why not?

QUESTION 2: What if you change (and redline) the actual number from $20K to, say, $25K — how do you do phrase that?
a. The same way, i.e., "twenty-five thousand dollars"?
b.  "$25,000.00"?
c.  "$25,000"?
d.  "$25 thousand"?

Ambiguous: See this sign.

More clear: This sign

Here are (sanitized) first pages of an NDA I once marked up for my real-life "MathWhiz" client.

Note how the original is a bunch of "barf clauses" that look as though the drafter just vomited verbiage onto the page — in my markup, note the first comment tactfully addressing that problem.

Original (first page only)

Markup (first two pages only)

In the markup, you'll see two different colors of revision marks. That's because the original Word document was "Protected" to remove the identity of revisers when the document was saved. I noticed this after making the first couple of changes, and removed the protection so that there'd be a paper trail of who'd made what revisions.

Product Solutions Int'l, Inc.. Aldez Containers, LLC, 46 F.4th 454 (6th Cir. 2022):

• Small company ("Orgo") designs a custom cosmetics travel bag.
• Orgo contracts out the design and manufacturer to a middleman supplier.
• Middleman supplier places a big order for the cosmetics bag with a Chinese manufacturer.
• Orgo (the small company) discovers that the cosmetics bags it designed aren't selling; it stops accepting shipments from the middleman supplier.
• The supplier ends up "eating" > $500K in payments to its Chinese manufacturer for the bags that the supplier ordered for Orgo.
• The supplier sues not just Orgo, but its executives, and the shipping company (think: FedEx).
• The supplier's case against the executives gets poured out — see Product Solutions Int'l, Inc. v. PB Products, LLC, No. 19-CV-12790 (E.D. Mich. Jun. 12, 2020) (granting in part, denying in part, defendants' motion to dismiss).
• Later the supplier's case against the shipping company gets poured out again.

LESSONS:

1.  Litigation counsel can get really aggressive — in part this is because judges seldom punish bad behavior.

2.  The middleman supplier should have been more careful about making sure that Orgo (the designer that ordered the bags) had funding available — and backup funding? — before making a big financial commitment to the Chinese manufacturer on behalf of Orgo.

From a Washington Monthly piece about what ordinary people might have to do to reverse the effects of climate change: "Which might mean giving up meat or traveling by air. "

QUESTION: Is the author urging us to give up one thing, or two?

QUESTION: How could this be fixed?

See this WSJ story (free link). Some points of interest:

• Banks cut off BB&B's lines of credit
• Banks delivered notice of default to BB&B — which kicks up BB&B's interest rate by two percentage points
• JPMC "called the loan" (demanded immediate repayment), but BB&B doesn't have the cash
• BB&B has had trouble stocking its stores because it fell behind in payments to suppliers

1. QUESTION: If you wanted to have a separate document that listed exceptions to the representations in a contract, what would you (conventionally) call that document? (Hint: See here.)
2. SCENARIO: (A) A representation in a contract is in (let's say) section 5.8 of that contract. (B) In the document referred to in question 1 above, you're listing an exception to that representation. QUESTION: How would you number that exception?
3. QUESTION: When "redlining" another party's contract draft, what could (should!) you do, in the Word document's file name and in the running header, to: (A) avoid "version confusion," and (B) make it easier to create a timeline later — e.g., in litigation?
4. EXPLAIN IF FALSE: If parties disagree about the meaning of a term in a contract, that's enough to require that the finder of fact (the jury, in a jury case), not the trial judge or appeals court, must determine the meaning of the term.

From the NY Post:

Human error is to blame for the glitch that caused wild fluctuations in share prices at the start of trading on the New York Stock Exchange on Tuesday.

A NYSE employee who is based out of the exchange’s backup data center in Chicago failed to shut down the disaster-recovery system that is tested every day after the closing bell as part of routine maintenance, according to Bloomberg News.

Recall Murphy's Law ("anything that can go wrong, will go wrong"), which is why, in our little contract-drafting corner of the world, we try to R.O.O.F. (Root Out Opportunities for F[oul]-ups by users).

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?

Question: What did you find useful to you–

• in class today
• in the reading for this week?

Feel free to use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4

FACTS: You're a new associate at a law firm. One of the partners wants you to draft a contract for one of her clients. She says that the deal is basically like one that another firm client just signed.

QUESTION 1: How much work should you put into preparing the draft — and why? Should you:

• just change the names and deal details?
• start from scratch, using the other client's signed deal as a source of ideas?
• something in between?

QUESTION 2: On these facts alone, what don't you know that might be relevant?

Don't forget: You have two chances — for this quiz, but not for all of the others* — so if you get less than a perfect score the first time, you might want to review the answers before taking the quiz a second time.

* Is this ambiguous?

From The New Yorker: Listening to Taylor Swift in Prison

From this CDC Web page: "

BA.2.86 [an emerging COVID-19 variant] may be more capable of causing infection in people who have previously had COVID-19 or who have received COVID-19 vaccines.

QUESTION: Does this mean —

1.  that if you've had a prior COVID vaccination, or if you've previously had COVID, then you're more susceptible to catching the new BA.2.86 variant than those who've neither been vaccinated nor contracted COVID?

Or:

2.  that even if you've been vaccinated or previously had COVID, you could still catch the new BA.2.86 variant, more so than the "old" variants?

QUESTIONS: From Chapter 3 – feel free to use the the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4

1.  What surprised you (if anything)?

2.  What struck you as important for summer associates and new lawyers to know?

Here's one possible answer:

6.5 Tenant’s Audit Rights.

6.5.1 [or, "(a)"] Landlord shall keep reasonably detailed records of all Operating Expenses and Real Estate Taxes for a period of at least two (2) years.

6.5.2 Not more frequently than once in every 12-month period, Tenant together with any representative of Tenant shall be permitted to may audit the records of the Operating Expenses and Real Estate Taxes.

6.5.3 Tenant must give Landlord at least twenty (20) 20 days’ prior written notice to Landlord of any audit under section 6.5.2.

6.5.4 Tenant shall must conduct any inspection audit at a reasonable time and in a manner so as not to unduly disrupt the conduct of Landlord’s business.

6.5.5 Any such inspection audit by Tenant shall must be limited to the sole purpose of verifying the Operating Expenses and/or Real Estate Taxes.

6.5.6 Tenant shall must hold any information obtained during any such inspection in confidence, except that Tenant shall be permitted to may disclose such information to its attorneys and advisors, provided but only if Tenant:

        (1) informs such parties of the confidential nature of such information, and

        (2) uses good faith and diligent efforts to cause such parties to maintain such information as confidential.

6.5.7 Any shortfall or excess revealed and verified by Tenant’s audit shall must [or, is to] be paid to the applicable party by the relevant party within thirty (30) 30 days after that party is notified of the shortfall or excess to the extent such overage or shortfall has not previously been adjusted pursuant to this Lease.

6.5.8 Landlord must reimburse Tenant for Tenant's reasonable, third party costs of the audit, up to an amount not to exceed $5,000 ["up to" and "not to exceed" are redundant], if all of the following are true:

        (1) The audit for any given year or partial year reveals that Tenant was overcharged for Operating Expenses or Real Estate Taxes by an amount of greater than six percent (6%) [DISCUSSION REQUIRED];

        (2) Tenant in fact paid such overage the overcharge; and

        (3) such overage the overcharge was not otherwise adjusted pursuant to the terms of this Lease, ….

Some discussion points:

1. Some students numbered the paragraphs 6.5.1, 6.5.2, etc., which is useful — alternatively, some partners might prefer the paragraphs to be "numbered" with (a), (b), etc.
2. For anything that's likely to be a negotiation point, consider making it a separate paragraph for easier discussion (and, if necessary, revision). Remember: Speed to signature (of agreed, workable terms) is a primary goal. Examples of separate issues:
   • Recordkeeping requirement
   • Audit right
   • Advance notice period
   • Confidentiality (but the additional confidentiality-related sentences can stay with the paragraph)
   • True-up
   • Expense-shifting (but probably OK to keep with the true-up provision)
3. Reminder: D.R.Y. for numbers — "two (2) days"
4. Reminder: The convention is:
   • spell out numbers from one to ten
   • use digits from 11 on up — "twenty (20) 20 days" (another D.R.Y. example as well)

The Houston Chronicle reported on a guarantee agreement that was never signed but was supposedly agreed to. Excerpt:

At the meeting [the lawsuit says], Parker presented a written agreement, and while Souki agreed to the terms, *he refused to sign the agreement, explaining that he could not sign a written agreement since he had not disclosed to his bank his liability to Parker and Red Mango ….

Parker accepted based on the two having “a long history” and on Parker’s continued faith in Tellurian’s core business model, according to the lawsuit.

In October 2021, Parker texted Souki to set up a “firm date to close out on the guarantee,” the lawsuit says, but while Souki confirmed that he and Parker had “talked in Aspen,” he did not commit to paying Parker or fulfilling his obligation.

“Since that date, Parker, on behalf of himself and Red Mango, has demanded that Souki made the payments required of him under the contract,” the lawsuit says. “However, Souki has failed to do so in breach of his agreement.”

Natalie Postgate, Tellurian investor sues co-founder Charif Souki over millions in losses (HoustonChronicle Jan. 22, 2022) (emphasis added).

UPDATE: See Rick Carroll, Text messages don’t make a contract, Souki lawyers argue (AspenTimes.com Apr. 5, 2022) (describing motion to dismiss). Excerpt:

Souki’s attorneys, however, offered a different version of the dealings between Souki and Parker. A March 22-dated motion to dismiss the lawsuit, which was filed in U.S. District Court in Denver, called both Parker and Souki “experienced” and “sophisticated businessmen” who wouldn’t hatch a financial agreement through text messages.

“Parker and Souki know how to create legally binding contractual relationships,” the motion said. “That is particularly true of a contract potentially involving tens of millions of dollars, like the one alleged here. Sophisticated businessmen do not create valid, enforceable contracts through unsigned text messages that omit essential terms such as the identity of the parties, the nature and extent of the obligation, the method of payment, and who is to benefit from performance.”

The text messages alone showed that Parker doesn’t have a case for breach of contract, the motion said. Parker’s lawsuit cited the following text exchange from August 2019 as the written agreement between the two:

Souki to Parker: “How much stock do you have and what is your (cost) basis?”

Parker: “5.5m shares and (his) net is circa 8(.)30 now.”

Souki: “Ok. Please keep this text. I will guaranty [sic; guarantee – guaranty is the noun] your capital by dec. 2020. I’ll make up any deficiency you have at that date. Thanks for your help and confidence.”

Parker: “Ok pal I got confidence in you, always here to lend an ear or advice if needed, let’s catch up in sept for dinner.”

The motion to dismiss said the exchange didn’t meet the standards for a contractual agreement, while Red Mango, for which there is scant information available, wasn’t mentioned in the texts.

(Emphasis added.)

UPDATE 2: What little I could find online indicates that the case seems to be going to trial.

LESSON: People will sue — and will also oppose lawsuits. (Big surprise.)

BEFORE: From this guaranty:

2. No Setoff or Deductions; Taxes; Payments. The Guarantor represents and warrants that it is organized in the United States of America. The Guarantor shall make all payments hereunder without setoff, counterclaim, restrictions or condition, and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions or withholdings of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Guarantor is compelled by law to make such deduction or withholding. If any such obligation (other than one arising (i) with respect to taxes based on or measured by the net income or profits of the Lender, or (ii) with respect to any withholding tax to the extent that such withholding tax would have been imposed on the relevant payment to the Lender under the laws and treaties in effect at the time such Lender first became a party to this Agreement or otherwise became entitled to any rights hereunder) is imposed upon the Guarantor with respect to any amount payable by it hereunder, the Guarantor will pay to the Lender, on the date on which such amount is due and payable hereunder, such additional amount in U.S. dollars as shall be necessary to enable the Lender to receive the same net amount which the Lender would have received on such due date had no such obligation been imposed upon the Guarantor. The Guarantor will deliver promptly to the Lender certificates or other valid vouchers (to the extent available) for all taxes or other charges deducted from or paid with respect to payments made by the Guarantor hereunder. The obligations of the Guarantor under this paragraph shall survive the payment in full of the Guaranteed Obligations and termination of this Guaranty.

EXERCISE: Do the following in the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4: Play around with breaking up and simplifying the second sentence, quoted here: "The Guarantor shall make all payments hereunder without setoff, counterclaim, restrictions or condition, and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions or withholdings of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Guarantor is compelled by law to make such deduction or withholding."

• Consider breaking the sentence into two, or even three, paragraphs.
• Think about creating one or more defined terms in their own paragraphs.
• Think about spinning off the concluding exception into its own paragraph, then forward-referencing it in the "main" paragraph(s).
• Don't number your paragraphs yet.
• QUESTION: Given the bold-faced heading of the "BEFORE" version, does the first sentence really belong in this provision?

DCT REWRITE: [to be shown in class]

(a) The Guarantor must make all payments under this Guaranty without "Setoff" or — except as provided in subdivision (d) below — deduction for "Taxes," each as defined below.

(b) "Setoff" referes to any setoff, counterclaim, restrictions or condition.

(c) "Taxes" refers to any and all taxes, levies, imposts, duties, charges, fees, deductions or withholdings of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority.

(d) Guarantor may withhold Taxes from a payment only to the extent compelled by law.

Just because someone is designated as the exclusive agent of a principal doesn't preclude the principal from engaging the the activity in question, without having to compensate the agent. For example: In a local case:

• Two lawyers at Houston's Coats Rose, P.C. firm were looking to find a law firm that would be "a better fit" for their growing practice.
• The lawyers entered into an exclusive-agency agreement with a headhunting agency to look for a suitable firm.
• The lawyers ended up switching to Kilpatrick Townsend & Stockton, without utilizing the headhunting agency — as is often the case, one of the lawyers approached someone he knew at Kilpatrick about getting a job there.
• The headhunting agency sued the two lawyers for a commission.
• But the trial court granted, and the appeals court affirmed, summary judgment in favor of the lawyers, citing Supreme Court of Texas authority about the distinction between an exclusive agency and an exclusive right to deal. USPLC, LC v. Gaas, No. 01-20-00604-CV, slip op. at part C (Tex. App.—Houston [1st Dist.] Aug. 30, 2022), citing Alba Tool & Supply Co. v. Indus. Contractors, Inc., 585 S.W.2d 662, 664 (Tex. 1979).

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?

QUESTION: How could this be clarified?

EXERCISE: From part 1, rewrite just the italicized portion above (quoted below) to be much more reader-friendly — as though you were talking to a lay jury. (Hint: BLUF.)

Here's the italicized portion:

If any such obligation (other than one arising (i) with respect to taxes based on or measured by the net income or profits of the Lender, or (ii) with respect to any withholding tax to the extent that such withholding tax would have been imposed on the relevant payment to the Lender under the laws and treaties in effect at the time such Lender first became a party to this Agreement or otherwise became entitled to any rights hereunder) is imposed upon the Guarantor with respect to any amount payable by it hereunder, the Guarantor will pay to the Lender, on the date on which such amount is due and payable hereunder, such additional amount in U.S. dollars as shall be necessary to enable the Lender to receive the same net amount which the Lender would have received on such due date had no such obligation been imposed upon the Guarantor.

DCT REWRITE: [to be shown in class]

During the past couple of spring semesters I've been teaching a half-semester course on intellectual property law for MBA students at Rice University's Jones Graduate School of Business. Recently the administration circulated a document with definitions used by the school's Honor Council; I'm providing the link to the document in case I want to use any of the definitions in the future.

(To be shown in class as a "spaced repetition" example)

EXAMPLE 1: What's wrong with the MathWhiz signature block?

Here are preambles drafted by students (anonymous, of course); see my [bracketed, numbered notes] below each:

EXAMPLE 2:

Notes:

[0] "Retainer Agreement" is an unconventional title for this type of agreement — and "Retainer" is a head-scratcher abbreviation for Gigunda. (Try "Client" or "Customer.")

[1] Need Gigunda's full legal name.

[2] You wouldn't say "global oil and gas company" in the preamble — in the Background, sure, but not in the preamble.

[3] The principal place of business is usually just the city and state — the initial address for notice might be different.

[4] At this spot in the preamble, you'd say "This Agreement" (capitalized), not "This agreement" (Ken Adams thinks otherwise), but in the other side's draft it's probably not worth fixing.

EXAMPLE 3:

Notes:

[0] Good title.

[1] "Buyer" and "Seller" should probably be "Customer" and "Service Provider" (or perhaps "Contractor").

[2] What's the comment here?

EXAMPLE 4:

Notes:

[0] Good title.

[1] This is just about perfect.

EXAMPLE 5:

Notes: [0] Good title.

QUESTION: What issues do we have here?

EXAMPLE 6:

Notes:

[0] In an agreement title, "Purchase and Sale" customarily refers to a purchase and sale of assets, not of services. (But it's not incorrect.)

[1] Normally you'd want the word "Agreement" in the title — so, for this, it'd be perhaps "Purchase and Sale Agreement for Seismic Exploration Services."

QUESTION: What other issues do we have here?

EXAMPLE 7:

QUESTION: What issues do you see here?

EXAMPLE 8:

Notes:

[0] The subtitle is a bit wordy.

[1] I'd use "Contractor" and "Client" (or perhaps "Customer") as the parties' nicknames.

EXAMPLE 9:

Notes:

[0] It's customary to use the term "This Agreement" and not the (longer) "This Services Agreement."

See also my other comments above.

EXAMPLE 10:

Notes:

[0] What's the objection here?

[1] Any guesses about why it's not a bad idea to include the county?

See also my comments to the other examples above.

QUESTION: What other issues can you spot?

Contracts can have different formats; here are a few examples, more or less at random, from an advertisement-supported Web site that harvests contracts from the SEC's EDGAR Website.

In your groups, take a look at the following things — if desired, use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4:

• Titles of the agreements
• Preambles
• Recitals ("whereas" clauses), if any
• Numbering styles for sections / paragraphs

Here are the examples:

• Hewlett-Packard agreement to acquire Palm (as in, Palm Pilot)
• WeWork employment agreement - note the title of the agreement
• Zillow executive employment agreement – notice any difference in the drafting style between this agreement and the WeWork agreement above?
• Green Mountain Coffee "transition agreement" (basically, firing the president of the company):
  • See § 2.a.1: "Base Salary. During the Employment Period, the Company will continue to pay you a base salary at the gross annual rate of $406,000 ("Base Salary"). The Base Salary shall be paid in accordance with the Company's normal payroll practices." (Emphasis added.) QUESTION: Why use the bold-faced language?

Question: What did you find useful to you–

• in class today
• in the reading for this week?

Feel free to use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4

I'll spin the wheel to pick people; don't forget your numbers.

1. TEXT: "Alice says that Bob is cold." QUESTION: Is this more likely to be considered vague, ambiguous, or both?

2. FACTS: (A) Your client is located in Vancouver, Canada and The Other Side (which drafted the contract) is located in Houston. (B) 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? EXPLAIN.

3. QUESTION: When calling a partner's or client's attention to a problem, it's best to have a recommended [BLANK] as well.
4. QUESTION: When taking notes during a meeting, why is it useful to indicate whether one or more lawyers is participating?
5. QUESTION: What does DCT's mnemonic "S.t.R." (or "S.T.R.") stand for?
6. EXPLAIN IF FALSE: Summary judgment (i.e., without a trial) is pretty much always improper when a contract term is ambiguous.
7. TEXT: "Tenant will vacate the Premises no later than 12 midnight on December 15; Tenant's failure to do so will be a material breach of this Agreement." FACTS: Tenant moves out at 10:00 a.m on December 15. QUESTION: Is Tenant in material breach? EXPLAIN — INCLUDING coming up with a clearer version.
8. QUESTION: What does contra preferentem mean — both as an English translation of the Latin, and what it means in "our [contract-drafting] world"?
9. QUESTION: What does DCT's mnemonic "A.T.A.R.I." stand for?

From the Houston Chronicle:

Houston adjusted its contract with the controversial ShotSpotter program, a technology designed to detect gunshot sounds, on Wednesday to correct a clerical error and pay an overdue $700,000 bill to the company.

City Council voted unanimously to correct the issue from January 2022. The contract was meant to be for five years at a cost of $3.5 million, but a staff error meant council voted to authorize only $700,000. The true cost was listed for council members at the time, but it did not make it into the actual ordinance they passed.

The Houston Police Department went to renew its subscription for another year in December and realized there was no money to pay for it, according to the request for council action. The $700,000 invoice to ShotSpotter now is past due.

(Emphasis added.)

EU and AstraZeneca reach deal to end vaccine row - contract called for AZ to use "best efforts" to deliver specified number of COVID-19 vaccine doses.

QUESTION (group discussion, then open-mike): What are some pros and cons of agreeing to "best efforts" — and why do you think the EU and AstraZeneca might have agreed in this case?

(REMINDER: See the reading on best efforts.)

FACTS: You represent a supplier, ABC Corporation, whose customer, XYZ Inc., wants XYZ's "affiliates" to be listed in the preamble as parties to a master purchasing agreement with the following language: "This Master Purchasing Agreement is between ABC Corporation. ('Supplier') and XYZ Inc. and its affiliates ('Customer')."

QUESTION 1: As ABC's lawyer:

• Do you think this is OK?
• If not, what do you think XYZ really wants?

QUESTION 2: As ABC's lawyer, how might you structure the contract to accommodate Customer's likely desires — and to protect Supplier?

Consider the following provision (from a real contract — this is one sentence):

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.

In the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4, take a stab at rewriting this provision to make it more readable and conform to the drafting style rules we've been reading about and discussing — especially:

• breaking up "barf clauses" a.k.a. "walls of words"
• BLUF
• D.R.Y.

(Don't try to "retrade the deal" by altering the substantive terms.)

I'll show my own rewrite in a few minutes.

TEXT 1: "The team held a meeting to give consideration to the issue." (Shortened) TEXT 2: "The team considered the issue." QUESTION: Is this "streamlining" safe? If not, why not?

NOTE: I've done individual comments on each student's assignment – you can see the comments in Canvas.

(All bold-faced emphasis below is mine.)

1. TEXT: "Tenant shall be permitted to disclose such information to its attorneys and advisors, provided *Tenant informs such parties of the confidential nature of such information and uses good faith and diligent efforts to cause such parties to maintain such information as confidential."
   • DCT COMMENT 1: Better: "Tenant may disclose such information …."
2. DCT COMMENT 2: DO NOT write, "provided …." — instead, do a new sentence (and possibly a new paragraph) such as, e.g., "Tenant must inform each such recipient …."
3. TEXT: "(d) Any information obtained during such inspection shall be held by Tenant in confidence, except that Tenant may disclose such information to its attorneys and advisors. (i) If Tenant discloses such information to its attorneys or advisors, Tenant shall: (1) inform such parties of the information’s confidential nature; and (2) use good faith and diligent efforts to ensure such parties keep such information confidential."
   • DCT COMMENT 1: Active voice would be better, e.g., "Tenant must hold in confidence any information obtained during any such inspection …." (That's a "local BLUF" example: Skimming readers for Tenant will want to know, "what must we [Tenant] do, when?"].)
   • DCT COMMENT 2: In this case the "except that" is OK because the sentence is short enough.
   • DCT COMMENT 3: If you don't have a "(ii)," don't do this as "(i)" — instead, start a new paragraph (e).
4. TEXT: "f) If Tenant’s inspection of the records for any given period reveals that: (1) Landlord overcharged Tenant for Operating Expenses or Real Estate Taxes by an amount greater than 6%; (2) Tenant paid such overcharge; and (3) such overcharge was not otherwise adjusted pursuant to the terms of this Lease: (i) Landlord shall reimburse Tenant for its reasonable, third party costs of the audit, up to an amount not to exceed $5,000."
   • DCT COMMENT: Same as #2 above about not using "(i)" because there's no "(ii)"; consider instead adding the following: "(f) IF: Tenant's inspection of the records … ; THEN: Landlord shall reimburse …."
5. TEXT: "Tenant’s inspection of the records shall be held in confidence except …."
   • DCT COMMENT: Held in confidence by whom? (This is what's known as a "false imperative.")

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

QUESTION: Which company will sell the other company's coffee —

• Will Nestlé sell Starbucks coffee? or
• Will Starbucks sell Nestlé coffee?

(Which do you think is more likely?)

(Is it possible that Nestlé might pay Starbucks $7.1bn for the privilege of Nestlé selling Nestlé's own coffee?)

EXERCISE: Rewrite the above-quoted sentence twice — once for each possible interpretation.

Vermillion State Bank v. Tennis Sanitation, LLC:

Facts:

1. A bank loaned money to a trash-collection company (the "borrower").
2. The borrower's business failed; the borrower filed for bankruptcy protection.
3. The bank sought bidders for its borrower's business assets (garbage trucks, etc.).
4. The bank itself bought its borrower's business assets.
5. The bank entered into an oral "flip" agreement with another buyer, under which the other buyer would acquire the business assets from the bank for $6 million.
6. The other buyer backed out of the oral agreement.
7. The bank sold the business assets to another buyer, at a significantly lower price.

Trial: A jury found that the other borrower breached an oral agreement and awarded the bank $1.9 million in damages.

Appeal: Affirmed. The "predominant purpose" of the parties' "hybrid" oral contract (involving both goods and intangible assets) was not for the sale of goods — "most witnesses testified to the primary value being the customer routes" (id. at 623) — and so the Statute of Frauds in UCC article 2 didn't apply.

Question: What did you find useful to you–

• in class today
• in the reading for this week?

Feel free to use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4

1. 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.)

   DCT: To make his quarterly quota? To help Widgets "make the number" for what analysts are expecting?

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

   DCT: That wouldn't fly with Widgets' accountants, who will almost certainly want "ink on the signature line" (so to speak, and among other things) by March 31 or they won't let Widgets "book" (recognize) the revenue in Q1 — the term used is "persuasive evidence of an arrangement."

   AND: An oral contract by March 31 won't work either.

   AND: Don't backdate the "Date signed" date on the contract — that could amount to securities fraud.

3. 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?

   DCT: Try an electronic signature by email or text message — at a minimum, the Honolulu hotel probably has a business center with computers (or even a FAX machine!) that could be used.

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

   DCT: If it's a good and longstanding client relationship, I might do it, but I'd still be reluctant.

   If I did sign it, my handwritten signature would be something like the following: "D.C. Toedt III, attorney for Addams Investments LP, by permission"

5. The facts don't indicate that Widgets is incorporated in Texas.
6. For the Addams signature block, see the model sig. block at NOCD § 3.7.5.

7. For the question whether an attorney for Addams Inv. L.P. would sign, a student writes: "I would tell her that there are issues with me signing the contract, such as raising the question as to whether I am acting as a lawyer or a business person."

   DCT: Good point!

8. The same student writes: "I would also demand to be indemnified in case the contract 'goes south.'"

   DCT: That's not something I'd normally ask a client to do — if I wasn't comfortable signing without an indemnity, I just wouldn't agree to sign.

9. The same student writes: "After that, I would want her [Wednesday Addams] to put in writing that I have authority to sign the contract …."

   DCT: Good point — but do it in a non-threatening, non-defensive manner.

10. The same student writes: "I  would put in a personal signer representation, and then I would sign it." The student's draft included the following: "Each individual who signs this Agreement on behalf of an organizational party represents that he or she has been duly authorized to do so."

    DCT: I would not unilaterally do include such a representation, as it would put a target on my back — if the other side wants a representation like that from me, then let them ask for it."

11. A student writes, about Widgets Inc.'s motivation: "Because they want to be able to report the deal in their first quarter financial report and look good for investors." (Emphasis added.)

    DCT: The sale rep might be interested in closing the deal in Q1 so as to get a commission, or to be able to make his- or her sales quota.

12. A student writes (I paraphrase): "Sign the deal on April 1 and recite that it confirms an oral agreement reached on March 31."

    DCT: That's good, creative thinking — BUT: The Statute of Frauds would preclude enforcement of an oral agreement for the sale of goods for more than $500, and thus accounting standards might preclude Widgets from recognizing the revenue in Q1.

13. Several students indicated that a "director" of Addams Operations, Inc. could sign on the company's behalf.

    DCT: That depends on what you mean by director: If it refers to an employee title (one level below VP, one level above manager), then yes.

    BUT: If it refers to a member of the corporation's board of directors, then no — a board member, as such, has no management authority for the corporation.

As mentioned at the start of the semester: So that students will get a chance to work with others, next Wednesday we'll reshuffle the groups; I'll post the reshuffled group memberships on Monday.

(We'll do one more reshuffling during the semester in late March.)

Presumably apropos of Aaron Rodgers tearing his Achilles tendon on his fourth (!) play for the NY Jets: Here

See here. (It looks like a New Yorker cartoon but I can't be sure.)

From a Facebook comment: "A father of a friend who just turned 96 is a lifelong reader …."

QUESTION 1: Who just turned 96 — the friend, or the father of the friend?

QUESTION 2: Does this imply that the friend has more than one father?

QUESTION 3: How could this be rewritten — perhaps by moving some key words around and adding some punctuation?

See this guaranty:

1.  Guaranty. [START FRAG 1:] The Guarantor hereby absolutely and unconditionally guarantees, as a guaranty of payment and performance and not merely as a guaranty of collection, prompt payment when due, whether at stated maturity, by required prepayment, upon acceleration, demand or otherwise, and at all times thereafter, of any and all existing and future indebtedness and liabilities of every kind, nature and character, direct or indirect, absolute or contingent, liquidated or unliquidated, voluntary or involuntary and whether for principal, interest, premiums, fees indemnities, damages, costs, expenses or otherwise, of the Borrower to the Lender, which [sic; that] arise from or are in connection with that certain Credit Agreement dated as of March 24, 2009, among the Borrower, Heald Capital, LLC and the Lender (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”; capitalized terms used herein and not defined herein shall have the meanings ascribed such terms in the Credit Agreement) and/or the other Loans Documents (including, without limitation, any Secured Hedge Agreement), whether associated with any credit or other financial accommodation made to or for the benefit of the Borrower by the Lender or otherwise and whenever created, arising, evidenced or acquired (including all renewals, extensions, amendments, refinancings and other modifications thereof and all out-of-pocket costs, reasonable attorneys’ fees and expenses incurred by the Lender in connection with the collection or enforcement thereof), and whether recovery upon such indebtedness and liabilities under the Credit Agreement and the other Loan Documents may be or hereafter become unenforceable or shall be an allowed or disallowed claim under any proceeding or case commenced by or against the Guarantor or the Borrower under the Bankruptcy Code (Title 11, United States Code), any successor statute or any other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally (collectively, “Debtor Relief Laws”), and including interest that accrues after the commencement by or against the Borrower of any proceeding under any Debtor Relief Laws (collectively, the “Guaranteed Obligations”). [END FRAG 1] The Lender’s books and records showing the amount of the Guaranteed Obligations shall be admissible in evidence in any action or proceeding, and shall be binding upon the Guarantor and conclusive, absent manifest error, for the purpose of establishing the amount of the Guaranteed Obligations. [START FRAG 2:] This Guaranty shall not be affected by the genuineness, validity, regularity or enforceability of the Guaranteed Obligations or any instrument or agreement evidencing any Guaranteed Obligations, or by the existence, validity, enforceability, perfection, non-perfection or extent of any collateral therefor, or by any fact or circumstance relating to the Guaranteed Obligations which might otherwise constitute a defense to the obligations of the Guarantor under this Guaranty, and the Guarantor hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to any or all of the foregoing (other than the defense of final payment in full in cash and performance in full of the Guaranteed Obligations, except for contingent indemnification obligations for which no claim has been asserted). [END FRAG₂] Anything contained herein to the contrary notwithstanding, the obligations of the Guarantor hereunder at any time shall be limited to an aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of the Bankruptcy Code (Title 11, United States Code) or any comparable provisions of any similar federal or state law

EXERCISE 1: Break up just Fragment 1 — use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4. (Fragment 1 is one sentence!)

I'll show my rewrite in a few minutes.

Caution: If doing an "amended-and-restated agreement" (in next week's reading) you'll want to consider whether you could be wiping out a provision that your client might later want to rely on. Here's a real-world example:

–  In 2014, a business that sold historical tours entered into a merchant agreement with a payment-processing company;

–  The merchant agreement, drafted by the payment processor, included a personal guaranty (see generally last week's reading) signed by the owner of the tour business;

–  Then in 2019 the parties entered into a replacement agreement, also drafted by the payment processor;

–  The replacement agreement likewise included a personal guaranty – –  but this time, the guaranty was signed by another individual, not by the owner of the tour business;

–  The replacement agreement also included an entire-agreement clause.

–  For reasons not relevant here, the payment processor sued the owner of the tour business under the guaranty in the 2014 agreement.

–  The Sixth Circuit held that the 2019 agreement had terminated the 2014 guaranty — and thus the tour business's owner was not liable in respect of transactions governed by the 2019 agreement. See Electronic Merchant Systems LLC v. Gaal, 58 F.4th 877 (6th Cir. 2023) (affirming, in part, dismissal for failure to state a claim).

From Asli Aydintasbas, Turkey’s earthquake death toll might be more than just a natural disaster (WashingtonPost.com):

The first earthquake, followed by a second one of almost equal magnitude, was massive by any standard. The collapse of buildings directly on the fault line was probably unavoidable.

Yet across the region, there were many structures that stood firm, saving the lives of their occupants, while others next door crumpled — pointing to sloppy construction practices as the main cause of death.

We will need time to fully understand the extent to which human failings may have contributed to the loss of life. But early indications certainly raise questions.

In 1999, we quickly learned that it wasn’t the earthquake itself but human-made concrete blocks that kill people. The blame went to contractors who used cheap materials, to the officials who failed to enforce Turkey’s relatively loose building codes, and, of course, to a government that has failed to develop a nationwide earthquake response strategy.

* * * 

Natural disaster is one aspect of the story. Turkey’s reliance on construction-driven economic growth, cronyism and willingness to ignore its own building standards is the other.

(Emphasis added.)

FACTS: An apartment lease states (in part): "The apartment shall be regularly serviced by a professional pest-control service."

• QUESTION 1: This is an example of what? (Two words — and the words are not "passive voice," although it is indeed an example of passive voice; I'm looking for two other words.)
• QUESTION 2: Is this an example of acceptable drafting? Why or why not?

FACTS: Same as the previous question.

• QUESTION 3: Are there any circumstances in which the above-quoted apartment lease provision might be sort-of acceptable, in the sense of "hold your nose and go along with it"? (Hint: Consider the role that context plays in interpreting contract language.)

FACTS: You have graduated and are working as an associate for the law firm representing MathWhiz; you've just taken the bar exam. You've been asked to review a MathWhiz contract draft that has been prepared by a rising-2L summer associate.

The draft says: "Gigunda represents that it shall arrange to pay MathWhiz a deposit in the sum-total amount of $10 thousand dollars ($10,000.00) no later than 10 days after this Agreement has been executed."

• QUESTION 4: Could the wording of this provision be improved? How?

FACTS: Mary Marvel asks you to add, in the background of the MathWhiz agreement with Gigunda, the following sentence: "Gigunda acknowledges that MathWhiz's data-processing algorithms are unique and MathWhiz's extremely-valuable trade secret."

• QUESTION 5: What's your response to Mary, and why?

As mentioned at the start of the semester: So that students will get a chance to work with others, on Wednesday we'll reshuffle the groups, this time alphabetically by first name (with some manual adjustments to get less overlap with the prior grouping).

Again, the names are listed here by first name only, so that the full names won't be on the Web for all to see.

6:00 p.m. class:

Group 1: Aaron G., Aaron H., Allanah, Amberley, Bryce
Group 2: Caroline, Christopher, Emma, Grace, Harrison
Group 3: Hunter, James, Jason, Katie, Kaveri
Group 4: Lisette, Megan, Rebecca, Stephen

7:30 p.m. class:

Group 1: Ajita, Alexia, Bill, Clarissa
Group 2: Alyssa, Beau, David, Katie
Group 3: Hannah, Lanny, Saayem, Tony
Group 4: Jake, Muriel, Samuel, Tyler

(We'll do one more reshuffling during the semester in late October.)

Emojis can be susceptible to disagreements about their meaning — see, for example, the so-called "chocolate ice cream" emoji 💩.

And from a criminal case: "[W]hile water [emojis] may reference sexual relations, case law also confirms that water can also refer to methamphetamine in drug trafficking communications." United States v. Swanagan, No. 4:22CR-00003-JHM (W.D. Ky. Jan. 3, 2023) (denying motion to suppress wiretap evidence; citation omitted).

As with the contra proferentem rule, if an emoji in a notice is ambiguous — that is, the emoji could plausibly have more than one meaning — and the ambiguity can't be resolved by the usual means, then the ambiguity should be resolved against the party that used the emoji in the notice, on the theory that that party could and should have been more clear.

For additional information about the legal effect of emojis, see the emoji-related blog entries of law professor Eric Goldman, such as Emoji Law Year-in-Review for 2021 (blog.ericgoldman.org).

TEXT (in honor of Rosh Hashana, from Joshua Rothman in The New Yorker): "My grandmother is ninety-three and, to my knowledge, has never kept kosher." (Emphasis added; a belated Shanah Tovah and gemar chatimah tovah to all who celebrate.)

QUESTION: Is there any way the bold-faced part could be misinterpreted — perhaps intentionally?

QUESTION: How could this be rewritten to avoid reduce the chances of misinterpretation?

(For more words to avoid and safer alternatives, see this compilation I did in 2012.)

See this tweet.

In anticipation of the upcoming homework assignment, you might want to look at this video and article (on your own).

From Mary, Queen of Scots prison letters finally decoded (TheGuardian.com Feb. 8, 2023): "Dr John Guy, a fellow in history The University of Cambridge who wrote the 2004 biography of Mary, Queen of Scots, said the findings are a 'literary and historical sensation' and mark the most important new find on Mary Stuart, Queen of Scots for more than 100 years." (Emphasis added.)

For next week's homework: As an experiment, I'm advance-posting some of my past comments about common mistakes in earn-out rewrites by students — use them as a guide in doing your own rewrite.

1.  In the event that If Seller shall timely reject timely rejects ….

2.  Seller shall have a period of has [or, will have ] 30 days ….

3.  In the event no Rejection Notice is received by Purchaser If Purchaser does not receive a Rejection Notice during such that 30-day period, then …

COMMENT: Note how this 30-day "shot clock" is tied to Purchaser's receipt of a Rejection Notice — but what if Purchaser refuses the Rejection Notice?

4.  If Seller rejects an Earn-Out Calculation, such then the rejection notice (the “Rejection Notice”) [do we really need a defined term here?] shall is to set forth forth: (i) the reasons for such rejection in reasonable detail and set forth (ii) the amount of the requested adjustment.

5.  … and such The joint determination and any required adjustments resulting therefrom shall be final, conclusive, and binding on the Parties. [It's now a separate sentence, but it doesn't need to be its own separate paragraph.]

6.  … such the determination ….

7.  The Accounting Firm will is to allocate its fees and expenses between the Parties ….

8.  The Accounting Firm’s determination shall be is to be limited to resolving the disagreement set forth in the Rejection Notice.

Comment A: This should preferably be a separate paragraph.

Comment B: Consider instead: The Accounting Firm’s determination shall be authority is limited to resolving the disagreement set forth in the Rejection Notice. [This makes it clear that the Accounting Firm isn't intended to be a binding arbitrator for any other matter -— at least not under this clause.]

9.  (At the beginning of the assignment:) Within 60 days after the last day of an applicable Earn-Out Year, Purchaser shall shall: [note the added colon]

OR: … Purchaser shall is to:

OR: … Purchaser shall is to do the following: [the phrase, "the following" is a signal to the reader that the sentence will continue in the following subdivisions — theoretically the colon alone does that, but it might be missed by a skimming reader]

10.  Payment to Seller from Purchaser will be is to be by wire transfer ….

11.  In the event If Seller and Purchaser are unable to do not agree upon the Annual Earn-Out Payment ….

(Preview:) Baseball arbitration is a great way to get parties to settle either-or disputes, such as disputes about:

• numbers; or
• what action would satisfy an imprecise standard such as "best efforts" or "commercially-reasonable efforts"

Here are a couple of recent Houston Astros examples:

– Cristian Javier: "Astros sign pitcher Cristian Javier to five-year contract extension worth $64 million … Javier was scheduled to face the Astros in an arbitration hearing on Friday, but the long-term contract rendered it moot."

– Kyle Tucker: "The Houston Astros beat Kyle Tucker in arbitration on Thursday, and the All-Star outfielder will make $5 million rather than his $7.5 million request." And:

Teams have won three of five decisions:

• All-Star pitcher Max Fried ($13.5 million) lost to Atlanta, reliever Diego Castillo ($2.95 million) was defeated by Seattle.
• Pitcher Jesús Luzardo ($2.45 million) and AL batting champion Luis Arraez ($6.1 million) both beat Miami.

(Edited.)

From The Economist, and relevant to the more-recent tragedies in Morocco and Libya:

When the quake hit, the apartment block in Osmaniye, a city in southern Turkey, where Halise Sen had once lived collapsed like a house of cards, burying her former neighbours under nine floors of concrete. Mrs Sen, the head of the local chamber of architects, looks over the wreckage. “There’s no reinforced steel here,” she says, “so the concrete lost its strength and the columns collapsed, along with the floors, as soon as the ground started to shake.”

None of the blocks had basements, says her husband Mustafa, a former developer. Buildings with such weak foundations were doomed in a strong earthquake, he adds. Mustafa, who now grows olives and walnuts, stopped working in the construction sector years ago. Other contractors were undercutting his prices and ignoring building codes. “If we used 100 tonnes of iron in a building, they would use 90 tonnes,” he says. Osmaniye sits near an active faultline. “I knew we were on the brink of catastrophe,” he says.

* * * 

Turkey has strict building codes, adopted in the wake of an earthquake that killed 18,000 people on the outskirts of Istanbul in 1999 and updated five years ago. Under an urban-renewal scheme thought up by Mr Erdogan’s government, more than 3m housing units have been renewed.

The problems lie in implementation and oversight. Building permits are easy to acquire and inspections are weak. Companies mandated by the government to carry them out are paid by the developers. Projects usually comply with government standards at the start of construction, but not by the end, says Mr Guvenc. As soon as the inspectors leave, developers reduce the amount or the quality of the iron they use or cut down on the number of stirrups, the steel loops that prevent beams and columns from buckling under pressure. They may even tack on an extra floor. Then they enter informal negotiations with local authorities. “A lot of money may end up changing hands,” says Mr Guvenc. “We are talking about corruption par excellence.”

This means the difference between life and death.

(Emphasis added.)

Break up just Fragment 2 from the above wall-of-words guaranty; use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4.

Here's the text:

This Guaranty shall not be affected by the genuineness, validity, regularity or enforceability of the Guaranteed Obligations or any instrument or agreement evidencing any Guaranteed Obligations, or by the existence, validity, enforceability, perfection, non-perfection or extent of any collateral therefor, or by any fact or circumstance relating to the Guaranteed Obligations which might otherwise constitute a defense to the obligations of the Guarantor under this Guaranty, and the Guarantor hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to any or all of the foregoing (other than the defense of final payment in full in cash and performance in full of the Guaranteed Obligations, except for contingent indemnification obligations for which no claim has been asserted).

I'll show my rewrite in a few minutes.

The other night our grand-cat was lying on the couch between us as we watched TV.

• I needed to look for the TV's remote control to fast-forward through commercials.
• But where was the remote — could the cat be lying on it?

Compare (me saying to my wife):

• "I really didn't want to move the cat."
• "I really didn't want to move the cat."
• "I didn't really want to move the cat."

GENERAL QUESTION: Might a choice of word order cause problems in a contract?

FACTS – from a 2021 Delaware chancery-court case:

1. A merger agreement provided, in section 8.1, that if the merger was not "closed" by a specified date, then either party could pull the plug (so to speak), that is, terminate the merger agreement, as long as that party's breach was not responsible for the failure to close.
2. The merger agreement also stated in part as follows:

Section 8.2 Effect of Termination. In the event of any termination of this Agreement as provided in Section 8.1, the obligations of the parties shall terminate and there shall be no liability on the part of any party with respect thereto, except for … [list of surviving clauses omitted] … nothing contained herein shall relieve any party from liability for damages arising out of any fraud occurring prior to such termination ….

3. For reasons not important here, one of the parties:
   • pulled the plug, i.e., terminated the merger agreement, as provided in the aforementioned section 8.1; and
   • sued the other parties in Delaware chancery court for breach.
4. Citing section 8.2, the defendants filed a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted, on grounds that section 8.2 precluded liability.
5. The plaintiff (i.e., the party that pulled the plug under section 8.1) claimed that the "no liability … with respect thereto" in section 8.2 meant no liability with respect to the termination itself, as opposed to no liability with respect to breach of the obligations of the Agreement. [DCT comment: That would be a pretty-typical intent on the part of the parties.]

The Delaware chancery court disagreed: "Under the Merger Agreement’s plain terms, Yatra extinguished its breach of contract claims when it elected to terminate the Merger Agreement" (emphasis added):

Of course, an agreement is not ambiguous simply because the parties disagree about its interpretation.

Rather, a contract is ambiguous only when the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings.

By contrast, a contract is unambiguous when the agreement’s ordinary meaning leaves no room for uncertainty, and the plain, common, and ordinary meaning of the words lends itself to only one reasonable interpretation.

[Plaintiff's] reading of the Effect of Termination provision stretches the words beyond their tolerance.

The comma following "Section 8.1" breaks the sentence, reading naturally to indicate the Merger Agreement's drafters intended the phrase "with respect thereto" to modify "the obligations of the parties" as opposed to "any termination of this agreement."

Further, [Plaintiff's] position—that the provision only extinguishes liability arising from "any termination of this Agreement"—is inconsistent with the language immediately following "with respect thereto," which "except[s]" certain obligations under the Merger Agreement, as specifically enumerated, from the effects of the contractual limitation of liability. That clause would be superfluous if the effect of the provision was to limit liability only arising from the act of terminating the Merger Agreement.

Moreover, contrary to Yatra's contention that termination leaves claims for breach of contract based on prior acts unaffected, Section 8.2 expressly carves out only liability for "fraud occurring prior to such termination," implying that liability for all other claims (including contract-based claims) for acts "occurring prior" to termination do no survive post-termination.

Yatra Online, Inc. v. Ebix, Inc., No. 2020-0440, slip op. at 23 (Del. Ch. Aug. 30, 2021) (quotation edited), aff'd w/o opinion, 276 A.3d 476 (Del. 2022).

From a real-world contract clause: "(4) Penalty for late payments: Late payments are subject to a penalty of 5%."

EXERCISE: Spot the issues, including those from prior weeks' reading.

(Be careful — as stated, the facts give rise to some hidden issues!)

Spotted in a Facebook group: "My eight year old just asked me if Bingo is the name of the farmer or the dog. And now I am questioning everything I thought I knew about life." (Credit: @whitneyhemsath.)

From an obituary: "Pamela went to heaven surrounded by family whom she loved …." QUESTION: What possibilities does this line evoke in your minds?

As mentioned at the start of the semester: So that students will get a chance to work with others, effective today we are reshuffling the groups, this time alphabetically by first name, with a few manual tweaks to get a better shuffle.

(Again, the names are listed here by first name only, so that the full names won't be on the Web for all to see.)

6:00 p.m. class (revised):

Group 1: Aaron G., Allanah, Amberley, Grace, Hunter
Group 2: Aaron H., Caroline, Christopher, Emma, Harrison
Group 3: Bryce, James, Katie, Rebecca, Kaveri
Group 4: Lisette, Jason, Megan, Stephen

7:30 p.m. class:

Group 1: Ajita, Alexia, Bill, Clarissa
Group 2: Alyssa, Beau, David, Katie
Group 3: Hannah, Lanny, Saayem, Tony
Group 4: Jake, Muriel, Samuel, Tyler

Feel free to use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4:

FACTS:

• MathWhiz and Gigunda have agreed (in part) that Gigunda will reimburse MathWhiz for MathWhiz's out-of-pocket expenses.
• Gigunda's services agreement template says that MathWhiz must comply with Gigunda's expense reimbursement policy concerning what Gigunda will or won't reimburse (e.g., no first-class travel).
• Mary Marvel, the MathWhiz CEO, asks what you think.

QUESTION 1: What advice do you have for Mary?

FACTS: Gigunda's services agreement template also says that MathWhiz must submit its invoices no later than 15 days after the end of a calendar quarter.

QUESTION 2: What do you think Gigunda's motivation is?

QUESTION 3: Will MathWhiz even care? Why or why not?

QUESTION 4: What do you advise Mary Marvel?

FACTS:

• MathWhiz wants to include, in its services agreement template, a provision for charging interest.
• Mary says that she's heard of something called a "usury-savings clause," and asks whether such a clause should be included in the MathWhiz template.

QUESTION 5: From a purely-business perspective, what do we not know, that we might want to find out, before trying to advise Mary?

FACTS: For particular MathWhiz obligations, Mary wants the MathWhiz services agreement template to require only that MathWhiz use its "best efforts" to perform its obligations.

QUESTION 6: Is this a "safe" clause to include? Why or why not? (Think not just legally but also from a business perspective — what might a MathWhiz customer think?)

FACTS: Gigunda wants the MathWhiz contract to say that if MathWhiz doesn't submit an invoice for work within ten days after the end of the calendar quarter in which the work is done, then MathWhiz will be deemed to have waived payment of the invoice.

QUESTION 7: Why might Gigunda want this?

QUESTION 8: How might you advise MathWhiz about this?

QUESTION 9: What does "1% 15 days, net 30" mean?

FACTS: Assume that Gigunda is a Very Big Company, along the lines of ExxonMobil or Chevron.

QUESTION 10: Should you recommend that MathWhiz ask Gigunda to establish payment security?

FACTS: MathWhiz is asked, by a startup-company customer, to do a project that will require MathWhiz to invest a lot of time and resources. Mary Marvel asks you about options for payment security.

QUESTION 11: What might you advise Mary about payment security?

QUESTION 12: Would you want the startup-company customer to be the one to confirm that it has arranged for payment security? Or would it be better for MathWhiz to get more confirmation than that?

Previewing the reading about arbitration: A federal district judge in Chicago has ordered consumer electronics company Samsung to pay American Arbitration Association ("AAA") arbitration fees — probably totaling around $3 million — for some 35,000 consumers who had demanded arbitration as required by their "agreements" with Samsung. The court noted that:

Alas, Samsung was hoist with its own petard. … [Samsung] made the business decision to preclude class, collective, or representative claims in its arbitration agreement with its consumers, and AAA’s fees are directly attributable to that decision.

(The Hamlet quote is part of a longer speech by Hamlet: "For 'tis the sport to have the engineer || Hoist with his own petard" — that is, for an army engineer, in charge of tunneling under an enemy fortress to plant explosives, to be blown up by his own bomb.)

This weekend I'll be grading the employment agreements that you drafted; here are some comments that I've harvested in previous semesters — in your groups, discuss:

• which of the comments below are surprising;
• which comments might be important for a rising 2L summer associate to know.

1. General comment: It can be useful for executives to sign a "standard" employment agreement along with an addendum; see this blog post from 2015.

2. TEXT: "This employment agreement is between you and MathWhiz regarding your position of Director of Business Development."

   COMMENT: For a new hire, a letter agreement would typically start as something like: "MathWhiz is pleased to offer you the position of Director of Business Development on the terms and conditions stated in this letter."

3. TEXT: "For the term of your employment, MathWhiz agrees to employ you in the position of Director of Business Development."

   COMMENT: The italicized part of this sentence could be argued to imply that there's a fixed term of employment (although the later "at will" language seemingly negates any such argument).

4. TEXT: "MathWhiz agrees to employ you in the position of Director of Business Developer [sic; Development]."

   COMMENT: If this were a purchase-and-sale agreement, you'd want to say (in effect) BOTH that Seller agrees to sell AND Buyer agrees to buy — otherwise it'd be an option, exercisable at Buyer's discretion.

5. TEXT: "You will report to Mary Marvel (the “CEO”)."

   COMMENT: If Mary is the one who will be signing the letter, this will look a little funny.

6. TEXT: "Your employment shall be is [or, will be] “at will,” …."

   COMMENT: I'm not fond of "shall be," especially in letter agreements — use "is" or "will be" or (if imperative) "must be."

7. TEXT: "Your position will be full-time. You agree to work onsite at Company’s facility or on Company directed travel for at least 50% of your total working hours. For the first year of your employment, you may work remotely for up to 50% of your total working hours. After the first year, Company may, upon reasonable consultation with you, adjust your remote working hours at Company’s discretion."

   COMMENT: Maybe a separate paragraph for this currently-significant topic (remote work)?

8. TEXT: "Your annual salary will be [ADD: at an annual rate of] $[INSERT SALARY AMOUNT] …."

   COMMENT: We want to rule out the employee claiming that s/he was entitled to a full year's pay no matter how long she worked during the year.

9. TEXT: "To the greatest extent not prohibited, you agree that you will be an "at-will" employee during the entire time of this Agreement.

   COMMENT: To the greatest extent not prohibit by what? By law? By some other agreement?

10. TEXT: "I. Duties and Scope of Employment."

    COMMENT: Using Roman numerals isn't the best idea for agreements of this type, because they get unwieldy and can be hard to reference.

11. TEXT: "For the term of your employment (“Employment”), the Company agrees to employ you …."

    COMMENT: This is dangerous, because it implies that there's a fixed and/or determinable term of employment, as opposed to "at will" employment as stated further in the student's draft (and we don't want to have to litigate whether one takes precedence over the other).

12. TEXT: "The Company may unilaterally amend this Agreement by providing at least five days’ notice to the you."

    COMMENT: This would get pushback from Dave — and it's not necessary, given that employment is at will.

13. TEXT: "“Employment relationship” means the contractual relationship between You and Company entered into under this Agreement and controlled by this Agreement.

    COMMENT: Hmm: This could arguably mean that terminating the employment relationship has the effect of terminating the employment agreement — and with it, the post-term noncompetition covenant, which would make your client MathWhiz very unhappy.

14. TEXT: "Dear Mr. Dave Doright"

    COMMENT 1: "Mr. Dave Doright" would be in the inside address of a letter; you wouldn't use "Mr. Dave Doright" in the salutation. (For a business letter agreement, the salutation would be "Dear Dave:" — first name only, typically with a colon as opposed to a comma — or possibly "Dear Mr. Doright")

15. TEXT: "We have agreed that you will continue to serve as an employee of MathWhiz until either you or MathWhiz terminates your employment."

    COMMENT: You'd want to explicitly say "at will" because it's a term of art that a judge would immediately understand.

16. TEXT: "/ s / Dave Doright"

    COMMENT: "s" means that it's been signed by Dave Doright, so you wouldn't include it here.

17. TEXT: Some students used bullets for their paragraphs.

    COMMENT: Numbering would be better than bullets, for easier referencing in the future.

18. TEXT: "The terms of this agreement can be subject to change."

    COMMENT: This shouldn't be included — for "at will" employment, it's a given, so there's no need to rub Dave's face in it.

19. TEXT: "I have not relied upon any other verbal, oral, or written statements, other than the ones contained in this Employment Offer."

    COMMENT: Good thought, but I think I'd leave it out.

20. TEXT: "The Company will pay you an annual salary of [$XXX,XXX.XX], payable in 24 semi-monthly payments."

    COMMENT: You'd want to say "a salary at a gross annual rate of …." for reasons discussed in class — the "24 semi-monthly payments" language would arguably support Dave's argument that he'd be entitled to a full year's salary if he were to be let go without cause.

21. TEXT: "This letter confirms our oral agreement …."

    COMMENT: You probably don't want this — the offer letter is "it"; you don't want to leave a paper trail helping Dave to prove up a claim that there was a (supposedly-binding) oral agreement that (according to Dave) differed from what's stated in the offer letter.

22. TEXT: "In consideration of your excellent qualifications and references, I look forward to you joining the MathWhiz team and have full confidence that you will make a significant contribution to our business development efforts."

    COMMENT: I wouldn't say "In consideration of your excellent qualifications and references" — if litigation were ever to ensue between MathWhiz and Dave, the inclusion of "In consideration …" could be offered into evidence by Dave's lawyer as evidence that MathWhiz had an opportunity to check Dave's references and hired him after doing so.

23. TEXT: "If these terms are agreeable, please countersign the enclosed copy of this letter and return it to me."

    COMMENT: The "enclosed copy" bit is really old-school (as in, creakily geriatric); it's what I showed in my Tom Arnold NDA example, but that was in the early 1980s; I seriously doubt that many people use this approach in this day and age of email for pretty much everything.

24. A couple of students' submissions didn't say anything about compensation — strictly speaking it's not necessary, but it's something that Dave likely will be very desirous of getting in writing.

25. TEXT (in transmittal email to Mary): "I hope this Agreement is adequate …."

    COMMENT: I wouldn't say this in an email to a client, even one I'd worked with for a long time — it doesn't exactly bespeak confidence in one's own work product ….

26. TEXT: "Upon accepting this agreement, your employment by MathWhiz shall be in compliance by the following terms and conditions (this 'Agreement')."
    • COMMENT 1: So it's "your employment by MathWhiz" that will be accepting the agreement? (Look up "dangling participial phrase" – see, e.g., this article.)
    • COMMENT 2: So who is obligated by this sentence?
    • COMMENT 3: Also "shall be in compliance with the following" would not be the correct preposition; it'd be "shall be in compliance with the following …."

This introductory article about tenant guaranties in commercial leases, by two Holland & Knight lawyers, was published yesterday.

This is an experiment: When reviewing a contract drafted by someone else, do the following:

1.  [If you're reviewing a Word document:] Add a comment somewhere at the top to inform the (hypothetical) drafter that you're expanding the formatting – and briefly explain why you're doing so.

2.  Provisionally break each sentence into its own paragraph — don't number or letter the paragraphs (yet).

3.  Stomp out "… provided, that …." — make it a separate paragraph (usually)

4.  Fix any examples of D.R.Y. for numbers.

5.  Look for things — e.g., in-sentence lists — that can be spun off into separate "defined terms" paragraphs.

6.  For any long-ish provision, answer each question below with SHORT, complete sentences, in possibly executive-summary and bullet-point form — be aggressive about deferring details until subsequent subdivisions:

• Action: Which party must do (or refrain from doing) what?
• Timing: Are there deadlines? Maximum- or minimum time periods? Earliest-allowable start date?
• Trigger(s): Is this requirement an absolute one? Or will it come into effect only if triggered, and if so, what is/are the triggers?
• Exceptions: Are there any "escape clauses" for this required action (or non-action)?
• Autonomy: Is the actor required to conform to any particular standard, e.g., "in accordance with professional standards" or "in accordance with the Company's executive bonus plan"?
• Defined terms? Are there any definitions that could be spun off into separate paragraphs and replaced with an in-line defined term?

EXAMPLE: Consider the gross-up language that we previously looked at and rewrote:

2. No Setoff or Deductions; Taxes; Payments. … If any such obligation (other than one arising (i) with respect to taxes based on or measured by the net income or profits of the Lender, or (ii) with respect to any withholding tax to the extent that such withholding tax would have been imposed on the relevant payment to the Lender under the laws and treaties in effect at the time such Lender first became a party to this Agreement or otherwise became entitled to any rights hereunder) is imposed upon the Guarantor with respect to any amount payable by it hereunder, the Guarantor will pay to the Lender, on the date on which such amount is due and payable hereunder, such additional amount in U.S. dollars as shall be necessary to enable the Lender to receive the same net amount which the Lender would have received on such due date had no such obligation been imposed upon the Guarantor. …

Here's a possible rewrite, using the above protocol:

Let's try this out:

In your (new) groups, using the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4, try using the above protocol to break up the following, from an employment agreement for the vice-chairman of the board of The Men's Wearhouse:

[BEGIN]

In addition to the Annual Salary, Employee shall have an opportunity to earn an annual cash bonus (the "Bonus") in respect of each fiscal year of the Company in accordance with the terms of the Company's annual cash bonus program for executive officers then existing for such fiscal year based on the achievement of performance objectives as may be established from time to time by the Board of Directors or a committee thereof; provided, however, that, except as otherwise provided herein, the Bonus for any fiscal year shall be payable to Employee only if Employee is employed by the Company on the date on which such Bonus is paid, except that if Employee remains employed by the Company through February 5, 2017 as contemplated hereunder, then Employee shall be entitled to receive any Bonus earned for the fiscal year ending January 30, 2017 notwithstanding the fact that Employee ceases to be an employee after February 5, 2017. In no event will such Bonus be paid later than the last day of the third month following the close of the Company's fiscal year to which such Bonus relates. Employee's target annual cash bonus opportunity shall be set from time to by the Board of Directors or a committee thereof, but such bonus opportunity shall not be less than 100% of Employee's Annual Salary for any given year (the "Target Bonus"). The actual Bonus payable may be greater or lesser than the Target Bonus and shall be determined consistent with the criteria set for other senior management executives at the Company by the Board of Directors or a committee thereof, based on such factors as it shall determine.

[END]

I'll show one possible rewrite later.

Illustrating the contract-negotiation advantages of using short, single-subject paragraphs, consider an analogous situation: Drafting a complaint in a lawsuit, where the defendant must review and respond to each allegation in the complaint.

1.  Background:

• In U.S. litigation, a defendant must respond to allegations made in a complaint by admitting, denying, or pleading ignorance, generally on a paragraph-by-paragraph basis. See generally Fed. R. Civ. P. 8(b) concerning complaints and answers:

(b) … (3) General and Specific Denials. A party that intends in good faith to deny all the allegations of a pleading—including the jurisdictional grounds—may do so by a general denial. A party that does not intend to deny all the allegations must either specifically deny designated allegations or generally deny all except those specifically admitted.

(4) Denying Part of an Allegation. A party that intends in good faith to deny only part of an allegation must admit the part that is true and deny the rest.

(5) Lacking Knowledge or Information. A party that lacks knowledge or information sufficient to form a belief about the truth of an allegation must so state, and the statement has the effect of a denial.

• A plaintiff need not prove up matters that a defendant admits. (See Fed. R. Civ. P. 36(b): "A matter admitted under this rule is conclusively established unless the court, on motion, permits the admission to be withdrawn or amended.")
• But defendants' lawyers often look for reasons to simply deny an allegation — and they might well do just that for a long, wall-of-words paragraph that contains multiple factual allegations.

2. So: Consider the following paragraph from a State of California lawsuit against Google (which Google promptly settled for $93 million):

4.  Google’s primary source of revenue is advertising. Google’s parent company Alphabet Inc. reported that in 2022 it had revenues of over $280 billion, and over $220 billion of that was attributable to Google’s advertising. A critical feature of Google’s advertising platform is location-based (or geotargeted) advertising, as advertisers greatly prefer to precisely target users in narrow geographical locations. In addition to advertising to users based directly on their location, Google also uses their location data to build behavioral profiles of users, which can determine what ads are shown to users.

The state AG's office might profitably have rewritten this paragraph (and others) to increase the odds of Google's lawyers admitting to more things — for example, thusly:

5.  To be sure: The state AG's office could readily prove up each of the above assertions, using depositions, documents, etc. But: The more of these matters that Google will admit right away, the more that will serve to pin Google down — thus simplifying matters for the AG's office as the case develops (to say nothing of reducing costs).

6.  Of course, by breaking up the factual allegations into bite-size chunks, you end up with more numbered paragraphs. Who cares?

7..  Note also how the state AG's office includes screen-grab images directly in the body of the complaint to help educate the judge and jury. Question: In a contract, could screen-grab images be judiciously used to help educate the parties' business people — and later readers such as a judge or jury? (That often won't be worth bothering with, but it's worth keeping in the back of your mind.)

A tweet: "I just learned that today is Wife Appreciation Day. The wording is ambiguous. Does that mean you’re supposed to appreciate her or that she should appreciate you."

(Most of the replies were in the vein of, for example, "You really want trouble, do you?")

For any long-ish provision, "dissect" the provision, like a frog in a high-school biology class, by answer each question below with SHORT, complete sentences, in possibly executive-summary and bullet-point form — be aggressive about deferring details until subsequent subdivisions:

• Action? Which party must do (or refrain from doing) what? [For this purpose, the term "action" includes refraining from doing something.]
• Timing? Are there deadlines? Maximum- or minimum time periods? Earliest-allowable start date?
• Trigger(s)? Is the requirement for this action an absolute one? Or will it come into effect only if triggered, and if so, what is/are the triggers?
• Exceptions?: Are there any "escape clauses" for this particular action?

• Standard(s)? Must the action conform to any particular standard, e.g.:

  • in accordance with professional standards
  • as stated in the Company's executive bonus plan as adopted by the Board from time to time
  • in a prudent manner [or, in a commercially-reasonable manner]
  • use commercially-reasonable efforts [or, use its best efforts]
  • in the Company's sole and unfettered discretion
  • in the Company's reasonable judgment

  NOTE: The above standards are just examples to illustrate the point.

• Defined terms? Are there any definitions that could be spun off into separate paragraphs and replaced with an in-line defined term?

EXAMPLE: Consider the gross-up language that we previously looked at and rewrote:

2. No Setoff or Deductions; Taxes; Payments. … If any such obligation (other than one arising (i) with respect to taxes based on or measured by the net income or profits of the Lender, or (ii) with respect to any withholding tax to the extent that such withholding tax would have been imposed on the relevant payment to the Lender under the laws and treaties in effect at the time such Lender first became a party to this Agreement or otherwise became entitled to any rights hereunder) is imposed upon the Guarantor with respect to any amount payable by it hereunder, the Guarantor will pay to the Lender, on the date on which such amount is due and payable hereunder, such additional amount in U.S. dollars as shall be necessary to enable the Lender to receive the same net amount which the Lender would have received on such due date had no such obligation been imposed upon the Guarantor. …

Here's a possible rewrite, using the above protocol — the answers can be used as a pretty-readable, multi-paragraph clause:

See here.

FACTS: A partner in your firm sends you the following email: "Hey [your name], I'm heads-down on another matter — attached is a draft of a consulting-services agreement that I'm helping one of my clients negotiate; it has an interest clause in it, quoted below. Please make a recommendation about what I should say to the client about it." The interest clause is the following:

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

QUESTION: What are you going to recommend to the partner as far as what the partner should say to the client? Important: What do we not know from these facts?

See this AP article and the question presented:

The “safety valve” provision of the federal sentencing statute requires a district court to ignore any statutory mandatory minimum and instead follow the Sentencing Guidelines if a defendant was convicted of certain nonviolent drug crimes and can meet five sets of criteria. … designed to provide a second chance for nonviolent offenders.

A defendant satisfies [the second-chance criteria] if he “does not have—(A) more than 4 criminal history points, excluding any criminal history points resulting from a 1-point offense, as determined under the sentencing guidelines; (B) a prior 3-point offense, as determined under the sentencing guidelines; and (C) a prior 2-point violent offense, as determined under the sentencing guidelines.”

The question presented is

• whether the “and” … means “and,” so that a defendant satisfies the provision so long as he does not have (A) more than 4 criminal history points, (B) a 3-point offense, and (C) a 2-point offense (as the Ninth Circuit holds), or
• whether the “and” means “or,” so that a defendant satisfies the provision so long as he does not have (A) more than 4 criminal history points, (B) a 3- point offense, or (C) a 2-point violent offense (as the Seventh and Eighth Circuits hold).

(Cleaned up, formatting revised.)

Last week, Washington state's supreme court decided Nelson v. P.S.C., Inc., No. 101444-9, slip op. (Wash. Sept. 21, 2023) which turned on whether a state statute's reference to "within three years of the marriage" required a specified event to occur:

• during the three years before the marriage; or
• no later than the three years after the marriage.

The details aren't important, only that the case had to be litigated — thanks a lot, legislative drafters!

From this essay about the eight-hour Get Back documentary, referring in this quote to Paul McCartney:

We see a toothy, boyish, involuntary grin, different to [sic; from, or than] his practiced public smile, which lights up his face when John makes a joke or Billy Preston plays a ravishing lick on the keyboard.

QUESTION: Which of these "lights up [McCartney's] face" — his involuntary grin? Or his practiced public smile? (The answer should be obvious, but the words themselves leave this open.)

QUESTION: How could this ambiguity be resolved with just a change of internal punctuation?

From Joe Wallace, Swiss Trader Trafigura Hit by Suspected Nickel Fraud, Says It Could Lose $577 Million (WSJ.com Feb. 9, 2023):

Trafigura Group thought it was buying containers full of nickel. What showed up wasn’t nickel at all, the giant commodities trader said, describing itself as the victim of a “systematic fraud” that could cost it more than half a billion dollars. …

The trading house had dealt with Mr. Gupta’s companies for years without any problems, a spokesperson said. But in 2022 red flags began to emerge.

Cargoes purportedly containing nickel were taking longer to arrive at their destination than expected, a spokesperson said. They were also stopping off at more ports en route than expected, the spokesperson said, and the companies stalled on showing documentation. …

Trafigura started to inspect a small number of containers in Rotterdam, a person familiar with the matter said. When it opened them, they didn’t contain nickel, a silvery-looking metal that fetches around $30,000 a metric ton and whose price has shot up in line with demand for EVs.

Instead, the boxes had lower-value materials such as carbon steel, the person said. The financial charge Trafigura is taking reflects the hit from receiving less valuable, or in some cases potentially worthless, goods in place of the pricey nickel that it paid for.

I'm toying with the idea of converting the course materials' sample contract terms into an operating-rules format for easier reading by students and business people and easier negotiation.

Example: A payment-terms provision might be phrased along the following lines:

Background: Citi Can’t Get Back $500 Million It Accidentally Wired To Revlon Lenders, Federal Judge Rules (see also the court's findings of fact and conclusions of law)

From the S.D.N.Y.'s findings of fact (slip op. at 11-16): Three different people misinterpreted the information displayed on the wire-transfer software.

Second Circuit: Vacated and remanded; "[t]he traditional rule of New York law governing mistaken payments generally calls for restitution of the mistaken payment unless the recipient so significantly changed its position in reliance on the mistake that it would be unjust to require repayment. … The facts were sufficiently troublesome that a reasonably prudent investor would have made reasonable inquiry, and reasonable inquiry would have revealed that the payment was made in error." (Emphasis added.)

LESSON: It took two years — and who knows how much in legal fees — for Citi to get the Second Circuit to rescue it from an employee [foul]-up. "You get what you INspect, not what you EXpect." (And: Second-checking can be a lifesaver.)

FACTS: In the negotiation of a master services agreement, Gigunda wants the agreement to contain a most-favored customer ("MFC") clause.

EXERCISE: Draft the MFC clause, as follows:

• Groups 1 and 3: You represent Gigunda.
• Groups 2 and 4: You represent MathWhiz.

BE SURE to address how the MFC clause will be administered as time goes on.

Use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4

(The relevant reading was here.)

[DCT to talk through chapter 19 in the readings, which is especially salient in view of the COVID-19 pandemic (with its supply-chain disruption); shipping delays due to traffic jams at ports (ditto); the Great Texas Blackout of 2021; and recent hurricanes.]

FACTS: You have a school-aged daughter (let's say). You want to bribe reward her if she makes straight-A grades for a given report-card period.

QUESTION: Which of the following would she prefer — and why:

• Option A: "I'll pay you $100 at the end of the reporting period unless your report card has any grade less than an A."
• Option B: "I'll pay you $100 at the end of the reporting period if you show me your report card and it has all A's."

(This is a preview exercise for Chapter 16, coming up next month.)

FACTS:

1.  MathWhiz asks you to develop a form of services agreement for where MathWhiz is the service provider. The agreement form will be posted on MathWhiz's Web site so that MathWhiz's customers can easily review the agreement form.

2.  MathWhiz's business-development VP wants you to make the form as tough as you can, to give MathWhiz maximum legal advantage over its customers.

3.  You happen to know that MathWhiz also needs to engage another company to provide certain specialized services — that is, MathWhiz will itself be the customer.

QUESTION: Any thoughts?

TEXT, from a Hacker News discussion: "You should only short term trade with your 401k."

QUESTION: How can this sentence be clarified by simply moving words around? (There are two possible meanings.)

It'd be worth your while to read this online article by Kyle Mitchell, a (younger) lawyer friend of DCT in California. EXCERPT:

For example, many big companies’ form master procurement agreements obligate vendors to replace personnel the customer objects to, for any reason at all. If that person’s role happens to be account manager, and your company has a dozen of those, you might assume you’ll have a replacement to hand.

But even so, you’re betting that bad things won’t happen, and won’t happen at once. If they do, you’ll get stuck scrambling to train, recruit, or contract a new sub.

If you happen to be a small startup of three people without a reserve mountain of cash, you run a higher risk.

• Any objection could mean hiring someone you did not intend to hire, or at least not hire yet.
• You might accelerate plans and take that person on ahead of schedule … and get a termination notice soon after, or fail to renew the deal. After all, the customer’s already unhappy with at least part of the relationship. Now you’re firing someone you never really wanted to hire in the first place.

Solution?

• Add a “reasonableness” limit on the customer’s veto, to your obligation to replace, or both.
• Put a hard numeric limit on the number of people they can ding, like one per year, or tie it to fees paid.
• Or just strike the whole concept of a designated, replaceable person.

(Extra paragraphing and bullets added.)

Question 1: Conventionally, "net 10 days" uses digits, even though ordinarily "ten" is spelled out.

Question 1: We don't know whether net 10 days is "enough time" for payment because we don't know which side we represent — the payer, or the biller.

Question 2: The federal Fair Credit Reporting Act imposes advance-consent requirements in all states, including Texas.

Question 3: Invoices: "The phrase that pays" is internal controls. (Invoices also give the billing party a convenient way of tracking payments owed, a.k.a. "accounts receivable.")

From an employment agreement for the vice-chairman of the board (!) of The Men's Wearhouse:

… In the event of termination of Employee's employment, other than for "cause", as described in Section 7, or by reason of voluntary termination as described in Section 8, a number of unvested shares of Restricted Stock shall immediately vest equal to 19,360 times a fraction the numerator of which shall be the sum of (i) the number of days from and including the most recent February 6 to and including the Termination Date (as defined below) and (ii) the lesser of 730 or the number of days from the Termination Date to and including the second following February 5, and the denominator of which shall be 365; any other unvested shares of Restricted Stock shall immediately terminate and be of no further force or effect.

(Emphasis added.)

This brought to mind Monty Python's Holy Hand Grenade of Antioch scene from Monty Python and the Holy Grail:

And the Lord spake, saying, "First shalt thou take out the Holy Pin. Then shalt thou count to three, no more, no less. Three shall be the number thou shalt count, and the number of the counting shall be three. Four shalt thou not count, neither count thou two, excepting that thou then proceed to three. Five is right out! Once the number three, being the third number, be reached, then lobbest thou thy Holy Hand Grenade of Antioch towards thy foe, who, being naughty in My sight, shall snuff it.

Here's a possible rewrite, along the general lines of NCD § 7.11:

[x]. Accelerated vesting.

(a) Triggers: This section will apply if either of the following occurs:

      (1) the Employee's employment is terminated by the Company, other than for "cause", as described in Section 7; or

      (2) the Employee resigns for "good reason" as set forth in Section 6.

(b)  Calculation: When this section applies, a certain number of previously-unvested shares of the Employee's Restricted Stock will immediately vest as follows:

• No. of shares vesting = 19,360 x Vesting Fraction (defined below)
• Vesting Fraction = Additional Vesting Days (defined below) / 365

• Additional Vesting Days = The sum of:

          (i) the number of days: (x) from and including the most recent February 6; (y) to and including the Termination Date (as defined below); and

          (ii)  the lesser of (x) 730, and (y) the number of days from the Termination Date to and including the second following February 5. [DCT note: I didn't include a sample calculation here, but it's worth considering.] here

(c) Termination of other shares: Any other unvested shares of Restricted Stock will immediately terminate and be of no further force or effect [sic].

From a real-life contract drafted by The Other Side of a 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? Feel free to use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4. (Note: In the real world, the above clause isn't that bad, so you probably wouldn't rewrite it if the other side drafted it.)

ANSWERS: (DCT to show his version)

In your groups, be ready to discuss these:

1.  What does the reading material mean by the phrase, "hamburger for the guard dog"? Does tonight's in-class work suggest any examples to illustrate the point? (The reading: Here.)

2.  In the Tilly's case, how did the company's contract language boomerang on the company? (The reading: Here.)

3.  Did Conan O'Brien's lawyers do it right, or did they screw up, when he negotiated his Tonight Show hosting contract with NBC? (The reading: Here.)

1. QUESTION: From a litigator's perspective, what's an advantage of litigating (or arbitrating) a contract that includes illustrative examples, charts, diagrams, etc.?
2. QUESTION: Are there any disadvantages to including the items listed in #1 above?
3. FACTS:
   • MathWhiz's Mary Marvel asks you to review a contract form that's provided by a prospective MathWhiz supplier.

   • The contract form includes a statute-of-limitations provision as follows: "Any action for breach of this Agreement must be brought within three months year after the date of execution of this Agreement."

     QUESTION: Any issues here?

4. SAME FACTS AS #3: The contract says: "Either party may terminate this Agreement if the other party materially breaches this Agreement and fails to cure the breach within ten (10) business days after the non-breaching party gives notice of the breach." QUESTION: Any issues here?

https://www.sec.gov/news/press-release/2022-173

QUESTION: If all else fails in trying to interpret a contract provision, what two-word Latin maxim about "against the drafter" will courts often follow?

The following is a provision from a real-life contract form.

YOUR MISSION: Using the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4 to the extent you wish, build a list of substantive issues to discuss with The Other Side about the provision — including whether there are any portions that seem not to make any sense to include, given what's known about the anticipated MathWhiz-Gigunda relationship.

• Groups 1 and 3 represent MathWhiz.
• Groups 2 and 4 represent Gigunda.

(No rewriting needed.)

–BEGIN QUOTE–

Provider warrants that it has with respect to all Provider’s Personnel who are expected to perform Services under this Agreement: (i) conducted background checks; (ii) conducted checks against relevant persons-wanted lists published by national or international law enforcement bodies, the Consolidated Screenings List compiled by the United States Departments of Commerce, State, and Treasury, and any comparable lists maintained by non-U.S. authorities that are applicable to the activities engaged in under this Agreement (collectively “Government Sanctions or Watch List”); (iii) verified all qualifications used as a condition of employment (e.g., education, licensing, certifications, references, previous employers, etc.); and (iv) conducted a credit history review if the position pertains to a position of substantial trust such as involving large sums of money or substantial assets of value where theft or similar financial improprieties could reasonably occur. At a minimum, background checks required in (i) above shall include the checking of criminal convictions for any offenses other than minor traffic violations for all geographic areas wherein such individual have resided during the past five (5) years. Should any member of Provider’s Personnel appear on a Government Sanctions or Watch List, or the background checks or verifications disclose inaccurate or false information, a criminal conviction record, credit history or factors that could bear upon the desirability of a particular individual performing Services under this Agreement, Provider will advise Customer of the result of the check.  Customer shall have the right to request that Provider remove from the Services or Customer’s or its Affiliate Companies’ premises, any such individual. Provider shall be responsible for complying with any notice requirements associated with such disqualification as may be established by Applicable Law. Provider warrants that it has, by operation of law or valid agreements with Provider’s Personnel, the right to obtain this information and to disclose it to Customer as required herein, to the extent reasonably practicable. Additionally, Customer shall have the right to conduct additional background checks on Provider’s Personnel who will be performing Services for Customer. Provider shall take all actions and execute all documents and shall cause Provider’s Personnel to take all actions and execute all documents as are necessary to assist Customer in this process.

–END QUOTE–

Here's a rewrite for greater readability:

This goes into my SPP file, a.k.a. S**t People Pull:

A store chain, Paper Source:

• ordered unusually-large quantities of merchandise from its small-business suppliers; and
• shortly afterwards, filed for bankruptcy protection — which lets the chain (mostly) stiff the suppliers, likely paying them pennies on the dollar.

FTA: "Paper Source ordered more from The Card Bureau in a 60-day period than it had in all of 2020, according to Velencia." Jeremy Hill, Paper Source Bankruptcy Squeezes Small Greeting Card Sellers (WashingtonPost.com March 5, 2021).

Lesson: When drafting a contract for a supplier, consider recommending that the client:

• do due diligence as to The Other Side's ability to pay;
• ask for one or more sources of payment security (readings § 22.119) such as a standby letter of credit and/or personal guaranties (readings § 22.74).

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

QUESTION: How could this be rewritten to clarify?

FACTS:

• Groups 1 and 3: You represent MathWhiz, which wants you to draft and help negotiate a long-term master data-processing services agreement ("MSA") with Gigunda.
• Groups 2 and 4: You represent Gigunda.
• The MSA will serve as a master agreement with detailed terms and conditions — but the only actual work and payment obligations will be as set forth in any agreed "Work Orders" (sometimes called "Statements of Work") that incorporate the MSA by reference.

ASSIGNMENT: ABOUT ASSIGNMENTS:

1.  Build a list of clause requests for your respective clients about whether MathWhiz can "assign" the MSA and/or any particular Work Orders. (You might want to scan through the upcoming reading assignment about assignments.)

• Consider whether it'd be "kicking a sleeping dog" for either party to bring up the subject of assignments.
• Feel free to use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4

2.  Negotiate with each other.

Settlement report: David Thomas, Law firm Proskauer Rose, ex-client settle $636 million malpractice lawsuit (Reuters.com Sept. 26, 2023). Excerpt:

Adelman accused Proskauer of committing a "botched cut-and-paste" job with the partnership agreement.

He cited handwritten notes from Proskauer partner Sarah Cherry, who allegedly drafted the agreement. Adelman claimed Cherry later drew brackets around the key provision that gave Aghazadeh broad authority and wrote the word "f[**]k" next to it, indicating a mistake.

(Alteration mine.)

Prior article: Alison Frankel, Proskauer headed to crucial hearing in $636 million malpractice case (Reuters.com May 3, 2023).

Susman Godfrey represented the malpractice plaintiff.

This morning at the start of the civil fraud trial against former President Trump and others, the judge announced that there wouldn't be a jury because no one had demanded one.

There's discussion whether that was:

• a screw-up — and likely, malpractice — by the former president's lawyers; or
• an intentional strategic choice, so that the former president could blame the judge (whom the former president has already attacked) instead of having to blame jurors.

I literally laughed out loud at this:

https://twitter.com/heyitsalexsu/status/1707420562442825839

1.  Parallelism – what not to do: See § 9.2 of the assigned reading for early in the semester (Aug. 21 to be precise).

Example — note how the b) subdivision below reads, in effect, "… Purchaser shall: … The year 5 statement …," which doesn't make sense as a sentence. (See my revision after item 2 below.)

c) Earn-Out Provision

          i. Within 60 days after the last day of an applicable Earn-Out Year, Purchaser shall:

                    a) prepare a statement reflecting its Calculation of the Annual Earn-Out Payment for each Earn-Out Year, for five years.

                          i) For example, following Earn-Out Year three the Annual Earn-Out Payment Calculation would be applicable to year three only.

                    b) The year 5 statement must in addition include:

                          i) reasonable supporting documents, and

                          ii) a Payment to Seller.

2.  In #1 above, note the "i) For example, following Earn-Out Year three …" — if there's no "ii)" then don't give that subdivision a "i)"; instead, just make it an unnumbered grammatical paragraph, perhaps in parentheses. (I didn't count off for that, this time, because I can't find it in the reading assignments; I'll be counting off for it in future assignments.)

DCT REWRITE OF JUST THIS PART:

DCT REWRITE OF THE WHOLE THING:

Discuss in your groups — what strikes you as noteworthy?

Feel free to use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4

FACTS: Your elderly, childless Uncle Ed is selling his car to a stranger and wants your help. He says he doesn't know of any mechanical problems.

QUESTION 1: If the stranger asks Uncle Ed to represent and warrant in writing that the car has no problems, how might Uncle Ed respond as to the requested representation?

QUESTION 2: How might Uncle Ed respond as to the requested warranty?

The Demcratic-majority National Labor Relations Board — overruling a decision by the Republican-majority Board issued during the Trump presidential years — has said:

[A]n employer violates Section 8(a)(1) of the Act when it proffers a severance agreement with provisions that would restrict employees’ exercise of their NLRA rights. …

Where an agreement unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights, the mere proffer of the agreement itself violates the Act, because it has a reasonable tendency to interfere with or restrain the prospective exercise of Section 7 rights, both by the separating employee and those who remain employed. …

Examining the language of the severance agreement here, we conclude that the nondisparagement and confidentiality provisions interfere with, restrain, or coerce employees’ exercise of Section 7 rights. Because the agreement conditioned the receipt of severance benefits on the employees’ acceptance of those unlawful provisions, we find that the Respondent’s proffer of the agreement to employees violated Section 8(a)(1) of the Act.

McLaren Macomb and Local 40 RN Staff Council, OPEIU, 372 NLRB No. 58, at 7-8 (Feb. 21, 2023) (opinion) (cleaned up, emphasis added); explained in this Bryan Cave memo.

From Variety:

Warner Bros. Discovery CEO David Zaslav announced that newly-installed studio leaders Mike De Luca and Pam Abdy have brokered a deal to make “multiple” films based on the beloved J. R. R. Tolkien books.

TERM-SHEET EXERCISE: In your groups, make an initial list of business terms that your respective clients might want in a deal of this kind. (Don't worry about the intellectual-property aspects.)

• Groups 1 and 3 represent whoever owns the rights to the LotR books and characters.
• Groups 2 and 4 represent Warner Bros.

As usual, feel free to use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4

See this blog post (I'll play the video clip).

Lesson: Try not to write your contracts that way — especially not standard-form sales contracts that your supplier-client will be sending to customers ….

Last spring, Amazon closed its acquisition of One Medical (formally, 1Life Healthcare, Inc.).

Here's the Agreement and Plan of Merger, from the Securities and Exchange Commission's EDGAR Web site.

Note that the agreement is "Exhibit 2.1" of a Form 8-K filing; it's also part of a proxy statement sent to One Medical shareholders to get them to approve the transaction.

QUESTIONS:

1. What was to happen at the "Closing"? (See Article I of the Agreement — note the numbering scheme used in the Agreement for "Articles" and "Sections.")
2. In Section 7.02(d), what must an officer of the "Company" (i.e, One Medical) certify?
3. If no One Medical officer was willing to sign the certificate referred to in #2 above, would Amazon be able to sue One Medical for breach of contract for that alone? (Hint: Review the preamble to section 7.02.)
4. Name one thing that would allow One Medical to walk away from the deal but would not allow One Medical to sue Amazon for breach of contract.

Feel free to use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4

I'll spin the wheel to call on people.

Feel free to use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4

I'll spin the wheel to call on people.

1. QUESTION: Name four examples of "Hollywood accounting." (I'll ask each group for an example.)

2. FACTS: MathWhiz is ordering some expensive, high-powered computer gear from a supplier in Singapore, to be delivered to Ulaan Baatar (the capital of Mongolia).

   QUESTION: Would MathWhiz prefer that delivery of the equipment be made under: A) INCOTERMS DDP; or B) INCOTERMS EXW? Why?

3. FACTS: MathWhiz and Gigunda are negotiating a master services agreement under which MathWhiz might undertake any number of projects for Gigunda — some of which will be high-dollar.

   QUESTION: What are some pros and cons of:

   • having each successive new project's "statement of work" under the master services agreement become an addition to that agreement, versus
   • having each new statement of work be a separate agreement that incorporates the master agreement by reference?

4. FACTS: Gigunda asks MathWhiz to send Gigunda a sales quotation (a "quote") for data-processing services for a different project.

   QUESTION: Why might MathWhiz want its quote to have an expiration date?

5. FACTS: You represent a supplier, ABC Corporation, whose customer, XYZ Inc., wants XYZ's "affiliates" to be listed in the preamble as parties to a master purchasing agreement with the following language: "This Master Purchasing Agreement is between ABC Corporation ('Supplier') and XYZ Inc. and its affiliates ('Customer')."

   QUESTION: As ABC's lawyer, what do you think of this — what do you think XYZ really wants?

6. FACTS: Same as in #5.

   QUESTION: As ABC's lawyer, how might you structure the contract to accommodate Customer's likely desires — and to protect Supplier?

7. FACTS:

   • MathWhiz is negotiating a referral agreement with MegaLeads, Inc.
   • Under the referral agreement — drafted by MegaLeads — MathWhiz will pay MegaLeads a commission on all MathWhiz sales to a new customer, referred by MegaLeads, that are "consummated" within one year after MegaLeads introduces MathWhiz to the new customer.

   QUESTION: What do you think of the word "consummated" in this context?