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ADVANCED CONTRACT DRAFTING AND NEGOTIATION FOR IN-HOUSE COUNSEL
THE MISSOURI BAR
CONTINUING LEGAL EDUCATION PROGRAM
September 30, 2014
James P. Pryde Marc L. KuemmerleinBryan Cave Sprint
1Copyright 2014 (text only) Jim Pryde and Marc Kuemmerlein
Overview
Think,thendraft.
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Excellenceinauthorshipisbettermanagement...
andbetter
Leadership.
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Theconceptofbeingalawyershouldencompassthebroadestkindofleadershipbecauseourcoreskill,properlyconceived,ofunderstandinghowvalues,rulesandinstitutionsinterrelatewithsocial,economicandpoliticalconditionsisascentraltothedemandsofleadershipasanyotherprofessionalordisciplinarybackground.
BenjaminHeineman,Jr.
Lecture“LawandLeadership”,YaleLawSchool,20069
Theconceptofbeingalawyer shouldencompassthebroadestkindofleadershipbecauseourcoreskill,properlyconceived,ofunderstandinghowvalues,rulesandinstitutionsinterrelate withsocial,economicandpoliticalconditionsisascentraltothedemandsofleadershipasanyotherprofessionalordisciplinarybackground.
BenjaminHeineman,Jr.
Lecture“LawandLeadership”,YaleLawSchool,200610
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Theconceptofbeingalawyer shouldencompassthebroadestkindofleadershipbecauseourcoreskill,properlyconceived,ofunderstandinghowvalues,rulesandinstitutionsinterrelate withsocial,economicandpoliticalconditionsisascentraltothedemandsofleadershipasanyotherprofessionalordisciplinarybackground.
BenjaminHeineman,Jr.
Lecture“LawandLeadership”,YaleLawSchool,200611
Whatwe’lldiscusstoday.
•Perspectives;contexts•Principlesandapplications•Resources• Illustrationsandexamples•Thenegotiatingdimension• Integratingideas
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WhyStudyDrafting?
● Effective,productivenegotiating● Improvedassessmentofthedraftingsubmittedbyothers● Effectiveinternalcommunications● Persuasivepositionletters
disputeresolutioncommunicationswithregulatorspubliccommunications(“thecourtofpublicopinion”)
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KeyWordsandPhrases– the“tools”Forexample:
• “Hereby”;herebygrants,transfers• “Shall”– expressesaduty• “Will” ‐‐ futurity• “Must”• “Ispermittedto”• “Willnotpermit”• “Acknowledgements”• “If,then”• “Until”“Aslongas”• “Providedthat” “Ontheconditionthat”• “and/or”
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RecommendedResourcesonDrafting● DraftingContracts:HowandWhyLawyersDoWhattheyDo,TinaL.Stark(WoltersKluwer2014);alsoNegotiatingandDraftingContractBoilerplatewww.starklegaled.com● AManualofStyleforContractDrafting,KennethA.Adams(ThirdAddition2013).www.adamsdrafting.com
● LegalWritinginPlainEnglish,BryanA.Garner(SecondEdition2013),aswellasotherworks.www.lawprose.org.● WritingtoWin,TheLegalWriter,TheCompleteGuidetoWritingStrategiesthatWillMakeYourCaseandWin,StevenD.Stark,(CrownPublishingGroup2012)www.starkwriting.com● AGuidetoContractInterpretation,VincentR.Martorana andMichaelK.Zitelli,ReedSmith(2013);seealsoPracticingLawInstituteprogramonLegalDraftingbyVincentR.Martorana.Also“CriticalThoughtsonContractDrafting”www.draftingpoints.com
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RecommendedResourcesonNegotiation• NegotiatingGenius:HowtoOvercomeObstaclestoAchieveBrilliantResultsattheBargainingTable,DeepakMalhotraandMaxH.Bazerman (HarvardBusinessSchool;Bantam2006)
• 3‐DNegotiation:PowerfulToolstoChangetheGameinYourMostImportantDeals,DavidLaxandJamesK.Sebenius (HarvardBusinessSchoolPublishing2006)
• Dealmaking:TheNewStrategyofNegotiauctions,Guhan Subramanian(W.W.Norton2010) 16
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Notjust“style”,substance
Examples
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“ThePrepaymentPenalty”• LoanDocumentsprovidedforsubstantialprepaymentfee.• Client,theborrower,wantedtorefinance,buttheprepaymentprovisionexactedanonerousfee.• Clientstoppedpayingtheloan.• Lenderacceleratedtheamountdue.• Clientpaidtheamountdue.• Noprepayment.
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TheWondersofOffset• Clientconductedauditofitscommercialleases.• Foundthatpercentagerentnotcorrectlycalculatedandrenthadbeenoverpaidbytenantforpast10years.
• StatuteofLimitationsissues;noattorneysfeesawardedforprevailingparty.
• Reviewofentireleaseyieldedabenefit.• Foundprovisionthatallowedtenanttooffsetrent.“IfattheendoftheLeaseYear,Tenanthasoverpaidrent,TenantmayoffsettheoverpaidamountsfromLeasepaymentsinthesucceedingyear.”
• Tenantbegantheoffset.• Landlordsettledforalmosttheentireamount. 19
TheEmptyShoppingCenter• ShoppingCenterpoorlydesigned;tworemainingtenants;nofoottraffic.
• Tenantlosingalotofmoney;wantedtocanceltheLease.• Leasestated:“Landlorddoesnotguarantythatanytenantoranynumberoftenantswilloccupytheshoppingcenterpremises.”
• Whattodo.• Argument: Tenantdoesnotwantanyparticulartenant oranyparticularnumberoftenants tooccupytheshoppingcenter.Itjustwantsareasonableoccupancyrate– noparticulartenantandnoparticularnumberoftenant– justareasonablenumberoftenants.
• Constructiveeviction;mutualrelease. 20
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TheEmptyShoppingCenter
“Landlord does not guaranty that (a) any tenant or any number of tenants will occupy the shopping center premises, (b) or that any minimum square footage in the shopping center premises will be occupied.”
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TransactionProcess
ReputationConfidentialityAgreement
LetterofIntentDefinitiveAgreementTheLifeoftheContract 22
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ConfidentialityAgreement• Definitionof“ConfidentialInformation”•Materialsmarked“Confidential”?• Tradesecrets?• Ideasasproprietary?• TermofCA?• Theconceptof“needtoknow”• Contractors• JointlydevelopedIP? 23
LetterofIntent/TermSheet• Theoverture‐‐ preparation– the“first10minutes”‐‐ anopportunitytoreviewwithclientthetransactiongoalsandpurposes;thekeybusinessterms;prioritiesandnegotiatingstrategies.Setsthetoneforthedocumentnegotiation.
• Leverage?– “Thosewiththegoldmaketherules.”Ordothey?Whohasthegold?Ismoneytheonly“gold”?Whatisleverage?Negotiatingfromadisadvantagedposition
• IstheLOCbinding?Nonbinding?Oramixtureofboth?ABAmodelLetterofIntentforacquisitionsisagoodresource
• Exclusivityandshiftofnegotiationleverage• Isanagreementtonegotiateingoodfaithbinding?• Damagesforbreach– expectationdamages;Delawarelaw
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TheMainAgreement
Wheredoestheagreementreside?Onpaper?Inthemindsoftheparties?Orboth.TheiterativeprocessEstablishingthedialogueLittlethingscanmeanalotDiscoveringandcreatingvalue 25
Preamble• Knowyourcounterpartyandthosewithinorrepresentingthecounterparty(negotiators;executives;counsel)• Duediligence– reviewfinancialstatements;corporatehistory;industrytrends(knowthecounterparty’splaceintheindustry).• Ifpubliccounterparty,reviewSECfilingsforsimilarcontracts.• Becarefulabouttheidentityofthecompany;payattentiontothename.Somecompaniesusecontractingshells(andjustchangeInc.toLLCorviceversa).• Whatisthesignificanceofrecitals?
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Recitals
• Opportunitytodescribethepurposeandintentofthetransaction• ImportantiflaterthereisadisputeandtheindividualswhonegotiatedthedealarenolongerwiththeCompany
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Definitions
• Theimportanceofdefinitions• Placingdefinitions:atthebeginningofthecontract?Withinthecontract? Orinanappendixattheend?
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KeyBusinessConceptsandTerms
● The“soul”ofthedeal(Canyoustateitinoneortwosentences?)● “businessterms”vs.“legalterms”● the“meetingoftheminds”● discoveringnewissues● “happytalk”– “fluff”
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RepresentationsandWarranties
• Aretheynecessary?• Acquisitions,yes• Commercialcontracts?Ifyes,whatrepsarereallyrelevant?
• Repsspeakasofaspecificdate• Atsigning?• Anytimeelse?•Websiteincorporation? 30
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Covenants• Ongoingagreements• Donotmixrepresentationsandcovenants• Websiteincorporation(“Youwillfollowourproceduressetforthonourwebsiteasmodifiedfromtimetotime.”)
• Remediesforbreach?– damages?(increaseprice?)– specificperformance– terminationofagreement– consequentials?
Lostprofitsthatareforeseeable?• AuditandInspectionRights– Limits?
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MostFavoredNations
• Somedraftingtips
• Areasofpotentialconcern
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Indemnity• Isitnecessary?• defend,indemnifyandholdharmless• Whatifnobreachactuallyoccurred?• Loserpaysattorneyfees?• Controlofdefenses– Normallycontrolledbyindemnifyingparty,butarethereexceptions?– Conflictofinterest(e.g.,differentdefensesareavailable)?– claimagainstcustomer?– potentialinjunctionoradverseeffectonbusiness?– businessreputation?
– Thedeceptivecarve‐out:“exceptwillfulgrossnegligence”
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Waiverofincidentalorconsequentialdamages
• Incidentaldamages•Consequentialdamages•Lostprofits•Diminutioninvalue
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LimitationofLiability
IncidentalandconsequentialdamagesPunitivedamagesIndemnitiesBreachofconfidentialityprovisions
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Boilerplate?
● Whyisitcalled“boilerplate”?● Isanythingreally“boilerplate”?● The“fineprint”GreatResource:TinaL.Stark,“NegotiatingandDraftingContractBoilerplate”,(ALMProperties,Inc.2003)
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AssignmentandDelegation
• “Affiliate”transfers?• Purpose– creditworthycounterpartyorotherreasons(e.g.,competitor;managerialcompetence)?• Cantheconsentbeunreasonably“withheld,conditionedordelayed”?• Is“changeofcontrol”anassignment?• Anti‐assignmentprovisions• Strictlyconstrued• Makingassignmentvoid
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FurtherAssurances• Limits– “takesuchfurtheractionsasmaybe[reasonably]requiredtocarryouttheprovisionsofthisAgreement”• Goodfaithandfairdealing• Aspectsofperformancenotspecificallyincludedbutnecessaryordesirable– the“catch‐all”• Whopayscosts?• Scopechanges?• Transitionservices? 38
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PublicAnnouncements
•Whylimitandcontrol?•Ifpubliccompany,maybeSECrestrictions
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LegalFees;CostsofEnforcement
● Oneofthefirstprovisionstocheckwhenadisputearises.
● Thecostoftheprevailingpartyinlitigation?Orthecostsincurredinconnectionwithenforcingcontractrights.
● Costsincurredforin‐housecounselinvolvement?
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Notices•Mainparty?Whowithintheorganization?• “Copy”‐ issendingthecopyrequiredtobevalidnotice?• Electronicnotices?•Whendeemeddelivered?• catchall– attheveryleastwhenactuallyreceived
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Specialconsiderations
• Draftingunderpressure• Giveyourselfbothtime andspace• Splitthedocumentup• Draftandredraft;findaneditor• Findingexits– endgames;checkwholedocument• Canonsofconstruction• Thebusinessperspective
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Interpretation
• Singular/plural,viceversa• Gender• “Including”means“includingwithoutlimitation”• and/or?• “Agreementisaresultofnegotiation,andthusnotconstruedagainsteitherparty”–enforceable?• Foreignlanguages 43
Severability
• Doyoureallywantunqualifiedseverability?• Istheresomepartofthecontractthatissovitalthatifitisunenforceable,theentirecontractshouldbein“question”?• “EssentialPartoftheAgreedExchange”
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EntireAgreement
• Besuretheclauseisaccurate.• Otherdocumentsmaybepertinente.g.,confidentialityagreement
specifications;schematics;RACI;RFPdocuments
otheroutsidedocuments• Paroleevidence
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NoThird‐PartyBeneficiaries
• Isthestandardclauseaccurate?• Ifindemnitycovers“affiliatesandemployees,”thenaretheaffiliatesandemployeesintendedtobethird‐partybeneficiariesofthemainagreement?• Isaprospectiveassigneeabeneficiary?
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GoverningLaw
• Lawsdodifferinvariousjurisdictions.Thisisasubstantivedecision.
• Delaware?• NewYork?• California?
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Jurisdiction/Venue
• Becarefulwithexclusivejurisdiction(whatifnopersonaljurisdictionisavailable)?• Venue– waiverofchangeofvenue?
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WaiverofJuryTrial
•Desired?•Enforceable?
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ForceMajeure• WhatisforcemajeurebeyondactsofGod?Thisclausecanbeusedtoshiftsignificantrisk!• Changesinlaworregulatorylandscape?• Laborshortage?• Strike?• Unabletogetrawmaterials?• Poweroutages(shouldcounterpartyhaveback‐uppowerespeciallywithcallcentersandserverfarms)?• ActsofWarandcivilunrest?• Changesinbusinessmodel?• Industrytrends?
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DisputeResolution
• Seniormanagement•Mediation•Non‐bindingarbitration•Bindingarbitration•Court
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ImplementationandPerformance
ReframingandrefiningthecontractCoursecorrectionsWhentobeformal;whentobeinformal.AdministrationandDisputesGreatresource:ThePointoftheDeal:HowtoNegotiatewhenYes isnotEnough,DannyErtelandMarkGordon(HarvardBusinessSchoolPress2007)
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