ADVANCEDCONTRACTDRAFTINGANDNEGOTIATIONFORIN‐HOUSECOUNSEL
THEMISSOURIBARCONTINUINGLEGALEDUCATIONPROGRAM
September22,2015
JamesP.Pryde MarcL.KuemmerleinBryanCave Sprint
1Copyright 2015 James P. Pryde and Marc L. Kuemmerlein (images from other sources)
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Criticalprinciples
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Whoistheclient?
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“Webeginwiththeobvioustruismthatthegeneralcounsel’sonlyclientis(orshouldbe)
thecorporateentity.”
IndispensableCounsel,TheChiefLegalOfficerintheNewReality,E.NormanVeaseyandChristineT.DiGuglielmo(Oxford2012)
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“[A]lwaysrememberwhoistheclientandbethebestadvocateforthelong‐terminterestsofyourclient...manylawyerscausethemselvessomuchtroublebyforgettingwhotheclientis....Icansaywithabsolutecertaintythatmoretrouble,moreconsternationandmoreruinedprofessionalcareerscomefromviolatingthisonerule...” 5
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“...[more]thananyotherandit’swheresomein‐houselawyersgowrong,aswell,thinkingthatthebusinessunitinwhichtheyworkistheirclientorthebusinessleaderwithwhomtheyworkistheclientortheprojectthattheyareworkingonistheirclient.[A]tIBMwecontinuetokeepthisissueintheforefrontofoutglobalteam.”
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“...Iusedtheoccasionofmyfirstpresentationtospeakonthisverytopic–whoistheclient– andIemphasizedwhotheclientisnotandthenIemphasizedtherealclientisIBM,first,foremostandforever.”
RobertC.Weber,retiredSeniorVicePresident,LegalandRegulatoryAffairsandGeneralCounsel,IBM,ConvocationonLawyerIndependenceandIn‐HouseCorporateCounsel,JournaloftheNewYorkStateJudicialInstituteonProfessionalismandtheLaw(2012) 7
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Theattorney’srole
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JoeJamail
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“Today,manylawyersandbusinessmenalikehavecometoacceptthepropositionthattheclientisbestabletojudgewhatheneeds– moresothanthelawyer– orhemustbereadytodowhatevertheclientwishes. ...Whenalawyeraccedestothis,thelawyerhassoldawaytheonlythingofvaluethathehas– hisindependence – forifthelawyerstandsreadytodowhatevertheclientwants,whatthehelldoestheclientneedwithhim.Hedeprivestheclientoftheonethingthattheclientismostentitledtohave– thebestofadvicethatalawyercangivehimastowhetherwhattheclientwantsdoneshouldreallybedoneornot.Whatmakesusprofessionalisourinsistencethatinlegalmatters,wesettheparametersofwhatwewilldo,andwhatwillbedoneandwhatwewon’tdo.Andtheclientcannotsetthoseparametersforus.Wetelltheclientwhatisintheclient’sbestinterests,notinourbestinterests....”
JoeJamail,talkattheRockCenterforCorporateGovernance,StanfordLawSchool(May17,2011) 13
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“Inanorganizationintheworldweliveintoday,nofunctionsetsthecultureoftheentirecompanythewaythelegalfunctiondoes.Yousettheboundariesofwhowecanbe.Youdefinethefieldthatweplayon.”
JeffImmelt,GECEO,introducingBrackettDennistonIII,SVPandGeneralCounselofGeneralElectric
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Integritas
Consonantia
Claritas
ThomasAquinas 15
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ThestonemasonsofCologne
From“MarksofExcellence”,PerMollerup(Phaidon)(imagesfromFranzRziha,StudienuberSteinmetz‐Zeichen(Vienna,1883))
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Skills
Knowledge
Creativity19
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SkillsMasterofTechnique
KnowledgeMasterofConstruction
CreativityMasterofStyle
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ameetingoftheminds
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ameetingoftheminds
theSocraticmethod
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Excellenceinauthorshipisbettermanagement...
andbetter
Leadership.
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Theconceptofbeingalawyershouldencompassthebroadestkindofleadershipbecauseourcoreskill,properlyconceived,ofunderstandinghowvalues,rulesandinstitutionsinterrelatewithsocial,economicandpoliticalconditionsisascentraltothedemandsofleadershipasanyotherprofessionalordisciplinarybackground.
BenjaminHeineman,Jr.Lecture“LawandLeadership”,YaleLawSchool,2006
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Theconceptofbeingalawyer shouldencompassthebroadestkindofleadershipbecauseourcoreskill,properlyconceived,ofunderstandinghowvalues,rulesandinstitutionsinterrelate withsocial,economicandpoliticalconditionsisascentraltothedemandsofleadershipasanyotherprofessionalordisciplinarybackground.
BenjaminHeineman,Jr.Lecture“LawandLeadership”,YaleLawSchool,2006
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Theconceptofbeingalawyer shouldencompassthebroadestkindofleadershipbecauseourcoreskill,properlyconceived,ofunderstandinghowvalues,rulesandinstitutionsinterrelate withsocial,economicandpoliticalconditionsisascentraltothedemandsofleadershipasanyotherprofessionalordisciplinarybackground.
BenjaminHeineman,Jr.Lecture“LawandLeadership”,YaleLawSchool,2006
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“BoilerPlate”Finetuningthefineprint
• Itcanbecritical.
• “Itdoesn’tmatter”–
• UNTILITMATTERS!
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SettingthePlayingField• NormallytheBoilerPlateisattheENDoftheContract– overlooked.
• Businesspeoplebelieve:“Justlawyerstuff”– (i.e.,notimportant)
• Everyoneistiredbecause“themainpartofthecontractisdone.”
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Boilerplate?Whyisitcalled“boilerplate”?
Isanythingreally“boilerplate”?
Somelitigatorssay“boilerplate”isthemostimportantpartofacontract.
Thefineprintcankillyou!30
Boilerplate?Whyisitcalled“boilerplate”?
Isanythingreally“boilerplate”?
Somelitigatorssay“boilerplate”isthemostimportantpartofacontract.Thefineprintcankillyou!
(It’sall fineprint.)31
Boilerplate
GreatResource:TinaL.Stark,“NegotiatingandDraftingContractBoilerplate”,(ALMProperties,Inc.2003)
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SpecificProvisions
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AssignmentofContract• “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”
• Aspectsofperformancenotspecificallyincludedbutnecessaryordesirable– the“catch‐all”
• Whopayscosts?• Scopechanges?• Transitionservices?
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PublicAnnouncements•Whylimitandcontrol?
• Ifpubliccompany,maybeSECrestrictions
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LegalFees;CostsofEnforcement
● Oneofthefirstprovisionstocheckwhenadisputearises.
● Thecostoftheprevailingpartyinlitigation?Orthecostsincurredinconnectionwithenforcingcontractrights.
● Costsincurredforin‐housecounselinvolvement? 37
Notices•Mainparty?Whowithintheorganization?
• “Copy”‐ issendingthecopyrequiredtobevalidnotice?
• Electronicnotices?•Whendeemeddelivered?
• catchall– attheveryleastwhenactuallyreceived
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Interpretation• Singular/plural,viceversa• Gender• “Including”means“includingwithoutlimitation”
• and/or?• “Agreementisaresultofnegotiation,andthusnotconstruedagainsteitherparty”–enforceable?
• Foreignlanguages 39
Severability• Doyoureallywantunqualifiedseverability?
• Istheresomepartofthecontractthatissovital,thatifitisunenforceable,thentheentirecontractshouldbein“question”?
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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? 42
GoverningLawLawsdodifferinvariousjurisdictions.Thisisasubstantivedecision.
Delaware?NewYork?California?
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Jurisdiction/Venue
•Becarefulwithexclusivejurisdiction(whatifnopersonaljurisdictionisavailable)?
•Venue– waiverofchangeofvenue?
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Whenitneedstogetdonetoday!
• Draftingunderpressure– deadlines• Breakingthecontractintoparts• A“spaceofquiet”‐‐
• Automatingthecontractprocess– toolsandsystems• contractmanagementsoftware‐‐Apttus 45
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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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DraftingandNegotiation
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TheProcessesAreIntertwined• Thefirstdraftcansetthetonefortheentireprocess.
• “Too”one‐sidedcancausetheothersidetobecomeentrenched.
• “Too”easy,andyoumayhaveleftpointsonthetable
• Discussprocessstrategywithyourteam.50
1+1=3+• Insidecounselworkingwithoutsidecounselmeanssynergies,sharedexpertise,checksandbalances.
• Productivecollaborationamongteammembersyieldsinsights,considerationsandhigherquality.
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ContractTerms• InadditiontoBusinessTerms,6mainpartstocontractdocument:
• Definitions• RepsandWarranties• Covenants• Conditions• Indemnities• BoilerPlate
• All haveanimpactonRiskAllocation.52
Definitions
• Importanceof“Definitions”
•Placingdefinitions:•Atbeginningofthecontract?•Withinthecontract?•Orinanappendixattheend?
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RepresentationsandWarranties
• Aretheynecessary?• Acquisitions,yes.• Commercialcontracts?Ifyes,whatrepsarereallyrelevant?
• Repsspeakasofaspecificdate.• Atsigning?• Anytimeelse?
•Websiteincorporationfordisclosure? 54
Covenants• Ongoingagreements• Donotmixrepresentationsandcovenants.• Websiteincorporation(“Youwillfollowourproceduressetforthonourwebsiteasmodifiedfromtimetotime.”)
• Remediesforbreach?– damages?(increaseprice?)– specificperformance– terminationofagreement– consequentials?
Lostprofitsthatareforeseeable?
• Auditandinspectionrights ‐‐ limits? 55
Conditions
•Whatmustbesatisfiedbeforepartiesareobligatedtoperformthecontract?
•Areconditionssobroadthatcontractisreallyjustanoption?
• e.g.financingcondition56
Indemnity• Isitnecessary?• defend,indemnifyandholdharmless• Whatifnobreachactuallyoccurred?• Loserpaysattorneyfees?• Controlofdefenses– Normallycontrolledbyindemnifyingparty,butarethereexceptions?– Conflictofinterest(e.g.,differentdefensesareavailable)?
– claimagainstmaterialcustomerorsupplier?– potentialinjunctionoradverseeffectonbusiness?– businessreputation?
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AvoidingAmbiguousPhrases(unlessyouwantambiguity)
• Reviewspecificallyfor:“Arethereotherpotentialinterpretationsofthesentence”?
• Avoidpronouns.• Remove“legalisms”,archaiclanguage– ifcontractgoestocourt,12layjurorsmustunderstand.
• Understandthespecificmeaningofvariouswordsandphrases– thenuances.
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ResourcesandCollaborators
•Finance•Management•Technicalspecialists•Legalspecialists(insideandout)•Outsidecounsel
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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.MartoranaandMichaelK.Zitelli,ReedSmith(2013);seealsoPracticingLawInstituteprogramonLegalDraftingbyVincentR.Martorana.Also“CriticalThoughtsonContractDrafting”www.draftingpoints.com
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RecommendedResourcesonDrafting● Plain English for Lawyers, Richard C. Wydick, (Carolina Academic Press, 2005)
• Omit Surplus Words• Use Base Verbs, Not Nominalizations• Prefer the Active Voice• Use Short Sentences• Choose and Arrange Words with Care• Avoid Language Quirks• Punctuate Carefully
● The Contract Negotiation Handbook, An Indispensable Guide for Contract Professionals, Steven R. Guth (Lulu Press 2008)
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RecommendedResourcesonNegotiation• NegotiatingGenius:HowtoOvercomeObstaclestoAchieveBrilliantResultsattheBargainingTable,DeepakMalhotraandMaxH.Bazerman(HarvardBusinessSchool;Bantam2006)
• 3‐DNegotiation:PowerfulToolstoChangetheGameinYourMostImportantDeals,DavidLaxandJamesK.Sebenius(HarvardBusinessSchoolPublishing2006)
• Dealmaking:TheNewStrategyofNegotiauctions,GuhanSubramanian(W.W.Norton2010) 62
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“Youdoacontractnowandeveryoneishappythecontractisdonebutyoureallywon’tknowifit’sagoodcontractforfive,six,sevenyearsdownthelineanditcouldbethatthechampagneyouaredrinkingnowturnsintoscotchbecauseit’sabad,badcontractifyouhavetoeitherterminateormodify.SoIthinkovertimethecompanywillseethevalueofthelawdepartmentwhenthecontractseemstowork.”
LouisJ.BriskmanExecutiveVicePresident&GeneralCounselCBSCorporation
QuotetakenfromtheJournaloftheNewYorkStateJudicialInstituteonProfessionalismintheLaw,AConvocationonLawyerIndependenceandIn‐HouseCorporateCounsel (November9,2012) 63
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ThinkingBeyondtheDocumentImplementationandDisputeResolution
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ImplementationandPerformance
ReframingandrefiningthecontractCoursecorrectionsWhentobeformal;whentobeinformalAdministrationandDisputes
Greatresource:ThePointoftheDeal:HowtoNegotiatewhenYes isnotEnough,DannyErtelandMarkGordon(HarvardBusinessSchoolPress2007) 65
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Bringingitalltogether–
alifelongprocess
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