Advanced Contract Drafting and Negotiation … Contract... · 9/24/2014 7 Why Study Drafting?...

9/24/2014

1

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.

2

9/24/2014

2

4

9/24/2014

3

5

6

9/24/2014

4

7

Excellenceinauthorshipisbettermanagement...

andbetter

Leadership.

8

9/24/2014

5

Theconceptofbeingalawyershouldencompassthebroadestkindofleadershipbecauseourcoreskill,properlyconceived,ofunderstandinghowvalues,rulesandinstitutionsinterrelatewithsocial,economicandpoliticalconditionsisascentraltothedemandsofleadershipasanyotherprofessionalordisciplinarybackground.

BenjaminHeineman,Jr.

Lecture“LawandLeadership”,YaleLawSchool,20069

Theconceptofbeingalawyer shouldencompassthebroadestkindofleadershipbecauseourcoreskill,properlyconceived,ofunderstandinghowvalues,rulesandinstitutionsinterrelate withsocial,economicandpoliticalconditionsisascentraltothedemandsofleadershipasanyotherprofessionalordisciplinarybackground.

BenjaminHeineman,Jr.

Lecture“LawandLeadership”,YaleLawSchool,200610

9/24/2014

6

Theconceptofbeingalawyer shouldencompassthebroadestkindofleadershipbecauseourcoreskill,properlyconceived,ofunderstandinghowvalues,rulesandinstitutionsinterrelate withsocial,economicandpoliticalconditionsisascentraltothedemandsofleadershipasanyotherprofessionalordisciplinarybackground.

BenjaminHeineman,Jr.

Lecture“LawandLeadership”,YaleLawSchool,200611

Whatwe’lldiscusstoday.

•Perspectives;contexts•Principlesandapplications•Resources• Illustrationsandexamples•Thenegotiatingdimension• Integratingideas

12

9/24/2014

7

WhyStudyDrafting?

● Effective,productivenegotiating● Improvedassessmentofthedraftingsubmittedbyothers● Effectiveinternalcommunications● Persuasivepositionletters

disputeresolutioncommunicationswithregulatorspubliccommunications(“thecourtofpublicopinion”)

13

KeyWordsandPhrases– the“tools”Forexample:

• “Hereby”;herebygrants,transfers• “Shall”– expressesaduty• “Will” ‐‐ futurity• “Must”• “Ispermittedto”• “Willnotpermit”• “Acknowledgements”• “If,then”• “Until”“Aslongas”• “Providedthat” “Ontheconditionthat”• “and/or”

14

9/24/2014

8

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

15

RecommendedResourcesonNegotiation• NegotiatingGenius:HowtoOvercomeObstaclestoAchieveBrilliantResultsattheBargainingTable,DeepakMalhotraandMaxH.Bazerman (HarvardBusinessSchool;Bantam2006)

• 3‐DNegotiation:PowerfulToolstoChangetheGameinYourMostImportantDeals,DavidLaxandJamesK.Sebenius (HarvardBusinessSchoolPublishing2006)

• Dealmaking:TheNewStrategyofNegotiauctions,Guhan Subramanian(W.W.Norton2010) 16

9/24/2014

9

Notjust“style”,substance

Examples

17

“ThePrepaymentPenalty”• LoanDocumentsprovidedforsubstantialprepaymentfee.• Client,theborrower,wantedtorefinance,buttheprepaymentprovisionexactedanonerousfee.• Clientstoppedpayingtheloan.• Lenderacceleratedtheamountdue.• Clientpaidtheamountdue.• Noprepayment.

18

9/24/2014

10

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

9/24/2014

11

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.”

21

TransactionProcess

ReputationConfidentialityAgreement

LetterofIntentDefinitiveAgreementTheLifeoftheContract 22

9/24/2014

12

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

24

9/24/2014

13

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?

26

9/24/2014

14

Recitals

• Opportunitytodescribethepurposeandintentofthetransaction• ImportantiflaterthereisadisputeandtheindividualswhonegotiatedthedealarenolongerwiththeCompany

27

Definitions

• Theimportanceofdefinitions• Placingdefinitions:atthebeginningofthecontract?Withinthecontract? Orinanappendixattheend?

28

9/24/2014

15

KeyBusinessConceptsandTerms

● The“soul”ofthedeal(Canyoustateitinoneortwosentences?)● “businessterms”vs.“legalterms”● the“meetingoftheminds”● discoveringnewissues● “happytalk”– “fluff”

29

RepresentationsandWarranties

• Aretheynecessary?• Acquisitions,yes• Commercialcontracts?Ifyes,whatrepsarereallyrelevant?

• Repsspeakasofaspecificdate• Atsigning?• Anytimeelse?•Websiteincorporation? 30

9/24/2014

16

Covenants• Ongoingagreements• Donotmixrepresentationsandcovenants• Websiteincorporation(“Youwillfollowourproceduressetforthonourwebsiteasmodifiedfromtimetotime.”)

• Remediesforbreach?– damages?(increaseprice?)– specificperformance– terminationofagreement– consequentials?

Lostprofitsthatareforeseeable?• AuditandInspectionRights– Limits?

31

MostFavoredNations

• Somedraftingtips

• Areasofpotentialconcern

32

9/24/2014

17

Indemnity• Isitnecessary?• defend,indemnifyandholdharmless• Whatifnobreachactuallyoccurred?• Loserpaysattorneyfees?• Controlofdefenses– Normallycontrolledbyindemnifyingparty,butarethereexceptions?– Conflictofinterest(e.g.,differentdefensesareavailable)?– claimagainstcustomer?– potentialinjunctionoradverseeffectonbusiness?– businessreputation?

– Thedeceptivecarve‐out:“exceptwillfulgrossnegligence”

33

Waiverofincidentalorconsequentialdamages

• Incidentaldamages•Consequentialdamages•Lostprofits•Diminutioninvalue

34

9/24/2014

18

LimitationofLiability

IncidentalandconsequentialdamagesPunitivedamagesIndemnitiesBreachofconfidentialityprovisions

35

Boilerplate?

● Whyisitcalled“boilerplate”?● Isanythingreally“boilerplate”?● The“fineprint”GreatResource:TinaL.Stark,“NegotiatingandDraftingContractBoilerplate”,(ALMProperties,Inc.2003)

36

9/24/2014

19

AssignmentandDelegation

• “Affiliate”transfers?• Purpose– creditworthycounterpartyorotherreasons(e.g.,competitor;managerialcompetence)?• Cantheconsentbeunreasonably“withheld,conditionedordelayed”?• Is“changeofcontrol”anassignment?• Anti‐assignmentprovisions• Strictlyconstrued• Makingassignmentvoid

37

FurtherAssurances• Limits– “takesuchfurtheractionsasmaybe[reasonably]requiredtocarryouttheprovisionsofthisAgreement”• Goodfaithandfairdealing• Aspectsofperformancenotspecificallyincludedbutnecessaryordesirable– the“catch‐all”• Whopayscosts?• Scopechanges?• Transitionservices? 38

9/24/2014

20

PublicAnnouncements

•Whylimitandcontrol?•Ifpubliccompany,maybeSECrestrictions

39

LegalFees;CostsofEnforcement

● Oneofthefirstprovisionstocheckwhenadisputearises.

● Thecostoftheprevailingpartyinlitigation?Orthecostsincurredinconnectionwithenforcingcontractrights.

● Costsincurredforin‐housecounselinvolvement?

40

9/24/2014

21

Notices•Mainparty?Whowithintheorganization?• “Copy”‐ issendingthecopyrequiredtobevalidnotice?• Electronicnotices?•Whendeemeddelivered?• catchall– attheveryleastwhenactuallyreceived

41

Specialconsiderations

• Draftingunderpressure• Giveyourselfbothtime andspace• Splitthedocumentup• Draftandredraft;findaneditor• Findingexits– endgames;checkwholedocument• Canonsofconstruction• Thebusinessperspective

42

9/24/2014

22

Interpretation

• Singular/plural,viceversa• Gender• “Including”means“includingwithoutlimitation”• and/or?• “Agreementisaresultofnegotiation,andthusnotconstruedagainsteitherparty”–enforceable?• Foreignlanguages 43

Severability

• Doyoureallywantunqualifiedseverability?• Istheresomepartofthecontractthatissovitalthatifitisunenforceable,theentirecontractshouldbein“question”?• “EssentialPartoftheAgreedExchange”

44

9/24/2014

23

EntireAgreement

• Besuretheclauseisaccurate.• Otherdocumentsmaybepertinente.g.,confidentialityagreement

specifications;schematics;RACI;RFPdocuments

otheroutsidedocuments• Paroleevidence

45

NoThird‐PartyBeneficiaries

• Isthestandardclauseaccurate?• Ifindemnitycovers“affiliatesandemployees,”thenaretheaffiliatesandemployeesintendedtobethird‐partybeneficiariesofthemainagreement?• Isaprospectiveassigneeabeneficiary?

46

9/24/2014

24

GoverningLaw

• Lawsdodifferinvariousjurisdictions.Thisisasubstantivedecision.

• Delaware?• NewYork?• California?

47

Jurisdiction/Venue

• Becarefulwithexclusivejurisdiction(whatifnopersonaljurisdictionisavailable)?• Venue– waiverofchangeofvenue?

48

9/24/2014

25

WaiverofJuryTrial

•Desired?•Enforceable?

49

ForceMajeure• WhatisforcemajeurebeyondactsofGod?Thisclausecanbeusedtoshiftsignificantrisk!• Changesinlaworregulatorylandscape?• Laborshortage?• Strike?• Unabletogetrawmaterials?• Poweroutages(shouldcounterpartyhaveback‐uppowerespeciallywithcallcentersandserverfarms)?• ActsofWarandcivilunrest?• Changesinbusinessmodel?• Industrytrends?

50

9/24/2014

26

DisputeResolution

• Seniormanagement•Mediation•Non‐bindingarbitration•Bindingarbitration•Court

51

ImplementationandPerformance

ReframingandrefiningthecontractCoursecorrectionsWhentobeformal;whentobeinformal.AdministrationandDisputesGreatresource:ThePointoftheDeal:HowtoNegotiatewhenYes isnotEnough,DannyErtelandMarkGordon(HarvardBusinessSchoolPress2007)

52

9/24/2014

27

53

54