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Example of better phrasing

From something I encountered in a document today:

Original: "The parties agreed to extend the deadlines in writing."

Better: "The parties agreed in writing to extend the deadlines."

Adapted from an email I just sent to the students in my contract-drafting course.

Cardoni v. Prosperity Bank, No. 14-20682 (5th Cir. Oct. 29, 2015), is a useful teaching case for people drafting (i) merger-and-acquisition agreements, and (ii) related employment agreements, especially those being offered to employees of an acquired company.

For students:  It's worth reading the factual narrative of how the M&A transaction progressed to get an idea how such transactions typically take place.  In a nutshell:

  • The target bank was in Oklahoma; the acquiring bank, in Texas.
  • Before the deal closed, the acquiring bank offered employment contracts to 35 of the Oklahoma bank's senior-level employees ("bankers"), and suggested that the deal might fall apart if they didn't sign.
  • All but one of the 35 Oklahoma bankers signed, but some of them soon became unhappy with their new employment situation and left to join a competitor.
  • As is often the case in such affairs, the departing bankers' employment agreements with the Texas acquiring bank contained five provisions of particular interest:
    • a non-competition covenant, prohibiting the bankers from competing with the Texas acquiring bank within 50 miles of the Oklahoma target bank's banking centers;
    • a non-solicitation covenant, precluding the bankers from soliciting customers of either the Texas acquiring bank or the Oklahoma target bank;
    • a non-disclosure covenant, prohibiting the bankers from disclosing confidential information of either the Texas acquiring bank or the Oklahoma target bank;
    • a Texas choice of law clause --- this is salient because Texas law generally allows non-competition covenants, as long as they're limited both geographically and temporally, but Oklahoma law generally doesn't (remember, the departing bankers were all in Oklahoma); and
    • a forum-selection clause specifying Texas as the exclusive jurisdiction.

After the parties filed dueling state-court lawsuits in both Texas and Oklahoma, the cases were removed to federal court and consolidated in Houston.

Key takeaways:  The district court held in part that:

  • notwithstanding the Texas choice-of-law clause, Oklahoma law governed both the non-competition covenant because of Oklahoma's strong public policy favoring employee mobility (the Fifth Circuit affirmed on this point) and the non-solicitation covenant (the Fifth Circuit reversed on this point);
  • the Texas choice-of-law clause was effective to make Texas law govern the non-disclosure covenant; --- but on the facts of the case, said the district court, the Texas acquiring bank had not shown that the departing bankers had disclosed confidential information, and so the court denied the Texas acquiring bank's motion for a preliminary injunction against the departing bankers (the Fifth Circuit affirmed on this point as well).

At pages 8-11, the Fifth Circuit also gives a useful recap of the law concerning choice-of-law clauses and forum-selection clauses, as well as explaining some of the underlying policy differences.

Some commentators have said that contracts are like computer software [1]. One way in which the analogy is accurate is that contract forms represent the "codified experience" [2] of others. And like any experience, some of the lessons learned are likely to be more valuable than others — with some lessons not being applicable and possibly even being counterproductive. Which of course is just another way of reiterating that drafters shouldn't blindly reuse contract forms.

[1] See, e.g., Steve Smith, 9 Ways Contract Lawyers are Like Software Developers (2010). The analogy goes only so far: unlike the people who must carry out the instructions in a contract, people, computers don't get buyer's remorse or otherwise have to be persuaded to carry out their instructions.

[2] See, e.g., Peter Eeles & Peter Cripps, The Process of Software Architecting ch. 2 (Addison-Wesley Professional 1st ed. 2009), excerpt at Google Books,

Adapted from one of the occasional emails about real-world situations that I send to my Contract Drafting students.

Here's something to keep in mind in drafting a contract: Will your client remember to comply with an infrequently-occurring obligation?

1. Maybe once per year or so, I get asked to consult with a company in a field in which I have some expertise. This is via a national organization that has me on their roster of outside consultants; they seem to have a blue-chip clientele, although you've probably never heard of them. I'd not heard of them myself before they contacted me to do my first consultation.

This organization recently emailed its consultants with an update to its terms and conditions.  In reviewing the revised T&Cs, I noticed the following representation:

You represent that you have not been:

  • accused or convicted of, plead guilty to, or admitted committing, a felony or any offense involving dishonesty or deception (e.g., theft, fraud, etc.);
  • sued for theft of corporate assets, fraud, breach of a confidentiality or non-disclosure agreement, breach of fiduciary duty, or any similar action;
  • subject to an order, judgment, action, or investigation of a court or any national or state regulatory or self-regulatory organization, such as the SEC or FINRA, relating to a violation of securities laws or an accusation of civil or criminal fraud or deceptive practices; or
  • named on the Excluded Parties List System (now consolidated at SAM.gov) maintained by the U.S. General Services Administration, the Specially Designated Nationals list maintained by the U.S. Department of Treasury's Office of Foreign Assets Control, or any other similar list maintained by the U.S. or other nation or NGO.

While [the organization] reserves the right to verify this independently you agree to notify [the organization] immediately if your status changes with respect to any of these representations. [Emphasis added.]

2.  QUESTION: Because I only rarely do any consulting work for this organization, they're not top-of-mind for me --- so if I were to have such a change of status, how likely is it that I'd remember to notify them as required by their T&Cs?

3.  But then how to manage my life to ensure compliance?  One way might be to maintain some kind of list of clients and others who must be notified of various triggering events, and then review the list every so often to see if any triggering events have occurred. (For a "notify immediately" type of obligation, daily checks of might be necessary.)

Personally, I can solve this problem by using the docket of upcoming client deadlines that I maintain:  I'll just install a recurring reminder of this contract obligation.

4.  But suppose I didn't do that --- could I be successfully accused someday of "fraud in the inducement" for agreeing to this contractual commitment when I had no intention (the accuser would say) of honoring it?  I say no, because:

a. I can't imagine that I'd ever have a status change of this type and so I'd never be in breach for failing to notify the organization; and

b. Even if I did have such a status change and didn't think to notify the organization, the resulting foreseeable damages to the organization from the putative breach are likely to be nil (for the same reason, namely that I only rarely do any work for them).

In that regard, it's significant that the T&Cs don't call for me to indemnify the organization for damages resulting from my breach; that would make me responsible for all damages to the organization arising from a breach even if the damages were not foreseeable. (Recall that we discussed this in class recently.)

5.  A similar problem can arise in connection with a most-favored-customer clause, which we also discussed in class recently.  Suppose that a vendor were to agree to a most-favored-customer clause in a contract, and that the MFC clause contained a "continuing" obligation like that of a General Services Administration (GSA) contract.  The vendor must now put in place some sort of cross-checking process to make sure that it does not grant any other customer a more-favorable deal than it granted to the MFC customer. That can be time-consuming, burdensome, and expensive.

It's being reported that police have asked 23andMe and Ancestry.com for the names of people associated with particular DNA samples. This is an example of the kind of potential "intervener" action that TOP SPIN analysis can help contract drafters to identify and plan for.

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