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Save the date. Bound by unsigned draft. Oops: NDA killed. Oops: Quote incorporated into PO. Ambiguities. Crisper prose.

(If you’re reading this on the front page of the blog, click on the post title to see the post with a table of contents.)

Save the date: LES negotiation workshop

  • What: “The Art of Negotiation and Dealing with Unexpected Surprises” – a workshop by the Licensing Executives Society’s Houston chapter.
  • When: Tuesday October 18, 2016, 5:00pm to 7:30pm
  • Where: Houston Technology Center, 410 Pierce.

More information to come.

Bound by an unsigned contract draft

Suppose that:

  • Alice sends Bob a draft of a contract so that Bob’s attorney can review the draft.
  • Bob signs the draft, without modifying it, and returns it to Alice.
  • The parties perform their obligations under the contract.
  • Later, in litigation, the parties are unable to find any copy of the contract that was signed by Alice.

Under classic offer-and-acceptance doctrine, Alice might very well be bound to the terms of her contract draft anyway, even if she never did sign the contract. Consider this real-world example:

  • A party to a lawsuit drafted a settlement agreement and sent it to the other party, which signed the draft as-is and returned it.
  • In a later, unrelated lawsuit, the parties could not find any copy of the settlement agreement that had been signed by the drafting party itself; the parties, though, had complied with the terms of the settlement agreement.
  • In the later, unrelated lawsuit, a court held that the settlement agreement was binding on the drafting party — even though the drafting party itself had not signed that agreement — and so the drafting party’s unrelated claims against the other party were barred by the sweeping release language in the settlement agreement.

See Baker Hughes Inc. v. S&S Chemical, LLC, No. 15-2413, slip op. at 9-11 (6th Cir. Sept. 2, 2016). The result might have been different if the draft contract itself had expressly stated that Alice’s offer in the draft was conditioned on both parties’ signing the document. See id., slip op. at 10.

Oops: A sweeping release kills a confidentiality agreement

A Sixth Circuit case illustrates the sweeping effect that might be given to a broad general-type release:

  • Bruce Stevens worked for Baker Petrolite Corporation and its predecessor for approximately seven years. When his employment ended, Stevens signed a contract in which he promised to maintain the confidentiality of Baker Petrolite’s trade secrets.
  • Baker Petrolite and its parent company, Baker Hughes Incorporated (collectively, Baker), sued Stevens 18 years after the contract was signed, alleging a breach of their confidentiality agreement.
  • Stevens’s defense, and the outcome of this case, hinges on the validity of a broadly worded settlement agreement that was purportedly reached in the interim as a result of an unrelated lawsuit between the parties [about unpaid compensation].
  • Relying on this settlement agreement, the district court entered judgment in favor of Stevens. For the reasons set forth below, we AFFIRM the judgment of the district court.

Baker Hughes Inc. v. S&S Chemical, LLC, No. 15-2413, slip op. at 2 (6th Cir. Sept. 2, 2016) (extra paragraphing and bullets added). The release language quoted by the court was the following:

Except for the obligations set forth in this Agreement, Baker hereby fully and forever remises, releases and discharges Stevens and his attorneys, agents, heirs, executors, administrators, predecessors, successors and assigns (collectively referred to as the “Stevens Release Parties”),

of and from any and all claims, demands, agreements, contracts, covenants, suits, actions, causes of action, obligations, controversies, debts, costs, expenses, damages, judgments, losses and liabilities,

of whatever kind or nature, in law, equity or otherwise,

whether known or unknown, concealed or hidden,

against any of the Stevens Released Parties which Baker has had, may have had or now has, to and including the date of this Agreement.

It is the intention of the parties to this Agreement that the foregoing general releases shall be effective as a bar to all actions, causes of action, suits, claims or demands of every kind, nature or character whatsoever, known or unknown, suspected or unsuspected, fixed or contingent, referred to above. …

Id., slip op. at 3 (paragraphing edited, emphasis added, ellipsis marks by the court).

Oops: Subcontractor’s quotation, by being mentioned in contractor’s purchase order, is deemed incorporated by reference

In a California case:

  • A prime contractor issued a purchase order to a subcontractor. The purchase order mentioned, but did not expressly incorporate by reference, a sales quotation that the subcontractor had previously sent to the prime contractor.
  • Further down in the purchase order, though, the P.O. language referred to “the contract documents described above or otherwise incorporated herein ….” (Emphasis added.)
  • Applying the contra proferentem rule of contract interpretation — and therefore construing the quoted term against the prime contractor — the court held that the “described above or otherwise incorporated” term had the effect of incorporating the subcontractor’s sales quotation by reference into the purchase order.

See Watson Bowman Acme Corp. v. RGW Construction, Inc., No. F070067, slip op. at 18, 21-22 (Cal. App. Aug. 9, 2016) (affirming, in pertinent part, judgment on jury verdict awarding damages to subcontractor).

Ambiguity: The Fifth Circuit causes a double-take

From a Fifth Circuit’s opinion:

We reject this [argument] as either an accurate characterization of the current state of preemption law or, if viewed as an original matter, as something that should make a difference in the equivalency analysis.

GlobeRanger Corp. v. Software AG United States of America Inc., No. 15-10121, slip op. at 13 (5th Cir. Sept. 7, 2016) (affirming $15 million judgment on jury verdict of trade-secret misappropriation).

PROBLEM: At first glance, the first part of this sentence seems to be saying that the court rejects the appellant’s argument because the argument accurately characterizes the current state of the law. That, though, would of course make no sense.

POSSIBLE REWRITE: This sentence might have been rephrased (and streamlined) as, for example:

This argument mischaracterizes preemption law and does not justify changing the equivalency analysis.

Ambiguity: A startling discovery in the Mexican desert

From the Wall Street Journal:

Two years ago, a California aluminum executive commissioned a pilot to fly over a Mexican town at the foot of the Sierra Gorda mountains, and snap aerial photos of a remote desert factory. He made a startling discovery.

(Emphasis added.)

QUESTION: Who made the startling discovery — the California aluminum executive, or the pilot? It likely was the latter, but not necessarily (the executive might have flown with the pilot as a passenger).

In a contract, such an ambiguity might be undesirable, not least because it likely would be construed against the drafter under the contra proferentem principle.

In any case, as drafters, that’s a conversation we don’t want to have (as one of my students put it a few semesters ago).

Achieving crisper prose

See LawProse Lesson #261: Tinkering for tightening, which offers some excellent suggestions and examples of things you can do to tighten up your prose.

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