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Drafting tip from the Oregon v. Oracle lawsuit: A no-recourse contract clause might help protect vendors’ employees from customer lawsuits

This past Friday, as expected, the state of Oregon filed a $3 billion lawsuit against Oracle Corporation and six Oracle employees personally, in the wake of the failed attempt to develop Oregon’s health-insurance exchange under the Affordable Care Act a.k.a. Obamacare. The six employees included the president/CFO; three vice presidents; one senior vice president; and one technical manager who was accused of having conducted a fraudulent demo of the new system’s capabilities. The state is seeking “only” some $45 million from the technical manager, as well as amounts ranging from $87 million to $267 million from various Oracle executives.

In high-dollar and high-profile cases like this, plaintiffs sometimes bring claims against company employees personally. My guess is that the reason often is to to try to rattle the employees and encourage them to cooperate as witnesses against their employers (sort of like the way criminal prosecutors bring charges against low-level employees).

Against that possibility, it’s not unheard-of for vendor companies to include, in their contract forms, language protecting employees from being sued in their personal capacities. See, for example, the model language to that effect in the Common Draft clause repository, along with the commentary following the language.

I don’t know whether the Oregon-Oracle contracts included such language. I wasn’t able readily to find the contracts in question, which according to news reports was Oracle’s standard license- and services agreement form, used as an umbrella agreement in conjunction with ordering through Dell. Oracle doesn’t appear to have posted that standard form (among others) on the Web. The closest thing I could find was a counterpart, apparently dating back to 2004, that seems to have been intended for use in Europe, the Middle East, and Africa (EMEA). I don’t recall seeing such language in any actual Oracle contracts.

High-profile lawsuits like this typically settle before trial, not least because the elected officials who bring them or authorize them would prefer to trumpet a “victory” instead of rolling the dice with the court.

But such cases don’t always settle; see, for example, the state of Indiana’s lawsuit against IBM for allegedly botching the building of a new system for administering the state’s welfare programs. IBM ended up winning a multi-million dollar judgment in the trial court. See Indiana v. IBM Corp., No. 49Dl0-1005-PL-021451 (Marion Cty Ind. Sup. Ct. July 18, 2012), affirmed in part, reversed in part, No. 49A02-1211-PL-875 (Ind. App.. Feb. 13, 2014) (holding that IBM had materially breached contract but was entitled to be paid, subject to offset).

Lesson: When embarking on a contract that could result in claims for big dollars being thrown around, a provider might want to think about including some protection for its employees. A court, especially a hometown court, might not give effect to such protection in cases of alleged fraud. But such protective language would be better than nothing.

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