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News: Pollution indictment might threaten contract relationships; accelerator program closure raises contract questions; Canada S. Ct. holds Facebook forum-selection provision unenforceable

Pollution indictment could implicate Houston chemical container company’s contracts

From Mark Collette, Company indicted in toxic dumping, Houston Chronicle, Feb. 3, 2018, p.1, col.1, at https://goo.gl/2ua43D (chron.com).

A Houston chemical container company [Wright Containers, which makes steel drums, etc.] and two of its principals face felony environmental charges after using a hidden storm drain to dump benzene and other highly toxic liquids into waterways near homes and schools over a period of at least months, injuring their employees in the process, prosecutors said Friday. * * *  [T]he injured employees turned into whistleblowers …. Owner Ronald F. Wright, 50, and general manager Gregory B. Hance, 41, each face two counts of intentional water pollution and one count of improper disposal and storage of hazardous materials. If convicted, they could face up to 10 years in prison and fines of up to $250,000 per violation. The company is also named as a defendant.

Some points of interest for contract professionals and -students:

  • Cancellation of pending orders: Wright Contract’s contracts with some of its customers might include a requirement that Wright Containers comply with the customer’s code of conduct (the corporate equivalent of a “morals clause”), often allowing the customer, in a situation like this , to cancel pending orders for fear of getting spattered by bad publicity. See, e.g., section 31.1 of a Honeywell purchase-order form at https://goo.gl/t7WYSb (sensing.honeywell.com).
  • Customer disappearance: Scared-off customers might simply “ghost” Wright Container by no longer placing orders.
  • Who will pay the defense costs? The indicted principals, Wright and Hance, might have employment- or other agreements with the company; those agreements might require the company to pay for the principals’ defense.

Houston business accelerator program closes — what about its contracts with client companies?

From Andrea Rumbaugh, HTC business accelerator program closes, Houston Chronicle, Feb. 1, 2018, p. B1, col. 1, at https://goo.gl/2muSuXk: “The Houston Technology Center’s business acceleration program closed its doors Wednesday, laying off five acceleration directors and other support staff as the city takes a new approach to nurturing startups.”

(Disclosure: For several years I served pro bono as a startup-company mentor for HTC.)

So what happens to HTC’s existing client companies? When a given startup company was accepted into HTC’s accelerator program, it presumably signed an agreement under which HTC was given the right to acquire a certain percentage of the company, in return for HTC providing certain things. (This is pretty standard for accelerators; I don’t know the details here.)

QUESTION: In the agreements between HTC and its client startup companies, what if any contingency plans were made in case HTC ends its accelerator program?

Other developments

• Patrick McCallum, Carillion And Commercial Contracts: What Can We Learn? (mondaq.com): This article offers a few useful pre-need checklist items for customers and subcontractors to consider when negotiating a contract in case a contractor “goes under” in mid-project.

• An eye-glazing case from South Dakota illustrates the mischief that can result when drafters screw up their nomenclature: In Laska v. Barr, 2018 S.D. 6, parties signed a document called “Right of First Refusal” when in reality it was ambiguous as to whether it granted a right of first refusal, an option, or a so-called dual option. (The supreme court agreed with the trial court that the document granted a right of first refusal, and also that the terms amounted to an unreasonable restraint on alienation.)

• The Supreme Court of Canada held that a California forum-selection provision in Facebook’s terms of service was unenforceable. Douez v. Facebook, Inc., 2017 SCC 33, discussed in Jason Hayward, Technology And The Law: Noteworthy Developments (mondaq.com).

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