On Contracts

I started this post late last month but was diverted to other matters.

Sam’s Club (Walmart) loses its effort to stiff a supplier for hand sanitizer: Email exchanges can constitute “orders” under a master purchase agreement

At the start of the COVID-19 lockdown in 2020, Walmart entered into a “Supply Agreement” — basically, a framework agreement or master purchase agreement — with a company called K7.

• Under the Supply Agreement, Walmart placed successive orders adding up to millions of bottles worth of hand sanitizer in bottles.
• At first, Walmart “collected” the orders from K7’s warehouse, as called for in the Supply Agreement, and paid K7 for them.
• But as consumer demand tapered off, Walmart started failing both to pick up the orders — leaving K7’s warehouse bulging with bottles — and also to pay K7 for them.

K7 sued Walmart for breach of contract. Walmart defended by claiming that the Supply Agreement didn’t provide a quantity or price and so was unenforceable. The jury disagreed and awarded K7 more than $7 million; the Eighth Circuit affirmed judgment for that amount plus prejudgment interest and costs.See K7 Design Grp, Inc. v. Walmart, Inc., No. 24-1366, slip op. (8th Cir. Jul. 11, 2025) affirming No. 5:21-CV-5069 (W.D. Ark. Jul. 24, 2023) (entering judgment on jury verdict).

What seems to have sunk Walmart’s case was that:

• The parties’ email exchanges, with specifics about the quantity and pricing, appear to have clearly met the UCC requirements for enforceability, despite Walmart’s seemingly “strained” arguments to the contrary.
• There was no dispute that the Walmart buyer who’d dealt with K7 (including those email exchanges) had the authority to place orders.
• The Supply Agreement didn’t specify any particular form that an “Order” had to take to be binding.

Apparently Walmart wasn’t the only retailer that refused to take delivery or pay for hand sanitizer that it ordered during the pandemic: K7 also sued the Kroger grocery chain and, separately, Five Below, Inc., a Philadelphia-based chain of speciality discount stores, alleging much the same thing as in its Walmart case. See K7 Design Grp., Inc. v. Five Below, Inc., 540 F. Supp. 3d 508 (E.D. Pa. 2021) (denying Five Below’s motion to dismiss). But after a five-day trial, a jury found for Five Below on all counts; see No. 21-1406 (E.D. Pa. Jun. 21, 2023) (awarding costs to Five Below).

Lessons:

1. As a roadblock clause — or to put it more crudely, as “schmuck repellent” — it might be worthwhile for a master purchase agreement to state just what form an “order” can take — or cannot take.
2. A company that expects to get paid might want to try to negotiate for the payer to arrange a backup payment source such as a standby letter of credit or a guaranty. For detailed clause language and commentary, see the Backup Payment Protocol in Contract RPM: A Manual of Pragmatic Business Protocols (an incomplete working draft of a new version of my course materials).

A “you must arbitrate, we may sue” clause is held unconscionable

“One-way” arbitration provisions might be held unenforceable and even unconscionable. Example: In a California case, a company’s arbitration agreement with its employees required arbitration of the type of claims that the employee was likely to bring, while allowing the company to sue over many types of claim that it was likely to bring. See Silva v. Cross Country Healthcare, Inc., No. B337435, slip op. at 21-22 (Cal. App. Jun. 13, 2025) (affirming trial court’s order finding employer’s arbitration agreement unenforceable and denying employer’s motion to compel arbitration).

Yet another oral change-order case leads to costly litigation

A reality of the business world is that on occasion, parties to a services agreement will agree orally to a change order for the statement of work, but then they never get around to confirming the change in writing. Example: In an Alaska case:

• A contractor hired a subcontractor to undertake part of the construction of a remote bridge.
• The initial scope of the contracted work soon changed.
• Neither the contractor nor the subcontractor kept detailed records of the changes and their associated costs. 
• Years after the project was completed, the subcontractor sued for damages, claiming that it had not been paid for the work it completed.

See Johnson v. Albin Carlson & Co., No. S-18615, slip op. at 2 (Alaska Jun. 13, 2025) (affirming district court judgment in part, reversing and remanding in part; emphasis added).

Lesson: What’s relevant here isn’t whether the subcontractor got paid, but the fact that the parties had to litigate the case all the way to the state supreme court — which sent the case back to the trial court for further (doubtless still-more-costly) proceedings.

Roadblock clauses can come in handy — even for law firms

An Arizona supreme court case involved a patent-license agreement. Over the years, the relationship soured between the patent owner and the licensee. The patent’s owner sued, not the licensee, but the licensee’s law firm, on various theories, claiming in part that the law firm had also represented the patent owner at one time.

The law firm disputed the plaintiff’s prior-representation claim, the details of which aren’t important here. The firm got nearly the whole case thrown out on summary judgment and the rest of it by the supreme court. See McAlister v. Loeb & Loeb, LLP, No. CV-24-0048-PR (Ariz. Jul. 17, 2025).

Lesson: A roadblock clause in a contract — or for lawyers, just a statement in an email, “we’re not your lawyers” — can be cheap insurance.

For some examples of roadblock clauses that could be useful in a contract, see this partial list from the (incomplete working draft) Contract RPM manual.

I was just asked to sign up for a health-care provider’s online portal in anticipation of an appointment next week. The terms of service (“TOS”) say (paraphrasing) “we can change these TOS anytime, and the changes will be effective immediately. YOU AGREE TO PERIODICALLY REVIEW THESE TOS FOR CHANGE.” (All-caps in the original.)

[Nuts to] that. That provision is likely unenforceable [1], but I’m going to make them burn human time to get my co-pay, patient history, etc.

[1] See, e.g., Douglas v. United States District Court ex rel. Talk America Inc., 493 F.3d 1062, 1066 (9th Cir. 2007). Accord: Heckman v. Live Nation Entertainment, Inc., 120 F.4th 670, 682 (9th Cir. 2024) (affirming holding that arbitration agreement and its delegation agreement were unconscionable); Stover v. Experian Holdings, Inc., 978 F.3d 1082 (9th Cir. 2020) (affirming order compelling arbitration; consumer could not claim benefit of new agreement terms when she had not received notice); Rodman v. Safeway Inc., No. 11-cv-03003-JST part III-C (N.D. Cal. Dec. 10, 2014) (granting motion for summary judgment that Safeway had overcharged on-line customers).

Attorney fees can be recovered when sued in a court foreclosed by a forum-selection clause: Delaware chancery court

For a readable, scholarly discussion of this point, see Namdar v. Fried, No. 2024-0535 (Del. Ch. Jun. 6, 2025) (Laster, V.C.), which denied a motion to dismiss a claim for damages arising from a breach of a contract’s forum-selection clause:

… The American Rule bars a party from recovering litigation expenses unless an exception applies. The standard remedy for breach of contract is expectation damages. A party protected by a forum selection clause can reasonably expect not to have to litigate a foreclosed forum andnot to incur expensesdoing so. An injunction or dismissal enforcing the forum selection clause fulfills the first expectation. A damages award measured by the expenses incurred in the foreclosed forum fulfills the second expectation.

Id., slip op. at 4.

For more on forum-selection clauses and attorney-fee awards, see the (very-incomplete update of) my course materials.

Specific performance doesn’t always preclude a damages award: Texas supreme court

When a seller tries to back out of a contract to sell real property (or, sometimes, other property), the buyer might sue for specific performance to compel the seller to sell. Ordinarily, a grant of specific performance would preclude an accompanying award of damages for breach of the contract.

BUT: The Texas supreme court announced a limited set of circumstances in which certain damages are recoverable in conjunction with specific performance. In White Knight Development, LLC v. Simmons, No. 23-0868 (Tex. Jun. 13, 2025), the court said:

It is black-letter law that specific performance is an equitable alternative to legal damages. That is, a court may fashion a remedy including one or the other but not both. In this case, one party to a contract for the sale of real property breached, and the other sought specific performance and various categories of damages.

The question we must answer is whether the trial court erred by awarding specific performance and a monetary award it described as “actual damages/consequential damages” related to the delay in performance. It did, in part.

We hold that, while an award of specific performance usually precludes a monetary award, there is a narrow set of circumstances in which a breach of a contract for the sale of real property may be remedied by specific performance and a monetary award of reasonable, foreseeable expenses directly traceable to the delay in performance and, in cases where the purchaser breaches, incurred in connection with the seller’s care and custody of the property during such delay.

This monetary award is an equitable one, the purpose of which is to restore the party seeking specific performance to the position it would have occupied had the other party’s performance been timely by reimbursing it for property-related expenses incurred as a direct result of the delay between the time of the breach and the time of judgment.

The court of appeals erred by deleting the judgment’s monetary award entirely without distinguishing recoverable expenses from those that were unrecoverable because they were insufficiently tethered to the subject property and the delay in performance. Accordingly, we reverse the court of appeals’ judgment in part and remand the case for that court to review the monetary award consistent with the principles we announce today.

Id., slip op. at 1-2 (emphasis edited, extra paragraphing added).

Incorporating by reference? Be clear about it!

The Department of Veterans Affairs asked for quotes to lease an item of surgical equipment. The winning vendor’s quote included a term requiring the VA to exercise some renewal options. But the VA didn’t do that, so the vendor filed a claim — which was denied. On appeal, the Federal Circuit noted that it wasn’t enough for the winning vendor’s representative to have said, in a transmittal email, “I have attached the quote with the terms and conditions; this needs to be part of the contract.” Affirming dismissal of the vendor’s claim, the Federal Circuit commented:

The contract’s expressly incorporated FAR clauses provided the agency with complete discretion in exercising the option years. If Beacon Point intended to vary the terms of these FAR clauses by incorporating its Quote’s terms and conditions into the contract, it should have ensured that the contract expressly identified that the Quote’s terms and conditions were incorporated into the contract. Beacon Point did not do so. Instead, Beacon Point accepted a contract that references the Quote but does not clearly communicate that the purpose of the reference was to incorporate the Quote’s terms into the contract. Thus, we hold that the contract does not incorporate by reference Beacon Point’s Quote.

Beacon Pt. Assoc. v. Dept. of Veteran Affairs, No. 2024-1076, slip op. at 8 (Fed. Cir. Jun. 5, 2025) (emphasis added).

The “term” — of what, exactly? (Be consistent!)

Sometimes contract drafters don’t pay enough attention to the different possible meanings of the term “term.”  Example: In an Eighth Circuit case:

• A company sought to enforce a noncompetition covenant in the employment agreement of a long-time employee. The employee had joined the company when the company acquired his former employer. After long service, the employee quit and went to work for a competitor of the company.
• The company sued to enforce the noncompete and other restrictive covenants. A federal court denied the company’s motion for preliminary injunction, on grounds that the company was unlikely to succeed on the merits.
• Affirming, the appeals court agreed that, because of the employment agreement’s inconsistent use of the term “term,” the noncompetition covenant had expired long before the employee’s resignation — this, even though the noncompete explicitly said that it would run for three years “following the date his employment is terminated, for whatever reason ….”

See  Wilbur-Ellis Co., LLC v. Jens, No. 23-3749, slip op. at 2 (8th Cir. May 30, 2025) (affirming denial of preliminary injunction).

Exclusion of “lost profits” damages
doesn’t apply to UCC “cover” damages

The Eleventh Circuit vacated and remanded denial of a (counter)claim, by a buyer of bulk tapioca powder, against a supplier:

• During COVID, the supplier had stopped providing the powder on the agreed terms.
• The buyer obtained replacement product, at higher than the agreed price.
• The sales contract — on the supplier’s paper, excluded the buyer’s incidental- and consequential damages — including the buyer’s “lost profits.”
• The buyer sought to recover the price increase it had to pay for tapioca powder from alternative sources.
• A federal district court held that the lost-profits exclusion precluded the buyer from recovering that price increase.
• The Eleventh Circuit disagreed, holding that the higher price constituted “cover” damages that weren’t encompassed by the lost-profits exclusion, and so the buyer could recover “lost profits and the costs of substitute products to the extent that those damages are direct and otherwise satisfy the provision’s total cap on recoverable damages.”

See Sweet Additions Ingredient Processors, LLC v. Meelunie America, Inc., No. 24-10335, slip op. at 20-26 (11th Cir. Jun. 2, 2025) (vacating and remanding district-court judgment).