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Background: HP filed a lawsuit against its former CEO, Mark Hurd, who had just joined Oracle after resigning from HP at the request of HP’s board of directors. HP, Hurd, and Oracle settled the lawsuit fairly quickly; paragraph 1 of the settlement agreement stated the following:

Reaffirmation of the Oracle-HP Partnership. Oracle and HP reaffirm their commitment to their longstanding strategic relationship and their mutual desire to continue to support their mutual customers. Oracle will continue to offer its product suite on HP platforms, and HP will continue to support Oracle products (including Oracle Enterprise Linux and Oracle VM) on its hardware in a manner consistent with that partnership as it existed prior to Oracle’s hiring of Hurd.”

Hewlett-Packard Co. v. Oracle Corp., No. H044371, slip op. at 11 (Cal. App. June 14, 2021) (emphasis added).

But: Six months after the Hurd lawsuit settlement, Oracle announced that it would discontinue developing new releases of its products for HP’s Itanium servers. Oracle’s stated reason was that the Intel-HP microprocessor on which the server was based was reaching the end of its life. Industry observers noted that Microsoft had recently made a similar move, and also conjectured that Oracle’s decision could hurt HP.

And then: HP filed another lawsuit against Oracle, alleging that Oracle’s announcement was a breach of the Hurd lawsuit’s settlement agreement. A California trial judge agreed with HP’s interpretation of the “reaffirmation” clause quoted above; a jury awarded HP just over $3 billion for breach of contract.

Now: This week, in a 94-page opinion affirming the judgment below, an appeals court held:

Simply put, the reaffirmation clause creates an obligation to continue with an expressly identified course of dealing (offering and supporting Oracle’s products on HP’s existing platforms as long as they are sold by HP) no different from the course of dealing that had defined their strategic partnership for years prior to Oracle’s hiring of Hurd.

Id., slip op. at 44 (emphasis added).

For various reasons that I won’t go into here, it seems to me that on the merits, Oracle had the better argument. (Not least: It’s standard contract law that a contract of indefinite duration can be terminated at will by either party, as long as the terminating party gives reasonable advance notice; the appeals court gave merely a passing nod to that principle, see id. at 32, without providing even close to a satisfying explanation why the principle didn’t apply.)

Drafting lesson: With 20-20 hindsight, Oracle would have been well-served to include a pro forma clause — akin to a “management rights” clause in a collective-bargaining agreement between a company and a union — to the effect that Oracle retained the right to make business decisions in its discretion.

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See Sara Randazzo, Amazon Faced 75,000 Arbitration Demands. Now It Says: Fine, Sue Us.

(Hat tip: Mark Kantor)

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Catching up on reading, here’s an opinion from a Texas appeals court — possibly driven by a desire to preserve an arbitration award — about the point at which an exchange of emails and attachments will become a binding contract: A customer referenced its own “attached” T&Cs in a purchase order that it emailed to a vendor, but it didn’t actually attach its T&Cs. As a result, the customer found itself bound by the vendor’s T&Cs, which were attached to the vendor’s own emails to the customer. See ETC Intrastate Procurement Co., LLC v. JSW Steel (USA), Inc., No. 14-19-00915-CV, slip op. at 12-13 (Tex. App.—Houston [14th Dist.] Mar. 16, 2021) (affirming, as modified, confirmation of arbitration award in favor of vendor).

Here’s how it played out:

  • The customer emailed a request for quotation (“RFQ”) to the vendor. The RFQ stated that the customer’s standard terms and conditions (“T&Cs”) were attached — but in fact the T&Cs weren’t attached.
  • The customer’s (unattached) T&Cs included a boilerplate rejection of the vendor’s T&Cs. As we’ll see, however, the court didn’t give effect to that rejection.
  • The vendor responded with a sales quotation, which said that the vendor’s own T&Cs were attached — which they were. Unsurprisingly, the vendor’s T&Cs likewise included a boilerplate rejection of the customer’s T&Cs.
  • The customer eventually emailed the vendor a purchase order, which stated that the customer’s standard T&Cs were attached — but again, the customer’s T&Cs weren’t actually attached.
  • Here’s where it gets a bit weird: The vendor emailed the customer an order confirmation, which stated in part that the customer’s standard T&Cs would apply to the order — but yet again, the customer’s T&Cs weren’t attached to the vendor’s order-confirmation email.
  • Three weeks later, the customer belatedly emailed the customer’s standard T&Cs to the vendor.
  • The customer allegedly didn’t pay all of what it owed the vendor, so the vendor sought arbitration under its T&Cs (and was eventually awarded damages for breach).
  • During the arbitration and afterwards, the customer objected to arbitration, claiming that its T&Cs, which didn’t have an arbitration provision, were the ones that governed; the customer argued that its purchase order was a counteroffer and so the contract was not formed until the vendor sent its order confirmation, which supposedly had the effect of accepting the customer’s counteroffer.
  • The trial judge remarked that he had ordered arbitration because the case was too complicated for a jury to understand. (The appeals court dismissed that remark as “immaterial.”)

Both the trial court and the appeals court seem to have relied on the customer’s failure to actually attach its referenced T&Cs to its emails; the appeals court held, in essence, that because the customer failed to actually attach its referenced T&Cs, the customer thereby accepted the vendor’s previously-attached T&Cs. See id., slip op. at 12-13.

(This was thus a different kind of Battle of the Forms than would have been the case if each party had successfully rejected the other’s T&Cs; such a situation would have been governed by UCC § 2-207(2) and the Dropout Rule in § 2-207(3).)

Lesson: When contracting by email, be sure to attach — or at least provide a link to — your own T&Cs.

Editorial comment: The court seems to have used a hypertechnical approach here to try to preserve arbitration. On the facts, it seems quite clear that the parties agreed that the customer’s T&Cs would apply, and those T&Cs didn’t include an arbitration provision. Alternatively, the court could have held that the customer’s failure to attach its T&Cs was a clerical mistake, and consequently the customer had effectively rejected the vendor’s T&Cs, and thus the Dropout Rule in § 2-207(3) would have applied — which would have knocked out the arbitration provision.

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If you’re going to do business with an Idaho company, then (1) don’t expect a court to enforce your forum-selection provision for either litigation or arbitration outside of Idaho, and so (2) if you get into a dispute, you’d better win a race to the courthouse in the agreed forum. We see this in an Idaho supreme court opinion this month where, with some head-scratching mental gymnastics, the supreme court held that a contract’s choice of California law required arbitration in Idaho — this, even though the contract also expressly required arbitration to be in California:

We hold that California law requires an examination of the public policy of the forum in which suit is brought, and that the forum selection clauses at issue violate the strong public policy of the State of Idaho.

We affirm the district court’s ruling that claims arising from the parties’ purchase agreement and LLC agreement must be arbitrated in Idaho.

Off-Spec Solutions, LLC v. Transp. Investors, LLC, No. 47940 (Idaho May 19, 2021) (emphasis and extra paragraphing added).

Look, it’d be one thing if the Idaho courts had relied on Idaho law to get to that result. The courts would have had a straightforward basis for doing so, namely Idaho’s forum-selection statute, which says in part:

(1) Every stipulation or condition in a contract, by which any party thereto is restricted from enforcing his rights under the contract in Idaho tribunals, or which limits the time within which he may thus enforce his rights, is void as it is against the public policy of Idaho.

Nothing in this section shall affect contract provisions relating to arbitration so long as the contract does not require arbitration to be conducted outside the state of Idaho.

Idaho Code § 29-110, quoted in Off-Spec Solutions, slip op. at 7 (extra paragraphing added).

But it’s just bizarre to assert that California’s law implicitly requires an Idaho court to concern itself with Idaho’s public policy. (The losing party had the better side of that argument; see id., slip op. at 6-7.)

Incidentally, this isn’t the first time the Idaho supreme court has engaged in such self-serving contortions: In an earlier case, the contract in suit expressly required arbitration in Dallas, but the state supreme court held that the agreement’s choice of Texas law required arbitration in Idaho. See T3 Enterprises, Inc. v. Safeguard Bus. Sys., Inc., 435 P.3d 518, 528-30 (Idaho 2019), cited in Off-Spec Solutions, slip op. at 7-8.

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A brother-in-law — a real piece of work, judging by the state supreme court’s opinion — started a real-estate business with three other family members. He was “a difficult partner,” as the trial court put it; even though the business was profitable, he sued to try to expel the other family members — and essentially had his head handed to him. The state supreme court’s opinion is interesting both for its entertainment value and for the court’s review of case law on a not-uncommon legal question. See Barkalow v. Clark, No. 19-1970 (Iowa May 14, 2021). Here are the facts of interest:

  1. Meet the family: Two brothers, the Clarks, were married to sisters; a third sister was married to an outsider, whom we’ll call Brother-in-Law, and who seems to be the main character in our little drama.
  2. Brother-in-Law was into real estate; he wanted to buy houses near the University of Iowa stadium, but he didn’t have the money. So Clark Brothers 1 and 2, plus a third brother, put up the money, and the four of them formed an LLC.
  3. All three Clark brothers loaned Brother-in-Law the money for him to buy into the LLC; this loan was done on an oral agreement without any kind of written promissory note. (Brother-in-Law never got around to repaying the Clark brothers for the money they’d loaned him until years later when things were getting seriously antagonistic.)
  4. Brother-in-Law and Clark Brothers 1 and 2 were active in the LLC’s business; Clark Brother 3 was more of a passive investor.
  5. Brother-in-Law took money out of the business for “management fees,” even though (the court trial found) everyone had orally agreed that they wouldn’t be paid for working in the business.
  6. As time went on, additional capital contributions were needed for the business. The three Clark brothers each put in extra money, but Brother-in-Law refused to do so, apparently preferring to use his funds for other business interests that he owned completely instead of just partially.
  7. Consequently, under the LLC operating agreement, the Clark brothers acquired extra ownership interests in the LLC, and as a result, Brother-in-Law’s interest was diluted down to 0.595% from his original 25%. The Clark brothers offered to buy out Brother-in-Law at undiscounted fair market value for his full 25% share. Brother-in-Law refused.
  8. Eventually the relationship between Clark Brothers 1 and 2 and Brother-in-Law soured to the point that — even though the LLC was profitable and making money — Brother-in-Law (who now owned just 0.595% of the company) filed a lawsuit against all three Clark brothers, seeking to expel them from the LLC and to dissolve it; only Clark Brothers 1 and 2 counterclaimed against Brother-in-Law, while Brother 3 tried to be a peacemaker.

After a five-day (!) bench trial, the trial judge ordered dissolution of the LLC and restoration of Brother-in-Law’s diluted capital position back to its original 25%; the judge did also order Brother-in-Law to repay more than $153K for wrongful conversion of LLC assets. (Brother 3, the peacemaker, had previously supported the 25% restoration; to me it sounds as though the trial judge was likewise trying to keep peace in the family.)

Brother-in-Law might have been OK with the trial’s outcome on balance, but he doubtless changed his mind after the appeal. The state supreme court noted (at 15):

[Brother-in-Law] contributed no money to [the LLC], not even the funds for his original capital position. He expected the Clark brothers to finance everything. He blocked efforts to obtain outside financing. He chose to pledge his own assets as collateral for an expansion of his personal real estate holdings, not for the use or benefit of the LLC in which he was only a 25% participant

Slip op. at 15. The supreme court:

  • affirmed the trial court’s order that Brother-in-Law repay $153K for wrongful conversion; and
  • reversed both the dissolution of the LLC and the restoration of Brother-in-Law’s 25% capital position; the court held that statutory requirement for judicial dissolution had not been met, because it was still reasonably practicable for the LLC to continue carrying on the business. (The supreme court’s opinion has a nice discussion of how previous courts had addressed this issue, with extensive citations from various jurisdictions; see slip op. at 18.)

So for his trouble, it seems that Brother-in-Law is now:

  • stuck with his diluted 0.595% share of the LLC;
  • also stuck with his brothers-in-law controlling the LLC, inasmuch as between them they own the remaining 99.405% of it; and
  • ordered to repay the LLC for the $153K that he took out of the business.

Karma, I guess — this could almost be an episode of one of those family-reality shows (I won’t mention any names), couldn’t it?

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