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When drafting a contract (or other legal document), don’t count on the parties doing things like filling in blanks, because sometimes the parties simply don’t do what you expect. EXAMPLE: In a California case, “neither party to an arbitration agreement place[d] initials next to a jury waiver contained in the agreement, even though the drafter included lines for their initials[.]” Fortunately for the drafter of that agreement, the court held that “[o]n the facts of this case, we conclude the lack of initials is of no legal consequence.” Martinez v. BaronHR, Inc., No. B296858 (Cal. App. Jul. 8, 2020) (reversing denial of motion to compel arbitration; citing cases).

(But courts will not always bail out a drafter when parties don’t initial blank lines. See, e.g., Bruni v. Didion, 160 Cal. App. 4th 1272, 73 Cal. Rptr. 3d 395, 413 (2008) (affirming denial of motion to compel arbitration).)

Similarly, many lawyers have seen situations where contract forms included blanks for things such as the effective date — e.g., “This Agreement is made the ___ day of _____, 2020” — but the parties neglected to fill in the blanks when they signed.

Incidentally, as to the agreement-date issue, my preferred approach is this:

  • I draft the preamble to read as follows: “This Agreement is made effective the last date signed as written in the signature blocks.” (Emphasis added.)
  • In the signature blocks, I include, for each signer, a blank line for “Date signed” — not just “Date” — along with blanks for the signers to write their printed names and titles.

Signers are likely to hand-write the date signed when they sign the document, as long as the blank line for the date signed is right there with their signature lines. If the signers do hand-write the date signed, it takes care of the effective-date problem — and it also reduces the temptation to backdate signatures for deceptive purposes, which has sometimes resulted in business executives and counsel going to prison.

Caution: Sometimes it might be necessary to include things like blank lines for initialing. Example: UCC § 2-209 provides in part that: “(2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.” (Emphasis added.)

Drafting lessons:

  1. Don’t count on parties’ filling in blanks or otherwise doing what you expect them to do. True, a court might bail you out, as happened in the Martinez case cited above — but your client might well have to incur the expense and burden of litigating the matter.
  2. Try to draft things so that what the parties do manage to do will be enough — as in the “Date signed” example above.
  3. Make it clear to the client, in writing, just what you’re expecting the parties to do. For example, in a draft contract, consider yellow-highlighting any blanks that need to be filled in. That will help to avoid unpleasant future conversations about whether you properly advised your client.
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Two Texas furniture dealers entered into an agreement — entirely by text message — for one party to sell the entire contents of a showroom to the other. The seller backed out; the court had no difficulty holding that the parties had entered into an enforceable contract. See Moe’s Home Collection, Inc. v. Davis Street Mercantile, LLC, No. 05-19-00595-CV, slip op. at 6-10 (Tex. App.—Dallas June 6, 2020) (affirming judgment below in relevant part).

(Hat tip: Prof. Eric Goldman.)

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Shall vs. will in the civil-rights era

I’m reading Robert Caro’s book Working, about his experience writing his magisterial multi-volume biography of Lyndon B. Johnson. This passage on page 165 caught my eye:

One [song of the 1960s] is a song that had been sung for a long time …. It’s “We Shall Overcome,” of course. …

… [D]uring the 1950s, it was taught at the Highlander Folk School in Tennessee, a school created to teach people how to organize in the labor unions, and to teach civil rights workers how to fight for their cause. The legendary folksinger Pete Seeger came to sing it there.

[Seeger] changed “We will overcome” to “We shall overcome.” That change shows the power of words. Changing a single word—changing “We will overcome” to “We shall overcome”—makes a big difference to the song.

Caro is right; I’d heard early versions of the song as We Will Overcome and thought that it didn’t have the same power as We Shall Overcome.

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The D.C. Circuit held yesterday that shall was mandatory in a contract’s forum-selection clause saying that a Saudi grievance council “shall be assigned for settlement of any disputes or claims arising from” the contract. See D&S Consulting, Inc. v. Kingdom of Saudi Arabia, No. 18-7140, slip op. at 5-6 (D.C. Cir. June 19, 2020) (affirming dismissal; citations omitted).

The contrary argument isn’t frivolous; as the D.C. Circuit noted: “To be sure, one way to make a clause mandatory is to specifically refer to the designated forum as ‘exclusive’ of other fora.” One could argue that any waiver of the right to sue in an otherwise-proper forum must be clear and unmistakable, and that the forum-selection clause doesn’t meet that standard.

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Advice to a new in-house counsel

One of my former students emailed me yesterday to ask for advice: The former student is being offered a ground-floor opportunity to be the general counsel at a new hedge fund started by a friend. Here’s what I responded, lightly edited.

Great to hear from you, [NAME]. Congratulations on the new situation.

I’m glad you found the tips-for-new-GCs article useful. In 2005 my friend and co-author Bob Robinson and I did an updated version; it’s posted at https://www.oncontracts.com/350-plus-tips-for-new-general-counsel-from-others-who-have-been-there/

If you haven’t already, you might want to look at a document I maintain with basic legal tips for startups, at  http://www.oncontracts.com/startup-law/. From an investor perspective, the tips are probably more relevant to VCs and angels than to hedge funds, but they should still be useful in terms of issues for you to be aware of in respect of your portfolio companies.

Some of the most important things I learned as a GC are:

1. Business is full of risks, and business people are willing to take some risks as long as they seem to make sense. Lawyers, in contrast, are trained to spot and warn about risks; too often that training metastasizes into the lawyer being “Dr. No.” 

In part, that’s because we usually don’t share the upside of the risk. If the risk goes badly, it’s human nature for the business people to want to point fingers somewhere. We lawyers, being not of their tribe, are an obvious target. All of this means that we lawyers tend to focus on (and sometimes fret about) the downside of the business risks.

2. You’ll want the business people to see you as a team player — but at the same time, if someone has to go to jail, make sure it’s not you. If the business people want to start getting close to criminal- or unethical stuff, you still want to be respectful and supportive but to make it very clear that you might have to resign — and in some situations it might have to be a “noisy” withdrawal (see, e.g., this article about Sarbanes-Oxley Act requirements). 

3. The great rule of improv comedy is never to say “no,” but rather to say “yes, and.”  Likewise, one of my senior partners, the late Bill Durkee (as in Arnold, White & Durkee) used to say that a lawyer should never tell a client, or in your case a business executive, “No, you can’t do that.” 

Instead, our job is to point out possible consequences and to offer suggestions about preparations for those consequences, matter-of-factly and supportively.

Example:  “Sure, the company can do X. • We’d want to think about lining up a criminal-defense lawyer because this is the kind of thing for which the Department of Justice has recently been bringing criminal indictments against corporate executives. • One complication is that under the Sarbanes-Oxley Act, if we do decide to start doing X, I’m personally required to report it to the board of directors. • We’d want to add Clauses A and B and C to our standard contracts. • We’d want to check with our insurance broker to make sure we’ve got coverage for possible product-liability lawsuits, and also make sure we have director-and-officer (“D&O”) coverage for the shareholder lawsuits.”

(These things shouldn’t be said sarcastically.)

4. Never be afraid to cheerfully confess ignorance and ask the business people, or the portfolio company’s business people: “Hey, I’m just a lawyer — could you explain this to me the way you would to a college student?” 

By the same token, you can cheerfully “play back” what you heard and say something like, “OK, this is what I think you’re saying: ….”

That’s all that comes to mind at the moment.  Best of luck, and keep in touch.

Regards,

D. C.

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