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Amazon “fires” distribution company

As a real-world example of a contract termination: Amazon terminated its contract with a delivery company, Bear Down Logistics — which led to Bear Down closing some of its facilities and laying people off.

Presumably Bear Down took this “what if” possibility into account when negotiating its contract with Amazon — and that’s an area where lawyers can add value: by nudging the business people to think about unpleasant possibilities (because sometimes business people might look only on the bright side of life).

Ultimately the responsibility for business planning is on the client, of course. But it can’t hurt to try to help clients think ahead.

(Shorthand: Think like a CEO — but remember that you’re not.)

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In researching something, TIL (Today I Learned) that when Texaco got hit with a $10.3 billion damages verdict back in the mid-1980s (for tortiously interfering Pennzoil’s acquisition of Getty Oil), Texaco couldn’t find anyone to finance the required appeal bond in the same amount, and it even had trouble getting routine working capital, because of the high-handed way it had treated others in the past. As one author recounts:

When Texaco was doing well, it had played hardball with its lenders as well as with other oil companies. Now that it was in trouble, these lenders and oil companies may have been looking to exact a little revenge. At a minimum, they were unwilling to take any risk to do a favor for someone who had refused to do favors for them. The New York Times quoted a New York banker as saying, “If it were Exxon or Mobil, all the big banks would rally around it.”

Robert M. Lloyd, Pennzoil v. Texaco, Twenty Years After: Lessons for Business Lawyers, Transactions: Tenn. J. Bus. L. 330, 349-50 (2005) (footnotes omitted).

I’m going to add this to the wounded-tiger post.

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Final-offer arbitration has been described by a Canadian court (quoting an earlier opinion) as “an intentionally high risk form of arbitration that encourages settlement and tempers final positions“; the court observed that in the specific business context (rate-setting for railroad shipping charges),”[t]he limited duration of the decision’s binding effect on the parties is closely linked to the limited timeframe within which the arbitration process occurs.” Canadian Nat’l R.R. Co. v. Gibraltar Mines Ltd, 2019 FC 1650 ¶ 27 (cleaned up, emphasis added, citation omitted) (hat tip: Daniel Urbas).

Final-offer arbitration is also known as baseball arbitration or last-offer arbitration, which has a very high settlement rate. A couple of years ago I proposed a similar, hybrid dispute-resolution procedure in which (i) early in the case, an arbitrator hears the parties’ opening statements and provides her tentative views on the merits; (ii) if the parties don’t settle — and hearing the arbitrator’s views should make settlement more likely — then at the close of the evidence, each party makes a final offer, and the arbitrator must choose one of the offers, just as in baseball arbitration.

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In a case about dump trucks that had mechanical problems, the Indiana Supreme Court provides a useful explanation of how the statute-of-limitations clock starts ticking for a warranty of future performance of goods when the warranty failure is discovered; this is in contrast to a warranty that the goods as delivered are free from defects, where the clock starts ticking at delivery. See Kenworth of Indianapolis, Inc., v. Seventy-Seven Ltd., No. 19S-PL-37 (Ind. Nov. 12, 2019).

The warranty language read:

Kenworth Truck Company warrants directly to you that the Kenworth vehicle identified below . . . will be free from defects in materials and workmanship during the time and mileage periods set forth in the Warranty Schedule and appearing under normal use and service. 

Id., slip op. at 3 (also at 8-9) (emphasis added). The supreme court said: 

Had Sellers not used future-tense language, for example, or had they omitted a specific future time period for the trucks’ quality and performance, or had they promised only to repair and replace defects rather than warrant against future defects, then this warranty would fall outside the limited future-performance exception. But as written, this bargained-for warranty constitutes a future-performance warranty, and the courts must apply the discovery rule to determine when the breach-of-warranty cause of action accrued.

Id., slip op. at 13-14 (emphasis added). The court vacated and remanded summary judgment in favor of the manufacturer, on grounds that a genuine issue of material fact existed about when the defects should have been discovered by the buyer, and thus when the clock started ticking on the limitation period.

Drafting lesson: When drafting — or reviewing — a warranty about goods, take note of whether the warranty is a “present day” promise about the state of the goods as delivered, or whether instead the warranty is a “future performance” promise of what the goods will or won’t do during a specified time period. Under the Uniform Commercial Code article 2, the distinction makes a difference in when the statute of limitations clock will start to tick.

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In my classes I teach the nuclear Navy saying, you get what you INspect, not what you EXpect. In that vein, here’s an excerpt from a Justice Department press release, reported in today’s Houston Chronicle (business section):

KANSAS CITY, Mo. – The manager of a Wilbur-Ellis Company processing facility in Texas pleaded guilty in federal court today to his role in a multi-million dollar conspiracy to sell adulterated ingredients to pet food manufacturers, for which the company has already paid more than $4.5 million in restitution.

William Douglas Haning, 48, pleaded guilty before U.S. Chief District Judge Rodney Sippel in the Eastern District of Missouri to one count of conspiracy to introduce adulterated and/or misbranded food into interstate commerce and one count of money laundering.

“For years, William Douglas Haning orchestrated a scheme similar to charging filet mignon prices for ground beef. He unjustly lined his own pockets at the expense of unsuspecting consumers,” said Acting Special Agent in Charge Alicia Corder of the FBI St. Louis Division. “Corporate fraud is one of the top white-collar crime priorities for the FBI.”

Drafting lesson: Whenever another party is supposed to do something for your client, consider building in some kind of inspection- and/or audit rights; most people are honest, but mistakes do happen — and sometimes out-and-out fraud.

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