Drafting tips: LES negotiation workshop. Terminating contract might not terminate rights. Mark Cuban lesson.

Drafters should keep in mind that terminating a contract — assuming that an agreement can be terminated* — might not terminate specific rights created by the agreement.

* Tom Arnold, my late senior partner, mentor, and friend, espoused the view that a contract was an historical fact and therefore could not be “terminated”; he maintained that only specific rights and obligations created by the contract could be terminated.

A case in point is Smith v. Barnesandnoble.com, LLC, No. 15?3508-cv (2d Cir. Oct. 6, 2016). In that case:

• An author entered into an online publishing agreement with Smashwords, a distributor of digital books. Smashwords, as authorized by its agreement with the author, in turn authorized Barnes & Noble to sell the digital book on the BN.com Web site and to provide free samples to prospective buyers.
• The book did not sell a single copy, and in fact only one Barnes & Noble customer even signed up to access a free sample from the BN.com Web site. Disappointed, the author terminated his agreement with Smashwords, but BN.com did not immediately take down the free sample.
• On two occasions after termination, the same Barnes & Noble customer re-accessed the free sample of the book on the BN.com Qeb site. The author’s widow sued Barnes & Noble, claiming that this violated the author’s copyright in the book.

The Second Circuit affirmed summary judgment in favor of Barnes & Noble. The court held that while the author had terminated his agreement with Smashwords, that did not have the effect of terminating the Barnes & Noble customer’s right to access the free sample.

Drafting lesson: When drafting an agreement-termination provision, consider what if any rights and obligations will, and/or should, “survive” the termination.

The following quote is from a highly-successful litigator who filed what’s been described as “the world’s greatest summary-judgment motion” (see below); what he says is equally true of many transactional lawyers and other contract professionals:

Trial lawyers are creatures of habit. Despite big talk about how creative or groundbreaking one litigator or another might be, in reality we have a strong tendency to fall back on what has worked for us already. Success breeds repetition. If an approach or technique helped us before, then we’re likely to try it again. And if something we tried failed, it will be a long time before we try it again.

Thomas M. Melsheimer, Litigating Against the Grain, LITIGATION, vol. 42, no. 3, p. 37 (americanbar.org 2016). Melsheimer successfully defended billionaire Mark Cuban, owner of the NBA’s Dallas Mavericks team, against a lawsuit by Ross Perot, Jr. and other minority investors in the team. The lawsuit alleged that Cuban had mismanaged the team, but the team won the NBA championship. Melsheimer filed his summary judgment motion just a few days after the final game in the championship series. The argument portion of the motion consisted, in its entirety, of the following:

On June 12, 2011, the World Champion Dallas Mavericks defeated the Miami Heat to claim the franchise’s first NBA championship. A true and correct photo of one of the many victory celebrations is incorporated herein:

[half-page photo of joyous Mavericks holding the trophy aloft]

Under [plaintiff’s] ownership, the team was deemed the “worst franchise” in all of professional sports. Under [defendant] Cuban’s stewardship the Mavericks have become one of the league’s most successful teams and are now NBA champions. Accordingly, there can be no genuine question that [plaintiff’s] claims of mismanagement lack merit and [plaintiff’s] claims should be disposed of on summary judgment.

The court granted the motion; the appellate court affirmed.