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In defining “affiliate,” too-loose a definition of “control” can get really expensive.

In negotiating contracts, I generally resist suggestions to define the “affiliates” of a company as including other entities that the company controls through, for example, “the power to direct or cause the direct­ion of the management and policies of the organization, directly or ind­ir­ectly, whether through ownership of voting securities, by contract or credit arrangement, as trustee or executor, or otherwise.”

As I’ve noted elsewhere, the concern is that in later litigation, the part­ies might have to engage in extensive ā€” and expensive ā€” discovery about who has what management power.

For an example of an expensive legal battle concerning just this point — specifically, who did or did not have “control” of a vessel in drydock that was destroyed by fire — see Offshore Drilling Co. v. Gulf Copper & Mfg. Corp., No. 08-40885 (5th Cir. Apr. 20, 2010) (affirming summary judgment in relevant part).

The facts and outcome of the Offshore Drilling case aren’t important. The reason I mention it is to back up my claim that disputes about whether someone is in “control” can get really messy.

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