Contract drafting class spring 2011

by Dell C. "D. C." Toedt III on 2011-01-18

Table of Contents

Standard questions about assigned case readings

Here’s a list of questions that are fair game for class discussion of cases assigned for reading.

Class 28 — Thurs. April 28 — LAST CLASS!

IN THE NEWS (well, sort of): Van Halen’s famous brown-M&Ms contract provision critiqued.

QUESTIONS ABOUT FINAL EXAM: Here are the questions I’ve received by email about the final exam, along with the answers I provided (slightly edited). Check back periodically to see if any other Q&A have been posted.

Q: Sorry if this is an obtuse question, but I cannot remember if you stated you wanted the exam returned in printed form, or on a UH USB flash drive?
A: Hard copy.
Q: In looking over the final, I noticed you do not make any statements as to the format. Would you like anything in particular to make the grading easier on you?
A: Thanks for asking – I can’t think of anything in particular, format-wise. You might want to start each answer on a new page. Be sure your exam number is on each page.
Q: I’m a little confused about what you’re asking for on question #1 with the top five “due diligence points.” Are you wanting specific items that we should look at (ex: [redacted]), or is it okay to give five categories of due diligence areas to look at (ex: [redacted]), and then drill down into each category? I would imagine that you are looking for the latter, but I just wanted to make sure before I start.
A: Neither approach is per se correct or incorrect; please do what you judge to be most appropriate under the stated circumstances. Feel free to explain why you chose the approach you did, including any assumptions you’re making about unstated facts. (In practice, sometimes you have to make assumptions, a.k.a. your best guess; of course you want to identify those assumptions, and test them to the extent feasible.) I can envision a student writing a good answer using either approach. I’m interested in, and will try to provide constructive feedback on, students’ thinking processes, as well as their specific answers.

DISCUSSION: We will work through the General Provisions section of the United-Continental agreement.

REVIEW: The relationship-preservation provisions in the Common Ground Protocols. Also:

Five questions to ask at every business meeting you ever attend
Keep individuals’ personal interests in mind
A better way of nipping legal disputes in the bud
Lawyers too optimistic about whether they’ll win their cases — men especially

BEST WISHES for the final, the bar exam, and your legal careers!

Class 27 — Tues. April 26

DISCUSSION: We will work through the General Provisions section of the Rick’s Cabaret and United-Continental agreements.

DISCUSSION: Stark Chapter 21.

IN-CLASS EXERCISE: Stark Exercises 21-3, 21-6, 21-7.

DISCUSSION: Exclusivity provisions; termination provisions; other provisions that can cause business problems.

Class 26 — Thurs. April 21

IN THE NEWS: Italian Cowboy Partners, Ltd. v. Prudential Ins. Co., No. 08-0989 (Tex. Apr. 15, 2011) (reversing court of appeals; rendering judgment for tenant as to breach of warranty claim; and remanding to court of appeals on fraudulent inducement claim). TAKEAWAY: A no-representations provision in a contract is insufficient to disclaim reliance, and thus is insufficient to defeat a fraudulent-inducement claim.

E-BOOK: I recently published a $9.99 e-book, “Before You Sign a Business Contract: A Final Pre-Flight Checklist for Managers and Executives.” From now until next Thursday, students in this class can get a free PDF copy (not the Kindle version) by using a discount code I’ll provide in class. Click on the book-cover thumbnail image in the right-hand column. Comments and suggestions are welcome, but please wait to send them to me until AFTER grades are out.

ARBITRATION HOMEWORK REVIEW (redux): See my commentary in the class notes for this past Tuesday.

IN-CLASS EXERCISE — FACTS: You represent Landlord Corp. It is negotiating a lease agreement with Big-Box, Inc., a national chain of electronics stores. • Big-Box’s public filings indicate that its business is in trouble. • Larry, the lead leasing agent at Landlord Corp., wants you to include a clause that allows Landlord to terminate the lease if Big-Box files a petition for protection under the bankruptcy laws.

a) Would a termination provision like this be enforceable?

b) What if the lease agreement gave Landlord the right, if Big-Box filed a bankruptcy petition, not to terminate the lease, but instead to double the rent to take into account Big-Box’s increased credit risk?

Reference: 11 USC 365(e).

IN-CLASS EXERCISE — FACTS: Big-Box signs a lease with Landlord, builds out the store, and starts doing business. • But soon Big-Box falls seriously behind on its rent. • Worried, Landlord starts court proceedings to evict Big-Box. • The day before the eviction hearing is to take place, Big-Box files a petition for protection under Chapter 11 of the bankruptcy laws. • Larry, the lead leasing agent for Landlord, says he doesn’t care, he wants to proceed with the eviction anyway.

a) Can the eviction hearing proceed?

b) What options does Landlord have?

Reference: 11 USC 364, 365.

IN-CLASS DISCUSSION: Exclusivity provisions; termination provisions; other provisions that can cause business problems.

COURSE EVALUATIONS: Dean Alderman has asked faculty to encourage students to take 10 minutes to fill out course evaluations. When you do, I’d appreciate it if you’d provide the following information to help me plan future courses:

1. Would you recommend this course to other students? Why or why not?

2. How often do you think the course should be offered — once per year? Every semester?

3. In your view, what “worked” in the course, both in class and out of class (e.g., lectures, topics covered, exercises, homework, guest lecturers)?

4. What “could use some work” (ditto)?

5. Do you wish we’d spent more time on any particular topic? How about less time?

Here’s the main part of the announcement I received from Dean Alderman’s office:

Spring 2011 online evaluations for the College of Law will be held Wednesday, April 6 – Monday, May 2. Please take your time and provide your input at the web site below for the courses in which you are enrolled.
http://eval.uh.edu
When you submit an evaluation no personally-identifiable information is stored along with your responses. Thank you for taking the time to help your college and professors by completing your evaluations.
The Measurement and Evaluation Center, a unit of Learning and Assessment Services is fully administering the faculty/course evaluation on behalf of the Law School. As you know, Course Evaluations are extremely important and we want to encourage you to complete your Course Evaluation(s).
To encourage student participation, prizes in the amount of $100 will be awarded to randomly select students who complete an evaluation for all classes in which they are enrolled for the spring 2011 semester.

Class 25 — Tues. April 19

IN THE NEWS: Could Facebook founder Mark Zuckerberg have to give up a major piece of his ownership because of a contract he allegedly signed years ago? See this news story; quotes from the purported emails are in this story.

GUEST SPEAKERS: Kevin Lewis and Lande Spottswood of Vinson & Elkins.

FINAL EXAM: Here it is – it’s due Wednesday May 4 at 8 p.m. in the library.

Class 24 — Thurs. April 14

GUEST SPEAKERS NEXT WEEK: Kevin Lewis and Lande Spottswood of Vinson & Elkins. Note: I will be calling on various students to introduce the speakers with a Q&A format (e.g., “where did Kevin go to law school,” etc.), but I won’t be asking anything that isn’t readily visible on their V&E Web pages. (The idea is to reinforce the importance of doing your homework on anyone you deal with.) There will be a hard-copy handout.

GRADED HOMEWORK REVIEW: Painter Polly and homeowner Howard are both individuals who live and work in Houston. They sign a contract for Polly to paint Howard’s home with two coats of white paint for $10,000. Neither is represented by an attorney. The contract says, in the General Provisions section: “All disputes arising under this Agreement will be decided by binding arbitration under the rules of the American Arbitration Association.” The contract is otherwise silent on the subject of arbitration; it is also silent as to which law governs, either generally or for arbitration specifically. Polly paints Howard’s house a delicate (or revolting, depending on your taste) shade of mustard; she refuses to repaint, for reasons she does not disclose. Howard comes to you and asks you to sue Polly for breach of contract. Assume you’ve got years to go in the relevant limitation period.

a) On these facts, which arbitration statute controls — the federal act, or the Texas act? Briefly explain your answer, citing such authority as you see fit.

DCT comments added 2011-04-18 (drawing in part on the homework answers):

a1) On these facts, a state court probably would hold that the Federal Arbitration Act doesn’t control, for two reasons:

First, the parties did not agree, either expressly or implicitly, that the federal act would apply. If the parties had so agreed — for example, by providing in the contract that arbitration would be in accordance with “the Federal Arbitration Act” or “Texas law” or “the laws of the State of Texas” — then Texas courts would apply the federal act, on grounds that federal law is part of state law. See In re Olshan Foundation Repair Co., No. 9-0432 et al. (Tex. Dec. 3, 2010) (conditionally granting mandamus relief in one case but not in others). On the other hand, if the contract had said that arbitration would be in accordance with “the Texas Arbitration Act,” then the federal act would not apply, absent evidence showing that the contract affected commerce. See id.

Second, nothing in the facts as given indicates that the contract involves or affects “commerce,” even when defined as broadly as the Supreme Court did in Allied Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995) (reversing and remanding Alabama state courts’ refusal to stay litigation in favor of arbitration).

If Polly wanted to rely on the federal act to compel arbitration, her lawyer would want to adduce whatever evidence could be mustered to show that the contract “affected” commerce in some way, for example, that the parties contemplated that Polly would buy the paint from an out-of-state provider. Texas cases on this point seem to be fact-specific; see, e.g., the cases cited in this article in the text accompanying notes 19-22.

a2) On these facts, the Texas Arbitration Act does not control in any case, under section 171.002(a)(2), because the exception of subdivision (b) does not apply either.

b) On these facts, can Howard file suit in court, as he wishes, instead of arbitrating? Briefly explain why or why not, citing such authority as you see fit.

DCT comments added 2011-04-18 (drawing in part on the homework answers):

Howard could of course file suit — anyone with the filing fee can do so.

Even if the contract does not come under the Texas Arbitration Act, Polly could move to compel arbitration on common-law grounds. See, e.g., Lawson v. Archer, 267 SW 3d 376 (Tex. App. — Houston [14th Dist.] 2008) (conditionally granting writ of mandamus; trial court erred in refusing to compel arbitration even though neither federal- nor state arbitration acts applied).

Howard, however, could respond by pointing out that the American Arbitration Association rules permit parties to consumer disputes to take their disputes to small-claims court in lieu of arbitrating. See AAA Supplementary Procedures for the Resolution of Consumer-Related Disputes § C-1(d). Under Tex. Gov. Code § 28.003, the jurisdictional limit for Texas small-claims courts is $10,000. By a happy coincidence (at least for Howard), that’s the dollar amount of his contract with Polly.

Howard could also try to argue that the arbitration provision was unconscionable, but the facts given don’t provide much ammunition for his attorney to work with.

LECTURE / IN-CLASS EXERCISES: Stark chapter 20 and exercises 20-3 and 20-5.

LECTURE / Q&A: The Continental-United merger agreement with DCT markup, as prep for next week’s guest-speaker session.

Class 23 — Tues. April 12

SEATING CHART RESHUFFLE: For the last three weeks of class, the seating assignments will be as shown here.

REVIEW OF UNGRADED HOMEWORK: I’ve responded individually by email to each of the ungraded homeworks I’ve received so far. In roughly 40% of them, the students failed to follow instructions: they clearly didn’t read the second definition of “work made for hire” in 17 USC § 101. In court, that would get your head handed to you. For a first-year associate in a law firm, it would make an extremely poor impression on a supervising partner.

LECTURE / IN-CLASS EXERCISES: Stark chapter 19 (formatting) and its exercises. The exercise materials are available at the publisher’s Web site.

UPDATE (after class): Here’s my tabulation and paragraphing of exercise 19-1; unfortunately the tabs don’t come through on the Web.

Exercise 19-1

6.1 Audit by Licensor. With respect to each Royalty Period, the Licensor may cause an independent accounting firm to audit or review all the Licensee’s books and records and to issue a report pertaining to the Royalties earned in that Royalty Period.
(a) The Licensor shall give the Licensee reasonable prior written notice of the audit or review. The Licensee shall make its books and records available to the Licensor during normal business hours.
(b) If the Licensor wants to object to the Licensee’s determination of Royalties for a Royalty Period, then:
(1) The Licensor must deliver to the Licensee a statement describing its objections not later than 60 days after the Licensor receives the applicable report obtained.
(2) Each party shall use reasonable efforts to resolve the Licensor’s objections.
(3) If the parties do not resolve all objections on or before the 30th day after the Licensee received the statement of the Licensor’s objections, the parties shall promptly submit those objections for resolution to an independent accounting firm acceptable to both parties.
(i) IF: The parties cannot agree upon an independent accounting firm; THEN: The parties shall select a “big-four” accounting firm by lot. Each party may eliminate one firm by objecting to it in writing.
(ii) The determination of the independent accounting firm selected in accordance with this provision is conclusive and binding upon the parties.
(d) The following provisions apply with respect to each audit or review pursuant to this Section 6.1:
(1) If an audit or review as finally determined pursuant to this Section 6.1 determines that the Licensee has underpaid Royalties for a Reporting Period, the Licensee shall promptly pay to the Licensor the amount equal to:
(i) the Royalties owing minus
(ii) the Royalties paid plus
(iii) interest of 10 percent per year on that amount, accruing from and including the date on which that amount was due to, but excluding, the date on which that amount is paid.
(2) If an audit or review as finally determined pursuant to this Section 6.1 determines that the Licensee has overpaid Royalties for a Reporting Period, the Licensor shall promptly pay to the Licensee the amount equal to
(i) the Royalties paid minus
(ii) the Royalties owing.
(f) With respect to each audit and review conducted in accordance with this Section 6.1,
(1) The Licensor shall pay the fees of the independent accounting firm that conducted that audit or review and the fees of any other independent accounting firm selected in accordance with this Section 6.1
(2) Despite the immediately preceding sentence, if the audit or review, as finally determined, determines that the Royalties for the applicable Reporting Period are understated by 2 percent or more, then the Licensee shall pay the fees of the independent accounting firm that audited or reviewed the Licensee’s books and records and the fees of any other independent accounting firm selected in accordance with this Section 6.1.

Class 22 — Thurs. April 7

IN THE NEWS: CX Digital Media v. Smoking Everywhere.

IN-CLASS EXERCISE IN STARK BOOK:

Exercise 9-1, all parts, pp. 120-122

UNGRADED HOMEWORK for Tues. April 12: An advertising agency hires Walter, a recent fine-arts graduate of the University of Houston, as a full-time graphics designer. He has no written agreement of any kind with the ad agency. Over the next several years, Walter creates a lot of drawings for use in client advertising. But then he gets an offer for a much-higher salary from a competing ad agency, with the understanding that he will bring his portfolio of drawings with him for use at the new job.

a) Can Walter do this without getting into trouble? (See the definitions of “pictorial, graphic, and sculptural work” and “work made for hire in 17 USC § 101; also §§ 106, 201(a).) (Hint: The Copyright Act is readily available on-line.)

b) Change the facts so that Walter is an independent contractor, doing only such specific projects as the ad agency hires him for on a case-by-case basis. What result? (See the second definition of “work made for hire in 17 USC § 101.)

GRADED HOMEWORK, due by email Thurs. April 14 (with exam numbers, not names — I’ll be asking for a student to serve as the collector): Painter Polly and homeowner Howard are both individuals who live and work in Houston. They sign a contract for Polly to paint Howard’s home with two coats of white paint for $10,000. Neither is represented by an attorney. The contract says, in the General Provisions section: “All disputes arising under this Agreement will be decided by binding arbitration under the rules of the American Arbitration Association.” The contract is otherwise silent on the subject of arbitration; it is also silent as to which law governs, either generally or for arbitration specifically. Polly paints Howard’s house a delicate (or revolting, depending on your taste) shade of mustard; she refuses to repaint, for reasons she does not disclose. Howard comes to you and asks you to sue Polly for breach of contract. Assume you’ve got years to go in the relevant limitation period.

a) On these facts, which arbitration statute controls — the federal act, or the Texas act? Briefly explain your answer, citing such authority as you see fit.

b) On these facts, can Howard file suit in court, as he wishes, instead of arbitrating? Briefly explain why or why not, citing such authority as you see fit.

Class 21 — Tues. April 5

ANY QUESTIONS on the employment agreement form that the guest speakers covered last week?

IN-CLASS EXERCISES IN STARK BOOK:

Exercise 8-3, p.109 (continued)
Exercise 9-1, all parts, pp. 120-122

READ FOR NEXT CLASS: CX Digital Media v. Smoking Everywhere. Be ready to answer the standard questions (see above), and to discuss whether the court got it right on the “unsigned writing” part. Also, pay attention to the court’s factual discussion of how the parties would make money in this transaction.

THE REMAINDER OF THE COURSE: I expect that we will do more in-class exercises, including drafting, review, and look-up questions to familiarize yourself with the available reference materials for some of the topics below. (Plus, we will have the mergers-and-acquisitions guest lecturers.)

THE FINAL: My goal is to have the take-home final exam take about six hours to finish, plus or minus. (The final is supposed to be three hours, and you’d study at least that much beforehand, right?) Anything we’ve covered in class is fair game, plus the following, for which you’ll find the Common Ground contract provisions and annotations to be a useful resource. Subtopics are for purposes of illustration and not of limitation <g>:

Arbitration

Unconscionbility challenges
Who decides arbitrability
Class action arbitrations

Audit provisions (for auditing royalty payments, etc.)

5Ws – who, where, what, when, why (plus how)
Expense-shifting threshold

Bankruptcy

Ipso-facto termination clauses
Rejection of executory contracts

Government contracts

Federal Acquisition Regulations (FARs) and the DOD variation (DFARs)
Affirmative action requirements

Innovation ownership (patents, copyrights)

Work made for hire doctrine (patents)
Invention-assignment agreements (and state laws governing same)
Automatic assignment of inventions

Insurance requirements

Basics of CGL, E&O insurance

Interest / usury statutes

Maximum interest rate
When interest charges can begin accruing
Savings clauses

Licensing

Trademark naked-licensing problems

LLC operating agreement
Negotiation etiquette

Redlining of drafts
Ethics issues

Privacy

Fair Credit Reporting Act
Privacy laws

Termination

Termination for breach
Non-breach termination rights

Class 19 — Tues. March 29

IN-CLASS EXERCISES IN STARK BOOK:

Exercise 8-3, p.109
Exercise 9-1, all parts, pp. 120-122

ASSIGNMENT FOR THURSDAY’S CLASS (w/ guest speakers): Read the Employment Agreement form with annotations; see also this article about the Texas non-competition covenant law (in addition to the one cited in the annotations).

Class 18 — Thurs. March 24

Guest speakers: Bill Morris and Eddy Blanton, Jr., of Akin Gump.

Class materials:

Class 17 — Tues. March 22

ASSIGNMENT FOR NEXT CLASS (w/ guest speakers):

Read the revolving credit agreement — pay attention mainly to the areas I’ve flagged with Word comments, and just skim through the rest. We will cover questions either during the March 24 class or in a subsequent class. SUGGESTIONS:

Draw a resource-flow diagram showing what the various parties will be “bringing to the table” in this agreement;
Look up “investment grade,” and note how the agreement differentiates between borrowers that can issue investment-grade securities and those that can’t;
Pay particular attention to the financial-covenants and negative-covenants sections.

Class 16 — Thurs. March 10

UPCOMING GUEST SPEAKERS:

Thurs. March 24: Financing documents — Bill Morris and Eddy Blanton, Jr., of Akin Gump
Thurs. March 31: Employment agreements — Patrick Flynn of Patrick M. Flynn P.C. (employee side) and Joseph “Chip” Galagaza of Jackson Lewis (employer side)
Tues. Apr. 19: Corporate mergers — Kevin Lewis of Vinson & Elkins and a colleague to be named later

Question, for planning purposes: In the real-estate class last time —

What worked — the overall format? The diagrams I drew? Top-ten list? Other things?
What could have used some work?

REVIEW OF RICK’S CABARET CONTRACT: We will proceed linearly through the contract and tackle the “Question,” “Homework,” and “Exercise” comments I left in the Word document.

Here’s my edited version of the specific sections I asked you to revise for homework.

AS AN EXPERIMENT, we will try a Family-Feud style contest.

As we proceed through the contract, I will decide whether to ask a particular question of the class as a whole, or whether instead to ask one of the negotiating teams to answer it (taking the teams in order).

If, say, Team 5 answers a question, Team 4 can challenge the answer, as can I. I’m the contest judge; all decisions of the judge are final.

We’ll keep score on the whiteboard (for fun, not for a grade).

The team numbers are:

Baskin, Craig, Evans
Johnson, Oaxaca, Sanchez, Tankersley
Bright, Dhanani, Gautreau
Knight-Fojt, Oviedo, Sanders
Casey, Ditewig, Jarvis
Lambert, Reeves, Spencer
Thornton, Vinnett, Woodward

RACKSPACE CONTRACT, CONTINUED (as time permits):

Lecture: Remaining selected provisions of section 18
Negotiate: Sections 10-12
Lecture: Sections 13(b)(iv)
Negotiate: Section 14(d)
Lecture: Section 17
Negotiate: Section 18(a)

HOMEWORK for Tues. March 22: None – have a good spring break! By next class, I’ll have posted some sample documents for use by our guest speakers in the financing-documents class on March 24.

Class 15 — Tues. March 8

IN THE NEWS: Contractor employee killed at Valero refinery — will the contractor have to indemnify Valero against survivors’ claims, even if it was Valero’s fault?

IN THE NEWS: Charlie Sheen’s contract has no morals clause?

REAL-ESTATE CONTRACTS — GUEST SPEAKER: Louis E. Silver, of Schlanger, Silver, Barg & Paine LLP

You can download the slides in PPTX format (if you want to take notes directly in the file) or as a PDF document.

Class 14 — Thurs. March 3

IN-CLASS EXERCISE: Part II of Stark Exercise 24-1; download the editable Word document from the publisher’s site.

LECTURE / IN-CLASS EXERCISE: We will divide into teams and reverse-negotiate (or cover in lecture) the following sections of the Master Services Agreement between Rackspace, Ltd. and Gomez, Inc. (alternative: annotated PDF version):

Negotiate: Sections 5-8
Lecture: Selected provisions of section 18
Negotiate: Sections 11-12
Lecture: Sections 13(b)(iv)
Negotiate: Section 14(d)
Lecture: Section 17
Negotiate: Section 18(a)

HOMEWORK: For next week’s real-estate guest lecturer (March 8), read the Rick’s Cabaret real-estate agreement. Homework assignments in the comments of that document — just the comments flagged with “HOMEWORK” — are due Thursday, March 10 BEFORE class (please email them to me). They won’t be graded, but I want to look at them.

Class 13 — Tues. March 1

AMENDMENTS: By request, I’ve created a sample amendment form illustrating how to do short, “surgical” amendments to an existing agreement.

IN-CLASS EXERCISE: Stark Exercise 24-1; download the editable Word document from the publisher’s site.

SERVICES AGREEMENT, continued: We will continue going through the Master Services Agreement between Rackspace, Ltd. and Gomez, Inc.; there’s also an annotated PDF version).

HOMEWORK: For next week’s real-estate guest lecturer (March 8), read the Rick’s Cabaret real-estate agreement. Homework assignments in the comments of that document (ungraded, but email them to me) are due Thursday, March 10.

Class 12 — Thurs. Feb. 24

Dilbert on services contracts: See here (please wait till I say so).

IN THE NEWS: Carr v. Gateway, Inc., No. 109485 (Ill. Feb. 3, 2011) (affirming denial of motion to dismiss class-action lawsuit and compel individual arbitrations):

It’s smart to think about a Plan B: Illinois S. Ct. says consumer arbitration clause is unenforceable because the arbitration forum required by the clause (the National Arbitration Forum) had stopped accepting consumer cases under attack from state AGs and trial lawyers.
The law of unintended consequences: Gateway’s choice of words was held to negate the statutory Plan B, which ordinarily would have required a court to appoint a substitute arbitrator (slip op. at 13-14).

IN THE NEWS: Apple cracks the whip on China suppliers for violating Apple’s contractually-imposed supplier code of conduct.

Question: Is Apple undertaking a third-party duty of care by publicizing its supplier code of conduct?
No good deed goes unpunished: See the China Daily headline: “Apple admits fault in poisoned worker scandal” (it didn’t look that way to me).

IN THE NEWS: The U.S. Department of Justice is pushing for an expansive definition of who is a “foreign official” for purposes of determining criminal liability under the Foreign Corrupt Practices Act. Says this WSJ article:

The law bans corporations from bribing foreign government officials. DOJ has said the law applies to not just U.S. companies but any corporation that trade on U.S. exchanges. Its definition of a bribe is far from narrow and includes not just cash but presents or promises of payments.
And its definition of “government officials” includes, say, doctors at state hospitals or construction workers at state mining operations.

IN-CLASS EXERCISE: What’s awkward about these sentences?

Upon the expiration of the term of this Agreement ….
A party shall give the other party a notification ….

LECTURE: Download and follow along in the Master Services Agreement between Rackspace, Ltd. and Gomez, Inc. (the Word document contains extensive annotations; there’s also an annotated PDF version). Questions in real time are welcome.

HOMEWORK: Next week we will start having homework assignments, some of which will be for grades. You’ll have at least a week to complete each graded assignment.

Class 11 — Tues. Feb. 22

IN-CLASS EXERCISE: What’s awkward about this sentence? “To be eligible to vote for the members of the Board of Directors, a Shareholder shall submit his, her, or its proxy no later than [date].”

IN-CLASS EXERCISE: What’s ambiguous about this sentence? “The Students shall submit their exercises no later than [date].” How many possible interpretations are there?

LECTURE: The DeBeers project train wreck — please follow along w/ the annotated version.

LECTURE: The relationship-preservation provisions in the Common Ground Protocols.

IN-CLASS EXERCISE: We will re-negotiate certain aspects of a services contract between Google and Yahoo! Inc.

Class 10 — Thurs. Feb. 17

IN THE NEWS: L.A. Dodgers owner Frank McCourt fired his law firm — which has retained Gibson Dunn as malpractice counsel. [UPDATE 2011-08-04: McCourt sues the firm for malpractice.]

IN THE NEWS: Cole v. Sandel Medical Indus. LLC — 5th Cir. apparently doesn’t recognize an NDA when it sees one (perhaps counsel didn’t plead it that way?)

IN THE NEWS: Obama administration and GOP play chicken — who will move first to propose cutting entitlements? It will be interesting to see how this high-stakes negotiation plays out. For more discussion about who should make the first offer in a negotiation (for your fund of general knowledge, not as a class assignment), see this Stanford Graduate School of Business article (scroll down to “Anchoring”) and this Harvard Business School note, as well as the Hacker News comments on the latter.

IN-CLASS EXERCISE: What’s wrong with this sentence? “If the Landlord makes a misrepresentation or breaches a covenant, then the Tenant may pursue all remedies to which it is entitled under the law.”

IN-CLASS EXERCISE: What’s wrong with this sentence? “The Trust may donate funds only to charitable and educational institutions.”

IN-CLASS EXERCISE — Confidentiality agreement review: Working in your assigned teams, please make notes for what you would ask for if you could renegotiate the Northeast Securities / SheerVision NDA. The seller teams from last time should review the agreement from the perspective of a disclosing party; the buyer teams, a receiving party.

IN-CLASS EXERCISE — Confidentiality agreement review: Working in your assigned teams, please make notes for what you would ask for if you could renegotiate the West Publishing / Elite Information Group NDA. The buyer teams from last time should review the agreement from the perspective of a disclosing party; the seller teams, a receiving party.

NEXT WEEK: We will start work on drafting and reviewing services agreements. Read: DeBeers UK Ltd. v. Atos Origin IT Services Ltd., paras. 22-23; skim paras. 191-214. Read: The following sections of the Common Ground Contract Protocols, along with their annotations:

Services
Auditing of records
Breach and termination
Business operations – general
Defects: Warranties and remedies
Indemnities
Infringement warranty & remedies
Innovation ownership
Insurance requirements
Limitations of liability
Payments
Personnel matters
Relationship preservation

Seating chart room 213BB 2011-04-12 — Tues. Feb. 15

IN THE NEWS: Companies raise prices as commodity costs jump – NY Times. See the CPI definition in the Common Ground “Definitions” protocol:

Consumer Price Index and CPI refer to the Consumer Price Index, All Items for All Urban Consumers (CPI-U) published by the U.S. Bureau of Labor Statistics.

CAUTION: Depending on the industry, CPI-U might not be the best index for estimating how much a provider’s costs have increased; consider the other CPIs published by the Bureau of Labor Statistics.

IN THE NEWS: Obama budget proposal is seen as a chess move — sometimes negotiations aren’t straightforward.

IN-CLASS EXERCISE: Working alone, edit the following sentence to be more clear:

The Manufacturer may manufacture the Product in blue or green.

IN-CLASS EXERCISE — Confidentiality agreement drafting: Continuing the hypothetical from before, Bob says that Buyer’s safety engineers are going to need to know the details of Seller’s new and secret chemical additive. Sally says “that’ll have to be under NDA.” She then says that she and Sam will need to get access to Buyer’s refinery to run tests, take measurements, etc. Bob says, “that’ll also have to be under NDA.”

Your team’s assignment: Draft an NDA using the Common Ground skeleton contract form (note the drafting suggestions there) and at least the following Common Ground Protocols: Definitions; Confidential Information; General Provisions.

Class 8 — Thurs. Feb. 10

QUESTION: On March 1, 2011, Smith quits his sales job at ABC Company to go work in a similar job at a competitor. He never returns his company laptop. A few months later, ABC Company notices that the competitor is starting to “poach” ABC’s existing customers. How long does ABC have to bring an action for misappropriation of trade secrets? Reference: Tex. Civ. Prac. & Rem. Code 16.010.

EXERCISE: Pre-sale letter of intent

1. Seller is a start-up company founded by two recent university graduates, Sally and Sam, who have developed a secret chemical additive that seems to improve oil refining processes.

2. Buyer operates a refinery in Baytown. Sally has convinced Bob, her contact at Buyer, to conduct a pilot project to test the additive in the refinery; the idea is that, if the additive works as Sally claims and the parties can agree on terms, then Buyer will want to buy the additive from Seller to use in its worldwide refining operations — including those of Buyer’s corporate affiliates in Europe and West Africa.

3. Bob has authority to do the pilot project, but he does not have authority to direct full-blown use of the additive in production.

4. Bob and Sally agree: “We’ll get the lawyers to do an LOI.”

5. Your team represents either Seller or Buyer. Working together, draft an LOI, stating in the term-sheet portion what you think your client would want in the final sales agreement. (Feel free to use as a starting point the sample letter of intent that we discussed in class.) In brainstorming what your client might want:

a. Consider the standard phases of every business relationship: Startup; normal operations; trouble (including big trouble); and shutdown.

b. Consider what sorts of “influencers” (human and otherwise) might affect the relationship.

c. Consider the what-ifs, and for each, who will do what in terms of providing resources (cash, other resources, people, data), and/or taking actions. ESPECIALLY CONSIDER payment terms: How much, how often, etc.

d. Consider “Plan B” for various what-ifs.

6. List the major points that you think the other side will want out of the final sales agreement.

Class 6 — Thurs. Feb. 3:

Class 7 — Tues. Feb. 8:

PowerPoint slides for this class, in PPTX and PDF formats.

IN-CLASS EXERCISE — passive voice: Each student will individually edit (in class) the seven examples in this Word document. We’ll review the sentences together. Go ahead and download the Word document, but please wait to start editing until I say so.

IN-CLASS EXERCISE: Letters of intent — brainstorming and drafting

ADDED 2010-02-10: Here’s the sample letter of intent that we discussed in class.

Class 6 — Thurs. Feb. 3:

EXERCISE: Stark 6-2 (p. 67)

QUESTION: Is an agreement to agree enforceable?

QUESTION: How about an agreement to negotiate in good faith?

EXERCISE: “Improv” — Group A and Group B throw out facts for and against “good faith.”

QUESTION: How to avoid arguments about implied negotiate-in-good-faith obligations?

HOMEWORK:

Read this summary of Texas trade-secret law.
Read this article about civil liability for theft of trade secrets in Texas.
Read Celeritas v. Rockwell (just the trade-secret parts); be ready to answer the Standard Questions.
QUESTION: On March 1, 2011, Smith quits his sales job at ABC Company to go work in a similar job at a competitor. He never returns his company laptop. A few months later, ABC Company notices that the competitor is starting to “poach” ABC’s existing customers. How long does ABC have to bring an action for misappropriation of trade secrets? Reference: Tex. Civ. Prac. & Rem. Code 16.010.

Class 5 — Tues. Feb. 1:

PowerPoint slides for this class in PDF and PPTX formats

Homework for Thursday Feb. 3: Read the following, and consider what it would take, in what jurisdiction(s), to render enforceable an agreement to negotiate in good faith:

Martin v. Martin, No. 06-09-00069-CV (Tex. App.–Texarkana Nov. 3, 2010)
Copeland v. Baskin-Robbins, Inc., 117 Cal. Rptr.2d 875, 96 Cal. App.4th 1251 (2002)
James W. Hutchison, Deal or No Deal: Are Agreements to Negotiate in Good Faith Enforceable? (Feb. 2009)
All in Good Faith (Apr. 2006)
Agreement to negotiate in good faith (Dec. 2007)

Class 4 — Thurs. Jan. 27:

PowerPoint for this class (PDF)

Class 3 — Tues. Jan. 25: Attorneys’ fees by statute; reps & warranties (cont’d); notarization

PowerPoint for this class (PDF)

EXERCISE 1 — Notarization

FACTS: Your client, Landlord, has negotiated a five-year commercial lease agreement for one of its office buildings. The tenant’s lawyer wants the signers to have their signatures notarized.

LECTURE: Why might the tenant’s lawyer want the lease agreement to be notarized? Would that be in your client Landlord’s best interest? A: Recordation of lease agreement; authentication of signed agreement in litigation. References:

Tex. Prop. Code § 12.001
Id. § 13.002
Tex. Civ. Prac. & Rem. Code §§ 121.004-121.008(a)
this blog entry
Tex. R. Evid. 902(4), (8).

QUESTIONS: Answer the following questions on paper; you will exchange papers for markup and discussion (not graded).

a) Landlord agrees to have the signatures notarized. Your secretary is the only notary public around. She [or it could be he, of course] can’t find her seal — can she sign the notary certificate without a seal? References: Tex. Gov. Code § 406.013; Tex. Civ. Prac. & Rem. Code §§ 121.004.

b) Your secretary finds two seals in the bottom of her drawer. One is an embossed seal, the other is an ink stamp. Which should she use? Tex. Gov. Code § 406.013; see also Tex. Prop. Code §§ 121.004(d).

c) The person who will sign the lease for the tenant is in London and will FAX her signed signature page to you. Can your secretary, here in Houston, notarize that signature? Reference: Tex. Civ. Prac. & Rem. Code §§ 121.004(a); see also this article, which applies to Texas as much as to Massachusetts.

d) What must the notary do before signing the notary certificate? Reference: Tex. Civ. Prac. & Rem. Code §§ 121.005.

e) What must the notary do after notarizing the signature(s)? References:

Tex. Gov. Code § 406.014
Tex. Civ. Prac. & Rem. Code §§ 121.012

f) If no notary is around, can you notarize the signatures as an attorney? Should you? References:

Tex. Civ. Prac. & Rem. Code § 121.001
Tex. Discipl. R. Prof. Conduct 3.08 (“Lawyer as Witness”) (the link is to the proposed revision that will be voted on in an upcoming referendum, but there are no changes to this particular section).

HOMEWORK READING: Skim the “General Provisions” section of the Common Ground Protocols (draft 2010-12-31).

HOMEWORK EXERCISE: Read Arete Partners, L.P. v. Gunnerman, No. 06-51133 (5th Cir. Jan. 19, 2010) and answer the following questions on paper; you will exchange papers for markup and discussion (not graded).

a) What business problem arose?

b) What ticked off Judge Sam Sparks?

c) What was the evidentiary standard applied for fraudulent intent? [Sparks opinion p. 13, 14]

d) What measure of damages did Sparks say Arete could get? Actual damages plus either (i) $500K in punitives, or (ii) attorneys’ fees, depending on what it elected.

e) What standard of review did the Fifth Circuit apply? [Majority op. 5.]

f) What did the Fifth Circuit majority do?

g) What do you think might have partially motivated the dissenting judge (Higginbotham) to view the case the way he did?

Class 2 — Thurs. Jan. 20: Electronic signatures; reps & warranties; notarization

PowerPoint for this class (PDF)

EXERCISE 1: Quickly read Naldi v. Grundberg, 2010 NY Slip Op 07079 (NY App. Div. Oct. 5, 2010). Be prepared to answer the following orally:

a) At what stage of the lawsuit was the trial-court decision made — motion to dismiss, motion for summary judgment, etc.?

b) Did anyone actually sign the “official” contract? Did it matter? Why or why not?

c) What would be the next phase of the litigation, if any?

EXERCISE 2: Quickly read Stevens v. Publicis, S.A. Be prepared to answer the following orally:

a) At what stage of the lawsuit was this decision made — motion to dismiss, motion for summary judgment, etc.?

b) What did Publicis initially do that [ticked] Stevens off? (P. 2)

c) Why did Stevens lose? (Pp. 3-4)

d) Any advice for clients to avoid this result? (Pp. 3-4)

e) What would be the next phase of the litigation, if any?

EXERCISE 3 — The E-SIGN Act and Texas UETA: This will be a lecture exercise; you can follow along and read the cited materials.

FACTS: Your client TexasCorp is a Houston company that sells jewelry on-line, but only to Texas customers. ¶ One particular customer is George, an individual living in Houston. George clicks on “I agree” to buy a $20,000 diamond engagement ring. ¶ The ring doesn’t arrive when George had hoped. George still goes ahead, sans ring, with proposing to his girlfriend on the Jumbotron at Toyota Center during a Rockets game. ¶ To George’s horror, she turns him down, bursts into tears, and storms out of the arena to get a cab home. (Here’s a real-life example — supposedly.) ¶ The next day, the ring arrives, but George no longer wants it and refuses to take delivery nor to pay for it. (Cue Gary Lewis and the Playboys.) ¶ TexasCorp — heedless of the potential bad publicity — tells you it wants you to sue George for breach of contract.

a) Could George the Unfortunate assert a statute-of-frauds defense, on grounds that he never signed a contract? Reference: 15 USC § 7001; Tex. Bus. & Comm. Code § 322.007; see also § 322.002 (definitions), § 322.003 (scope); see also id. § 2-201 (statute of frauds).

b) Could George assert that TexasCorp failed to obtain his handwritten, hard-copy signature, saying it was OK to use electronic signatures? Reference: Tex. Bus. & Comm. Code § 322.005.

c) Should you have told TexasCorp to be sure to save a hard-copy printout of George’s “I agree” contract form to make it enforceable? Reference: 15 USC 7001(d); Tex. Bus. & Comm. Code § 322.012.

d) Change the facts a bit: TexasCorp decides to take the ring back and not to sue George for failure to pay. An embittered George, however, files suit against TexasCorp for breach of contract. He claims that the contract required TexasCorp to deliver the ring by a certain date. If the ring had been delivered by then, George would have been able to take it with him to the Rockets game. He would have opened the box when he proposed to his inamorata. That would have caused her to leap joyfully into his arms and accept his proposal. ¶ The contract form, though, requires arbitration of all disputes. For purposes of this exercise, assume the arbitration provision complies with applicable law. Your client TexasCorp wants to file a motion to dismiss George’s lawsuit in favor of arbitration. ¶ QUESTION: How can TexasCorp “prove up” the electronic contract form? It will have to do this to show that George did in fact agree to arbitration. Reference: Tex. Bus. & Comm. Code § 322.009; Tex. R. Evid. 901; see also Tex. Civ. Prac. & Rem. Code § 171.001(a) (Texas Arbitration Act).

[Lecture on reps and warranties follows.]

Class 1 — Tues. Jan. 18: Signatures

PowerPoint for this class (PDF)

[Exercise 1-3 and 5 moved to a later class]

EXERCISE 4: Some contracts include a provision along the lines of the following: Each individual signing this Agreement on behalf of an organization personally represents that, to the best of his knowledge, his signature has been authorized by that organization. When might this be worth doing? When not?

EXERCISE 6 — Signature dates: FACTS: It’s the last week of March. Your client Big Public Software Company has a calendar-year fiscal year, and its shares are traded on Nasdaq. That means it must file financial reports with the SEC within a certain number of days after each March 31, June 30, September 30, and December 31 (known as Q1 through Q4 respectively). ¶ BPSC’s sales people are working on a huge deal. If the deal closes, BPSC will “make the number,” that is, its earnings will match analysts’ expectations. ¶ The sales people stay late at the office on March 31, hoping to iron out the last negotiation points. But the parties don’t actually come to agreement until April 3.

a) On April 3, BPSC’s vice president of sales calls you with an urgent question: Can the parties backdate their signatures to March 31, so that BPSC can book the sale in Q1 and thus not “miss”? Reference: This blog posting.

b) What if the contract isn’t a sales contract, but a pre-negotiation nondisclosure agreement, and the parties want to backdate it to confirm their prior oral confidentiality agreement? Reference: This blog posting.

For DCT: Continental-United merger agreement section 3.4 rewrite