The Boiling Point Drafting and Defending Boilerplate Contract Provisions-PART II

Transcription

1 The Boiling Point Drafting and Defending Boilerplate Contract Provisions-PART II Gregory M. Bergman & Robert D. Bergman Wilshire Blvd., Suite 900 ""Los Angeles, CA "(310) Cowan, Suite 200 Irvine, CA (949) / rbergman@bdgfirm.com

2 Standard Contract Provisions! Integration Clauses! Prevailing Party Attorney s Fees Clauses! Indemnity Clauses! Amendments Waiver of Oral Modifications 2

3 INTEGRATION CLAUSES PROBLEM Party claims written contract does not represent the full and complete agreement between the parties If more than 1 Agreement, Which Agreement governs? DISPUTED WRITTEN AGREEMENT + ANOTHER AGREEMENT Is disputed agreement integrated? Since 1935 the law in California was clear-evidence that directly contradicts the written contract could not be introduced into evidence. No Parol evidence allowed. NOW-The California Supreme Court has ruled that if fraud or misrepresentation induced the other party into the contract, parol evidence can be introduced. Riverisland Cold Storage v. Fresno Madera Production Credit Ass n, (2013) 151 Cal. Rptr. 3d 93. In fact even if the parties are sophisticated the courts will 3

4 Integration Clauses (continued) now allow in the evidence. Julius Castle Restaurant, Inc. v. Payne, (2013) 216 Cal. App. 4th 1423; Thrifty Payless, Inc. v. Americana at Brand LLC, (2013) 218 Cal. App. 4th It is understandable to allow the rule for unsophisticated parties but will only result in more litigation for sophisticated parties as parties can now always claim that there was fraud or misrepresentations made in the inducement of the contract. Suggestion: An integration clause is clearly more important than ever. The integration clause should clearly include explicit provisions excluding specific prior promises and negotiations. 4

5 Integration Clauses (continued) In all pre-contract negotiations include disclaimers in all prior writings. Also helpful is to have the parties initial all pages to the contract. Standard integration clause: Except as otherwise provided herein, this Agreement constitutes the entire agreement between the parties with respect to the subject matter contained herein and supersedes all other agreements, letters, memoranda, or any prior understanding of any type whatsoever, whether oral or written. 5

6 Integration Clauses (continued) Add to the standard language: The parties acknowledge and agree that neither party has made any oral or written statements that are not included in this Agreement and that in any way induced either party into entering this Agreement. 6

7 PREVAILING PARTY LEGAL FEES Providing in a contract for an award of attorney s fees to a prevailing party triggers Cal. Civil Code Rule: If attorney s fees provision is non-reciprocal, Civil Code 1717 will come into effect and may turn the attorney s fees provision into a reciprocal agreement that will allow the prevailing party in the litigation to recover attorney s fees, irrespective of whether the party was identified in the contract as being entitled to such attorney s fees. Warning: Non-reciprocal attorney s fees contractual provisions can create reciprocal rights to such fees. 7

8 Prevailing Party (continued) Generally, attorney s fees are not recoverable in a commercial contract unless provided for in the contract. Under Civil Code 1717, the prevailing party is entitled to reasonable attorney s fees. Typically, the prevailing party is the one who prevailed under the contract. Determining who is the prevailing party has created a great deal of litigation on its own. Some of the issues that occur are: Is a final decision required? Is a money judgment required or do equitable remedies count? To be the prevailing party, do you have to succeed on all issues or only some? You may want to consider who is considered the prevailing party in the contract by: Requiring a final judgment or dismissal. Addressing who got substantially what they were seeking. Addressing who obtained a net monetary recovery. 8

9 Prevailing Party (continued) The Court has great discretion in determining reasonable attorney fees. Need to determine when is there a prevailing party. At what stage of litigation is there actually a prevailing party? Recently an appeals court held that a case dismissed due to a forum selection clause (Florida) would not allow for attorney fees when the case was dismissed. DisputeSuite.com, LLC v. Scoreinc.com (2015) 2015 DJAR Although the code provides that a final judgment is not necessary for awarding attorney fees (Civil Code Section 1717(b)(1)), the California Supreme Court appears to require a final resolution of all contract claims. Hsu v. Abbara, (1995) 9 Cal. 4th 863. Not all courts are following the Hsu decision. Estate of Drummond, (2007) 149 Cal. App. 4th 46; PNEC Corp. v. Meyer, (2010) 190 Cal. App. 4th 66. 9

10 INDEMNIFICATION Unlike attorney s fees clauses, which generally are reciprocal, indemnification provisions usually are upheld even if not reciprocal. As to the recovery of attorney s fees within indemnification clause, 1717 does not always apply to an indemnity agreement. Rationale: Reciprocity principles would defeat purpose of the agreement. Suggestion: Be very clear in the language to avoid the court awarding attorney s fees based upon an indemnity provision. Baldwin Builders v. Coast Plastering Corp., (2005) 125 Cal. App. 4th 1339 (approved clause); M. Perez Co. v. Base Camp Condominiums Assn., (2003) 111 Cal. App. 4th 456 (approved clause); International Billing Services v. Emigh, (2000) 84 Cal. App. 4th 1175 (indemnity clause ambiguous so attorney fee clause applied to both parties). 10

11 AMENDMENTS Waiver of Oral Modifications No Oral Amendment Clauses Definition: contract clauses that prohibit the parties from making oral modifications to contracts and require that all changes be in writing signed by the parties. Tip: Consider supplementing your no oral amendment clause with a provision stating that contract changes can be made only by designated representatives. Agree that only those designees may amend the contract. 11

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13 ASSET PURCHASE AGREEMENTS GOAL Protect Buyer and Seller and Satisfy the Expectations of both parties 13

14 Typical Provisions of an Asset Purchase Agreement Assumption by Buyer of Specified Liabilities and Obligations " Makes provisions for the assumption of liabilities and obligations assumed by the buyer and seller: " Buyer assumes contracts, leases, and agreements listed in a schedule. " Seller remains liable for all liabilities and obligations accruing or occurring prior to the closing, as well as for any contract, lease, or agreement not included in the schedule of contracts to be assumed by the buyer. 14

15 Typical Provisions of an Asset Purchase Agreement Representations and Warranties of the Parties " Section consists of promises or statements about the nature or quality of what the seller is selling and the buyer is buying. " Most extensive portion of the agreement because it is designed to protect the buyer from unpleasant surprises at (and after) the closing. 15

16 Typical Provisions of an Asset Purchase Agreement Survival of Representations & Warranties and Indemnification by Buyer & Seller Survival of Representations and Warranties: " Specifies the length of time beyond the closing that the representations and warranties of the buyer and the seller will last. Indemnification by Buyer and Seller: " Describes procedures and the limitations for indemnification in the event of a breach of contract. " Some clauses provide for unlimited indemnification but usually are qualified by a number of requirements. " Other indemnification provisions specify a maximum amount of liability. 16

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18 Leases Things to Think About 1. Commencement date/delay in delivery 2. Tenant improvements/ who controls? 3. Compliance with applicable laws and ADA compliance 4. Responsibility for repairs 5. Hazardous substances 18

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20 Real Property Purchase Agreements Due Diligence Contingencies 1. Financial Contingency 2. Inspection Contingency 3. Title Contingency 4. Physical Inspection and Soil Testing 5. Compliance with All Laws 6. Environmental Studies 7. Document Review (Leases, Etc.) 20

21 Real Property Purchase Agreements Representations and Warranties of Seller and Buyer 1. As-is vs. specified representations 2. Ownership free and clear 3. Environmental 4. Liens / leases 5. Actual knowledge vs. requirement to perform due diligence 21

22 Litigation, Arbitration, Judicial Reference 22

23 Arbitration Clauses Strategy: Determine goals at the outset Simple or complex? How arbitrators are selected Where arbitration is held Who pays attorney s fees Must arbitration be confidential Mandatory or voluntary? Binding or non-binding? Non-binding: either party may reject award and pursue trial 23

24 Arbitration Clauses (continued) Options AAA: Different rules for all areas of law JAMS: arbitration Expertise of Arbitrator Employment Situation Unique 24

25 Arbitration Clauses (continued) Benefits of Arbitration: Similar to Judicial Reference Not open to the public Move forward on parties (not court s) schedule Negatives of Arbitration: Arbitrators are not required to follow the law Many times arbitrators decisions are based upon fairness Arbitrator can base decision on justice and equity. Moncharsh v. Heily & Blasé, (1992) 3 Cal. 4 th 1. 25

26 Litigation Clauses Choice of Law: choice of law provisions are enforceable unless against public policy (i.e., covenant not to compete). Choice of Venue: Venue selection clauses in contracts are enforceable, so long as the venue selected is a permissible one under California s current venue selection statutes. Battaglia v. Superior Court (2013) 215 Cal. App. 4th

27 Judicial Reference Due to the increase in litigation and the closing of courtrooms, a more frequent choice of litigators is judicial reference. Judicial reference is provided for in the California Code of Civil Procedure Sections Litigants have attacked judicial reference claiming they waived their right to a jury trial. Courts have upheld judicial reference. Grafton Partners, L.P. v. Superior Court, (2005) 36 Cal. 4th 944; Trend Homes v. Superior Court, (2005) 131 Cal. App. 4th 950. Suggestion: In the contract, the parties should agree to judicial reference under the Code or to a temporary Judge under California Constitution, Article 6, Section 21. More options are available if the parties agree to judicial reference under the Code. 27

28 Judicial Reference (continued) The appointment of a referee can be for all purposes (general or all-purpose appointment) or can be for very specific or special purposes, such as for discovery disputes or for an accounting. If judicial reference is preferred, specify in the contract the following: What types of claims are subject to judicial reference (i.e., all- purpose or special). Specifically refer to the applicable Code sections. Agree on who will be the referee or allow the Court to appoint. Have criteria for who is appointed (i..e., retired judge, attorney, experience in the specific area). Right to object to an appointed referee due to qualifications, conflicts. 28

29 Judicial Reference (continued) If parties cannot agree on the referee, allow the court to appoint the referee. Referee renders written statement of decision. What rules must referee follow (i.e., discovery, Evidence Code, Code of Civil Procedure, Rules of Court).\ In any judicial reference, the decision of the referee is submitted to the court for approval and becomes the decision of the court as if the action had been tried by the court. Like any other decision of the court, the decision is appealable. Factors to consider in deciding to utilize judicial reference include: The parties will have waived the right to a jury trial. 29

30 Judicial Reference (continued) The parties can select their own referee, who does not need to be a judge but can be a retired judge or attorney with subject matter expertise. The timing of the proceedings can be agreed upon by the parties, avoiding a delayed resolution of the dispute. The losing party retains their right to appeal the decision of the referee (unlike arbitration). General Reference - all aspects of the case are handled by the appointed referee. This would be similar to a case decided in arbitration. The entirety of the case is transferred to the referee for determination of all issues. 30

31 Question Answer 31

32 THANK YOU! BERGMAN DACEY GOLDSMITH Los Angeles County Offices: Wilshire Blvd., Suite 900 Los Angeles, California (310) (310) Fax Orange County Offices: Cowan, Suite 200 Irvine, CA (949) (949) Fax Gregory M. Bergman, Robert D. Bergman, 32

33 THIS DISCUSSION AND MATERIALS HAVE BEEN PREPARED FOR INFORMATIONAL PURPOSES ONLY AND HAVE NOT BEEN PREPARED FOR THE PROVISION OF LEGAL SERVICES. PLEASE DO NOT RELY ON THIS PRESENTATION FOR A LEGAL OPINION OR LEGAL ADVICE. ANY LEGAL ISSUES FOR YOUR ORGANIZATION SHOULD BE ADDRESSED TO COUNSEL FOR AN OPINION BASED ON THE FACTS AND CIRCUMSTANCES UNIQUE TO YOUR ORGANIZATION. 33