Walking Gracefully through the Minefield. Contract Clauses and Practical Tips to Help Avoid Litigation

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1 Walking Gracefully through the Minefield Contract Clauses and Practical Tips to Help Avoid Litigation

2 Eric Fishman Partner Pillsbury Winthrop Shaw Pittman LLP Jennifer K. Mailander Associate General Counsel Vice Chair, ACC Litigation Committee Corporation Service Company

3 The Engagement Represent manufacturer of custom made recreational vehicles (the Buyer ) Negotiating agreement with interior completion subcontractor (designs, manufactures, installs and services cabinetry, seating, etc.) (the Seller ) Buyer agrees to give Seller an exclusive right to provide completion services for RVs over next five years Seller agrees to use best efforts to timely complete interior work on the RVs Parties agree to liquidate damages for delays in completion of interior work Contract is to be governed by New York law 2 Clauses To Avoid Litigation

4 The Integration Clause Standard: This Agreement constitutes the entire Agreement between the Buyer and Seller, and supersedes and cancels all prior agreements, negotiations, drafts, representations and communications, whether oral or written, between Buyer and Seller or their respective agents, with respect to or in connection with the subject matter of this Agreement. 3 Clauses To Avoid Litigation

5 The Integration Clause (cont d) Modified: Add to the standard clause: The Parties acknowledge that they have entered into this Agreement in reliance upon their own independent investigation and analysis and that neither has been induced to enter into this Agreement by virtue of, and is not relying upon, any representations or warranties not set forth in this Agreement, including, without limitation, any prior representations concerning [Seller s right to be the completion center for other vehicle lines, projections concerning the RV market,{etc}.] Buyer and Seller acknowledge that they are sophisticated parties that have been separately represented by counsel, and that neither is relying upon any representations or warranties (or the absence of any representations or warranties), except as set forth in this Agreement. 4 Clauses To Avoid Litigation

6 The Choice of Law Clause Standard: This Contract shall be governed by and interpreted in accordance with the laws of the State of New York. 5 Clauses To Avoid Litigation

7 The Choice of Law Clause (cont d) Modified: This Contract, including its formation, performance, termination or enforcement, and the parties relationship in connection therewith, together with any related claims whether sounding in contract, tort or otherwise, shall be governed, construed and enforced in all respects in accordance with the laws of New York, excluding New York s conflict of law principles. [This contract shall be deemed a goods contract.] 6 Clauses To Avoid Litigation

8 Vague Clauses Standard: Seller agrees to use its best efforts to fulfill its obligations under this Agreement, including its obligation to timely outfit and deliver RVs to Buyer. 7 Clauses To Avoid Litigation

9 Vague Clauses (cont d) Modified: Seller agrees to use its best efforts to fulfill its obligations under this Agreement, including its obligation to timely outfit and deliver RVs to Buyer, by, among other things, (i) at all times maintaining staffing and factory capacity sufficient to complete five RVs per month, (ii) operating the facility 24 hours/day when necessary to meet orders, etc. 8 Clauses To Avoid Litigation

10 Presumptions to Address Ambiguous Clauses Standard: No party shall be considered to be the draftsperson of this Agreement. 9 Clauses To Avoid Litigation

11 Presumptions to Address Ambiguous Clauses (cont d) Modified: No party shall be considered to be the draftsperson of this Agreement, provided, however, that [option a] the party claiming the benefit of any provision found to be ambiguous shall have the burden of establishing the construction it advances. [option b] any provision found to be ambiguous shall be construed against the person claiming the benefit of the clause. 10 Clauses To Avoid Litigation

12 Standard: None. Clauses Addressing Adequate Assurance of Performance Modified: When reasonable grounds for insecurity arise with respect to the performance of either party, [such as, without limitation, Seller s failure to deliver any RV within 30 days of the scheduled delivery date, or Buyer s delay in making a payment when due for more than 30 days], the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return. [UCC 2-609] 11 Clauses To Avoid Litigation

13 Termination Clauses Standard: The Buyer may terminate this Agreement for any reason or no reason at all upon 30-days notice to the Seller. In the event of a termination for convenience, Buyer shall pay to Seller [specify]. The Buyer may terminate this Agreement for cause in the event the Seller fails to cure an Event of Default within 30 days of notice. 12 The Claus 12 Clauses To Avoid Litigation

14 Termination Clauses (cont d) Modified: As above, except consider adding the following: Acceptance by Buyer of a non-conforming tender or a request by Buyer for performance as to future deliveries shall not impair Buyer s rights to terminate this Agreement in whole in part in case of an Event of Default. In case Buyer terminates based on an Event of Default and it is later adjudicated that no Event of Default occurred, the termination shall be deemed to have been made for convenience. 13 Clauses To Avoid Litigation

15 Liquidated Damages Clauses Standard: If Seller fails to deliver a Product on or before the delivery date, Buyer shall be entitled to a liquidated payment equal to $x with respect to each Day of delayed delivery. 14 Clauses To Avoid Litigation

16 Liquidated Damages Clauses (cont d) Modified: If Seller fails to deliver a Product on or before the delivery date, Buyer shall be entitled to a liquidated payment equal to $x with respect to each Day of delayed delivery. The parties agree that delay damages are difficult to quantify insofar as delays may adversely impact the reputation of Buyer and may require Buyer to provide noncash concessions to customers as a consequence of delay, and further agree that the liquidated damages sets forth herein are reasonable in light of the anticipated harm caused by Seller s delay. Nothing herein is intended to preclude Buyer from recovering additional damages from Seller in the event Seller s delay causes Buyer to lose a sale to a customer. 15 Clauses To Avoid Litigation

17 Sole and Exclusive Remedies Standard: In the event Seller fails to provide goods in conformity with this Agreement, Buyer s sole and exclusive remedy shall be repair or replacement of the defective goods. 16 Clauses To Avoid Litigation

18 Sole and Exclusive Remedies (cont d) Modified: In the event Seller fails to provide goods in conformity with this Agreement, Buyer s sole and exclusive remedy shall be repair or replacement of the defective goods; provided, however, that in the event such remedy is found to fail of its essential purpose, remedy may be had as otherwise available at law or equity irrespective of other remedy restrictions set forth herein. 17 Clauses To Avoid Litigation

19 Fee-Shifting Clauses Standard: In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses, including reasonable attorneys fees, of enforcing any right of such prevailing party hereunder. 18 Clauses To Avoid Litigation

20 Fee-Shifting Clauses (cont d) Modified: In the event any party brings a Non-Merits Based Motion (defined below), the losing party shall pay the prevailing party s reasonable attorneys fees associated with such motion within ten days after adjudication of the Non-Merits Based Motion. The phrase Non-Merits Based Motion shall include any motion or request for relief based upon any of the following subjects: (a) discovery, (b) judicial forum or venue, (c) personal jurisdiction, (d) subject matter jurisdiction, (e) service of process, (f) attorney or party conduct in the course of the litigation (including without limitation sanctions motions), (g) recusal of the court, (h) disqualification of counsel, (i) joinder of parties and (j) consolidation of proceedings. If the moving party fails to prevail on any substantive aspect of its Non-Merits Based Motion, the non-moving party shall be deemed the prevailing party, even if the moving party prevails on all of the other substantive aspects of its Non-Merits Based Motion. If the losing party fails to pay the prevailing party s reasonable attorneys fees in the time period set forth above, the prevailing party may apply for an order compelling such payment and may obtain all attorneys fees incurred in connection with such application. 19 Clauses To Avoid Litigation

21 The Arbitration Clause -- Key Elements Whether to have a mediation requirement Constitution of the panel -- 1 or 3 arbitrators? All neutral? Limited subject matter clauses Consolidated hearings Location Discovery Administered proceedings? Time limits Reasoned award? 20 Clauses To Avoid Litigation

22 Key benefits: To Arbitrate or Not? Decision maker with subject matter expertise Decision maker with incentive to invest in case Privacy for commercially sensitive issues (employment, trade secrets, etc.) Enforcement in jurisdictions that do not recognize U.S. judgments

23 Key drawbacks: To Arbitrate or Not? Arbitrability disputes Limited rights of appeal, limited discovery, no jury Efficiency gains often do not materialize 22 Clauses To Avoid Litigation

24 Modified Litigation Clauses Limits on the Discovery Period: The parties agree that, except as otherwise ordered by a court, all fact and expert witness discovery will be completed within [eight] months after an answer to a complaint (or other document initiating a judicial proceeding) has been filed, and that no extension of the discovery period will be requested unless good cause for an extension exists. To demonstrate good cause, a party must establish that circumstances beyond its control have prevented it from completing discovery in the time period set forth herein. 23 Clauses To Avoid Litigation

25 Modified Litigation Clauses (cont.) Limits on E-Discovery: No party may seek electronic discovery, except for s and their attachments 24 Clauses To Avoid Litigation

26 Modified Litigation Clauses (cont.) Limits on Depositions: The parties will take no more than [5] depositions of fact witness, whether such witnesses are parties or non-parties; provided, however, that nothing herein shall limit a party s right to depose any proffered expert witness. 25 Clauses To Avoid Litigation

27 Modified Litigation Clauses (cont.) Limits on Expert Discovery: The parties agree that all communications with expert witnesses, including communications between counsel and such experts, as well as all draft reports, shall be treated as attorney-work product. 26 Clauses To Avoid Litigation

28 Questions? Eric Fishman Pillsbury Winthrop Shaw Pittman LLP (212) Jennifer K. Mailander Corporation Service Company , x63467