The BUSKLAW October Newsletter: Two Cases Show How Disrespecting Contract Mechanics Can Cut Both Ways!

October 1, 2019 Chadwick C. Busk

I'm a big fan of the "mechanics" profession. From the mechanic who keeps your vehicle from breaking down amidst a polar vortex to the HVAC person who makes sure that your home stays cool in the summer and warm in the winter, honest mechanics prevent unpleasant circumstances.

The same is true for the "mechanical" aspects of contracts, including the proper choice of the contracting party and ensuring that the right party signed the final version of the contract that was then signed by the other party, with both parties keeping a signed and dated version of the same contract. When contract mechanics are "dissed," litigation is likely, with a judge or jury having to sort things out - with far from predictable results.

Two recent court cases illustrate this point: the Texas appeals court case of Austin Tapas, LP, d/b/a Malaga Tapas & Bar and Greg Schnurr v. Performance Food Group, Inc. and the Delaware case of Stacey Kotler v. Shipman Associates, LLC.

Let's examine the Tapas case first. Performance Food Group (PFG) supplied goods to the Malaga Bar, the bill for which wasn't paid, so PFG sued. The contract consisted of a "Customer Account Application" that identified the Bar as Austin Tapas, LLC, not Austin Tapas, LP and incorrectly listed the Bar's general partner as Mr. Schnurr. Despite these discrepancies, the lower court concluded that the "LP" and Schnurr were jointly and severally liable to PFG, so an appeal followed.

Defendants argued that the trial judge erred in finding the LP and Schnurr liable to PFG, pointing to the incorrect information on the Customer Account Application, but the appellate court disagreed, finding that Texas law on unnamed/misnamed proper parties applied, i.e., the law on misnomers. The court found that a misnomer in a contract may be corrected where (1) the unnamed/misnamed proper party to the contract wasn't misled by the misnomer; (2) the identity of the unnamed/misnamed proper party is apparent from the contract; and (3) the parties intended the unnamed/misnamed party to be the contracting party. And it didn't help Defendants when Mr. Schnurr testified that putting "LLC" instead of "LP" on the contract was an error and that the "LP" in fact owed PFG for the goods.

Contrast the finding of an enforceable contract in Tapas with the opposite result in Kotler. Stacey Kotler worked for a profitable cosmetics retailer, theBalm.com, as a "highly effective salesperson." Eventually, she asked for a stock option agreement, and Balm's management was receptive. So Kotler and Balm hired lawyers who began drafting and exchanging stock warrant agreements over the course of eight months. But shocking as it may be, the parties paid little attention to a key provision in the agreement until the very end of circulating drafts: a post-employment non-compete provision that would have prevented Kotler from competing with Balm after she left the company. Including this provision was essential from Balm's perspective but unacceptable to Kotler. From the sketchy facts in the case, it appears that Kotler signed a version of the agreement with no non-compete, Balm signed a version with the non-compete, but neither party bothered to get a completely signed copy of either version. Kotler left the company and immediately started competing with Balm. She then sued Balm to enforce her version of the agreement without the non-compete.

The Delaware court did a heroic job of sorting out what happened based on witnesses' hazy recollection of the facts (Kotler couldn't recall the name of her attorney or the law firm who worked on the agreement), the inconclusive agreement drafting history, and ambiguous circumstances surrounding who signed what version of the agreement when. In the end, the court found that Kotler's production of the "wet ink" fully-signed agreement resulted from Kotler attaching the signature page of Balm's version with the non-compete to the signature page of Kotler's version without that provision. (Apparently, the signature pages were separate from the body of the contract, something that transactional lawyers should avoid!) As a result, Kotler failed to demonstrate an essential element of a contract: a meeting of the minds. Poof, no contract! (Note: The court decided that it wasn't necessary to determine if Kotler committed fraud.)

These two cases show what can happen when contract mechanics are disrespected. Sometimes you end up with an enforceable contract, sometimes you don't. But the companies involved must always spend their own time as the litigation evolves - and pay their lawyers big bucks to fight the courtroom battle.

Have you checked "under the hood" of your contracts recently? A bit of "preventive maintenance" now can avoid a costly breakdown later!

If you find this post worthwhile, please consider sharing it with your colleagues. The link to this blog is www.busklaw.blogspot.com and my website is www.busklaw.com. And my email address is busklaw@charter.net. Thanks!

The BUSKLAW August Newsletter: Clean Out Those Cobwebs in Your Contracts!

August 1, 2019 Chadwick C. Busk

Cobwebs are subtle signs of neglect. Although supposedly spider-generated, I swear that they appear out of thin air. They sneak into attics, ceiling corners, under sinks, and in the guts of your personal computer. But they can also lurk in your contracts, figuratively speaking. August is the perfect time to pause your hectic pace (perhaps while your tireless first assistant is enjoying a rare vacation), open your contracts file cabinet, and clean out the cobwebs in your contracts.

Before we discuss the cobwebs to search for and destroy, you may respond, "but I don't have a contracts file cabinet - all my contracts are stored digitally on my computer." Wrong approach! It makes good sense to print out your contracts and put them in a physical (dustproof) file folder that is then stored in a physical (fireproof and locked) file cabinet. Does this sound old-fashioned? Consider the established fact that reading text on paper has several advantages to reading text on a screen, as this Scientific American article describes. So fire up your printer and print out your contracts "before you dot another 'i' Bob Cratchit!"

So we'll assume that you now have your paper contracts in front of you. Let's begin the cobweb-cleaning work. Here's what to look for:

Are your contracts legible, i.e., can you actually read the print on all of the pages? When I practiced in U.S. Bankruptcy Court (a long time ago), Judge Nims wouldn't even consider admitting a document into evidence unless it was totally legible. So if you discover unreadable pages in your contracts, you need to fix that, even if it means asking the other party for a clearly readable copy of the contract.
Are your contracts signed and dated? I once had a client who (before they hired me) avoided signing any of their contracts (after the other party signed first and would hopefully forget to ask for a fully-signed copy) on the assumption that if the relationship didn't work out, you could escape liability because you never signed the contract! Nice try, but it doesn't work that way. If the parties acted according to the contract, a judge or jury may find that the contract is enforceable, even if it wasn't fully signed. (And no, "executed" isn't the synonym of "signed.")
Are your contracts still in effect? Do you track the expiration (and any renewal) terms of your contracts? The more contracts that you have, the more likely it is that you are operating under an expired contract. This can cause problems for everyone involved. If you want the relationship to continue, you best prepare an amendment retroactively extending the termination date. But don't be surprised if the other party demands something in return. After all, contracts are a two-way street!
Are you (and the other party) in compliance with the contract's insurance provisions? If your contracts contain insurance provisions (whether applicable to one or both parties) are you in compliance? What about the other party? Unless you have a close relationship with your risk manager, you may not know if your company still has the required insurance coverages in effect, or if the same is true for the other party. And if the parties are required to exchange insurance certificates reflecting the required insurance, do you have a current insurance certificate from the other party? And if the contract requires the other party to name you as an additional insured, does your insurance certificate from the other party reflect that? If not (e.g., the certificate simply names you as a "certificate holder"), you have unexpected liability exposure to third-party claims.
(For IT folks) Do you have contracts for cloud services? If so, whether you are the customer or vendor, the data security provisions deserve close scrutiny. Data security standards and audit rights are essential parts of any cloud services agreement together with appropriate insurance, indemnity, and limitation of liability provisions. (If you have any questions about those, please remember this recent post.)
Do your contracts contain confusing, ambiguous, and turgid legal jargon? My readers know the mantra: lawyers who draft contracts containing legal jargon are doing a great disservice to their clients. It's axiomatic that legal jargon leads to disputes, disputes lead to litigation, and litigation outcomes at best are a Pyrrhic victory. So if your lawyer doesn't use plain language principles advocated by such respected legal scholars as Ken Adams, Bryan Garner, and Joe Kimble, find a lawyer who does and have them cleanse that poppycock from your contracts. (If you need help with that, drop me a line.)

Having eradicated these cobwebs from your contracts, you can show your first assistant that you remained terrifically productive during her summer-vacation absence!

The BUSKLAW July Newsletter: The "Inside Baseball" Business Litigation Stupid Strategy Post

July 9, 2019 Chadwick C. Busk

There's baseball and there's inside baseball. The former brings to mind Detroit Tigers baseball and the legendary Ernie Harwell. In the early 60s, my father and I would camp out on our porch during the summer months and listen to Ernie's play-by-play over the recently-invented portable transistor radio. Late games were punctuated by euphonious crickets and frogs, some of whom resided in or around our cement-pond swimming pool. This chorus - combined with Ernie's sonorous narrative - often sent me off to dreamland.

But "inside baseball" is different. The term implies knowing something that is beyond ordinary understanding. Esoteric even. More effort is required to grasp "inside baseball" information, but the payoff is greater: you become smarter! So bear with me.

This blog has often cited business cases decided by Kent County (MI) Circuit Court Judge Christopher Yates. Judge Yates not only writes opinions with brevity and wit; he's a modest soul who invites lawyers to call him "Chris" outside of the courtroom (a judge with humility? - what a concept).

In the case of Young v Vandermeer, Judge Yates was presented with the messy aftermath of a business falling out. The corporation was Grand Connection, Inc. ("GCI"), and its two shareholders were Amy Young and Teresa Vandermeer. Five years ago, Judge Yates order GCI dissolved after Young and Vandermeer couldn't agree on how to run the operation. But now the parties were back before Judge Yates to decide the fate of eight claims brought by Young against Vandermeer.

Let's set the stage. Trial lawyers make claims for their clients. That's what trial lawyers do. And trial lawyers are prone to make claims that have little or nothing to do with the facts or the law of their case, thinking that if you throw enough mud (or a more disgusting substance) against the wall (here defined as the Court), some will stick. But judges take a dim view of peppering them with unfounded claims; the reputation of the lawyer bringing these claims may suffer - and rightfully so. Fortunately for Young's lawyer, Judge Yates was tolerant, stating in a footnote that:

A hallmark of the Kent County [MI] Specialized Business Docket is numerosity of claims. The instant case surely does not disappoint in that regard, so the Court must engage in its usual practice of plowing, claim by claim, through the plaintiff's overstuffed pleading.

Here are the eight claims against VanderMeer that Young pitched to Judge Yates, the required elements of each, and why they failed:

Claim Description	Required Elements (MI law)	Why The Court Rejected
1. Statutory Conversion of Money	(1) Money must amount to personal property; and (2) VanderMeer must have had an obligation to return that money to Young.	There wasn't any actual money that could have been converted. Unrealized profits are not personal property, so they couldn't have been converted.
2. Misappropriation of Corporate Opportunities	VanderMeer must have been a corporate officer or director who appropriated a corporate opportunity for her own benefit, thereby breaching her fiduciary duties to the corporation.	Young has no standing to assert this claim because she isn’t the corporation that was allegedly injured, and she can’t assert the claim as a GCI shareholder because she doesn’t meet the statutory requirements for a derivative shareholder suit.
3. Fraudulent Misrepresentation	VanderMeer must have misrepresented a past or existing fact.	The alleged fraudulent misrepresentations were made by the court-appointed receiver who wasn't even a representative of VanderMeer.
4. Silent Fraud	VanderMeer must have suppressed a material fact that she was legally obligated to disclose, rather than making an affirmative misrepresentation.*	No evidence that VanderMeer's action in renewing an essential GCI software license without informing Young was fraudulent.
5. Shareholder Oppression	(1) VanderMeer must have engaged in fraud, illegality, or oppressive conduct. (2) Young must have been a minority shareholder in GCI who was abused by “controlling” persons.	Young was an equal GCI shareholder with VanderMeer so the minority shareholder requirement wasn’t met.
6. Tortious Interference with Business Relationships & Expectancies	VanderMeer must have done something illegal, unethical or fraudulent.	Young failed to prove that VanderMeer did anything illegal, unethical or fraudulent.
7. Civil Conspiracy	Requires a combination of two or more persons, by some concerted action, that accomplished a criminal or unlawful purpose, or that accomplished a lawful purpose by criminal or unlawful means.	Young failed to prove that VanderMeer engaged in criminal acts by dealing with GCI's customers.
8. Unjust Enrichment	For an unjust enrichment claim to succeed, there must not be any express contract covering the same subject matter.	There was an express contract between the parties.

*Further, Young must show some type of representation by words or actions that was false or misleading and intended to deceive.

For my trial lawyer audience, does it make good sense to allege these claims when there was no legal or factual support for any of them? Are you worried that making unsupported claims tarnishes a lawyer's credibility in arguing future cases before the Court?

For my business audience, now that you know about these somewhat esoteric causes of action, if you find yourself in a nasty dispute with a fellow shareholder, you can alert your lawyer to give them due consideration. Perhaps you will fare better than Ms. Young - or not!

Cue music: And it's one, two, [NO] eight strikes you're out at the old ballgame!

The BUSKLAW June Newsletter: Forcing Business Behavior Changes Through Buried Contract Provisions: Salesforce and Camping World

June 12, 2019 Chadwick C. Busk

As reported by The Washington Post, business-software giant Salesforce recently instituted a policy barring its retailer customers from using its technology to sell semi-automatic weapons, including the AR-15 used in numerous mass shootings. One such customer is Camping World, whose Gander Outdoors division sells many "AR" and other semi-automatic rifles.

Rather than approach Camping World/Gander, a "leading" Salesforce customer, and negotiating the termination of their semi-automatic rifle sales in exchange for some benefit (such as a software discount), Salesforce was tricky. They buried a provision barring the sale of semi-automatic rifles in the acceptable-use policy ("AUP") binding on Camping World/Gander:

Salesforce wants to force Camping World/Gander to make a major change to its business model via an addition to their AUP that is irrelevant to their customer's licensed use of Salesforce software. And although sneaky, I bet that the Salesforce master software license agreement contains the customer's promise to follow their AUP "as Salesforce may amend it from time to time." Which brings us to the question of why Camping World/Gander is continuing to sell semi-automatic weapons to this day, apparently in violation of the Salesforce AUP. (Hey Salesforce and Camping World executives out there, what's the deal?) Doesn't Salesforce worry that if they don't enforce this provision in their AUP, they may be estopped from enforcing it in the future? I'd certainly worry about that!

The tactic of forcing business behavior changes (arguably for the greater good) through buried contract provisions is worth considering. To a large extent, Salesforce is acting to ban assault rifles because Congress and the courts have failed to do so, thanks to the Second Amendment. (Could the Founding Fathers have foreseen the ruthless killing efficiency of a semi-automatic rifle - or that just about any goofball can buy one?) As a tool to effect a noble purpose, I admire Salesforce's creative contracting.

But what I can't get over is Salesforce using its considerable business leverage on a valued customer to change their business model without prior discussions. And doing it with a "fine print" mandatory - and arguably irrelevant - contract provision (rising to the level of a "gotcha") is repugnant to me. That's not how reasonable persons should conduct business.

Are you game for the Salesforce approach to banning semi-automatic rifles (and the other nasties listed in their AUP)? Or (regardless of your feelings about the Second Amendment), do your sympathies lie with Camping World? Reasonable minds may differ!

A BUSKLAW Newsletter Aside: We Speak Information Technology Law

May 15, 2019 Chadwick C. Busk

When I describe my legal specialty as information technology ("IT"), the common response (along with a puzzled look) is, "what does that mean?"

Short answer: "It means a lot."

Because there isn't a business in existence that isn't affected by something IT related. Does your firm have a website that collects personal information? Then you should have terms of use (and a cookie policy) that comply with state and federal laws, regulations, and the GDPR. Do you sell things on your website and accept credit cards as payment? Then you must institute payment card industry data security standards to protect that credit card data from hackers. And you also must have credit card agreements with your card companies and processing bank that contain indemnity and other "bet your business" obligations. In my experience, credit card agreements are notoriously one-sided and chock full of legal jargon. Have you read yours?

Apart from those considerations, do you lease or buy computers for your firm? What legal terms govern those deals? Do your computers run software programs that are properly licensed to you? Is the data generated by your computers adequately secured on your premises and backed-up in the cloud? And do you allow your employees to access your data remotely or via their own devices? Do you hire contractors to work on (or off) your premises? Do they use their own computing devices as part of their work?

If the answer to these questions is "Yes," then you need a lawyer with IT expertise. Good news! I've acquired this expertise by working with some great corporate IT business folks over the years and developing specialized IT contracts, as this snapshot from just one of my legal subdirectories illustrates:

If you see anything you need from this list, just call or email me about working with you to meet your IT legal needs. And I can help with your other legal needs too.

There's no charge for an initial consultation (I'll even buy you coffee) to see if we make a good fit! Maybe like these two guys engaged in an important contract review (or maybe not):

IT law casts a wide net. Have you closed the gaps in that net as it applies to your business?

BUSKLAW Endorsements - NEW

May 6, 2019 Chadwick C. Busk

I’ve worked with Attorney Chad Busk on several questions about our website and other business-related matters. He always quickly responds to our legal questions. He knows how to clearly and concisely draft content for our website and technology contracts. When required, he negotiates with other attorneys in a cost-effective and constructive manner. And he uses plain English rather than legal jargon. I highly recommend him.

----Steve Lewis, Fusionary Media, Grand Rapids, Michigan

_________________________

I’ve worked with Attorney Chad Busk on several information technology transactions in the past few years. He always responds promptly to my legal questions and resolves issues in a cost-effective way. He knows how to clearly and concisely draft technology contracts to express the desired business purpose with the necessary legal provisions to protect my business. He uses plain English rather than legal jargon. He’s a pleasure to work with, and I highly recommend him.

----Tom Cruttenden, Heartland Engineering, Rockford, Michigan
_________________________

Since 2014, we have worked with Attorney Chad Busk on several corporate transactions for our online luxury yarn company. Chad’s expertise and his timely turnaround are invaluable assets to our business. He is great to work with and we recommend him wholeheartedly.

----William Alt and Kimberly Bruyn, Plucky Knitter, Inc.

The BUSKLAW May Newsletter: "Here's Another Clue for You All, the Walrus Was..."

April 30, 2019 Chadwick C. Busk

To continue the title: Paul. As in Sir Paul McCartney. But in 1969, there was a problem: several radio stations broadcast a conspiracy theory: Paul died in a car crash in 1966. And the remaining Beatles covered it up and replaced the dead Paul with an (apparently equally-talented) imposter. Fans began scouring Beatles songs for evidence of the ruse; they pointed to "The walrus was Paul" line from the song White Onion, concluding that "walrus" was the Greek word for corpse (it isn't). in reality, John Lennon was messing with fans' propensity to find meaning to those lyrics when there was none. In an interview for what later became the Beatles Anthology television documentary, John said:

I threw the line in—"the Walrus was Paul"—just to confuse everybody a bit more. It could have been "The fox terrier is Paul." I mean, it's just a bit of poetry. I was having a laugh because there'd been so much gobbledygook about Pepper—play it backwards and you stand on your head and all that.

Despite John's explanation for Paul the walrus, the Paul is dead urban legend continued long after 1969; in 2009, Time magazine included the tale in its article on ten of "the world's most enduring conspiracy theories."

Because there's something in the human psyche that won't let go of patently false assumptions. Psychologist Valerie Tarico observes that "false ideas can be sticky...they can spread from person to person, getting elaborated along the way until they become virtually impossible to eradicate." Examples of widely-adopted beliefs that aren't grounded in facts abound. Climate change is not happening. An American president was born in Kenya. Wind turbines cause cancer. Vaccinations kill children. And I have another candidate for that list: Legal jargon benefits society.

Time and again this argument has been debunked but persists as a sticky false assumption. Professor Joe Kimble, in his book Writing for Dollars, Writing to Please: The Case for Plain Language in Business, Government, and Law (2012), cites empirical evidence (summaries of 50 case studies) for the enormous benefits of using plain language. And see this Michigan Bar Journal article that my colleague Michael Braem and I wrote describing several proposed justifications for legal jargon and why they must fail.

This brings us back to last month's post where we pulled apart the purchase and operating agreements for the ICON A5, the snazzy, pricey "jet ski with wings." I reached out to ICON's senior management with predictable results. They first thought that I wanted to purchase one of their planes. (No, can't afford it, no place to park it.) Then they thought that I wanted to discuss "jet card options." (What are those, my precious?) When I stated that I was simply giving them the link to my constructive critique of their contract documents, I was met with stony silence.

As the venerable Cully Wilson said, "I tried, puppy." ICON has the right to preserve the useless accuracy of their legal jargon (thanks to Professor Patrick Barry for coining that fitting term). Perhaps I planted a seed, ICON will take another look at their contracts without telling me, and revised, cleansed versions will miraculously appear on their website. (Hope springs eternal, so I'll have to keep checking their website.)

Or perhaps ICON has another motive. One of my constant readers remarked that ICON may want to force a purchaser (or their counsel) to figure out how many ways jargon-filled and vague contract language could be interpreted. Like first having to scale the medieval wall of jargon before getting inside the castle of contents. "It works well, so no reason to 'monkey' with success!" ICON claims that they have sold around 100 A5s, but who's to say that they couldn't have sold more (or the same number with less deal fatigue) with clear and concise contract language?

False ideas and fanciful conspiracies aside, we are left with this truth, so well put by Justice Ruth Bader Ginsburg: "The law should be a literary profession, and the best legal practitioners do regard law as an art as well as a craft." Designing sleek, innovative airplanes (and cars and boats and rockets) is an art too. It's time that the purchase contracts for these marvelous machines join the team!

The BUSKLAW April Newsletter: Pulling Apart the Purchase Agreement for the ICON A5: "The Jet Ski with Wings"

April 1, 2019 Chadwick C. Busk

The ICON A5 is an amphibious "light-sport aircraft" that is marketed primarily to adventurous amateur pilots with deep pockets (and spacious home garages in which to store their ICONs). The plane has a recreational focus; it can seat only two, has limited load capacity, and isn't intended to go very far. The cost of the plane was $139K when first introduced in 2006 but is now $389K for a "fully-loaded version."

YouTube is full of videos showing how much fun you can have with an ICON A5 (especially with water landings and take-offs), bringing to mind the "jet ski with wings" analogy. So the ICON A5 is perhaps the ultimate high-tech, outdoor adult toy (unless you're afraid of heights). There have been several fatalities with the A5, but these apparently resulted from pilot error in one case and reckless flying in another rather than from mechanical defects or design flaws.

The ICON A5 Purchase Agreement (including the Operating Agreement as Exhibit B) may be freely downloaded from the ICON Aircraft, Inc. website. Because folks have criticized ICON for these one-sided contracts in the past, I decided to review the circa 2016-2017 (and supposedly more user-friendly) versions and evaluate them from a structure, style, and content perspective. Here's what I found:

Structure
Lawyers don't often worry about how a contract "looks and feels" on the page, but they should. Font choice and size, text justification, kerning, page margins, numbering schemes and "waterfall" text (long paragraphs with no breaks) adversely affect a contract's readability. If the writing is too dense, the less likely it will be for a deal to be consummated. Contract structure matters.

The ICON Purchase and Operating Agreements are poorly structured, for example:
> The font is too small, giving a new meaning to the term "fine print."
> Kerning issue - the space between the characters is inadequate.
> The text is fully justified but should be left-margin justified for easier readability.
> The Agreements confusingly refer to both "Sections" and "Paragraphs" without explaining a reason for that distinction.
>The Agreements put key provisions in CAPS (again affecting readability) when bold text is sufficient. And there's no need to put the paragraph headings in underlined CAPS. PUTTING TEXT IN CAPS IS SHOUTING, AND NO ONE APPRECIATES THAT! AND BOLD TEXT IN CAPS IS WORSE!
>Romenettes ("i," "ii," "iii," etc.) are used that are non-intuitive.
> Much of the Operating Agreement's legal content could be included in the Purchase Agreement; the Operating Agreement could be shortened and simplified as a result. There's no reason to say the same thing twice - once in the Purchase Agreement and again in the Operating Agreement.

Style
The style of a contract is whether the plain language is used rather than archaic, ambiguous, and confusing legal jargon.

The ICON Purchase and Operating Agreements are rife with legal jargon, for example:
> Use of RECITALS with multiple "WHEREAS" clauses and completely unnecessary consideration recitations.
>Unnecessary capitalizations (e.g., "Parties," "Paragraph," "Agreement,").
>Using the word "executed" when "signed" is intended.
>Use of archaic legalisms (e.g., "IN WITNESS WHEREOF").
>Use of the confusing "and/or" term and redundant phrases like "among other things" and "payment by check will not be deemed received until final funds have cleared the issuing bank."

Content
The content of a contract is judged on whether it efficaciously accomplishes the intended legal and business purpose. In ICON's case, the purpose is twofold: first, to create a legally-binding ICON A5 aircraft purchase obligation; and second, protect ICON from liability for property damage or death resulting from the A5's ownership and operation.

The ICON Purchase and Operating Agreements contain several ambiguous provisions that don't protect the company but are likely to trouble a potential pilot/purchaser:
> The Agreements contain broad liability release and covenant not to sue provisions that include ICON'S negligence, but these provisions will be deleted if the customer agrees to pay $10K more for the aircraft. But $10K more is only a mere 2.6% increase in the cost of the plane! Why not simply exclude the broad liability exclusions from the agreements and increase the cost of the plane to begin with? This would help simplify the contract and make the deal much more palatable to potential ICON A5 purchasers.
>At the aircraft sale closing, ICON will deliver the "then-current" A5 Limited Warranty. If I'm the buyer, I'd want a representation that the Warranty delivered at the closing won't be any less favorable to me than the Warranty that I reviewed when I signed the purchase agreement.
>As stated in the agreement, ICON may delay the sale closing date indefinitely (but must adjust the purchase money deposit due dates). Buyer should have the right to cancel the purchase agreement (and receive a full refund of their deposit) if ICON delays the estimated closing date by more than "X" days. (30 days would be typical.)
>Buyer acknowledges that the A5 is not "suited or authorized...for aerobatics." The buyer should ask that "aerobatics" be defined since part of the appeal of flying the aircraft is that it can be used for fun, arguably including "aggressive flying."
>Buyer understands that it is "receiving an early production run aircraft and as a result, service bulletins may initially be frequent, and that ICON's service network is not yet fully developed." The buyer should demand this sentence be deleted because the aircraft was first marketed in 2006 and the ICON service network should be fully developed (in the U.S.) by now. (If the service network isn't fully developed, the gaps should be identified.)
>I have several "inside baseball" criticisms better discussed between lawyers.

The purchase and operating agreements show that ICON is very sensitive about its reputation. It doesn't like negative publicity, including reports of accidents involving its aircraft. And ICON recognizes that it has liability exposure to amateur pilots looking to have fun in an aircraft that can cause trouble; there's little chance of successful legal action against ICON for death, injury, or property damage resulting from the plane's use or ownership. So if you buy an ICON A5, you are "joined at the hip to ICON" for as long as you own the plane (and you can only re-sell it to an ICON-approved buyer). Caveat emptor.

Conclusion
ICON's purchase and operating agreements aren't acceptable from either a structure or style view - they are over-lawyered. The sleek lines of the ICON A5 aren't carried over to their contract documents. Their content is generally acceptable but should be reworked and reorganized. This contractual renovation wouldn't be a trivial undertaking; however, it could be accomplished without reducing the protection that the contracts' risk-shifting provisions afford to ICON. And here's the upside of a clear and concise ICON A5 purchase and operating agreement: selling more airplanes!

I plan to send ICON a link to this post to see if they care to respond to this constructive critique, and I'll let you know if they do.

The BUSKLAW March Newsletter: Don't Use "Form" Contracts!

February 28, 2019 Chadwick C. Busk

I have a confession: I'm an office-supply-store junkie. I love to browse the shelves brimming with multi-colored pens, pencils, file folders, legal pads, rubber bands, and paper clips. (Yes, paper clips - the gold ones are especially snazzy!) And I love the snacks that you can buy in bulk, especially Twizzlers. Because if you brought that decorative low-fat snack back to your office, your colleagues would praise you for giving them something tasty that also satisfies the common urge to relieve stress by chewing things.

But there's a dark side to office supply stores: they sell form contracts. The fill-in-the-blank, "one-size-fits-all" kind. (The General Agreement is my Bizarro-World favorite; then again, as Shakespeare said, "What's in a Name?")

There are several reasons why using off-the-shelf legal form contracts is ill-advised:

1. You don't know if the form contract complies with your State's law. Even if a form is labeled "suitable for use in [your State]," you have no assurance that it complies with your State's law in effect on the day that the agreement is signed, and no appropriate remedy if it doesn't. A refund of the cost of the form, perhaps, but so what?

2. What about the form contract's relationship to other legal documents? The form likely refers to other legal documents, and it's too easy for a non-lawyer to ignore those or fail to understand how they should relate to the principal form. For example, many professional services form agreements refer to a statement of work ("SOW") that should be attached to the agreement, but what if the SOW conflicts with the agreement in some way? In some cases, the SOW should control; in others, the agreement should take precedence. There's no way that an untrained person can decide which document should control.

3. The form contract doesn't consider your business culture. In my legal practice, I try to understand my client's business culture, including their appetite for risk - and their available insurance coverage. But it's impossible for the author of a form agreement to draft it with these considerations in mind. For example, your management might prefer mandatory arbitration of disputes arising from the agreement rather than litigation. The form may not reflect your management's position on this and other areas where business preferences intersect with legal terms, such as provisions excluding certain damages and limiting liability.

4. The form contract doesn't account for your bargaining position with the other party. A competent contract attorney learns the extent that his client has bargaining leverage over the other party and drafts (or reviews) the contract accordingly. But form contracts have no way to gauge the parties' bargaining leverage, resulting in generic or neutral provisions that may not adequately favor the party having that leverage.

5. The form contract will probably contain ambiguous, confusing, and litigation-engendering legal jargon. Most form contracts rehash other old contracts without considering the stupid legal jargon that should be tossed out and replaced with plain language. I've talked a lot about how legal jargon hurts the reader's understanding of a contract and can lead to litigation, and it's likely that a form contract will be rife with it. Here's my humorous treatment of legal jargon. For a more serious perspective, here's an article that I wrote for the Michigan Bar Journal.

For these reasons, if you use form contracts, you're rolling the dice on whether they will accomplish your legal - and business - purpose. So don't use them!

The BUSKLAW February Newsletter: "What's in Your Contracts?" The Case for Auditing Your Contracts (Part 2)

January 30, 2019 Chadwick C. Busk

In last month's newsletter, we discussed the importance of auditing your business contracts and pointed to five potentially troublesome provisions: identification of the parties, agreement term, payment, intellectual property rights, and confidentiality. But there are additional provisions that deserve careful scrutiny:

> Indemnification. To understand this concept, start with three players: the parties to the contract (call them Able and Baker) and a third player who isn't a contracting party (call him Charlie). Let's say Able manufactures widgets, Baker sells them in its retail stores, and Charlie is a customer who purchases an Able-produced widget from Baker. The widget injures Charlie. Charlie's lawyer sues Able and Baker because Able produced the widget and Baker sold it to Charlie. Baker's only involvement was selling the widget, so he tells Able to take care of it, i.e., defend him in the lawsuit and pay the settlement or the court judgment if the case goes to trial. The extent to which Able must protect Baker from Charlie's lawsuit is what indemnity is all about; chances are that the sales contract for the widgets between Able and Baker discusses indemnification. Lawyers love to fight over indemnity, including whether the buyer's negligence is covered, i.e., if Charlie's injuries from the widget didn't result from a manufacturing defect but because Baker damaged the widget before it was sold to Charlie and thus created the hazard that caused Charlie's injury.

The proper drafting of indemnification provisions is crucial, and exceptions or conditions to the duty to indemnify should be carefully stated. And indemnification should always relate to third-party claims and not to damages between the contracting parties for breach. Do the indemnity provisions in your contracts pass this test?

>Insurance. Insurance provisions are vital in business contracts, but in my experience, transactional lawyers don't always understand the various insurance coverages available and how they relate to other contractual provisions. Using the above example, Baker may require to Able to maintain contractual liability insurance (and Able may want this as well) to fund (or "insure over") Able's obligation to defend Baker from Charlie's product liability suit. And cyber-risk insurance has become available that should protect a company from claims resulting from data breaches. Companies that handle customer data should seriously consider obtaining that insurance, and a savvy information technology/business lawyer can add value to that process. Is your insurance coverage adequate and complete? Is it properly described in your contracts? What about the other party's insurance?

>Limitation of Liability and Exclusion of Certain Damages. These are key provisions that must be carefully considered unless you don't care about "betting your company" by having unlimited liability when you sign a contract. To simplify a bit, there are three major points to ponder: first, whether there should be a cap on direct damages resulting from a party's breach of the contract; second, whether a party's indirect damages should be entirely excluded from available damages resulting from a breach; and third, whether a dollar cap should apply to a party's obligation to indemnify the other. Do your contracts contain understandable limitation of liability and damages exclusion provisions? And are they consistent with all of the other contractual provisions?

>Governing Law, Jurisdiction, and Venue. What State's laws govern your contract? If you're a Michigan-based company doing business with a California-based company, you probably shouldn't agree that California law governs the contract. And where would legal action under the contract occur? Would you rather litigate in a Michigan court or in a California court? Your decision could make the difference between driving to court proceedings in downtown Grand Rapids - or lengthy plane trips to and from a California court. Do the governing law, jurisdiction, and venue provisions in your contracts prevent you from being dragged into a faraway court?

>Litigation or Arbitration of Contract Disputes. Arbitration proceedings are private; court proceedings are not. Would you care if the news media attends court hearings about your dispute? And court proceedings may be more expensive than arbitration and may involve a jury trial. But if your arbitration provision isn't carefully drafted, you may wind up spending just as much for arbitration than litigation. Do you know if your contracts contain litigation or arbitration provisions? If arbitration, is that provision carefully drafted to ensure that arbitration would indeed be less expensive than litigation?

>Legal Jargon. I've already posted about lawyers and their goofy words. But some legal jargon should simply be removed from your contracts: "and/or;" "execute" to mean "sign;" vague pointing words such as "aforementioned," "foregoing," or "below;" confusing phrases such as "including but not limited to," "in witness whereof," and "for the avoidance of doubt;" and such verbs as "may," "must," "will," and "shall," that can be confusing when used in the wrong context. And the stupid yet common practice of writing numbers in both words and digits, e.g., "thirty (30)." All it takes is a contract containing "fifteen (30)" to land you in court. Have you detected and removed all legal jargon from your contracts? (If your lawyer uses legal jargon, best get a new one.)

And what about words or phrases that sound like legal jargon but aren't? Two examples: first, there's definitely a need to insert "hereby" in some cases. Second, "according to" isn't necessarily the same as "in accordance with." And to further complicate matters, some apparent legal jargon should be retained as terms of art. Do you know what specialized legal language should remain in your contracts - and why?

When Ben Franklin said that "an ounce of prevention is worth a pound of cure," he didn't have contract audits in mind, but his logic holds true. You can hire me to find and correct these potential problems in your contracts for a modest fee. Or you can wait until they blow up and you're forced to hire a litigator to sort them out - at a much greater cost.

2019 is here. What's in your contracts?

The BUSKLAW January Newsletter: "What's in Your Contracts?" The Case for Auditing Your Contracts (Part 1)

January 10, 2019 Chadwick C. Busk

It's 2019! Time to dust off the real - or virtual - dust covering those contracts in your real - or virtual - file cabinet and take a look at them for potential problems waiting to blossom into disputes that could lead to costly litigation. So pick one of your more important business contracts and review the following provisions to see if any of these concerns hit home:

> Identification of the Parties. For some reason lost in the annals of time, lawyers often identify the contracting parties with names that are similar, as in "Licensee and Licensor," "Lessor and Lessee," and "Obligor and Obligee." But this practice is ill-advised because the drafter is susceptible to using the names incorrectly, and the reader must stop and figure out their meaning based only on the last two letters of the name. So rather than use these confusingly similar names, why not simply use the real names of the parties after first identifying their legal relationship. If your contract uses similar legal terms for the parties' names, chances are that the parties are misidentified somewhere in the contract.

>Agreement Term (Duration). Are you working from an expired contract? Do you know when your contract expires and whether it can be renewed? In the recent California case of Olive v General Nutrition Centers, Inc., GNC failed to keep track of releases from 16 models used in their advertising, and their photos were used after their releases had expired. 15 of the 16 persons settled with GNC for sums ranging from $5K to $32K, but the 16th person, one Jason Olive, decided to sue for misappropriation of his likeness under California law. The jury awarded him $1.1M, less than what Olive sought but a lot more than what GNC paid to settle with the other models. That's what can happen if you fail to track the expiration dates and renewal provisions in your contracts. Have you checked yours? How hard is it to keep a spreadsheet of your contracts that contains a summary of their important terms, including expiration dates and renewal provisions?

>Payment Provisions. Are the payment provisions in your contracts clear, as in who is to be paid, how much is to be paid, and when payment is to be made? And what happens if payment isn't made when due? And must you pay the other party if they are in breach of the contract? Do the payment provisions in your contracts protect you while being fair to the other party? Has your finance area signed off on these payment terms?

>Intellectual Property (IP) Rights. If your contract is for your (or the other party's) services that produce something to deliver to you (or the other party), who owns the IP rights to the work product? Imagine believing that you could re-purpose some or all of a work product for your other customers only to find out that you conveyed all your IP rights to your original customer. Allocation of IP rights can be tricky. Do your contracts properly address who gets (and keeps) what IP rights?

>Confidentiality. These provisions are often one-sided in the sense of protecting one party's confidential information but not the other party's. Regardless of the parties' roles and responsibilities, confidentiality provisions should be mutual and contain exceptions for information that is already publicly known or in a party's possession without breach of the contract. And how long the confidentiality provisions bind the parties after the agreement's expiration or termination should be stated. Do the confidentiality provisions in your contracts satisfy these criteria?

My February post will continue this inquiry, but in the meantime, I'd be interested in hearing the results of your audit and helping you with any questions (just email me at busklaw@charter.net). And remember that three things in life are true: death, taxes, and that addressing these concerns in your contracts now is a lot less trouble (and cheaper) than having to argue about (or litigate) them when they emerge later.

It's 2019, what's in your contracts?

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The BUSKLAW Newsletter: What We Discussed in 2018

December 17, 2018 Chadwick C. Busk

'Tis the week before Xmas and a good time to look back on the topics that we covered in 2018. So have some eggnog (or a nice Pinot Noir), play this Xmas music, and let's reminisce:

>January: we reviewed recent cases proving that in a contract, every word has meaning.
> February: we discussed the best response when you receive an unsolicited product idea from a customer.
>March: we pondered the scenario of whether a disgruntled buyer of a haunted house can sue and get some relief.
>April: we examined the effect of an "immortal soul clause" buried in a website's terms and conditions.
>May: we discovered that mere pressure to sign a contract isn't sufficient to void the contract for duress.
>June: No post - on family business.
>July: We found out what happens when you horse around with non-compete clauses.
>August: No post - on family business.
>September: We determined what you can do about lawyers who use goofy words.
>October: We sussed out whether "efforts" provisions in contracts are worth the drafting effort.
>November: We examined why your accounts payable folks should be familiar with the contractual doctrine of accord and satisfaction.
>December: We explained why, in a contract, a "condition" does not a "promise" make.

Apart from my advocacy of plain language in drafting contracts, my goal with this posts is to discuss a court case or contract law doctrine that is relevant to my target audience: those who work with contracts and would like a better understanding of what they mean.

The sad truth is that all too often business contracts: 1) are relegated to an electronic or physical file cabinet, never to see the light of day unless there's a problem; and 2) contain legal jargon that at worst is meaningless and at best frustrates the reader's understanding of the contract's content, regardless of whether the reader is a layperson, a judge, or a lawyer. In 2019, we'll continue the good fight to change this predicament!

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The BUSKLAW December Newsletter: A "Condition" Does Not a "Promise" Make

November 30, 2018 Chadwick C. Busk

It has been called black gold and Texas tea. It can make hillbillies rich enough to move to a Beverly Hills mansion. If you own some acreage, you might have it and not know it. In the early 1900s, speculators (colorfully called "wildcatters") would look for it and if found, they often became today's equivalent of Job and Gates. And Michigan had it in abundance.

We are talking about crude oil. Even with market fluctuations and oil's effect on global warming, you can still make some money having it extracted from your land. Just ask the Allens of Pennsylvania, who had high hopes when the SWEPI company came calling to look for oil on their property. So the Allens signed SWEPI's mineral rights lease that stated in part:

[This Agreement] is made on the condition that within 60 days from the Effective Date of this lease, [SWEPI] shall pay to [Allens] the sum of $2,000 per acre for the first year.

The 60 days came and went and SWEPI didn't pay a dime to the Allens. Allens sued. SWEPI defended with the argument that they weren't required to pay Allens because the agreement was nothing but an option contract; it only gave SWEPI the right to rent the land for oil and gas exploration if SWEPI paid Allens the required sum, which SWEPI wasn't obligated to do. The Pennsylvania court agreed and dismissed Allens' suit (Allen v. SWEPI, L.P., No. 4:18-CV-01179).

The Allens failed to consider the word "condition." Had they done so (or retained an experienced lawyer for that purpose), they would have concluded that there was no agreement to explore for oil unless SWEPI paid them, and nothing in the agreement required that payment. There was no promise that SWEPI would pay Allens anything.

The difference between a contractual promise and a condition can be tricky. According to John Trentacosta in his Michigan Contract Law (2d ed.) treatise, Michigan courts generally define a "condition" as a fact or event which the parties intend to exist or take place before there is a right to performance. And as the Allens discovered, if that fact or event doesn't take place, you have your "lump of coal." (Hat tip to Professor Stacey Lantagne for bringing this case to my attention in her excellent ContractsProf Blog.)

Have you searched your contracts for "red flag" words such as "option" or "condition"? These words may be fine when used in certain ways but ruin your expectations when used in other ways. Best hire a good lawyer to parse out what these words mean in your contracts!

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The BUSKLAW November Newsletter: I Can't Get No (Accord and) Satisfaction

November 1, 2018 Chadwick C. Busk

Little did Mick Jagger know that if only he had added a few words to this rock classic he would have been singing about a classic doctrine in contract law: accord and satisfaction. This doctrine may elicit a "so what," but if you operate a business that invoices and receives payments from customers, you need to know about this doctrine - or face the real potential of economic loss. So bear with me.

Accord and satisfaction is roughly equivalent to a compromise and settlement. In contract law, according to Professor Garner in his Dictionary of Legal Usage (3rd ed.), "an accord is an agreement to substitute for an existing debt or obligation some alternative form of discharging that debt; a satisfaction is the actual discharge of the debt by substituted means."

Accord and satisfaction issues commonly arise where a debtor tries to pay less than the amount invoiced for goods or services by a notation on the debtor's check that it's tendered in full payment. For example, Able and Baker agree that Able will sell widgets to Baker for $10K. Baker receives the widgets but then decides that they weren't worth $10K. So Baker writes Able a check for $8K and writes payment in full on the front of the check or on the back. Able decides that partial payment is better than nothing, so he cashes Baker's check and sues Baker for the remaining $2K. Baker argues that Able's acceptance of the $8K check discharged the entire obligation. Who wins?

Under Michigan law, Baker wins because its check to Able contained a conspicuous statement (payment in full) to the effect that it was tendered as full satisfaction of the claim. But here's a twist. What if Able, on the advice of his lawyer, simply crossed out the payment in full notation and then proceeded to cash the check? Does Baker's argument that there was an accord and satisfaction still prevail? In Michigan, it does, according to established case law. As John Trentacosta cautions in his Michigan Contract Law (2d ed.) treatise, this result "is obviously a trap for the unwary, and attorneys should take steps to make sure that the client is aware of it."

But other courts see it differently. In a recent case involving Uber decided in California (TSI USA LLC v. Uber Technologies, Inc.), Uber tendered a $200K check to TSI in payment of TSI invoices amounting to $1.4M. A termination notice from Uber accompanied its check that stated "by executing below you acknowledge and agree that such payment constitutes full and final payment," followed by a signature line labeled "[TSI] Chief Executive Officer." TSI cashed the check and sued Uber for the $1.2M difference. Uber defended with accord and satisfaction, i.e., that TSI's acceptance of the $200K operated to fully discharge the debt.

But like Mick, Uber couldn't get its (accord and) satisfaction. TSI argued that it thought the signature of its CEO was required for the payment to satisfy the debt, and although TSI cashed the check, it wasn't endorsed by its CEO. The court agreed with TSI that the language was not so "explicit and unequivocal as a matter of law so as to preclude TSI" from suing Uber for the remaining $1.2M balance. Another factor in the case was the huge difference between the $200K tendered and the $1.4M total invoiced amount.

The lesson from these cases is simple. If your Accounts Payable Department receives a check for less than the amount invoiced with some sort of full payment notation either on the check or in a letter enclosing the check, don't cash that check until you receive expert legal advice about whether you are entering into an accord and satisfaction with your customer!

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Calling All Consultants! You Need a "Form" Consulting Contract! (A BUSKLAW Newsletter Aside)

October 19, 2018 Chadwick C. Busk

I'm fortunate to have many contacts on LinkedIn, and many present themselves as "consultants." That term is broad enough to encompass such heavy hitters as Accenture on one hand to a retired respected Meijer vice president on the other.

But all consulting firms - whether large or small or somewhere in between - have one thing in common: they need an effective "form" contract for their clients. The reason? To state, in plain language, the necessary business and legal provisions that govern their relationship. The purpose of these provisions?

First, to state the parties' rights and duties applicable to the consulting services to be provided.

Second, to avoid a disruption to the parties' relationship down the road by preempting problems before they occur.

Do you think that consulting agreements must be lengthy and dense? Balderdash! 😏

An acceptable consulting contract, especially for smaller engagements, can be as short as 2-3 pages. I know because I've drafted them for my clients. And I can do the same for you. In fact, I'll draft a "form" consulting contract for you to use with your clients for a $250.00 fixed fee. (Certain conditions apply; those are stated here.) Just email me at busklaw@charter.net.

So how can I afford to price my contract-drafting services so low? Because I regard the preparation of "form" consulting contracts as a "loss leader" and hope that you'll use me for future legal work. No mystery there. Thanks.

The BUSKLAW October Newsletter: Are "Efforts" Provisions in Contracts Worth the Effort?

September 27, 2018 Chadwick C. Busk

OK, class (as in budding students of contracts and astute readers). Launch your word processing or Adobe™ Acrobat Reader software and open one of your longer business contracts. Pull up the text "find" feature and search for the following three contractual phrases:

best efforts
commercially reasonable efforts
reasonable efforts

Do you have any hits? Regardless, have you ever wondered what these phrases mean? Whether you are on the receiving or giving end of these "efforts" provisions, you should know what you're in for!

The short answer is not a lot. But keep reading.

Many contracting-drafting lawyers are enamored by these phrases. If their client is on the giving end of a contractual duty, they use "commercially reasonable efforts" to perform that duty. But if their client is on the receiving end of a contractual duty, they will argue for a supposedly higher performance standard: "best efforts." But in the words of the infamous Captain Hook, here's where the canker gnaws. According to John R. Trentacosta, author of Michigan Contract Law:

Different states have different judicial interpretations of what the standard of diligence should be for each of these various clauses...Adding to the uncertainty, Michigan's higher courts do not provide any guidance on interpreting "effort" terms. This creates ambiguity and uncertainty in contract interpretation...

Kenneth Adams, the author of the respected A Manual of Style for Contract Drafting (now in its fourth edition), discusses the supposed differences between the various efforts clauses. He notes that only two courts have suggested that one can distinguish between "best" efforts and "reasonable" efforts...and in neither case does the court provide a coherent rationale for its position. And he further states that there's no basis for saying that adding "commercially" to "reasonable efforts" affects its meaning. Ken then goes on to suggest using only a "reasonable efforts" clause with the following recommended core definition:

"Reasonable Efforts" means, regarding conduct by a party, the efforts that a reasonable person in the position of that party would use to engage in that conduct competently and promptly.

But the problem remains that any efforts clause, however defined, is still ambiguous. In the above definition, what is a reasonable person? What is competently and promptly? I believe that the best solution is to avoid "efforts" clauses and use objective benchmarking language instead.

Consider the following provisions from the world of information technology contracting where Acme is providing cloud-based data processing services ("Services") to the Customer:

Acme shall exercise reasonable efforts to provide the Services 7x24, 365 days per year.
Acme shall provide the Services 99.9% of the time during the term of this agreement according to the Service Level Agreement attached as Exhibit A.

Service level agreements (SLAs) are part and parcel of cloud computing (and other) information technology contracts and are further explained here. SLAs provide an objective network uptime benchmark that must be maintained (or service credits are triggered) rather than the nebulous "reasonable efforts" obligation described in the first example. (Aside to IT vendors and customers, have you reviewed your SLAs recently? And for IT customers, have you considered the consequences of your vendor's chronic failure to meet an SLA?)

So the inclusion of efforts provisions in contracts isn't the best approach if an objective standard can be used instead. So why do efforts provisions exist in contracts anyway? Because it's easier to throw in an efforts clause in a contract rather than draft something better! And effective contract drafting isn't easy. It takes time and thought. But if your contracts contain efforts clauses, you would do well to consider their replacement. And I can certainly help with that, ahem, effort.

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The BUSKLAW September Newsletter: Lawyers and Their Goofy Words - and What to Do About It

August 29, 2018 Chadwick C. Busk

Growing up, I was told that lawyers were smart cookies. After all, getting a law degree isn't an easy task. You first go to college and find a subject that is best suited to how your brain works so that you can maintain a high GPA. In my case, I quickly discovered that I wasn't a good fit for the "hard sciences." So I took a lot of Political Science and English courses, learned how to write fairly well, suffered through the tedious law school aptitude test on October 20, 1973, graduated with a B.A. degree in 1974 and then went on to law school. There, I endured a legal education infused with the Socratic method (here's an example), suffered occasional migraines (because some of my law professors were truly smart but couldn't teach) and graduated with my law degree on Mother's Day, 1977. Passed the Michigan bar exam and by God, became an honest-to-goodness lawyer in November of 1977!

So having gone through undergraduate studies, law school, and the bar exam, lawyers can't stomach the idea that their legal prose is anything less than Hemingwayesque.

Here's the truth: lawyers write contracts most of the time with little attention to what their words actually mean. Their brains are on automatic pilot, using forms written by older lawyers with their brains on automatic pilot. Here are just some of the goofy words that commonly issue from lawyers' keyboards to befuddle their readers (unless the readers are other lawyers with THEIR brains on automatic pilot):

Herein, wherein, and provided words. These words are vague and often confusing. Consider this sentence, Except as provided herein, Able shall pay Baker $10,000 for his vintage Star Wars toy Death Star. But what does herein refer to? A contrary or conditional statement in the same paragraph, in the next paragraph, in the preceding paragraph, or somewhere else in the contract? Wherein suffers the same fate, and provided is used to express a condition or qualifying statement when a simple but will suffice.
The following is a common closing sentence to a contract: IN WITNESS WHEREOF, the parties have executed this Agreement on May 15, 2018. There are multiple problems with this sentence. First, the phrase IN WITNESS WHEREOF is archaic, means nothing, and can safely be deleted. Second, the verb execute is misleading. The common meaning of execute is to do or perform something. So can we replace execute with performing as in The parties are performing this agreement on May 15, 2018? No, because the contract signing date usually precedes its performance! So "execute" is a poor verb in this sentence. Finally, there's no reason to capitalize Agreement. The common sense approach is that the signed document is the parties' agreement. So, let this closing statement simply say, The parties are signing this agreement on May 15, 2018.
Consider lawyers' fixation on such as in these sentences: Able shall pay Baker $10,000 for his vintage Star Wars toy Death Star. Such Death Star is in its original packaging. When used in this example, such is a needless pointing word. Consider deleting such and saying: Able shall pay Baker $10,000 for his vintage Star Wars toy Death Star in its original packaging.
Using and/or. The use of and/or has created countless ambiguities in legal documents. Consider this sentence: Able shall sell to Baker 25 bushels of the following Michigan-grown produce: apples, peaches, cherries, and/or celery. Is the intent for Able to sell apples, peaches, and cherries or celery to Baker, or must Able sell all of these listed items to Baker as the and word suggests?
Using shall instead of will to denote a contract party's obligation. Plain-English legal scholars have long argued about what verb is the best, as in Able shall sell widgets to Baker or Able will sell widgets to Baker. I recently wrote a Michigan Bar Journal article that summarizes the arguments on both sides and suggests a common-sense solution.

So how do you know if your contracts contain these (and other) goofy words? You could enter these words in the word finder box in your word processing program or PDF reader and see what turns up. But that process would take time, and you would miss the context of how these words are used. A better approach would be to take advantage of my free contract review offer, described here, and let me do it for you.

Carl Sandburg wrote a little poem about lawyers (The Lawyers Know Too Much, 1920) that includes this stanza:
In the heels of the higgling lawyers, Bob,
Too many slippery ifs and buts and howevers,
Too much hereinbefore provided whereas,
Too many doors to go in and out of.

Let me find those dead-end contractual "doors" for you - and see if we can close them!

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The BUSKLAW July Newsletter: Horsing Around with Non-Compete Clauses

June 27, 2018 Chadwick C. Busk

Non-compete provisions are part and parcel of many employment agreements. But these provisions must be carefully drafted to be enforceable. There are three sure-fire ways to have a court invalidate your non-compete clause without much judicial cogitation:

Failure to provide a reasonable duration for the clause;
Failure to restrict the operation of the clause to a reasonable geographic area; and
Failure to establish a protectable business interest as the subject of the clause.

The first point is easy to grasp. In Michigan, you are on solid legal ground if the duration of your non-compete clause doesn't exceed one year. And you are probably okay if you add a year to that. But you're walking on quicksand if your non-compete provision lasts longer than two years.

The second point is a bit more complicated. Courts don't like to enforce a non-compete clause if its geographical scope is too wide. For example, if I'm in the packaged ice business and sell my product mostly to retailers in West Michigan, a court probably won't enforce a non-compete agreement that covers the central or eastern side of the State.

One drafter of a non-compete clause - by accident or design - tried to avoid this issue by not mentioning a geographical area at all. Perhaps they hoped that the clause wouldn't be litigated or if it was, that the court would helpfully insert a reasonable geographic area covered by the clause. That was the issue in a recent federal court case in Pennsylvania, Catalyst Outdoor Advertising, LLC v Jennifer Douglas. Ms. Douglas signed a non-compete agreement with Catalyst, a seller of billboard advertising, but the agreement didn't specify a geographical area for the restriction. She went to work for another billboard advertiser, City Outdoor, and Catalyst sued to enforce the non-compete. The Court found that the non-compete clause wasn't enforceable because not only did it fail to specify a geographic area, but also City Outdoor and Catalyst didn't operate in the same (or overlapping) territory so they weren't actually competitors. And the Court further noted (cue sad trombone) that it wasn't in the business of revising contracts to make them enforceable.

The third point - the requirement for a protectable business interest - sounds complicated, but it isn't, as illustrated in a recent Tennessee Court of Appeals case: Sugar Creek Carriages v Hat Creek Carriages. (The quaint name arises from the fact that both parties offer horse-drawn carriage rides to customers in downtown Nashville.) Lester Blackwell signed a non-compete agreement with Sugar Creek that was okay from a duration and geographical area viewpoint. But what the agreement sought to protect was a problem - the carriage-driving expertise that Sugar Creek taught to Lester that he later used in driving for Hat Creek, Sugar Creek's competitor. But Sugar Creek didn't claim that Lester's specialized training involved its confidential information or disclosure of customers. And in fact, Sugar Creek offered the same training to anyone who could pay to attend its driving school. Further, Sugar Creek's offer declared that at the completion of the class, you will be prepared to start your own horse-drawn carriage business.

So the Court held that there was no protectable business interest for something that wasn't a trade secret, confidential business information, or a customer list, but freely available to all, with the clear message that "after this training, you can go into the horse carriage business - just like us!"

Dare I say it? Don't horse around with your non-compete provisions. Have a competent attorney review them to see if they satisfy the three basic requirements, and if not, remedy the defects before you and your ex-employee wind up in court.

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A BUSKLAW Newsletter Aside: Is Your Website Compliant with the European Union's GDPR?

May 13, 2018 Chadwick C. Busk

Effective 25 May 2018, the EU's General Data Protection Regulation goes into effect. The GDPR is a big deal and quite complicated. There are 99 articles and 173 recitals defining the privacy rights of individuals and data controllers’ and data processors’ obligations.

Are you a U.S.-based data controller or data processor subject to the GDPR? You are a “data controller” if you, alone or jointly with others, determine the purpose and means of “processing” personal data of EU individual customers or businesses. The threshold is that you offer goods or services to customers or businesses in the EU (including the UK, despite Brexit) and collect their personal data. But even if you don’t sell goods or services to EU customers but engage in marketing or monitoring activities involving EU individuals’ personal data, you are covered by the GDPR.

You are a data processor if you “process” personal data on behalf of a “data controller,” i.e., a data controller contracts with you to process personal data that the controller collects from individuals. “Process” or “processing” means any operation or set of operations that are performed on personal data or on sets of personal data, whether or not by automated means, such as data collection, recording, organization, structuring, storage, adaptation or alteration, retrieval, consultation, use, disclosure by transmission, dissemination or otherwise making available, alignment or combination, restriction, erasure or destruction.

Personal data includes one or more of the following: IP addresses, names, birth dates, physical addresses, email addresses, customer photos, billing information, customer identification numbers, any other information that can be used alone or with other data to identify a person, and sensitive data such as genetic data and biometric data that could be processed to uniquely identify an individual.

Perhaps you're already in compliance with the GDPR. It's been in the works for the last two years. But if not, read on:

For compliance purposes, you should consider giving priority to the following:

Updating your customer-facing websites and mobile app privacy policies to comply with the GDPR. These existing policies may be deficient in the following areas:

The customer doesn’t expressly consent to the privacy policy (and you don't keep a record of customer consents);
The privacy policy isn’t written in plain English;
The privacy policy doesn’t:

provide that the customer has the right to have inaccurate personal data rectified;
explain that the customer has the right to have their personal data deleted, i.e., the “right to be forgotten;”
explain that the customer has the right to receive their personal data;
explain that the customer has the right to object or restrict the processing of their data;
explain that the customer has the right to at any time revoke its consent to the processing of their data;
explain that the customer has the right to the secure storage and transfer of their data; and
explain that the customer has the right to have their outdated data erased.

If you are a data controller, make sure that you have suitable contracts with your data processors, and data processors should do the same with their data controllers. The GDPR includes specific content requirements for these contracts.

Making sure that you understand the cost of complying with the GDPR. Apart from legal fees, there will likely be considerable internal compliance costs, including (1) creating the necessary infrastructure to support the required website and mobile app privacy policy changes; (2) establishing more robust data security; and (3) adopting practiced and repeatable data breach notification policies and procedures. Even apart from GDPR compliance, if you haven't already done so, consider appointing a data protection or chief privacy officer (that role can be combined with another senior manager such as CFO or CIO) who reports directly your President or CEO.

If you have or process personal data, you should consider having Cyber Risk Liability insurance that may respond to penalties resulting from non-compliance with the GDPR. Cyber Risk policies have become more affordable in recent years, but you must carefully review the exclusions because fines or penalties levied by government authorities may be excluded from coverage.

You should also consider having Directors and Officers Liability insurance because a company’s failure to properly secure personal data or timely report data breaches may lead to D&O liability to shareholders or outside parties. Again, you should carefully review the coverage exclusions.

Penalties for non-compliance with the GDPR are stiff: up to four percent of the violating data controller’s global annual revenue per violation or $20 million Euros – whichever is greater. Also, the data controller (and its data processor if any) may be prohibited from processing EU customers' personal data.

I've prepared questionnaires for data controllers and data processors to help determine if they are subject to the GDPR. If you would like a copy (at no charge), email me!

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The BUSKLAW May Newsletter: Void for Duress? The Case of the Picasso Sold for Peanuts Under Nazi Oppression

May 1, 2018 Chadwick C. Busk

Picasso's famous (and now priceless) 1905 painting, "The Actor," hangs in New York's Metropolitan Museum of Art but not without some controversy. The estate of the painting's original owners, Paul and Alice Leffmann, sued the Museum in N.Y. Federal Court to get it back, along with $100 million in damages. The basis for the suit: the Leffmanns were German Jews, living under Nazi oppression, who were desperate to obtain the funds to flee to Switzerland (and later to Brazil). So in 1938, they were "forced" to sell the painting for a fraction of its value. The Museum defended the suit by arguing that there was no duress under either New York or Italian law. Judge Loretta Preska weighed the facts, sorted out all of the arguments, and issued her decision on 7 February 2018.

There is no dispute that the Leffmanns, living in Italy at the time, were under imminent threat of deportation and death at the hands of German Nazis, who were becoming cozy with Mussolini. And because Switzerland had strict border controls with asset requirements, the Leffmanns desperately needed money to be allowed into that country. So the Leffmanns sold "The Actor" to a French private art dealer for a paltry net purchase price of $12,000. The painting was subsequently sold to Thelma Chrysler Foy for $22,500 in 1941 (a 70% increase from the price paid to the Leffmanns), who donated it to the Museum in 1952.

The Court examined whether the facts supported the finding of duress under either Italian or New York law and determined that the laws of each jurisdiction on duress as voiding a contract were substantially the same, but legal authority justified the application of New York law. In order to constitute duress, the Leffmann estate had to show that the sale occurred by means of wrongful or threatening conduct that precluded the exercise of the Leffmanns' free will. But here's the rub: the threat must have come from the purchaser and not from "difficult circumstances" or "economic duress." And according to the Court,
although the Leffmanns felt economic pressure during the undeniably horrific circumstances of the Nazi and Fascist regimes, that pressure, when not caused by the painting's art dealer/purchaser (or the Museum), wasn't sufficient to prove duress.

The Court also examined whether a 1945 Italian law applied that stated "rescission is allowed" for sales contracts by people affected by the Mussolini government's oppressive racial directives entered into after October 6, 1938, the date on which the anti-Semitic directives were announced. But the Leffmans couldn't take advantage of this law because they sold the painting in late June of 1938. So the outcome of the case might be different if the painting had been sold approximately 90 days later, and if the Court had determined that Italian law governed the case.

Does it seem odd that the Leffmanns' estate sued to void a contract that was made 80 years ago? Isn't there a statute of limitations defense available to the Museum? Yes, and they raised it, but the Court didn't address the merits because the finding that there was no duress made any discussion of the statute of limitations moot.

We have sympathy for the Leffmanns' plight. But as Professor Lawrence A. Cunningham perceptively states in his book, Contracts in the Real World: Visionaries remain enamored of a world of pure freedom of contract on the (political) right hand or a world of pure social justice on the left hand. But the actual practice of contract law is neither such world. Rather, contracts in the real world reflect broader and longer-standing truisms of democratic capitalist society, where endless balancing of contending values occurs.

This case highlights the importance of the negotiating climate when contracts are signed. The value of salable assets, including paintings, fluctuates over time. The wise seller and buyer must tread carefully when determining the opportune moment to pull the trigger on a deal. Courts are unlikely to grant relief where a party received an unfair economic benefit (or the other party suffered an unfair economic loss), even if wicked external forces motivated the transaction.

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