The BUSKLAW April Newsletter: Uncommon (Contract) Clauses and Where to Find Them (first post in a sometimes series)

April 1, 2018 Chadwick C. Busk

(With a wizardly hat tip to J.K. Rowling's Fantastic Beasts:

So you're the guy with the ~~case~~ library full of ~~monsters~~ uncommon contract clauses, huh?)

In the realm of reading and writing contracts, it's best not to ignore the "fine print." This is especially true when it comes to online terms and conditions that can be found at just about every commercial website. You visit the website and agree to its terms and conditions (usually by clicking on an "I agree" button). But only the courageous will marshal their mental prowess and confront the dense legal jargon and other blatant drafting errors that are rife in this internet stuff.

The price of ignoring online terms and conditions can be high. The defense that you didn't actually read the terms and conditions is weak. You can be bound to a waiver of a jury trial, agree to arbitrate any dispute in a far away jurisdiction, or consent to an unrealistic damages limitation.

Or you can agree to sell your soul under an "immortal soul clause."

That is what the online U.K. gaming store GameStation did on April Fool's Day 2010 with this provision:

In placing an order via this Web site (sic) on the first day of the fourth month of the year 2010 Anno Domini, you agree to grant Us a non-transferable option to claim, for now and for ever (sic) more, your immortal soul. Should We wish to exercise this option, you agree to surrender your immortal soul, and any claim you may have on it, within 5 (five) working days of receiving written notification (sic) from gamestation.co.uk or one of its duly authorized minions.

As the Huffington Post reported, only 12% of GameStation purchasers noticed the clause on April 1, 2010, and clicked on the handy "click here to nullify your soul transfer" button; the remaining 88% (7500) sold their souls to GameStation. But no worries - GameStation subsequently nullified all claims to their customers' souls. (In so doing, they arguably relinquished a valuable asset that could have been sold to the highest diabolical bidder. Can you say "shareholder lawsuit"?)

Gamestation's immortal soul contract clause is only the tip of the uncommon contract clause iceberg. There are lots of them in the wild, and some are not so funny. Stay tuned for more uncommon clauses - and where to find them.

Finally, if you have a website, you should make sure that you not only have a coherent set of terms and conditions but also that they comply with the laws of the States that you do business in. If you sell goods from your website, consider:

Warranty provisions, limits, and exceptions;
Provisions that limit your liability to your customers and how disputes are handled;
A privacy policy addressing how you safeguard customer data, including customer credit card information if you keep it;
Business FAQs, including how your goods are shipped to your customers; procedures for return of and credit for defective goods; and how you notify customers of delayed shipping dates and out-of-stock items.

A legal audit of your website terms and conditions - preferably by someone other than the attorney who prepared them - would be money well spent! I regard this work as a "loss leader," so my usual modest hourly fee to review website terms and conditions is (wait for it...) even more modest.

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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 March Newsletter: You Just Purchased a Haunted House! Can You Sue and Get Some Relief?

March 1, 2018 Chadwick C. Busk

This is the Los Angeles mansion used in the first season of the television series American Horror Story. The new owners are not amused.
(CREDIT: ALISSA WALKER/CREATIVE COMMONS)

Are you troubled by strange noises in the middle of the night?

Do you experience feelings of dread in your basement or attic?

Have you or a member of your family ever seen a

spook, specter, or ghost?

----Ghostbusters. Dir. Ivan Reitman. Perf. Bill Murray, Dan Aykroyd, Harold Ramis, Sigourney Weaver. Columbia Pictures, 1984. Film.

The new owners of the Rosenheim Mansion in Los Angeles, CA, are suing the sellers and their real estate agent for $3 million for failure to disclose several problems with the house, including the fact that it's haunted by two ghosts. In addition, the house was the focus of American Horror Story - Murder House, a Fox television series of the horror genre (its quality varies), and fans of the show stop by for photos and have allegedly tried to break-in (undoubtedly looking for the ghosts). On a more earthly plane, the new owners also allege the defendants' failure to disclose leaks, water damage, and mold.

For our discussion, let's assume that the Mansion is located here in Michigan. (After all, there are accounts of Grand Rapids Heritage Hill homes being haunted!) So how might a Michigan court evaluate the merits of this lawsuit?

We'll start with the requirement that the Michigan Seller Disclosure Act requires sellers of a Michigan home to disclose a great deal about the condition of the property to a buyer or their real estate agent. The required disclosure includes known "settling, flooding, drainage, structural, or grading problems." But the disclosure statement contains first, a disclaimer that the sellers haven't "conducted any inspection of generally inaccessible areas such as the foundation or the roof," and second, the warning that the "BUYER SHOULD OBTAIN PROFESSIONAL ADVICE AND INSPECTIONS OF THE PROPERTY TO MORE FULLY DETERMINE THE CONDITION OF THE PROPERTY. THESE INSPECTIONS SHOULD TAKE INDOOR AIR AND WATER QUALITY INTO ACCOUNT, AS WELL AS ANY EVIDENCE OF UNUSUALLY HIGH LEVELS OF POTENTIAL ALLERGENS INCLUDING, BUT NOT LIMITED TO, HOUSEHOLD MOLD, MILDEW AND BACTERIA." (Two flaws: the phrase "but not limited to" is superfluous, and there should be a comma after "MILDEW.")

The disclosure form doesn't address whether the seller has seen ghosts in the house (anybody here seen a ghost?) or whether the house has been featured in a horror movie or macabre television series. Or if so, whether that use has caused a fan frenzy (or a ghostly infestation) that disturbs the homeowners' possession of the property.

The honest and accurate completion of the Michigan disclosure form would hurt a buyer's lawsuit for hidden water damage and mold. A Michigan buyer should have paid to test the indoor air quality and had the seller remediate any problems before the sale.

About an infestation of rowdy spirits, any judge or jury would be rightfully skeptical. Plaintiffs would likely have to prove by a preponderance of the evidence that first, ghosts exist; second, that they physically manifested in the home; and third, that the manifestation caused tangible damage or bodily harm for which the seller/defendants are liable. Good luck with that, even though we live in a reality that we actively generate.

Buyer's best chance of recovery is on the allegation that the featuring of the house in a horror show created a fan frenzy amounting to a nuisance. But apparently the seller/defendants in the California case signed a statement that there were no neighborhood nuisances to disclose. (The Michigan disclosure form doesn't mention a nuisance or what condition of the property qualifies as one.)

The private nuisance tort connected with real estate has been around for a long time. (For you non-lawyers a tort is simply a civil wrong.) Examples include your neighbor keeping dogs that bark so much that you can't sleep, or if your neighbor decides to stay up at night pounding a home improvement into existence; these activities would interfere with the use and enjoyment of your property. So if the sellers in our case knew about - but failed to disclose - multiple incidents of fans trespassing on the property to take selfies or trying to break into the home, plaintiff buyers might well prevail on that legal theory.

Concerning damages (disregarding water damage and mold that sellers should have disclosed or buyers tested for), $3 million may be wishful thinking. Fan frenzy usually dies out over time. And there are cases where haunted-house owners have sold their properties above market price to buyers hoping to experience the paranormal!

So who you gonna call if your house is haunted? The Ghostbusters, a trial lawyer, or a reality-TV network? I suggest the latter.

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The BUSKLAW February Newsletter: You Just Received an Unsolicited Product Idea from a Customer - Now What?

January 31, 2018 Chadwick C. Busk

Where did the idea for this movie come from? It's amazing what you can find on the internet!

At any time (but typically at 4:55 p.m. on a Friday afternoon before a long weekend), you or another senior manager at your company will receive an enthusiastic voicemail, email, or tweet like this:

Hi [name]: I'm one of your best customers! I've been buying your widgets for the last 40 years. Recently, I thought of a way you could enhance your product line with a new widget, one that does "X" and looks like "Y." Please call me at XXXXXXXXXX to learn more! Or visit my website: www.thenextbigthing.com where I have a mock-up of my widget. You won't be sorry! Let's get rich together!

"Hmm," you think. "This guy could be on to something. I should contact him and learn what he has in mind." Or, more likely: "we thought of a new widget like this years ago and rejected it."

This may sound harsh, but engaging with a person (not your employee or contractor) over their idea for a new product (whether the product is tangible or intangible, such as a movie storyline) can set the stage for a lawsuit.

Consider the 2017 California federal district court case of Alexander v Metro-Goldwyn-Mayer Studios, et al. (The "et al" Defendants included Sylvester Stallone, a few of his pals, and other movie studios.) In 2008, Plaintiff Alexander, a "largely unknown TV and movie actor," dreamt up an idea for a Rocky movie sequel, called Creed. The gist of the screenplay was how Apollo Creed's son (Creed was a character in four of the Rocky franchise sequels) copes with his father's death and builds his own legacy with Rocky Balboa's advice. Alexander tweeted this screenplay idea to Stallone and his pals. The tweet included a link to Alexander's website that promoted the screenplay and contained a "pitch reel," i.e., a short promotional film about the screenplay. Subsequently, Stallone and his pals decided to develop Creed, a movie about Apollo Creed's son, and the film was released in 2015. The movie plot is similar to Alexander's Creed screenplay. So Alexander sued Stallone and company, alleging that Defendants stole his idea. Defendants filed a motion to dismiss the suit as having no basis in law or fact. Here's what happened.

The court examined Alexander's three legal theories behind the lawsuit, i.e., that Stallone and company:

misappropriated his idea;
breached an implied contract that he had with them; and
unjustly enriched themselves by using his idea for the Creed movie.

Let's examine how the court confronted each theory:

1. Misappropriation of an Idea. Most states (including Michigan, to my knowledge) don't recognize a cause of action for misappropriation of an idea, but California does (probably because of the State's movie industry). To win on this theory, Alexander had to allege first, that he made a substantial investment of time, effort, and money in creating the thing misappropriated such that the court can characterize the "thing" as a kind of property right; second, that the Defendants appropriated the "thing" at little or no cost, such that the court can characterize their actions as reaping where they haven't sown; and third, that the Defendants injured Plaintiff by their misappropriation.

The court dismissed Alexander's allegation that his idea for the screenplay created a property right. Citing established California judicial authority, the court stated that an idea is not recognized as a property right. This is especially true where an idea is publicly disseminated and not protected by a non-disclosure agreement. Here, Alexander made the Creed idea widely available via the internet.

2. Breach of an Implied Contract. The court next considered the allegation that Alexander and Stallone's pals created an implied contract that Stallone and company breached when they developed their own Creed screenplay. The court's discussion started out positive for Alexander: California law recognizes that an implied-in-fact contract arises when the writer submits material to a producer with the understanding that the writer expects to be paid if the producer uses his concept. But the court found that Alexander had no proof that he offered his Creed idea to the Defendants, or that they ever received it. All Alexander could show was that he tweeted his idea to Stallone's Twitter account, but Stallone (and the other Defendants) never responded. The Court also noted that Alexander plastered his Creed idea all over the internet. There can be no implied contract (and thus no breach) where there was no offer of the screenplay made specifically to, or accepted by, the other side (Stallone and company).

3. Unjust Enrichment. The final theory of Plaintiff's lawsuit was unjust enrichment. In California (and most other States), the elements of unjust enrichment are first, receipt of a benefit; and second, unjust retention of the benefit at the expense of the another. Alexander alleged that Defendants received a substantial benefit from using his Creed idea and should, in all fairness, compensate him.

The court quickly shot down this argument too, noting it had the same flaws as the breach of implied contract claim, i.e., Alexander had no proof that Defendants either knew about or accepted his Creed idea after he sent never-replied to tweets and otherwise spread it around the internet.

The crucial fact against Alexander was that Stallone and company didn't engage with him - at all. They didn't answer his tweets or acknowledge viewing his internet website promoting the Creed movie concept. They never even sent him a "thanks but no thanks" email. Had there been contact between the parties, the outcome of this lawsuit may have well been different.

Lesson: You should treat an unsolicited product idea from your customer in the same manner - ignore it! DON'T ENGAGE with the customer!

Three final thoughts:

1. It doesn't matter if Defendants actually visited Alexander's website, read his Creed ideas, or viewed the pitch reel. Alexander had no inkling that they did, so the lawsuit contained no such allegation. And the fact that Alexander's ideas are evident in the 2015 Creed movie is irrelevant.

2. Some years ago, I came across a suggested form agreement for a business to use for a customer who wants to present an unsolicited product idea. It attempts to limit the business's liability to the customer after it reviews the idea. But the agreement struck me as half-baked. I don't advise that approach.

3. This analysis (and court case) doesn't apply to product ideas that you receive from your employees or contractors. If you have the proper agreements in place with them, you (i.e., your company) owns their ideas. (Whether you have the "proper agreements" in place should be discussed with an experienced intellectual property attorney! Who might that be??)

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The BUSKLAW January Newsletter: Recent Court Decisions Prove It: Every Word in a Contract Has Meaning!

January 5, 2018 Chadwick C. Busk

In contracts, words are weapons. A lawyer who effectively drafts contracts will make careful word choices because the client's fate often depends on it. And every word in a contract has meaning: two recent cases support that truth.

First, we have Heimer v. Companion Life Insurance Co., a 6th Circuit Court of Appeals decision issued just a few days ago. One Beau Heimer got drunk with his friends, but they all decided to take their motorbikes off-road for even more fun. Unfortunately, Beau collided with one of his pals and suffered major injuries; the medical expenses to put Beau back into some semblance of order exceeded $200,000.00. Beau filed a claim with Companion Insurance, but they declined to pay. Why? Because the vehicle insurance policy that they issued to Beau contained an exclusion for the illegal use of alcohol.

Beau's attorney was crafty. He argued that Beau didn't illegally use alcohol. Beau was not a minor and didn't drink in defiance of a court order. Beau was intoxicated for sure (twice the legal limit!), but this exclusion shouldn't apply to illegal post-consumption conduct, such as the illegal use of a motor vehicle. And the Court agreed, scolding Companion for not using specific policy language excluding coverage for claims where the insured is found to be legally intoxicated.

The distinction between an insurance coverage exclusion for the illegal use of alcohol as opposed to being legally intoxicated may be splitting hairs, but it was enough to cost the insurance company big bucks for the failure to word the exclusion to match their intent. I bet that Companion's lawyer who drafted their policy will be more careful with his word choices in the future.

The second case involving the impact of a few words was a 7th Circuit Appeals Court case: ADM Alliance Nutrition Inc. v. SGA Pharm Lab Inc. The parties were sophisticated businesses. SGA supplied ADM with a product used to make medicated animal feed. The parties ended their relationship by signing a termination agreement under which ADM agreed to release SGA and its officers from any and all claims, whether known or unknown. Here's the rub: after the termination agreement containing this release language was signed, ADM came to believe that SGA had misrepresented the potency of the product that SGA had supplied to ADM, so ADM sued SGA for breach of contract and fraud. SGA asked the court to dismiss the suit on the basis that the release was for claims both known or unknown.The Court agreed, finding that as between two businesses, this release language was effective to cover the unknown claims for fraud and breach of contract.

Just because the phrase, known or unknown claims, is commonly used in a release agreement doesn't mean that ADM had to agree to it. They could have insisted on a specific description of the claims being released or simply refused to agree to the release of unknown claims. But they didn't, and they lost!

These two cases prove that every word in a contract means something. That's why contract-drafters must ponder every word and how it might relate to every eventuality. This is easier said than done, but who said that drafting effective contracts - especially using plain language instead of legal jargon - is a cinch?

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The BUSKLAW December Newsletter: Resolving the "Mental Mist" of an Ambiguous Contract

November 30, 2017 Chadwick C. Busk

(Author's Note: Props to Kilroy J. Oldster for coining the term "mental mist.")

Contractual ambiguity - usually created when two provisions of the same contract irreconcilably conflict with each other - isn't pretty. At best, it's embarrassing to the lawyer who drafted the document; at worst, it thwarts the business purpose of the contract and may lead to litigation.

A typical case of contractual ambiguity results when a contract incorporates another document in the text that conflicts with one or more provisions. This scenario played out in Klapp v United Insurance Group Agency, a 2003 Michigan Supreme Court case. The decision prescribes how a Michigan court should resolve contractual ambiguity.

Craig Klapp was an insurance agent for United Insurance from 1990 to 1997. In 1990, he signed an "Agent's Agreement" that included a Vesting Schedule stating that on his retirement at an unspecified age and provided that he had worked at least two years for United, Klapp would be entitled to insurance policy renewal commissions. But the Agreement also incorporated an "Agent's Manual" that required Klapp to work at least ten years for United and not retire until at least 65 before he could receive renewal commissions. So the ambiguity was whether Klapp was entitled to the commissions.

The Michigan Supreme Court observed that it's up to the trial court jury as the fact finder to perform the following decision-tree analysis (as directed by the trial judge's appropriate jury instructions):

First, to find that contractual ambiguity exists after giving effect to every word or phrase as far as practicable.
Next, the jury must consider relevant extrinsic evidence, i.e., evidence outside of the "four corners" of the contract. In this case, Klapp showed that United had been paying renewal commissions to agents who were not 65 and hadn't worked at least ten years for United, as long as they had left the insurance industry.
Finally, if the jury is still unable to determine what the parties intended, they should then interpret the ambiguity against the party who drafted the contract. There's a delicious Latinism for this doctrine: contra proferentem (literally, against him who offers.) But the rule is that the application of this doctrine should only occur when all conventional means of interpretation, including the consideration of extrinsic evidence, has been applied and found wanting.

Some contract drafters routinely seek to negate the contra proferentem doctrine by including a provision like this: "Both parties drafted this agreement and share responsibility for its wording." But as Gonzaga University Law School Professor Scott Burnham points out in a 2013 Transactional Lawyer article, no case has been found that addresses a court's response to such a provision,...and the parties should be cautious in using it for 1) it might not work to avoid the doctrine, and 2) if it does work, the result may be worse than the application of the maxim.

In the end, the best way to avoid contractual ambiguity is to draft clearer contracts by first, thoroughly understanding the deal from a business perspective and second, by avoiding cutting and pasting from jargon-filled legacy documents. Most law firms can accomplish the former for a hefty fee but have no incentive to do the latter because of time and organizational pressures. However, as a sole practitioner with 34 years of experience in a major retailer's law department, I don't have these constraints. And I charge under-market hourly (or fixed-fee) rates for my legal services.

Does mental mist permeate your contracts? You'll probably never know until you ask the other side to do (or not do) something and they respond with That's not in our contract. Next up is the considerable time and expense that it will take you (or your lawyer) to resolve the issue. Better to start with a clear and concise contract to begin with!

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The BUSKLAW November Newsletter: Dead Turkeys and Deader Tort Damages

November 1, 2017 Chadwick C. Busk

November is the month of Thanksgiving. And Thanksgiving for most folks means time with family and friends (better yet, family who are friends), an appropriate but modestly-priced wine, and a turkey. Turkeys should live their brief sojourn on this earth in relative peace before winding up on our table. But that was not to be for the poor fowls in the recent Kent County (MI) Circuit Court case of White Acres, LLC et al v. Shur Green Farms, LLC et al.

The case involves a plethora of parties (hence the "et al"), all of whom were in the distribution chain of a biofuel called Lascadoil. Unlike its parent product, Lasalocid, Lascadoil is not an appropriate turkey-feed additive. (Does anything with "oil" in its name sound fit for human or animal consumption?) So when a bunch of turkeys died after eating feed tainted with Lascadoil, the lawsuits started flying; each party was sued by its downstream buyer who in turn sued its upstream seller. And numerous insurance companies entered the fray.

Before discussing the case itself, we need to talk about the differences between tort and contract claims. In the law, a tort is a civil wrong having the elements of duty, breach of duty, causation, and damages. Wrongful death is a common tort. For example, we go pheasant hunting, and I wave my loaded shotgun in your face. It discharges. You are killed entirely. Your estate sues me, alleging that I had a duty to handle my firearm safely. I breached that duty by discharging my loaded gun in your face which caused your death. And you (and your survivors) personally sustained damages because of my conduct; you're no longer around to give your family love and financial support.

But torts are - and should be - unrelated to contracts, and the damages are different. Contract damages depend on a contract stating the parties' respective duties, a party breaches one or more of these duties, and the other party suffers damages as a result. But the damages are economic, i.e., you didn't get what you bargained for (money or something valuable).

Even so, plaintiffs' trial lawyers are optimistic souls. They will argue anything if there's even a one percent chance that a court will agree. In the case at hand, they not only alleged breach of contract, but they also threw in several tort claims alleging negligence, intentional fraud, and "innocent misrepresentation." The defendants targeted with these negligence allegations asked Judge Christopher Yates to dismiss them under the economic loss doctrine, and he agreed.

Judge Yates correctly found that the negligence claims couldn't stand because the economic loss doctrine bars tort recovery and limits remedies to those available under the Michigan Uniform Commercial Code where a claim for damages arises out of the commercial sale of goods and the losses are purely economic. There is an exception for damages caused by fraud in the inducement (i.e., a defendant's fraud induced a plaintiff to sign a contract for the purchase of Lascadoil as a feed additive), but no one alleged that tort. The Court let stand breach of contract claims, including breach of implied warranty, so the case will now continue on that basis.

Calculating probable damages in contract disputes can be tricky. You need an experienced team consisting of a competent lawyer (who isn't litigating the matter), an accountant, and risk manager to perform an accurate analysis. But alleging tort damages in a breach of contract case will likely get those allegations thrown out of court - and may earn you the judge's disrespect in the process.

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A BUSKLAW Newsletter Aside: Links to My Michigan Bar Journal Plain-Language Articles

October 12, 2017 Chadwick C. Busk

Since my retirement from in-house corporate law in 2014, I've written or co-written several articles about using plain-language in contracts for the Michigan Bar Journal. And a new article has recently appeared in the October 2017 issue. But those articles haven't been a lone endeavor in any sense; I've had several plain-language experts give me their input along the way:

Plain English Scholar and WMU-Cooley Law School Distinguished Professor Emeritus Joe Kimble who invited me to write for the Journal to begin with and has since freely given me editorial advice that not only benefits the particular article du jour but also helps my legal writing generally. And a hat tip to Journal Editor Linda Novak who has put, editorially-speaking, the "frosting on the cake" before publication of these articles.
Michael Braem, J.D., Contract Manager of the Michigan State University College of Human Medicine, who has co-authored some of the articles with me. Michael has also become a friend who doesn't mince words about 45's daily shenanigans.
Dr. Peter Schakel, Hope College English Professor Emeritus. Peter taught me basic writing at Hope College as a freshman in the fall of 1970. He was also my debate coach and mentor while at Hope. After retiring from Hope a few months ago (he joined the faculty in 1968!), he is still teaching at Hope part-time We meet for lunch in Holland at least once a year and talk about good writing style. I quoted Peter's thoughts on The Burkean Pentad in the Curiouser article cited below.
Ken Adams, J.D., legal writing expert par excellence and the author of what may be described as the plain-language Bible in contract drafting: A Manual of Style for Contract Drafting. I've learned a lot from Ken's book and blog and don't pretend to match his expertise gained from years of thinking and writing about plain-language concepts.

So I thank Joe, Linda, Michael, Peter, and Ken for giving this plain-language convert their valuable editorial assistance and sage advice. They refined my written thoughts on plain-language concepts and were never hesitant to give me constructive criticism.

So here are the titles of and links to the Journal articles (in PDF format) that I have thus far authored or co-authored in chronological order (most recent first):

MBJ Month & Year	Author(s) & Title
October 2017	Busk, Using Shall or Will to Create Obligations in Business Contracts
October 2016	Busk & Braem, Curiouser and Curiouser Excuses for Legal Jargon
August 2015	Busk & Braem, What Bilbo Baggins’s Contract Teaches About Plain Language
February 2015	Busk, Why I Made Plain-Language Changes to Your Contract
January 2015	Busk, Fighting the Good Fight: Plain-Language Tales from the Corporate Trenches

Finally, I would be remiss not to call out those few lost legal souls, deaf to the merits of plain language in contract drafting, who have crossed my path over the years. Debate is healthy unless you start from a bias that tolerates - or favors - legal jargon. Then it's pointless.

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The BUSKLAW October Newsletter: Liquidated Damages Must be Reasonable to be Enforceable

October 2, 2017 Chadwick C. Busk

This Photo by Unknown Author is licensed under CC By-SA

In last month's newsletter, we determined that Michigan law doesn't recognize the concept that "unreasonable" or adhesion contracts are unenforceable. But there is a caveat: a liquidated damages contractual provision must be reasonable to be enforceable.

A liquidated damages provision is a term of art in the legal world. It applies when, according to Professor Bryan Garner, the parties to a contract agree in advance on the measure of damages to be assessed if a party defaults. Liquidated damages provisions are common in employee non-competition agreements, and it was that clause in one such agreement that Kent County Circuit Court Judge Christopher Yates examined in the case of Alpha Automotive v Cunningham Chrysler of Edinboro.

The facts of the case are simple. Cunningham is a car dealer who contracted with Alpha to conduct promotional events to sell Cunningham's cars. The agreement contained mutual non-solicitation provisions that barred each side from poaching the other's employees. After the promotional events ended, Alpha accused Cunningham of taking two of its employees in breach of the contract. After Judge Yates found that Cunningham had indeed breached the contract by hiring Alpha's employees, Alpha asked the Court to enforce the following liquidated damages provision for each employee that Cunningham "stole" from Alpha:

[Cunningham will pay Alpha] an agency or recruitment fee of $100,000, such amount representing the reasonable value of said individual's specialized training and by potential earnings to Alpha.

Judge Yates cogently summarized Michigan law on the enforceability of liquidated damages provisions:

The amount of the liquidated damages must be reasonable in relation to the possible injury suffered and not unconscionable or excessive. If the liquidated damages number is excessive, the provision is a penalty and thus unenforceable.
A liquidated damages provision is particularly appropriate where actual damages are uncertain and difficult to ascertain.

In concluding that Alpha was entitled to $200,000 in liquidated damages from Cunningham, Judge Yates examined Alpha's profit and loss statements proving that Alpha earned around $113K from its work for Cunningham in 2014, but that income evaporated after Cunningham hired the two Alpha employees and then decided to perform promotional events itself in 2015.

And just to close the loop, Judge Yates found that although the Rory decision (see my September post) rejected the concept that "unreasonable" or adhesion contracts are unenforceable, the same analysis doesn't apply to liquidated damages provisions based on an unpublished (thus having no precedential value) Michigan Court of Appeals case decided after Rory. But the premise that an unpublished appellate court decision holding that Rory doesn't apply to liquidated damages provisions is weak. How can judges get away with this? There are two answers. First, they can and do because the law - like everything else in life - is ~~messy~~ imprecise! Second, the doctrine affirmed in Rory that a contract is "made to be kept" despite being "unreasonable" is just as enshrined in U.S. contract law as the concept that a liquidated damages clause must be reasonable in amount to be enforceable.

Do your contracts contain liquidated damages provisions? Have you hired expert legal counsel to make sure that they are valid?

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The BUSKLAW September Newsletter: No Judicial Sympathy for "Unreasonable" Contracts in Michigan

September 1, 2017 Chadwick C. Busk

If you work with contracts, it's just a matter of time before a contract with an "unreasonable" provision is sitting on your desk. Perhaps this happened because your company didn't have enough bargaining leverage to get the other party to change the unreasonable provision, but your senior management directed you to proceed anyway. Or maybe the unreasonable provision snuck in during the heat of contract negotiation and wasn't noticed until months later. In any event, you're thinking about going to court and arguing that the unreasonable provision should be disregarded (or even invalidate the contract). What are your chances?

In Michigan, you'll have an uphill battle, as the plaintiffs found out in the case of Rory v Continental Insurance Company CNA that was decided by the Michigan Supreme Court in 2005 and, to my knowledge, is still good law. The contract at issue was an auto insurance policy issued by Continental to Rory. (Yes, an insurance policy is a contract.) The contract contained a provision that all claims must be filed within one year after an auto accident. Rory filed his claim after one year, and Continental denied it for that reason. Rory sued to have the court throw out the one-year limitation as "totally and patently unfair."

The trial court judge agreed with Rory, and so did the Michigan Court of Appeals. But the Michigan Supreme Court reversed, and so ensued a lengthy discussion of the reasonableness contract doctrine. I'm pleased to pull that apart for you.

The Court found that there is no such thing as an "unreasonable" contract or on the flip side, that a contract must be "reasonable" to be enforceable. The Court affirmed the bedrock principle that the parties are free to contract as they see fit. And courts must enforce their agreement as written absent some highly unusual circumstance such as a contract in violation of law or public policy.

But what about the argument that Rory had no bargaining leverage with Continental? Continental wouldn't have changed the one-year contractual limitation on filing a claim in their standard-form auto policy even if Rory had asked for it. So because the insurance policy was presented to Rory on a "take it or leave it" basis, isn't it an unenforceable "adhesion" contract? This sounds like a plausible argument, but the Court balked at rejecting the insurance contract on that basis, holding that an adhesion contract "is simply a type of contract and is to be enforced according to its plain terms just as any other contract."

So if unreasonable and adhesion contracts are enforceable in Michigan, what legal grounds can be used to negate a contract? According to the Court, a contract will be unenforceable under the following typical grounds:
• If a party was fraudulently induced to sign the contract.
(Example: Seller, an art dealer, represents that he has the original de Grebber “King David in Prayer” oil painting, so you sign a purchase agreement for that painting. Unknown to you, it’s hanging in the London Gallery and not for sale.)
• If a party entered into the contract under duress.
(Example: You're persuaded to sign a contract with a gun pointed at you.)
• If the contract is against public policy or illegal.

(Example: You sign a contract for the sale of an illegal drug.)
OR
• If a party to a contract is a minor (under 18).

The Court noted that Rory didn't assert any of these reasons for invalidating the insurance contract. Supporting the Court's decision (but not determinative of the result) was the Court's finding that the one-year limitation on filing a claim was acceptable because the Michigan Insurance Commissioner, who is charged with approving all form insurance contracts used in Michigan, approved the Continental policy containing that provision.

Lesson: You are probably stuck with your "unreasonable" contract if it's governed by Michigan law. If you need to get out of it, seek legal counsel to ~~excavate for loopholes~~ discuss your options.

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The BUSKLAW August Newsletter: This Single-Sentence Contractual Provision Can Save - or Ruin - Your Day!

August 1, 2017 Chadwick C. Busk

When it comes to business contracts, some provisions are more important than others. And it's true that some of these critical clauses are buried deep within a contract, so by the time you get to them, your eyes are glazed over, and you gloss over them. But that could be unfortunate.

One such provision is what lawyers call the choice of law and forum selection clause (for convenience, "COLFS"). That clause typically reads as follows:

The validity, interpretation, and construction of this agreement are governed by the laws of the State of [INSERT STATE], and any and all claims hereunder shall be brought in [SPECIFY NAME OF COURT AND COUNTY].

A recent decision by Kent County Circuit Court Judge Christopher Yates underscores the importance of a COLFS provision in an employment contract between OtterBase, a Grand Rapids, MI-based staffing firm, and two of their former employees, Carrie Rogers and Emily Reed. Rogers and Reed had experience in the staffing services industry in southern California, and OtterBase wanted to expand its business to that area. In 2013, OtterBase entered into an employment contract with Rogers and Reed that included provisions restricting them from competing with OtterBase and soliciting OtterBase clients during and after the term of the contract. The contract included a COLFS provision stating that Michigan law governs the contract, and any claims between the parties could only be decided in Kent County Circuit Court.

The contract ended badly in 2016. Contrary to the contract, Rogers and Reed started a new company in California that competed with OtterBase and apparently solicited OtterBase clients. OtterBase sued Rogers and Reed in Kent County Circuit Court, and they asked Judge Yates to throw out the suit on the basis that the COLFS provision was unenforceable.
At stake here was more than the inconvenience of Rogers and Reed having to come to Michigan to defend the lawsuit, but whether the non-compete and non-solicitation provisions were enforceable. Simply stated, Michigan law recognizes the validity of these restrictions (if carefully drafted), but California law does not. California law states that "any contract by which anyone is restrained from engaging in a lawful provision, trade, or business of any kind" is void. So, if the Judge Yates upheld the COLFS provision, it was "game over" for Rogers and Reed.

The criteria for the validity of COLFS provisions are well-established. Judge Yates reviewed them and determined that:

Michigan had a substantial relationship to the contracting parties because OtterBase is headquartered in Grand Rapids, and the purpose of the contract was to have Rogers and Reed extend its business to California.
OtterBase does business in several states, and it has a legitimate purpose in having a Michigan COLFS provision to avoid confronting a crazy quilt of laws that require different treatment of employees working in different states.
Rogers and Reed were free to negotiate the COLFS provision.
Michigan public policy favors the enforcement of COLFS provisions.
The COLFS provision may stand despite the fact that Michigan law recognizes restrictive covenants in employment contracts but California law does not. The two states' different views on that subject aren't enough to invalidate the COLFS provision.

Do your contracts contain COLFS provisions that may save - or ruin - your day if you litigate with the other party? You should have your attorney carefully review your contracts for COLFS provisions and summarize them as part of your contracts database. You do have a contracts database, right?

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The BUSKLAW July Newsletter: Addendum to the Moral Imperative of Plain Language: The Judeo-Christian Imperative

July 6, 2017 Chadwick C. Busk

(Note: you may want to stop here if you aren't a spiritual person in the Judeo-Christian tradition.)

As an introduction to this post, I'll share my religious background. I was brought up in the Protestant tradition with the Dutch Reformed twist. But when friends ask me what I really believe in, I hedge my bets based on:

I went to Hope College, affiliated with the Reformed Church in America.
I went to Notre Dame Law School, a respected Catholic institution.
I'm a quarter Jewish and was cared for by a fairly authentic Jewish mom (who was thankfully tempered by my 100% Danish father).

So at the pearly gates, I'll show Saint Peter (or whoever) the three Protestant-Catholic-Jew entry tickets reflecting this background, and hopefully one (or more) will allow passage.

So now that I've disclosed my broad-minded belief system, here's my thesis: using plain language furthers the Christian and Jewish faiths.

Contemporary Christian evangelist Rob Bell talks about ways in which Christians can echo Christ's resurrection in this video. At 2:02 in the piece, he describes that every "fair and honest act in business and trade...belong to God's good world." We've already seen how the twin evils of legalese and bureaucratese distort what is fair and honest in our society. So avoiding them furthers God's plans for his creation and enables us to advance to a higher state of awareness.

On the Jewish side, many Jews practice tikkun olam (literally "repair of the world"), an aspiration to behave and act constructively and beneficially. As the Wiki states: "It's the idea that Jews bear responsibility not only for their own moral, spiritual, and material welfare but also for the welfare of society at large. To the ears of contemporary pluralistic Rabbis, the term connotes 'the establishment of Godly qualities throughout the world'." This goal is hardly different than what Rob Bell is talking about! Go figure.

Regarding contract language, it's well-established that God and the Devil love contracts. We have God's contract with Abraham in the Old Testament, and the various contracts for souls proffered by the Devil. While the former is written in plain language, the latter assuredly is not, if only because it's impossible to cover all the loopholes of soul forfeiture, so the Devil uses obfuscation to hide that fact.

What words flow from your keyboard, and how are they structured? Are you stuck in the mire of gobbledygook? Or is your business and legal writing clear and concise and so advances God's purpose in a small yet meaningful way?

The BUSKLAW June Newsletter: Is There a Moral Imperative to Plain English? Part 2: Conclusions

May 31, 2017 Chadwick C. Busk

In last month's newsletter, we gave three examples of wordy, unclear, racist, pompous, and dull writing: as an opening sentence to a Bizarro-World version of Stephen King's The Gunslinger, as the beginning of a typical "big law firm"-drafted contract, and bureaucratic (including political) statements. We then compared these monsters of prose to their plain-English versions. But so what? Is poor literary, legal, business, and government writing merely a mote in the eye or something more sinister?

Let's start with bureaucratese. The Trump Administration didn't invent it but surely has taken this dark art to new heights (or depths). And their penchant for typographical errors is a new twist. In this recent Business Insider article, 84% of 1,043 people surveyed said they would be less likely to trust the government if its communications contained spelling or grammatical mistakes. Specifically addressing Trump's notorious tweets containing such gems as "unpresidented," "tapp my phones," "honered," "Educatuon," and the infamous "covfefe," 81% of the survey respondents said that they were "less confident the White House can fulfill its mission," using descriptions such as "incompetent, lazy, careless, and unprofessional."

Typos are one thing, but the effect of bureaucratese is even more pernicious. In his book, 1984, George Orwell used the word "doublespeak" to portray political language that serves to distort and obfuscate reality and "defend the indefensible." And he wrote that "where there's a gap between one's real and one's declared aims, one turns as it were instinctively to long words and exhausted idioms." The late David Foster Wallace, noted literary critic and author of the popular novel, Infinite Jest, observed, "Officialese is meant to empty the communication of a certain level of humanity. On purpose."

I believe that bureaucratese is the enemy of a free society. The practice of intentionally spouting this crap via social media, press releases, or speeches is immoral.

Next up is legal jargon. A scary fact about legal jargon is that a recent poll of lawyers showed that 25% aren't concerned about it. Perhaps that is because legalese creates ambiguity, ambiguity engenders argument over meaning, arguments become litigation, and business lawyers who litigate on a regular basis tend to become rich, much to the distress of their clients who pay their fees. There is a long litany of legalisms that have been fodder for courts to puzzle over, including:

best efforts
herein
therein
hereby
thereof
shall
and/or
hold harmless

Dr. Steven Pinker, an award-winning cognitive scientist, Harvard professor, and author of the recent bestseller The Sense of Style, believes in the "high moral value in reducing legalese to a bare minimum. There's so much waste and suffering that results from impenetrable legalese. People don't understand what their rights are because they don't understand a contract or they waste money hiring expensive lawers to decipher contracts for them."

Legal philosophers can debate whether contract language can be inherently immoral, but contractual legal jargon is on the border of that conclusion.

The final question is whether poorly-crafted fiction is immoral. Of course not, but it's a foolish waste of time to the hapless author who wrote it and to those poor souls who paid to wade through it.

Should we end our moral indictment against jargon here? Not quite. 50 years ago this month, The Beatles left their usual creative path with their famous Sgt Pepper album. And I too am leaving the standard reasons for plain English in my July newsletter, where we'll examine if a Judeo-Christian perspective justifies the use - and encouragement - of plain English. (Warning: this addendum won't be suitable for the "spiritually challenged.") I'll announce its publication via Twitter, so please sign up for my Twitter feed (@BUSKLAW) if you haven't already done so.

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The BUSKLAW May Newsletter: Is There a Moral Imperative to Plain English? Part 1 - Examples

April 28, 2017 Chadwick C. Busk

"The man in black fled across the desert, and the gunslinger followed."

Thus begins Stephen King's epic story of the gunslinger, Roland Deschain, and the popular Dark Tower series of novels describing his adventures. But King didn't have to write this sentence that way; he could have consulted with the typical lawyer, politician, or company PR department first. Had he done so, the sentence may have appeared so:

"The bad hombre who was dressed mostly in dark clothing and running fast across an arid land was pursued by a multi-armed, extremely dangerous, and notorious vigilante."

The difference in these two sentences is clear. King's concise short sentence creates an image that grabs the reader's attention and raises provocative questions. Who is the man in black? Who is the gunslinger? Why is he after the man in black? But the Bizarro World Stephen King sentence - with its ethnic slur, passive voice, ambiguity, suppositions, and superfluous adjectives - will likely cause the reader to check the number of pages in the book and decide whether it's worth the time.

Now let's consider the typical introduction to a big-law-firm-drafted ("BLFD") business contract:

"THIS AGREEMENT ("Agreement") is dated as of the ____ day of _____________, 2017, by and between ABLE CORPORATION [address] hereinafter "BUYER," and BAKER CORPORATION [address] hereinafter "SELLER."

RECITALS

WHEREAS, BUYER engages in the retail sale of widgets which, among other things, include springs (the "Components") manufactured by SELLER; and

WHEREAS, SELLER is interested in selling the Components to BUYER; and

WHEREAS, BUYER is willing to buy the Components from SELLER;

AGREEMENT

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is acknolwedged by SELLER, BUYER and SELLER, intending to be legally bound, hereby agree as follows:...................................................................."

Even though a business contract doesn't tell a story, this introduction has undesirable elements in common with the Bizarro World opening to The Dark Tower:

Superflouous and archaic words or phrases: "by and between," "RECITALS," "WHEREAS," "AGREEMENT," the entire line about consideration, "NOW, THEREFORE," and "hereby."
Ambiguous words or phrases: "as of," "hereinafter," and "among other things."
Unnecessary words in capital letters and underlined: every one.
Poor grammar: "which include..."
Use of the passive voice: "manufactured by SELLER..."
Poor font: Times
Underlining to show emphasis

Whoever is stuck reading this contract probably wishes they made a different career choice (or not, if they can bill by the hour). Consider this plain-English makeover:

"This Agreement, dated ___________________, 2017, is between Able Corporation [address] ("Able") and Baker Corporation [address] ("Baker").

Able manufactures springs (the "Springs") that are suitable for use in Baker's widgets. Baker wishes to buy Springs from Able. Able is willing to sell the Springs to Baker, so the parties agree as follows:........................................"

Like King's actual opening sentence, we have a clear and concise plain-language statement of what is happening. Gone are the elements that make the BLFD contract a nightmare. And the truly amazing news: the plain-language contract is "just as legal" as the BLFD document!

Bureaucratese is the cousin to legal jargon. Consider the following examples:

The Trump Administration's lies are "alternative facts."
United Airlines' forcible removal of a seated, ticketed passenger is a "re-accommodation."
A company that lays off employees is "rightsizing."
The result of rightsizing is the "new normal."
Genocide is "ethnic cleansing."
Civilians killed in a military action are "collateral damage."
If your medical plan is with an HMO, you have "a narrow-path health product." (No link on this one; actually experienced.)

So we've visited a spectrum of gobbledygook: Bizarro World Stephen King to tediously-drafted BLFD contracts to institutionally-broadcast deceptive terms of art. But does rejecting legalese and bureaucratese for plain English make any positive difference for society? That's the question for examination in the June issue of the BUSKLAW blog. Stay tuned!

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The BUSKLAW April Newsletter: On the Foolish Tension Between Lawyers and Business Folks

April 1, 2017 Chadwick C. Busk

From my colleague Mark Grossman comes this joke (just in time for April Fool's Day):

A man in a hot air balloon is lost. He reduces the balloon's height and spots a man below. He shouts, "Excuse me, can you tell me where I am?"

The man below says: "Yes, you're in a hot air balloon hovering at 30 feet."

"You must be a lawyer," says the balloonist.

"I am," replies the man. "How did you know?"

"Well," says the balloonist, "everything you have told me is technically correct, but useless."

The man below says, "You must work in business."

"I do," replies the balloonist, "but how did you know?"

"Well," says the lawyer, "you don't know where you are, or where you're going, but you expect me to be able to help. You're in the same position you were before we met, but now it's my fault."

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This joke illustrates the all too common (but foolish) tension between lawyers and business folks. Lawyers are trained to draft contracts in contemplation of "what if" scenarios, even if there is a good chance that they won't happen in the real world. Business folks just want to get the deal "papered," i.e., the contract signed, the product or services delivered, and payment received. But lawyers can make life so much easier for their business clients (and vice versa) if each tries to understand - and account for - what motivates the other. And it's not rocket science.

Business folks must understand that lawyers exist to protect their corporate clients from unreasonable business risk resulting in economic or reputational loss. And even if you are the company's CEO, founder, or chief cook and bottle washer, you need to understand that I as your lawyer don't represent you; I'm ethically obligated to represent the company as a whole. So you may tell me not to negotiate that beneficial risk-shifting indemnity clause because the deal has to be inked today, and I may respond that I have to because a good indemnity is in the company's best interest and well worth any delay. And you need to respect that.

Lawyers must understand that business folks view deals as time-driven so that for a seller, the revenue from the sale can be recognized on the company's books by a certain date; or that for a buyer, the seller's product or services can be provided so the project stays on track. An effective lawyer will exercise their best efforts to get the contract negotiated and ready for signature by the business team's preferred date. And lawyers shouldn't sweat inconsequential contractual details that might needlessly delay getting the agreement signed.

The best way to get a deal done is for the lawyers and business folks to keep communicating from the first day of negotiation to the last. This communication must be both intra (i.e., the legal and business folks representing the company) and inter (i.e., between the legal and business folks on both sides). Fortunately, the internet make this process a lot easier; the ability for lawyers and their business clients to jump on a Skype conference call and mark-up a MS Word document in real time is a good thing. But this assumes that both parties remain motivated to get the deal done, don't play games with each other (as in Donald Trump or Bobby "Axe" Axelrod), and aren't afraid to compromise where they can.

And each lawyer and their business client must understand - and respect - what makes the other tick.

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The BUSKLAW March Newsletter: Of Pie and Plain English

February 27, 2017 Chadwick C. Busk

I love pie and plain English about equally, although plain English is less fattening. Pie - especially the caramel toffee apple variety - for Thanksgiving is especially grand because afterward, you can eat leftover pie for breakfast without a lot of guilt. And chances are that the rest of the household won't consider pie a suitable breakfast food, so you're good to go.

Grand Rapids, Michigan, is blessed with an excellent source of pies: Sweetie-licious. Until recently, they had two locations: one in GR's Downtown Market and the other in beautiful East Grand Rapids. I grew up in EGR and still fond of the place. So it was very convenient to journey across town to Sweetie's EGR location to pick up a pie for holidays (or when the pie lust grew to be unbearable).

Because life isn't fair, Sweetie-licious closed its EGR location several months ago. (But mercifully their Downtown Market location is still going strong.) When I sauntered past their empty EGR storefront recently, I noticed the above sign posted on the door. Yikes! The place is haunted by the ghost of bureaucratese, a style of language held to be characteristic of bureaucrats and marked by abstractions, jargon, euphemisms, and circumlocutions. Bureaucratese is the close brother of the legal mumbo jumbo that plagues most contracts. The venerable Kent County Health Department should know better!

Let's see if we can revise this Notice to be more user-friendly. We'll leave the NOTICE title and the Kent County Health Department "signature" alone and concentrate on the mighty text. How about the following:

THE KENT COUNTY HEALTH DEPARTMENT MUST INSPECT AND LICENSE THIS SPACE BEFORE IT MAY BE CONSTRUCTED, REMODELED, OR OPERATED FOR FOOD SERVICE.

This revision accomplishes the same thing as the original gobbledygook in refreshing, easy-to-understand plain-English. Here's a list of the changes and the reason for each:

We changed the negative prohibition in favor of a positive command in the active voice.
"Facility" is too vague. Any empty retail space is not a "facility." Why not just call it a "space"?
"Shall" is archaic. "Must" is better!
There is no reason for "REMODELED" and "ALTERED." They mean the same thing in this context, so let's ditch "ALTERED."
"ESTABLISHMENT" is just silly! Just change the phrase to say "FOR FOOD SERVICE."
I deleted "APPROVD" (sic) because obviously the the Kent County Health Department won't issue a license for operation unless they first approve the construction and remodeling of the space.

You might wonder why converting this Notice into plain English is a worthy exercise. The reason is because bureaucratese insults the intelligence of the reader and lends false credibility to the government agency behind it. And the last thing we need in this day and age is a government agency - whether federal, state or local - plagued by a credibility gap. So it makes sense for us to call out stupid jargon whenever we come across it, even in our search for pie!

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The BUSKLAW Almost February Newsletter: Embedded GR Meetup Report

January 28, 2017 Chadwick C. Busk

I had the privilege of presenting at the Embedded GR group meeting at The Geek Group Lab on January 25. The meeting topic was "Contracting, Consulting, Moonlighting, and Independent R&D," and I spoke about legal and business "red flags" in contractor agreements. Around 30 engineers were in the audience, along with two motley dogs, plenty of geek food (pizza and pop), and a fellow Grand Rapids IT attorney and Hope College grad, Elliott J.R.Church.

I learned a lot at the meeting and had a grand time. These IT engineers and software developers are a very entrepreneurial bunch and were receptive to me expounding on what contractors should worry about when asked to sign a client-drafted consulting contractor agreement. Here's the link to my PowerPoint deck, if you're interested.

The camaraderie among this group reminded me of my late father's associates - wildcatters -in the "oil business" in Michigan in the 1940s and 50s. These guys had their own lingo in discussing where to drill for oil in Michigan and how to raise funds to finance their activity. I was only a kid at the time, but I sensed that they enjoyed each other's company and usually drilled - and discovered - oil without friction between them. (For a rare Michigan Supreme Court case among wildcatters that involved my dad, see Rex Oil & Gas Company v Busk.)

So the IT business in West Michigan is booming, and I hope to learn how I can meet their legal needs given my expertise in that area.

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The BUSKLAW January Newsletter: I'm Presenting at the Embedded GR Meetup on January 25!

January 5, 2017 Chadwick C. Busk

Organizers of the Embedded GR IT group invited me to attend their next meeting to discuss the legal aspects of folks working as independent contractors on IT engagements. Although my experience in this field has been on the "other side of the table" (i.e., representing businesses hiring these contractors), I do have some thoughts on what contractors should - from a legal view - NOT agree to.

Embedded GR is a group of engineers, hobbyists, students, and managers in the Grand Rapids, MI area. They discuss the development, tooling, and processes associated with the creation of embedded systems.

I appreciate the opportunity to share my legal expertise with this group. Much of what I say will apply to all contractors working on projects for employers, regardless of whether their work relates to embedded systems. So if you are a contractor (doing work of any sort), you may want to attend to get my take on what you should avoid (or at least push back on) when signing a contractor agreement with a Michigan business.

As I understand, the meeting is open to anyone who is interested; sign-up information is here.

I'll share the best parts of this meeting and my presentation in next month's newsletter.

Best wishes to my few (but steadfast) readers for a blessed 2017.

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The BUSKLAW December Newsletter: Consider a Legal Audit of Your Contracts

December 1, 2016 Chadwick C. Busk

Most of you are business professionals and thus are involved with contracts. Depending on the nature of your enterprise, you have various contracts in force, for example:

>sales agreements

>purchase agreements

>real estate leases

>purchase order terms and conditions

>software license and maintenance agreements

>service agreements

>equipment maintenance agreements

>consulting agreements

>contractor agreements

>employment agreements

>non-disclosure agreements

>non-compete agreements

>transportation or logistics agreements

>financial institution agreements

Perhaps you work with these documents on a regular basis and are familiar with their content. Or you pay a high-priced law firm to do that for you. More commonly, however, you keep these documents in a file cabinet, rarely review them, and only call your expensive big-firm lawyer when there are problems with the transaction. Whatever the case, consider the advisability of a legal audit to focus on the following:

Are your contracts properly signed, dated, and legible to the reader? I once had a client who had the other party sign its contracts but never signed them itself, thinking that if something went wrong, it could argue that it never agreed to the contract. This is a poor - and fruitless - approach to contract administration. And I once had a judge refuse to admit an opposing party's contract into evidence because the text was unreadable.
Are your contracts still in force or have they (intentionally or not) expired? Do you know the steps to renew (or terminate) them?
Do you have multiple contracts with the same party that may conflict with each other? You may have a master agreement and an operating agreement, a term sheet, or a statement of work with an outside party. But if you don't carefully specify what agreement controls, you may find yourself in a court battle as my colleague D.C. Toedt discusses here.
Do your contracts contain ambiguous and confusing legal jargon? Examples of legal jargon (and suggested remedies) are discussed in this article that I wrote for the Michigan Bar Journal. Legal jargon is more than a nuisance; it can lead to costly litigation about what the parties intended. And there are no excuses for legal jargon, as my colleague Michael Braem and I point out in a recently-published Michigan Bar Journal article.
Do you have a contract management system? The system can be as a simple as a table or spreadsheet or as complex as an enterprise software solution. But due diligence demands that you keep track of your contracts, including key provisions, expiration dates, and renewal deadlines.
Finally, do you have a corporate records retention policy (with a designated record retention manager) that requires the preservation of your contracts for the proper period? If not, you could get in trouble for destruction of evidence if you discard a contract that is (or becomes) the subject of a lawsuit.

The purpose of a legal audit is quite simple: find potential problems with your contracts now and fix them before they can lead to a costly and time-consuming legal dispute.

A legal audit of your contracts makes sense even if you already have an established relationship with a lawyer who may have prepared your contracts. The old adage that "two heads are better than one" makes good sense here. And my view is that even experienced corporate lawyers conducting a legal audit for their clients shouldn't "get rich" in the process but instead charge a reasonable fixed fee largely based on the number of contracts reviewed. (You'll recall that my approach to practicing law is stated here.)

So as you are getting in the holiday spirit with inspirational music and stories of Xmas long ago, consider a legal audit of your contracts as an appropriate "gift" to your bottom line.

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The BUSKLAW November Newsletter: Winning the "Battle of the Forms"

November 1, 2016 Chadwick C. Busk

In my October post (see below), we talked about the peril of a buyer ignoring the seller's "terms and conditions" in a sale of defective blueberries from Michigan growers. I suggested that the buyer could have prepared a "sales acknowledgment" to send to the seller along with the signed offer acceptance. This approach could have negated the seller's terms and conditions that contained numerous risk-shifting provisions skewing the deal in seller's favor. These provisions included restrictions that limited buyer's remedies if seller breached (which happened), mandatory jurisdiction and venue in seller's home town, and the requirement that the losing party in any court dispute pay the winning party's actual attorney fees, a provision that resulted in the buyer's payment of big bucks to the seller's lawyers.

Lawyers have an ominous name for this scenario: the "battle of the forms." Generally, this battle occurs when contracting parties:
> don't negotiate a sale of goods beyond the bare minimum of description, quantity, price, and delivery date;
> have their own different set of legal terms that they want to control; and
> these legal terms aren't negotiated.

Each party may insert "magic language" in its form to increase the odds that it will negate the other party's form. (This magic language is a bit too "inside baseball" to be detailed here, and I have my favorite magic language - together with a deployment strategy - that I wish to keep confidential.) Be warned, however, that what one party views as magic language to win the battle of the forms will likely be disputed by the other party; in the end, magic language will have to be considered by a court or arbitration panel and may turn out not to be so magic after all. And a judge or arbitration panel may well disregard both parties' forms (regardless of their supposedly magic language) and require them to comply with certain "default" terms and conditions contained in the Michigan (or other State's) Uniform Commercial Code.

The best way to avoid the battle of the forms is for the parties to negotiate the business and legal terms of their deal and sign a plain-English contract that reflects a meeting of the minds. The parties should hire a competent, cost-effective business lawyer for that purpose (hint).

The battle of the forms usually occurs in the context of a sale of goods between business "merchants" (not consumers), rather than services or an intellectual property (including a software) license. Most information technology companies are spared this battle because they tend to negotiate master agreements with engagement-specific statements of work. (But they must be careful to specify what document controls when there is a conflict between the master agreement and a statement of work. So, the ill-considered use of technology contracts can lead to trouble too.)

Hopefully, you have been spared the battle of the forms by negotiating your contracts with the other party rather than by simply exchanging forms with it - and betting that your document with its (supposedly) magic language will prevail if there is a dispute.

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The BUSKLAW Newsletter