Buried in the Boilerplate. Boilerplate From our friends at Wikipedia In the field of printing, the...

Buried in the Boilerplate

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Boilerplate

• From our friends at Wikipedia

• In the field of printing, the term dates back to the early 1900s. From the 1890s onwards, printing plates of text for widespread reproduction such as advertisements or syndicated columns were cast or stamped in steel (instead of the much softer and less durable lead alloys used otherwise) ready for the printing press and distributed to newspapers around the United States. By analogy, they came to be known as ‘boilerplates’.

• In contractual law, the term “boilerplate language” describes the parts of a contract that are considered standard.

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Boilerplate in Contracts

• These provisions are often buried in the back of the contract in the Miscellaneous section.

• It can be tempting to move quickly through this section after all the drafting work on the key business terms.

• In our review we saw approximately 25 different provisions that regularly appear in the boilerplate of contracts.

• Making sure the correct provisions worded as appropriate for your goals are in your agreement can be critical. These provisions matter in the implementation of the contract and in addressing any disagreements that may arise.

• While there is no guaranty a court will uphold the exact wording in an agreement, getting the language right is the best starting point.

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Boilerpoints for Today’s Discussion:

• Executing in Counterparts / eSignatures

• Force Majeure

• Severability

• Choice of Law and Choice of Forum

• Arbitration

• Amendment and Waiver

• Non Assignment and Delegation

• Further Assurances

• Q & A

Note: The example provisions included in this CLE presentation are just that - examples; they are not meant to be a substitute for specific legal advice or analysis for a particular transaction which inherently vary.

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Counterparts

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Counterparts Key Issues

• “This agreement may be executed in counterparts, each of which is an original and all of which together constitute one and the same instrument.”

• Shows that the parties intended to be bound by the contract, even though they executed separate copies or signature pages.

Standard Clause

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• Are counterparts that are delivered via email in .pdf form enforceable?

• Statute of Frauds Issues

• U.S. law adopted a 1677 English law, called the Statute of Frauds, which provides a defense in a breach of contract lawsuit. Every state has some type of statute of frauds. The idea is to prevent a nonexistent agreement between two parties being “proved” by perjury or fraud. Thus a contract may not be enforced unless a written note or memorandum of agreement exists that is signed by the persons bound by the contract’s terms or their authorized representatives. Note many exceptions - some discussed in this presentation.

• Admissible as evidence

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• Electronic records -- including contracts assembled with .pdf signatures sent via email -- are acceptable media for establishing a signed writing that satisfies the statute of frauds.

• Federal Electronic Signatures and Global and National Commerce Act (E-Sign); Uniform Electronic Transaction Act (adopted by all states in the US except Illinois, New York and Washington, which each have their own statute) and Illinois Electronic Commerce Security Act

• These Acts provide that a signature, contract, or other record relating to a transaction may not be denied legal effect, validity or enforceability solely because it is in electronic form. A contract relating to a transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation.

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• Electronic records -- including contracts assembled with .pdf signatures sent via email -- are generally admissible as evidence • Federal Rules of Evidence - Federal Rules of Evidence, Rule 1002 states that

the original writing is required in order to prove its content. Rule 1001 defines an “original” to include electronically stored information, a print out or other output readable by sight if it accurately reflects the information. Rule 1003 also states that duplicates are admissible to the same extent as the original unless there are genuine questions raised about the original’s authenticity. This is called the “Best Evidence Rule”.

• Illinois Electronic Commerce Security Act - electronic record or electronic signature not precluded: (1) on the sole ground that it is an electronic record or electronic signature; or (2) on the grounds that it is not in its original form or is not an original.

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Counterparts Drafting Suggestions

Watch for potential issues with version numbers and dates. Consider signatures pages with no dates or version numbers.

Watch for exceptions - wills, healthcare powers of attorney, bank regulatory requirements for originals, company preference.

You may wish to close on electronic copies but obtain original signatures for files “just in case”.

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Counterparts Recommendations

“Counterparts; Effectiveness of Agreement. This Agreement may be executed in one or more counterparts, each of which when executed and delivered shall be an original, and all of which when executed and delivered shall constitute one and the same instrument. This Agreement must be manually executed, but the exchange of copies of this Agreement and of manually executed signature pages by facsimile or by electronic mail as an attachment in portable document format (.pdf) to the addresses provided in Section ___ [Notice provision, watch for places signatures will not be manual] shall constitute effective delivery of this Agreement as to the Parties and may be used in lieu of the original Agreement for all purposes. [Each Party that delivers an executed counterpart signature page by facsimile or by electronic mail shall promptly thereafter deliver an original executed counterpart signature page to the other Party; provided, however, that the failure to do so shall not affect the validity, enforceability, or binding effect of this Agreement.] This Agreement shall not be effective until both Parties have executed and delivered a counterpart of this Agreement [watch for conflict with effective date].”

Suggested Clause

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Force Majeure

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Force Majeure Basic Principles

• If a “force majeure” supervening event occurs, the non-performing party is excused from its obligations to perform.

• It’s all about “risk allocation”.

• If an event is not included in force majeure clause and the event occurs, the non-performing party is liable for breach and bears the risk of that force majeure event occurring.

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• Basic considerations:• Which events are force majeure events?• Does the event have to be “unforeseen”?• What if performance is possible, but only at tremendous

costs?• Should performance be excused permanently or

temporarily?

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• Common Law Defense of Commercial Impracticability: Contracts without force majeure provisions still subject to common law defense of commercial impracticability.• Impracticability defense applied inconsistently.• Many courts hold that “foreseeability” of the supervening

event is the critical factor in assessing whether performance should be excused.

• Other courts employ a “superior risk bearer” analysis and do not excuse the performance of the party the best situated to prevent or insure against the supervening event.

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Force Majeure Drafting Points

• Defining a Force Majeure Event• Non-preferred method -- everything but “The Rapture”:

litany of all conceivable events; e.g., “Force Majuere event means a war, flood, lightning, drought, earthquake, fire, volcanic eruption, landslide, hurricane, cyclone, typhoon, tornado, explosion, civil disturbance, act of God, terrorist act, military action, epidemic, plague [or similar causes beyond the reasonable control of the parties].”• Problem: inadvertently failing to include all relevant

contingencies on the list.• Even “catchall phrase” results in litigation over what are

“similar” events.

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• Defining a Force Majeure Event

• Preferred method is to define by criteria: e.g., “any event or circumstance, regardless of whether it was foreseeable, that is not caused by and is beyond the reasonable control of the nonperforming party and that prevents the nonperforming party, in whole or in part, from complying with any of its obligations under this Agreement [or materially and adversely affects the ability of the nonperforming party, in whole or in part, from complying with its obligations under this Agreement].”

• Consider adding exclusions: “Notwithstanding §__, a Force Majeure event does not include [economic hardship, changes in market conditions, strikes].”

• If adding the List of events, best as “non-exclusive list of examples” that meet the general criteria and omit “catchall phrase”. Also best in separate paragraph so court won’t ignore general criteria and only look to list.

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• Covenants During Force Majeure Event• To “trigger” a force majeure provision, the nonperforming

party typically should have an obligation to:• Give timely written notice to the other party of the event• Use reasonable efforts to overcome event• Use reasonable efforts to mitigate damages and

overcome event• Resume performance once possible• Other Considerations:• Furnish regular reports to other party on status [consider:

daily, weekly, bi-weekly]

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• Effect of Force Majeure Event

• Suspension of the performance obligations of nonperforming party during Force Majeure Event.

• Payments: “No obligation to make a payment required under this Agreement is excused as a result of a Force Majeure Event [except that if Force Majeure Event lasts for longer than __ days, payments are excused until nonperforming party resumes obligations in full].”

• Termination of Entire Contract: option of one or both parties? Immediately or if Force Majeure Event lasts for longer than specified period? Typically, mutual option following certain period of time, after which neither party has further obligation to perform or to make any further – other than payments due and owing before termination date.

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Force Majeure Recommendations

• If you have performance obligations, include a broad and generous force majeure provision instead of relying on the common law defense of commercial impracticability.

• By contrast, parties with limited or no performance obligations should consider not including a force majeure provision (which would run primarily to the other party’s benefit) in the first draft of contracts they prepare and otherwise limiting such clauses.

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Force Majeure Recommendations

• Consider allocation of costs:• E.g., “If a Force Majeure Event affects the Contractor’s

ability to meet the Completion Date, the parties shall negotiate in good faith to obtain an equitable adjustment in the Completion Date and Contract Price.”

• “E.g., “No adjustment of the Contract Price is to be made based on a Force Majeure Event.”

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“(a) If a Force Majeure Event occurs, the party that is prevented by that Force Majeure Event from performing any obligations under this agreement (the “Nonperforming Party”) will be excused from performing those obligations, on condition that it complies with its obligations under section (c) below.

(b) For purposes of this agreement, “Force Majeure Event” means, with respect to a party, any event or circumstance, regardless of whether it was foreseeable, that was not caused by the Nonperforming Party and that prevents the Nonperforming Party from complying with any of its obligations under this Agreement [(other than an obligation to pay money)], on condition that the Nonperforming Party uses reasonable efforts to comply with its obligations under this Agreement, except that a Force Majeure Event will not include [any a strike or other labor unrest that affects only one party, an increase in prices, or a change of law].

(c) Upon occurrence of a Force Majeure Event, the Nonperforming Party shall promptly notify the other party of occurrence of that Force Majeure Event, its effect on performance, and how long that party expects it to last. Thereafter the Nonperforming Party shall continue to update that information as reasonably necessary on a weekly basis. During a Force Majeure Event, the Nonperforming Party shall use reasonable efforts to limit damages to the Performing Party and to resume its performance under this agreement.”

Sample Clause (simple form)

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Sample Clause (longer form)

DEFINITIONS SECTION - “Force Majeure Event” means any act or event, whether foreseen or unforeseen, that meets all three of the following tests:

a. The act or event prevents a party (the “Nonperforming Party”), in whole or in part, fromi. performing its obligations under this Agreement; or

ii. satisfying any conditions to the Performing Party’s obligations under this Agreement.

b. The act or event is beyond the reasonable control of and not the fault of the Nonperforming Party.

c. The Nonperforming Party has been unable to avoid or overcome the act or event by the exercise of due diligence.

d. Acts and Events Deemed to Be Force Majeure Events. In furtherance of the definition of Force Majeure Event and not in limitation of that definition of Force Majeure Event, each of the following acts or events is deemed to meet the requirements of Section (a) above and to be a Force Majeure Event: war, flood, lightning, drought, earthquake, fire, volcanic eruption, landslide, hurricane, cyclone, typhoon, tornado, explosion, civil disturbance, act of God or the public enemy, terrorist act, military action, epidemic, famine or plague, shipwreck, action of a court or public authority, or strike, work-to-rule action, go-slow or similar labor difficulty, each on an industry-wide, region-wide or nationwide basis.

e. Despite the preceding definition of a Force Majeure Event, a Force Majeure Event excludes economic hardship, changes in market conditions or insufficiency of funds.

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Sample Clause (longer form)

FORCE MAJEURE SECTION -

a. Suspension of Performance. If a Force Majeure Event occurs, the Nonperforming Party is excused from

i. whatever performance is prevented by the Force Majeure Event to the extent prevented; and

ii. satisfying whatever conditions precedent to the Performing Party’s obligations that cannot be satisfied, to the extent they cannot be satisfied.

Despite the preceding sentence, a Force Majeure Event does not excuse any obligation by either the Performing Party or the Nonperforming party to make any payment required under this Agreement.

b. Resumption of Performance. When the Nonperforming Party is able toi. resume performance of its obligations under this Agreement, or

ii. satisfy the conditions precedent to the Performing Party’s obligations, it shall immediately give the Performing Party written notice to that effect and shall resume performance under this Agreement no later than two working days after the notice is delivered.

c. Exclusively Remedy. The relief offered by this Force Majeure provision is the exclusive remedy available to the Nonperforming Party with respect to a Force Majeure Event.

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Severability

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Severability Basic Principles

• “If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction.”

• Reflects the parties’ understanding that contract terms are divisible and independent.

• Allows the parties to preserve a contract despite any unenforceable or invalid provision contained therein.

Standard Clause

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Severability Key Issues

• Fundamental Terms• Certain terms may be so essential to a contract that invalidating any such term

renders the contract useless to one of the parties.• Restrictive Covenants (noncompete and nonsoliciation provisions)

• Remedies (liquidated damages provisions)

• Fundamental terms can be carved out from the Severability Clause to ensure that the clause does not unintentionally preserve a contract which has been stripped of all value.• “. . . provided, however, that if any fundamental term or provision of this Agreement (including,

without limitation, Section(s) [applicable fundamental term(s)]) is invalid, illegal or unenforceable, the remainder of this Agreement shall be unenforceable.”

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• Reformation of Invalid Contract Terms By the Parties• The Severability Clause may require the parties to work together in good faith

to modify any invalid or unenforceable terms.• “Upon a determination that any term or provision is invalid, illegal or unenforceable, the parties

hereto shall negotiate in good faith to modify this Agreement to effect the original intent of the parties as closely as possible . . . ”

• Contractual provisions are likely to be invalidated in the context of litigation, thus the parties may not be in the best position work together to amend the terms.

• To the extent severed terms were highly negotiated during initial contract discussions, reaching an agreement on acceptable replacement terms may be difficult.

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• Reformation of Invalid Contract Terms By the Court

• The Severability Clause may allow for a court of competent jurisdiction to reform severed contract terms to make them valid and enforceable.• “Upon a determination that any term or provision is invalid, illegal or

unenforceable, the court may modify this Agreement to effect the original intent of the parties as closely as possible . . . ”

• Helps the parties avoid renegotiation of difficult terms.

• Some jurisdictions do not allow courts to revise or reform contracts.

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• State Law Considerations Illinois• In Illinois, courts may modify invalid or unenforceable terms of a contract.

• “The trial court may, in its discretion, modify a contract to that is comports with the law or sever unenforceable provisions from a contract.” Abbott-Interfast Corp. v. Harkabus, 250 Ill. App. 3d 13, 619 N.E.2d 1337 (1993).

• In determining whether to modify an invalid or unenforceable term of a contract, courts will consider the fairness of the agreement as originally written.• “The fairness of a restraint initially imposed is a relevant consideration for the court in deciding

whether to modify the restraining provision.” Arpac Corp. v Murray, 226 Ill. App. 3d 65, 589 N.E.2d 640 (1992).

• Extensive judicial reform of contracts may be counter to public policy by encouraging drafters to employ overly broad terms, subsequently relying on courts to amend and enforce such terms to the extent reasonable.

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• State Law Considerations Illinois• Though not required in Illinois, the inclusion of a Severance Clause confirms

the parties intent that the contract terms be considered separate and distinct.• “The existence of a severability clause in a contract certainly strengthens the case for the

severance of unenforceable provisions because it indicates that the parties intended for the lawful portions of the contract to be enforced in the absence of the unlawful portions.” McRand, Inc. v. van Beelen, 138 Ill. App. 3d 1045, 486 N.E.2d 1306 (1985).

• Courts may refuse to apply a Severability Clause where the severed provision is considered essential to the agreement.• “In certain circumstances, however, the unenforceability of one provision in a contract will render

the entire contract void, even though the contract contains a severability clause.” Abbott-Interfast Corp. at 21.

• See also, Hill v. Names & Addresses, Inc., 212 Ill. App.3d 1065, 571 N.E.2d 1085 (1991) (refusing to apply a severability clause to salvage an agreement where certain provisions in the agreement were unenforceable and labeled as “essential” therein).

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Severability Recommendations

• Drafting Points• Include Severability Clause to indicate and expressly confirm the parties’ intent

that the contract terms be considered separate and distinct.

• Indicate whether any of the contract terms are considered “essential” and should never be severed.

• Do not rely on a Severability Clause to salvage poorly written, invalid or over-reaching provisions in a contract.

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Severability Recommendations

• “If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction; provided, however, that if any fundamental term or provision of this Agreement (including, without limitation, Section(s) [applicable fundamental term(s)]) is invalid, illegal or unenforceable, the remainder of this Agreement shall be unenforceable. Upon a determination that any term or provision is invalid, illegal or unenforceable, the court may modify this Agreement to effect the original intent of the parties as closely as possible in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.”

Suggested Clause

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Choice of Law and Forum Selection

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Basic Principles:

• Governing law provision: Ensures that the law of the designated jurisdiction will govern the dispute, regardless of where it is litigated.

• Forum selection provision: The parties agree to litigate a dispute in a particular forum.

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Choice of Law Key Issue: Enforceability

• Presumptively enforceable provided that:

• Substantial relationship between the transaction and the jurisdiction whose law would govern• Place where either party conducts business• Either party’s principal place of business• Where the contract was negotiated and entered into• Where performance or payment is to occur• Where the subject property is located

• Chosen law not contrary to fundamental policy of forum state

• Non-drafting party had notice of the provision• Use BOLD-FACED, CAPITALIZED OR UNDERLINED TEXT (see

Tex. Bus. & Com. Code s. 35.53 requiring choice of law provision to be in bold or large font)

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Choice of Law Illinois statute

• 735 ILCS 105/5-5. Choice of law. The parties to any contract, agreement, or undertaking, contingent or otherwise, in consideration of or relating to any obligation arising out of a transaction covering in the aggregate not less than $250,000, including a transaction otherwise covered by subsection (1) of Section 1-105 of the Uniform Commercial Code, may agree that the law of this State shall govern their rights and duties in whole or in part, whether or not the contract, agreement, or undertaking bears a reasonable relation to this State. This Section shall not apply to any contract, agreement, or undertaking (i) for labor or personal services, (ii) relating to any transaction for personal, family, or household services, or (iii) to the extent provided to the contrary in subsection (2) of Section 1-105 of the Uniform Commercial Code. Nothing contained in this Section shall be construed to limit or deny the enforcement of any provision respecting choice of law in any other contract, agreement, or undertaking.

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Governing Law Provisions Illinois case law

• Illinois follows the Restatement (Second) of Conflict of Laws Section 187 when the parties have made an express choice of law in their contract.

• “The law of the state chosen by the parties to govern their contractual rights and duties will be applied unless either (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.”

Hall v. Sprint Spectrum L.P., 376 Ill. App. 3d 822, 825-26 (1st Dist. 2007) citing Restatement (Second) of Conflict of Laws § 187(2) (1971) (emphasis added).

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Choice of Law Drafting Factors to Consider

• Is the law of the chosen jurisdiction well-developed and predictable?

• E.g. Delaware or New York vs. Alabama or Nebraska

• Substantive leanings of the potential jurisdictions on key issues to transaction• Ex: Punitive damage caps, enforcement of restrictive covenant

agreements, statutes of limitation, etc.

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Recommendations

“The internal laws of the State of Illinois, without reference to conflicts of law principles, shall govern all matters relating to this Agreement [and all of the transactions it contemplates].”

Suggested Clause

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Choice of Forum Key Issue: Enforceability

• Forum selection generally enforceable provided that:

• Enforcement of the forum selection provision does not violate the public policy of the state where the action is brought

• Enforcement will effectively prevent party from litigating the dispute

• If exclusivity of the chosen forum is intended, it must be stated

• If choosing a federal court, parties must also be able to establish federal jurisdiction

• Realities of enforcement

• Will arise when faced with a lawsuit in a jurisdiction other than the one selected. Must enforce via a motion to transfer or a motion to dismiss. Court may consider a variety of other factors in deciding the motion in addition to the forum selection provision.

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Choice of Forum Illinois law

• “A forum selection clause in a contract is prima facie valid and should be enforced unless the opposing party shows that enforcement would be unreasonable under the circumstances,” that is “that trial in the contractual forum will be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court.” Calanca v. D & S Mfg. Co., 157 Ill. App. 3d 85, 87-88 (1st Dist. 1987) .

• Factors that determine whether selection clause is unreasonable:

1. which law governs the formation and construction of the contract

2. residency of the parties involved

3. place of execution and/or performance of the contract

4. location of the parties and witnesses participating in the litigation

5. inconvenience to the parties of any particular location

6. whether the clause was equally bargained for

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Choice of Forum Drafting Factors to Consider

• Geographic convenience

• Client’s reception in forum by court and potential juror pool

• State vs. federal court

• Case loads in local courts (“rocket dockets” vs. a heavy backlog)

• Choice of forum provision may indicate an agreement for judicial resolution (versus an alternative dispute resolution provision)

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Recommendations

• “Each party to the Agreement consents and submits to the exclusive jurisdiction and venue of the state and federal courts located in Cook County, Illinois.”

• “Any party bringing a legal action relating to this Agreement [or the transactions it contemplates] shall bring the legal action

i. in the United States District Court for the Northern District of Illinois; or

ii. in any court in the State of Illinois sitting in Chicago, if there is no federal jurisdiction.”

Sample Clauses

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Arbitration

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Arbitration Basic Principles

• To Arbitrate Or Not To Arbitrate, That Is The Question• Arbitration is binding dispute resolution by contract –

parties agree to submit their dispute to a third-party arbitrator or arbitration panel rather than submitting it to the court system. Different than non-binding “mediation”.

• Before the details are considered, the threshold question is: should you agree to arbitrate any disputes that arise from the deal?

• Phone a friend. Good idea to consult with litigation counsel regarding both the decision to include an arbitration provision and the specific terms of provision.

• Note: different considerations for international arbitration

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Arbitration Pros And Cons

Pros• Confidentiality – Arbitration is private, consensual dispute resolution,

so pleadings and other filings are not publically filed like court documents.

• Limited Discovery – The parties can decide for themselves how much or how little discovery to permit in arbitration; if they disagree, the general expectation is arbitration affords less discovery than court-based litigation.

• Speed – If both parties are motivated to seek a speedy resolution, arbitration can be faster than traditional court-based litigation; the arbitrators are devoted to your case, there is no jury, and generally less motion practice.

• Expertise – Because parties select arbitrator they can select decision makers with knowledge or experience in the matter under dispute.

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Arbitration Pros and Cons

Cons• No appeal right – Review of an arbitration award is normally limited to

obvious bias or a claim that matter arbitrated was outside parties’ agreement.

• Cost – While arbitration can be cheaper than court-based litigation, that is not always the case. A weak arbitrator combined with an aggressive or uncooperative opponent can result is greater costs and potential delay than a well-managed traditional litigation. E.g., discovery not always managed well.

• Compromise – Arbitrators, because of the lack of appellate review, have greater leeway than judges to engage in perceived equitable resolutions, i.e., “splitting the baby,” without risk of reversal for failing to strictly follow the law

• Consumer / Public Relations Considerations – with consumer-facing agreements.

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Arbitration Key Issue: What can be arbitrated?

• Scope of Arbitration Provision

• Only disputes that parties agree to arbitrate can be arbitrated – the scope of the arbitration provision determines if a particular dispute is subject to arbitration.

• Courts interpret arbitration provisions broadly and in favor of arbitration.

• Confusion about the scope of the arbitration provision can lead to cost and delay while parties dispute whether a claim is arbitratable.

• Broad arbitration provisions typically state that disputes “arising out of or relating to” a contract are arbitrable and could ultimately encompass claims beyond disputes regarding the four corners of the agreement.

• If arbitration is desired for only a narrow set of issues, the arbitration provision scope needs to specific and carefully drafted.

• Note: include arbitration clause in all related or series of agreements.

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Arbitration Key Issue: What can be arbitrated?

• Scope of Arbitration Provision - Waiver of Class Action Claims

• Arbitration clauses that waive class action claims gaining support in law

• AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011): Federal Arbitration Act preempts California law that would have invalidated as unconscionable, a typical “boilerplate” arbitration clause in mobile phone contract waiving class action claims. (5-4 decision)

• Am. Express v. Italian Colors Rest., 133 S. Ct. 2304 (2013): arbitration clause containing class action waiver valid in AMEX’s standard merchant’s agreement despite argument that cost of proving single antitrust claim prohibitive.

• Note: retaining right to modify arbitration clause may render it illusory and unenforceable; and certain areas still likely off-limits – e.g., employment.

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Arbitration Key Issue: What are the rules for arbitration?

• Selection of Arbitration Administration Body and Rules

• While parties can elect to administer an arbitration themselves, arbitration provisions typically state an organization that will administer the arbitration – the American Arbitration Association and JAMS End Dispute are two of the most common.

• AAA and JAMS, e.g., have substantial, specific rules for various disputes. Check the rules of the organization you are considering – the parties can select particular rules to apply; if they do not, certain default rules apply based on the type of dispute.

• In addition to such preset rules, the parties can agree to their own rules related to discovery, selection of the arbitrator (s), and nearly any other issue.

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Arbitration Key Issue: Who will decide dispute?

• Arbitrators – Appointment• Rules of Procedure. AAA and JAMs both have rules regarding the number

and system of appointing arbitrators, but parties can agree to different process of selecting arbitrators.

• Single or Triple Panel? Parties typically agree to either jointly select a single arbitrator or to select a three arbitrator panel, with each party selecting one arbitrator and the third either appointed by the dispute resolution administrator or by the other two arbitrators.

• Arbitrators – Scope of Authority• While AAA and JAMs provide default rules, the parties can limit the range of

remedies the arbitrator can grant or deny -- e.g.:

• Allow (or prohibit) interim or injunctive relief • Cap the amount of any final award • Punitive damages• Attorneys’ fees

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Arbitration Key Issues

• Other Drafting Issues• Choice of Law and Venue: the arbitration provision

should state what law the arbitrator must apply and where the arbitration is to take place.

• Enforcement: While federal and state arbitration statutes commonly provide for entry of judgment on a final arbitration award, the parties should provide in arbitration provision that judgment may be entered on a final award.

• Written Reasoned Award: Parties can provide for a written, reasoned, award, meaning that the arbitrator must provide the legal and factual basis for award issued. This can be of benefit if a party wishes to challenge the award or for other business reasons.

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Arbitration Recommendations

• Longer, detailed arbitration provisions can be a page or more and contain headings addressing: scope, administration, arbitrator number, appointment, scope of authority, choice of law, venue, and limitations on discovery, etc.

• A model short form provision follows, with the parties free to substitute any of the material items, i.e., JAMS for AAA:• All controversies and claims arising under or relating to this Agreement are to

be resolved by arbitration in accordance with the Commercial Arbitration Rules of the AAA before a panel of three arbitrators selected in accordance with those rules. The arbitration is to be conducted in Chicago, Illinois. The arbitrators are to apply Illinois law, without regard to its choice of law principles. Each party shall submit to any court of competent jurisdiction for purposes of the enforcement of any award deemed final by the panel. Any such award is final and may be entered and enforced in any court of competent jurisdiction.

Sample Clauses

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Amendments and Waivers

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Amendments and Waivers Basic Principles

• “The parties may not amend or waive any provision hereof except by a written agreement signed by each party.”

• Reflects the parties’ understanding that oral waivers or modifications shall not be enforceable.

• Allows the parties to preserve a contract despite deviation from the terms of the agreement in action or a delay in exercising rights.

Standard Clause

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Amendments and Waivers Basic Principles

• A no oral waiver or modifications provision is relevant, but some courts may look to total facts and circumstances in a dispute.

• What does the agreement say about amendments and waivers?

• Was there a written waiver or amendment? Was there consideration?

• What were the words and deeds of the parties after execution of the contract? Did they demonstrate a mutual agreement of parties to waive or deviate from written agreement?

• Was there detrimental reliance (a general fairness concern) on such words and deeds?

Fundamental Terms

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Amendments and Waivers - Recommendations

• Include no oral modification or waiver clause to indicate and expressly confirm the parties’ intent that no future actions or inaction can alter the terms of the agreement.

• Confirm with parties that despite the clause, action and inaction may be interpreted as an oral modification of the agreement. All intended modifications and waivers should be in writing signed by all parties. If parties discuss a modification or waiver and do not agree, it may be beneficial to document that the modification or waiver is not agreed upon.

• Consider if any additions to the clause are needed - authorized signatory, resolutions provided, required lenders concept, shareholder concerns, etc…

• The term parties may be customized if an agreement has one party which has limited interests.

Drafting Points

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Amendments and Waivers - Recommendations

• “No amendment, modification or waiver of any provision of this Agreement shall be effective unless the same shall be in writing and signed by the parties hereto, and no consent to any departure by the parties therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties. Any such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No course of dealing or failure or delay on the part of the parties in exercising any right, power or privilege hereunder or under [Related Documents] shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise or the exercise of any other right, power or privilege.”

Suggested Clause

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Non Assignment and Delegation

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Non Assignment and Delegation Basic Principles

• “Neither party may assign any of its rights or delegate any of its obligations under this Agreement without the prior written consent of the other party."

Standard Clause

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• Business Concerns - Conflicting Interests

• Each party usually wants the flexibility to assign its rights and delegate its duties in order to preserve flexibility.

• Each party also wants to control with whom it does business and to have confidence in the quality, reputation, capabilities and values of its business partners.

• In general, without a non assignment and delegation provision, all rights may be assigned and all duties delegated unless prohibited by law (e.g., the federal Anti-Assignment Act for contracts to which the federal government is a party) or public policy (e.g., duties personal in nature requiring the skill, wisdom, taste or character of the original party).

• Parties to an agreement can limit the general permissibility of assignment and delegation by explicitly including a non assignment and delegation provision in their agreement.

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• Definitions• Assignment: An assignment is a transfer of a right to performance to a third

party. The transfer extinguishes the assigning party’s right to receive performance and gives that right to the assignee.

• Delegation: By contrast, delegation is the appointment to a third party of one’s obligations to perform under a contract. Delegation of a duty does not discharge the delegating party’s performance obligations. If a delegate assumes a duty, it is primarily liable for performance and the delegating party continues to be liable secondarily as a surety unless there is a novation.

• Novation: To be released from its surety obligations following the delegation of its duties, a party must also obtain a novation from the party to whom such obligations are owed. Novations typically are not contemplated within a contract and therefore require a separate agreement whereby the party to whom the delegated obligations are owed agrees to release the delegating party from liability.

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• Permitted Assignments: Parties may help minimize future disputes by listing specific carve-outs to the assignment and delegation restrictions that are particular to the context of the specific transaction. For example, parties commonly permit assignments and delegations to (i) an affiliate of the assignor, (ii) a successor of the assignor, and (iii) a purchaser in an asset acquisition.

• “(whether directly or indirectly by operation of law, merger or sale of stock)”: This language, which is included in our suggested clause, is intended to expand the types of activities restricted by a non assignment and delegation provision. The language “by operation of law” picks up court-ordered property transfers, bankruptcy-related transfers, and transfers to or from an executor or administer. Similarly, the language “merger or sale of stock” closes a common loophole whereby a party that is otherwise restricted from assigning its rights and delegating its duties conducts a merger or sale of stock to indirectly achieve the same end result that was prohibited as a direct assignment and delegation. Similar to a change in control protection.

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Non Assignment and Delegation Recommendations

• Drafting Points• Include a provision that speaks as to the assignment of rights and delegation of obligation

of the parties, one way or the other, because it forces the parties to confront the issue of whether assignment and delegation will be permitted.

• If a contract includes a non assignment and delegation provision, it should restrict both the right and power to make assignments and delegations. This is done through the inclusion of language to the effect of “Any assignment or delegation purported to be made in contravention to this provision shall be null and void.

• When drafting a non assignment and delegation provision, the business objectives and leverage of the parties should drive whether (i) the provision is one-sided or reciprocal, (ii) the provision addresses indirect assignments and delegations “by operation of law, merger or sale of stock,” (iii) certain assignments and delegations will be permitted without obtaining the other party’s consent (e.g., to affiliates) and (iv) whether the non assigning/delegating party’s ability to refuse to grant its consent may be unreasonably withheld, conditioned and/or delayed.

• Successors and assigns clauses should say "permitted" assigns as needed.

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Non Assignment and Delegation - Recommendations

• "Neither party may assign any of its rights or interests or delegate any of its obligations under this Agreement [(whether directly or indirectly by operation of law, merger or sale of stock)] without the prior written consent of the other party [(which consent shall not be unreasonably withheld, conditioned or delayed)][which consent may be withheld in each such party's sole and absolute discretion][and may be conditioned on the receipt of a written assumption of such obligation from the delegate]. Any assignment or delegation purported to be made in contravention to this provision shall be null and void."

• Parties may incorporate certain additional exceptions or expansions.

• For example "Neither party shall assign, transfer, delegate, sublicense or otherwise dispose of, whether voluntarily or involuntarily by merger or consolidation or operation of law or otherwise (collectively, the "Transfer"), this Agreement or any of its rights or interests or obligations under this Agreement without…"

Suggested Clause

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Further Assurances

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Further Assurances Basic Principles

• “Each party shall use all commercially reasonable efforts to take, or cause to be taken, all actions necessary or appropriate to consummate and make effective the transactions contemplated by this Agreement. If at any time after the date hereof any further actions are necessary or appropriate to carry out the purposes of this Agreement, each party shall use all commercially reasonable efforts to take, or cause to be taken, all such actions.”

Standard Clause

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Further Assurances Basic Principles

• Serves as a gap filler designed to require the parties to exercise a certain degree of effort to achieve the overall objectives of the agreement.

• Recognizes that parties do not and cannot contemplate and draft for every contingency.

• There are two implied common law concepts -- “implied covenant of good faith and fair dealing” and “implied covenant of best efforts” that serve a similar general purpose. However, because those concepts are ever-evolving and not well-defined, most parties still include a further assurances provision.

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Further Assurances Common Law Defaults (1 of 2)

The “implied covenant of good faith and fair dealing”• Every contract governed by Illinois law (and most other

states) automatically includes an implied covenant of good faith and fair dealing.

• Requires a party vested with contractual discretion to exercise that discretion reasonably and with proper motive, not arbitrarily, capriciously, or in a manner inconsistent with reasonable expectations of the parties. Resolution Trust Crop. v. Holtzman, 618 N.E.2d 418, 424 (Ill. Ct. App. 1993).

• Illinois law is somewhat unique in that it permits “express disavowal” of the duty, but must be express. Bass v. SMG, Inc., 328 Ill. App. 3d 492, 504 (Ill. Ct. App. 2002).

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Further Assurances Common Law Defaults (2 of 2)

The “implied covenant of best efforts”

• This implied covenant, though not as developed in the law as the duty of good faith and fair dealing, is sometimes relied on by courts to require a contracting party to use its best efforts to satisfy the conditions precedent to its obligations under the agreement and to accomplish the objectives of the agreement.

• Best efforts obligation implied typically only with specific types of agreements -- e.g., exclusive dealing arrangements, joint ventures and other profit sharing arrangements -- where the returns of one party depend critically on the efforts of other party.

• In these scenarios, courts find the parties must have intended that the party exercise its best efforts to take actions that would increase returns to both parties.

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Recommendations Drafting Points

• Include further assurances provisions in most contracts rather than relying only on the implied common law concepts.

• Consider nature of obligation and what triggers duty - absolute or “reasonable” standard? Mutual or unilateral? Automatic or conditional?

• Don’t let further assurances provision create a false sense of security. Be as specific as possible regarding each party’s obligations in the agreement itself and add detail to the further assurances provision for acts or situations that will require follow up or cooperation:

• Providing information

• Obtaining consents and approvals

• Executing and delivering documentation

• Making filings

• Any conditions of performance

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Recommendations

“Each of the parties hereto shall [, and shall cause their respective Affiliates to] from time to time at the request [and sole expense of the other party, without any additional consideration] [or capped at $____], [promptly] furnish the other party such further information or assurances and execute and deliver such additional documents, instruments and conveyances, and take such other actions and do such other things, as may be [reasonably] necessary [or [appropriate/desirable]] [in the opinion of counsel to the requesting party] to carry out the provisions of this Agreement [and each of the other Transaction Documents] and give effect to the transactions contemplated hereby [and thereby].”

Other considerations: Survival -- ensure this clause survives expiration or termination of the agreement for a reasonable period of time.

Sample Clause

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Resources

We reviewed a number of resources for this presentation including the following:

Negotiating and Drafting Contract Boilerplate, Editor-in-Chief Tina L. Stark, ALM Publishing, New York, New York 2003

Practical Law, A Thomson Reuters Legal Solution, General Contract Clauses

How Contract Boilerplate Can Bite, Alex Ritchie, University of New Mexico School of Law, Albuquerque, New Mexico, 2013 Rocky Mountain Mineral Law Foundation

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Thank you!

Mary WilsonPartnerHealthcare

T +1 312 876 [email protected]

Natalie SpearsPartnerLitigation

T +1 312 876 [email protected]

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