Boilerplate blunders

BOILERPLATE

BLUNDERS

Robert H. Johnston III

R. Johnston Law, PLLC
3131 McKinney Ave., Ste. 600
Dallas, Texas 75204
[email protected]
214-220-9900

Disclaimer

These materials are public information and have been prepared solely for
educational and entertainment purposes to contribute to the understanding
of U.S. intellectual property law. These materials reflect only the personal
view of the author at the present time and are not individualized legal
advice and do not reflect the view of Johnston Law. It is understood that
each case is fact-specific, and that the appropriate solution in any case will
vary. Therefore, these materials may or may not be relevant to any
particular situation. Thus, Johnston Law and the author cannot be bound
either philosophically or as representatives of their various present and
future clients to the comments expressed in these materials. The
presentation of these materials does not establish any form of attorney-
client relationship with Johnston Law or the author. While every attempt
was made to insure that these materials are accurate, errors or omissions
may be contained therein, for which any liability is disclaimed.

CONFIDENTIAL

Introduction

• Approaching boilerplate
• Use of forms
• Going today

Introduction

• Basic goal of contract interpretation: Give effect to the
parties’ mutual intent at the time of contracting
• See, e.g., Kelley-Coppedge, Inc. v. Highland Ins. Co.,
980 S.W.2d 462, 464 (Tex. 1988)(“The primary concern
of a court in construing a written contract is to ascertain
the true intent of the parties as expressed in the
instrument”)

Choice Of Law

• Choice of law provisions set the substantive law for the
contract

• Boring and not typically negotiated by business leaders
• Procedural aspects by forum state
• Courts will generally enforce

Choice Of Law

• Important – Some argue that the clause should be
included in the MOU/letter of intent
• Impacts how the contract will be interpreted and thus
should be considered at every step of drafting
• Finish Fur Sales Co., Juliette Shulof Furs, Inc.,
770 F. Supp. 139 (S.D.N.Y. 1991)

Choice Of Law

• Scope – Breadth of the clause may preclude its
application to tort claims
• “Relating to and arising out of”
• “Governed by”
• “Construed under”
• Pro v. Hertz Equip. Rental Corp., 2008 US Dist Lexis
100181 (D.N.J 2008) – “Construed under” limited to
contract

Choice Of Law

• If multiple contracts, make sure to coordinate them
• Include a renvoi provision, e.g., “without regard to its own

conflict of law principles” or similar words
• Sample clause: This Agreement and any claims relating to

and arising out of this Agreement shall be governed,
construed, and enforced exclusively in accordance with
the laws of the State of [GOVERNING LAW STATE],
without regard to its conflict of laws rules

Choice Of Law

• If disagreement, choose a neutral jurisdiction
• Impact of the forum – Given that the local jurisdiction’s law

will be used for procedural matters, it may have a critical
impact
• N. Bergen Rex Transp. V. Trailer Leasing Co., 158 N.J.

561 (1991)

Forum selection

• Forum selection clauses determine where disputes are to
be resolved

• Can be mixed
• Applies to arbitration as well as litigation

Forum selection

• Enforcement – The Restatement (Second) of Conflict of
Laws: enforce the clause “unless it is unfair and
unreasonable”
• Some states say the clause is against public policy

• Party may still seek another forum under the principles of
forum non conveniens

Forum selection

• Check that the clause requires the jurisdiction, e.g.,
“shall,” “must,” or “exclusive” jurisdiction
• Simply saying “is” has been held inadequate.
• Citro Florida, Inc. v. Citro-Vale, S.A., 760 F.2d 1231,
1231-32 (11th Cir. 1985) – “Place of jurisdiction is Sao
Paulo/Brazil” was held to be permissive and not
exclusive

Forum selection

• Court must still consider motions to transfer under such a
clause using the relevant factors. Stewart Org. v. Ricoh
Corp., 487 U.S. 22 (1988)

• Not invalidated simply because they are in shrink wrap
agreement.

Merger clause

• Purport to make the agreement “complete and exclusive”
– fully integrated agreement

• Legal effect: Courts generally will give conclusive effect
• Without – The parol evidence rule will apply to
determine if a disputed term is barred

• Limits - Fraud, misrepresentation, or mistake involved
• Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of
Am., 341 S.W.3d 323 (Tex. 2011)

Merger clause

• Negates “invisible terms” – trade usage and course of
dealing – if done properly

• Does not impact post-contract actions, e.g., oral
modifications, waiver, estoppel, or course of performance

• Dealing with multiple documents
• List reasons for multiple documents in the recitals
• If important enough, put other agreement as exhibit

Merger clause

• One sample clause: “This Agreement constitutes the
entire understanding among the parties, with respect to
the subject matter hereof, superseding all negotiations,
prior discussions, prior agreements, and understandings
related to such subject matter”

Indemnification

• Common provision
• Essentially allows one party (indemnitee) to seek

reimbursement from the other party (indemnitor) for
money the party is forced to pay to a third party as a result
of an injury suffered by the third party
• In many places, such as Texas, construed in favor of the
indemnitor

Indemnification

• A sample provision: “Party A agrees to indemnify and
hold harmless Party B of and from any and all claims,
demands, losses, causes of action, damage, lawsuits,
judgments, including attorneys’ fees and costs, but only to
the extent caused by, arising out of or related to the work
of Party A”

• Can be made mutual – should be considered

• Should you cap your exposure – E.g., “In no event shall
the maximum liability hereunder exceed the amount
actually paid to Party B under this Agreement”

Indemnification

• Duty to defend?
• The duty to defend and the duty to indemnify are
separate clauses
• If you expect the other party to indemnify and defend,
it is best to explicitly state that; for example, “Party A
shall defend, indemnify, and hold harmless ….”

Indemnification

• Tender of defense provision may be helpful

• E.g., “If the indemnifying Parties are entitled to, and do,
assume the defense of any such Third Party Claim, the
Indemnified Party shall have the right to employ
separate counsel at its own expense and to participate
in the defense thereof…. If the Indemnifying Parties
elect not to assume the defense of such Third Party
Claim or fail to give notice to the Indemnified Party
during the Notice Period, the Indemnified Party shall be
entitled to assume the defense of such Third Party
Claim with counsel of its own choice, at the expense
and for the account of the Indemnifying Parties.”

Indemnification

• Check statute
• Indemnification should be explicitly negotiated.

• Questions to ask: Who is covered? Who does that
coverage extend to? What type of activities are
covered? Limitations on liability? What type of costs or
damages are covered? What types of claims are
covered? Do I need to cooperate or defend? When is
the indemnity triggered? When will I be paid? When
does the obligation end?

• Subheadings: scope, notice, control, settlement,
limitations, and reimbursement

Severability

• Severability clauses maintain an agreement even if a
provision is found to be unenforceable for violating a
statue or public policy

• What if the offending provision is an important aspect of
consideration?
• E.g., Circle Appliance Leasing, Inc. v. Appliance
Warehouse, Inc., 425 S.E.2d 339 (Ga. 1992)

Severability

• Protect the important aspects of considerations

• A sample clause: “In the event that any part or provision of this
Agreement is declared fully or partially invalid, unlawful or
unenforceable by a court of competent jurisdiction, the
remainder of the part or provision and the Agreement will
remain in full force and effect, if the essential terms and
conditions of this Agreement for each party remain valid,
binding and enforceable”

• Alternative ending – “Fundamental terms and conditions,
including ______, must remain intact in order for the
remainder of the Agreement to to remain binding on the
Parties”

• May also provide for the offending clause to be modified if
possible to be enforceable

Assignment

• Anti-assignment provisions
• If just an anti-assignment provision, the remedy is only

breach, and money damages will be the reward
• If the agreement says an attempted assignment is “void

ab initio” or “null and void,” then the transfer has no effect
• Spell out exceptions to the anti-assignment provisions

• “… a sale of all or substantially all of a party’s assets”

Assignment

• A sample clause: “Neither party may assign this
Agreement or the rights and obligations thereunder to any
third party without the prior express written approval of the
other party. Any attempted assignment or transfer
hereunder without such prior express written approval of
the other party shall be null and void”

Notice

• Use positions, not individuals
• Antiquated delivery?
• When is notice effective? What verification?
• Will client abide by the provision?

Arbitration

• Binding, out of court resolution

• Sometimes an arbitration clause is a good idea

• Many litigators are not strong supporters of them

• Others cite cost-effectiveness and quicker resolution

• If you decide to put one in, it needs to be thoughtfully
done

• A typical provision: “Any controversy or claim arising out
of or relating to this contract, or the breach thereof, shall
be settled by arbitration administered by the American
Arbitration Association under its Commercial Arbitration
Rules, and judgment on the award rendered by the
arbitrator(s) may be entered in any court having
jurisdiction thereof”

Arbitration

• Needs careful consideration
• Areas to consider

• What is the scope? Can be limited to certain types of
disputes or open to all disputes
• If not in your jurisdiction, consult with a litigator in that
jurisdiction

• How many arbitrators? Does it depend on the amount in
controversy? How selected?
• Strike and rank
• Party appointment

Arbitration

• Areas to consider
• What rules apply?
• American Arbitration Association Commercial Rules?
• IBA Rules
• Combination – AAA rules with IBA Rules of Evidence
• Other?
• Some Others – arbitrator qualifications, locale
provisions, language, condition precedent to arbitration,
preliminary relief, document discovery, depositions,
duration of proceedings, money limits, remedies,
attorney fees, confidentiality, appeal

Other “boilerplate” clauses

• Other provisions to carefully consider that some regard as
boilerplate:
• Jury waiver
• Force Majeure
• Third Party Beneficiaries
• Reservation of Rights
• Waiver
• Confidentiality
• Survival

Final Comments

• No such thing as mere boilerplate
• It’s all about managing and assessing risk

BOILERPLATE

BLUNDERS

Robert H. Johnston III

R. Johnston Law, PLLC
3131 McKinney Ave., Ste. 600
Dallas, Texas 75204
[email protected]

214-220-9900