A post on the website of The In-house Advisor offers some cautionary advice about transactions that may be documented through a primary contract and subsidiary agreements that are referenced in, or even attached as exhibits to, the primary.

Shep Davidson of Burns & Levinson explains:

“While there is nothing inherently good or bad about papering a transaction this way, it is important to keep in mind that doing so may mean that the dispute resolution provisions of the primary contract do not apply if litigation arises and only involves a claimed breach of a subsidiary contract. Indeed, that is the hard lesson that was learned by the defendant in National Dentix, LLC v. Gold.”

He writes that the lesson here is that “even very closely related agreements still may be viewed as completely independent if there is a claim that only one of them has been breached.”

Read the article.

When arbitration awards resolving contract claims are not based on the actual provisions of the relevant contracts, but rather on an individual arbitrator’s personal sense of “justice” and “public policy,” they can be successfully challenged, and vacated by the courts, points out Robert J. Kaler in a post for Holland & Knight.

He discusses a case in which an arbitration award purported to remedy an alleged breach of and “failure of consideration” for the owner’s underlying network operator agreement with the plaintiff’s subsidiary by rewriting that agreement so as to materially change its financial requirements.

A court subsequently vacated the award, finding that the arbitrator exceeded his powers by voiding the guaranty of the parent company while re-writing the terms of the operating agreement.

Read the article.

A Pepper Hamilton client alert discusses a Delaware case in which the court held that the sellers of a target corporation retained the right to assert attorney-client privilege over pre-merger communications with the target corporation’s counsel because the parties included a provision in the merger agreement that explicitly precluded the buyer from using the communications in a post-closing dispute with the sellers.

“The court’s opinion serves as an important reminder to sell-side counsel to negotiate for these provisions to ensure that privileged pre-merger communications between the target’s counsel and the sellers cannot be used against them in any future disputes,” the authors explain.

Read the article.

In a post on the firm’s website, George Nicholos of Vandeventer Black LLP provides an overview of contract terms addressing indemnity and requirements to hold harmless or responsible for the defense of another.

He cautions that these terms are often misunderstood, not fully appreciated, and found confusing by many.

Nicholos also warns that “it is critical that parties have a clear and informed understanding about what they are obligating themselves to in relation to the benefits of entering a contract in the first place.”

Read the article.

In an article in the ABA Banking Journal, Brad Rustin and Samer Roshdy of Nelson Mullins Riley & Scarborough discuss the FDIC’s financial institutions letter FIL-19-2019, highlighting contractual deficiencies in banks’ contracts with technology service providers.

“The FDIC letter reaffirms the long-standing regulatory notion that a financial institution cannot discharge its responsibilities, which includes managing its business continuity and incident response processes, by outsourcing activities to third-party service providers,” they explain.

The authors also add that the letter serves as a reminder to the industry that federal banking regulators will continue to scrutinize relationships with technology service providers.

Read the article.

Tara Lynch, writing for Gordon & Rees LLP’s Construction Law Blog, offers three clauses to consider when writing construction contracts, with an eye to limiting liability and maximizing profits.

One of the clauses covers waiver of consequential damages. “Prudent design professionals and contractors will strike this exception so as not to render the clause meaningless. A well-drafted waiver clause will be mutual, will define which damages are consequential versus direct, and will not contain exceptions,” she writes.

She also discusses clauses covering limitations of liability, and a percentage clause involving change orders.

Read the article.

An on-demand podcast episode of The Proskauer Brief discusses potential pitfalls that lurk in employment agreements and other employee compensation arrangements.

Speakers are Kate Napalkova, special employee benefits and executive compensation counsel, and associate Oleg Zakatov.

The podcast focuses on key contractual provisions that employers should incorporate into any document that includes a confidentiality covenant.

“Employers should be sure to tune in to see why involving your in-house team and outside executive compensation and employment counsel to regularly audit employment agreements, employee handbooks, independent confidentiality and IP assignment agreements, and other company policies is always a good idea,” according to an introduction to the podcast.

Listen to the podcast
or read a transcript.

Smart contracts are best suited to execute somewhat rudimentary legal tasks, which typically involve transferring funds or imposing financial penalties when certain conditions are satisfied, explain Maria Alicia “Fernandez and Guillermo Gonzalez Frankenberger of Hogan Lovells.

“However, as the applications of blockchain and the assets controlled by it expand, the use of smart contracts is likely to become more complex and legally sophisticated,” they write in the firm’s Real Estate Horizons.

“Notwithstanding its promising applications,There are concerns that need to be addressed before the wide- spread application of smart contracts,” the authors explain.

Read the article.

The Texas Supreme Court has denied motion for rehearing of its opinion in a case that addresses deductibility of oil and gas post-production costs in the context of an overriding royalty, writes John McFarland for the Oil and Gas Lawyer Blog.

Burlington Resources Oil & Gas Company v. Texas Crude Energy may, however, have implications for post-production-cost deductions in oil and gas royalty clauses, according to the post on the website of Graves, Dougherty, Hearon & Moody.

The dispute involved alleged breaches of a development agreement between the parties, including the deduction of post-production costs from Texas Crude’s overriding royalties.

The trial court ruled that post-production costs in the case were not deductible. But the Texas Supreme Court “reversed and remanded, holding that the language of the overriding royalty assignments permits deduction of (some?) post-production costs,” explains McFarland.

Read the article.

Two separate decisions in the United States Court of Federal Claims contain lessons that are generally helpful in all projects involving notice of contract changes, reports G. Scott Walters for Smith, Currie & Hancock.

“Prudent construction professionals, particularly those doing business with the government, should understand and comply with all notice provisions in their contract. Even if strict notice may not be required, it should be given early and often. Moreover, when notice is received, the prudent contractor must endeavor to understand what it means,” Walters writes.

“The court’s decisions on the notice issues may, at first, appear to contradict each other or to favor one party over the other,” he explains. “A closer look at these two decisions reveals that notice requirements, in the context of federal government construction contracts, can come in multiple forms and notice is not a ‘one size fits all’ proposition.”

Read the article.

A recent decision by the New Hampshire Supreme Court, Pro Done, Inc. v. Basham, provides an illustration of the benefits in a private equity deal of an independent covenant not to sue in addition to a release agreement, writes Glenn D. West in Weil, Gotshal & Manges’ Global Private Equity Watch.

The New Hampshire Supreme Court reversed the trial court and held that there was “no reason why we should treat parties who suffer damages as a result of a breach of an express promise not to sue differently from those who suffer damages for a breach of other types of contractual terms.”

Read the article.

The Ninth Circuit upheld the district court’s grant of a motion to compel individual arbitration in a case that “tests the outer limits of what constitutes a ‘reasonably conspicuous’ provision” in an online contract, according to Ballard Spahr.

The article says Holl v. United Parcel Service, Inc. “contrasts with prior Ninth Circuit rulings, arguably involving less extreme facts, which denied motions to enforce online arbitration clauses. Holl, however, was decided on a petition for mandamus, a remedy that requires the petitioner to establish clearly and indisputably that ‘extraordinary circumstances’ exist to overturn the district court’s decision.”

The class action complaint in Holl alleged that UPS systematically overcharged its retail customers.

Companies with online terms of use that include an arbitration clause must still exercise great care in designing the website so that users become contractually bound to arbitrate, the firm advises.

Read the article.

A Jones Day white paper addresses the recent trend of California courts’ trend away from generally enforcing covenants restricting individuals from soliciting their former employer’s employees.

The paper also “provides an overview of a California Court of Appeals and two federal district court decisions that reflect this trend, and discusses the extent to which California employers can still rely upon such non-solicitation provisions. It also discusses other contexts in which non-solicitation provisions are under attack: from state and federal antitrust regulators and the plaintiffs’ bar.”

Read the article.

By Kerianne E. Kane
Saxe Doernberger & Vita, P.C.

What do you do when your house falls out from underneath you? Over the last few years, homeowners in northeastern Connecticut have been suing their insurers for denying coverage for claims based on deteriorating foundations in their homes. The lawsuits, which have come to be known as the “crumbling concrete cases,” stem from the use of faulty concrete to pour foundations of approximately 35,000 homes built during the 1980s and 1990s. In order to save their homes, thousands of homeowners have been left with no other choice but to lift their homes off the crumbling foundations, tear out the defective concrete and replace it. The process typically costs between $150,000 to $350,000 per home, and homeowner’s insurers are refusing to cover the costs. As a result, dozens of lawsuits have been filed by Connecticut homeowners in both state and federal court.

Of those cases, three related lawsuits against Allstate Insurance Company were the first to make it to the federal appellate level.[1] The Second Circuit Court of Appeals was tasked with deciding one common issue: whether the “collapse” provision in the Allstate homeowner’s policy affords coverage for gradually deteriorating basement walls that remain standing.

The Allstate policies at issue were “all-risk” policies, meaning they covered “sudden and accidental direct physical losses” to residential properties. While “collapse” losses were generally excluded, the policies did provide coverage for a limited class of “sudden and accidental” collapses, including those caused by “hidden decay,” and/or “defective methods or materials used in construction, repair or renovations.” Covered collapses did not include instances of “settling, cracking, shrinking, bulging or expansion.”

Under Connecticut law, if an insurance policy’s terms are “clear and unambiguous,” then courts will give the terms their ordinary meaning. If the terms are ambiguous, however, courts will construe the language in favor of the insured. The homeowners argued that under Connecticut Supreme Court precedent, the term “collapse” is ambiguous, because it includes not only sudden catastrophe, but also the type of gradual deterioration occurring in the foundations of their homes.

The homeowners principally relied on the Connecticut Supreme Court’s decision in Beach v. Middlesex Mutual Assurance Co.[2] In Beach, the plaintiffs sought coverage from their homeowner’s insurer for a crack in the foundation of their home, caused by a “collapse” within the terms of the policy. The insurer denied that a collapse had occurred and argued that the crack was caused by “settlement of earth movement,” a type of loss excluded under the policy. The homeowners argued that because “collapse” was not defined in the policy, it was ambiguous because it could include both a catastrophic breakdown, as well as a gradual breakdown based on loss of structural strength. The Connecticut Supreme Court agreed, finding that the term “collapse,” left undefined, encompasses “substantial impairment of the structural integrity of a building.” As a result, the court construed the term in favor of the homeowners, noting that if the insurer intended for the definition of “collapse” to be limited to a sudden and complete catastrophe, it had the opportunity to expressly include such a limited definition in the policy.

The Second Circuit Court of Appeals was not persuaded, however, that Beach was controlling, and found that the policy at issue in Beach was easily distinguishable from the Allstate policies, which included qualifying terms to define covered collapses as “entire,” “sudden” and “accidental.” The Court of Appeals explained that by including these terms, it was expressly clear that Allstate intended for covered collapses to be limited to abrupt, unexpected collapses. As a result, the Court concluded that the damages sustained by the homeowners were not covered under the policies, because not only was the gradual erosion and cracking of the foundations not “sudden” or “accidental,” but “cracking” was expressly excluded from the definition of collapse.

These decisions are a perfect example of the significance of policy terms and definitions, which can vary greatly from one insurance carrier to the next, and the impact that they can have on potential claims. The likelihood of success for the countless crumbling concrete cases still pending in Connecticut courts will largely depend on the specific terms of each policy, and the manner in which terms like “collapse” are defined or otherwise qualified.

____________________________________________________________________________________________________
1 The three cases are Valls v. Allstate Insurance Co., 919 F.3d 739 (2d Cir. 2019); Carlson v. Allstate Insurance Co., Case No. 17-3501, 2019 WL 1466935 (2d Cir. April 2, 2019); and Lees v. Allstate Insurance Co., Case No. 18-007, 2019 WL 1466939 (2nd Cir. April 2, 2019).
2 Beach v. Middlesex Mutual Assurance Co., 205 Conn. 246, 532 A.2d 1297 (1987).
3 Valls, supra, at 744 (quoting Beach v. Middlesex, 205 Conn. at 253).

A web post by Glen A. Murphy for Spilman Thomas & Battle addresses potential issues and concerns that may arise between general contractors, subcontractors and their insurers when claims by outside parties (also known as third-parties) may arise.

Murphy explains:

When a General engages a Sub to perform work on projects, the parties should always reduce their expectations and agreements to a written document in which both sides agree and acknowledge the terms. These documents may go by many names, but they are contracts that bind the parties to the terms. It is a common component of these agreements for the businesses or organizations to take on the liability of another entity, which they might normally not otherwise have. This form of agreement, where one party takes on or assumes the liability of another party by contract, is commonly called a “hold harmless” or an “indemnity” agreement.

Read the article.

Many leases contain renewal language, allowing the lessee to renew the lease term after the original lease term expires, points out James O. Birr III of Jimerson Birr in Florida.

“These provisions sometimes contain notice requirements and fulfillment of certain conditions precedent. In some instances, the leases may automatically renew. In any case, the terms of the lease renewal require certainty and specificity,” he advises.

He discusses a recent Florida appellate ruling that points out that parties must be specific in negotiating renewal terms and what the rent to be paid during the renewal period will be.

Read the article.

If technology vendors will have access to the personal information of their customers’ end users (regardless of whether the end users are employees or customers), treatment on caps on liability take on heightened importance, points out Janine Anthony Bowen in a post on the Data Privacy Monitor blog of BakerHostetler.

“Vendors have become increasingly reluctant to provide unlimited liability to protect customers against harms caused by security incidents, going to great lengths to narrowly tailor the situations under which the vendors will bear risk,” she writes.

She cites the 2019 Data Security Incident Report for guidance on decision-making regarding acceptable financial risk allocation.

Read the article.

The U.S. Supreme Court has held in Mission Product Holdings, Inc. v. Tempnology, LLC that a trademark licensee may retain certain rights under a trademark licensing agreement even if the licensor enters bankruptcy and rejects the licensing agreement at issue, reports Paul Weiss.

“Relying on the language of section 365(g) of the Bankruptcy Code, the Supreme Court emphasized that a debtor’s rejection of an executory contract has the ‘same effect as a breach of that contract outside bankruptcy’ and that rejection ‘cannot rescind rights that the contract previously granted,’” according to the firm.

“The Supreme Court’s decision has far-ranging implications, as the opinion’s reasoning can be expanded to apply to the vast majority of contracts that may be rejected in bankruptcy,” the article concludes.

Read the article.

Holland & Knight offers some tips for preparing a memorandum of understanding or similar agreement executed at the conclusion of the mediation.

Authors Gregory R. Meeder and Lisa M. Kpor explain:

“An agreement reached at the conclusion of a mediation session typically represents an abbreviated version of a formal settlement agreement that will be entered into by the parties at a later date. Occasionally, however, parties are unable to finalize the comprehensive settlement agreement, and the terms of the memorandum of understanding become vital to resolving related disputes.”

The discuss seven important points to cover in drafting the memorandum.

Read the article.

Although state and federal statutes do not require a specific type of technology or process to be followed when using e-signatures, several steps are necessary to ensure that e-signatures are enforceable in the event a dispute arises, warns Carl Rincker.

In a post on the website of Rincker Law PLLC, he discusses practices that  should be implemented to ensure that a business’ electronically-signed agreements are binding.

These include such topics as demonstrating intent to sign electronically, consent to do business electronically, verifying identity, maintaining records, and providing retainable and accessible copies of the agreement.

Read the article.