The scope of the Bankruptcy Code’s safe harbor for certain financial contracts has been tested again, this time in the United States Bankruptcy Court for the Western District of Louisiana, according to an article written by Maurice Horwitz in the Bankruptcy Blog of Weil, Gotshal & Manges.

The question in the case he described was whether an ipso facto provision continues to be safe harbored if enforcement of that provision is conditioned on other factors – in this case, the debtor’s failure to perform under the contract. 

“Consistent with prior case law, the court held that termination is only safe harbored if it is based solely on a condition specified in 365(e)(1), i.e., the financial condition of the debtor, bankruptcy, or the appointment of a trustee,” Horwitz wrote. “Because the ipso facto provision in this case contained an additional condition to enforcement (the debtor’s breach), it no longer fell within the safe harbor.  Thus, even if both conditions were satisfied (bankruptcy and breach), the automatic stay applied and the termination clause could not be exercised absent relief from the automatic stay.”

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Eric Goldman, writing in the Technology & Marketing Law Blog, discusses a case in which an employer successfully sued two departing employees for joining a competitor. The employer based its suit in part on a non-compete clause included the stock option grant documentation presented to employees electronically.

“We already knew that clickthrough agreements work really well in the B2B and B2C contexts,” writes Goldman. “Thus, it’s not surprising that clickthrough agreements also work in the employment context, at least so long as they are supported by consideration (and stock option grants usually, if not always, will provide sufficient consideration for additional contract terms). Although ink-signatures-on-dead-trees remains the gold standard for forming contracts with employees, forming contracts with employees online is probably a better method than some other traditional techniques, such as circulating employee handbooks or memos and embracing the fiction that an employee continuing to show up at work constituted acceptance. A clickthrough agreement provides tangible evidence that employees ‘got the memo’ (even if they chose not to read it); and the fact that no one reads online contracts is inconsequential in the context of employee handbooks, which are also widely celebrated as documents that no one reads.”

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A California appellate court closely parsed the language in an arbitration clause and reversed an order compelling arbitration of a dispute between a lawyer and his client-turned-business-partner, reports Karen Rubin in Thompson Hine’s blog, The Law for Lawyers Today.

She writes that the lawyer must now defend against a $1.5 million claim based on malpractice and breach of the operating agreement that he had drafted in connection with his real estate venture with the former client.

“Of course, it is no news that a case can turn on contract interpretation,” Rubin writes. “But this one emphasizes the small drafting choices that can send a case to a full-blown jury trial or keep it in arbitration.  That’s of special concern to lawyers and their clients at the front end of a relationship — pre-dispute agreements to arbitrate are increasingly included in retainer agreements.”

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The Economist asks a straight-forward question about a new relatively contract technology: If smart contracts can be made to work, how automated should business ultimately become?

The article discusses the history of smart contracts since the term was coined in 1994, through the recent debacle of Ethereum’s “Decentralised Autonomous Organisations” venture capital fund that was hacked to the tune of $50 million.

“So far, IT has mainly replaced paper processes,”the article says. “Smart contracts mean a different order of automation: economic transactions are put on auto-pilot. True believers want them to do away entirely with intermediaries, from banks to governments. But they should be careful what they wish for. If smart contracts spread widely, you would take away much of the flexibility that smooths the economy’s functioning. Real-world institutions can adjust when things go wrong. For many years to come, and perhaps for ever, human institutions, flawed though they are, will be a smarter bet than relentless, bug-ridden code.”

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An article written by Deborah H. Share for Porzio, Bromberg & Newman‘s Employment Law Monthly reports that employers cannot contract with employees to reduce limitations periods for discrimination claims, according to a recent New Jersey Supreme Court decision.

According to the facts of the suit as presented to the court, a job applicant signed an application form that included language that appeared to waive any statute of limitation in the filing of a lawsuit against the employer. The language limited the applicant to a deadline of six months from the date of any alleged employment action that was the subject of a suit.

Share’s article detailed the court’s reasoning and listed and discussed three recommendations for employers to consider: remove such waivers from applications, shore up all processes related to employee terminations, and consider other useful tools for employers in this area.

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Poor IT contract management can cost your business time, money and legal fees, writes Sarah K. White for CIO.com. She offers some tips on how to minimize risk by focusing on restructuring contract management and training employees around compliance.

She talked to Russ Edelman, CEO of Corridor Company, a company dedicated to contract management technology. The article says “he’s seen a trend where businesses find themselves far behind in modernizing the contract process, but he notes that it’s a fixable problem with the right technology, budgets and staffing. It’s not only about upgrading the systems and process you have in place, but also ensuring all your employees are invested in proper contract management and understand the implications.”

“Edelman points to three common trends he sees in mismanaged contracts, the first being an overall lack of trust along with ‘disconnected and disparate systems used to house contracts.’ Typically, he will find that contracts are stored in multiple locations — both digital and physical — with a lack of consistency,” according to the report.

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One of the most common business disputes involves a breach of contract, where lawsuits are filed because one party believes another party has failed to deliver on the terms of a written – or sometimes oral – contract, writes Romy Jurado in a blog article for  Jurado & Farshchian.

She discusses several factors to consider when faced with a breach of contract dispute, including statute of limitations has expired, fraud in the inducement, duress, impossibility of performance, and mutual or unilateral mistakes.

“Typically, most business people do not want to be in a situation where they feel compelled to breach a contract before the end of its term,” she writes. “Being upfront with the other party may relieve you from liability for bad faith or malicious dealing, and it may preclude the possibility of having to settle the matter through litigation.”

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The 8th Circuit Court of Appeals recently addressed an issue that frequently arises in the non-compete context: what happens when a company buys the assets of another and then tries to enforce non-compete agreements?

Michael Elkon of Fisher & Phillips LLP explains in the article: Two employees worked as mobile x-ray technicians for Ozark Mobile Imaging. Both signed non-compete agreements saying they could not work in the mobile diagnostic business in a set geographic area for a two-year period after the end of their employment. Mobilex later bought Ozark in an asset purchase, and both employees declined offers to work for Mobilex, citing inferior terms of employment, and instead took positions with a competitor. Mobilex filed suit against the ex-employees for breach of contract, but the district court granted summary judgment to Greenbaum and Tabanag, finding that because they had not consented to the assignment of their contracts at the time of the asset purchase.

The appellate court reversed, providing a reminder that “it is important to pay attention during the sale process to ensure that there will be no issues with the purchaser enforcing the seller’s restrictive covenant rights with employees,” Elkon writes.

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The 7th Circuit Court of Appeals had to decide a case in which the parties disagreed as to whether there was even a contract, raising the obvious question is whether there is a document with both parties’ signatures. But this is not always definitive, explains Stephen M. Proctor in a Risk Management Update for Masuda Funai.

C.G. Schmidt, Inc. was a general contractor managing part of the construction of an 18-story office building in downtown Milwaukee for $52 million, explains Proctor. It negotiated with Permasteelisa North America to supply a custom outer covering for weatherproofing and aesthetics and a substantial part of the project. “CGS won the bid for the building relying on PNA’s bid. But PNA backed out. CGS claimed that it had an agreement with PNA for the curtainwall and relied on PNA’s Subcontract when it submitted the bid. CGS sued PNA for breach of contract and promissory estoppel,” Proctor explains.

It’s clear there was no formal written contract with both CGS’s and PNA’s signature, but this did not prevent CGS from prevailing. In the end, CGS did not prevail, but it raised some arguments that the judge discussed at length.

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In St. John’s Holdings, LLC v. Two Electronics, LLC, the Massachusetts’ Land Court concluded (in what appears to be a case of first impression) that a string of text messages can constitute a writing under the Statute of Frauds sufficient to bind the parties to sell certain property, writes Matthew DeVries on Burr & Forman LLP‘s Best Practices Construction Law blog.

DeVries explains in the article: The transaction involved included four drafts of a letter of intent from Buyer to Seller for purchase of a piece of property, none of which were signed by Buyer. Ultimately, Seller’s agent texted Buyer’s agent, asking him to sign the letter and provide a deposit. About two hours later, after Buyer signed the letter and provided a deposit, Buyer’s agent sent a text to Seller’s agent saying he had signed the letter of intent. The two agents met later that day to deliver and accept the letter and deposit, and the seller’s agent sent a text saying the Seller was unavailable and would respond the next day. But it was determined later that the Seller accepted a third party’s offer to purchase the property at the same time, and refused to execute and deliver the letter of intent from the original Buyer.

“The court concluded that the text message from Seller’s agent was a writing that, read in the context of the email exchanges between the parties, contained sufficient terms to state a binding contract between Seller and Buyer. In addition, the court found that the final text message contained a valid electronic signature to be ‘signed’ within the meaning of the law,” DeVries explains.

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The decision to end a supplier relationship can be a difficult one, often reached only after multiple attempts to fix problems have failed and various alternatives to termination have been fully considered, writes Robert F. Ware of Thompson Hine.

“When the decision is finally made, the focus turns to effecting the termination and transitioning to a new supplier as quickly and seamlessly as possible. Having reached this stage, it can be frustrating to encounter legal issues that delay the conversion or require a change in strategy. Even worse is a legal dispute that causes delay and significant unanticipated costs,” Ware writes.

He offers some strategies to consider at the outset of any discussion about a possible supplier termination.

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Western business people have been falling for a classic Chinese scam for a long time, writes Dan Harris in Harris Moure, LLP’s China Law blog, and it seems to be rapidly accelerating of late.

“The scam consists of the Chinese company (actually, in every instance when our firm has done any investigation at all we immediately learned that there is actually no real company there) luring in the Western company with promises of big money for services (or sometimes products) to be supplied by the Western company. There is just one small hitch: the Western company must go to China,” he explains.

Once the Westerner gets to China, the local representative profits by splitting inflated costs incurred at hotels and restaurants and from fake notary charges.

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An article written by Matthew DeVries on Burr & Forman LLP‘s Best Practices Construction Law blog illustrates an oft-repeated plea from lawyers: “Please, please, please read your contract.” In this instance, one party’s failure to strictly follow the contractual notice provision was a $209,235.36 mistake.

He describes a case in which a general contractor entered into an agreement with the City of New York Department of Sanitation to construct a garage. “The subcontractor agreed to to furnish and install five elevators for the project. Although the court’s decision does not elaborate on the details, the subcontractor filed suit and was awarded more than $200,000 in damages incurred as a result of delays in performance of the work.”

According to the article,”When you are required to strictly comply with a particular provision or legal requirement, then any departure from that requirement (no matter how insubstantial) can void the claim or provide an absolute defense.”

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Paper Software has announced the release of Contract Tools, a powerful new Microsoft Word add-in designed to aid in working with contracts.

To introduce the new product the company will have a free webinar July 26 at 11 a.m. Central time.

The company says the product helps with:

• Comprehensive proofreading
• Streamlined search
• Automatic to-do lists
• Intuitive navigation
• Autocompletion
• And much more

Register for the webinar.

It is becoming common for more and more transactions to be created, negotiated, finalized and executed electronically, according to an alert from Arnall Golden Gregory LLP. From a real estate perspective, virtually all documents other than those that are being recorded are exchanged electronically.

The article addresses whether, and under what circumstances, contracts executed via the internet or otherwise are enforceable under applicable federal and state laws.

Topics covered include e-signatures, the applicability of general contract principles, and commercial real estate agreements.

The conclusion is that “it is clear that binding real estate transactions have been and will continue to be conducted via electronic transfer of signatures.”

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Edward F. Donohue III of Hinshaw & Culbertson LLP has published the third installment in his series on client arbitration agreements for lawyers.

“Many attorneys have been using the same engagement agreements for decades designating standard commercial providers such as the American Arbitration Association to resolve client disputes,” he writes. “In recent years some have learned the hard way that their agreements do not comply with consumer protection rules that have developed in recent years. The failure to incorporate new standards into fee agreements means not only that non-conforming provisions will be deemed unenforceable.  In some cases attorneys will find that their arbitration agreements are wholly unenforceable.”

This installment has subheadings titled “Guess What? Your Fee Agreement is Non-Compliant,” “If Your Wealthiest Client is a “Consumer” Should You Abandon Arbitration Clauses?,” and “If You Still Want to Arbitrate Catch Up With the Rules.”

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With the recent passage of the Defense of Trade Secrets Act (DTSA), businesses are welcoming the many benefits the statute brings, including federal jurisdiction, robust equitable relief, and the ability to recover compensatory damages, punitive damages, and attorneys’ fees, writes Michael Greco in Fisher Phillips’ Non-Compete and Trade Secrets blog. However, in the midst of celebrating this new federal cause of action, many employers are overlooking a requirement embedded deep within the statute.

“Namely, employers are required to provide employees with notice that they are entitled to immunity if they disclose a trade secret for the purpose of reporting suspected illegal conduct,” he writes. “If employers fail to give notice in the manner required by the DTSA, they will not be able to recover punitive damages or attorneys’ fees. Consequently, employers must pay careful attention to the DTSA notification requirements, which are not as straightforward as many believe.”

He explains that “the immunity notification requirements of the DTSA are less than straightforward. If employers intend to avail themselves of the new federal cause of action, they should carefully analyze their agreements and policies to ensure compliance.”

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Considerable litigation has arisen as to whether a  waiver of subrogation provision in a construction contract applies to bar an insurer’s subrogation claim against a contractor to the extent the insurer covered damage to the owner’s “non-work” property under the owner’s existing property policy, writes Robert Barrack in Robinson Cole’s Construction Law Zone blog.

He explains that a majority of jurisdictions have held that the waiver of subrogation provision in the construction contract applies to bar subrogation claims where the owner’s property policy covers the damage to “non-work” property.

In his article, he explains waiver of subrogation provisions and discusses some cases that address the subject.

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Form contracts are generic contracts created to cover subject areas rather than specific circumstances, explains Seattle lawyer Jordan Couch for ContractRoom.

“Fill in the blanks service contracts; downloadable buy/sell agreements; and state-provided leases are all form contracts commonly used by small to medium sized businesses, but this isn’t just a problem for small companies,” he writes. “Does your national property rental agency use the same contract in every state? Does your international distributor use the same contracts for different types of goods and dealers? If the answer is yes, you will run into problems.”

He offers reasons why form contracts shouldn’t be used and offers a solution.

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A contract is a form of communication that a diverse audience will read and use, writes Julie Brook in the CEB Blog of the Continuing Education of the Bar – California.

She cautions that lawyers who focus strictly on the legal terms and not on their word usage may find that style got in the way of substance.

She discusses and offers advice on five writing tips that can apply to any type of contract: don’t use legalese, avoid ambiguity, don’t use sexist language, use consistent terminolog, and avoid redundancy.

Read the article.