THE DEVIL IS IN THE DETAILS
In the middle of a recent and volatile trial, the parties reached a settlement. The opposing party (a lawyer) insisted that any draft of any settlement agreement start with the “boiler plate” (as it was clear that the case was going to be resolved without the exchange of any money and based on non-monetary “consideration” – i.e., promises by each company to the other that would likely never come to fruition). “Why the boiler plate?” asked my clients. While often overlooked, boilerplate contract language is well-regarded as lawyer words that make their way into legal documents but are perceived as having little value and are nothing more than surplus language. Many clients view the use of such language to be a waste of time and resources. Such is not the case; boilerplate legal provisions can be critical to solid contract formation. So critical, in fact, that when I am asked to review the merits of a dispute for a client where one or more contracts are involved, I almost invariably turn to the “boilerplate” in the contract(s) or document(s), first, and work backwards to the substantive and other merit-based issues in dispute.
What is so important about boilerplate language in contracts (whether the contract is in existence or is to be formed – like the settlement agreement above)? Here are a few examples of what one might find in the boilerplate contract language that can alter in substantial ways the course of a dispute, and/or the allocation of risk as to the dispute, and thus its ultimate resolution:
- Dispute resolution provisions: does the contract call for a dispute to be resolved in a certain court or in arbitration (i.e., the forum or venue that will have jurisdiction over the dispute and where it will be heard)? If so, what are the limitations and benefits of any such provisions?
- For example, if jurisdiction is fixed in a federal court, one can take advantage of the long-arm of its discovery jurisdiction and tools, typically available only under the Federal Rules of Civil Procedure.
- Conversely, if the dispute is subject to arbitration, the discovery and procedural tools can and likely will be a “night and day” difference in how the dispute can be handled. There may even be significant differences in the rules of one arbitration tribunal versus another (e.g., the American Arbitration Association (AAA) compared to, for example, JAMS).
- Are there any limitations before proceeding to any required venue? Regardless of any agreed upon forum to resolve a dispute, does the contract require, for example, some form of meet and confer pre-litigation dispute resolution procedure, or, possibly, mediation, under the auspices of a recognized mediation tribunal (the AAA, JAMS, ADR, etc.), for a dispute to proceed to resolution? Any such obligation, particularly a mediation obligation, could be a valuable opportunity or a horrendous obstacle, depending on the circumstances of the case and on what side of the dispute your client(s) lie(s).
- Choice of law provisions and injunctive relief: does the contract contain clauses that specify what substantive law governs a dispute; if so, one needs to know how the substantive law of the designated jurisdiction (unless superseded by, for example, federal law) affects your side of the dispute? Similarly, if injunctive relief is sought by a party, what provisions exist in the agreement that might impair, defeat or enhance such rights?
- Confession of Judgement: some contracts, in the boiler plate, allow a party due sums owed, to confess judgment against the opposing party, without notice or other warning. While more typical in commercial loan transaction documents, such clauses can be particularly valuable or problematic, depending, again, on what side of the dispute your client(s) find themselves.
- Non-reliance and integration clauses: when parties claim that they were “duped” into signing a contract, or the contract does not contain all of the parties’ promises to one another, the existence of non-reliance and/or integration clauses can be a substantial sword or shield – again depending on what side of dispute one find oneself.
- Prevailing party, indemnification or other attorney’s fees provisions: most disputes in the United States are controlled, as to attorney’s fees and other litigation costs, by the “American Rule” – each party bears his, her or its own attorney’s fees and costs in resolving a dispute. Often times, trapped in the boiler plate, are provisions that alter the American Rule, changing the stakes of the dispute by, for example, giving one party the right to claim attorney’s fees as damages part the damages in the case. The existence of such provisions can substantially alter the real and/or perceived value and outcome of a dispute – to the point of forcing a dispute to resolve itself before it becomes a case.
- Definitional terms: are key terms in the contract(s) that underly(ies) or is key to the dispute(s) defined? If so, how so and how do they impact any analysis of the dispute?
While parties often look at “boilerplate” contract language as nothing more than standardized “legalese” that has little meaning (except to lawyers), such is hardly the case. Standardized methods, procedures or structures in a document are not only commonly used, but also must be considered, critically so, in evaluating claims and defenses. The boilerplate is not the end of the analysis of the merits of a (potential) dispute, but rather a critical component, to fully understand the dispute, particularly the tactical and strategic aspects of a dispute where one or more contracts are involved.
Distributors interested in further discussion on this or other legal topics are encouraged to contact Fred Mendelsohn at 312-840-7004 or fmendelsohn@burkelaw.com.
