CONTRACT DRAFTING -- SPRING 2012 D. C. TOEDT
Class 3 — Tuesday, January 24
3.1Warm-up exercises
IN THE NEWS: Camelot LLC v. AMC ShowPlace Theatres, No. 11-1767 (8th Cir. Jan.18, 2012) (lecture)
REVIEW: What do clients want?
IN-CLASS EXERCISE: Stark Exercise 18-3
3.2Signature dates
READ: This blog posting.
FACT SITUATION: It’s the last week of March. Your client Big Public Software Company has a calendar-year fiscal year, and its shares are traded on Nasdaq. That means it must file financial reports with the SEC within a certain number of days after each March31, June 30, September 30, and December 31 (commonly referred to as Q1 through Q4 respectively, or sometimes 1Q through 4Q). ¶BPSC’s sales people are working on a huge deal. If the deal closes, BPSC will “make the number,” that is, its earnings will match analysts’ expectations; if not, BPSC will "miss," and the price of its stock likely will nosedive. ¶The sales people stay late at the office on March 31, hoping to iron out the last negotiation points. But the parties don’t actually come to agreement until April 3.
QUESTIONS FOR CLASS DISCUSSION:
(a)On April 3, BPSC’s vice president of sales calls you with an urgent question: Can the parties backdate their signatures to March 31, so that BPSC can book the sale in Q1 so that it won't “miss”?
(b)What eventually happened to the general counsel of Computer Associates (the company referred to in the blog posting), Stephen Woghin? How about its CEO Sanjay Kumar?
(c)What motive(s) might BPSC have to backdate a contract?
3.3Electronic signatures
READ: The portion of Naldi v. Grundberg, 80 A.D.3d 1, 908 N.Y.S.2d 639 (N.Y. App. Div. 2010) at , beginning with the transitional paragraph at pp.6-7 through the transitional paragraph at pp.10-11.
FACTS: Your client TexBling is a Houston company that sells jewelry on-line, but only to Texas customers. One particular customer is Nick, an individual living in Houston. ¶Nick clicks on “Iagree” to buy a $20,000 diamond engagement ring, C.O.D. Nick pays for ground shipping; the Web site says that the ring will arrive in 7 to 10 days. ¶It's now 8 days after Nick ordered the ring. It hasn't arrived. Sans ring, Nick goes ahead with proposing to his girlfriend Nora during a Rockets game; by prearrangement, his proposal is shown on the Jumbotron at Toyota Center. ¶To Nick’s horror, Nora turns him down, bursts into tears, and storms out of the arena to get a cab home— live on the Jumbotron and on national TV. (Here’s areal-life example— supposedly.) ¶The next day, the delivery truck arrives with the ring, but the grief-stricken Nick no longer wants it; he refuses to take delivery and also refuses to pay for it. (CueGary Lewis and the Playboys.) ¶TexBling, the jewelry vendor— heedless of the potential bad publicity— tells you it wants you to sue Nick for breach of contract in failing to pay for the ring.
QUESTIONS FOR CLASS DISCUSSION:
(a)Could Nick assert a statute-of-frauds defense, on grounds that he never signed a contract? Why or why not? Reference:15 USC §7001;Tex. Bus. & Comm. Code §322.007; see also §322.002 (definitions), §322.003 (scope); see also id. §2-201(statute of frauds).
(b)Could Nick assert that TexBling failed to obtain his handwritten, hard-copy signature, agreeing that it was OK to use electronic signatures? Why or why not? Reference:Tex. Bus. & Comm. Code §322.005.
(c)When TexBling consulted you about setting up their on-line sales operation, should you have told them to be sure to save a hard-copy printout of Nick’s “Iagree” contract form to make it enforceable? Why or why not? Reference:15 USC §7001(d);Tex. Bus. & Comm. Code §322.012.
3.4Post-signature changes to document, exhibits, etc.
FACTS: Yesterday your client and "the other side" signed a contract that included several exhibits. ¶ You have all signed copies of the contract in your possession and are supposed to send one fully-signed copy to the other side today. ¶You just noticed that one of the exhibits includes a significant typographical error.
QUESTION FOR CLASS DISCUSSION:
(a)Can you just change out the exhibit pages before you send the fully-signed copy to the other side? Why or why not?
(b)How else could you handle this situation?
3.5Email amendments
SKIM:Stevens v. Publicis, S.A., 2008 NY Slip Op 02880 [50 AD3d 253]
QUESTIONS FOR CLASS DISCUSSION:
(a)What did Publicis initially do (or not do) that [ticked] Stevens off? (P. 2)
(b)Why did Stevens lose? (Pp. 3-4)
(c)Any "lessons learned" advice for clients about their business practices?
3.6Notarization
FACTS: Your client, Landlord, has negotiated a five-year commercial lease agreement for one of its office buildings. The tenant’s lawyer wants the signers to have their signatures notarized. Landlord agrees to have the signatures notarized.
QUESTIONS FOR CLASS DISCUSSION:
(a)Why might the tenant’s lawyer want the lease agreement to be notarized? Would that be in your client Landlord’s best interest? References: Tex. Prop. Code §§12.001, 13.002; Tex. Civ. Prac. & Rem. Code§§121.004-121.008(a);this blog entry; Tex. R. Evid. 902(4), (8).
(b)What is the difference between an acknowledgement and a jurat?
(c)In these circumstances, what does the notary's certificate need to say?
ADDITIONAL FACTS: Your secretary is the only notary public around. She [or it could be "he," of course] can't find her notary seal.
(d)Could your secretary sign the notary certificate without a seal?References:Tex. Gov. Code §406.013; Tex. Civ. Prac. & Rem. Code§§121.004.
ADDITIONAL FACTS: After rummaging around, your secretary finds two seals in the bottom of her drawer. One is an embossed seal, the other is an ink stamp.
(e)Of the two seals your secretary found, which one should she use— the embossed one, or the ink one? References: Tex. Gov. Code§406.013; see also Tex. Prop. Code§§121.004(d).
(f)What must your secretary dobeforesigning the notary certificate?Reference:Tex. Civ. Prac. & Rem. Code§§121.005.
(g)What must your secretary doafternotarizing the signature(s)?References:Tex. Gov. Code§406.014; Tex. Civ. Prac. & Rem. Code§§121.012.
(h)If no notary is around, can you notarize the signatures as an attorney?Should you? References: Tex. Civ. Prac. & Rem. Code§121.001; Tex. Discipl. R. Prof. Conduct 3.08(“Lawyer as Witness”).
SURPRISE! The person who will sign the lease for the tenant is in Kuwait and will FAX her signed signature page to you. QUESTIONS FOR CLASS DISCUSSION:
(i)Can your secretary, who is here in Houston, notarize that signature?Reference:Tex. Civ. Prac. & Rem. Code§§121.004(a); see alsothis article, which applies to Texas as much as to Massachusetts.
(j)Who in Kuwait could "notarize" the signature? References: Tex. Civ. Prac. & Rem. Code§121.001(c), (d)
Class 4 — Thursday, January 26
4.1Warm-up
IN-CLASS EXERCISE: Stark Exercise 18-4 18-3
4.2Nondisclosure agreements (NDAs) (part 1)
READ: Zarfes & Bloom pp. 1-32
SKIM: Z&B p. 114 (the recitals)
QUESTIONSFOR DISCUSSION (asterisks indicate questions you should be prepared to answer)
- * Who are some of the potential future readers of an NDA?
- Why do employers often ask their employees to sign NDAs?
- * If an employee does not sign an NDA, does that mean the employee is free to steal the employer's confidential information? Why or why not? (Hint: See Z&B pp. 12-13.)
- * Name two inherent weaknesses of NDAs.
Coca-Cola Employee NDA (Z&B pp. 5 et seq.)
- Preamble: Notice the recitation of the company's name and state of incorporation. For a company like Coca-Cola, there are dangers in having this recitation in its standard form. What are some of these dangers, and how can they be managed?
- * Are preliminary recitals in a contract generally binding? (Hint: See Z&B p. 9-10.)
- * Section 1: Why are there separate definitions for "Confidential Information" and "Trade Secrets"? (Hint: See §4)
- Section1(a): Why do you think the definition includes so many "regardless" phrases?
- Section 1(b): Where do you think the definition of "Trade Secret" came from? ? (Hint: See Z&B pp.13-14.)
- Section1(b): What's the significance of having a "compilation" be potentially a trade secret?
- * Suppose the Coca-Cola formula could be reverse-engineered by using simple, well-known chemical analysis techniques on a sample of the product. Would the formula qualify as a trade secret? Would the formula qualify as confidential information? Why or why not?
- * What are some practical steps that a company can take to establish legal rights in its confidential information? (Hint: See this blog posting.)
- If a company doesn't take every reasonable precaution to protect its confidential information, what does that do to its chances of asserting any legal rights in the information against its employees?
- Section 2: Why is there such a lengthy "acknowledgement"?
- Section 2: Is the first sentence likely to be actually true? Why is it there?
- * Section 2: Could the employee dispute the first and second sentences if a lawsuit were to occur?
- Section 2: What's the significance of the "confidence and trust" language?
- Section 2, first grammatical paragraph: Does the last sentence really "fit" with the rest of the agreement?
- Section 2, third grammatical paragraph: What's the significance of the first sentence?
- Section 2, third grammatical paragraph: Why did Coke's lawyers include the "inevitable breach" language?
- * Section 2, third grammatical paragraph: In what situation would the "inadequate remedy" language come into play?
- * Section 2, third grammatical paragraph: What's the significance of the "without bond " phrase?
- * Section 4: How are the employee's obligations different in respect of Confidential Information and Trade Secrets?
- Section 4(a), 4(b): Why does the employee agree to contact Coke for written clarification?
- Section 4(b): From the perspective of persuading a court (as opposed to legal doctrine), is there a better way to write the last sentence, which reads "Nothing in this provision shall be interpreted to diminish the protections afforded trade secrets under applicable law"?
- Section 6: Does an "inventions, discoveries, and authorship" provision belong in an agreement having the title that this one does?
- * Section 7: Why does the choice-of-law provision say "without giving effect to the choice of law provisions [of Delaware law]"? (Hint: See Z&B pp. 29-30.)
- * Section 8: Why does the forum-selection choice-of-law provision say "without giving effect to the choice of law provisions [of Delaware law]"? (Hint: See Z&B pp. 29-30.)
FACT SITUATION: Joanne, a new employee at a factory, mentions to her supervisor that her former employer had some clever tricks to improve its factory production. ¶The supervisor is interested and picks Joanne's brain. ¶The supervisor says, those tricks are old hat, but yes, they're clever; we'll try them out to see if they do us any good. ¶Joanne had a Coca-Cola-style NDA with her former employer.
- * Could Joanne's former employer file suit against her new employer? On what grounds, if any?
- Who would have the burden of proof? (Careful, this is sort of a trick question.)
ADDITIONAL FACTS: Joanne's NDA contained an express acknowledgement that the clever tricks were economically valuable and not generally known.
- * Is the acknowledgement binding on Joanne? How about on her new employer?
FACT SITUATION: Your client calls and says she just had a conversation over coffee with a potential business alliance partner. During the conversation, she and the prospective partner discussed information that they agreed to keep confidential.
- What might some of the client's options be? Reference:This blog posting.
FACT SITUATION: You represent Seller, which is pitching Buyer to make a big purchase. To help establish what Buyer needs, Seller wants Buyer to provide it with confidential information. Buyer wants to put an NDA in place.
QUESTIONS YOU MIGHT BE ASKED:
(a)Should the NDA protect just Buyer's information, or the information of both Buyer and Seller alike? Explain your answer.
(b)Should the NDA distinguish between "confidential information" and "trade secrets" for any particular purposes? Why or why not?
(c)Where could you find a definition of "trade secret"?
(d)Is there a difference between a confidentiality agreement and a non-competition agreement?
Class 5 — Tuesday, January 31
READ: Zarfes & Bloom pp. 33-49
5.1Warm-up
IN-CLASS EXERCISE: Stark Exercise 18-5 18-4
5.2Nondisclosure agreements (NDAs) (part 2)
READ: Zarfes & Bloom pp. 51-87
FACTS: You get a call from Client Co. One of their employees has quit and gone to work for a competing company. Client Co. is concerned that the employee might "spill the beans" about Client Co.'s confidential information.
- * What kind of questions do you need to ask Client Co.?
- * What kind of advice can you give Client Co.?
REVIEW
- * Why do companies often insist on putting NDAs in place before disclosing their confidential information to others (even to their employees)?
FACTS: Client Co. wants you to draft an NDA. They've got a prospective new customer, Buyer Inc.. The procurement people at Buyer Inc. want to know about Client Co.'s long-range product plans. Client Co. hasn't made those plans public. ¶Buyer Inc. wants the NDA to include a "sunset" clause saying that after one year, Buyer Inc. will no longer be required to keep the receiving party no longer has as duty of confidentiality.
- * What kind of questions do you need to ask Client Co.?
- * What kind of advice would you give to Client Co.?
- * How would you respond to Buyer Inc.'s negotiator to try to fend off the sunset-clause request?
MORE FACTS: Client Co. wants its sales engineers ("SEs") to get access to Buyer Inc.'s premises so that they can get a better idea what Buyer Inc. needs (and thus help develop a better sales pitch).
- * Does that change the advice you might give Client Co.?
Microsoft-Electronic Arts NDA §1(Z&B pp. 16 et seq.)
- * Note whose "Confidential Information" is protected by this Agreement— what might some pros and cons be of doing the NDA in this way?
- Section 1(a): Are there any potential future problems with the way this language defines "Confidential Information"?
- * Section 1(a): How might a disclosing party "designate" information as being confidential?
- Section 1(a): What if any problems might arise in the future from this section's treatment of "Affiliates"? (Hint: What if "the right hand doesn't know what the left hand is doing"?)
- Section 1(b): Does the list of "carve-outs" from Confidential-Information status seem complete enough? Why or why not?
- * Section 2(a): What sort of security precautions must a receiving party take with a disclosing party's Confidential Information? Is "Fort Knox" necessary?
- * Section 2(a): From the disclosing party's perspective, the confidentiality obligations in this provision have an enormous and perhaps fatal law. What is it? (Hint: Compare with section 4 of the Coca-Cola employee NDA at Z&B p.7.)
- Section 2(b), compulsory disclosures: Should this provision be merged into the list of exceptions from confidentiality in section1(b)? Why or why not?
- * Section 3: How is this "remedies" provision different from that at the end of the Coca-Cola employee NDA § 2?
- * Section 4(c): Why do you think the drafter bothered to include this covenant to comply with export-controls laws? (Hint: What could happen in the event of an export violation?) See, e.g., and .
- Section 4(d): Any potential practicalproblems with the "residuals" portion of this provision?
- * Section 4(d): From a document-structure perspective, what do you think about the drafter's inclusion of the "residuals" portion as a "Further ...."?
Class 6 — Thurs. Feb. 2
6.1Warm-up
IN-CLASS EXERCISE: Stark Exercise 18-5
READ: "Enjoining Nick Saban: Non-Compete Agreements and College Football Coaches," at
READ: Sean Becker, "The Texas Supreme Court Goes Goodwill Hunting: Will it Become Easier to Create Enforceable Non-Competes in Texas?" at
[QUESTIONS TO COME]