ARBITRATION vs LITIGATION What rules will govern dispute

ARBITRATION vs. LITIGATION: What rules will govern dispute resolution? Is Alternative Arbitration the right set of procedures to resolve your commercial disputes? ♦ Yes, if you have a large dispute resolution docket, and the result in any one case is less important than the average performance over the entire docket. ♦ Yes, if your dispute is worth less than $1 million ♦ Yes, if a negative result will not have a material impact of your company’s finances. ♦ This probably covers most of what is in your dispute docket. ♦ But otherwise … think twice. 1

CHOICE OF LAW AND CHOICE OF FORUM: Where are we fighting and what law governs? Both the law governing a contract and the location of the dispute resolution forum must bear some reasonable relationship to the parties or the transaction. Factors include: ♦ Location of headquarters or significant office; ♦ Place of incorporation; ♦ Place of contract performance; and ♦ Jurisdiction in which both parties do business and where the relevant law is developed and provides a reasonable degree of guidance. 2

CHOICE OF LAW AND CHOICE OF FORUM: Where are we fighting and what law governs? Your home state may not always be the best choice. Consider: ♦ Location of likely witnesses, especially third party witnesses; ♦ Location of assets that might be subject to attachment; ♦ Substantive law variations; ♦ Risk of “home town” effect; and ♦ The timeline for resolution. 3

CHOICE OF LAW AND CHOICE OF FORUM: Where are we fighting and what law governs? Domestic Transaction Considerations for Choice of Law. ♦ Familiarity ♦ Abundance of precedent ♦ Delaware ♦ New York See Appendix of Forms at D-1 and D-2. 4

FEE SHIFTING PROVISIONS: Making the other party pay the costs that you incur. An indemnification provision obligates the breaching party to pay for losses incurred as a result of the breach, including third party claims. An attorneys fee provision obligates the party that loses the litigation or the arbitration to pay the attorneys fees incurred by the prevailing party. ♦ Both shift the financial burden of the breach to the party that caused the dispute. ♦ Both foster reasonableness and resolution by increasing the cost of being unreasonable and of litigating positions that lack merit. See Appendix of Forms at E-1 through E-7. 5

FEE SHIFTING PROVISIONS: Making the other party pay the costs that you incur. What is covered: “All” fees and expenses or “reasonable” fees and expenses? Compare, MIF Realty, L. P. v. Finneberg, 989 F. Supp. 400, 402 (D. Mass. 1998) and Northern Assoc. Inc. v. Kiley, 57 Mass. App. Ct. 874, 882 n. 17 (2003). In MIF Realty ♦ ♦ By virtue of the contract language the losing party assumed the burden of paying whatever the other party’s lawyer’s charged if the other party prevailed. ♦ Rather than what the prevailing party’s attorney’s services were objectively worth. 6

FEE SHIFTING PROVISIONS: Making the other party pay the costs that you incur. In Northern Assoc. Inc. v. Kiley, the court assessed the reasonableness of attorneys fees courts by considering: ♦ The ability and reputation of the attorney; ♦ The demand for the attorneys services by others; ♦ The amount and importance of the matter involved; ♦ The time spent on the matter; ♦ The prices usually charged for similar services by other local attorneys; ♦ The amount of money or the value of the property affected by the controversy; and ♦ The result obtained. 7

FEE SHIFTING PROVISIONS: Making the other party pay the costs that you incur. Tempting to demand payment of “all fees and costs, ” but consider the potentially adverse incentives. ♦ Could actually encourage wasteful or inefficient litigation strategies. ♦ Inserting a reasonableness requirement helps to keep all parties honest during the dispute resolution process. 8

FEE SHIFTING PROVISIONS: Making the other party pay the costs that you incur. Second, how do you determine which party is the prevailing party. If x sues y for $20 million and recovers only $50 thousand, which party prevailed? In Kileen v. Westban Hotel Venture LP, 69 Mass. App. Ct. 784 (2007). ♦ ♦ The Court noted the need to focus with precision on the amount of attorney time spent in light of the results obtained. ♦ It was the Court’s objective valuation of the claim not the parties subjective valuation that controlled the assessment of the result obtained. 9

JURY WAIVER CLAUSES: Just do it Nothing to debate: just do it. ♦ Should be in every commercial contract. ♦ USE LARGE, BOLD FACE, ALL CAPS FONT. ♦ Place the clause immediately above or near to the signature page. See Appendix of Forms at F-1. 10

INTEGRATION AND MERGER CLAUSES: The agreement says all that needs to be said, except sometimes … Commonplace: Every contract should contain an integration clause. ♦ They prevent a party from varying the terms of an agreement by attempting to vary or alter the written terms through oral testimony of side agreements or additional terms. ♦ However, a party cannot contract against its own fraud. “Granlund v. Saraf, 263 Mass. 76, 79 (1928); Greenleaf Arms Realty Trust I, LLC v. New Boston Fund, Inc. , 81 Mass. App. Ct. 282, 288 -290 (2012). ♦ Make sure representations and warranties are accurate, complete and up to date as of the closing date. 11

SPECIFIC DEFINITIONS OF KEY TERMS: Define the key terms, someone else will. If the term is important, define it, employing the most simple and direct language possible. What could possibly go wrong … ♦ The sale of a “widget” shall be credited to the Company for the bona fide sale of a formatted Open Widget® system to any third party or to Parent or its Affiliates in the event that Parent or its Affiliates is an end user of such Widget for commercial purposes for (X) Widget applications, (Y) Other Products or (Z) Human Diagnostic Widget applications. For the avoidance of doubt, sales of formatted Gidget® systems shall not count as the sale of a Widget by the Company. See Appendix of Forms at H-1 through H-6 for examples of some commonly defined terms. Cross Border Transaction Issues: “Business Days”, “Language” 12

LIQUIDATED DAMAGES AND EQUITABLE RELIEF: In special circumstances, when nothing else will work. Specific performance is available only where money damages do not provide an adequate remedy i. e. , where the assets being transferred are truly unique. Liquidated damages are available only where actual damages are incurred but not amenable to accurate calculation. ♦ The liquidated damages amount must bear some reasonable relationship – that is demonstrable – to the damages actually incurred. Liquidated damages provisions that purport to award amounts that are excessive or otherwise unrelated to the damages actually incurred will be deemed to be an unenforceable penalty provision. See Appendix of Forms at I-1. ♦ 13

DAMAGE EXCLUSION PROVISIONS: No matter what, you cannot recover. . . Consequential, special, punitive or statutory multiples of damages or damages in the nature of lost profits should be excluded. ♦ Like ♦ But Jury Waiver: Just do it. what are consequential damages? See Appendix of Forms at H-2. 14