RISK MANAGEMENT LITIGATION AVOIDANCE STRATEGIES THAT REALLY

RISK MANAGEMENT & LITIGATION AVOIDANCE STRATEGIES THAT REALLY WORK Presented by: Joseph T. Moran, Partner, Blank Rome Jeremy A. Mercer, Partner, Blank Rome James J. Barnes, Partner, Blank Rome 2017 In House Counsel Conference

2 3/19/2018 Contracting to Avoid Litigation and Shift Risk

3/19/2018 3 Litigation Avoidance Provisions § Cure provisions § Ex 1): If either party breaches its obligations under this Agreement, the non- breaching party shall give the breaching party written notice of such breach, and the opportunity to cure such breach for a period of five (5) business days after delivery of the notice of breach with respect to a monetary breach, or fifteen (15) business days after delivery of the notice of breach with respect to a non-monetary breach. § Ex 2): Either party may terminate this agreement for material breach of this agreement by the other party unless such breach is cured within sixty (60) days after receipt of notice by the breaching party. § Material v. non-material breach § Precedent to termination

3/19/2018 4 Litigation Avoidance Provisions § Mandatory mediation § The parties agree to attempt to resolve any dispute, claim or controversy arising out of or relating to this Agreement by mediation, which shall be conducted under then-current mediation procedures of The CPR Institute for Conflict Prevention & Resolution or any other procedure upon which the parties may agree. The parties further agree that their respective good faith participation in mediation is a condition precedent to pursuing any other available legal or equitable remedy, including litigation, arbitration or other dispute resolution procedures. § Benefits § Enforceability

3/19/2018 Litigation Avoidance Provisions § Arbitration Provisions § Pros/cons of arbitration § Make the arbitration provision fair = enforceable § Ability to reduce/eliminate potential class actions § Why AAA? § Can’t agree on arbitrator? § Discovery/depositions 5

3/19/2018 6 Litigation Avoidance Provisions Any controversy or claim arising out of or relating to this Agreement shall be resolved by arbitration before a single arbitrator in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) then pertaining (available at www. adr. org), except where those rules conflict with this provision, in which case this provision controls. Any court with jurisdiction shall enforce this clause and enter judgment on any award. The arbitrator shall be selected within twenty business days from commencement of the arbitration from the AAA’s National Roster of Arbitrators pursuant to agreement or through selection procedures administered by the AAA. Within 45 days of initiation of arbitration, the parties shall reach agreement upon and thereafter follow procedures, including limits on discovery, assuring that the arbitration will be concluded and the award rendered within no more than eight months from selection of the arbitrator or, failing agreement, procedures meeting such time limits will be designed by the AAA and adhered to by the parties. Prior to appointment of the arbitrator or thereafter if he/she is unavailable, emergency relief is available from any court to avoid irreparable harm.

3/19/2018 Litigation Avoidance Provisions 7

3/19/2018 8 Litigation Avoidance Provisions § Predetermined Fact-Finding By Designated Experts § Binding on the parties § Useful for complex or novel issues § Valuation § Provides predictability when issues arise § Potential to resolve dispute/issue without litigation §

3/19/2018 9 Risk Shifting Avoidance Provisions § Limitation of Liability § "WITH THE EXCEPTION OF DAMAGES ARISING FROM BREACH OF CONFIDENTIALITY UNDER ARTICLE 26, IN NO EVENT SHALL A PARTY BE LIABLE TO THE OTHER PARTY FOR ANY INCIDENTAL, INDIRECT, SPECIAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES OR LOSS OF PROFITS…”

3/19/2018 10 Risk Shifting Avoidance Provisions § Limitation of Liability § “IN NO EVENT SHALL COMPANY’S LIABILITY FOR ANY CLAIM OF NEGLIGENCE, STRICT LIABILITY OR ANY OTHER LEGAL OR EQUITABLE THEORY WHATSOEVER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT EXCEED THE PURCHASE PRICE. ”

3/19/2018 11 Risk Shifting Avoidance Provisions § Limitation of Liability § “THE LIMITATIONS WILL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED HEREIN. ”

3/19/2018 12 Risk Shifting Avoidance Provisions § Exculpatory Agreements § Relieves one party of liability if damages are caused during the execution of the contract § Ex: ) Ticket to sporting event -- no responsibility for personal injury caused at event § Public Policy/governed by regulation (release re school athletic programs) § Disparate bargaining power (services nowhere else) § Gross negligence

Measures In-House Counsel Can Take To Avoid or Minimize Litigation

3/19/2018 14 In-House Counsel Protective Measures § Have an open door policy. Make the employees feel comfortable coming to you with mistakes (so you can deal with them before litigation commences) § Create a reporting procedure encouraging employees to report potential risks § Identify the stage of the risk and develop a plan for risk evaluation § Participate or organize a Customer Complaint Committee. Get ahead of complaint trends § Work with a Chief Risk Officer on cataloging issues and remediation thereto (or prepare one yourself under privilege)

3/19/2018 15 In-House Counsel Protective Measures § Train your employees NOT to send “Sky is Falling” emails § Require all incoming attorney letters to be sent to legal department so as to remediate issues without the need for litigation § Train employees on what is and is not attorney-client privileged § All communications with in-house counsel will not be considered privileged § Involve outside counsel in communications

3/19/2018 16 In-House Counsel Protective Measures § Records retention and management § Policies and Procedures § Person responsible § Early Case Assessments § Litigation Hold Procedures; Domestic vs. Foreign § Protecting the attorney-client privilege

17 3/19/2018 In-House Counsel Protective Measures § Training employees on applicable regulations § Data Mapping: To ensure information will be readily available § Audit and map emails, instant messages, text messages, employee smartphones, employee hard drives, human resource documents, audit records and the various clouds platforms

18 In-House Counsel Protective Measures What’s Old is New Battle of the Forms – DO THEY AGREE? • RFQ’s • Quote • PO’s • Acknowledgements • Invoices • Supplemental Agreements/Amendments • All can contain T&C’s or incorporate them by reference

19 Know what it means – Coordinate your contracts • No contract is perfect but understand what it means to you and your company – one size does not fit all • Read all “related” contracts together – does it now mean what you intend it to mean? • What is conflicting language? • Are the terms of this Agreement specifically and expressly excluded? • What about future supplemental agreements – building more levels of uncertainty? • Learn from court decisions/interpretations

20 STAY ON TOP OF THE LANGUAGE • First question to ask yourself – Do you know what your • • current contracts mean? Choice of Law -- “This contract shall in all respects be construed and governed by the internal laws of the state wherein Buyer’s office issuing this order is located. ” Drafted to reduce paperwork and encompass all offices, account for expansion Problem: Company expanded and went to computerized issuance of PO’s – Had to ask IT where the PO’s were technically issued from. No one knew what state law had been chosen

21 Inventory what you have • Standardize terms and titles • Create a centralized file – software? • Web Terms - Track effective dates - Update on a regular basis • Identify key terms – “boilerplate” – review for understanding, coordination with business interests and risk aversion, including litigation • Plain language best –

22 Plain Language - Undecipherable Contracts • Major client – in-house counsel in a new position - to their credit – sent us a clause that had been drafted and redrafted in the finest lawyerese and by the most expensive counsel – yet it made no sense! • Ambiguous contract relating to time of termination. So ambiguous that neither party would move for summary judgment on the controlling term. Judge indicated a clear winner at pretrial until his clerk read it just the opposite – jury trial resulted • When in doubt, ask a colleague (or a litigator) to read your work to see if they get the meaning you are trying to convey

23 Know what it means – “Litigation Words” Coordinate all Agreements • “This Supplemental Agreement specifically modifies and amends any related agreements including, but not limited to, negotiated written agreements, agreements on pre-printed forms (e. g. , purchase order forms) and contractor’s other documents. • To the extent the terms and conditions of this Supplemental Agreement conflict with the terms and conditions of any related agreements the terms and conditions of such agreement shall only take precedence over conflicting language of this Agreement to the extent the terms and conditions of this Supplemental Agreement are specifically and expressly excluded in such related agreements, and general language shall not serve to supersede the terms and conditions of this Supplemental Agreement. ”

24 Know what it means – Coordinate your contracts • Staffing Services Contract: • Each party’s liability under this Agreement, if any, is limited to direct damages and to the risks and responsibilities inherent in that party’s business or activity. ” • What does this mean? • Doesn’t matter: • Same Contract: If for any reason you are dissatisfied with an Associate’s qualifications and notify Owner within the first 8 hours of the assignment, you will not be charged for the hours worked and Owner will make reasonable efforts to provide a replacement. This guarantee is your sole remedy for dissatisfaction with an Associate’s qualifications, performance or conduct. ”

25 Remedies for Breach • Talk to your business people – understand what remedies they prefer – don’t assume they prefer to engage in litigation/arbitration to get a max monetary recovery • Business costs to litigation – sometimes Pyrrhic victories • Protect and Serve – recognize relationship, production concerns of the business while protecting their interests

26 Custom Contracts • Drafting a web T&C’s agreement for a start-up • Customer wanted a prevailing party clause to protect against • • • high legal costs if sued Advised against: Potential foreseeable damages minimal – consider your opponent Forum and law selections local to Owner Drafted damage limitation language Mostly consumer clientele who may be encouraged to sue by clause Clauses aren’t favored – difficult to draft – Costs, uncertain results

27 Build/Review a Contract • Start with your must haves • Understand your boilerplate and what it means • Avoid the Battle of the Forms • Disclaim other and future documents • Limit acceptance to your terms in offer or RFQ • Object in writing to new terms immediately • Absent the above, additional terms may be effective • Address key terms or the UCC may supply them: Remedies, warranties, Price, Delivery time, etc. • Be Specific in exclusions

28 No Nightmares • Not saying boilerplate is all bad – it is the building block of any contract - “No Nightmares” clauses • Forgot the No Consequential Damages clause: Arbitrators awarded $14. 5 million in damages on a $600, 000 construction contract because the contract did not include a clause barring consequential damages. Late delivery on the Sands Hotel. N. J. Supreme Court affirmed the award. Perini Corp. v. Greate Bay Hotel & Casino Inc. , 610 A. 2 d 364 (1992). • The effects of the Perini case were so dramatic that when the American Institute of Architects revised their standard form construction contract in 1997, they added a mutual waiver of consequential damages from both the owner and contractor.

QUESTIONS? Contact: Joseph T. Moran 412 -932 -2811 jmoran@blankrome. com Jeremy A. Mercer 412 -932 -2732 jmercer@blankrome. com James J. Barnes 412 -932 -2731 jbarnes@blankrome. com