One Truly Great Article on Contracts and Agreements

Harry Thomas Hackney, P.A. of the Florida Law Blawg puts a lot of wisdom into his Get It In Writing AND Make It Clear:

"I was listening to a podcast of a speech recently when the speaker said something such as “Lawyers always say, get it in writing because then there is no doubt what you meant. You can’t argue with what’s written.” It was like nails on a chalkboard to my ear. The naivete! Only a non-lawyer could say that getting an agreement in writing ends all disputes.

You should get any important agreement in writing. Without a written agreement or understanding, there can be wild variations and disagreements as to what was said or agreed upon. However, getting it in writing won’t eliminate all disputes. A written agreement will certainly reduce the chance of a dispute and eliminate many areas of dispute, but no agreement is ever perfect."

The remainder is a good read, too.

People tell me that they had no contract - there was no writing. That can be very wrong. As the article above points out, a written contract is evidence of the agreement. What the written contract evidences is another matter altogether.

Employers, Preventive Law and the Employee Leaving the Business

The best advice I found (lately) is this paragraph from Handle departing employees: When the grass is greener:

There are two lessons from the HISL case: first, listen to your employees when they have good ideas. Second, if you wish to prevent departing employees taking preparatory steps prior to leaving employment to ensure their future income, or competing with you after they have moved on, make sure your contracts of employment are properly drafted.

That last sentence nicely sums up what we lawyers call preventive law. As much as I write about litigation, as much as I do like trial work, preventive law is the best bet for business owners. (Actually, for everyone).

Why most people, businesses, institutions prefer waiting for litigation to hit is something that has puzzled me and has puzzled others. After so many years, I think the reasons are a desire to deny any risk and a desire to save on attorney fees until the lawsuit arrives at the door.

If you look over my articles here on non-compete agreements and trade secrets, you will see my emphasis on preventive law. The article I quoted above dealt with both of those subjects.

Business Law: The Contract from Hell

What makes a badly written contract? Business owners who think the better contract brims with legalese needs to read How To Earn Undying Loyalty From Business Clients (Part 1) - Guest Blogger Anita Campbell.

I came through law school after the start of the Plain English movement had begun but I think even without that education my natural impatience would have gravitated towards plain English in legal writing. Think about it. A contract acts as a blueprint for a contract. What happens if the people to that contract cannot understand what they are supposed to do under the contract?

So What Is Contract Law?

At forty-eight, I doubt I have time to answer that question. Here is a far less facetious answer: it is the law of private agreements. I can more easily say that contracts are more than the paper that most people think are contracts. Those documents saying contracts exist more as evidence of the agreement.

What I can do is suggest reading this outline of contract law (thanks to Deal Lawyer Blog for this). Reading this might show my facetious answer was not so facetious after all.

If you are located in Indiana looking for an attorney to draft a contract or need similar business law services, I am taking on new clients. I am also taking on contract litigation in Indiana.

Notice, Preliminary Injunctions, Employment Contracts, and The Indiana Court of Appeals

Ordinarily, preliminary injunctions come before trial on the substantial issues of the case. Not in Roberts v. Community Hospitals of Indiana, Inc. (PDF format).

If the court consolidates the preliminary injunction with trial, there has to be proper notice given to all the parties. Notice gives the parties time to properly prepare for the hearing. The Indiana Court of Appeals held that there was not enough notice given in this case and sent it back to the trial court.

The case gives us an insight in the preliminary injunction process. I find the case worth reading for that reason alone.

If you are looking for Indiana counsel for business litigation, please remember that I am taking on cases at this time.

Non-lawyer writing on non-compete agreements

Unlike some lawyers, I do not mind when non-lawyers write about legal matters - so long as they do not muff the law. No-Fault Divorce. Is It Time To Tie The Knot With A New Employee? from insurancenews.net does a good job with the legal issues. Besides, how can I object to an article that has the following paragraph:

To create a truly good agreement, start from the basics. It is worth the money to have an attorney involved in the drafting. But that is just the beginning. More important is that you, as the agency owner or manager, must guide the attorney to include the specific contractual elements you need.

I often wonder if my readers think my pronouncements about needing lawyers for a business are not a bit self-serving. Of course, they are self-serving to a point. I am looking for new clients, but I prefer to prevent problems for those clients to cleaning up the avoidable messes.

If you have a business then read all of the article. It applies to more than insurance agents.

Indiana Appellate Cases: Third Party Interfering With Contracts

On March 20th, the Indiana Court of Appeals handed down its opinion in Allison v. Union Hospital (PDF format) that dealt with tortious interference with contractual relationship against Union Hospital and Wabash Valley Anesthesia, P.C. (the other appellee) and constructive fraud and breach of the duty of good faith and fair dealing against Union.

Allison (and Safford, the other appellant) lost on both claims at the trial court level and had a split decision with the Court of Appeals. The Court of Appeals reversed the trial court on the tortious interference claim but upheld the other claims.

The opinion contains a refresher on the tort's elements:

A plaintiff alleging tortious interference with a contractual relationship must establish five elements: (I) the existence of a valid and enforceable contract: (2) the defendant's knowledge of the existence of the contract; (3) the defendant's intentional inducement of the breach of the contract; (4) the absence of justification; and (5) damages resulting from the defendant's wrongful inducement of the breach. (citation omitted).

This case focuses on the justification element. The Indiana Supreme Court has set out the following factors for judging whether or not the defendant acted with justification:

(a) the nature of the defendant's conduct;
(b) the defendant's motive;
(c) the interests of the plaintiff with which the defendant's conduct interferes;
(d) the interests sought to be advanced by the defendant;
(e) the social interests in protecting the freedom of action of the defendant and the contractual interests of the plaintiff;
(f) the proximate or remoteness of the defendant's conduct to the interference: and
(g) the relations between the parties.

The Indiana Court of Appeals proceeded to evaluate the facts of the case against these guidelines. It then made the following decision:

In weighing all of these factors, we find this to be a very close call. And as noted above, the ultimate question relating to the justification of the defendant's conduct is whether that conduct has been fair and reasonable under the circurnstances. We find this inquiry to he so highly- fact sensitive that we conclude it is best answered by a factfinder. Although it is possible that under certain circumstances this question may lie answered as a matter of law-and, indeed, we make just such a finding with respect to WVA below- we do not find that to be the case with respect to Union, based primarily on its conduct with respect to the without cause termination provision....

I must say this case has some unusual features - Union Hospital admitted entering into a contract it had no intention of honoring - which probably helped lead to the decision for a remand for trial rather a decision as a matter of law.

Having confronted several of these tortious interference cases, my thought is that the lack of justification element is generally the make or break element. If the case is a good tortious interference case, then the other elements ought to be readily apparent with an appropriate support of the evidence. (For example, last week a client wrote me about what would appear a good tortious interference case except there was no interference - the clients were not impressed by the attempted interference.) With this opinion, Indiana has a very a good explanation of when a third party lacks justification for its interference.

Indiana Court of Appeals Holds Federal Arbitration Act Controls Interstate Contracts

On February 8, 20085, the Indiana Court of Appeals decided Lasalle Group, Inc v. Electromation of Delaware County, Inc. (PDF format). Since the contract was between companies of different states and had an arbitration clause, the Federal Arbitration Act applied to the case.

Be wary of contracts with out-of-state companies with arbitration clauses. Indiana statutes conflicting with the federal act will be of no use in protecting you from a bad choice.

Contract Drafting - A Look at Best Efforts

Adams Drafting blogs about writing legal documents about the same way Michael Jordan played basketball. While reading What the Heck Does “Best Efforts” Mean? , I debated myself about actually doing this blog. I get few lawyers reading this blog and this is a bit too much of "inside baseball" for most laypeople. So why am I writing this post? Because the idea of this blog was not to exclude the public.

If you want to see the complexity of drafting contracts, read Adams' article. For those wanting to understand why lawyers are useful for drafting their contracts:

But whereas some lawyers regard reasonable efforts as a misinterpretation-proof replacement for best efforts, others regard both terms as two points on a spectrum of efforts that a party might be required to expend, ranging from the relatively modest to the extraordinary, the latter being represented by best efforts. This interpretation is facilitated by colloquial use of reasonable to mean “not extreme,” as in She got a reasonable grade on her French test.

What difference does this make? Money is my short answer. The difference lies between a contract successfully carrying out the intent of its parties and an unsuccessful one.

For those lawyers in the crowd, think about this paragraph:

I think the problem is that people approach it as an issue to be resolved by case law, whereas I see it first of all as a matter of semantics. What does best efforts mean in general usage? And what are the implications of seeking to have it mean something other than that?

Provocative and worth reading.

News: Trade Secrets Case Settled

As a lawyer this report from MPO Magazine intrigues me while as a consumer it appalls me. Boston Scientific and Consultant Settle a Lawsuit:

"With a Dec. 3 trial date fast approaching, Boston Scientific and the ECRI Institute have settled a potentially controversial lawsuit that could have spotlighted efforts by Boston Scientific and other medical device companies to keep the prices of their major products secret. No terms were disclosed. ECRI, a nonprofit consulting and market research firm based in Plymouth Meeting, Pa., collects data on medical device prices from more than 400 hospital clients and, in return, discloses to them the average and lowest-selling prices for each product. The hospitals use the information as a tool in negotiations with the companies. Boston Scientific had said that ECRI illegally disclosed its trade secrets. It also argued that ECRI interfered with its business relationships by inducing hospitals to violate sales contracts that require the hospitals not to disclose the prices they pay for Boston Scientific’s heart defibrillators and other devices. The lawsuit had drawn attention to arguments that the secrecy in device pricing has contributed to rising costs."

Having had some experience with third party interference with contract suits, I find mixing that kind of case with trade secrets very interesting. I wonder just what the hospitals were thinking and what their attorney are thinking now.

Contracts - Breach

Let's talk about contracts for a minute or more.

You spent time, energy, and money in negotiating the terms of the contract. Why? To make money, of course. The contract speaks of what each party is to do and what they get for doing these things.

The contract also sets out what will happen if there is a breakdown. The law calls that breakdown a breach of contract.

Perhaps lawyers expend too much energy worrying about breaches of contract but the fundamental idea behind a contract is to make the thing work. A breach means the thing did not work as planned. Besides litigation costs more money than the time spent in negotiating the contract.

Business contracts: What to do when a third party interferes with your contract?

X contracts with Y but before completing the contract Y starts doing business with Z. Can X do anything about this?

Under Indiana law, X may have a lawsuit for tortious interference with contract. Indiana law has five things that must be proven for a tortious interference with contract claim.

(1) the existence of a valid and enforceable contract;
(2) defendant's knowledge of the existence of the contract;
(3) defendant's intentional inducement of breach of the contract;
(4) the absence of justification; and
(5) resulting damages.

I assume for this post that X has a valid and enforceable contract, and I assume that Z knew of the contract between X and Y, and also assumed is X can show the financial harm satisfying the fifth requirement.

For inducement, think causation. That Z did something that which acted as the moving force that lead to Y breaching the contract with X. However, inducing is more than mere negligence.

Does this mean that competitors cannot compete? No. While the issue can be a close one in some cases, the lack of justification protects the idea of business competition. For justification the courts will look to the following: (a) the nature of the defendant's conduct; (b) the defendant's motive; (c) the interests of the plaintiff with which the defendant's conduct interferes; (d) the interests sought to be advanced by the defendant; (e) the social interests in protecting the freedom of action of the defendant and the contractual interests of the plaintiff; (f) the proximity or remoteness of the defendant's conduct to the interference; and (g) the relations between the parties. See Winkler v. V.G. Reed & Sons, 638 N.E.2d 1228, 1235 (Ind. 1994).

Related to this type of are the tort of intentional interference with a business relationship and interference with a prospective advantage. The principal difference between these kind of cases and tortious interference with contract is that the other types do not require a contract. I will write about these kind of cases another day.

If you have a possible tortious interference with contract case from Indiana and need to consult with an attorney, please feel free to contact me.

For those interested in reading more of my posts related to this post, you just need to click the links below and next to the word label for business law, consumer protection, and/or contracts.

Contracts - some pertinent ideas

What makes a better contract?

My short answer is the better contract lets everyone know what is expected of them and what they get for doing what is expected of them and what will happen if someone does not do what they are supposed to do.

Serendipity resulted in finding the following posts. I suggest them for those needing contracts written or writing contracts. They give a much fuller answer to what makes a better contract.

David Munn's Legaltech.com Blog has a post, Extreme Contract Simplification, but the following is key to the post (and has more information than available to non-members at the IACCM site) about Scottish & Newcastle's approach to contracts:

The S&N approach is radically different. Their approach is to start with the assumption that they can use a short and simple contract. If they can’t find a good reason not to use this approach, they try to develop a contract that is stripped of as many legal terms as possible—and those that remain are as simple and short as possible.

The post mentions S& N uses this method for supply agreements, trademark licenses, and international distribution agreements.

Then Ken Adams has a post on Contract Language and Layout—Ten Dos and Don’ts
distilled from a year of his posts on Adams Drafting. I think you will find that both posts preach the same sermon.

I agree with the approaches to contracts in the posts I cited but I also maintain that the clients (that is you, dear reader, if you are not a lawyer) are greatest hindrance to simplifying contracts. Clients expect legalese from lawyers, they will pay more for legalese, and between those two poles operate the lawyers. Fearing to lose clients because the contracts are in plain English and thus lose income, we bow to the client's desire for bulkier and bulkier contracts.

I would also say lawyer laziness contributes to the mess. Explaining to clients why legalese is not good does require more effort than merely cracking out the precedent and presenting the client with a finished product. However, inertia is probably a better word than laziness.

Speaking of legalese, I want to suggest The Party of the First Part blog which has its motto: Adventures in Legalese. It is fun and educational and seemed a good mention after all this dry grousing about contract terms.

Some thoughts on contracts and other legal documents

Reading this post from Adams Drafting I came upon this and it triggered some thoughts which I feel necessary to share:

It’s clear enough that eliminating archaisms such as WITNESSETH wouldn’t affect meaning. But what about eliminating the extraneous shall? Using shall outside of an obligation is sometimes just a distraction, as in This agreement shall be governed by the laws of the Province of Ontario—there’s no risk of the extranous shall affecting meaning. But it might be a different matter if you use shall when attempting to express a condition: as I discussed in this post and this post, it’s relatively commonplace for parties to dispute whether a given provision constitutes an obligation or a condition.

Too often I have found clients who think they are not getting their money's worth unless the contract or other document comes freighted with so many legalisms that the contract becomes unintelligible even to those drafting the document. Or I find myself confronted with a document written by a non-lawyer with the sort of language that would have overjoyed a lawyer from the era of wingtip collars and spats but does not give the protection or rights that the parties thought they were getting in the deal.

I came from law school when plain English was being touted as a great quality in legal writing. I try to educate my clients that a contracts needs above all to be intelligible to everyone and anyone who reads the documents. I am not always successful in my efforts. For the reason why I fail and why I think people still crave and pay for legalese, I think the answer can be found in this quote from David Hume:

...As these enemies are entirely invisible and unknown, the methods taken to appease them are equally unaccountable,° and consist in ceremonies, observances, mortifications, sacrifices, presents, or in any practice, however absurd or frivolous, which either folly or knavery recommends to a blind and terrified credulity.° Weakness, fear, melancholy, together with ignorance, are, therefore, the true sources of SUPERSTITION.

David Hume, OF SUPERSTITION AND ENTHUSIASM.

New: Grand Prix lawsuit dead

Something a little different, Indiana Law Blog reports the Seventh Circuit Court of Appeals affirmed the dismissal of the suit over the 2005 Indiana Grand Prix race. In the Indiana Law Blog quote from the AP story is this gem:

But Chief Judge Frank Easterbrook dismissed such claims in the 14-page ruling. The reduced race was allowable under F1 rules, he wrote, "and once it is established that the plaintiffs received a regulation race, they admit that they had no additional right to a race that was exciting or drivers that competed well."

In other words, you get what you paid for and be sure of what you contract for.

Legislating against non-compete agreements?

No, this is not about Indiana law. It is about Connecticut law. Employer's Law Blog blogs about this subject under the title The Proposed Demise of the Noncompete Agreement. The post mentions an exception for protecting trade secrets.

All this got me thinking about the effect of such a law in Indiana. Most of my cases involve franchisees or sales people, and those cases all involve trade secrets. I am really trying to figure out how it would affect the businesses I am most aware of and not having much success. From the litigation side of things, I think the cases intermixing trade secrets and non-compete agreements are the stronger and those not involving trade secrets are likely to fail. I see a greater effect on the drafting side of business - a shrinking of the business of drafting non-compete agreements.

I started research a British concept called garden leave but have had to take a break before getting very far into my research. Basically the concept is to pay the employee to stay at home for the balance of their employment contract. Without reading the Connecticut law (sorry but there are limits to my curiosity - mostly time), I think such a law would provide a market for garden leave provisions in employment contracts.

If anyone has any opinions, do go to the Comment link below as I would be interesting hearing them.

Relations with business clients - miscellaneous thoughts

I caught a profile of a Scots construction lawyer in last Sunday's Sunday Herald and I thought how lucky this lawyer was:

Her focus is not just on problem solving but on building long-term relationships with clients. She says this has led her into work on facilities management and PFI projects as her clients diversify into these fields.

Business clients here seem uninterested in anything but a one-off relationship. Yes, we may have a surplus of lawyers here but how many business people give their lawyers time to understand their businesses rather than just their kind of business?

Scotland has the same problems as Indiana - litigation costs money.

When she began to specialise in construction disputes in the late 1980s and early 1990s, the trend was for litigation, some of which dragged on for years, racking up enormous legal bills and involving bitter altercations. Now the trend is to avoid court and to seek resolution of disputes through an adjudication hearing presided over by an industry expert who normally delivers a verdict within eight weeks.

The impact of high-profile cases such as those involving Trafalgar House and Eurotunnel pushed the industry towards disaffection with the process of bringing a case to court, Patterson says. "No-one wins in that process. We're in a much better place today," she adds.

Similar solutions could apply here. For years I tried to get the attention of business clients by emphasizing preventive measures. No interest. Ever. I would be quite willing to credit this to a poor presentation but I know from my stint as in-house counsel that presentation has nothing to do with the lack of response. Businesses here prefer waiting for the axe to fall. I am assuming that times have changed enough to get businesspeople to listen. It may be - or so I hope - that I learned enough to better present the utility of preventive legal measures for businesses. If nothing else, it gives a sharper point to this blog.

Read what you sign

What if an employee alters a contract but no one catches the changes before the employer signs? From Workplace Management:

Laura R. Kreisler pleaded guilty last year to stealing more than $857,000 from Creative Consumer Concepts Inc., or C3, as it’s known in its hometown of Overland Park, Kansas. She was sentenced to seven years in prison.

Case closed? Not really. The embezzlement came to light about a month after she was fired in November 2004 for insubordination. When C3 fired her, the company offered to continue paying her salary for six months. She took the severance contract home and scanned it into her computer and added a provision that would allow her to keep the extra pay even if the firm sued her. Unaware that the contract had been altered, C3’s human resources manager signed it.

Employer got lucky in this case because the wrong person signed for the employer. Be careful what you sign is an old proverb made even more important with today's technology. While I am not so sure that employee would win every time, what business can afford the time and expense of a law suit? Always read before signing.

Another reason not to do your own contracts

Where do you file the lawsuit when the business relationship goes so bad that a lawsuit is the only solution? In your county? In the county where the defendant lives? What if the defendant lives out of state?

Indiana's Trial Rules use the term venue for the place for filing a lawsuit. Constitutional law and the Trial Rules define where to file a lawsuit against an out-of-state defendant.

However, the contract itself can say where any legal action can take place. If you are in business, think about the cost to you of traveling to appear in court. The contact should apportion that cost so that it does not become too much of a burden in protecting your business interests.

We call these provisions choice of law provisions. I had a call this morning from an Indianapolis business which had contracts with a Columbus, Ohio business and the Indiana firm was not getting its payments. No choice of law provision in its contracts. Why not? They wrote the contracts themselves. Now they must get an Ohio lawyer and they must go to Ohio to try the case. They do have a provision for attorney fees and court costs, but that does not cover their costs for going to Columbus, Ohio.

If you do business anywhere outside of your own county, your contracts need a choice of law provision. Check them and see if they have such a provision. If not, give me (or your attorney) a call to fix the problem

Contractors - do you know how to protect yourself from home improvement fraud?

Most contractors do not know how to protect themselves from Indiana's Home Improvement Fraud statutes. Most refuse to talk to an attorney for fear of the costs of legal services. Instead they may face civil and/or criminal penalties. I know Indiana contractors run on narrow margins. Having narrow margins does not mean that a contractor need be lumped into the category of fraudster.

I intend to follow up this post with more details for both contractors and the general public on home improvement fraud. However, let me illustrate the problem a bit more with these items I found with Google.

A forum posting from a person who appears to have been a contractor here:

Hi- I am looking for answers with legal questions; i used to own a business in indiana Construction--15 years--i am charged with theft--due to 2-downpayments for work not started. my company has unique circumstances and is out of business as of 1997 because i havent ben able to return the money paid to start these jobs the county or state says that i stole this money simply cause i did not return the money i am since then broke and still somehow will return this money but in the meantime they are prosecuting me and i am fighting this because i believe this is maliscious prosecution of a debt that i owe and the prosecuter has turned it criminal --according to the little info i have i read a brief that the fair debt practices act says this is malicious prosecution because this is a debt and therefore falls under a civil only collection practices --does anyone know where i may find an attourney to help my fight and any idea's would help--also is this just me selfishly justifying myself or does my argument make any sense to anyone else (many factors brought about this:whether/personal) please help me i pray for someone to help me make sense of it all --may jeses bless you'All Sincerly Stan

This headline from the Anderson Herald-Bulletin: Anderson firefighter arrested on home improvement fraud charges

Finally this from Indiana's Attorney General

FOR IMMEDIATE RELEASE
January 31, 2007

Court Orders Indianapolis Well Driller to Pay More than $265,000
Dee Hughes Entered into Home Improvement Contracts and Failed to Complete Jobs

INDIANAPOLIS, IN – Indiana Attorney General Steve Carter announced today that the Marion Superior Court has ordered Miliadee Hughes, also known as Dee Hughes, to pay more than $265,000 for entering into home improvement contracts and either failing to complete the jobs or doing no work at all. The judgment is the result of a lawsuit the attorney general filed against Hughes last November and includes refunds for 9 consumers.