Tag: contract

Get Closer With Your Contracts During the COVID-19 Pandemic

Contracts with customers, vendors, or other parties are a normal part of doing business.  Most businesses are party to numerous contracts and although it may seem that contracts are fairly standard documents, the reality is that each individual document is its own legally binding arrangement.  The parties to contracts often customize the arrangements to suit the particular business conditions or economics of the relationship.

Most businesses neither fuss over nor spend a lot of time on the contract provisions that allocate risk between the parties (outside of the major issues of payment and performance).  During extraordinary times, such as the current COVID-19 pandemic, business owners may not realize that the “roadmap” to their relationships with their business partners is usually in the often unread details of their business contracts.

Just as the Federal Emergency Management Agency (FEMA) provides guidance to prepare individuals, families and their households for natural disasters or political unrest, a well-prepared business owner has created a plan of their own for how their business will respond to unforeseen situations.  Understanding how a business might be impacted by the contracts they are party to should be part of that planning.  Even now, as we continue to face uncertainty as to when businesses will fully reopen as the pandemic begins to recede, it is not too late to assess how this may impact your contractual relationships.

Here are ideas and important things to keep in mind while reviewing your contracts:

  • Take stock of your most important contracts. Where are they located?  Are they easily accessible?  When was the last time they were reviewed?  Are you readily familiar with the provisions in each?  Now is a perfect time to organize those contracts into a system that allows those in your organization to quickly refer to them as needed.
  • Pay special attention to contracts with customers or vendors which are or may be impacted the most heavily by the economic uncertainty surrounding the COVID-19 pandemic.
  • Several remedies are available to contracting parties to enable them to excuse performance or protect themselves in a situation such as an epidemic, civil unrest or natural disaster. The “force majeure” clause is a well-known provision included in many contracts that excuses performance during certain unforeseen and highly adverse situations.  Included in the definition of force majeure is often a laundry list of events where a party’s performance obligation is excused.  I am seeing more efforts by parties in recent draft contracts to specifically exclude pandemics such as COVID-19 from the scope of force majeure, just as contracts written after the September 11, 2001 terrorist attack often specifically excluded terrorist events.  However, most force majeure clauses have a specific exclusion regarding payment obligations, which require the paying party to make payment to the other party regardless of the occurrence of a force majeure event.  It is important to review your contract to determine which contain force majeure clauses and under what particular circumstance a party is excused from performance.  If you are currently negotiating a contract, pay particular attention to the force majeure clause and how that may affect future unforeseen circumstances.
  • Rights of termination and damages for breach are often clearly spelled out in contracts. Be familiar with those triggering events and any provisions providing for damages, including liquidated damages.  Keep in mind that the normal business of the state court system has also been affected by this pandemic, so your ability to obtain relief or damages will be limited or delayed for the foreseeable future.  In light of that, alternative dispute resolution (such as mediation or arbitration), if permitted under the contract or as the parties otherwise agree, may be your best bet to get a prompt resolution.
  • Be careful about entering into any course of business that deviates from the written terms of the contract. This comes into play in two areas in particular.  First, if the parties agree to or engage in a course of practice that deviates from the written terms of the contract, it may be difficult for a party moving forward to enforce terms of the contract as written following that deviation.  The second scenario includes one of the parties waiving their right(s) in the contract (usually for a reason that makes good business sense in the current state of affairs).  Businesses will want to make sure that any departure from the written contract during the current pandemic, or otherwise, does not become the “new normal” and undercut important legal rights within their contract.
  • If the contract is silent on a particular aspect, the answer can often be found in statutory law. The Uniform Commercial Code (the “UCC”) provides “standard” rules for purchases and sales, leases, and other transactions.

Keep in mind that there is no requirement that a contract that is not beneficial to either or all parties be rigidly adhered to if the parties are willing to amend the contract or enter into a new contract altogether.  The key to staying afloat or even thriving in business in general, but especially during extraordinary times such as these, is flexibility and willingness to adapt.  Remember that contracts which have been altered to account for an event such as the COVID-19 pandemic may not be as sound once the economy bounces back, so do some mental visioning about where your business needs to be when returning to “business as usual” so that your contracts put you where you want to be.

If you have any concerns with how your contracts are being interpreted or administered during the COVID-19 pandemic, an attorney can be an important resource to prevent loss and ensure the continuing health of your business.

© 2020 Davis|Kuelthau, s.c. All Rights Reserved

Three Real Estate Contract Questions to Consider Now

Whether you hold an interest in an industrial, commercial, retail, residential asset class; whether you are an owner, buyer, seller, landlord and/or tenant, lender or borrower, property manager, or homeowner; and whether your real estate is business or personal, there is a need to address COVID-19’s immediate impact on real estate agreements.

Generally, real estate agreements reflect the business climate and risk assessments at the time the contracts were made. In negotiating, executing, and performing their contracts, parties relied on their relationships with the parties on the other side of the transaction. However, when an unforeseeable or disruptive event occurs, parties must look back at their agreements and reassess their standing, rights, remedies, recourse, and relationships.

Now is the time to check on provisions of your real estate contracts. Below are three common questions you may be asking:

1. Which provisions of a real estate purchase and sale contract, lease, or loan document might offer protections or provide guidance at this time?

The following is a sample list of applicable contract provisions:

  • Force Majeure/Acts of God – Force majeure and other provisions in real estate documents that address the parties’ rights and obligations if events occur beyond their control. Some may cover national emergencies and governmental orders.

  • Defaults – Define which actions or inactions will result in a default under the relevant document and whether the defaulting party has any right to notice and an opportunity to cure.

  • Taking – What happens when all or some material right to utilize your real estate asset has been taken away or restricted in a way that diminishes the property value or prevents you from utilizing it for your intended purposes.

  • Access – Property owners will often have certain rights to enter and inspect leased premises and may have the right to restrict access. Purchasers and sellers of a property may have ongoing rights or obligations to allow access to properties to complete due diligence. These provisions may or may not address how circumstances may change in exigent circumstances.

  • Covenant of Quiet Enjoyment – The covenant of quiet enjoyment provides tenants with the assurance they will be able to peaceably use and enjoy their leased premises. These provisions may or may not specifically address a situation where a landlord voluntarily or involuntarily restricts access to the property.

  • Maintenance – Leases allocate maintenance and repair obligations, including but not limited to cleaning. Purchase and sale contracts may contain obligations of various parties on how the owner or operator must maintain the property through closing. These provisions may or may not address who pays or the additional costs of implementation of precautionary measures.

  • Payment Obligations – Payment and closing obligations are often excluded from a force majeure clause with specific clauses that provide that time is of the essence or require payment, despite any other provision that would excuse it.

  • Notice and Cure Periods – Leases, purchase contracts, and loan documents are often very specific about the required protocols for tendering notices, which then trigger specific cure periods. Failure to give or receive proper notice might impact deadlines for cure or performance and termination rights. Cure periods may be extended as a result of the inability to perform or governmental mandates.

  • Environmental – Environmental clauses in contracts may provide additional options.

  • Remedies – Real estate agreements often provide stringent remedies for nonperformance and default. Available remedies should be analyzed in the context of the overall climate in the courts and marketplace. Different parties may be able to avail themselves of certain defenses. Essential businesses may be entitled to certain protections at law and equity. Remedy rights may be expanded or contracted temporarily by governmental entities at the municipal, state, and federal level.

  • Duty to Notify – Parties may have an express or implied duty to notify other occupants of employees, agents, and/or visitors who have been diagnosed or are experiencing symptoms of the virus and were present at the property.

  • Performance, Contingency, and Delivery Periods – Contracts related to real estate may have performance, contingency, or delivery periods. Those dates (often expressed as a number of “days” or “business days”) should be carefully reviewed to determine whether voluntary or mandatory building closures affect the number of “days” or “business days” allowed for performance. Governmental mandates might offer tolling or temporary waivers of obligations.

  • Operating Covenants – Sellers of businesses and real estate or tenants may have obligations to keep operations going or risk default. Check contracts for provisions which require “continuous operation.” Parties may or may not have the right to close buildings, cease services, or implement security or screening measures. Some contracts may require notices of material change to representations and warranties, valuations or business operations.

  • Abatement/Self Help – Agreements may provide abatement rights or self-help rights for missed delivery dates or failed obligations on the part of the other party. It is possible that governmental actions, force majeure, and common law doctrines might already or soon will provide protections or require reasonable extensions.

  • General Deadlines for Performance and Termination/Extension Rights – Carefully watch dates and deadlines in contracts. Extension and termination rights are often narrowly construed, especially where there is a “time of the essence clause.” Some deadlines may allow for tolling in the event of a force majeure, but others may not.

2. What else should purchase and sale, lease, or loan parties consider as we all move forward from this point?

The following are some additional considerations:

  • Reliance on Third Party Providers – Not all third party providers whose services are necessary to perform obligations under a transaction will be classified as essential workers. Governmental orders may prohibit or allow such parties to provide services or restrict the providers to provide services remotely. Check the applicable and evolving ordinances and contact the providers directly to determine if services are available remotely. Assess how deadlines (including, but not limited to, filing deadlines, IRS Section 1031 deadlines, due diligence deadlines for inspections, title, and survey) may be impacted.

  • Electronic Signatures and Notarization – Some states have adopted legislation related to electronic signing and notarization procedures. Not all jurisdictions and providers have equivalent technology available at this time.

  • Recording Office Delays – Buyers, sellers, lenders, and borrowers are reminded that there will likely be delays in conducting recordings. Local recording offices may not be open for business or may experience a backlog. Electronic recording is available in some, but not all, jurisdictions.

  • Closings – Check with the title company on whether electronic signatures, electronic notarization, insurance over the gap period between closing, and electronic recordings are available during periods where there might be restrictions on face-to-face closings. There are fluid situations where maintaining a physical office may not be permitted. For example, the governors of California, Pennsylvania, New York, and Illinois have issued “stay at home” orders for residents in those states and restrictions on businesses. Discuss contingency plans if title companies and lenders are not able to fund on time. Essential service providers will be stressed, and electronic transfers of funds can be delayed.

  • Insurance Coverages – Do the parties have coverages for economic losses, including business interruption/business income and loss of rents? Are there any issues that are covered by commercial general liability insurance? Most standard form insurance policies will not provide business interruption/business income insurance coverage for forced/voluntary shuts down caused by pandemics, but the parties should carefully review all of their insurance policies with their risk management teams to see whether the relevant policies are non-standard forms that do include such coverage.

  • Evolving Federal, State, Municipal laws, Ordinances, and Doctrines – New laws and ordinances will result from the most immediate public needs and will continue to evolve as contract provisions are interpreted differently by different parties whose interests differ. Our Coronavirus Task Force has analyzed several legislative updates including this one on the Families First Coronavirus Response Act.

3. From a practical perspective, where should I start?

Discuss your specific situation with your attorney. Apply good business judgment. Everyone is suffering through this together. It is important to understand the applicable contract documents and assess your relationship with your transaction parties. Courts and Congress may end up taking unusual positions and taking protective steps in the coming months to avoid recession, flatten the curve, and share the loss in ways that today’s contracts might not have contemplated.

© 2020 Schiff Hardin LLP

Esports Star Tfue Sues To Void His Contract With FaZe Clan

Fortnite player Turner Tenney, professionally known as “Tfue,” has sued to void his contract with Esports team, FaZe Clan, Inc. Tfue’s action, filed in Los Angeles Superior Court, alleges that the terms of the contract he signed to play for FaZe Clan’s Fortnite team are grossly oppressive, onerous, and one-sided and in violation of California law. His action could have a significant impact on the Esports industry and the players who participate in Esports as professional gamers.

Recognized as one of the world’s best Fortnite players, Tfue entered in an agreement with FaZe in April 2018.

The Complaint alleges that Tfue did not understand the terms of the agreement he signed and that he was exploited by FaZe. It further alleges that FaZe breached its fiduciary duty of loyalty by failing to share profits with him as mandated by the terms of his agreement and by rejecting a sponsorship deal and acting against his best interests. In addition,

Tfue alleges multiple violations of California law, including Section 16600 of the California Business and Professions Code, Section 17200 of the California Business and Professions Code, and California’s Talent Agency Act.

The contract refers to Tfue as an independent contractor. It mandates that he play in tournaments and training sessions, perform three days a month of publicity and promotional services, and participate in the company’s social media campaigns. In addition, Tfue is required to wear clothing bearing FaZe logos and identification, as well as items associated with specific FaZe Clan sponsors.

In exchange for an initial monthly base pay of $2,000 for the first six months of the contract, FaZe had an option to extend its deal with Tfue for an additional three-year period (which the company exercised) and unilaterally increase or decrease his monthly by 25%. The agreement also entitles Tfue to 80% of cash prizes earned from playing in Fortnite tournaments and an equal split with FaZe Clan of income earned from in-game merchandise, appearances, and touring and sign-up bonuses. The agreement also provides finder’s fees for brand deals that feature Tfue that can result in as much as 80% of the deal being retained by FaZe. The contract also limit Tfue’s ability to sign with another esports company at the end of his contract in 2021.

Tfue also seeks repayment of his sponsorship, fees, and commissions, as well as additional compensatory damages and punitive damages. In addition, he seeks to enjoin FaZe Clan’s ongoing alleged violations of California law.

It is probable that the court venue will be challenged. The agreement between FaZe and Tfue contains a choice-of-law provision, which provides that the agreement “shall be governed and construed in accordance with the laws of the State of New York” and the parties “submit exclusively to the state or federal courts in New York, NY for any claim” arising from the contract.

This suit will be watched closely by the industry. The lack of industry regulation and unified structure, employment law issues appear ripe for litigation. Esports team owners should ensure their contracts with players comply with federal and state employment laws and the contract language clearly defines sponsorships and endorsements, compensation, arbitration clauses, hours of service, health insurance, non-competition, and anticipated event participation.

Jackson Lewis P.C. © 2019
More in video gaming legal concerns on the National Law Review Entertainment, Art & Sports page.

In This “Unreliable” Opinion, California Court Requires Privity For Action Against Unlicensed Broker-Dealer

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Since California Corporations Code Section 25501.5 was enacted ten years ago, I’ve been repeatedly asked “What do it mean?“.  The statute provides that a person who purchases a security from, or sells a security to, an unlicensed broker-dealer may bring an action for rescission of the sale or purchase or, if the plaintiff or the defendant no longer owns the security, for damages.  The question has always been whether the statute requires privity of contract.

Now, there is a judicial answer; just not one that can be relied upon (more about that below).  In Alpinieri v. Tgg Mgmt. Co., 2014 Cal. App. Unpub. LEXIS 3177 (Cal. App. 4th Dist. May 5, 2014), the Fourth District Court of Appeal concluded:

The Legislature’s use of the commonplace phrases “purchases a security from” and “sells a security to” demonstrates it intended a civil action for rescission or damages under section 25501.5 be available only to a person who transacts directly with an unlicensed broker-dealer, that is, who is in privity with that unlicensed broker-dealer.  We see no indication in section 25501.5′s language any intent other than to restrict a claim for rescission or damages against one who is directly responsible for violating the statute by virtue of selling the security.  Because no contrary legislative intent appears in the statute, there is no basis to disregard literal construction.

(citation omitted).  The Court distinguished two other decisions involving the privity requirement under the Corporate Securities Law of 1968, Moss v. Kroner, 197 Cal. App. 4th 860 (2011) and Viterbi v. Wasserman, 191 Cal. App. 4th 927 (2011), on the basis that those cases did not involve Section 25501.5.

Why is this an “unreliable” holding?  The opinion, which was penned by Associate Justice Terry B. O’Rourke, was not certified for publication.  Under Rule 8.115(a) of the California Rules of Court, an unpublished opinion, with certain exceptions ”must not be cited or relied on by a court or a party in any other action”.

Article By:

Keith Paul Bishop
Of: 
Allen Matkins Leck Gamble Mallory & Natsis LLP

Beware the Boilerplate: Waiver Provisions

Linda R. Stahl of Andrews Kurth LLP recently had a series of articles regarding Boilerplate Contracts published in The National Law Review start reading the series here:
Andrews Kurth

What is a waiver?

Loan documents (generally the note, security instrument and guaranty) often contain waiver provisions. Some common waivers are indemnity provisions, waiver of the right to jury trial, waiver of defenses and waiver of notice. While parties seeking waivers might favor sneaking such provisions into the document, this can often backfire—and it is sure to for the waivers litigants care about most.

A “waiver” is the relinquishment of a right that is both (1) knowing and (2) voluntary. One way to help your lawyer show that a waiver in a contract is both knowing and voluntary is to make it conspicuous in the document.

How do I make a waiver conspicuous?

Simply put, a conspicuous waiver is one that jumps out at you. Use of ALL CAPS, contrasting type or color, for example, qualifies as conspicuous. Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 511 (Tex.1993). The most common, and probably best practice, is to make a provision conspicuous by setting it apart in bold, all-cap letters. E.g. In re Gen. Elec. Capital Corp., 203 S.W.3d 314, 316 (Tex. 2006) (orig. proceeding) (recognizing that contractual jury waiver provision that was “conspicuous”—because it was in bolded font and in all capital letters—met burden of party seeking to enforce provision to make prima facie showing that waiver was knowing and voluntary). Using a heading in addition that specifically states “waiver of jury trial” or “waiver of defenses” enhances conspicuousness and makes waiver provisions easier to defend.

Why is conspicuousness so important?

A conspicuous waiver is presumed to be knowing and voluntary, which shifts the burden to the other party to negate the presumption. Coupled with the general legal principle that persons are charged with knowledge of the contracts they sign and cannot use failure to read as a defense, In re Lyon Fin. Services, Inc., 257 S.W.3d 228, 232-33 (Tex. 2008), conspicuous waivers can be hard to beat.

More importantly, in the case of “extraordinary” risk-shifting waivers (you can read that as “waivers lenders should care about most”), conspicuousness is required. Examples of extraordinary waivers are indemnity agreements, agreements to release another in advance from liability for the other’s negligence, and waivers of jury trial.  See Littlefield v. Schaefer, 955 S.W.2d 272, 273 (Tex.1997); Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex.1993); In re Bank of Am., 278 S.W.342 (Tex. 2009).

Bottom line

Extraordinary or not, every waiver could benefit from being conspicuous.

Read the rest of the series:

Beware the Boilerplate:  Issue One

Beware the Boilerplate:  Issue Two

Beware the Boilerplate:  Issue Three

© 2013 Andrews Kurth LLP