Contract Law and Litigation
Rescission and Restitution
Andrew Kull, 61(2):569—588 (February 2006)
The high–visibility Winstar cases have drawn attention to restitution as an alternative remedy for breach of contract, while reflecting the prevailing confusion at the intersection of contract and restitution principles. Current drafts of the ALI's new Restatement Third, Restitution and Unjust Enrichment would resolve this confusion by taking a different approach to "restitution in a contractual context" from that taken by the Restatements of Contracts. The existing confusion stems from ambiguous terminology. Although "restitution" ordinarily refers to a liability based on unjust enrichment, the remedies for breach that are sometimes called "restitution" are not part of unjust enrichment law. Rather they are alternatives to expectation damages that have been called "restitution" because they aim at restoration instead of enforcement. Compounding the ambiguity, two different restorative remedies share the name "restitution." One is the remedy of rescission, allowing the injured party to unwind a partly–completed exchange. The other is a fall–back measure of damages, allowing a party that is unable to prove lost profits to recover either its net expenditures or the value of uncompensated benefits it has conferred.
Trademark Licensing in the Shadow of Bankruptcy
James M. Wilton and Andrew G. Devore, 68(3): 739-780 (July 2013)
When a business licenses a trademark, transactional lawyers regularly advise that if the trademark licensor files for bankruptcy, the licensee could be left without a right to use the mark and with only a bankruptcy claim for money damages against the licensor. Indeed, the ability of a trademark licensor to reject a trademark license and to limit a licensee’s remedies to a dischargeable claim for money damages has been a significant risk for licensees for twenty-five years based on the Fourth Circuit case, Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc. This result is grounded in the Bankruptcy Code prohibition on remedies of specific performance for non-debtor parties to rejected contracts and is in accord with Bankruptcy Code policy of affording debtors an opportunity to reorganize free of burdensome contracts. In the summer of 2012, however, the Seventh Circuit, in its decision Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC, held that a non-debtor trademark licensee retains rights to use licensed trademarks following rejection of the contract by the debtor-licensor. The decision, derived from a pre-Bankruptcy Code paradigm for understanding the rights of non-debtors under rejected executory contracts that convey interests in property, creates a circuit split over the implications of trademark license rejection. This article asserts that the Sunbeam Products case misconstrues the rights of a trademark licensee as a vested property right and is therefore incorrect under both the holding of the Lubrizol case and the pre-Bankruptcy Code paradigm on which the Sunbeam Products case relies.
That Pesky Little Thing Called Fraud: An Examination of Buyers’ Insistence Upon (and Sellers’ Too Ready Acceptance of ) Undefined “Fraud Carve-Outs” in Acquisition Agreements
Glenn D. West, 69(4): 1049-1080 (August 2014)
In those states that have a high regard for the sanctity of contract, a wellcrafted waiver of reliance provision can effectively eliminate the specter of a buyer’s post-closing fraud claim based upon alleged extra-contractual representations of the seller or its agents. But undefined “fraud carveouts” continue to find their way into acquisition agreements notwithstanding these otherwise well-crafted waiver of reliance provisions. An undefined fraud carve-out threatens to undermine not only the waiver of reliance provision, but also the contractual cap on indemnification that was otherwise stated to be the exclusive remedy for the representations and warranties that were set forth in the contract. Practitioners continue to exhibit a limited appreciation of the many meanings of the term “fraud” and the extent to which a generalized fraud carve-out can potentially expand the universe of claims and remedies that can be brought outside the remedies specifically bargained-for under the parties’ written agreement. Given the frequent insistence upon (and continued acceptance by many of) undefined fraud carve-outs, and recent court decisions that bring the undefined fraud carve-out issue into focus, this article will examine the various (and sometimes surprising) meanings of the term “fraud”, and the resulting danger of generalized fraud carveouts, and will propose some possible responses to the buyer who insists upon including the potentially problematic phrase “except in the case of fraud” as an exception to the exclusive remedy provision of an acquisition agreement.
An Overview of the General Counsel’s Decision Making on Dispute-Resolution Strategies in Complex Business Transactions
E. Norman Veasey and Grover C. Brown; 70(2): 407-436 (Spring 2015)
This Article is an overview of the hard choices that face a general counsel (GC) when weighing the pros and cons of whether and when a particular complex business dispute is better suited for litigation in the public courtroom or through a carefully constructed alternate dispute-resolution (ADR) process, including mediation and/or arbitration. Is either choice inherently more expensive, time consuming, or problematic than the other? The obvious answer is that each of these decisions is fact-intensive, dependent on myriad factors, and neither choice is “inherently” better or worse than the other.
We have focused exclusively on complex commercial disputes between businesses and we analyze the issues that would likely be considered by the GC and other corporate decision makers in choosing and navigating the route that provides the best opportunity for optimal results in resolving a domestic or international business dispute. These dispute resolution choices often must be faced in the negotiation of the terms of a business transaction, and thus before there is a dispute.
We explore the pros and cons of how the panoply of dispute-resolution mechanisms may play out down the road. In doing so, we are mindful of the complicated job of the GC in foreseeing at the negotiation stage how the optimal dispute-resolution process should be analyzed and drafted.
We have learned through our experience, current discussions with GCs, and the abundant literature on the subject that there are divergent views about the efficacy of domestic arbitration, in particular. We believe that the bad anecdotal experiences of some general counsel with arbitration should not pre-ordain a generally negative bias. Nor should good experiences dictate a generally positive bias. Like many questions, the common-sense answer is that “it depends.”
Consequential Damages Redux: An Updated Study of the Ubiquitous and Problematic “Excluded Losses” Provision in Private Company Acquisition Agreements
Glenn D. West; 70(4): 971-1006 (Fall 2015)
An “excluded losses” provision is standard fare as an exception to the scope of indemnification otherwise available for the seller’s breach of representations and warranties in private company acquisition agreements. Sellers’ counsel defend these provisions on the basis of their being “market” and necessary to protect sellers from unreasonable and extraordinary post-closing indemnification claims by buyers. Buyers’ counsel accept such provisions either without much thought or on the basis that the deal dynamics are such that they have little choice but to accept these provisions, notwithstanding serious questions about whether such provisions effectively eviscerate the very benefits of the indemnification (with the negotiated caps and deductibles) otherwise bargained for by buyers. For buyers’ counsel who have given little thought to (or who need better responses to the insistent sellers’ counsel regarding) the potential impact of the exclusion from indemnifiable losses of “consequential” or “special” damages, “diminution in value,” “incidental” damages, “multiples of earnings,” “lost profits,” and the like, this article is intended to update and supplement (from a practitioner’s perspective) the legal scholarship on these various types of damages in the specific context of the indemnification provisions of private company acquisition agreements.
The Medicare Provider Agreement: Is It a Contract or Not? And Why Does Anyone Care?
Samuel R. Maizel and Jody A. Bedenbaugh, 71(4): 1207-1240 (Fall 2016)
The article first considers the conflicting positions taken by the United States Government regarding whether the Medicare Provider Agreement is an executory contract in and outside of bankruptcy court. It examines whether the Government’s positions can be reconciled, and if the Government should be barred by preclusion and estoppel principles from asserting in bankruptcy court that a Provider Agreement is an executory contract. The article then discusses whether the Provider Agreement should be treated as an executory contract in bankruptcy, and the implications of such treatment on a bankrupt provider’s ability to transfer its Provider Agreement to a purchaser under the Bankruptcy Code and related issues, such as the Government’s setoff and recoupment rights and successor liability.
Human Rights Protections in International Supply Chains - Protecting Workers and Managing Company Risk
David V. Snyder and Susan A. Maslow, 73(4) 1093-1106 (Fall 2018)
Interpreting and Drafting Efforts Provisions: From Unreason to Reason
Kenneth A. Adams, 74(3) 677-722 (Summer 2019)
Contracts often feature efforts standards—best efforts, reasonable efforts, and other variants. In the United States, England, and Canada, many who work with contracts accept the idea of a hierarchy of efforts standards, with some imposing obligations that are more onerous than others. With minor exceptions, U.S. courts have rejected the idea, whereas courts in England and Canada have accepted it. But no one has coherently explained their position. This article demonstrates that a hierarchy of efforts provisions is unworkable, for three reasons. First, imposing an obligation to act more than reasonably is unreasonable. Second, requiring that a contract party act more than reasonably creates too much uncertainty as to what level of effort is required. And third, legalistic meanings attributed to efforts standards conflict with colloquial English. Furthermore, rationales offered to validate the idea of a hierarchy of efforts standards fall short. This article proposes how courts should interpret efforts provisions. Specifically, they should ignore the conventional wisdom that a best efforts obligation is more onerous than a reasonable efforts obligation. This article also recommends how drafters can take control of efforts provisions. It proposes a simple and unobtrusive fix—use only reasonable efforts and structure efforts provisions to minimize the vagueness.
Through the Decades: The Development of Business Courts in the United States of America
Lee Applebaum, Mitchell Bach, Eric Milby, and Richard L. Renck, 75(3): 2053-2076 (Summer 2020)
This article interprets the meaning of the term “business court” as it has developed through the variety of implementations and describes the successful development, and occasional failure, of those courts across the country.
Essay: The ABA’s Contribution to the Development of Business Courts in the United States
Christopher P. Yates, 75(3): 2077-2084 (Summer 2020)
More than a quarter-century ago, the ABA Business Law Section made a commitment to the development of business courts across the United States. From the formation of its Ad Hoc Committee on Business Courts in 1994 through the engagement with state officials and business-court judges for more than two decades, the Section has become a driving force behind the adoption and refinement of the business-court concept by an overwhelming majority of the states. In this article, the innovators and champions of business courts who took up the cause on behalf of the Section tell the story of how the Section played a central role in the success of business-court initiatives and how the Section works diligently today to maintain and build upon that success.