In the hustle and bustle of commercial and business litigation, clients expect attorneys to work accurately, quickly, and cost efficiently. To meet these expectations, attorneys have a large tool-bag to pull from: experience, prior pleadings, forms, and templates. Careful use of these resources can significantly reduce attorney fees for clients. After all, why reinvent the wheel each case? However, over-reliance can lead to mistakes and potential liability—particularly in the use of broad and boilerplate language.
Consider this: Your client has made a career as an employee and minority shareholder with a computer component manufacturing company, producing individual parts such as hard drives, circuit boards, etc. The scope of the manufacturing operation is limited to the production and distribution of the raw components. After some time, the client decides to sell his interests and start a new company assembling entire computer systems; in other words, put together all the component parts into a functioning product.
As reasonably expected, before agreeing to a purchase of the minority interest, the manufacturing company demands a non-competition clause as part of the exit agreement. Using prior agreements, boilerplate language, and templates as a guide, the parties incorporate the following language:
[Client] shall not solicit, induce, influence or attempting to solicit, induce, or influence any customer or client of the company or otherwise divert or attempt to divert from the company any business whatsoever or interfere with any business relationship between the company and any person.
Given that the client is interested in starting up a computer assembly company involving an entirely different aspect of the computer manufacturing industry, the language was acceptable. Thus, after selling the interest, the client moves on to develop a successful company, occasionally relying on old manufacturing contacts for assembly work.
Not long after the agreement was entered, the manufacturing company sees a business opportunity and elects to expand its operation into the assembly field. The company now claims that, because it has entered the assembly industry, the client is in violation of the broad language of the non-competition agreement (i.e., the “any customer” or “any business whatsoever” language). The client disagrees and a lawsuit is filed alleging breach of the non-competition agreement. What follows is lengthy and contested litigation over the intent and scope of the agreement, rules of contract construction, limitations on non-competition agreements, and tens of thousands of dollars in legal fees. Final outcome aside, the client has suffered a severe setback to his growing company.
At first glance, what seemed a relatively straightforward non-compete agreement illustrates a much larger point: awareness of the implications of each word, phrase, and paragraph in an agreement. It is a familiar pitfall when using old documents, particularly when a client is on a budget. It comes as no surprise that recycled documents can open the door to unexpected legal challenges.
When preparing non-competition agreements, it is certainly reasonable to look to prior pleadings, forms, or templates for guidance. Many states, bar associations, and other entities have wonderful databases as a starting point. However, simply “plugging and chugging” is insufficient to represent and protect a client’s interests. Failing to consider the details and nuances of a particular case can lead to significant headaches down the line (and, potentially, legal and ethical liability—think ABA Model Rule 1.1: Competence).
Over-reliance on recycled and boilerplate language is not limited to non-competition language. Broad form purchase orders, construction agreements, or other agreements can open the door to unwanted litigation. Even other areas of law are subject to these pitfalls (think reusing old divorce or custody orders). Before signing off on an any contract, take care to consider the following: What language in this agreement could result in litigation? Can any of these issues be resolved with more careful drafting? A yes to either of these questions will save you—and your client—time, money, and frustration.