Monday, May 25, 2009
If you want to know more about mediation, a new three-part podcast series on mediation is available on the Chorey, Taylor & Feil website, at www.ctflegal/podcasts.html or on the firm's page on the Blip TV site, http://www.ctflegal.blip.tv/. The series includes an introduction to mediation that contrasts the civil litigation system to mediation. The second podcast provides a detailed explanation of how the mediation process works. The third podcast discusses how to pick the right mediator for a particular dispute.
The podcasts include a few fairly strong opinions, which are mine, and which have developed over time. I have been involved in representing parties in mediation for about twenty years (mediation came into widespread use in a Georgia a few years after I began practicing law). One of my early bosses and mentors, Jack Watson, chaired the Georgia Commission on Alternative Dispute Resolution at the time. Through Jack's prodding, all of us who were then in the litigation department at Long, Aldridge & Norman (now McKenna Long & Aldridge) got a good dose of exposure to mediation and mediation training, whether we wanted to or not!
Early on, I was very skeptical of mediation. It seemed to me to be just another step inserted into the civil litigation process, and, frankly, just an excuse for lawyers or retired judges to make money. After all, good lawyers settled cases anyway, so why would anyone need a mediator?
Some of my early experiences in mediation validated my initial point of view. I remember one painful mediation involving a much older lawyer acting as a mediator. All he did, in a somewhat whiny voice, was to point out the expense of litigation and to say, "A bad settlement is better than a good lawsuit." This particular mediation was a totally worthless experience. (For the record, I do not see why you ought to take a bad settlement if you have a good lawsuit. The goal of mediaiton should be a fair settlement).
At some point, however, I was exposed to really good mediators, such as Abe Ordover of the now-defunct Resolution Resources Corporation. Abe had a truly magical touch as a mediator. I saw him and other good mediators, such as Marty Ellin, help resolve cases that were difficult to settle, and that, in some instances, seemed "unsettleable." Unfortunately, at least for those of us who need good mediators in Atlanta, Abe moved to San Diego several years ago. Abe is now running an art gallery (Abe is an extremely talented photographer in his own right).
Not being completely set in my ways, early views of mediation changed drastically, and I became and remain a great proponent of the process. In my last ten to twelve years at McKenna Long & Aldridge, a great deal of my practice involved cases outside of Georgia. These cases ranged from fairly routine business litigation matters to huge cases involving many parties and lots of exposure. This experience gave me an opportunity to see mediators from other parts of the country, including a few of the more nationally known "rock stars" in mediation.
Although the experience was great, and McKenna was (and is) a great firm, the travel was not so great. When I left McKenna in 2007, ultimately having the good fortune of joining Chorey Taylor & Feil, my practice returned to being, in general, more local in nature. I felt it was a good opportunity to try to share my knowledge of mediation. As a result, I became a registered mediator with the Georgia Office of Dispute Resolution, and also started a mediation website, http://www.watkinsmediation.com/, which contains articles with my thoughts on mediation. Most of the content on the watkinsmediation site is also available on the CTF website at http://www.ctflegal.com/mediation.html. Just click the links on the bottom of the page for articles on basic mediation and advanced mediation. I hope the podcast series will also provide valuable information.
When I announced I was available to act as a mediator, many of my colleagues in the legal community apparently thought I was retiring from practicing law. That is most definitely not the case, and the vast majority of my time is spent practicing law. However, I have found that crusty old litigators tend to make great part time mediators. Although I do not feel old, and I hope I'm not "crusty," I am available, through Chorey, Taylor & Feil, to act as a mediator. My colleague, Celeste McCollough, is also a registered mediator and is available to mediate through the firm.
The firm has excellent facilities for mediation, and we do not charge an administrative fee.
Saturday, May 23, 2009
By John L. Watkins
When I was in law school, now quite a few years ago, we were taught that a complaint filed under the Federal Rules of Civil Procedure had to meet a very low threshold to survive a motion to dismiss. The allegations of the complaint were to be taken as true, and the complaint was to be dismissed only if it could not state a claim for relief under any circumstances that might reasonably be imagined.
We were also taught that the Federal Rules were in derogation of the former system of "code pleading," in which a plaintiff had to set forth the allegations of the complaint or petition with great specificity. Code pleading allowed the defendant to challenge the complaint through general and special "demurrers." There are probably not many lawyers, at least those who practice in states where the state civil procedure rule are modeled after the Federal Rules, who can even tell you what a demurrer is with any specificity.
Nevertheless, the gist of what we were taught was that code pleading was essentially unfair, because it resulted in many cases being thrown out of court at the outset -- some potentially meritorious -- due the the failure to plead the right "magic words." The "enlightened" Federal Rules, in contrast, were designed to make sure that cases were decided on the merits and without regard to technicalities. Hence, all but the most general or manifestly insufficient complaints would "state a claim" and survive a motion to dismiss.
Georgia's procedural rules were changed many years ago, well before I started practicing, to mirror the Federal Rules. Nevertheless, when I started practicing at the Hansell & Post firm (now Jones, Day's Atlanta office), there were still some old dogs (one in particular), who lamented the passing of the general and special demurrer. I remember a comment along the lines of, "They let them [plaintiffs] get by with anything these days."
Well, my old colleague and mentor would probably be pleased about the United States Supreme Court's decision this past week in Ashcroft v. Iqbal (No. 07-1015, May 18, 2009). The Ashcroft case was about whether a Pakistani citizen could maintain a civil action against former Attorney General John Ashcroft and former FBI Director Robert Mueller for violation of the plaintiff's civil rights in the aftermath of the 9/11 attacks. However, the opinion has a much broader application, because the Supreme Court clarified the standards applicable for pleading a valid cause of action under Federal Rule of Civil Procedure 8 in all civil cases in federal court. Some would argue that the Supreme Court's opinion represents a trip "back to the future" because it establishes rules somewhat reminiscent of what we were taught years ago about code pleading.
In Ashcroft, the district court and the Second Circuit Court of Appeals ruled that the plaintiff had adequately pled a cause of action. Based on the allegations of the complaint that are repeated in the Supreme Court's opinion, it certainly appears that the complaint was pled with at least a typical degree of specificity. However, the Supreme Court disagreed, ruling 5-4 that the complaint was not adequately pled under Federal Rule 8. Somewhat typically, Justice Kennedy represented the swing vote, and he also wrote the majority opinion.
The significance of the Court's decision goes far beyond its particular facts. Much of the Court's discussion of the pleading requirements, is based on its recent prior decision in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). Twombly established stricter fact-based pleading requirements for antitrust cases.
Ashcroft, however, makes explicitly clear that the pleading requirements specified in Twombly, and amplified in Ashcroft itself, apply generally to Federal Rule 8, and hence to all civil cases filed in federal court.
To state a claim for relief, the Court stated that a complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is "plausible on its face." The requirement is not a "probability" requirement, but requires enough for a district court to conclude there is more than a "sheer possibility" that the defendant has violated the law. Complaints that plead facts that are "merely consistent with" liability fall short. Complaints that contain well-pleaded facts that only show the possibility of misconduct will not survive a motion to dismiss, because they do not show that the pleader is entitled to relief, as provided in Rule 8.
The Court also makes clear that pleading legal conclusions, or "threadbare recitals of a cause of action" supported by conclusory statements are insufficient. Further, the district court is not bound to accept as true a legal conclusion couched as a factual allegation. Although repeating the familiar mantra that Rule 8 is a significant departure from code pleading, the court cautioned that it "does not unlock the doors of discovery" to plaintiffs armed with only conclusory allegations.
Turning to the specifics of the Complaint, the Court found certain allegations to fail because they were merely a conclusory recitation of the elements of a cause of action. The Court made clear that these allegations were disregarded not because they were "extravagantly fanciful," but simply because they were conclusory.
The Court then considered allegations that the defendants subjected plaintiffs and others to detention because of their race, religion and national origin. The Court found these allegations consistent with purposeful illegal conduct. However, the Court found these allegations not sufficient because "given more likely explanations, they do not plausibly establish this purpose." Specifically, the Court found that, because the September 11 attacks were committed by members of Al Qaeda, it was no surprise that the efforts of law enforcement had a disparate, incidental impact on "Arab Muslims," even though the purpose of the policy was probably not to target Arabs or Muslims. Thus, the arrests overseen by Mueller were likely based on a non-discriminatory intent to detain aliens illegally present in the United States who had a connection to those who committed terrorist acts. Given this alternative explanation, a discriminatory intent was not a "plausible conclusion."
As previously noted, the Court also rejected the argument that Twombly only applied to antitrust cases, and held that the rules applied to all civil cases under Rule 8. The Court also rejected the argument that the district court's ability to limit and supervise discovery should excuse meeting stricter pleading requirements. Finally, the Court rejected an argument that Rule 9 allowed the plaintiff to allege discriminatory intent generally. The Court held that, although intent does not have to meet the heightened requirements of pleading fraud with particularity, as provided under Rule 9(b), the plaintiff must still plead intent consistent with the requirements of Rule 8, as they are set forth in the opinion. Rule 8, in turn, does not permit the pleading of the bare allegations of a cause of action to survive a motion to dismiss.
The practical significance of the Ashcroft decision remains to be seen. I can say, however, that it sure seems different than the rules that have applied for many years. Ashcroft applies a much greater level of scrutiny regarding the sufficiency of the allegations of a complaint than I am used to seeing. The way in which the Court considered an alternative explanation and weighed the plausibility of the allegations against the alternative explanation is like nothing I have seen in the district courts. Parenthetically, there seems to be more than a smattering of inconsistency in reasoning holding that well-pled allegations must be accepted as true, but then weighed for plausibility. In addition to this difference of approach, which will almost certainly be Ashcroft's primary legacy, here are my best guesses regarding the likely effects of the opinion:
- Plaintiffs will file more detailed and fact-specific complaints. No one will want to take the risk of "notice pleading."
- Defendants in federal court will be much more likely to file a motion to dismiss to challenge the sufficiency of a complaint. Because of the increased possibility of securing a dismissal and avoiding the expense and hassle of discovery, there is little incentive not to do so. The cost/benefit analysis (weighing the certain cost of filing a motion vs. the potential benefit) has substantially shifted.
- More motions will mean a greater workload for federal district judges, a reality they will certainly not appreciate.
- It is difficult to say, however, how federal judges will actually apply Ashcroft. Old teaching and old habits die hard. For example, despite recent amendments to the Federal Rules that, as written, require the Court to scrutinize and limit discovery, many judges seem to apply the discovery rules as broadly as they always have. Further, Ashcroft clearly leaves a great deal of discretion to the district courts, and there are not going to be many appeals from orders denying motions to dismiss.
- It is also questionable whether Ashcroft will have any substantive effect for another reason: Litigants are almost always given at least one opportunity to amend and re-plead. In Ashcroft itself, the Supreme Court remanded to the Second Circuit to consider whether to remand to the district court so that the plaintiff could seek leave to amend.
- My best guess -- although there is an argument to the contrary -- is that the net effect will be to increase the cost of litigating in the federal courts.
- My best guess is that the decision will also increase the average time it takes to litigate a case in federal court.
Regardless of the effects, I am sure that my old colleague is somewhere smiling.
Friday, May 22, 2009
Earlier this week, I saw an article in the Fulton County Daily Report in which an in-house lawyer was quoted as saying that she had to reduce costs from outside counsel, because otherwise it would come out of her bonus. Although I am sure that this lawyer is dealing with pressures, cost control and otherwise, that I can only imagine, what struck me was the implication of a somewhat adversarial relationship between the client and outside counsel, or, in this instance, between in-house counsel and outside counsel.
After many years in this profession, and despite the current economic conditions, I hope it has not come to that. It seems to me that the focus should be on providing needed legal services as efficiently as possible to the client, whether those services are provided by in-house or outside counsel. That result is best achieved when there is a strong relationship of trust and understanding between the lawyer and the client. Although the lawyer must earn that trust, it is also true that this type of relationship can only happen when the client lets the lawyer become part of the team.
In a team based relationship, the lawyer gets to know about the client's business in detail, the client's approach to legal issues, and the client's approach to business issues. As a result, the client receives added value without paying more. The client does not have to waste time telling me about their business or their overall goals, because I already know.
There are other ways that an intimate knowledge of a client's business adds value. For instance, I and many other business lawyers read the business press voraciously almost every day. If I see an article that I believe will be of value to a client, I forward it on. Although I try to do this for every client, it is certainly much easier to be attuned to articles of potential interest when you thoroughly understand the client's business.
The least satisfying relationships are, as I have written before, where a client treats the lawyer somewhat akin to a fire axe in a glass case: Break glass and use only in the event of an emergency. I guess some clients think they are saving money this way. In reality, in the vast majority of instances, the fire probably could have been avoided if the client had called counsel earlier earlier. Damage control is rarely very satisfying for anyone.
Other variations of the "fire axe" approach include not telling the lawyer all of the facts, or providing the relevant documents a drip at a time. Or calling with a "quick question" without giving the entire context. Even when one makes every effort to get the client to avoid these approaches, it is still sometimes difficult to convince people to do what is good for them.
Clients probably follow the fire axe and related approaches because they think it will save money. However, it is doubtful these approaches result in any real cost savings (much less optimal provision of legal services). It certainly makes it difficult for the lawyer to add any value beyond the narrow issue when used in such a piecemeal fashion. In fact, it is more difficult even to address the narrow issue when one does not understand the big picture.
Of course, relationships of trust and understanding do not happen over night. However, there are some things that both lawyers and clients can do to move the process along.
1. Lawyers need to communicate with their clients. I still hear about instances when lawyers do not return client calls or answer emails. Frankly, it is difficult to believe that this can happen in this day and age, but, apparently, some lawyers still do this.
2. Fee issues should be discussed up front and from the outset. If there is a reasonable mutual understanding about what the fees will be, there will rarely be a fee dispute.
3. If a client has a fee issue, the client should bring it up immediately. Perhaps there is a simple and reasonable answer for the bill. In other instances, an adjustment may be appropriate. However, just letting a fee issue simmer unresolved is no good for anyone: It undermines the client's trust in the lawyer, probably results in unnecessary personal stress on the part of the client or in-house lawyer, and cannot lead to resolution.
4. Lawyers do not always need to be on the clock. Of course, I do not bill clients for sending them business articles. I look for opportunities to take clients to lunch, which provides an opportunity for them to discuss their legal issues or whatever is on their mind off the clock. I often offer to provide educational presentations on relevant legal topics to clients at no cost. If I am attending an even that may be of interest, I try to make sure that clients are invited. Further, I almost always write a cover letter (no charge) that accompanies a statement for services rendered. If there has been any significant activity during the month, I usually try to include a brief status report in the letter reminding them about what was accomplished in the prior month. I use the word "reminding" purposefully; hopefully, the client is well-informed before the bill arrives.
5. Lawyers need to say thank you to their clients for their business and for their trust and confidence. Similarly, although I never think it should be expected, it sure does feel good when you have worked hard to achieve a good result, and the client says thank you for a job well done.
6. If lawyers are invited to become part of the team, they need to join the team. Lawyers should look for opportunities to provide added value, such as through articles, and, when applicable, through notifying the client of potential beneficial opportunities or business relationships.
7. Lawyers need to stay involved in their clients' work. One of the great frustrations that I hear in the legal press is that in-house counsel hate meeting with a "relationship" partner about a new matter, and then getting shuffled off to someone they have never met, often a young associate. This is probably the root cause of the rebellion at some corporate clients who refuse to pay for first year associate time. It does not have to be that way. Their are firms that eschew a leverage model and where the senior lawyers do most of the work, or at least stay involved. This approach brings experience and judgment to the relationship and also helps to assure that client expectations are met. One of the things that attracted me to Chorey, Taylor & Feil when I joined the firm in 2007 was that it follows this approach.
8. If a client is on a tight budget, involve the lawyer directly in the discussion. Although we always try to work efficiently, there still may be opportunities to do the work more efficiently. There may be work that can be identified as "optional." There may be work that the client may decide not to do, even though, optimally, it would be done. One caveat to the last point: If the client decides not to do certain work, the client sure should not blame the lawyer if it later turns out that it should have been done, and should also not object to an email from the lawyer confirming the decision not to do the work.
I do not have all of the answers. I know that hard economic times have strained corporate legal budgets for businesses of all sizes. But I cannot believe that, in either the long run or the short run, a confrontational approach between clients and their counsel or between in-house counsel and outside counsel will help anyone.
Thursday, May 21, 2009
As many Georgia businessmen and businesswomen are aware, Georgia law regarding restrictive covenants, i.e. non-compete agreements and non-solicitation agreements, makes enforcement of covenants not to compete difficult. Even covenants drafted by experienced attorneys are often declared unenforceable by the Georgia courts and the standards for enforcement remain a somewhat shifting target. The enforcement issue creates problems for businesses and employees in assessing their legal rights and responsibilities.
The New Act
In early 2009, the Georgia General Assembly adopted an Act which is intended to clarify and codify Georgia law regarding restrictive covenants. In adopting the Act, the General Assembly found that reasonable restrictive covenants "serve the legitimate purpose of protecting legitimate business interests and creating an environment that is favorable to attracting commercial enterprises to Georgia and keeping existing business within the state." The Act is intended to provide guidance to parties to restrictive covenants so that everyone may "know their rights and duties." The Act further instructs the Georgia courts to interpret restrictive covenants in accordance with the "reasonable intent and expectations of the parties," but goes further to require that such interpretation be "in favor of providing reasonable protection to all legitimate business interests established by the person seeking enforcement."
The Act will become effective only upon the adoption of an amendment to the Georgia Constitution, which will be submitted to Georgia voters during the 2010 general election. The proposed constitutional amendment will likely be subject to considerable controversy prior to the election.
Although the Act, if it becomes effective, redefines Georgia restrictive covenant law in many different ways, there are several important, overarching changes of which everyone should be aware.
Under current Georgia law, the courts are not permitted to modify or redraft ("blue-pencil") an unenforceable restrictive covenant unless it was executed in connection with the sale of a business. So, if any portion of a restrictive covenant was deemed to be unenforceable, the covenant would fail; there is no means to salvage the agreement and impose reasonable limits on a former employee's competition or solicitation of customers. The new Act would change Georgia law and authorizes a court to "modify a covenant that is otherwise void and unenforceable as long as the modification does not render the covenant more restrictive with regard to the employee than as originally drafted by the parties." This important change makes the enforcement of restrictive covenants far more likely in Georgia and changes the nature of any legal dispute from "whether" a covenant is enforceable or unenforceable to "under what terms and conditions" the covenant is enforceable. Many believe that this change is unfair to employees and others bound by restrictive covenants.
Scope of Prohibited Activities, Products, or Services
Under current Georgia law, courts have struck down restrictive covenants because they did not identify with sufficient particularity the types of competitive activities, products, or services the restricted party was prohibited from engaging in or selling. The Act seeks to avoid these attacks by providing that any description of competitive activities, products, or services shall be satisfactory if it "provides fair notice of the maximum reasonable scope of the restraint . . . even if the description is generalized or could possibly be stated more narrowly to exclude extraneous matters." When a restrictive covenant is entered into prior to termination, the Act further provides that "any good faith estimate" of the competitive activities, products, or services that may be applicable at the time of termination is satisfactory even if it mistakenly includes extraneous matters. Such a covenant is to be enforced by the courts based on activities "actually conducted" and products and services "actually sold" within a reasonable time of termination.
The Act instructs Georgia courts to presume certain time limitations in restrictive covenants to be "reasonable" and, therefore, enforceable unless proved otherwise. For example, a two year or less restrictive covenant against a former employee (not involving the sale of a business) beginning on the date of termination is presumed to be reasonable under the Act. A restriction for more than two years is presumed unreasonable. Restrictive covenants of three years or less involving distributors, dealers, franchisees, lessees, licensees (not involving the sale of a business) are presumed reasonable under the Act. Covenants longer than three years are presumed unreasonable. In cases involving the sale of a business, the courts shall presume a restraint the longer of: (i) five years or less, or (ii) the period of time during which payments are being made to the seller to be reasonable. Any longer restraint is presumed to be unreasonable under the Act.
There are a number of other important changes to Georgia's restrictive covenant law in the new Act. Whether those changes, as well as the changes discussed above, are important in any particular case depends on the facts and circumstances involved. Moreover, in the event the Georgia Constitution is amended in the 2010 General Election and the Act becomes effective, businesses throughout Georgia should have legal counsel familiar with this complicated area of law review and revise their restrictive covenants agreements and any employment agreements containing restrictive covenants.
Finally, in the meantime, existing Georgia law regarding restrictive covenants will continue to apply. It will remain important for Georgia businesses and employees to consult experienced counsel to help assess and protect their respective rights in the interim, as well.
For more information on Georgia’s current law regarding restrictive covenants, please see my articles on the firm’s website.
Tuesday, May 19, 2009
"Cloud computing" has become a very hot topic. For the uninitiated, "cloud computing" generally refers to providing access to computer software through an Internet browser, with the software and data stored at a remote location at a "data center" or "server farm," instead of on the computer's hard drive or on a server located on the user's premises. "Cloud computing" is also referred to "software as a service."
Proponents of cloud computing claim many benefits, including lower costs, less need for on-site support and "scalability." "Scalability" means that the number of licenses and available resources can easily be adjusted as the need increases. Access can typically be provided to any computer with a browser and an Internet connection, but can be controlled through password protection and other measures. Proponents also argue that cloud computing makes it easier to manage and push down software upgrades. Cloud computing services are usually provided on a fee for service approach that may result in cost savings compared to the traditional local area network. To put it in common parlance, cloud computing is somewhat like renting as opposed to owning.
Cloud computing is not a technology of the future, but is here today. Google, for example, uses cloud computing to provide its suite of business applications intended to compete with Microsoft Office. Google applications are provided free or at very little cost. Salesforce.com is one of the best known providers of cloud computing services, providing customer relationship management ("CRM") software to a growing list of companies. IBM and Microsoft are also entering the playing field.
There appears to be little doubt that cloud computing is here to stay, and that it may indeed represent the future of information technology. There are many advantages and potential advantages to the cloud computing model.
That said, from a legal perspective, cloud computing raises a host of issues. Having spoken recently to several cloud computing vendors, there are some rather obvious questions. Perhaps the most obvious question is, "What happens if you lose my data?" The answers I was provided focused on technical and not legal issues, such as the back-up procedures provided.
Techical issues are important, and there are certainly technical issues that a potential customer may want to consider, such as maintaining a back-up on site, or a back-up through a separate vendor. These approaches might provide some real practical protection in the event of a catastrophic failure or bankruptcy at the primary provider. Other technical issues might focus on what happens when the relationship ends, whether happily or not. Is there another vendor that can provide the software and host the data? Will data have to be converted to a different format? If the customer decides to switch back to a local area network, will the terminals that have been used for cloud computing (which, I am told, can be very basic "low powered" machines) be of any use, or will a completely new network need to be installed?
Although technical solutions are a good thing, over twenty-five years of litigation experience have taught me that disasters do happen, even with fail-safe plans in place, and even with parties acting in complete good faith. And, I suppose, it is natural for a lawyer to focus on legal rights and remedies rather than technical solutions.
From a legal standpoint, cloud computing appears to raise a host of essentially contractual issues to be addressed by the parties' contract or licensing arrangements. There are also potential regulatory issues (ranging from privacy to export control issues), potential e-discovery issues, and certainly other issues that have not yet crossed my mind.
As businesses and their lawyers become more experienced with cloud computing issues, it is likely that a consensus will emerge as to how cloud computing issues will be addressed. Hopefully, purveyors of cloud computing services will be flexible and reasonable in addressing legitimate business concerns. However, given the prevalence of "standard" licensing in the software field (often on a shrinkwrap or clickwrap basis) and efforts to limit liability under any circumstances, there is some cause for pessimism.
All that said, here is a list of issues that one might wish to consider asking a vendor or otherwise considering in entering into a possible cloud computing arrangement:
- What contractual obligation will you assume to protect my data? This could include reference to particular steps and procedures, including back-up obligations. The contract or license may specify a standard of care that the provider must meet.
- What contractual obligation will you assume regarding uptime, if any? Will you provide any type of uptime warranty? Even if such a warranty is subject to a limited remedy, it probably would provide considerable incentive for the provider to limit downtime.
- Most providers seem savvy enough to disclaim any interest in your data and will freely say -- in a sales setting anyway -- that "your data is your data." Well, that's good, but how do I physically get my data back at the end of the contract or if you go bankrupt?
- What remedy limitations, if any, are in your terms? Are consequential damages excluded? Are total damages capped (such as to a return of fees paid)? Even if contractual obligations are assumed, if remedies are severely limited, the provider may be shielded from liability.
- Where is my data going to be stored? Are you willing to agree that all my data will be kept in this location under specified conditions and at agreed security levels? This could be important for regulatory reasons, but also for reasons associated with meeting general customer confidentiality obligations or complying with privacy policies.
- Have you inserted a forum selection clause into the terms? Many providers want to insist on litigating on their home turf (which often, it seems, is California), but that is rarely a happy instance for a customer.
- How do I get out of this arrangement if you do not perform and what is my exit strategy? What rights do I have upon termination? What obligations do you have to assist in transitioning to a new vendor or back to a self-managed platform?
If you are considering going to the cloud, you should consider involving your business and technology lawyer early in the process. For more information about the services at our firm, click here.
Sunday, May 17, 2009
Wednesday, May 13, 2009
Although they have been around since about 2005 and are part of the "standard" arsenal of clauses that M&A lawyers use, "go shop" clauses may be gaining some additional popularity in the current economic environment when one considers transactions such as Barclays' $4.2 billion sale of iShares to CVC Capital Partners (see Financial Times article). Generally, "Go shop" clauses are loved by Sellers but are not too popular with Buyers.
As the name suggests, a "go shop" clause allows the Seller to accept a high bid in a non-binding letter of intent, but still continue to shop for an even better bid. One of the distinct advantages to a public company Board of Directors is that a "go shop" clause limits later shareholder criticism that the Board failed to obtain the maximum price. Some argue that a "go shop" clause may actually expedite the sale of a company because the Board may be less hesitant to accept a bid and because the Board may be able to avoid or minimize other necessary due diligence such as obtaining a fairness opinion. Others argue that "go shop" clauses can slow a transaction because the Buyer waits until the "go shop" until the period of time in which the Seller can solicit new bids expires before it begins pursuing the transaction in earnest.
Buyers almost always prefer to use a "no shop" clause because it theoretically prevents the Buyer from being outbid. Additionally, Buyer argue that a "no shop" clause is necessary for them to commit to spend the time, money and effort to complete due diligence and draft a definitive agreement. Those arguing against "go shop" clauses say that they tend to have a chilling effect on the bidding because no Buyer wants to submit a price and then be the target of other bidder's efforts to buy the seller. However, particularly in the case of a public company, the insulating effect of a "go shop" clause may protect the successful bidder from subsequent shareholder suits that seek to enjoin a sale.
While it is always risky to predict trends, "go shop" clauses could become a bit more commonplace in the current economic environment. Companies that are effectively being forced to sell or merge due to dire financial conditions already have disappointed shareholders who have lost considerable value as compared to market prices of several months back. As a way of satisfying some of those shareholder concerns and perhaps heading off shareholder claims that the Board sold at a price below market value, public company Boards may be drawn quickly to "go shop" clauses. As the M&A market continues to slowly reestablish itself, we will see whether "go shop" clauses become more prevalent.
There are very few absolute truths in the legal profession. For every legal rule, there is at least one exception. There is one truth that is pretty close to universal, however, about how clients use lawyers. That rule is that it is almost always less expensive and more effective to involve the lawyer earlier in the process than later. As a litigator, there are countless examples I have seen in which a client could probably have avoided litigation if it had, for example, consulted with its lawyer about drafting a contract or structuring a transaction instead of trying to go it alone. Although it is not a perfect analogy, it is a bit like preventative medicine.
Many clients, apparently thinking they will decrease costs, try to use a lawyer like a fire axe that is kept behind glass: Break glass and use only in the event of a fire. Other clients try to limit the information they give to a lawyer, trying to "define" the problem, but lacking the training and experience necessary to do so. The result is almost invariably a less than optimal outcome at a higher overall cost.
Clients who achieve optimal results find an experienced lawyer and use the lawyer as part of their business team. Those clients involve the lawyer early in planning and structuring a transaction. As a result, they tend to avoid mistakes in negotiating and in structuring that are more costly to correct at a later date, if they can be corrected at all. These clients also make sure that a contract or relationship is structured as clearly as possible at the outset. These businesses realize that proactive legal assistance is part of their overall effort to reduce risks and to reduce costs. Although structuring a transaction or contract carefully does not absolutely guarantee there will be no future disputes, it lessens the probability. In addition, proper structuring almost always strengthens a company's position in the event of litigation.
Sunday, May 3, 2009
In May of 2003, I attended a seminar on international dispute resolution sponsored by the Center for International Legal Studies in Heidelberg, Germany. The participants included lawyers from most of western Europe, the U.S., Brazil and Argentina. At the time, most of the participants from outside the U.S. were unfamiliar with mediation. Mediation is a structured settlement negotiation process in which the parties meet with a neutral third party called a mediator. The mediator cannot impose a settlement on the parties, but tries to assist the parties in reaching a voluntary settlement. Particularly when the parties participate on a voluntary basis (as opposed to being referred by a court), mediation has proven to be very effective in resolving disputes. For more basic information about mediation, see http://www.ctflegal.com/mediation-basics.html. For more advanced topics, see http://www.ctflegal.com/advanced-mediation.html. Or check out www.watkinsmediation.com.
The international participants at the Heidelberg conference were very familiar with international commercial arbitration, which is a time-honored method of resolving commercial disputes outside of a country's court system. Unlike mediation, arbitration (at least in its traditional form), is a binding dispute resolution process, in which arbitrators (usually lawyers or retired judges, although sometimes business people) decide the case in the place of a judge or jury. To U.S. lawyers, arbitration and mediation have gone together for many years as the two most prominent forms of "alternative dispute resolution" or "ADR" (meaning dispute resolution outside of the civil court system). So, it was surprising to me in 2003 that our European colleagues were so unfamiliar with one form of ADR (mediation) when they had used another form (arbitration) for many years.
Apparently, as Bob Dylan might say, the times are changing. I just attended a conference on international agency and distribution agreements sponsored by the Contract Section of the Union Internacionale des Avocats (International Association of Lawyers, or "UIA"). At this conference, I had the good fortune to meet Carlo Mastellone, the founder of Studio Legale Mastellone in Florence, Italy. Carlo, an elegant man born in London, explained to me that there is a huge backlog of civil cases in Italy, and that he and his colleagues hope to help resolve the situation through the use of mediation! Carlo is helping organize the effort in Florence, and they even have a website, http://www.conciliazionefirenze.org/. The website is in Italian, which makes it a little difficult for me to use (I would have a slightly better chance with German). However, I really like the artwork, which was done by an artist friend of Carlo.
In any event, I am glad that mediation has landed in Europe. In fact, I am glad we were finally able to export something to Europe relating to our legal system -- although it is actually about avoiding our legal system -- that may actually be appreciated! Now, if I can just get a case in Florence ....