Who Should Write Settlement Agreements? The Courts?

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Today’s Ruminations is triggered by a court decision that may not have reached the “correct” result. If that suspicion is correct, then why do we promulgate its holding? There’s a simple answer. Had more talent been employed in negotiating the agreement dissected by the court, there would have been no court involvement. There would also be a different blog posting today.

The facts appear to be somewhat simple. They might be simpler had the court shown more of the actual agreement in its written decision. Instead, it gave us its characterization. Normally, when courts do so, they do it in a way that tilts the “story” to support its decision. So, we’ll assume that the characterization is the strongest the court could write to support the outcome. Enough with the mystery – here’s the story.

A fitness center leased space. The lease was subsequently amended, at which time the tenant’s owner signed a personal guaranty. The document was denominated as a limited guaranty, but the only “limitation” was its dollar amount cap. Otherwise, it appears to have been what we call a “come heck or high water” obligation. [Some would give it a different, but similar nickname.] The guaranty expressly said that the guarantor’s liability was “co-extensive with that of” the tenant. [Read more…]

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Can A Tenant Just Pay-Up And Close Its Store In Violation Of A Continuous Operating Covenant?

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Continuous operation lease provisions are contentious. The ability of a landlord to impose such an obligation within a particular lease is determined by the relative bargaining power of the parties. All bargaining power, like all politics, is local. If a tenant doesn’t really “need” to be at a particular property and the landlord really “needs” that (or any) tenant, then it’s unlikely that any resulting lease will include one. At least, in a rational world, that’s the way it would be.

Today, Ruminations will describe two unusual court decisions with the caveat that the fat lady hasn’t yet sung. Each are at the “preliminary injunction” stage, actually at the stage where two courts, in geographically distant jurisdictions, have ordered two different tenants, with different landlords, to keep their stores open. That’s where the similarity ends, as today’s blog posting will tell.

[As to the two cases, each being in the preliminary injunction stage, no final decision has been reached. All the separate courts have ruled is that what the tenants were “doing yesterday,” i.e., operating a store, they need to do “today,” i.e., keep operating that store (at least until a final decision is reached). That means not all the facts and legal arguments are yet on the table. For that reason, Ruminations won’t be analyzing the living daylights out of either case. We’ll be waiting for a final “call” as to one of those cases (the Indiana one) before going down that road.] [Read more…]

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To A Hammer Everything Looks Like A Nail

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Knowing what you don’t know is a good thing. A practical application of that statement comes when you are trying to figure out how a particular jurisdiction will treat a particular agreement such as a lease. There are some legal principles that suffuse state law throughout the United States. The law of damages is NOT one of those principles. Yes, the generality of “damages” is pretty much the same all over, but the details are not. Here’s an example from a just-decided Colorado case from its Supreme Court.

The question that court considered was whether a seller could really make the choice of remedies provided-for in the following contract clause: [Read more…]

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What Can Humpty Dumpty Recover If His Wall Wasn’t Finished On Time?

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Today, we return to the topic of “damages.” Our context will be “waiving” them. That way, we won’t feel as if we are duplicating postings of long ago such as the ones you can review by clicking: HERE or HERE or HERE.

The core “damages” one can expect to collect are designed to give the injured party “the benefit of its bargain.” That’s not the same as being made “whole.” Those core damages, ones that probably should never be “waived” are designed to give a party the money necessary to get what it “bought” in the first place. So, if the buyer was promised a car with a spare tire and the trunk turned out to be empty, the measure of its damages would be the cost of a spare tire. If a tenant was supposed to get trash removal “included” and the full container is surrounded by overflowing trash bags, the tenant is entitled to enough money to get the trash hauled away. If a builder contracted to put up a building and didn’t finish it, the customer would be entitled to the quantum of money that would pay to finish the building.

But, what about the cost of going out to buy that tire? What about the lost business from customers who ran from the store because of the “stink”? What about the cost to rent alternate space because the building was not completed by the contracted-for time? [Read more…]

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Parallel Construction, Consequential Damages, And Use Of A Dictionary

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Questions about damages and remedies are not simple to answer and, often, the answers are less than fully satisfying. The overriding framework is that business people don’t really focus on these “leave it to the lawyers” issues until a problem rears its head. Unlike many lease and other agreement issues that are worked out between cooperating parties, when one starts to look at a document or at the law to see “what are my rights, what can I do, how can I be made whole,” the relationship has already broken down. That’s when each side starts counting commas and looking for all of the “notwithstandings.”

Today, we’re going to look at an actual case, one decided at the end of October by a California appellate court. It can be seen by clicking HERE.

It involves the concept of “consequential damages, “exclusive remedies,” and “rent and other charges.” And, as will come as no surprise to regular readers, it teaches us something about using the right words. Oh, yes, it also describes a very familiar process, that process being where lawyers are hired to try to find a way to argue that the words in a lease or other agreement support a conclusion contrary what any objective observer would see as the plain intention of the parties. In the course of that process, the dispute we’ll be describing became the subject of four, count them, four separate appellate proceedings. [Read more…]

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All Damages Are The Consequence Of Something. So, What’s This Subset Called “Consequential Damages”?

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What is the effect of a provision, whether in a lease, purchase agreement or any other kind of agreement, when it says something like this:

Neither party will be liable to the other for any indirect, special, consequential, incidental or punitive damage with respect to any claim arising out of this agreement (including without limitation its own performance or own breach of this agreement) for any reason.

Yes, today’s blog posting will be about “law.” After all, Ruminations does its blog posting at “retailrealestateLAW.com.” We’re not going to dissect every aspect of that sample provision or ones like it. We’re not going to endorse it as one to use. We’re only going to Ruminate about two kinds of damages – “consequential damages” and “direct damages.” [Read more…]

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For What Did You Intend To Indemnify? Choose Your Words Carefully!

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Today, we’re going to discuss two legal issues, one old and one new. The old one has to do with the use of extrinsic evidence, but with an interesting twist. “Extrinsic” means information coming from the “outside,” in our business (agreements, such as a lease), that means information from what was said or what was written before or at the same time the document was signed, but didn’t show up in the document itself.

The second, and the one that has generated a little bit of “buzz,” has to do with the scope of a promise to indemnify someone.

For those readers who like “primary” material, take a look at the California Court of Appeal Order published on December 7, 2015 in the case of Hot Rods, LLC v. Northrop Grumman Systems Corporation. It can be seen by clicking HERE. [Read more…]

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But, Not Everyone Can Get Away With Fraud By Clever Drafting

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Today, we continue our story of how to get away with fraud and deception. For those of you who were, as the Brits say, on “Holiday” last week (yes, England and the United States, two nations separated by a common language), you can catch up by clicking HERE.

Last week, we described how the seller of a company was able to hide behind an agreement’s provision wherein the buyer agreed that it was relying only on the information and representations recited in the agreement. Then, by signing the agreement on the day of closing, it could only complain about what happened between signing and closing. At best, that was a few minutes or so. Perhaps our readers accepted that as fair because the buyer was carefully monitoring the company’s revenues for March of 2012, the critical “test” month. It knew that the sales figures were somewhat implausible and should have known that the “last minute” jump in revenue was “strange.” Maybe, that’s why the Delaware Chancery Court was unwilling to parcel out a little of the “equity” for which chancery courts were developed. (OK, that explanation is a stretch, but we’re not ready to concede that the words “justice” and “business” are in different dictionaries. But, how about the rest of last week’s story?) [Read more…]

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