Analyze Contract Before Calling Lawyer

18 October 2001
If your tech deal goes sour, you may find yourself evaluating whether to sue to recover your damages. You might find it helpful to do a preliminary analysis before calling a lawyer.

When clients call and tell me they want to sue somebody, the first thing I do is ask for a quick synopsis of the facts. Then I want to see the contract and all relevant documents. To evaluate the strength of a case, on one level, you need to see if the facts are such that the other side has breached the contract in a material way. On a second level, you need to see what guidance and limitations the contract has in case of a dispute.

Obviously, the facts in every case will vary. What you're analyzing is whether what happened in fact breached the written agreement. It's great when the contract is a well-written legal document that describes the business deal with a reasonable level of detail. I rarely get to analyze well-written contracts. Two major factors cause this to be true.

The first one is that well-written tech contracts are less likely to be involved in a dispute. This is because most tech litigation isn't about liars, cheats and thieves. It's about honest people honestly disagreeing over what the deal is. A good contract means the parties took the time to clearly communicate about the terms of their deal and then write it up in an understandable contract.

The second reason that I rarely read quality contracts is that that there are so few of them out there. The quality of the lawyering I see in my tech world continues to shock me, but that's a whole other column. In my review, I would like to find language that I can use to support my client's position.

Depending on what type of case I have and whom I represent, I'll look at things like what was the warranty? Is it tied to any objective standard? When should the seller have delivered the services? Did they deliver what they should have delivered? Did the deliverables work as promised? Who owns what intellectual property rights? Who has to indemnify whom and under what circumstances?

Aside from the facts, I look to the contract to see if it has any limitations of liability that may be applicable. Usually, these provisions are one-sided in favor of the seller of technology products or services. It's common to see limitations of liability that severely limit a buyer's ability to recover more than nominal damages against the seller.

Of course, if my client is the seller, these clauses can be great. The best position to be in is to have a limitation of liability clause that says that my client's maximum liability is some small amount, while the other side (typically the buyer of the services) has unlimited liability. It's especially nice to be in this position when negotiating a settlement. The imbalance of power can be quite "persuasive."

Other provisions that I'll search for are clauses that deal with issues like jurisdiction and venue (what court has the power to hear the suit), choice of law (what state or countries' laws will govern the suit) and attorney's fees (does the winner get a reimbursement of attorney's fees). In a perfect world, I'd hope to find that we can sue in a place convenient for my client and that the law that will govern the case isn't the other side's local law.

What's important to note here is that this was all decided when the parties signed the contract. The lesson is that those miscellaneous clauses, which are usually tucked away in the back of contracts, are important. Consider the difference it makes to you if you're able to sue in your backyard using your local law versus having to seek a remedy in a court thousands of miles away. Experience tells me that these types of ``standard'' clauses are amazingly negotiable and that you should always try.

Another item that's often tucked away somewhere in the back is an alternative dispute resolution clause. Does the contract require mediation or arbitration before or instead of a lawsuit? If it does, these clauses are generally enforceable.

Never lose sight of the fact that lawsuits are nothing less than a form of legalized warfare. Like war, they are costly in terms of resources, stress and money--and that's if you win. It's usually preferable to reach a compromise settlement rather than spend years involved with courts and litigation. If suing is your best choice, make sure that you know what to expect in the way of time, expense and risk before you begin.

If the cost-benefit analysis adds up, then fight it like a war: aggressively and with the will and determination to win.

Mark Grossman's "TechLaw" column appears in numerous publications. Mark Grossman has extensive experience as a speaker as well. If you would like him to speak before your group or corporate meeting, please call (305) 443-8180 for information.

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