Drafting Litigation Opt-Out Provisions in Commercial Contracts: Limiting Costly and Time-Consuming Litigation

Description

When parties fight over a contract provision, the dispute can steadily escalate to trial and appeal, causing significant expense and unanticipated outcomes. Various contractual provisions are traditionally utilized to tailor litigation options by selecting, for example, the appropriate forum, venue, and available remedies. Alternate dispute resolution provisions may also be utilized. These provisions, however, are often considered mere “boilerplate” and may be passed over in the drafting and negotiation process without scrutiny. In the current litigation context, overlooking the benefit of carefully drafted litigation, choice of law, and dispute resolution clauses can be a costly mistake.

The panel will discuss contractual provisions designed to resolve disputes before suit is filed and methods to increase the likelihood of resolution before litigation ensues. The panel will also describe a framework for assessing how contractual provisions in the existing agreements will shape the litigation process.

The program will include a discussion of issues related to M&A that cast light on contract design alternatives. Litigation opt-out clauses, for example, provide that the parties' obligations to consummate a deal are subject to a condition precedent that no pending litigation exists that materially affects the transaction. Counsel must consider whether the goal is to limit this condition to the nonexistence of a proceeding brought by a governmental authority rather than only a private party. Suppose the goal is to encompass litigation by both governmental authorities and private parties. In that case, counsel must be sure to specify that litigation by the parties to the contract does not count.

Contracts with choice of law provisions specifying differing agreement and forum states must be specific on matters such as which state's statute of limitations apply. Some courts believe that even though another state's substantive law controls, the forum state's law setting the applicable limitations period still controls.

Arbitration clauses are frequently litigated contract clauses. One issue cropping up is the ability to limit the arbitrator's power to award specific remedies. To limit the remedies the parties may recover in arbitration, an attorney should state that limitation in the arbitration clause itself, not in some other part of the contract.

Listen as our expert panel discusses best practices to negotiate and structure litigation opt-out provisions in commercial agreements to provide maximum clarity to limit time-consuming and costly litigation processes.