August 22, 2019

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5 Steps to Avoiding Litigation Before a Contract's Signed

| 6/28/2019

Corporate litigators take pride in effectively and successfully arguing their client’s case. But for many, the best success they can deliver is to help their client avoid costly litigation in the first place.

The following steps can help avoid contractual conflicts…

  1. Know your goal – and potential partner. Knowing what your organization seeks from any agreement will help ensure the finished contract reflects your mission. Also, doing some preliminary investigation into your potential partner organization and its principals regarding their time in business, any history of litigation or judgments against them, even their vendors and reputation, can avoid unwelcomed surprises down the road. Further, never conduct business on a “handshake,” and only sign deals with authorized decision-makers.
  2. Write clear contracts. Well-written, precise, and concise contracts clearly set forth obligations and expectations. Avoid legal jargon and keep the language simple. The contract should explicitly state how parties will operate, and “integration and merger” clauses should be included stating that no amendments made orally or in writing are enforceable unless signed by the parties. 
  3. Avoid emails with loose language or perceived promises. Parties often will assume or argue that what is written or “offered” in an email is a de facto agreement or amendment. Along with the contract’s integration and merger clause, any correspondence related to agreements should include a disclaimer making clear that no terms or offers are in effect until a deal has been signed by both parties.
  4. Watch your course of conduct. Notwithstanding what is in the signed agreement, if future behavior materially departs from contract language, courts have ruled that such behavior can reflect a change in terms. For example, in one recent case, two partners seeking to disentangle their business interests divided their operations. Each had their own accountants draw up new Schedule K-1 and other tax documents reflecting the separation. Agreements were drafted, but never signed. After three years of operating under the new model, yet without signed dissolution agreements, one partner’s business took off. The other partner, attempting to seize upon the technicality of the unsigned dissolution agreement, demanded half of the assets of the successful business. The court ultimately denied the claim, ruling that even though the separation had not been formally memorialized, Florida law protected the respondent because the parties had been conducting business consistent with the intention of the separation.
  5. Tell your legal team if issues arise. Even with finely crafted agreements, situations arise. If you sense that a relationship is souring or questions are being raised by your team or your partners, informing in-house or outside counsel sooner rather than later may de-escalate matters.

In the digital age, business opportunities can go from idea to presumed partnership in a few keystrokes. An ounce of prevention can make clear all parties’ intentions – and help avoid litigation and financial exposure.

Paul O. Lopez is COO of Tripp Scott and chair of the firm’s Litigation Department. With 26 years’ experience, he focuses his practice on civil and business disputes, and workplace and employment law in federal and state courts, including shareholders disputes under Ch. 605 and Ch. 607 of the Florida Statues. Learn more at www.trippscott.com.

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