Introduction
Boilerplate provisions are those that are included in an agreement to round out the parties' understanding, after the parties have agreed on the essential deal terms. Wikipedia describes it as "text that is or can be reused in new contexts or applications without being greatly changed from the original." See http://en.wikipedia.org/wiki/Boilerplate. But careful drafters will want to be sure that boilerplate provisions do not undermine the parties' agreement or produce unintended consequences. All boilerplate provisions should be evaluated in light of the parties' specific transaction and not simply included verbatim from a prior agreement.
Choice of Law
Most agreements contain choice of law provisions. Many lawyers feel more comfortable being able to identify in advance the law that will govern a transaction and any disputes that may arise later. Some drafters simply assume that a complete agreement should contain a choice of law provision, as that's the way they have seen it done. But a choice of law provision should not be automatically included in an agreement.
For some types of transactions, identification of the applicable governing law will be important, if not necessary, to ensure that security agreements and other documents are filed in the correct jurisdictions. But for many other types of agreements, a choice of law provision is not only unnecessary, it may also hamper a party's flexibility in asserting more favorable governing law in a later dispute. Few lawyers take the time to analyze the differences in the possible choices. Such an exercise would require analyzing the transaction to identify possible disputes that could later arise, identifying the different jurisdictions whose law might apply, researching the law in the various state and federal courts as it pertains to the possible areas of dispute, and evaluating which law is most favorable. No one does this.
Moreover, the center of the parties' relationship may change over time, effectively changing the jurisdiction with the most significant relationship to the dispute, an important determination for courts' choice of law analysis. As a result, the inclusion of a governing law provision in an agreement may have unintended consequences by the time a dispute erupts between the parties. Leaving open the question of applicable law may provide leeway for a party to assert different substantive arguments or procedural maneuvers that would not otherwise be available if a specific choice of law were selected at the time the contract was signed.
Takeaway: A choice of law provision should be included if it is necessary to do so for purposes of the transaction, or if the parties know in advance that the law of one jurisdiction is significantly different than others regarding an important deal point.
Choice of Forum
The choice of forum is of course different from the choice of applicable law. A choice of forum limits the courts where a party can commence a legal action involving the contract. Typically, choice of forum provisions are used when individuals are parties, as such a provision can short circuit problems in obtaining jurisdiction over a mobile individual defendant. If he or she has consented to be sued in the jurisdiction, that is a sufficient basis for the court's jurisdiction.
A choice of forum provision should take into account that federal jurisdiction may not lie, and specify an alternative state forum if it does not. The parties' consent cannot create federal court jurisdiction where subject matter or diversity jurisdiction are lacking. When considering a choice of forum, selection should take into account the speed of the docket, the court's system of docket management, and the location of witnesses, documents, and counsel.
Takeaway: A forum selection clause is a good idea, particularly with individual parties, considering factors that will enhance dispute resolution.
Arbitration
There are so many different types of arbitration provisions in use that referring to them as "boilerplate" is perhaps a bit of an overstatement. For example, the American Arbitration Association, JAMS, the International Chamber of Commerce, and even some courts provide sample arbitration provisions that can be customized.
In drafting arbitration provisions, the parties can create their own universe for dispute resolution and should consider a number of variables. They include:
- Choice of administrator, such as a commercial administrator, or none at all;
- Number of arbitrators, their fields of expertise, and how they are chosen;
- Issues to be arbitrated;
- Forum selection for location of the trial;
- Discovery, including limitations;
- Fee shifting for the prevailing party;
- Streamlining the trial (for example, requiring the submission of direct testimony by declaration and permitting only cross-examination of live witnesses);
- Limiting the duration of the trial;
- Strict application or relaxation of the rules of evidence;
- Parameters for the award (for example, an amount in a certain range);
- Format of the award (for example, a reasoned award or just the conclusion); and
- Court for confirmation of an award.
In addition to these factors, the parties may want to consider adding a provision that specifically addresses who decides whether a dispute must be arbitrated. As a general matter, the question of arbitrability is usually for the court to decide - the default rule. But there is a universally recognized exception that the default rule does not apply if the parties intend for the arbitrator to decide questions of arbitrability. This can be demonstrated when the parties expressly so state or when the rules of a commercial administrator, such as AAA or JAMS, are incorporated in the parties' arbitration provision. See, e.g., Haire v. Smith, Currie & Hancock, LLP, 925 F. Supp. 2d 126, 132 (D.D.C. 2013) [see https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2012cv0749-13].
Takeaway: When including an arbitrator provision, create the type of dispute resolution mechanism that works best for the parties and be aware of who - whether arbitrator or court - decides arbitrability disputes.
Severability
Drafters usually include a severability clause that provides that, if a provision of the contract is found to be unenforceable, it is severed from the contract and the rest of the parties' agreement remains intact. But if the unenforceable provision excuses one party's performance, does the other party wish to proceed with a one-sided agreement?
Before including a severability provision, drafters should consider alternatives, including whether the parties may wish to declare the entire agreement void, returning the parties to their pre-contract positions if an important provision is found to be unenforceable.
Takeaway: If severability may fundamentally alter the parties' transaction, alternatives should be considered before a severability clause is included in the agreement.
Integration
An integration clause recites that the agreement is the entire understanding of the parties, superseding all prior discussions, arrangements, and negotiations. However, if there are side letters or other documents that work together to constitute the parties' entire transaction, an integration clause that does not acknowledge the existence of the other documents is incorrect, and may call into question the accuracy of the language of other provisions of the agreement. Moreover, an integration clause is not necessary to exclude evidence, including writings and testimony, prior to the execution of the contract.
The parol evidence rule - that evidence offered to contradict or modify a writing (as a contract or will) is not admissible when the writing is unambiguous or was intended to be a final expression of the author's wishes -- allows a court to exclude such evidence in construing a contract.
Takeaway: An integration clause may not be necessary, and if included in an agreement, it should accurately reflect all of the documents that memorialize the parties' understanding.
Confidentiality
Many agreements include a confidentiality provision that is, in reality, only precatory, having no realistic enforcement mechanism or consequences for breach. When considering whether to include a confidentiality provision, the drafter evaluates not only whether the subject and terms of the agreement should be closely held, but also what the parties should be permitted to disclose, to whom, and under what circumstances. A carefully crafted confidentiality agreement should take into account the following:
- There should be a carve-out for disclosure to accountants, lawyers, tax authorities, courts of competent jurisdiction, and corporate officials on a need to know basis;
- If disclosure is required by a subpoena directed to one party, sufficient notice of the anticipated disclosure should be provided to the other party to enable it to bring a motion for protective order, or take such other action so as to protect its confidential information;
- Publicly available information should not be included in the definition of confidential information, unless a breach of the confidentiality provision is the cause of public availability;
- The information that is deemed to be confidential should be clearly described and, if appropriate, marked, and a mechanism for challenging a confidential designation included in the agreement; and
- The provision should set forth statements that the parties can make that will not constitute a breach of the agreement (i.e., "The parties are pleased to report that they have amicably settled the lawsuit between them currently pending in federal district court.").
The parties may wish to include specific remedies in the event of disclosure. In rare instances, the parties may agree that disclosure of confidential information constitutes a material breach of the entire agreement between the parties, warranting termination of the contract and an award of damages.
In the more usual circumstances, unauthorized disclosure is viewed as a non-material breach for which specific remedies are prescribed. These may include injunctive relief, for which the parties agree in advance that the element of irreparable harm has been met, and liquidated damages of a specific amount per breach. Of course, counsel's willingness to agree to a restrictive confidentiality provision and severe remedies may depend on the likelihood that his or her own client may have difficulty keeping quiet. In that case, a precatory confidentiality agreement, without teeth, may be just fine.
Takeaway: A confidentiality provision should be adapted to suit the parties, their circumstances, the nature of the dispute and the practical challenges to enforcing the provision.
Fee and Cost Shifting
Fee shifting provisions are popular mechanisms for deterring future litigation. Parties often find other ways short of litigation to settle their disputes when faced with the possibility that the prevailing party's attorneys' fees and costs will have to be paid by the losing party. There is extensive case law as to what constitutes a prevailing party, and the courts' analyses sometimes seem both conflicting and counterintuitive. See, e.g. Texas v. United States, C.A. No. 11-1303, 2014 WL 2758597 (D.D.C. June 18, 2014) (Collyer, J.) (intervenors, challenging redistricting plans for the U.S. House of Representatives, were found to be prevailing parties and entitled to attorneys' fees where intervenors won before a three-judge court; U.S. Supreme Court vacated the judgment and remanded in light of intervening decision in Shelby County v. Holder, 133 S.Ct. 1236 (2013), and on remand the trial court dismissed that action as moot in light of state's enactment of superseding redistricting plans) [see https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2011cv1303-265] and Texas v. Holder, C.A. No. 12-128, 2014 WL 3895624 (D.D.C. August 11, 2014) (Collyer, J.) (intervenor defendants, who challenged newly enacted law requiring voters to present photo identification, were found not to be prevailing parties where a three-judge court denied plaintiff's claim for pre-clearance, the Supreme Court vacated the ruling and remanded for further consideration in light of Shelby County, supra, and on remand the three-judge court dismissed all claims) [see https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2012cv0128-386].
To provide greater clarity, the parties may decide to include a definition of "prevailing party" in their agreement. The provision may also give the court discretion as to whether or not to make an award to the prevailing party, and at counsel's "reasonable" rates, which are typically higher than what the court will award on its own. See, e.g. Driscoll v. The George Washington University, C.A. No. 12-cv-690, 2014 WL 4197556, at **9-10 (D.D.C. July 17, 2014) (discussion of reasonable hourly rates using Laffey matrix) [see http://dc.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20130405_0000377.DDC.htm/qx].
Takeaway: Fee and cost shifting provisions can help parties make peace rather than war, and the application of such a provision should be set out in more detailed (rather than general) terms to avoid additional disputes.
Conclusion
To avoid surprises down the road, and to further the parties' understanding of the consequences of their transaction, boilerplate provisions should be thoughtfully considered. The best boilerplate provisions may, in fact, not be boilerplate at all, in that they are customized to reflect the circumstances and identities of the parties, the nature of their relationship, their transaction, and the likelihood and types of anticipated disputes.
While boilerplate provisions cannot preclude future disruptions in the parties' relationship or negate breaches, their inclusion can give the parties, or at least their counsel, an opportunity to think through the parties' relationship in advance of contract execution and provide some additional tools to handle bumps down the road.
Additional Resources
- Restatement (Second) of Conflicts of Laws §187 [http://www.kentlaw.edu/perritt/conflicts/rest187.html Restatement (Second) of Contracts §213 [http://www.lexinter.net/LOTWVers4/parol_evidence_rule.htm] Ashcroft v. Conoco, Inc.,218 F.3d 282 (4th Cir. 2000) [http://caselaw.findlaw.com/us-4th-circuit/1431071.html;] and 218 F.3d 288 (4th Cir. 2000) [https://www.google.com/search?q=218+f.3d+282&rls=com.microsoft:en-us&ie=UTF-8&oe=UTF-8&startIndex=&startPage=1&gws_rd=ssl] Federal Arbitration Act, 9 U.S.C. §1, et seq; [http://www.gpo.gov/fdsys/pkg/USCODE-2011-title9/content-detail.html] Buckhannon Bd & Care Home v. W. Va. Dep't of Health & Human Resources, 532 U.S. 598 (2001) [https://supreme.justia.com/cases/federal/us/532/598/case.html]
