Know the Fine Print – Dispute Resolution

Fine Print by CJ Sorg from Flickr (Creative Commons License)

Fine Print by CJ Sorg from Flickr (Creative Commons License)

Every contract needs a dispute resolution clause – every contract. It’s something you should look for in every contract you read. If you’re given a contract to sign that doesn’t have one, I strongly recommend adding one in. That’s what I would do.

The dispute resolution clause in a contract is the how-we’re-going-do-deal-with-problems provision. It lays out how and where problems will be resolved when they occur.

How Problems will be Resolved
There are three main ways people general resolve problems in a contract:

  • Mediation: Hire a mediator to help you resolve the problem – more likely to results in “splitting the baby” and not a winner and loser.
  • Arbitration: Hire an arbitrator (or panel of arbitrators) to hear/review your arguments and make a decision. (This is what they used in Erin Brockovich.) Sometimes arbitration is faster and more cost effective than litigation, but not always.
  • Litigation: This is the traditional civil lawsuit. This is what I recommend for most contracts I write for clients.

You’re not limited to only these three options. You can have anything in your dispute resolution clause as long as it’s legal. So if you want to resolve disputes by throwing darts or Rock-Paper-Scissors-Lizard-Spock, you can.

Where Problems will be Resolved
The dispute resolution clause should specify in which county and state disputes will be resolved. If you’re writing the contract, you want the opposing party to have to fight you on your turf if there’s a problem. This is why most contracts I write for clients require them to resolve all disputes in Maricopa County, Arizona and that all parties agree to that jurisdiction. Without such a provision, you may find yourself having to travel to fight disputes in the opposing party’s state, and possibly needed to employ a local lawyer for additional assistance.

Which Law Applies
The laws in each state are slightly different. This is why it’s imperative that your contract state which state’s law will govern the contract for all non-federal claims. Federal claims (like many intellectual property issues) are governed by federal law. You don’t want to have a dispute within the dispute about which law applies to the state-law claims.

There may be other provisions in the dispute resolution clause like a requirement to notify the other party in writing if you believe they’ve breached the agreement and a set time in which they have to cure/fix it before you can take further action against them. Another clause to look for is a provision that requires the loser in a dispute to pay for the winner’s attorney’s fees. I like to add this into contracts I write. It makes people think twice before going after the other.

Next time you buy a ticket for a show, professional sports, travel, or sign up for an account on a website – read the fine print. See what the dispute resolution clause requires. You’ll quickly see that whoever writes the contract, does so with their (or their client’s) best interests (not yours) in mind.

If you need help writing or reviewing a contract, speak to a business lawyer about your needs and options. If you have questions about contracts that you want to discuss with me, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Kesha v. Sony – Cautionary Contract Tale

Microphone by Photo Cindy from Flickr (Creative Commons License)

Microphone by Photo Cindy from Flickr (Creative Commons License)

Last week, a New York Court refused to nullify the contract between recording artist Kesha and Sony, despite Kesha’s allegations that she was drugged and raped in 2006 by her producer, Luke Gottwald (a.k.a. Dr. Luke). Gottwald has not been charged with this crime. Kesha admitted she’s afraid of Gottwald, but she said if she doesn’t work with him (even though Sony offered to give her another producer), she’s worried Sony won’t promote her music properly. If everything Kesha said is true, she is trapped in a situation where she has to risk her personal safety for professional success.

Why Sony Won
The reason Sony won this case appears to be basic contract law – the verbiage of the contract wouldn’t allow for the change. When it comes to creating a contract, it’s a relatively low bar to clear to have a legally binding contract. And if the parties want to change the provisions later, they may only be able to do so under limited circumstances, such as by mutual agreement. If the contract is valid and the other side is not open to making changes, you’re stuck with the verbiage and the commitments of the original agreement. I suspect that’s what happened in this situation; Kesha signed 6-album deal, and her allegations that her producer raped her isn’t sufficient to force Sony to change the terms or release her from the contract entirely.

Personally, I believe Kesha. It’s rare for a person to lie about being sexually assaulted. However, the law doesn’t have this luxury. The court can only make decisions based on what the parties can prove, so without a conviction or a confession, the court can’t determine if her allegations is sufficient to release her from this contract.

Ke$ha by Becky Sullivan from Flickr (Creative Commons License)

Ke$ha by Becky Sullivan from Flickr (Creative Commons License)

Turn Back the Clock
Given that hindsight is 20/20, what might Kesha have done differently when negotiating her contract with Sony? I am not sure it was wise for either party to commit themselves to a 6-album deal. Perhaps it would have been better for the artist to only commit to 2 albums and then renegotiate. Given Kesha’s young age when she signed with Sony, perhaps she, and other young artists, should have provisions geared towards their personal safety such as cameras that record all meetings and security or at least a personal representative all times that she’s working as well as provisions that address physical and emotional abuse. I also wonder if it wouldn’t have been prudent for both sides to have a provision that required regular drug testing to help prevent artists from getting into trouble and from being taken advantage of by people who should be protecting them.

What Could Kesha do Now?
Since a Kesha appears to be legally obligated to work with Sony and her alleged rapist, what should she do now to protect herself? Her safety should be the top priority. In regards to Gottwald, Kesha should never be alone with him. She should have security at her side at all times when he’s present. Gottwald should not be permitted to be within 10 feet of her, be able to contact her directly by phone or using any electronic means, or for any reason except as professionally necessary. I’m also not opposed to Kesha being legally armed (pepper spray, stun gun, etc.) if that makes her feel safer for the duration of her contract.

Contracts are a beautiful thing when they are written properly. However, we can see from this case how it can be a disaster when parties don’t plan for the worst-case scenarios. (I agree that it is an incredibly sad that artists have to consider the possibility that they will be physically harmed by their business partners, but this case shows that it is something that should be discussed at the negotiation table.) If you have a question about writing effective contracts, please contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn.

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Be Wary of Downloading Contract Templates

Copy Taste by Maik Meid from Flickr (Creative Commons License)

Copy Taste by Maik Meid from Flickr (Creative Commons License)

One of the questions I frequently get at my speaking gigs is where can people go to find good contract templates online. This question makes me simultaneously happy and nervous. On one hand, I’m happy that the person is asking about their contract needs; however, I’m nervous that they think there might be an acceptable resource online that could replace proper legal advice.

I usually tell these people that contract templates from the internet are a good place to start when doing research on a type of contract and the types of provisions they should include in their agreement. It should be the beginning of their search, not the end. When you look at a contract template online you can never know for sure who wrote it, where it came from, or whether it would be suitable for your needs. There have been many times when I’ve seen someone using a contract for their business that had provisions that made no sense – like a 2-person business that had an operating agreement that required a 2/3 vote to make changes and an Arizona-based business that was using a contract that said the agreement was governed by New Jersey law.

Instead of looking on the internet for a template, you might be better off asking your colleagues in your industry if they would be willing to share their contract templates, depending on where they got them. You are more likely to find provisions that are applicable to your business and the practices of your industry.

Regardless of where you get your templates, it’s always a good idea to have a business lawyer review them before you use them for your company. Otherwise you may find yourself using a contract that is bad for your business, and as long as the provisions of the contract are legal, you could be stuck with it. It may not be as expensive as you think to have a lawyer review your contract in advance. I’ve always said it’s cheaper to hire a lawyer in the beginning to prevent problems than to have to hire one after the fact the clean up the mess.

If you don’t already have a contract template you’re considering using, talk with your lawyer about whether it would be more cost effective for you to find or create your own contract draft for them to review or simply hire a lawyer to create your contract from scratch.

And be equally leery of contract templates created and sold by lawyers. Some of these are good and some of these are crap. I saw an operating agreement this year that was created by a law firm that sells start-up packages for businesses. My client asked me to review the contract to help him resolve a problem with one of the owners. This contract was dozens of pages long, was filled with excessive legalese, and did not address all of my client’s needs; hence, he needed a hire me to help him fix his problem.

Best of luck to everyone whose plans for 2015 include starting a new business. Creating contracts to suit the needs of your business should be one of the many things on your to-do list. If you want to chat with me about your business plans for 2015, feel free to connect with me on TwitterFacebookYouTubeLinkedIn, or you can email me.

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