Although Florida circuit court decisions are typically unpublished, the Daily Business Review did a nice write up of the case (subscription required). 

What is the lesson to be learned from this?  When suing the Seminole Tribe, be prepared for a sovereign immunity defense, even in the face of a contractual waiver.  Also be prepared to litigate every conceivable issue, as the Tribe will not hesitate to use its vast resources in the hopes of wearing down opponents financially.  With AECOM's annual revenues also measured in the billions, such a tactic obviously was not effective in this case. Finally, it would be naive for parties suing the Tribe to expect full disclosure and cooperation from the Tribe (at least not voluntarily). For example, in the AECOM case, the Tribe claimed that documents were "lost or missing," including tribal ordinances, resolutions, contracts and email correspondence between tribal officials.  This appeared to tip the scales in AECOM's favor (although, quite frankly, the contractual waiver of sovereign immunity should have been more than enough), as Judge Streitfeld found after discovery that the facts warranted "the imposition of adverse evidentiary inferences as well as adverse presumptions against the Tribe."  Judge Streitfeld described this case as one of first impression, and we will be carefully following the appeal for any new developments in the case.

It was the Court’s treatment of the severability clause in the arbitration agreement at issue however, that caught my eye. In the contractual context, a severability clause is a provision which provides that a contract’s valid provisions remain enforceable even if its other part or parts are determined to be unenforceable.

Although the Court did not frame its opinion in these terms, the Court’s severability analysis can be expressed in golfing parlance as, “Whether a severability clause will work depends on whether your golf game is match play or stroke play.” In match play, each hole is a separate competition. The player with the fewest strokes on an individual hole wins that hole; the player winning the most holes wins the match. In stroke play, every shot counts towards the total score. The player with the lowest 18 hole score wins the game.

In match play, the outcome of every hole stands on its own.  A player can have one terrible hole and still win the match so long as he or she wins the majority of the 18 holes.  In stroke play, every single stroke counts towards the player’s final score.  A player might play superlatively for 17 holes. But if he or she had 1 sufficiently bad hole, the score on that hole could cause the player to lose the match. 

Severability clauses lend themselves to the same sort of analysis.  Many practitioners insert severability clauses in documents as a matter of course.  The inclusion of a severability clause however, can also be a signal that the drafter recognizes that he or she is “pushing the envelope” with a particular clause and so the drafter wants to hedge against the entire contract failing should that clause be determined invalid.  

The situation is not unlike the predicament faced by a golfer having found him or herself deep in the rough choosing between  safely “punching out” to the fairway or attempting to hit the “miracle shot” between two trees with a low boring hook in an attempt to reach the green.  In match play, if the miracle shot does not work and instead careens off a tree coming to rest against the base of another tree, the consequence may be simply the loss of that hole.

In stroke play however, it may take so many shots for the player to recover from the ill advised miracle shot, the contest will be lost.  In other words, in stroke play, one terrible hole can so infect the round that the game is lost. Similarly, in a contract, the unenforceable provision may be so essential, that without it, there may be no agreement left.

The Shotts Court had before it the issue of whether an arbitration clause was or was not enforceable.  For purposes of this discussion, it is sufficient to note that the contract provided as follows:

1. The arbitration will be conducted in accordance with the American Health Lawyers Association (AHLA) Rules; and
2. The arbitrators will have no authority to award punitive damages.
3. The provisions of the Agreement were severable, so that “if any portion of this Agreement will be determined invalid or unenforceable, the remainder of the Agreement will be deemed to continue to be binding upon the parties hereby in the same manner as if the invalid or unenforceable provision were not a part of the Agreement (hereinafter referred to as the “Miracle Shot” or the “Severability Clause”).

As you may have guessed, the Miracle Shot hit the tree, and the Court decided the “contract game” between the nursing home and the personal representative of the deceased nursing home patient was stroke play.

After first determining that it was for the Court and not the arbitrator to decide whether the arbitration provision violated public policy, the Shotts’ Court held that the imposition of the AHLA rules and the limitation of punitive damages violated public policy and hence those provisions were unenforceable. Like Johnny Miller  providing color commentary from the 18^th Hole Tower, the Court then analyzed the nursing home’s unsuccessful “Miracle Shot.”

The Court held that the offending provisions were not severable. Citing to its decision, Local No. 234 v. Henley & Beckwith, Inc., 66 So. 2d 881, 822 (Fla. 1953) the Court stated “… a bilateral contract is severable where the illegal portion of the contract does not go to its essence, and where, with the illegal portion eliminated, there still remains of the contract valid legal promises on one side which are wholly supported by valid legal promises on the other.”  The Johnny Miller translation of the Court’s application of that rule to the nursing home’s Miracle Shot might have been, “I’m not sure what he was trying to do there!”

The Shotts’ Court concluded, that notwithstanding the Severability Clause, “… the AHLA provision goes to the very essence of the Agreement. If the provision were to be severed, the trial court would be forced to rewrite the Agreement [a/k/a the scorecard in stroke play] and to add an entirely new set of procedural rules and burdens and standards, a job the trial court is not tasked to do. See Local No., 234, 66 So. 2d at 821-22.”

I suppose it could be said that in drafting as in golf, “no guts-no glory!”  But better to save those really gutsy clauses for contracts where you are sure the Court will score the contest as match play and not stroke play. In the latter, if your Severability Clause is held to have cut more deeply than you had planned, you may have cut your own throat.  When it doubt, just punch out to the fairway!

After several years successfully working together, Boers decided to sell his practice to a third dentist, Patel.  Patel and Cheng apparently did not get along and Cheng left a year after Patel purchased the practice.  Cheng then went out and started his own dental practice at which point Patel filed suit against Cheng alleging that Cheng was violating the noncompete agreement.

Fla. Stat. s. 542.335provides that a noncompete can only be enforced by an assignee or successor if the noncompete "expressly authorized enforcement" by an assignee or successor. At issue on appeal is whether Patel could enforce the noncompete that was entered into by Boers and Cheng. The noncompete contained the following clause, which Patel argued met the statutory requirements: "the mutual and reciprocal covenants and agreements, rights and obligations contained in the [noncompete] are assignable only by [Boers]."

But Cheng argued that the agreement he signed with Boers did not mirror the statutory language.  The Court sided with Patel and found that the wording within the statute did not have to be quoted in the noncompete. The language within the noncompete was sufficient to establish that the parties intended to allow for the assignment of the agreement to a third party.

Do you think Patel thought about this issue when he purchased the dental practice? This case is a great example of how difficult the enforcement of noncompete agreements can be. 

In 2008, the Winklevoss twins and Divya Narendra settled with Facebook for $65 million after alleging that Zuckerberg stole their idea for Facebook.  After reaching a settlement, the trio tried to rescind it arguing that Facebook misrepresented the value of its stock, but an appeals court refused to undo it. 

In reaching his decision, the judge stated that "the Winklevosses are not the first parties bested by a competitor who then seek to gain through litigation what they were unable to achieve in the marketplace.  And the courts might have obliged, had the Winklevosses not settled their dispute and signed a release of all claims against Facebook.  With the help of a team of lawyers, and a financial advisor, they made a deal that appears quite favorable."

Several weeks ago, the Winklevoss twins and Divya Narendra, after stating that they wouldn't take their case against Facebook and its CEO Mark Zuckerberg to the Supreme Court, have now filed another lawsuit against Facebook alleging that Facebook "intentionally or inadvertently suppressed evidence" during the 2008 settlement proceedings.  While this suit appears to be based on a different legal argument, there is little doubt that many of the same arguments that were raised before will be argued again.

The Winklevosses are certainly not the first to try to undo a deal and they certainly won't be the last.  Steven Simkin, a New York lawyer and Madoff victim, is another making headlines for the very same reason.  Simkin divorced his wife, Laura Blank after 33 years of marriage.  He and his wife reached a settlement whereby they split their assets, a large percentage of which was invested with Bernard Madoff. 

Obviously, we know how that ended, but Simkin is now trying to undo the settlement agreement arguing that the intention of the settlement agreement was to split their assets.  He argues that they thought that when they divided their $13.2 million in assets, she would be getting a $6.6 million cash payment, a portion of which was taken from their account with Madoff.  He claims that he and his wife were mistaken about the existence of the account and now wants a do over claiming mutual mistake.

Generally, when parties reach a settlement, that settlement means something and the parties are going to be bound by it.  This is especially true when both parties are represented by counsel and even more so when there is a release of claims.  Sour grapes is not a reason to undo a settlement agreement.  The bottom line is sometimes you make bad deals.  Sometimes, there are valid reasons to run back to the court and ask for relief from the agreement, but this will be the exception and not the rule.

1. Columbia
2. China
3. Japan
4. Switzerland
5. Venezuela
6. Chile
7. Dominican Republic
8. Mexico

The article notes several features of the CISG, which run counter to the instincts of american lawyers trained with the UCC.  For instance:

 -          “The CISG is a federal law (a treaty), and, therefore, imparts federal subject-matter jurisdiction under 28 U.S.C. §1331. Thus, unlike causes of action brought under Art. 2 of the UCC, claims under the CISG do not require complete diversity of citizenship and more than $75,000 to be in controversy to open federal courthouse doors.”

-          “The parol evidence rule does not apply to contracts governed by the CISG. Art. 8(3) of the convention permits courts to take “due consideration . . . to all relevant circumstances of the case including the negotiations” when interpreting an agreement.”

-          “The CISG requires courts first to consider the parties’ subjective intent when interpreting agreements.  Only when the parties’ subjective intent cannot be determined does the CISG require a court to interpret an agreement “according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.”

-          “The CISG entirely dispenses with the statute of frauds”

-          “The CISG does not follow the UCC’s “perfect tender” rule.”

The CISG has been in effect since the '80s, but is often overlooked by courts and practitioners.

Frank McCourt, the real estate developer from Boston who purchased the Dodgers in 2004 after a failed bid to buy the Boston Red Sox, has been sued by his former law firm, which is seeking a judicial declaration that it is not liable for drafting an agreement that, had it been enforceable, would have given McCourt sole ownership of the team from his estranged wife. Instead, that agreement was ruled unenforceable and McCourt may lose ownership of the team as a result.

According to the Los Angeles Times, McCourt – who paid $430 million for the team (financed mostly by debt) -- recently got a $30-million loan from Fox Broadcasting in order to meet payroll, secured with funds he does not have and might never have. The newspaper reported that, in the event McCourt cannot repay Fox, he has promised the company $30 million from any settlement with or judgment against his ex-law firm that drafted the since-invalidated agreement that McCourt had relied upon to establish his ownership of the Dodgers.

Mind you, there is no guarantee McCourt will get any money from his ex-firm, but Fox apparently accepted that promise to securitize the loan.

According to one financial expert quoted by the Times, “no accountant would even let you put that on your balance sheet.”

So, you go to an expensive, high-priced law firm, pay big bucks to have them draft a bulletproof contract that should be worth hundreds of millions of dollars, and it turns out that the contract is worthless and you get zilch. Nada. Bupkis.

Just in case your sense of outrage is growing, don’t consider this a plea for sympathy for the McCourts. According to court records, the couple took millions out of the Dodgers for their personal use, spending the cash on numerous real estate purchases, including side-by-side mansions in tony, posh LA communities like Malibu, with the result that, as of 2009, the team had accumulated more than $430 million in long-term debt.