Importance of "Boilerplate" Provisions in Written Contracts
Almost every written agreement includes a slew of provisions that do not appear to relate to the substance of the agreement itself. There are many such provisions. Here I will discuss only three: (1) attorneys’ fees; (2) jurisdiction; and (3) governing law.
Attorney's Fees ProvisionIn the U.S., in most lawsuits, the general rule is that each side has to bear its own attorney's fees irrespective of who wins the lawsuit. There are some exceptions to this general rule. One exception is if the lawsuit is based on a contract between the parties, and the contract contains a provision that allows the prevailing party to recover its attorney's fees from the losing party. So if you think that you are not likely to breach the agreement, then you might want to include a provision in the agreement that if there is a lawsuit for breach of the agreement, then the prevailing party can recover its attorney's fees from the other party.
But there are instances when the attorneys' fees provision in the written agreement is poorly drafted, and the question of entitlement to recover attorney's fees has to be litigated (in addition to litigating whether there was a breach of contract, and what the damages are.) Here are a few examples. EXAMPLE No. 1. "In any lawsuit to enforce any right under this Agreement, the prevailing party shall be entitled to recover from the other party reasonable attorney's fees and expenses reasonably incurred in connection with such lawsuit." This provision is reciprocal (it applies to both parties), which is good; and it is limited to "reasonable" fees, which is good. This provision will likely be enforced by the court.
EXAMPLE No. 2. "In any lawsuit to enforce any right under this Agreement, if Company is the prevailing Party then Company shall be entitled to recover from Consumer reasonable attorney's fees and expenses reasonably incurred by Company in connection with such lawsuit." This provision is limited to "reasonable" fees (good); but it is one-sided (bad). This provision will almost certainly be interpreted to mean that any prevailing party may recover attorney's fees (not just Company). The Company probably did not anticipate such an outcome. EXAMPLE NO. 3. "In the event of a breach of any of the terms of this Subcontract, Subcontractor agrees to pay Owner and Contractor, in addition to all other damages, all attorney's fees incurred by the Contractor in enforcing the terms of the Agreement." This provision does not say that there must be a lawsuit and that Owner and Contractor must be the prevailing parties. Do the Owner and Contractor recover attorney's fees even if they lose the lawsuit? The provision is also one-sided. If Owner or Contractor breaches the contract, is Subcontractor entitled to recover its attorney's fees? Moreover, the provision states that "all" attorney's fees are recoverable; it is not limited to "reasonable" fees. And how are "Contractor's" attorney's fees going to be split between "Owner and Contractor?" This was the actual provision in a case in which I represented the Subcontractor. On the issue of attorney's fees, I took the position that this attorney's fees provision makes no sense, is too vague, is one-sided, and should be unenforceable. (The case settled before this issue was litigated.)
JurisdictionWhen you enter into an agreement with someone, you want to control where a lawsuit for breach of the agreement will be prosecuted.
For example, say you are a manufacturer in Los Angeles, California, and you want to buy a customized metal forming machine from a company in Michigan for $400,000. You enter into an agreement with the Michigan company, which their lawyer had drafted. In the agreement, they agree to build the machine to your specifications. But when they deliver the machine, it fails to perform to the specs. You call your favorite lawyer and tell them you want to sue. The lawyer reviews the agreement for the first time and he tells you that the lawsuit must be filed in Detroit and that you are going to have to hire an additional lawyer who is licensed in Michigan. Why? The agreement includes the following provision: "Each party hereby consents and irrevocably submits to the exclusive jurisdiction of the Third Judicial Circuit of Michigan located in Wayne County in any action on a claim arising out of, under, in connection with, or relating to this Agreement." Pursuant to this provision, the Michigan court has exclusive jurisdiction. The lawsuit cannot be filed in any other court.
If you had consulted the lawyer before you signed the agreement, he might have tried to change the provision to the following: "The Third Judicial Circuit of Michigan located in Wayne County shall have jurisdiction over any action on a claim arising out of, under, in connection with, or relating to this Agreement." Pursuant to this provision, the Michigan court still has jurisdiction, but it is not exclusive. This provision does not rule out the jurisdiction of other courts, for example Los Angeles Superior Court. So you would have a strong argument that filing a lawsuit in Michigan is definitely allowed, but that filing elsewhere might also be allowed.
Governing LawWhen you enter into an agreement with someone, you want to control which state's law will govern the agreement and disputes that relate to the agreement.
For example, say you are a seller of aircraft parts in California and you want to buy certain engine parts from a distributor in Seattle, Washington. You enter into an agreement with the Washington distributor, which their lawyer had drafted. In the agreement they included a representation and a warranty that the engine parts are genuine. You buy the parts and then sell one of those parts to a flight school, they install it in the engine of their airplane, and the plane crashes because the part was a fake foreign knockoff. You get sued for wrongful death. In turn, you sue the Washington distributor in California for fraud and misrepresentation (they had made a false representation in the contract). In the course of the lawsuit, you discover that they knew all along that the parts were fake and that there had been other lawsuits involving accidents caused by this fake part. This sounds really bad. The distributor's conduct is outrageous. You want the distributor to be punished so you ask the judge to award punitive damages.
The distributor argues that they cannot be liable for punitive damages. The judge agrees with the distributor. Why? The agreement between you and the distributor contains the following provision: "Any and all lawsuits arising out of and relating to this agreement shall be governed by the laws of the State of Washington, without regard to conflict of laws principles." It turns out that Washington State law does not allow for recovery of punitive damages. (This is very unusual.) Even though the lawsuit was filed in California, the California judge must apply Washington law.
If you had consulted a competent attorney before you signed the agreement, they would have tried to change the provision to the following: "Any and all lawsuits arising out of and relating to this agreement shall be governed by the laws of the State of California, without regard to conflict of laws principles," or, alternatively, "any and all lawsuits arising out of and relating to this agreement shall be governed by the laws of the State of Washington." Omitting the provision regarding conflict of laws leaves open the possibility that the laws of another state - in this case California (which does allow punitive damages) - should apply, because, under conflict of laws principles, the interests of the State of California supersede those of Washington. It's not necessarily a winning argument, but at least there is a possibility of winning the argument.