Recently in Contracts Category

March 13, 2014

General Contractor Who Delayed Project Held to Have Breached Contract with Subcontractor

A Massachusetts Superior Court recently ruled on a case involving a construction contract between a subcontractor and a general contractor, where the contract included a provision that prohibited the subcontractor from recovering damages from the contractor for a delay in the project. The court held that the "no damages for delay" clause did not prevent the plaintiff-subcontractor from recovering damages from the contractor, as the contractor denied the subcontractor of its only available remedy under the contract.

In Central Ceilings, Inc. v. Suffolk Construction Company, Inc., et al., Central Ceilings, Inc. agreed to furnish labor and material for the drywall and ceiling portions of a project under the control of the general contractor, Suffolk Construction Company. Central agreed to respond to change order requests promptly, and to work under a specific schedule, while Suffolk Construction supervised and coordinated the project and job site.

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January 9, 2014

When a Signed Agreement Isn't Enough -- Protecting the Confidentiality of Confidential Information

Maintaining the confidentiality of trade secrets is crucial for business owners who hope to remain competitive and continue earning cash from their investments and novel ideas. Many business owners require that non-disclosure agreements be signed by any persons with whom they deal, in order to limit the proliferation of trade secrets. Recently, two federal courts decisions have made it even more imperative to ensure adherence to such non-disclosure agreements.

The U.S. Court of Federal Claims recently dismissed an inventor's claims against the United States for patent infringement and misappropriation of trade secrets. In Gal-Or v. United States, the federal court heard evidence regarding Mr. Gal-Or's dealings with the federal government. Gal-Or, an Israeli scientist and inventor, created a number of novel devices used by the military's aerospace programs. Gal-Or had an agreement with the federal government that whatever trade secrets of his were disclosed from the parties' dealing would be confidential. While Gal-Or had the agreement with the government, he did not mark all of the documents that he shared as confidential, nor did he always proactively insist on adherence with the non-disclosure agreement. The evidence demonstrating Gal-Or's incomplete protection of his intellectual property persuaded the court to grant the government's motion to dismiss.

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January 2, 2014

Be Careful What You Contract For... You Just Might Get It

Nationally, there has long been a circuit split regarding the federal courts' analysis of forum selection clauses. As previously discussed, the federal courts in Massachusetts have generally been unwilling to enforce a forum selection clause appearing in a contract if enforcement of the clause would be unreasonable, unjust, or contrary to the public policy of the forum in which the lawsuit is brought. If a court strikes down a forum selection clause as unenforceable, the plaintiff is free to litigate its case in any proper court having jurisdiction over the parties and the subject matter of the case. Now, based upon a decision from the United States Supreme Court, the circumstances that will justify a federal court's refusal to enforce a forum selection clause will be few and far between, so long as the parties have previously agreed to litigate their disputes in a specific court pursuant to a valid contract.

In Atlantic Marine Construction Company, Inc. v. U.S. District Court for the Western District of Texas, the Supreme Court examined a forum selection clause contained in a construction contract between a contractor and its subcontractor. The parties' contract contained a forum selection clause in which the parties agreed that all disputes between them would be resolved in the state or federal court in Norfolk, Virginia, where the contractor firm was based. However, when the contractor failed to pay the subcontractor for work performed, it sued the contractor for breach of contract in a federal court in Texas, where the construction work occurred. The contractor asked the Texas federal district court to enforce the parties' forum selection clause and either dismiss the case or transfer it to the district court in Virginia. The Texas district court refused to do so, and that decision was upheld on appeal to the Fifth Circuit.

Generally, when a defendant seeks to transfer a case from one federal court to another for forum reasons, the governing statute is 28 U.S.C. 1404(a), which permits a court to transfer the action to another federal forum for the convenience of the parties. In determining whether a transfer should occur, the district court considered both the private interests of the parties as well as public interest considerations relative to the location of the litigation. For example, because the dispute arose from work completed in Texas, and many witnesses and most evidence would be located in Texas, Texas may be a more desirable forum for convenience purposes.

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January 15, 2013

SJC Rules Shorter Statute of Limitations Period Pursuant to Agreement is Enforceable - Boston Business Law and Business Litigation Attorneys Parker Scheer

The Massachusetts Supreme Judicial Court ("SJC") has held that a term contained in a franchise agreement providing for a shorter statute of limitations period for the parties to bring claims against one another under the agreement was enforceable and valid where the parties negotiated in good faith, and where the new limitations period was reasonable and did not violate public policy or any other statutory provision.

In Creative Playthings Franchising, Corp. v. Reiser, the defendant had purchased a Creative Playthings franchise. The parties executed a franchise agreement which included a clause in which they agreed that neither party would bring any claim against the other after the expiration of either one year from the date of the discovery of the facts that give rise to the claim (or, if earlier, one year from the date that the facts should have been discovered with reasonable diligence), or eighteen months after the date of the first act or omission that gave rise to such a claim. The clause also stated that any action or claim brought after these periods had expired would be barred.

Five years later, Creative Playthings terminated the franchise agreement, claiming that the defendant had violated certain terms of the agreement. Creative Playthings then sued the defendant in U.S. District Court for, among other claims, breach of contract and trademark infringement. The defendant filed a counterclaim alleging breach of the implied covenant of good faith and fair dealing, fraudulent inducement, violations of G. L. c. 93A. Creative Playthings asserted that these counterclaims were time barred under the limitations provision in the franchise agreement. The U.S. District Court certified to the Supreme Judicial Court the question of whether contractually shortened statute of limitations periods are generally enforceable under Massachusetts law.

In its analysis, the SJC observed that Massachusetts General Laws c. 260, § 2 establishes that a cause of action based on contract must be brought within six years. However, Massachusetts courts have long allowed a shorter limitations period in particular circumstances if it is shortened by contractual agreement. Albrecht v. Clifford, 436 Mass. 706, 717-718 (2002); Cunningham Leather Co. v. American-Hawaiian S.S. Co., 285 Mass. 232, 234-235 (1934); Bowditch Mut. Fire Ins. Co., 6 Gray 596 (1856).

The SJC noted that the franchise agreement between the parties was negotiated in good faith, and its belief that the limitations periods set out in the agreement were reasonable. The Court also noted that, because the certified question did not include an inquiry as to whether the limitations periods as written violated the discovery rule, the SJC would not consider the issue. However, the SJC suggested that, if the limitations periods did violate the discovery rule, the shortened limitations periods contained in the franchise agreement would violate public policy.

If you or a family member require legal advice on a business matter, please contact Parker | Scheer LLP for a free consultation with one of our experienced Business Law and Business Litigation Lawyers.

December 19, 2012

Enforceable Forum Selection Clause? Think Again.

Parker | Scheer has previously emphasized the various benefits of including "forum selection clauses" in business contracts, noting that, generally speaking, courts will uphold and enforce such clauses if a dispute arises between the contracting parties and there is a question as to the appropriate forum in which such a dispute should be litigated. [See Being a Homebody: The Benefits of Forum Selection Clauses]. However, a recent decision from the United States District Court for the District of Massachusetts serves as a reminder of the circumstances in which a court will refuse to enforce the parties' previously agreed-upon choice of forum.

In Full Spectrum Software, Inc. v. Forte Automation System, Inc. ("Full Spectrum"), the plaintiff sued the defendant for the defendant's alleged breach of the parties' consulting services agreement ("CSA"). Although the plaintiff filed the lawsuit in the Massachusetts federal district court, the CSA's forum selection clause provided for adjudication of disputes arising under the CSA in the United States District Court for the Northern District of Ohio.

While acknowledging the parties' right to contractually select the appropriate forum for a future dispute, the judge emphasized that a court must balance certain public and private interests when considering the convenience, fairness, and ultimate appropriateness of the selected forum. The court also set forth the four circumstances in which forum selection clauses will be set aside: if it was the product of fraud or overreaching; if enforcement of the clause would be unreasonable or unjust; if the proceedings in the forum selected by the parties would be so difficult and inconvenient that the party challenging the clause will essentially be deprived of his day in court; or if enforcement would contravene some strong public policy of the forum in which the lawsuit is brought. The court also suggested that enforcement of a forum selection clause would depend upon the enforceability of the contract as a whole.

In Full Spectrum, the judge refused to enforce the CSA's forum selection clause on three bases. First, the judge determined that the parties' selection of Ohio as the forum jurisdiction was entirely arbitrary. Second, neither of the parties resided in Ohio, nor did any of the transactions or occurrences underlying the lawsuit take place there. Finally, the court found that, at the early juncture of the case, it was not yet clear whether the CSA was the final "meeting of the minds" between the parties, and therefore it was not clear whether the CSA as a whole was enforceable. For these reasons, the court determined that it would be unreasonable and unjust to dismiss the action by enforcing the forum selection clause of the CSA, and refused to do so.

The cautionary lesson of Full Spectrum resounds: When seeking to take advantage of the many benefits of forum selection clauses in business contracts, be reasonably certain that the selected forum is sufficiently connected to the parties or to the transaction, and that the agreement as a whole will be enforceable. Otherwise, the jurisdictional benefits believed to have been secured in contract may very well be lost.

May 7, 2012

Massachusetts Business Contracts: Making sure that third-party beneficiaries do not climb out of the wood work.

The typical business contract is between two or more parties providing money, services, goods or something of value to the other. All of the parties are identified as the parties to the contract and with good draftsmanship; their respective roles are clearly set out. The law however does recognize another potential beneficiary of a contract, that being the so-called intended third-party beneficiary.

A third-party beneficiary would be one who the parties knew and intended to benefit from a contract and whose standing emanates from its prominent position and there is a clear intent gleaned from the contractual language that the third-party beneficiary benefit from the contract.

Here, in Massachusetts, the Rule is pretty clear: "Under Massachusetts law, a contract does not confer third-party beneficiary status unless 'language and circumstances of the contract' show that the parties to the contract clearly and definitely intended the beneficiary to benefit from the promised performance." That language was from a 2011 Massachusetts Appeals Court case called Doherty v. Admiral's Flagship Condominium Trust, 80 Mass. App. Ct. 104 (2011), quoting from another case entitled Cumis Insurance Society, Inc. v. BJs Wholesale Club Inc., 455 Mass. 458 (2009). In the first case, credit unions claimed they were third-party beneficiaries where the claim was that BJs stored data improperly and allowed thieves to access the data. The court made a point that just because someone receives the benefit from the contract between other parties, it does not necessarily make them a third-party beneficiary.

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