Only one person (other than me!) can be counted on to write law-review articles relevant to the building blocks of contract language. That person is Glenn West.
It’s a red-letter day when a new Glenn West article plops off the production line, and today I received from the man himself a copy of Consequential Damages Redux: An Updated Study of the Ubiquitous and Problematic “Excluded Losses” Provision in Private Company Acquisition Agreements, in the latest issue of The Business Lawyer. Rather than wait until I’ve locked myself in my hyperbaric chamber and absorbed what this article has to offer—Glenn’s articles are never easy reading—I’m unleashing it on you now. Go here for a copy.
Here’s the abstract:
An “excluded losses” provision is standard fare as an exception to the scope of indemnification otherwise available for the seller’s breach of representations and warranties in private company acquisition agreements. Sellers’ counsel defend these provisions on the basis of their being “market” and necessary to protect sellers from unreasonable and extraordinary post-closing indemnification claims by buyers. Buyers’ counsel accept such provisions either without much thought or on the basis that the deal dynamics are such that they have little choice but to accept these provisions, notwithstanding serious questions about whether such provisions effectively eviscerate the very benefits of the indemnification (with the negotiated caps and deductibles) otherwise bargained for by buyers. For buyers’ counsel who have given little thought to (or who need better responses to the insistent sellers’ counsel regarding) the potential impact of the exclusion from indemnifiable losses of “consequential” or “special” damages, “diminution in value,” “incidental” damages, “multiples of earnings,” “lost profits,” and the like, this article is intended to update and supplement (from a practitioner’s perspective) the legal scholarship on these various types of damages in the specific context of the indemnification provisions of private company acquisition agreements.