[This post was originally published May 4, 2013. I’m republishing it because a client, of all people, mentioned it to me—I had completely forgotten about it. On revisiting the original post, I decided that it was worth upgrading my new language from thought piece to something I use in my contracts. So I revisited Vinny Martorana’s analysis from two years ago, and I digested further useful input from @KentPitman. I wouldn’t be surprised if I make further adjustments, but even as things stand, I think this is a great example of how you fix a stale contract provision: You read articles and look at caselaw. You put your first attempt out there. If you’re lucky, as I was, you receive a boatload of astute comments. You adjust. Then you let it sit, but ideally not for two years! Then you revisit it again, and field additional comments. Voila!]
In this recent post I invited readers to redraft a sentence that I had plucked, at random, from EDGAR. And you responded enthusiastically. (I’ve shelved for the time being my post bemoaning a drop-off in comments!) Here, again, is that sentence:
Therefore, the obligations of the Sellers under this Agreement, including, without limitation, the Sellers’ obligation to sell the Shares to the Purchaser, shall be enforceable by a decree of specific performance issued by any court of competent jurisdiction, and appropriate injunctive relief may be applied for and granted in connection therewith.
When it comes to contract verbiage, turn over any stone and you’ll likely find a wriggling mass of issues. That’s the case here—this exercise proved quite subtle. I think this language caught my eye in the first place because I instinctively noted, in passing, that it offered hidden complexities.
The first thing to note is differences in how courts react to provisions that address the granting of equitable remedies. That’s something Mark Anderson addressed today in this post, perhaps prompted by the exchange of comments in my original post. I’m glad he did so, because I had never gotten around to focusing on the Delaware Martin Marietta case.
As indicated by Chancellor Strine and Justice Jacobs in their respective Martin Marietta opinions, Delaware courts essentially view irreparable harm clauses as binding admissions that are sufficient, standing alone, to meet the irreparable harm requirement. Federal courts, however, afford such clauses little, if any, weight and evaluate the evidence presented by the parties to independently determine whether irreparable harm will befall the movant if the court does not issue an injunction. This disparate treatment of irreparable harm clauses has wide-ranging implications for contract drafters, parties to agreements, and litigators seeking to enforce various types of agreements.
That sets the scene for my redrafting effort. In theory, when drafting a contract for a party that might want an equitable remedy, it would make sense to always use a provision that Delaware would enforce—the worst that can happen is that federal courts ignore it. That’s the theory; let’s see how it plays out in practice.
First, as always, let’s consider this issue in terms of categories of contract language. Which category makes sense? (My sentence from EDGAR seems to use language of policy and language of discretion, along with some incoherence.) Here are the alternatives, along with links to some of the comments to my original post:
- Language of obligation imposed on someone other than the subject of the sentence. You could state, for example, that a party “will be entitled to” an equitable remedy. That’s essentially the formula used in the language at issue in Martin Marietta, and it was good enough for Delaware courts. Nevertheless, it doesn’t make sense to in effect seek to force a court’s hand.
- Language of policy. You could state that an equitable remedy will be granted automatically. That doesn’t make sense, as it’s up to a court to determine if it wants to grant the equitable remedy.
- Language of discretion. You could say that a party may seek an equitable remedy (see SCharlmers’s version and this version offered by Wright), but that doesn’t address the role of the courts.
- Language of prohibition. You could say that the other party is prohibited from objecting to a request for specific performance. (See Vance’s version and Mark’s version.) But that’s just an indirect way of saying that a party may seek an equitable remedy, and it too leaves unaddressed the role of the court.
- Language of declaration. Because courts require a showing of irreparable harm before granting an equitable remedy, it makes sense to have the parties acknowledge the prospect of irreparable harm. That’s why Sterling’s version, Chris’s version, and this version by Wright all use “acknowledge.” But there are nuances to what you have the parties acknowledge.
- Language of intent. You could use “intend” to reflect that granting equitable remedies is in the control of the courts, not the parties. Mark’s version and Chris’s version do just that. But there are nuances in how you use “intend.”
Enough preamble; here’s my version [updated March 18, 2015, to reflect Vinny’s comments and Kent Pitman’s comment; see my replies to them]:
The Sellers acknowledge that breach by the Sellers of one or more of their obligations under section X might cause the Purchaser to suffer irreparable harm, namely harm for which damages would be an inadequate remedy. The Sellers further acknowledge that the Purchaser might suffer irreparable harm due to delay if as a condition to obtaining an injunction, restraining order, or other equitable remedy with respect to such a breach the Purchaser were required demonstrate that it would suffer irreparable harm. The parties therefore intend that if the Sellers breach one or more of their obligations under section X, then for purposes of determining whether to grant an equitable remedy any court will assume that that breach would cause the Purchaser irreparable harm.
[Here’s the original version:
The Sellers acknowledge that breach by the Sellers of one or more of their obligations under section X could cause the Purchaser to suffer irreparable harm, namely harm for which damages would be an inadequate remedy. The Sellers further acknowledge that requiring, as a condition to obtaining an injunction, a restraining order, or any other equitable remedy with respect to such a breach, that the Purchaser demonstrate that it would suffer irreparable harm could cause delay that results in the Purchaser’s suffering irreparable harm before any equitable remedy is granted. That being the case, the parties intend that if the Sellers breach one or more of their obligations under section X, for purposes of granting an equitable remedy any court will assume that that breach would cause the Purchaser irreparable harm.]
Here’s some explication:
Some provisions refer to “irreparable harm,” others refer to “harm for which damages would be an inadequate remedy.” So as to avoid any debate over which standard to use, this provision accepts that they mean the same thing.
It’s nonsense to say that breach of any obligation under a contract would result in irreparable harm. Contracts invariably contain a range of obligations, breach of only some of which might involve irreparable harm. So it makes sense to limit the scope of this provision to those obligations. In that regard, the Bloomberg Law article says, “Contract drafters may consider limiting the scope of the irreparable harm clause to subject matters typically reserved for injunctive relief. The ‘little weight’ given to such clauses may turn into ‘no weight’ if the clause appears to be inartfully-drafted boilerplate.”
Furthermore, even with respect to those hot-button provisions, it doesn’t make sense to say that breach would involve irreparable harm. Instead, the gravity of the breach would depend entirely on the circumstances. That’s why my provision uses could.
The second sentence addresses this reality by having the Sellers acknowledge that even though some breaches might not result in irreparable harm, requiring the Purchaser to demonstrate irreparable harm could result in any equitable remedy being granted too late.
The third sentence uses language of intention to say that the parties intend that a court would assume irreparable harm. That’s narrower than simply saying that the parties intend that a court would grant an equitable remedy.
My version is different from the language at issue in Martin Marietta. That means that I’m tinkering with … “tested” contract language! Oh noes! Well, the notion of “tested” contract language is a feeble excuse for perpetuating dysfunctional language (see this 2006 post). Instead, I want to articulate meaning in a way that reflects the deal and precludes confusion and needless fights, such as the Martin Marietta litigation.
Federal courts might well decline to make the assumption expressed in my version and instead require that a party seeking an equitable remedy demonstrate that irreparable harm is likely. But because my version articulates what’s a stake more clearly than does the usual language, a court might in fact pay it some attention.
Of course, this is all novel, so be prepared for me to tweak my language and change my mind.