I bring you glad tidings of a new post by Glenn West on Weil’s Global Private Equity Watch blog. It’s entitled On Naval Ramming Bows and Contractual Boilerplate—Are Standard “No Third-Party Beneficiary” Clauses Always a Good Thing?

To whet your appetite, I present you the key bits:

Glenn reminds us of the limited utility of no-third-party-beneficiary provisions:

While most contracts contain an express provision that negates any intent by the contracting parties to benefit any third party, the absence of a “no third-party beneficiary” provision does not create any presumption that there is an actual intent to benefit a nonparty; and that is so even when the parties know that their performance of the contract will in fact benefit a third party. Instead, what the law requires to permit a nonparty to enforce a contract between the actual named parties to a contract is a clear expression of intent in that contract creating rights in favor of that nonparty. The concept that someone can be an implied third-party beneficiary is overstated and largely a myth.

Including a no-third-party-beneficiary provision can help you avoid a fight with someone claiming to be an intended third-party beneficiary. But beware of unintended consequences:

Carefully determine which provisions of your contract are actually intended to benefit and be enforceable by a nonparty (typically affiliates in the private equity context) and carve those provisions out from the standard “no third-party beneficiary” provision, else you may find yourself trying to explain how the “no third-party beneficiary” provision does not trump the otherwise clear intent to benefit nonparty affiliates.

By the way, with Glenn you get some erudition with the contracts stuff. The Battle of Lissa! 1866! By contrast, I’m clearly something of an unrepentant vulgarian. *sniff*

[Updated 3 February 2017]

On 30 January I rolled out in this post a new version of the introductory part of my severability language. That prompted me to look at the rest of it, and I realized that it didn’t work. For example, “then that provision will be modified”? Passive voice? Who’s the actor? And what category of contract language is that? So back to the drawing board.

That in turn prompted a comment from a reader to the effect that the introductory part was bizarre: “it would be consistent with the wishes of the parties”? WTF! It sounds like something said at the reading of a will.

So here’s the whole thing again:

I can’t promise it won’t change, but we’re making progress.

If the parties agree that part of the contract expresses an essential purpose of the agreement, they should say so. I suggest you’d to that in a separate subsection, making the stuff above the first subsection.

***

[Original 30 January 2017 Post]

In this 2012 post I introduced you to my severability provision. I’ve made some adjustments to the enumerated clauses, but what I want to consider now is the introductory phrase. Here’s what it is in the 2012 version:

The parties intend as follows:

And here’s what it is in something I produced yesterday:

The parties acknowledge that if a dispute between the parties arises out of this agreement or the subject matter of this agreement, it would be consistent with the wishes of the parties for a court to interpret this agreement as follows:

This change was prompted by two things.

First, intend makes sense only with respect to that which you control.

And second, I recently completed a manuscript on the ways in which contracts attempt to preempt judicial discretion. That’s relevant for purposes of a severability provision, so I wanted to take a crack at expressing exactly what the dynamic is.

This is a work in progress. What do you think?

Because (@FlemingMF) posted on my blog way back in the early days, I’ve been in the habit of referring to him as “the ur-commenter.” But since I’m perhaps one of 227 people in this country familiar with use of ur– as a prefix, I’ve decided that “Commenter Zero” is a better moniker. Wear it with pride, Michael.

In any event, for old time’s sake Michael shows his face on the blog every once in a while. On his most recent visit, he told me that the recent federal trade-secrets legislation, the Defend Trade Secrets Act (DTSA), not only grants whistleblower immunity in certain circumstances, it also says as follows:

An employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee [or contractor or consultant] that governs the use of a trade secret or other confidential information.

For a useful guide to this, see this alert by Matthew J. Frankel of Nixon Peabody. In it, Matthew explains why you might want to ignore this requirement.

To paraphrase Matthew, if you fail to comply with this requirement, you wouldn’t be entitled to important potential remedies in a trade secret misappropriation suit. But nothing in the Defend Trade Secrets Act suggests that those remedies wouldn’t be available under state law, although developments in the law might preclude state law remedies.

That’s the downside of not complying with the DTSA requirement. Here’s what Matthew says regarding the downside of including a notice of whistleblower immunity in your contracts:

Even so, employers should think critically about providing a detailed notice of whistleblower rights if not providing such notice is unlikely to have any material negative consequences. Such a notice might encourage an employee planning or engaging in misappropriation to manufacture a bogus “whistleblowing” issue in order to shield or obfuscate his or her misconduct.

So you have to decide which downside you’re more worried about.

Here’s a suggestion of my own: if I include confidentiality provisions in a contract as a matter of routine and not because I have valuable confidential information that I’m concerned about, I wouldn’t bother about complying with the DTSA requirement.

With that preamble over, on to the main event! How should you word the notice in question?

Examples I found on EDGAR all featured varying amounts of padding. I suggest that you do the minimum: quote the immunity provisions and say that you’re quoting them as required by the DTSA. I don’t see any point in being coy and using a not-particularly-informative heading such as “Defend Trade Secrets Act Notice.” And in quoting the DTSA, it’s safe to eliminate the headings and the tabulation. So here’s my version:

Whistleblower Immunity. In accordance with 18 U.S.C. § 1833(b)(1), Acme hereby notifies the Employee that federal law states as follows:

An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

…

An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order.

I love it when after writing about a usage and describing it as awkward, I’m able to demonstrate that it’s not only awkward, it can also lead to fights. Today’s example of that is my December 2015 post about how to express termination with prior notice (here).

Today a reader emailed me as follows:

Suppose a termination provision of a contract reads, “After August 1, 2016, either party may terminate this Agreement, without cause, upon 180 days advance written notice to the other party.” Thus, would the earliest that a party is able to terminate the contract be:

(A) on August 1, 2016 (thereby providing the notice on February 3, 2016); or

(B) on January 28, 2017 (thereby providing the notice on August 1, 2016).

Interesting question! As discussed in my post, it’s conventional to refer to termination upon giving notice, which suggests that you’re terminating when you give notice. By that standard, under the provision cited by my reader you couldn’t terminate before you send the notice. On the other hand, as a matter of logic, termination doesn’t happen when you give notice—it happens 180 later. So I say it’s unclear what a court would say if it were called on to decide the earliest you could terminate.

This example involves awkwardness morphing into something that could lead to a dispute. Following the approach recommended in my December 2015 post would yield the following alternative:

If after [August 1, 2016,] [January 28, 2017,] either party notifies the other that it wants to terminate this agreement in accordance with this section X, this agreement will terminate at midnight at the end of the 180th day after the day the other party receives that notice.

It allows you to specify clearly which meaning you have in mind. No confusion, no possibility of a dispute.

Glenn West blogs. He has also grown a hipster beard and moved to Brooklyn.

Actually, that last bit isn’t true. But he did recently contribute this post to Weil Gotshal’s Global Private Equity Watch blog.

It’s about the recent decision of the Delaware Court of Chancery in FdG Logistics LLC v. A&R Logistics Holdings, Inc., to the effect that a disclaimer of reliance on extra-contractual statements of fact will be enforceable only if the buyer makes it,  not the seller.

Glenn is my preferred source for no-reliance information. Another of his tips prompted this post from a few months ago about another Delaware decision.

While I had Glenn’s attention, I mentioned that when he writes about disclaimers of reliance, it’s in the context of M&A. Are they also relevant for purposes of commercial contracts generally? Here’s what he said:

Yes, most definitely. My own unscientific and statistically indefensible survey of cases suggests that almost any contract capable of being breached is capable of being alleged to have been entered into based on fraud of some kind or the other. Whenever the contract provides insufficient relief for the harm supposedly inflicted to the aggrieved counterparty, that counterparty uses the realm of tort to supplement the realm of contract. So, a supply or service agreement easily could have the exact same issues as a M&A transaction in the area of fraud claims, particularly when the contractual remedy is capped at a certain dollar amount or by certain damages types.

That’s something I’ll pay more attention to.

Now, I can hear you shouting, “Adams, you a**hole, give us your no-reliance language!” Back off! You can find it in this 2012 post, tailored for a confidentiality agreement, based in part on input from … Glenn, of course. It would be simple to adjust it to make it fit other kinds of transactions.