Included in the extensive comments to my recent post “Language Requiring Deletion of Electronic Files” is a comment by Michael Fleming to the effect that it’s appropriate to impose on a party receiving confidential information an obligation to destroy all electronic versions of that information, regardless of whether that’s in fact possible to do. Michael suggested that whether the party is able to perform is irrelevant—that what matters is the risk allocation established by that provision.
This raises a broader issue:
As a general matter I’m uncomfortable with having a party promise to do something that it won’t in fact be able to do, either because the action in question isn’t within its control or because the action isn’t feasible.
The principal drawback to this sort of indirection is reader confusion—contracts should clearly address the parties’ concerns rather than hinting at them. But you also conceivably run the risk that rather than treating an impossible ongoing obligation as a risk-allocation mechanism, a court might disregard it entirely. (I haven’t looked for any caselaw on this.)
So rather than impose on a party an impossible ongoing obligation, it would make more sense to have them indemnify you against the consequences of whatever adverse circumstances you’re concerned about. Or you could forget about the risk-allocation component and turn the obligation from a flat obligation into an obligation to use reasonable efforts.
Let’s examine how this might play out in with regard to the issue under discussion in my deletion-of-electronic-files blog post:
Imagine that Acme is proposing to give me confidential information and has presented me with a draft contract that has me agreeing that at the end of the relationship I’ll destroy every last trace of that information. (Let’s assume that as a practical matter that wouldn’t be feasible.) I’d decline to undertake that obligation as written, on the grounds that it’s overbroad. The contract has me agreeing, in a separate provision, not to disclose any confidential information, and that would cover Acme if I were to disclose confidential information due to someone’s stumbing across information that I had failed to delete. An obligation to destroy confidential information would serve a different purpose: it would, depending on the circumstances, give Acme a basis for terminating or a basis for seeking an equitable remedy requiring me to destroy any undertroyed confidential information. That would be accomplished if the obligation to destroy confidential information were to incorporate a “reasonable efforts” standard. That’s what I’d ask for.
But let’s tweak the facts: The confidential information that Acme is giving me is in fact information that it obtained from Widgetco—in effect, Acme is the contractor and I’m a subcontractor. Whether due to poor advice or lack of bargaining power, in Acme’s contract with Widgetco Acme agreed that at the end of the relationship it would destroy every last trace of that information—that obligation wasn’t subject to a “reasonable efforts” standard. In its negotiations with me, Acme is insisting that I undertake the same obligation: if it is sued under that provision in its contract with Widgetco in connection with confidential information that Acme gave to me, Acme wants to be able to come against me on the same basis.
I’d be tempted to tell Acme that if it’s subject to any such action by Widgetco, for the reasons explained above it would be outlandish to expect that it wouldn’t be covered if our contract incorporated a “reasonable efforts” standard. I might also be tempted to suggest that if it’s still dissatisfied, then rather than imposing an unrealistic obligation on me, it would make more sense for me to agree to indemnify Acme for any losses or liabilities it incurs due to my failure to delete any confidential information. But ultimately I’d accept Acme’s demand: in the interest of symmetry and simplicity, it would make sense for the language in my contract with Acme to track that in Acme’s contract with Widgetco.
Let me phrase this more generally: The one context where it might be appropriate to undertake an obligation that might not be feasible is if you’re a subcontractor and the obligation tracks an undertaking of the contractor. But I wouldn’t take that too far: if the contractor agreed to something really unreasonable, I wouldn’t follow them off the cliff.
I know that Michael Fleming is more than a little passionate about this issue. I hope this doesn’t cause you to blow a fuse, Michael!
I have to agree with Ken. If we focus on the fundamental goal of a contract, that goal is to create trust. By having finely honed, clearly specified obligations that each side is prepared to enforce if there’s a breach, both sides have a huge incentive to follow through on their obligations. Inserting an obligation knowing that the other party can’t fulfill does not serve this goal. It also creates ill will and means an unnecessarily long negotiation to argue this point. Moreover, companies almost never monitor, follow up or enforce their confidentiality agreements. So negotiating this point adds little value to the client if there are already nondisclosure and indemnification provisions covering this risk.
Thank you to everyone for the suggested language on electronic file deletion and thoughts on the larger context. I found many of the suggestions quite helpful.
In general, I agree with this latest post. With advances in electronic discovery, the potential for these indestructible electronic files to emerge seems to be increasing. Let’s set aside the questions of whether I can eventually prevail on an argument that the obligation to destroy was not reasonable or that no damages occurred. How do I explain to my clients that I allowed them to agree to a provision that we all knew was impossible to follow?
Regarding the risk allocation line of comments, I do not see why that philosophy is inconsistent with a desire for precision on this topic. By using some of the limiting language some suggested, we are essentially acknowledging that inherent risks exist in the nature of exchanging electronic documents. I am comfortable arguing that those risks should rest with the party that made the decision to disclose the electronic files.
Thanks again, everyone.