Corporate & Securities Law

The Importance of Issue Spotting

By Ken Adams

Most of what I do addresses how to express clearly and efficiently whatever you want to express in a contract. But that only goes so far, because no amount of clarity will help you if you simply mishandle an important substantive issue.

This story in the ABA provides a reminder of that. A Texas law firm retained an Arizona law firm to help it pursue an environmental class action. In the contract governing their arrangement, the Texas firm promised the Arizona firm that it would make certain additional payments to the Arizona law firm once any recovery exceeded a stated amount. The Texas firm won the class action, and the amount it recovered exceeded the amount required to trigger the additional payments. But the Texas firm refused to pay, because taking into account its expenses, the Texas firm had lost money in the class action.

The Ninth Circuit was unsympathetic?it affirmed the lower court’s summary judgment in favor the Arizona firm, holding that in the contract “recovery” meant gross, not net, recovery.

When structuring a contract, you have to play out in your mind all conceivable scenarios and make sure that the contract addresses them adequately. In this case, the Texas firm apparently failed to go through that process.

Full post as published by AdamsDrafting on March 10, 2008 (boomark / email).