U.S. 8th Circuit Contract Cases

Post image for Revisiting “No Reliance” Language in Contracts

A (fairly) recent 8th Circuit case reminded me of the importance of including “no reliance” language in even simple contracts.

Exploring the idea of drafting simplified contracts for simple situations, I posted a sample contract for a sale of goods a couple of years ago. The idea was to draft a B2B contract that would afford minimum effective legal protection in situations where there’s no special reason to think that the agreement would be litigated. A reader left the following comment and I revised my form agreement in response:

The Disclaimer of Warranty and Entire Agreement clauses are very likely insufficient to negate claims of fraudulent inducement. I would suggest having a clause to address a potential fraudulent inducement claim even under a “minimum effective legal protection” scenario to decrease the buyer’s opportunity to manufacture factual disputes that would preclude a dismissal in seller’s favor. Language acknowledging that the Buyer is entering into the agreement based only on its own inspection of the goods (even if the seller has superior/peculiar knowledge of the goods) and an acknowledgement that Seller has made no representations about the goods may help.

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You’re a franchisor and the term of your franchise agreement is five years, but you can terminate it early for cause. The term and termination provision also auto-renews. Do you have the right to elect not to renew the agreement at the end of the initial term or a renewal term? Or are you on the hook for ever if the franchisee doesn’t give you an out by materially breaching the agreement?

To help you analyze the issue, here’s the first part of the term and termination provision: “The initial term of this Agreement shall begin on the date hereof and, unless sooner terminated by [the franchisor for cause] as provided in paragraph 6, shall end five years after such date, and shall automatically renew itself for successive five-year terms thereafter (the ‘renewal terms’).”

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Semi-Materials Co., Inc. v. MEMC Electronic Materials, Inc.

MEMC manufactures polysilicon, which is used to manufacture semiconductor chips and solar cells. Starting in 1996 MEMC’s wholly-owned subsidiary MEMC Pasadena, Inc. entered into informal, short-term arrangements with Semi-Materials’ predecessor-in-interest to help MEMC Pasadena sell silicon, and later silane gas, in South Korea in exchange for sales commissions.

In 2003 Semi-Materials and MEMC Pasadena entered into an agreement whereby Semi-Materials was appointed MEMC Pasadena’s exclusive sales representative for the sale of polysilicon and silane gas in South Korea. Under the agreement MEMC Pasadena would pay Semi-Materials a commission on all polysilicon and silane gas sales that were “purchased from [MEMC Pasadena] by the user of the PRODUCTS and delivered by [MEMC Pasadena] to a site within [Korea]” according to the compensation percentage rates listed in Appendix A.

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Wells Fargo Bank, N.A. v. WMR e-PIN, LLC

The scope of an arbitration agreement can be expanded by positions taken by the parties in arbitration proceedings.

Wells Fargo brought claims against WMR e-PIN and other respondents, alleging breach of contract and misappropriation of trade secrets. The claims arose out of a software licensing agreement and other contracts which contained binding arbitration provisions.

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Anderson v. Hess Corp.

The word “or” can cause confusion in a contract that can be expensive to resolve when the assistance of lawyers and federal judges is required. Diligent drafters should be on the lookout for potential ambiguity in order to avoid unnecessary expense and litigation. Anderson v. Hess Corp. is a case in point.

The Andersons, along with the owners of several parcels of land that adjoin the Andersons’ land, were parties to an oil lease with Hess Corporation. The lease automatically renewed at the end of its term if Hess Corporation was then conducting “drilling or reworking operations.”

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Two cases decided by the Eighth Circuit in the latter half of 2011, Viasystems and KV Pharmaceutical, serve as a reminder that activities undertaken while negotiating and performing contracts can have a bearing on personal jurisdiction issues if the contracts are litigated.

Viasystems, Inc. v. EBM-Papst St. Georgen GmbH & Co., KG

In Viasystems, a corporation based in Missouri sued a foreign supplier for breach of contract, among other things. Viasystems sued in the United States District Court for the Eastern District of Missouri and the supplier moved to dismiss for lack of personal jurisdiction. The trial court dismissed the case, and the Eighth Circuit affirmed on appeal.

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Monarch Fire Protection Dist. v. Freedom Consulting & Auditing Services, Inc.

According to the Eighth Circuit’s opinion in this case, under Missouri law a party to a breach of contract action can recover attorneys’ fees for enforcing its rights under the contract via an indemnification clause only if the clause expressly allows for it. But Judge Gruender took issue with that characterization of Missouri contracts law in his dissent. The Missouri Supreme Court might clarify the issue in the future, but in the meantime, the careful drafter would be advised to be crystal clear when the parties intend to maintain the right to recover attorneys’ fees incurred in inter-party litigation. [click to continue…]

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Owatonna Clinic — Mayo Health System v. Medical Protective Co. of Fort Wayne, Indiana

Owatonna Clinic — Mayo Health System sued Medical Protective Company, its medical malpractice insurer, for refusing to defend and indemnify it in a malpractice suit. Medical Protective’s defense was that Owatonna had not complied with the insurance policy’s notice requirements. The United States District Court for the District of Minnesota ruled in favor of Owatonna Clinic, and Medical Protective appealed.

A claims-made policy, the clinic’s malpractice policy covered only claims submitted during the policy period. [click to continue…]

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Safety National Casualty Corp. v. Austin Resolutions, Inc.

Safety National Casualty Corporation (“Safety National”) engaged Austin Resolutions, Inc. (“Austin”) to negotiate savings on bills from a hospital. The bills were Safety National’s responsibility by virtue of a claim against an excess workers’ compensation policy Safety National had issued. Under the oral agreement between Safety National and Austin, Austin was to be paid 25% of any savings it negotiated.

The claim under Safety National’s excess liability policy arose out of serious injuries sustained by an employee of Safety National’s insured in a car accident while on the job. [click to continue…]

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Dingxi Longhai Dairy, Ltd. v. Becwood Technology Group, L.L.C.

Becwood, a Minnesota-based distributor, contracted with Dingxi, a Chinese supplier, to purchase a large amount of organic Kosher inulin. Becwood planned to sell the inulin to Stoneyfield Farm, Inc. for use in yogurt products. Dingxi shipped the product in four separate shipments. Becwood paid for the first shipment in full before its arrival, but then rejected all four shipments claiming that the product was contaminated with mold.

Dingxi recalled the third and fourth shipments before they reached their destination ports and sued in the United States District Court for the District of Minnesota for breach of contract and misrepresentation seeking to recover the full price for shipments two, three, and four. [click to continue…]

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