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A Few Tips to Help Sellers Avoid Omissions in Commercial Real Estate Contracts

4/30/2015

Sometimes, what you don’t know can hurt you.

Preparation of a commercial real estate purchase agreement can be challenging for the inexperienced. Although the parties will generally have reached agreement on the price, the devil is in the details. The first draft of the contract is often the buyer’s responsibility. The seller's attorney must then revise the agreement to ensure maximum protection for the client. Aside from revising the purchaser's draft agreement, it is important to determine what provisions are missing from the purchaser's draft. Buyers often leave out certain provisions which are to their disadvantage. Below are a few suggested provisions that are important for sellers to keep in mind when examining their real estate contracts. If the following items are not addressed in your potential buyer’s proposed draft, then you should consider including them.

“Time is of the essence” clause: This helps buyers from dragging their heels during the sales process. Include a hard deadline after which point, if the sale has not yet closed, the seller may pursue other buyers for the property.
Clarify term of representations and warranties: The buyer’s draft will contain a laundry list of seller representations and warranties. If the draft agreement is silent as to whether the seller’s representations and warranties survive closing, a seller should not allow the issue to remain ambiguous. The seller should add language stating that its representation and warranties do not survive at all or that its representations and warranties survive for an agreed upon period but no longer. Whether the buyer will accept a clause that limits survival is a topic of negotiation that will depend on the negotiating power of the two sides.
To the best of seller's knowledge: While the representations of the buyer's draft agreement will generally be unqualified, the seller will often qualify the representations as being "to the best of seller's knowledge." The seller's modification is certainly better than an unqualified representation, but such language could be interpreted as requiring the seller to investigate the facts of the clause at issue or be charged with constructive knowledge based on the knowledge of its employees. To avoid these uncertainties, it is recommended that the seller include a definition of knowledge which limits knowledge to the actual, subjective knowledge of a named individual and expressly excludes constructive knowledge, imputed knowledge and any duty to investigate. Once defined, the same knowledge language should be used throughout the contract where a representation of knowledge is called for.

Binding only once fully-executed: There is some support to the argument that versions of an agreement that were passed back and forth--over email or otherwise—could be considered legally-binding contracts, even without there being a final approved and signed version. Therefore, it is recommended that the seller include language making it clear that the document draft is not an enforceable contract until and unless both parties have executed the final version of the agreement.

These are a few recommendations. Attorneys for both sellers and buyers may want to create a checklist of issues so that nothing is left to chance. Future blog posts may feature additional provisions that should be considered by parties negotiating commercial real estate contracts.

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US Courts Can Provide a Powerful Tool in Obtaining Evidence for Foreign Disputes (28 U.S.C. § 1782)

4/30/2015

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An international legal practitioner seeking to obtain discovery in the United States for use in a foreign legal proceeding has a powerful tool available: 28 U.S.C. § 1782, which allows parties involved in a dispute outside the United States to obtain evidence by bringing a proceeding in the US that they would not necessarily be able to obtain in the jurisdiction of the dispute. Under Section 1782, federal courts frequently grant petitions for judicial assistance—ordering the production of documents, as well as depositions of witnesses—provided that three statutory requirements are met: (1) the request for discovery is made "by a foreign or international tribunal" or "any interested person"; (2) the discovery requested is "for use in a proceeding in a foreign or international tribunal"; and (3) the person from whom the discovery is sought resides, or is found, in the district of the federal district court where the request has been made. If these statutory requirements are met, the district court may exercise its discretion and grant the petition.

There are a number of issues to be aware of in seeking discovery via Section 1782. One issue debated by federal courts is whether Section 1782 permits discovery of documents that are located outside the United States where the party from whom discovery is sought is located in the United States. Additionally, U.S. courts have rejected the notion that a party must first try to obtain the discovery in question from the foreign tribunal before resorting to § 1782. In fact, even if the foreign tribunal declined to compel discovery, a party may still obtain discovery in the U.S. However, a U.S. court will deny discovery if it concludes that the foreign tribunal will not consider or will be offended by the discovery obtained in the U.S.

There is also a split among federal courts as to whether Section 1782 is available where the foreign proceeding is an arbitration. In Intel Corp. v. Advanced Micro Devices, 542 U.S. 241 (2004), the Supreme Court’s only decision addressing Section 1782, Justice Ginsburg opened the door by quoting the positive view of Columbia Law School professor Hans Smit, but did not decide the issue. Since Intel, federal courts have split over the issue. Compare In re Application of Oxus Gold, 2006 WL 2927615 (D.N.J. 2006) (granting petition) with In re Operadora DB Mexico, 2009 WL 2423138 (M.D. Fla. Aug. 4, 2009) (denying petition). The issue appears to hinge on the definition of the word “tribunal” within the meaning of the statute. Few Circuit Courts have considered the issue. However, the Third Circuit has held that a “bilateral investment treaty arbitration” “unquestionably” constitutes “use in a proceeding in a foreign or international tribunal.” In re Chevron, 633 F.3d 153 (3d Cir 2011). It is unclear whether the Court’s decision would apply to a private commercial arbitration.

Because of these and other distinctions among federal courts, it is critical that a petitioner’s counsel become familiar with local precedent before deciding on the commencement of a Section 1782 proceeding in connection with a foreign proceeding. Given the fractured nature of the precedent, parties seeking discovery should consider whether they will be making an application in a favorable jurisdiction. The benefits of § 1782 discovery can be significant, and parties engaged in foreign proceedings should consider its use to obtain evidence that would otherwise be unavailable.

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Playing to a Full House: All Active Judges of Federal Appeals Court to Hear Music Group’s Appeal

4/30/2015

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In an interesting turn of events, the future of the ongoing Washington Redskins trademark case could hinge on the outcome of an appeal made by an Asian-American dance rock band, after their request to register the mark “The Slants” was denied by the Patent and Trademark Office (PTO). The Trademark Trial and Appeal Board cancelled the registrations of a number of the football team’s trademarks last June. Although the music group’s founder, Simon Tam, has expressed his own opinion on how the two cases differ, the common denominator is a legal precedent set back in 1981, which applied § 2(a) of the Lanham Act as the basis for supporting the PTO’s power to deny a trademark that they deemed to be “immoral…or scandalous.” In the present two cases, the Lanham Act was interpreted to cover the reversal and refusal, respectively, of trademark registration for the sports team and band names that might be considered disparaging to an individual or group stereotypically associated with the terms in question.

Last week, the U.S. Court of Appeals for the Federal Circuit affirmed the PTO’s trademark denial of “The Slants,” agreeing that the band name could be perceived as offensive to Asian groups and individuals. In the very same ruling, however, Judge Moore included a section entitled “additional views” in which she explored the question of whether such a far-reaching legal power—banning registration of marks with potentially disparaging content—should be part of the PTO’s role, or if it perhaps violates the First Amendment. In the words of Judge Moore, “It is time for this Court to revisit McGinley’s holding on the constitutionality of § 2(a) of the Lanham Act. Under § 2(a), the PTO may refuse to register immoral, scandalous, or disparaging marks." In light of the fact that the usual three-person panel of the Federal Circuit would not have sufficient power to overturn the legal precedent, the Court has made the rare decision to sit as one and hear the case “en banc,” with all active Circuit judges participating.

Over the years, the Lanham Act has been used inconsistently and it is not objectively clear why some potentially offensive marks were disallowed, while other seemingly similar marks were registered successfully. The Slants’ frontman Tam hopes that this time the outcome will fall in their favor, thereby advancing his goal of re-appropriating stereotypical terms and empowering minority groups. Many people are following the case, as they see this as relevant to the ongoing Washington Redskins trademark case, and an important discussion about freedom of speech. The status quo in the Redskins case is based on the argument that the team name, logo, mascot, and identity are disparaging to Native American groups and individuals. If The Slants’ en banc case overturns the McGinley precedent, the Redskins’ pending appeal would likely be influenced as well, and they might have a better chance of reclaiming ownership of their federal trademark registrations.

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Beyond The Legalese

A Few Tips to Help Sellers Avoid Omissions in Commercial Real Estate Contracts

US Courts Can Provide a Powerful Tool in Obtaining Evidence for Foreign Disputes (28 U.S.C. § 1782)

Playing to a Full House: All Active Judges of Federal Appeals Court to Hear Music Group’s Appeal

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