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By Bill King

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Why You and Your Attorney Need to Pay Attention to Your Termination Clauses

I just read about how the three-year old Women’s Professional Soccer league has decided to postpone its 2012 season because someone allegedly didn’t read the franchise agreement when they kicked out the owner of magicJack (not the Emilio Estevez movie similarly titled Freejack, but the long-distance phone price-saving device). It didn’t have to go this way. There was a protocol set in place for addressing disputes and, according to a Florida judge, the WPS didn’t follow it.

Apparently Dan Borislow, magicJack owner, is a real jerk and a terrible owner. He allegedly treats his players horribly and doesn’t pay his franchise bills. Why he wants to continue to own the team makes no sense to me (I’d say the same thing about Donald Sterling, but the Clippers are finally for real). But, a contract is a contract. And somebody got bad advice or took good advice and swiftly ignored it.

This is why you have to really think about some of those terms you're signing

I imagine the conversation went something like this:

-WPS board: “Hey, lawyer, we hate this guy and want to get rid of him. Can we? Well, I know we can, but can we just, you know, fire him?”

-Lawyer: “I need to see the contract. Because even though you might think we lawyers are omniscient, I need to see if there are any well-placed commas or “ands” instead of “ors.”

-WPS board: “Here you go. It says something about us having to go through mediation or arbitration. Do we have to?”

-Lawyer: “Yes, I see it here. You’ve agreed to go to mediation first and he will have 30 days to agree or not. If not, you can then file immediately for arbitration. Or, if you have some claims that lie outside the contract, just file in court.”

-WPS board: “30 days?! We don’t want to have to wait. Can’t we just get rid of him now? Even if we go through some type of dispute resolution, we simply want him gone. What if we get rid of him and then dispute any money matters after the fact.”

-Lawyer [wanting to tell client what he thinks they want to hear]: “Well, you could do that. He probably won’t fight it. I mean, if he knows he’s not wanted, why would he want to stick around [ignoring any history about this guy’s behavior so far and apparently never dealing with a multi-millionaire before]?

-WPS Board: “Okay, so we don’t have to follow this contract we paid thousands of dollars to have drawn up and then fought over with other owners before finally signing?”

-Lawyer: “Well, I wouldn’t go that far, but it’s possible your strategy of not following this dispute resolution protocol will allow you to play the 2012 season and avoid dealing with this snake oil salesman.”

Without having access to much about the dispute, I can only guess that the reason for not following dispute protocol was a matter of getting the season underway without magicJack and that there wasn’t enough time to follow the contract. Oftentimes, this can work. But more often than not, in litigation, someone’s going to point out the protocol and insist on it. I think almost every time I attend court for a hearing, there’s always a status conference involving someone trying to enforce an arbitration clause. So that tells you something.

I’m reminded of a recent dispute with a construction client of mine. The owner stopped paying before the job’s completion and the client wanted to terminate. Without boring you, it’s pretty easy to walk off the job for non-payment, but there are protocols to follow if you want to avoid being bogged down by unnecessary defenses. As it turned out, the particular contract used included several particular notice and timing requirements where the owner had an opportunity to cure the defect or lack of payment. One included requesting assurance of the ability to pay in the future.

The problem? My client was dead set on terminating without giving the owner a chance to cure such that my client might be stuck finishing the job.

I wanted to be able to tell him, “just leave.” But that would have been irresponsible. I could have told him it was a strategy that might work and it would be the fastest way to end the relationship. However, it also would have been a trap-filled path to take. My prudence paid off. The owner has disputed some of the claims and asserted some claims of its own. But it can’t avoid its failure to provide the financial assurance. My client is free to terminate. I’ve also secured my client’s right to claim lost profits, which he wouldn’t have necessarily been able to do had he not followed the protocols for terminating.

Yes, there was a risk that the extra seven days might have resulted in a longer termination process. But in this case it worked out. Now, consider if we had cut some corners on this. When this case becomes a lawsuit, we wouldn’t have been able to rest on our compliance with the contract.

And look out for those mediation clauses. Sometimes, a party forfeits attorney’s fees they could have received had they followed the contract protocols and proceeded with mediation first.

Here's one way to teach Borislow a lesson

As for consequences, consider a 5-team women’s soccer league that has managed to survive for three years having to cancel a season and all of those players losing their salaries. Way to go magicJack.

 

~Bill

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