A contract signed without legal review may place you at risk.
Among trial lawyers, it is called a “bet the company” case, which simply means if you lose the case you are out of business and bankrupt. Chuck Johnson and Mary LeVine recently went to trial on a true “bet the company” case and prevailed.
In 2013, our client, a specialty manufacturer, was approached by a provider of welding and related services in the power generation industry. The parties discussed how they might work together for their mutual benefit. The other side mentioned that they thought a “contract of sorts” would be appropriate. The contract the other side prepared without counsel was only four pages and seemed straightforward enough. Indeed, it seemed so straightforward that the client signed it without counsel.
After the honeymoon ended, the other side filed for arbitration in Minnesota per the terms of the contract. Initially, the claim was for $130,000. In September, 2014, the first depositions were taken in Florida. The parties also had an unsuccessful settlement meeting. As an aside, the other side traveled to the Florida meeting and depositions in their $3,000,000 jet. Later that month, things got more interesting. The other side paid a $40,000 filing fee with the American Arbitration Association and amended their claim to seek $209,000,000 in damages. The new claim sought damages for lost profits on a nationwide basis over 10 years. The reaction to the new enormous claim was mixed. On one hand, the claim seemed absurd and overreaching. How could a rational arbitrator award $209,000,000? On the other hand, if the arbitrator agreed with the claim – or even a small percentage of the claim – or even the methodology of the claim, then the life’s work of the client would be lost. To add to the risks, there is almost no right of appeal from an adverse arbitration ruling.
The case went to trial in a Minneapolis conference room at the American Arbitration Association. The arbitrator heard from 15 witnesses and received almost 400 exhibits in evidence. At the end of the trial, the arbitrator took the matter under advisement and indicated he would email his ruling to the parties within 30 days. In the ruling, the arbitrator evidenced a superficial understanding of the facts, but he got the main point exactly right. The arbitrator found no breach of the contract and that our client was no longer bound by the 10-year term of the contract.
The moral of the story is in two parts. First, a contract signed without legal review may place you at significant risk. Sometimes the risks are concealed by legal jargon and sometimes they are so obvious they are overlooked. Second, arbitration is risky. There is almost no ability to “fix” an adverse arbitration decision. You should only give up your right to a trial by Judge/Jury with a complete understanding of the consequences.