Alaska Law Blog

Look, I’m willing to admit it. It’s nothing to be ashamed of, not really. Just because most everyone else does not feel this way is no reason that I should deny my true nature. You see, the thing is, I have to confess something: Arbitration clauses in contracts make me nervous.

Yes, I know, I know. Arbitration is trendy, arbitration is hip. It’s as cool as wearing sunglasses on a rainy night in Belltown. It’s as fashionable as those ugly plastic clogs with the holes in them. It’s as scenester as post-post-emo rock. Arbitration is so cutting edge that all those boutique lawyers who are putting the clauses into their copyrighted, intellectual property have paper cuts all over their hands. I mean, Dawg, what sort of hipster doofus doesn’t think that arbitration is just da wicked phat bomb?

Well, actually, that hipster doofus would be me. I paw through a lot of contracts. And every time I get to one where there is an arbitration clause (it's happening with greater frequency), I wince. Usually I reach in my desk drawer and pull out the faithful red pen, a/k/a d’Artagnan. A swift stroke of d’Artagnan’s blade and the clause is excised from the contract, tossed back into the ever flowing river of the law like so much salmon guts.

I don’t like arbitration clauses because arbitration can be a half-a-loaf deal. No matter how right your client may be in whatever the dispute is, arbitration carries with it a built-in pressure to compromise. People don’t like absolutes and usually look for a way to reach what they consider to be a happy medium. And arbitrators are people just like everyone else (or at least most of them are). So arbitration cases often result in a half-assed compromise decision that pleases neither side.

Plus, arbitration is outlaw territory. The rules the rest of us have to live by don’t apply in the land of arbitration. For example, the law is well-established in Alaska that a landlord of a commercial property can distrain for rent due, at least when the lease provides for it. (To “distrain” means to hold the tenant’s personal property until he pays up.) But an arbitrator is not obligated to follow the law. Some of them seem to know this. An arbitrator can decide that distraint is a barbaric custom that should have gone out with maiden rents. So the arbitrator can rule the landlord was wrong to distrain the tenant’s property and must pay the tenant damages for doing so.

And once the arbitrator rules this way there is almost nothing you can do about it. The courts won’t overturn an arbitrator’s decision absent showing out-and-out bribery occurred, or something close to it. The fact that the arbitrator was a stubborn pinhead who ignored the governing law on the subject gets you precisely nowhere in court. The arbitrator has ruled and the client is just plain stuck with that decision.

Sure, there can be instances where arbitration makes sense for some clients. When the client wants efficiency above all else, or when the client is a big corporation that is concerned about what a jury might do, arbitration would be logical. But in too many instances, arbitration is just a way to double-down on the regrettable uncertainty that is already built into the legal system.

So I have to confess that I’m way out of step with enlightened society on this. But what else would you expect from a hipster doofus lawyer who gives names to his pens?

By the way, did you know that the real person who inspired the character of d’Artagnan in Dumas’s books was killed in 1673 at the siege of Maastricht? The Musketeer caught a musketball in the throat. You can almost see him standing at the gate to the city, leading the charge with his rapier pointed forward. "One for all, and all for [bang!] . . . . gurgle . . . gurgle . . . gurgle." It would have been ironic that a gun was used to kill the greatest swordsman in all of France, if they actually had irony back in those days. (I think of this every time I get red ink on my fingers.)

I discussed the topic of contract conditions in an earlier blog posting. This got me thinking about conditions that require the personal satisfaction of one party to the contract. For example, the contract may provide that Harry Houdini only has to pay Magic Tricks, LLC for a new water escape chamber if Harry is satisfied with the chamber’s construction. If Harry does not like the completed chamber because it leaks water all over the stage, then Harry will be excused from his obligations under the contract.

Personal satisfaction conditions bedevil the law for a variety of reasons. Often the contracts are not written clearly enough to make the satisfaction condition truly personal. The law generally takes the view that an objective standard is to be used to determine whether the condition has been met or not. Like in Harry’s case, where a leaking water escape chamber is something no one really wants. If you are going to use one of these things, you pretty much want it to be watertight. The theatrical effect of the whole escape is lost when all the water drains out of it so that you can breathe normally while you wiggle out of the padlocks and chains.

But the situation would be different if Harry did not like the chamber because Magic Tricks, LLC used brass rivets instead of copper ones. The functionality of the chamber would not be diminished then. Its just that Harry has a weird thing for copper since he thinks copper better transmits the “good vibes” of the spirit world. Harry will have a hard time avoiding having to pay for the chamber with the brass rivets because objectively there is nothing wrong with the chamber. Harry needs to have his contract clearly written to say that his personal judgment is the one and only standard by which satisfaction can be measured.

Only when the contract is one that involves "personal or artistic" matters does the law assume the personal judgment of the party to the contract is the measuring stick for satisfaction. In this area, the law sensibly recognizes that there is no accounting for taste. So if you make a contract to commission a piece of artwork you can pretty well count on your personal satisfaction being the only measure of satisfaction.

A good example of this would be the sculpture the Anchorage Museum commissioned for its new expansion project. The Museum picked a UK artist, Antony Gormley, and paid him $350,000 to come up with a suitable work of art to sit on the lawn outside the new addition. The sculpture Mr. Gormley designed for Anchorage was a cubist, block-style rendition of a squatting man. It’s a design that I have taken to calling the “Gerund Man,” ever since the Dear and Esteemed Wife pointed out to me that it looks like the figure is in the process of evacuating his bowels.

The name “Gerund Man” seems to fit since the guy is demonstrating any number of gerunds. (If you recall junior high school English, gerunds are verbs that are transformed into nouns and take the ending “ing”.) You see, Mr. Gormley has designed for us a fellow taking a dump, pinching a loaf, dropping a deuce, firing off a missile, launching a p-u boat and spawning a brown trout.

The proposed sculpture caused a bit of a stink when it was announced. There was a high-toned debate between two University artist types in the Sunday paper one week, although neither one mentioned the excretory aspect of the proposed work. The objection of the guy writing against the artwork was that it did not seem very Alaska oriented. But that issue can be easily remedied. Just put a cubist rendering of an outhouse around the guy, or maybe round out the base he’s squatting on so that it artistically resembles a five gallon pail. There’s nothing more Alaskan than depositing a dookie in a honey bucket.

Still, one might hope that the Museum’s contract with Mr. Gormley has a personal satisfaction clause. As long as the Museum Board isn’t afraid to declare that the Emperor has no clothes, they should be able to invoke their own personal dissatisfaction to get their money back. There's no accounting for taste, I know, but I’m pretty sure that an artistic rendering of pumping out a pile on the Museum’s lawn is not acceptable, even under a purely objective standard.

Anchorage would not be the first community to reject one of Mr. Gormley’s sculptures. The hip and progressive city of Seattle found that Mr. Gormley tested even its limits. For Seattle, Mr. Gormley designed the sculpture of a 39-foot-high standing figure of a man that would have been placed along the waterfront, facing Elliott Bay. The sculpture would have been plumbed with a fountain that shot a stream of salt water from the figure’s loins into the bay every five minutes. (The UK reports on the design described the water as shooting out of the figure's "metal todger.") The city council decided not to proceed with the project because it felt that even Seattle was not yet ready for “Ejaculating Man.” Perhaps the termination of the project came through the failure to satisfy the condition imposed by a personal satisfaction clause in the contract.

You see it again and again in lawsuits over contracts. Almost everyone gets confused when its comes to conditions. The courts frequently mess up on the rules that apply to conditions. The lawyers often don’t realize the problems they are dealing with involve conditions. And the clients don’t even know what conditions are. The result is that some poor schmuck who has charged off suing the other side thinking he was given the shaft gets smacked down in court. The poor schmuck finds out that, because of the failure of a condition, the shaft was part of his deal all along.

A condition in a contract is simply something that has to happen before something else happens. Easy to say, but not so easy to apply. Conditions are imposed on one party’s obligation to perform under the contract. The contract might say, for example, that Andy Hardy does not have to buy Aunt Milly’s house until Andy Hardy first sells his existing home. If Andy Hardy cannot sell his existing home then the condition has failed and he is never obligated to actually fork over the money for Aunt Milly’s house.

But what if Andy Hardy does not really try very hard to sell his existing home because he’s too busy “pitching some woo” with Polly Benedict? Can Aunt Milly take Andy to court and complain that Andy’s out-of-control hormones kept him from making a decent effort to fulfill the condition? This gets us into conditions creating "implied promises" and the ever popular "excuse of conditions." Aunt Milly might have a good case here, if you can ignore the fact that Andy’s dad is Judge Hardy.

Conditions can be tricky because the contract may not make it clear exactly what is a condition. Time deadlines are often put in contracts but the deadlines are not always stated as being a condition to performance. The courts are no help in straightening the situation out because judges don’t really like conditions very much. The failure of a condition means the jackass on one side of the deal does not have to deliver on his promise. For some odd reason, this raises a judge’s hackles. So a judge can go to some lengths to say that the time deadline in the contract that every normal person would think is pretty darn important does not really mean much at all.

The sale contract says: “The closing deadline shall be April 1, 2008.” When Andy Hardy fails to show up at the title company on that date with his dough, Aunt Milly calls the deal off and makes a separate deal to sell her house to Beezy Anderson for more money. So Andy takes Aunt Milly to court to force her to sell the house to him. Not surprisingly, Judge Hardy sides with his boy Andy on the matter. The old judge (who might well have sat in contracts class with a young Charles Kingsfield) rules the closing deadline wasn’t a condition after all. It was more like an aspirational guideline. So it was okey-dokey for Andy to take a couple of extra weeks to get his cash together and wander into the title company with it. (Besides, Andy had to go to the doctor to get treatment for the social disease he caught along with Polly’s “woo.”)

Poor Aunt Milly’s lawyer is left outside the courthouse scratching his head as to what part of the word “deadline” the judge did not understand. But what the guy really needed in his appearance before the Honorable Old Fogey was a contract provision that said: “The closing deadline shall be April 1, 2008, time being of the essence. The parties’ obligations to close are expressly conditioned on the deadline being met.” (That last sentence is actually redundant, since "time being of the essence" is a phrase of art that means performance on time is an express condition. But you can't count on judges actually knowing this, since its not explained on red wine labels or anything else a judge is likely to actually read. So it does not hurt to use the lawyer's trick of saying the same thing over again in a different way. In fact, if I was writing the contract, I would be tempted to drive the point home by adding the line: “And judge, we really, really mean it.")

The law on contract conditions can get trickier still when you delve into the necromancy of “constructive conditions” and the accompanying two-headed beast of "substantial performance/material breach." The law here is filled with vague lists of "factors" that have to be considered, along with brain-numbing concepts. Its enough to make strong men and women of the Bar promise the Lord-High-Chancellor-of-Us-All that they will swear off “woo” forever if they can just get a clue about what the heck this legal mumbo-jumbo means. If you have the ill-fortune to stumble into this area, you might be able to figure out the nuances of the law after a good bit of study. But you are going to have a damned hard time getting old Judge Hardy to follow along, especially after he's had a glass or two of red wine.

Mark Twain said, “The difference between the right word and the almost right word is the difference between lightning and a lightning bug.” I’ve been mulling over Twain’s words as I sit here at the Commercial Law Juggernaut that is the southwest corner of Atkinson, Conway & Gagnon.

It is appropriate that this topic comes up just before the fateful Ides of March because any number of misfortunes can befall the hapless, gentle businessperson who ends up using the wrong set of words. Like a big unexpected expense, if the gentle businessperson who is selling a few truckloads of logs uses the phrase “FOB” when she meant to say “FAS.” I had a client actually do that once. By chance, I got a look at the contract right before it was to be signed. I was just in the nick of time to explain that “FOB” means “free on board” and that the client had to pay for the cost of loading the logs. This is in contrast to “FAS,” which means “free alongside” and obligates the buyer to pay for the loading. The client was glad there was a Commercial Law Juggernaut backing her up on that day.

There can be any number of ways of saying the same thing, but the words used can give a completely different sense to it. For instance, let’s take the beginning of William Shakespeare’s famous funeral oration from Julius Caesar. In the oration, Mark Antony is eulogizing Caesar, who Brutus and others murdered on the Ides of March (depicted below in a painting by Vincenzo Camuccini).

Shakespeare started the oration this way:

Contrast Shakespeare's words with those of Beat Generation cult figure Lord Buckley, who re-wrote the passage this way:

(That last line is, of course, a take off from a different Shakespeare play, Hamlet. But you can’t expect an inventive mind like Lord Buckley's to always color inside the lines.)

Now Shakespeare -- who Buckley called “Willie the Shake” -- and Buckley were both writing about the exact same thing. The words each chose, however, gave the oration an entirely different tenor. The same thing can happen with commercial contracts. You might mean to say that your obligation to deliver that load of logs is conditioned on the weather allowing you to cut the timber, but it might not come out that way on paper. If you use the almost right word instead of the right one, your contract could excuse you from performing when a plague of lightning bugs descends rather than when unusual lightning and rainstorms occur.

So whether you are a gentle businessperson, or a Roman, or a finger-poppin’ daddy, beware the Ides of March and the opacity of the English language. The jazz a bad contract blows can wail long after the deal has been cut out.

* * * *
Brush up on your Shakespeare! You can read all of Willie the Shake’s plays in their entirety on-line: Shakespeare On Line.

Information on the one and only Lord Buckley can be found here: Dig Lord Buckley!

A short biography of Neoclassic painter Vincenzo Camuccini is posted on Wikipedia: Camuccini Bio.

February 2008 has been the month for closing commercial real estate deals here at Atkinson, Conway and Gagnon. In the first two weeks of this month alone, I have personally closed a half dozen transactions in which something like $20 million has changed hands. I say “something like $20 million" because they do not actually let me handle the money itself in these deals. I just make it possible for the money to get passed around amongst the other kids on the playground.

The deals this month have ranged from helping a client sell a couple of office buildings to assisting a client in buying a Midtown trailer park. (Earl Hickey, Come On Down!) Its always gratifying to see a deal come together and successfully close.

Some deals are harder to get closed than others. The deals over the office buildings were particularly troublesome. While my client was in Anchorage, the buyers were a couple of Delaware limited partnerships run by a guy in New York with a lender in Seattle and a lawyer and title company in Washington D.C. The money also had to go through a bond broker and bond trustee before any of it could find its way into my client’s pockets. All the e-mails scurrying back and forth amongst this crowd trying to pull these deals together could have crashed and melted the entire computer infrastructure of any number of Central Asian countries. Like the Republic of Uzbekistan for instance, where the President-For-Life has his very own Apple IIe sitting on his desk.

(I made that last part up. The Uzbeks can actually boast that a whole 15% of their universities in the capitol city of Tashkent have access to e-mail and the Internet: Uzbek Internet )

And speaking of Uzbekistan -- truthfully, how often does that country come up in the course of a day? -- I just had to mention that the Uzbeks issued a terrific postage stamp a few years back. The 20 kopeck stamp shows just how highly regarded the Unibrow is in the rest of the world and how backwards we Americans are when it comes to the appreciation of female body hair. (Note that this gal -- Princess Nodira, the wife of Omar Khan -- bears a strong resemblance to Princess Jasmine of the Disney movie Aladdin, except that the lame Disney animators gave Jasmine a wax job on the eyebrows in order to be more politically correct for Western audiences. It just goes to show that the PC police can take the fun out of everything, including facial hair and trailer parks.)

Anyway, the deals for the office buildings turned into ordeals. I had my client twice sign the impressive pile of the closing documents just to have the buyers fail to come through with the money to pay for the buildings. Arghh! Here another man might have initiated an e-mail flamefest using some choice legal terms like “material breach,” “consequential damages” and “sniveling weaselface.” But I held my fire and listened to the client. For some reason, he was anxious for the deals to go through and not so anxious to pay through the nose to have his lawyer sue the other side. We sat on our hands for a few days until – REJOICE! -- the money appeared. After a third round of document signing, the deals were completed.

And so my friends the lesson to be learned is that the Art of the Deal takes many forms, one of which may include chewing your fingernails whilst doing nothing else in particular. Other than perhaps working on your stamp collection, or maybe keeping an eye out for a clean, low mileage double-wide to fit in that open trailer park space you just happen to know is available.

The Alaska Supreme Court issued two new opinions today. Moore v. Peak Oilfield Service Co. reaffirmed prior Alaska Supreme Court case law that a defendant in a civil personal injury lawsuit who is convicted of driving while intoxicated must be found to have acted negligently and reckless as a matter of law. The Court further clarified that such a ruling did not preclude the defendant driver from arguing that his or her negligence/recklessness was not a legal cause of the plaintiff's injury.

In Amerada Hess Pipeline Corp. v. Regulatory Commission of Alaska, the Alaska Supreme Court affirmed the Superior Court's finding that shipping rates charged by the owners of the Trans-Alaska Pipeline were unreasonable and unjust from 1997 to 2007 and that refunds must be given. The Alaska Supreme Court did not address the issues raised by the pipeline owners, but incorporated by reference the Superior Court's 44 page opinion.

A popular form of incorporation that Atkinson Conway & Gagnon often deals with, both in creating them and in structuring deals using them, is the Limited Liability Corporation. There is, however, a nasty little penalty lurking in Alaska’s Limited Liability Company statute that both other practitioners in this state and owners and managers of those LLCs should be aware of.

As with most business forms, members of an LLC have a statutory right to review the books and records of the LLC. What is different about LLCs, is that if a manger or member of an LLC refuses a member’s rightful demand to examine the books of the LLC, that manager or member is personally liableto the demanding member for a penalty in the amount of either $5,000 or 10% of the value of the demanding member’s interest in the LLC, whichever is greater. Consequently, by refusing a rightful demand to review the books and records of an LLC, a manager or member of an LLC runs not only the risk of litigation to compel production of the books but personal liability that, for a highly valued LLC, could be hundreds of thousands of dollars.

So think twice about shooting off that snide letter to your business partner, telling him to go stick his head in the sand when he asks to see the books. You just might get a costly bill in return.

Continue reading for the full statute.

Continue reading " A Trap For The Unwary In Alaska's LLC Statute " »

The topic of the day rattling around this end of Atkinson, Conway & Gagnon is indemnity clauses in contracts for business transactions. Just about every contract has an indemnity clause and hardly anyone other than the lawyers really cares. But I'm here to tell you that indemnity = money. Write that down, folks. When you think of indemnity clauses that way, it's worth paying attention to them.

Hey, I understand there are many, many more interesting things out there on the World Wide Web than reading what a nerdy business lawyer has to say about the nuances of indemnity clauses. I mean, you could be on eBay right now bidding on a vintage Roy Rogers metal lunch box with the matching thermos! (The dome lunch boxes are especially cool; search for one here: eBay) But if you happen to be in the middle of a business deal, taking a few moments to ponder indemnity clauses is probably more productive.

What the heck is indemnity anyway? Indemnity means that you (the indemnitor/sucker) has to pay for some sort of a loss that is visited on the other guy in your business deal (the indemnitee/smart guy). Typically, the loss involves a third person who sues the indemnitee/smart guy for something bad that happened. Or something bad that the third party thinks happened because, as we all know, you have to start hemorrhaging money to defend any lawsuit even when the claim asserted does not actually amount to a hill of beans.

But is indemnity limited to third party claims? Not necessarily. In some states, the word "indemnity" has been interpreted to mean that the indemnitee/smart guy can pass off on you some direct monetary loss he suffers that does not involve a third party claim. In other states, indemnity is usually interpreted to refer only to third party claims. In Alaska, the answer is unclear since the Alaska Supreme Court has never directly spoken to the issue. This means the indemnity clause in your Alaska contract needs to be carefully written to spell out whether it just applies to third party claims or also extends to direct losses. If your indemnity clause is not carefully written, then when a dispute over the indemnity obligation arises, you will find yourself sucked down the swirling bowl of the common law, waiting for some judge to pronounce what the clause in your contract actually means. That common law process is going to spit you out many years later, probably with an answer you did not expect, and certainly with a thinner wallet from paying your lawyer to argue the point in court.

But what about the situation where the indemnitee/smart guy is totally at fault for whatever loss he suffers? The law can't require you to indemnify that jerk for his own fault, can it? That must be covered in the U.S. Constitution somewhere, like maybe in some penumbra to the Bill of Rights? Well, unfortunately, penumbras to the Constitution have fallen out of favor these days. Alaska law actually will allow that jerk to make you pay for his mistake. That is, if the indemnity clause in your contract requires it (and if you are not dealing with a contruction contract). The cure to this problem is, again, carefully writing the indemnity clause so that the jerk on the other side of your deal has to twist in the wind on his own if it's all his fault.

So don't skip over that boring old indemnity clause in your business deal. If you don't make sure it's written correctly, whether you are the indemnitor/sucker or the indemnitee/smart guy, it is likely to end up costing you money. That's less money you'll have to spend on cool stuff like vintage metal lunch boxes. (Let me know if you run across a good deal on a Johnny Quest box).