ABA – Contractual Risk Transfer in Supply Agreements Through Strategic Drafting of Key Provisions

Royee will be presenting on contract issues at an upcoming American Bar Association CLE event. In collaboration with other experienced attorneys, Royee will share strategic practice tips regarding contractual risk transfer in the areas of representations and warranties, indemnity, and limitation of liability. Specifically, they will examine those contractual issues both from the perspective of the buyer and seller in purchase-supply agreements, and address special considerations regarding service agreements. The event will take place online from 12:00 PM to 1:30 PM on February 24, 2020.

For more information on the event, click here.

Please contact us with any questions or for additional information.

Four Things to Consider When Drafting an Indemnification Clause

In business contracts, indemnification provisions shift costs, with one party taking responsibility for harm caused by another and defending them from monetary losses, lawsuits, or other potential damages under certain circumstances. Indemnification clauses are oftentimes commonplace in many contracts, providing necessary protection to companies who may be at risk due to things out of their control. A likely scenario can be evidenced in purchasing contracts, where the supplier’s product is faulty but it is the buyer who faces legal action from a customer. In the resulting legal dispute, a buyer would rely on their contract with the supplier, and more specifically, the indemnification clause within that contract. For this reason, it is important for both parties to closely examine the contents of these clauses and make sure what is included is comprehensive and tailored to fit your business’s potential needs.

  • Type of Indemnification. Whether explicitly stated or not, a business contract will usually lay out the type of indemnification provided. Indemnification provisions falling under the “broad” form category are ones that require a party to indemnify another irrespective of actual fault. These kinds of provisions, however, have often been found to be against public policy and as such they should not be blindly relied upon. By contrast, “intermediate” form clauses indemnify a party for its negligence unless they were completely at fault. “Limited” or “comparative” form indemnity clauses provide less protection for the indemnitee, requiring the indemnitor to be held responsible only for their own negligence. Whichever kind of indemnification is found favorable, it is important for both parties to avoid ambiguity when drafting the clause, as vague, overarching clauses, especially those that favor the party with the stronger bargaining power, are often held by courts not to cover all losses.
  • Time and Financial Caps. Time caps limit the amount of time a potential indemnitee has to bring a claim against an indemnitor. Financial caps place a cap on the amount of money the indemnitor will pay out in the event of indemnification. Both time and financial caps can offer great benefits in terms of limiting an indemnitors potential liability, but they also can be negotiated up by indemnitees, most likely for an additional price.
  • Insurance. If you are the indemnitor, it is advisable to consider purchasing professional indemnity insurance. Such insurance may protect you against the costs associated with potential lawsuits, such as court fees, lawyer’s fees, and resulting settlements, even if the company is at fault. General liability insurance may also cover certain indemnity clauses within the conditions of the contract.
  • Consulting a Lawyer. Lastly, as you’ve seen, it is important that you consider consulting with an experienced attorney when drafting contracts which include indemnification provisions. An experienced attorney can help shed light on the industry standards for indemnification. Businesses face specific challenges when taking on the risks associated with doing business with others and possible indemnity needs, and receiving adequate, competent legal advice is vitally important to starting off such contract drafting on the right foot.

This article was sponsored by Vlodaver Law Offices, LLC, an experienced business solutions and transactions law firm in the Twin Cities. If you would like a free legal consultation, contact us.

Five Ways to Limit Your Liability

  1. Structure your business accordingly. To protect your personal assets, such as your car, home, and bank accounts, from potential lawsuits involving your business, it’s often advisable to structure your business as a limited liability company (LLC) or corporation. Unlike sole proprietorships or partnerships, both LLCs and corporations have the added benefit of shielding you from personal liability when certain actions are taken by the company; instead, only business assets would be subject to liability. In order to become an LLC or corporation however, the proper forms and fees must be given to the appropriate government entity, and many states’ requirements differ in this regard.  For this reason, it is highly recommended that you discuss potentially structuring your business as an LLC or corporation with an experienced lawyer.


  1. Execute a contract. When dealing with customers or other businesses, you may want to consider limiting your liability directly via a contract. Within the terms of a contract, you could directly lay out what you can, and cannot, be liable for. This strategy, however, may cause pushback from said customers or businesses due to the nature of the competing interests at hand.  Generally, customers want to be able to sue you for everything, while you seek to limit your exposure as much as possible.  Because of this, it’s important to be rational and fair when looking to execute a contract with such terms, and remember that a court may favor the interests of the customer if contractual terms are too one-sided.


  1. Cap your liability. Relatedly, within a contract which limits your liability, you may seek to put specific caps on certain areas of liabilities, such as time caps and financial caps. Time caps limit the amount of time a party has to bring a liability claim against you, while financial caps limit the amount of money you are liable to pay. Both time and financial caps can offer great benefits as a means of limiting your liability within a contract.


  1. Obtain insurance. Business insurance, such as home-based business insurance or general liability insurance, is also an advisable step to take. Since many homeowner’s and renter’s insurance policies do not cover home-based business losses, it’s important to make sure you are protected in case of a lawsuit or other event. Oftentimes business insurance not only covers the amount you are deemed liable, but your attorney’s fees and related expenses as well.


  1. Hire and experienced lawyer.It is important that you consider consulting with an experienced business attorney when examining some of the ways in which you can limit your business’ liability.  Entrepreneurs face specific challenges when beginning a business venture, such as properly forming a business entity and abiding by all applicable government formalities.  As such, receiving adequate, competent legal advice is vitally important to starting off on the right foot.


This article was sponsored by Vlodaver Law Offices, LLC, an experienced business solutions and transactions law firm in the Twin Cities. If you would like a free legal consultation, contact us.

Four Tips for Master Supply Agreements

Whether a business is just beginning and needs the necessary supplies to start production, or an existing business is simply looking to renegotiate terms or find a new supplier, business owners face a specific set of challenges when figuring out how to best deal with supply agreements.  In the aggregate, master supply agreements, or MSAs, are generally contracts that come into existence when a company maintains several contracts with the same supplier, and therefore seeks to streamline the process by merging them into a single agreement.  MSAs are also commonly utilized to provide consistency across an organization so that purchasing/procurement teams have a guideline on how to systematically deal with various needs. MSAs provide many advantages, but for those of you considering an MSA or if you are wondering whether you’ve considered all of your options in your current MSA, here are a few tips for navigating them:

  1. Evaluate Fair Pricing. Cost is usually at the top of everyone’s list when considering a contract.  Especially when an MSA is centered around raw material, fair pricing of the good is crucial.  Consider having the supplier base his or her contract price of the material around a market-based, published price or index for the good.  Goods such as previous metal are represented on a commodity price index which averages prices for the good based on futures and spot prices and often trades on an exchange.  This in turn allows investors to trade in the underlying commodities without having to be directly involved in the futures market.  By basing the cost of the good off of this real-time average price, it increases the fairness of the contract by providing the cost based on what countless others are paying for the same material.
  2. Consider Exclusivity. Perhaps if you elect to make a certain supplier your exclusive provider of a certain good, or a certain type of good, this could potentially convince the supplier to grant you a discount or even guarantee your supply over others.  However, exclusivity may also become problematic if an issue arises between you and your supplier, leaving you with little recourse under your contract to make up for your lost supply.  It’s advisable that you carefully analyze a contract and ensure certain legal provisions are in place before entering into such agreements.
  3. Expect a Denial of Goods. Whether you’re getting a raw material or a packaged product, as a buyer you should consider the consequences of receiving an incorrect or damaged shipment.  Buyers often have the right to refuse a product if it is unsatisfactory but of particular note is the situation in which the buyer does not take notice of wrong or damaged goods right away, but rather waits months to discover the issue.  This could be due to the nature of the business, for example buying batteries to operate machinery in bulk, only to realize a few months later that a few of the batteries are defective.  In this situation, you should look to your MSA to discover whether you have the right, at that time, to deny the goods and either get monetarily compensated or sent replacements.
  4. Have an Exit Strategy. No matter what the relationship is between your business and the supplier, contractually, you should always consider what the end of that relationship will look like.  Put in writing things like:
    1. Will this MSA renew automatically or terminate upon completion?
    2. What are acceptable termination causations?
    3. Who will pay for certain termination costs and what requirements will you need to survive?

All of the above questions are important factors to consider when creating a new MSA or renegotiating existing relationships with vendors. 

This article was sponsored by Vlodaver Law Offices, LLC, an experienced business solutions and transactions law firm in the Twin Cities. If you would like a free legal consultation, contact us.

What to Consider When Buying a Business & Some Recent Changes That Can Help

Whether you’re interested in expanding your existing business or looking to get in to an entirely new sector, purchasing a business comes with a complex set of issues, not the least of which is financing.  After most formalities have been dealt with—such as purchase price, investigating the inner-workings of the business, and so forth—the question remains as to how the necessary money needed to purchase the business will be acquired.  If the money is not on hand, or available via family and friends, you will most likely have to go through the process of getting a loan from a traditional lending institution, such as a bank or credit union.

A Small Business Administration (SBA) loan is one of the most common types of loans for acquisition financing, especially if you’re looking for a longer-term repayment contract and a low interest rate.  The process of obtaining such a loan, however, can be complicated due to rigid qualification measures and the increased amount of time it takes for the process to finalize.  With that said, the SBA recently released modifications to its Standard Operating Procedure (SOP), drastically changing some of the guidelines used in determining whether someone qualifies for an SBA loan.  Of particular importance were the following changes:

  • Equity requirement reduction from 25% to 10%. The SBA now requires that the lendee put down only 10% of the total project cost in order to meet their equity requirement.  Though the previous amount was just on the acquisition cost, the 15% reduction nonetheless makes it easier to qualify from a money-on-hand perspective.
  • Faster seller note collection. Previously, sellers could only collect on notes after two years; the new SOP allows such payments starting day one after a sale unless the note was used as part of the 10% equity requirement.  If that is the case, the note will be on standby for a period matching the SBA loan.  This effectively increases the burden of seller financing.

Though the foregoing guideline changes will undoubtedly change the SBA loan landscape over time, because banks are still free to set many of the terms associated with the SBA loans they make, the changes will neither be sweeping nor immediate.  The changes should therefore be read as simply allowing banks more room to work with in the often-ridged setting of loan processing and approval.  It is also advisable that, when considering the purchase of a business, adequate legal counsel is consulted.

This article was sponsored by Vlodaver Law Offices, LLC, an experienced business solutions and transactions law firm in the Twin Cities. If you would like a free legal consultation, contact us.

Personally Identifiable Information

In recent years, as an increasingly large amount of our information is stored on computers and throughout the internet generally, the notion of cyber security, especially in relation to Personally Identifiable Information (PII), has become a progressively important and even daunting concept.  Under Minnesota statute 325E, “personal information” means an individual’s first name or first initial and last name in combination with (1) their social security number, (2) their driver’s license or MN identification card number, or (3) their account, credit, or debit card number when in combination with any required security code or password that allows someone access to an individual’s financials.  In other words, it’s information that, if in the wrong hands, can do a lot of damage to someone, especially in a financial sense.

On the front end, there are many ways in which a person or company can limit their exposure to the risk of others accessing PII.  Generally, third-party vendors carry a particularly huge risk and because of this, contracts pertaining to privacy, indemnity, and the right to audit are widely recommended.  Additionally, and perhaps most basically, when dealing with a third-party vendor, be inquisitive—ask about their security processes, the firewalls that are in place, and encryption methods.  Questions like these may not only lead to increased confidence in a given third-party vendor, but also could result in a larger conversation about risk management or even new ideas for your own security of PII.  More internally-based precautions to consider would be getting some kind of cyber security insurance, looking into the actual physical security of certain hardware, properly training personnel on network security protocol, and having an identifiable plan for if things go wrong.

But just what happens when a breach actually occurs and PII is exposed?  A widely accepted six-step incident response cycle was developed by Kurtis Holland in 2014 with this very question in mind.  First, it is ideal to have prepared for an incident, as evidenced through a plan.  Second, you must be able to identify the breach, usually by way of an anomaly or detection software.  Third, contain the breach as much as possible in order to mitigate the risk.  Fourth, utilize either internal or external IT professionals in order to eradicate the malware.  Fifth, resume normal functions and fully recover.  Sixth, and perhaps most importantly, evaluate the incident that occurred and if necessary, make the proper adjustments to avoid it happening again.  It is also worth noting that when PII has been acquired by an unauthorized person, it is statutorily required that the person or business breached sufficiently disclose the incident in a timely manner. How to do so in compliance with the law, while still protecting your business is an important process.

When data breaches do occur, one can expect things such as lawsuits to follow not long afterwards.  For example, when the infamous Target breach of 2013 happened, effecting approximately 41 million people and thus one of the bigger data breaches in recent history, what resulted was that the company had to pay $18.5 million settlement to 47 states and the District of Columbia.  It is for this reason that it is highly recommended that you discuss things such as PII, cyber security, and breach liability with an experienced lawyer.

This article was sponsored by Vlodaver Law Offices, LLC, an experienced business solutions and transactions law firm in the Twin Cities. If you would like a free legal consultation, contact us.

Strategic Thinking for Leases & How Lawyers Can Help

In the wake of Amazon’s latest acquisition of Whole Foods, the fate of traditional, brick-and-mortar retailers may not be as bleak as it once seemed.  The world’s largest online retailer is facing certain difficulties in the realm of lease agreements, the same kind of difficulties that any tenant may face when entering into such a lease.  Oftentimes clients have a perfect location picked out, with an excellent business and marketing plan worked out, and clients and customers ready to go, however, they get a major surprise when they receive the lease from the Landlord.  Many tenants as well as landlords forget about the implications that a lease agreement holds down the road for future competition of subsequent tenants.

Stores such as Bed Bath & Beyond, Best Buy, and Target all have legal rights to halt certain operations proposed by Amazon by way of Whole Foods markets when it comes to where they may open or what they can do at various locations across the country because of their leasing rights and restrictive covenants in related agreements.

The carving out of certain provisions in leases such is a routine practice in the industry.  Tenants with enough leverage will negotiate with Landlords to have some protections put in place in order to avoid certain competition.  It is common to see proposals of various restrictions, such as no other grocery stores, electronic stores, toy stores, or discount retailers allowed in a mall so long as the tenant is leasing there.  Landlords frequently give up their business rights to substantially alter malls and therefore sacrifice tenant mix – but they do so as part of a careful negotiation.

The main issue that Amazon is facing, however, is that of neighboring retailers having clauses that, although do not bar the retailer completely, substantially limit its capabilities newly offered by Amazon.  Such limitations have the capability of vastly altering, or in some cases, prohibiting, the things that make a company unique.  Though the future for Amazon and Whole Foods is unclear, I think there will be a lesson learned of heightened focus on negotiations in general.

The question remains then, how can retailers adequately protect themselves from the e-commerce giant that is Amazon, or any competitor for that matter?  In general, a lawyer can aid tremendously in the process by providing the know-how, skills, and ultimately the language necessary for such protection.  As evidenced by the above, carefully drafted lease agreements are key and are able to withstand even the biggest and most powerful companies.  In a world where Amazon is seen as a dominant and intimidating player in a multitude of markets, this instance has taught us that companies much smaller can not only survive, but thrive in an environment where physical Amazon stores exist, albeit with adequate lease agreements.

This article was sponsored by Vlodaver Law Offices, LLC, an experienced business solutions and transactions law firm in the Twin Cities. If you would like a free legal consultation, contact us.