Key Contracting PrinciplesProvisions That Work & Some that Don’t
Presented by:
Henry A. King
Timothy S. Madden
Robert J. Stefani
J. Grant Coleman
Contractual Indemnities:
Getting the Other Guy to Pay
Your Legal Liability
Presented by:
Henry King
Whether an indemnity provision
is applicable involves a twopronged inquiry:
1. Is the party asserting a right to
indemnification included in the definition
of the indemnitee group?; and
2. Is the claim, loss, liability or expense for
which indemnification is sought within the
scope of risks covered by the indemnity
provision?
By broadly defining the
“indemnified” group, the scope of
persons entitled to indemnity may
be increased significantly.
•
•
Phillips v. Williams Oil Field Serv.-Gulf Coast
Co., 2006 WL 1098923 (W.D.La.)
Corbitt v. Diamond M. Drilling Co., 654 F.2d
329 (5th 1981)
If properly drafted, an indemnity
may provide reimbursement for both
the direct and consequential
damages suffered or incurred by an
indemnitee.
•
Cox Communications v. Tommy Bowman
Roofing, LLC, 929 So.2d 161 (La.App. 4
Cir. 3/15/06)
Imprecise or narrow language in
the indemnity provision may result
in a court finding that a loss is not
encompassed by an indemnity.
•
Leaming v. Century Vina, Inc., 908
So.2d 21 (La.App. 4 Cir. 6/1/05)
When the indemnitee seeks
indemnification against the
consequences of its own
negligence, the indemnity is not
enforceable unless such an
intention is expressed in
unequivocal terms.
•
•
Harris v. Argico Chemical Co., 570 So.2d
474 (5th Cir. 1990)
Ranger Ins. Co. v. Shop Rite, Inc., 921 So.2d
1040 (5th Cir. 2006)
When the indemnitee seeks
indemnification against the
consequences of its own
negligence, the indemnity provision
will be strictly construed.
•
Dean v. Griffin Crane & Steel, Inc., 935
So.2d 186 (La.App. 1 Cir. 5/5/06)
KNOCK FOR KNOCK
INDEMNITY
The two policy considerations
underpinning the use of “knock for
knock” or reciprocal indemnity
agreements are:
1. the elimination of the expense of redundant
insurance coverage; and
2. a reduction in unnecessary litigation and its
expense.
Darty v. Transocean Offshore U.S.A., Inc., 875
So.2d 106 (La.App. 4 Cir. 2004)
CONTRACTUAL INDEMNITY VS.
ADDITIONAL INSURED
STATUS:
IS IT A BIG DEAL?
Obtaining “addition insured”
status is worth the effort.
•
Suire v. Lafayette City-Parish
Consolidated Government, 907 So.2d 37
(La. 4/12/05)
ADDITIONAL INSURED
STATUS
A contract requiring that a
party be named as an additional
insured can result in an
extension of coverage of a CGL
policy.
•
Jessop v. City of Alexandria, 871 So.2d
1140 (La.App. 3 Cir. 3/31/04)
While some CGL policies provide
exclusions for contractual liability,
most policies still provide coverage
where the named insured
contractually assumes the tort
liability of another.
•
Burlington Resources, Inc. v. United
National Ins.Co., 2007 WL 496859
(E.D.La.)
WAIVERS OF
SUBROGATION
A waiver of subrogation provision
in a contract precludes an insurer
from recovering from an otherwise
negligent party in whose favor the
waiver has been granted.
•
The Gray Ins. Co. v. Old Tyme
Builders, Inc., 878 So.2d 603 (La.App.
1 Cir. 4/2/04)
LOUISIANA OILFIELD
ANTI-INDEMNITY ACT
(“LOIA”)
LA. R.S. 9:2780
In Mears v. Commercial General
Liability Ins., 926 So.2d 754
(La.App. 3 Cir. 4/5/06), the court
held that a contract to perform
welding services in connection with
the construction of an offshore
platform was non-maritime, and,
therefore, LOIA invalidated a
contract’s defense and indemnity
provisions to the extent it sought to
protect the indemnitee from the
consequences of its own negligence.
In Hoda v. Rowan Cos., 419 F.3d
379 (5th Cir. 2005), the court
held that an oil and gas services
contract requiring the torquing up
and down of blow-out preventer
stacks from a jack-up drilling rig
constituted a maritime contract
and that the contract’s indemnity
provision was enforceable under
general maritime law.
The Pitfalls of Terms of Art
and Boilerplate Forms in
Contract Drafting
Presented by:
Timothy S. Madden
•
THE MISUSE OF TERMS OF ART CAN LEAD YOU
TO THE COURTHOUSE
•
AVOIDING THE PITFALLS OF INCONSISTENT
CONTRACT PROVISIONS
•
MISUSE OF FORMS AND BOILERPLATE
PROVISIONS IN CONTRACT DRAFTING
LOUISIANA CIVIL CODE ON
CONTRACT INTERPRETATION
• 2045: Interpretation of a contract is the
determination of the common intent of the parties.
• 2047: The words of a contract must be given their
generally prevailing meaning…
• 2048: Words susceptible of different meanings must
be interpreted in the meaning that best conforms to
the object of the contract.
• 2053: A doubtful provision must be interpreted in
light of the nature of the contract, equity, usages…
WHAT DO WORDS MEAN?
“When I use a word,” Humpty Dumpty said, in a rather
scornful tone, “it means just what I choose it to
mean—neither more nor less.”
“The question is,” said Alice, “whether you
can make words mean so many things.”
“The question is,” said Humpty
Dumpty, “which is to be
master – that’s all.”
Through the Looking Glass(and
What Alice Found There)
- Lewis Carroll
Louisiana Civil Code article 2047
-
The words of a contract must be given their generally
prevailing meaning.
-
Words of art and technical meaning must be given
their technical meaning when the contract involves
a technical matter.
–
In other words, words must be ascribed their generally
prevailing meaning unless the words have acquired a
technical meaning in a particular context.
–
Words of art and technical meaning often appear to be
ordinary.
LICENSOR v. LICENSEE
ACCOUNTING TERMS OF ART IN RED
•
Licensee shall purchase the Products from Licensor (or its
manufacturing licensee) for a price of Twenty-Seven and One-Half
Percent (27.5%) more than Licensor’s or its manufacturing licensee’s
cost to produce the Products where Licensor’s (or its manufacturing
licensee) cost to produce the Products shall include capital
depreciation of the buildings, machinery and equipment acquired for
the manufacturing of the Products (the depreciation expense for
capitalized expenditures to be determined in accordance with
generally accepted accounting principles using the straight-line
method of depreciation and the mid-point of the permissible
depreciable lives of such capitalized expenditures), plant office
expense, supervision and rent as well as Licensor’s labor, wages,
fringe benefits, operating supplies, electricity, gas, water, utilities, plant
engineering, material management, freight, royalties, raw materials,
taxes (except income or other similar taxes based upon income),
sanitation, hazardous waste disposal, sewer, security and any other
expenses or costs associated with the production of the Products or
the operation of Licensor’s or its manufacturing licensee’s
manufacturing facility to manufacture the Products.
LICENSOR v. LICENSEE (cont.)
•
The parties’ differing interpretations of this contract provision
led to a protracted dispute and litigation for more than 6 years
that resulted in the entry of a $16 million judgment against the
Licensor, and the ultimate bankruptcy filing by the Licensor.
•
“Products”, “Licensor” and “Licensee” are the only capitalized
and defined terms. However, this provision is filled with words
of art and technical meaning.
•
The parties’ attempt to define “cost to produce” included terms
of art that were not defined and included a circular definition.
LICENSOR v. LICENSEE (cont.)
•
Licensor argued, unsuccessfully, that generally accepted accounting principles
was not a term of art or technical term because it was not capitalized.
•
Licensor failed to recognize the difference between the terms “expense” and
“expenditure”.
–
As a result, Licensor failed to distinguish between out of pocket
expenditures and non-cash expenses such as depreciation, amortization of
research and development expenses and amortization of good will.
•
Licensor’s failure to recognize the difference in treatment, under GAAP of Cost
of Goods Sold; Selling, General & Administrative Expenses; and Other
Expenses would result in a “double-dip” for Licensor.
•
The term “mid-point of depreciable lives” resulted in 2 disputes:
» How to calculate the mid-point?
» Is the depreciable life of an item determined based on IRS or
GAAP guidelines?
•
All of the Licensor’s arguments were rejected by the court.
Aminoil –
ACCOUNTING TERMS (cont.)
•
Aminoil USA, Inc. v. OKC Corporation, 629 F.Supp. 647 (E.D. La.
1986) Lessor (Aminoil) brought declaratory judgment action
against lessee (OKC) as to Aminoil’s net profits interest
pursuant to farmout of Aminoil’s interest in mineral lease.
•
Farmout agreement provided:
“OKC shall maintain a net profits account in accordance with the terms
of this (farmout) agreement and good accounting practices…”
–
The purpose of this provision was to require OKC to maintain a net
profits account in order to determine when “net profits” was
achieved by OKC. Aminoil’s interest in production under the
farmout agreement converted to a substantially more profitable net
profits interest once income from production exceeded the costs
and expenses of exploration and production.
Aminoil –
ACCOUNTING TERMS (cont.)
•
•
The farm-out agreement further provided that “against net profits should be charged the
following”:
1.)
an amount equal to the costs to OKC of all direct labor, transportation and other services necessary
for exploring, developing, operating and maintaining the subject lease…
2.)
an amount equal to the expenses of litigation, liens, judgments and liquidated liabilities and claims
incurred and paid by OKC on account of its ownership interest in the subject lease…”
Terms of art and issues in dispute:
•
“Cost”
and “expenses” – ordinary terms or terms of art?
•
OKC argued that under the generally prevailing meaning of the term “cost,” the $30 million
interest deduction at issue represented a “cost” to OKC of labor, transportation and other
services necessary for exploration and production under the farm-out agreement.
•
Likewise, OKC argued that its litigation with Aminoil resulted from its ownership interest in
the subject lease and should also be charged against net profits under the farm-out
agreement.
Aminoil –
ACCOUNTING TERMS (cont.)
•
The court disagreed with OKC’s arguments and deferred to Aminoil’s expert accountants,
as well as the Court’s own appointed independent accountant, who testified that the
accounting provisions in the farm-out agreement had specialized usage and meaning
within the oil and gas accounting field. These usages and meaning mandated analysis of
the provisions in light of generally accepted accounting and auditing principles.
•
Experts:
•
–
Generally accepted accounting and auditing principles are consistently interpreted to exclude
interest unless interest is specifically designated as a chargeable item.
–
Likewise, under accounting practices in the oil and gas industry, “expenses of litigation” never
includes legal expenses related to a dispute between the contracting parties.
Citing La. Civ. Code art. 2047, the Court adopted the findings of the expert accountants
who interpreted the terms of the farm-out agreement in light of accepted accounting
principles in the oil and gas industry rather than the “generally prevailing meaning” of the
terms urged by OKC. OKC was, therefore, not permitted to charge interest deductions and
legal expenses (arising from disputes between the parties) to net profits account under the
farm-out agreement.
Other examples…
“Completion” v. “to complete”. Woolf & Magee v. Hughes, 95-863
(La.App. 3 Cir. 12/6/95) 666 So.2d 1128.
–
Hughes contracted to guaranty payment, on behalf of a third party,
for Woolf & Magees’ (W&M’s) services in connection with the
construction of an oil well. In the contract, Hughes agreed to
guaranty: “The daywork charges of Woolf & Magee to complete
the [well]”.
–
Hughes sought to limit his guaranty payment for the entirety of
W&M’s services by arguing that the phrase “to complete” was
synonmous with the oil and gas industry term “completion”.
(“Completion” refers to the “completion phase” of well operations.)
In other words, Hughes argued that his obligation terminated once
W&M reached the “completion phase” of operations and did not
extend until work on the well was actually completed.
–
Court held that the word “completion” is a technical term in the oil
field industry and that if the parties, both experienced in the oil
field business, intended to refer to the “completion phase” of well
operations, they would have used the technical term “completion”
rather than the ordinary words “to complete”.
Other examples (cont.)
“Drainage lines”. Patterson v. City of New Orleans, 960367 (La.App. 4 Cir. 12/18/96) 686 So.2d 87.
–
Consolidated cases involving personal injury claims that
allegedly occurred due to slick conditions resulting from the
seepage of water into the Press Drive underpass in New
Orleans. The seepage occurred because a system of
perforated pipes known as a “filter bed” had been installed
under the roadway of the underpass.
–
The New Orleans Sewerage & Water Board (S&WB) had
contracted with the City of New Orleans to maintain and
repair “subsurface drainage”, which the contract defined as
“all drainage lines less than 36” in diameter. The S&WB
argued that it could not be held responsible for the
dangerous conditions caused in the overpass because the
term “drainage lines” in its contract with the City was a
technical term that referred only to a particular type and
placement of pipe which did not include the “filter bed” pipes
at issue.
“Drainage lines” (cont.)
–
Court: “Drainage line” is a technical term that refers to solid
pipe that carries water from one place to another. The
perforated pipes of the filter bed, though connected to the
S&WB’s drainage lines, do not constitute “drainage lines.”
•
Significance: Contract between the City and S&WB contained
definitions, but no definition of the precise term of art at issue.
Carefully drafted and comprehensive definitions are the key to
avoiding the pitfalls presented by terms of art in contract
drafting.
DEFINITIONS ARE THE KEY
•
Besides the obvious meticulous scrutiny required in all aspects of
contract drafting, the use of a carefully drafted definitions section is
the key to avoiding the pitfalls of terms of art.
–
Always capitalize terms of art. This forces the parties to consider
the effect of their usage of a particular term and may shift the
focus of contract negotiations. While this may draw out
negotiations, it is more cost effective than litigating the meaning of
the terms in court.
–
BE CONSISTENT!!! It is imperative that the definitions used in a
contract are consistent with each other. The result can be
disaster.
•
Example: Failure to draft consistent definitions in a contract
can negate indemnity agreement. While not terms of art, the
definitions used in the following provision were not consistent
and could result in the invalidity of certain aspects of the
indemnities negotiated by the parties.
DEFINITIONS (cont.)
•
“Express negligence” rule: Contractual indemnity agreements
protecting an indemnitee from its own negligence are
enforceable under maritime law provided the language is clear
and unambiguous. Hardy v. Gulf Oil Corp., 949 F.2d 826, 834
(5th Cir. 1992).
–
Master Services Agreement provides in part:
•
Contractor agrees to release, protect, defend, indemnify and hold
COMPANY and COMPANY’S AFFILIATES …harmless from and
against any and all claims, demands and causes of action of every
kind and character arising in connection with the presence of
personnel or the placement of property of a CONTRACTOR
INDEMNITEE and/or its GROUP on a COMPANY RIG, or the
performance of work or providing of products by a CONTRACTOR
INDEMNITEE and/or its GROUP on a COMPANY RIG, on account of
personal or bodily injury to or death of personnel of a CONTRACTOR
INDEMNITEE and/or its GROUP,… regardless of the CAUSE
(including any CAUSE of CONTRACTOR GROUP and/or COMPANY
GROUP or any other person or entity) of such injury, death, damage…
BOILERPLATE
CONTRACTS/CLAUSES
•
Preprinted contracts or contract provisions that are often
printed in small type-face and are utilized repeatedly without
change in the text.
•
Boilerplate provisions are enforceable - BE CAREFUL
WHAT YOU ASK FOR.
•
Review all boilerplate provisions anew with each use of the
contract to ensure that the boilerplate provisions are
applicable to the contract at issue as intended by the
parties.
•
Beware of “cutting and pasting” boilerplate forms and
provisions from different contracts.
Warranties &
Remedies
Presented by:
Robert Stefani
WARRANTIES
Sale
• Obligations of Seller
– Deliver the thing sold
– Warrant:
- Peaceful possession
- Absence of hidden defects
- Fit for intended use
•
Redhibition
– Warranty against redhibitory defects or vices
»
»
Useless or so inconvenient; presumed buyer would
not have purchased
Usefulness or value diminished; presumed buyer
would have purchased at lesser price
– Exclusion or limitation of warranty by agreement
»
»
»
»
»
Clear & unambiguous; brought to buyer’s attention
Buyer not bound if seller declared thing had quality he
knew it did not have
Buyer subrogated to seller’s rights in warranty against
others even when warranty excluded
Seller liable for redhibitory defect has action against
the manufacturer if defect existed at time of delivery
Berney v. Roundrtee Olds-Cadillac, Inc., 763 So.2d 799 (La.App.2 Cir.
6/21/00)
•
Redhibition (cont.)
– Fit for ordinary use
» When seller knows or has reason to
know of intended use or purpose and
buyer relying on seller’s skill or judgment
in selecting, must be fit for buyer’s
intended use or his particular purpose
– Kind and quality specified
•
Eviction
– Eviction = loss of, or danger of losing, all or part of
the thing because of third person’s right existing at
time of sale
– Covers encumbrances not declared at time of sale
» Apparent servitudes and natural and legal
nonapparent servitudes need not be declared
– May transfer whatever rights he may then have
without warranting existence of such rights
» “quitclaim deed” or “assignment of rights without
warranty”
•
Eviction (cont.)
–
Modification or exclusion of warranty against eviction
» Warranty implied
» Parties may increase or limit warranty
» Parties may suppress or exclude warranty
» Even if warranty excluded, seller must return purchase
price unless:
-Buyer was aware of danger of eviction;
-Buyer declared he was buying at his peril and
risk; or
-Obligation to return purchase price expressly
excluded
» In any event, seller liable for eviction occasioned by
own act
-Agreement to the contrary is null
» Buyer subrogated to seller’s rights in warranty against
others, even when warranty excluded
•
Eviction (cont.)
– Warranty against eviction extends to proceeds from
thing sold
» Examples: fruits and products
– Buyer threatened with eviction must give timely
notice to seller
» Calling upon seller to defend amounts to notice
» Warranty may be forfeited upon failure to give
timely notice
Conventional Obligations or
Contracts
•
•
•
Contracts have effect of law between parties and must
be performed in good faith
Party may demand security be given
– When ability to perform endangered
» Demand in writing
» Upon failure to give security, party may withhold
or discontinue performance
May include real security, personal security, or
assurance that obligor has secured or will secure means
of performance
REMEDIES
Conventional Obligations or
Contracts
•
Obligee has right to:
– Enforce performance by obligor
– Enforce performance by causing it to be
rendered by another at obligor’s expense
– Recover damages
» Failure to perform, defective
performance, or delayed performance
Specific Performance
•
•
•
Upon failure to perform, court shall grant
specific performance plus damages for delay if
obligee demands
If specific performance impracticable, court
may award damages
Obligor may be restrained from doing anything
in violation of obligation not to do
Putting in Default
•
•
•
Damages for delay in performance owed from
time obligor put in default
Other damages owed from time obligor failed
to perform
Putting in default
–
–
–
–
–
Arrival of term
Written request for performance
Oral request for performance; two witnesses
Filing suit
Contractual provision
Damages
•
•
Nonperformance, defective performance, or delayed
performance
Measured by loss sustained and profits deprived
–
•
Rapheal v. Raphael, 929 So.2d 825 (La.App.3 Cir. 5/3/06);
Scenicland Construction Co., LLC v. St. Francis Medical Center,
Inc., 936 So.2d 247 (La.App. 2 Cir. 7/26/06); Simpson v.
Restructure Petroleum Marketing Services, Inc., 830 So.2d 480
(La.App. 2 Cir. 10/23/02)
Good faith obligor liable for foreseeable damages
– Foreseeable/unforeseeable factors:
» Nature of contract
» Nature of business
» Prior dealings of parties
» Other circumstances related to contract and
known to obligor
–
Andry, et al. v. Murphy Oil, USA, et al., 935 So.2d 239 (La.App. 4
Cir. 6/14/06); Simpson v. Restructure Petroleum Marketing
Services, Inc., 830 So.2d 480 (La.App. 2 Cir. 10/23/02)
Damages (cont.)
•
•
•
Bad faith obligor liable for all damages,
foreseeable or not, that are direct
consequence of failure to perform
When performance is money, measured by
interest
– Damages for delay measured by interest on
that sum from time due
» Rate agreed upon by parties
» In absence of agreement, rate fixed by
La R.S. 9:3500
Parties may, by written contract, expressly
agree that obligor also liable for attorney’s fees
in a fixed or determinable amount
Damages (cont.)
•
Advance exclusion or limitation of liability for
intentional or gross fault that causes damage
or physical injury to other party is null
– Does not govern indemnity clauses, hold harmless
agreements, or other agreements where parties
allocate between themselves risk of potential liability
towards third persons
•
May stipulate damages
– Secondary obligation
– Nullity of principal obligation nullifies stipulated
damages clause, but nullity of stipulated damages
clause does not nullify principal obligation
–
Keiser v. Catholic Diocese of Shreveport, Inc., 880 So.2d 230 (La.App.2 Cir.
8/18/04)
Damages (cont.)
•
•
•
•
•
Either stipulated damages or performance
Both if damages stipulated for mere delay
For stipulated damages, obligee need not
prove actual damage
Reduce stipulated damages in proportion to
benefit derived from partial performance
Stipulated damages not modified by court
unless so manifestly unreasonable as to be
contrary to public policy
–
Carney v. Boles, 643 So.2d 339 (La.App. 2 Cir. 9/21/94)
Dissolution
•
May be granted additional time to perform
– Case-by-case determination
•
Damages upon judicial dissolution
– In some instances, regarded as dissolved
before judicial declaration
•
•
When delayed performance of no value or
when evident obligor will not perform,
regarded as dissolved without notice to
obligor
Agreement that contract shall be dissolved
for failure to perform a particular obligation
– Dissolved at time contract provides
– In absence of such a provision, dissolved at
time obligee gives notice that he avails himself
of dissolution clause
Sale
• Obligations of Seller
– Specific performance
– Dissolution of sale
– Damages
– Upon recission of contract, purchase
price returned and expenses of sale
reimbursed
Sale
• Eviction
– Purchase price, value of fruits
returned to third person, and other
damages sustained
» Absent special agreement,
attorney’s fees not recoverable
– Return full purchase price even if, at
time of eviction, value of thing
diminished
– If buyer benefited from diminution by
own act, amount of benefit deducted
Eviction (cont.)
• Reimburse costs of useful
improvements
• Reimburse costs of all improvements if
knew thing belonged to a third person
• Recission of sale or reduction of price
for partial eviction
– Rescission of sale if would not have
purchased
– If sale not rescinded, entitled to
proportional diminution of price
Redhibition
•
Depends on nature of breach
– Useless or so inconvenient – recission of
sale
– Not useless but diminished in usefulness or
value - reduction of price
– Not reasonably fit for ordinary use –
dissolution, damages, or both
– Not of kind or quality specified or
represented by seller – dissolution,
damages, or both
Redhibition (cont.)
Knowledge of defect or false declaration
– Return of purchase price with interest from time paid;
– Reimbursement of reasonable expenses occasioned
by sale;
– Reimbursement of reasonable expenses incurred for
preservation;
– Damages; and
– Attorney fees
» Use of thing or fruits yielded therefrom may lead
to a credit
•
Seller charged with knowledge of defect when
he is manufacturer of thing
Redhibition (cont.)
•
No knowledge of defect
– Repair, remedy, or correct defect
•
If unable to repair, remedy, or correct, bound
to:
– Return purchase price with interest from time paid;
– Reimburse reasonable expenses occasioned by
sale;
– Reimburse reasonable expenses incurred for
preservation
» Use of thing or fruits yielded therefrom may lead
to a credit
Tax Concerns &
Pitfalls in
Contract Drafting
Presented by:
Grant Coleman
GENERAL TAX ISSUES
• Tax language is not “boilerplate” and should
be reviewed by tax experts
– Classic example is tax language in LLC
Operating Agreement
• Tax reporting requirements
– W-9
– 1099
• Tax advice notice
EXAMPLE OF TAX ADVICE NOTICE
• NOTICE REQUIRED BY IRS RULES OF PRACTICE.
U.S. federal tax regulations provide that, for the purpose of avoiding
certain penalties under the Internal Revenue Code, taxpayers may
rely only on formal opinions of counsel which meet specific in this
writing or any attachment hereto does not constitute a formal opinion
that meets the requirements of the regulations. Accordingly, we are
required to advise you that (1) any tax advice contained in this
communication was not intended or written to be used, and may not
be used, for the purpose of avoiding such penalties and (2) no one,
without express prior written permission, may use any part of this
communication in promoting, marketing or recommending an
arrangement relating to any Federal tax matter to any person or
entity.
SERVICE CONTRACTS
– Status as independent contractor
– Establish responsibility for contractor taxes
SAMPLE PROVISION IN SERVICE
CONTRACT
CONTRACTOR agrees to pay all taxes, licenses, and fees levied or
assessed on CONTRACTOR in connection with or incident to the
performance of this Agreement by any governmental agency and
will pay unemployment compensation insurance, old age benefits,
social security, or any other taxes upon the wages of
CONTRACTOR, its agents, employees, and representatives.
CONTRACTOR agrees to reimburse OWNER on demand for all
such taxes or governmental charges, State or Federal, which
OWNER may be required or deem it necessary to pay on account
of employees of CONTRACTOR or its subcontractors.
CONTRACTOR agrees to furnish OWNER with the information
required to enable it to make the necessary reports and to pay
such taxes or charges. At its election, OWNER is authorized to
deduct all sums so paid for such taxes and governmental charges
from such amounts as may be or become due to CONTRACTOR
hereunder.
ACQUISITIONS/DISPOSITIONS OF
ASSETS
(OTHER THAN ENTIRE BUSINESS)
• Sales taxes
– Who is responsible?
– Statutory rules/exemptions
– Exemption certificates
• Property taxes
– Allocation for year of sale
SAMPLE SALES TAX PROVISION
• All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees
(including any penalties and interest) incurred in
connection with this Agreement, shall be paid by
Buyer when due, and Buyer will, at its own
expense, file all necessary Tax Returns and other
documentation with respect to all such transfer,
documentary, stamp, registration and other Taxes
and fees, and, if required by applicable law, the
Seller will join in the execution of any such Tax
Returns and other documentation.
SAMPLE PROPERTY TAX PROVISION
• Taxes for the current year have not yet been
paid by Seller and have been prorated
between Purchaser and Seller, and
Purchaser assumes responsibility for all
future tax payments. All future tax notices,
bills and assessments should be mailed to:
______________________________
______________________________
PURCHASE OF BUSINESS
• Asset purchase
– Or
• Stock purchase
ISSUES RELATED TO ASSET PURCHASE
– Sales/property tax issues
• May be casual sale
exemption.
– Allocation of consideration
among assets
SAMPLE ASSET PURCHASE
PROVISION
• The parties hereto agree that the consideration set
forth in Section ____ hereof shall be allocated as
stated in Exhibit ____. Purchaser and Seller each
agrees to file its federal income tax returns and its
other tax returns (including any forms or reports
required to be filed pursuant to Section 1060 of the
Code, the regulations promulgated thereunder or
any provisions of state and local law (“1060
Forms”)) reflecting such allocation and to take no
position contrary thereto unless required to do so
pursuant to a determination (as defined in Section
1313(a) of the Code). The parties agree further to
cooperate in the preparation of any 1060 Forms and
to file such 1060 Forms in the manner required by
applicable law.
ISSUES RELATED TO STOCK
PURCHASE
– Franchise tax allocation for year of sale
– Allocation of income tax for year of sale
• Flow through entity issues
SAMPLE PROVISIONS – STOCK PURCHASE
The following provisions shall govern the allocation of
responsibility as between the Buyer and Sellers for certain tax
matters following the Closing Date:
• Tax Periods Ending on or Before the Closing Date. The
Company has prepared and filed all Federal and state
income Tax Returns for the Company and its Subsidiaries
for the tax year ended December 31, 200__.
• Tax Periods Beginning Before and Ending After the Closing
Date. The Buyer shall prepare or cause to be prepared and
file or cause to be filed any Tax Returns of the Company and
its Subsidiaries for Tax periods which begin before the
Closing Date and end after the Closing Date. An amount
equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date to
the extent such Taxes are not reflected in the Final Tax
Accrual shall be considered Damages to the Buyer Group
under Section 7.2(a) and shall be subject to Section 7.2(h).
SAMPLE PROVISIONS – STOCK
PURCHASE (cont.)
• Refunds and Tax Benefits. Any Tax refunds that are
received by the Buyer or the Company and its
Subsidiaries, and any amounts credited against Tax to
which the Buyer or the Company and its Subsidiaries
become entitled, that relate to Tax periods or portions
thereof ending on or before the Closing Date shall be
for the account of the Sellers except to the extent any
such payment or credit against Tax is reflected as an
asset for purposes of Closing Date Working Capital.
• Cooperation on Tax Matters. The Buyer, the Company
and its Subsidiaries and Sellers shall cooperate fully, as
and to the extent reasonably requested by the other
party, in connection with the filing of Tax Returns
pursuant to this Section and any audit, litigation or other
proceeding with respect to Taxes.
SAMPLE PROVISION – Tax
Representation
• The Company and each of its Subsidiaries (A) have
timely paid all Taxes required to be paid by them
(including any Taxes shown due on any Tax Return)
and (B) have filed or caused to be filed in a timely
manner (within any applicable extension periods) all
Tax Returns required to be filed by them with the
appropriate Governmental Entities in all jurisdictions
in which such Tax Returns are required to be filed,
and all such Tax Returns are true and complete in all
material respects. No claim has ever been made by
an authority in a jurisdiction where the Company or
any of its Subsidiaries does not file Tax Returns that
the Company or any of its Subsidiaries is or may be
subject to taxation by that jurisdiction.
STOCK SALES WHICH ARE TAX ASSET
SALES
• Disregarded entities
• Deemed asset sales
Thank You
King, Leblanc & Bland P.L.L.C
201 Saint Charles Avenue, 45th Floor
New Orleans, LA 70170
6363 Woodway, Suite 750
Houston, TX 77057
Henry A. King was born in New
London, Connecticut. After graduation from Vanderbilt
University with a B.A. in 1974 and Louisiana State University
with a Juris Doctorate degree in 1977, he was admitted to
the Louisiana Bar in 1978 and the Texas Bar in 1992. Henry
was a co-founder of King, LeBlanc & Bland, P.L.L.C. which
was formed with five attorneys in October 1985. Henry’s
principal areas of practice include admiralty law, complex
commercial litigation, construction law and oil and gas
disputes. He has litigated or arbitrated commercial and
casualty matters in many jurisdictions including Saudi Arabia,
India, England and throughout the United States. Henry also
has considerable experience representing clients in
corporate and banking related matters, particularly in the
maritime and energy-related fields. Henry is a member of
the U.S. Fifth, Eleventh and Federal Appellate Circuits. He is
currently a member of the Louisiana, Texas and American
Bar Associations, as well as the Louisiana Banker’s
Association, the Maritime Law Association of the United
States (Marine Finance Committee, 1985 - ) and the
Southeastern Admiralty Law Institute (New Orleans Port
Directors 2000 - ). He is a member of the LSU Law School
Board of Trustees and a fellow in the Louisiana Bar
Foundation.
201 St. Charles Ave., 45th Floor
New Orleans, LA 70170
6363 Woodway, Suite 750
Houston, TX 77057
J. Grant Coleman was born in
Lynchburg, Virginia. He received a Bachelor of Arts
in History from the University of New Orleans in
1971, a Juris Doctorate from Tulane University in
1974 and a Master of Laws in Taxation from the
University of Miami in 1977. He has been a Board
Certified Specialist in Taxation since the inception of
the Louisiana Specialization Program in 1985. He
was chair of the Louisiana State Bar Association
Section on Taxation in 1992 and served on the
Louisiana State Bar Association Specialization Board
for Taxation from 1993-1996. He is past chair of the
New Orleans Bar Association Tax Committee. He is
a member of the Partnership Committee of the
American Bar Association Section on Taxation. He is
a Fellow of the American College of Trust and Estate
Counsel. He served on the adjunct tax faculty at
Louisiana State University Law School in 1999 and
currently is an Adjunct Associate Professor at Tulane
Law School where he has taught courses in tax law
since 1995. His practice has focused primarily on
taxation and business law and he has been a
frequent author and lecturer on taxation and
business law matters. His practice experience
includes planning, compliance and controversy in
virtually every area of federal, state and local
taxation. He is admitted to practice before all
Louisiana federal and state courts and the United
States Tax Court. He is also admitted to practice in
the District of Columbia.
Timothy S. Madden was born in New
Orleans, Louisiana. He graduated summa cum laude from
Loyola University with a B.B.A in accounting with a
secondary concentration in computer science in 1987. Prior
to entering law school, Tim worked for three years as a
Certified Public Accountant for Ernst & Whinney. In 1992, he
received his juris doctorate degree from Loyola University,
graduating magna cum laude. During law school, he served
as a member of the Loyola Law Review. Upon graduation,
he served as a judicial law clerk to the Honorable Chief
Justice Pascal F. Calogero of the Louisiana Supreme Court
for one year. He works primarily in the fields of commercial
litigation and maritime personal injury defense. Tim also
serves on the Law School Liaison committee for the Young
Lawyers Section of the Louisiana State Bar Association.
201 St. Charles Ave., 45th Floor
New Orleans, LA 70170
6363 Woodway, Suite 750
Houston, TX 77057
Robert J. Stefani, Jr. was
born in Irvington, New Jersey. Bob was admitted to
the bars of the States of Louisiana and New York in
1988 and the bar of the District of Columbia in 1989.
Prior to joining King, LeBlanc & Bland, P.L.L.C. in
March of 1998, Bob was a partner with Robins,
Kaplan, Miller & Ciresi in Washington, D.C. He
received a Bachelor of Arts, cum laude, from
Brandeis University in 1983 and a Juris Doctorate,
cum laude, from Tulane University in 1987. Bob
practices primarily in the fields of commercial and
financial transactions and commercial and insurance
litigation, with emphasis on matters pertaining to the
oil and gas and marine industries. He has extensive
experience in the fields of marine pollution, ship
finance, shipping and port regulation and government
contracting, and in dealing with the Maritime
Administration, Coast Guard, Federal Maritime
Commission and the Congress. He is a member of
the Maritime Law Association of the United States
and the Maritime Administrative Bar Association.