the Zealous

Consider the following scenario. Your startup client, a developer of a popular app recommendation engine, is running low on cash, and further investment is not in the cards. The shareholders decide it’s time to sell.

Excitement ensues as a massive personal technology lifestyle company takes an interest. After completion of due diligence, however, enthusiasm wanes. Soon the discussion focuses on a potential “acqui-hire,” meaning, a purchase of the company, not to exploit the company’s technology or market share, but simply to hire away the top engineering talent—with a commensurately lower valuation.

Too low for the shareholders, in fact, so they instruct you to terminate negotiations. The story doesn’t end there, however. The suitor turns around and hires away the startup’s top engineering and marketing talent.

Let’s say that you’re the deal lawyer representing a California company in contract negotiations with a New York company. Your client insists on designating California law as the operative body of law that governs the agreement and any related disputes, and on mandating that all disputes be resolved in a California state or federal court.

You negotiate hard for your client’s objective, but the other side is equally determined to designate New York law and New York courts. Your client lacks bargaining leverage to force the issue. Eventually, the other side carries the day on this battle, and your client is forced to accept the designation of New York law and courts in the contract.

In representing tech suppliers, service providers and developers, we often come across “time is of the essence” clauses in customer contracts that purport to apply to some or all obligations of the agreement. An example is, “Time is of the essence with respect to Developer’s compliance with all deliverable milestones.”
 
It’s tempting to ignore such clauses, in favor of “picking your battles” and focusing on clauses of more obvious import like the liability caps. But that could be a mistake. The point of a “time is of the essence” clause is to allow the customer to claim a right of termination, or even rescission, of the agreement if the vendor is merely an hour late in delivery.