In this ever-changing economy, businesses are facing new, unique legal questions and challenges now more than ever. On November 21, 2019, Vanessa Miller and Nick Ellis of Foley & Lardner LLP, along with The Association of Corporate Counsel, co-hosted 55 in-house counsel from a variety of industries to hear insights on the various legal issues that in-house counsel will likely face in 2020. Here are the highlights from these discussions.
Although the United States’ economic expansion is now the longest in U.S. history, John Simon, Partner and member of Foley’s Bankruptcy & Business Reorganization Team, noted that certain statistics forecast trouble ahead. Simon highlighted various strategies companies may employ to manage risk within their supply chain. He stated that due diligence on the front-end is one of the easiest ways to avoid undesirable situations, and that once a supplier relationship is created, it is imperative to conduct periodic reviews of existing contracts. For example, supplier contracts should always incorporate a right to audit. Simon also provided insights regarding the purchase of distressed companies, a strategy that has tremendous upside if done correctly. The most obvious concern with any distressed M&A deal is the threat of lawsuits from angry creditors. Indeed, in this context, the issues of preference and fraudulent transfer loom large. Simon, however, discussed various methods that exist to cleanse a distressed company of its liabilities.
Marijuana is now legal in many states. Felicia O’Connor, Associate and member of Foley’s Labor and Employment Team, discussed the many issues that in-house counsel will face as more states legalize both medical and recreational marijuana use.
O’Connor described the unclear, inconsistent, and developing law throughout the country. A map showing each state’s marijuana-use laws shockingly displayed these nationwide inconsistencies. For nationwide—and worldwide—companies, enforcing policies governing marijuana in the workplace in jurisdictions that allow recreational marijuana use versus jurisdictions that permit zero marijuana use proves difficult.
O’Connor further described the problem with testing for on-the-job intoxication. Currently, there is not a reliable test for real-time marijuana intoxication—current tests only confirm marijuana use, with no ability to determine exactly when the use occurred. Therefore, if an employer is drug testing an employee after a workplace accident, it is not possible to determine whether the employee is intoxicated, or if the employee has merely used marijuana in recent days, or even weeks.
Finally, O’Connor closed her presentation describing what every employer should be doing now about marijuana in the workplace.
Numerous issues arise in joint development agreements. John Trentacosta, Partner and member of Foley’s Litigation Team, and the distinguished panelists delved into legal safeguards and potential pitfalls in the world of joint development agreements.
Marcus Sprow, Partner and the national chair of Foley’s Mechanical and Electromechanical Technologies Practice, emphasized that oversharing information during a joint development—and during negotiations—leads to serious issues. Sprow indicated that employees and business people are so excited to enter into the joint development that they frequently overshare key confidential business information that is often irrelevant to the joint development agreement. To avoid trouble, Sprow articulated a four-pronged approach: (1) limit the number of people participating in the joint development, (2) educate employees, (3) tailor the exchange of information, and (4) develop a method to track disclosures.
Nick Ellis, Senior Counsel and member of Foley’s Litigation Team, has extensive experience as a commercial litigator. Ellis stated that businesses managing expectations and having well-drafted agreements are of fundamental importance. Too often, Ellis indicated, parties focus on the profitability of the joint development, and lose sight of the many steps that can derail the relationship prior to any profits. Thus, an extra layer of detail in the agreement, such as specific and clear profit splitting terms, warranty, and indemnity provisions, can help protect future interests. In a similar vein, Trentacosta stressed the importance of identifying a beneficial forum to resolve possible disputes related to the joint development agreement, and incorporating this information into a forum selection clause.
Phil Phillips, Foley’s Detroit Office Managing Partner and a seasoned Labor and Employment lawyer, stressed the importance of businesses identifying the employees critical to the success of the joint development. Thereafter, the parties must ensure those employees remain in place, and provide assurances when necessary. This way, both businesses can be confident that critical employees will continue to make key contributions to the joint development.
Vanessa Miller, Partner and member of Foley’s Litigation Team, and Jenlain Scott, Associate and member of Foley’s Litigation Team, discussed strategies to decrease supply chain risk in today’s unpredictable global political landscape.
Scott described the meaning of a trade war and traditional trade remedies, such as antidumping and countervailing duties. Scott also introduced the newest remedy—Section 301 and 232 tariffs —and the methods of coping with potential tariffs. Among the strategies discussed was applying for exclusions for the product that your company wants to import. Currently, only 1-2% of exclusions applications are being granted generally. It is most important to know your product, all of its components, the sources of each component, and the process and location of production to properly classify your import. Another potential strategy to avoid paying the duties is to ‘substantially transform’ your product and changing its country of origin. If possible, businesses may then be able to change its sources of supply to those in jurisdictions not subject to tariffs.
Miller discussed what businesses can do if they do not qualify for exclusions and cannot avoid regulations. Everything must be done in conjunction with current contracts, so looking at what your contracts allow for is important. Miller also described how issues relating to tariffs likely play out in litigation. Specifically, courts have determined that increased tariff costs are not a force majeure event because tariffs do not make contractual performance impossible—just more expensive. Miller went on to discuss whether being subject to tariffs could be claimed as commercial impracticability under section 2-615(a) of the Uniform Commercial Code. The answer is likely that, in today’s political climate, potential tariffs are very much contemplated by the parties—thus, tariffs do not support commercial impracticability. Importantly, Miller discussed how both force majeure and the doctrine of commercial impracticability serve only to excuse performance—not facilitate a price increase negotiation.
Miller concluded by recommending supply chain best practices regarding tariffs and trade wars:
(1) Businesses should review key contracts and terms and conditions to determine whether they contain avenues for renegotiating the price term; (2) In dealing with current suppliers or customers, businesses should review contracts for potential leverage points; and (3) Consider assigning tariff risk in the contract itself in future contracts.
Jennifer Belveal, Partner and leader of Foley’s Government Enforcement Defense and Investigations Practice in Detroit, presented on the ever-evolving topic of internal investigations. Belveal noted a variety of emerging issues, stating in part that the current political and cyber landscapes have blurred the line between garden-variety human resource matters and more serious legal issues that require the involvement of the legal department. As such, Belveal recommended companies develop a rudimentary system that allows legal departments to monitor human resource issues as they arise. Belveal also discussed the interesting development of internal investigations moving into the mainstream, which means the initial planning phase is more important than ever. In this regard, Belveal stated companies must always consider the likely audience, and what type of investigative team is necessary to accomplish the stated objectives.
In a wide ranging panel discussion, Jennifer Neumann, Assistant General Counsel at American Axle & Manufacturing, Inc., Andrew Bos, Associate General Counsel at RGIS and Monica Navarro, Senior Counsel at Freudenberg North America, offered insight into the top issues that in-house counsel will face in 2020.
Among the first discussed was the importance of conducting third-party due diligence on suppliers and customers to ensure their financial stability. Each panelist indicated that their business conducts this due diligence on the front end, and continues to monitor suppliers and customers throughout the life of contracts. In the event that a customer or supplier is financially distressed, it is important to have other suppliers to replace a current supplier, if needed.
In terms of joint venture and joint development agreements, the panel expressed that parties to the JV or joint development agreement must address, upfront, what happens if the relationship needs to be unwound and how to get out of the agreement, if needed. When entering into joint development agreements, be clear in the agreement itself who owns what technology and IP and define specifically what each technology and IP is.
Finally, Neumann, Bos, and Navarro discussed the technology that each company has been or is adopting in its legal department. The technology includes more advanced remote access capabilities, advanced document cloud sharing programs, and implementing a contract monitoring system that analyzes certain contracts.
Each of the day’s presentations and panel discussions helped to bring in-house counsel up to speed on current and prospective legal trends. Foley looks forward to collaborating with The Association of Corporate Counsel in the future, and until then, hopes that the discussion and information provided at the program proves useful in the year to come.