THIS ISSUE'S HEADLINES

Why Compliance with the Rules of Civil Procedure is Critical For Your Legal Case

The Back End of the Contract Matters

What Is a “Cap Table” and Why Do I Need One?

Equity Financing Primer: Raising Capital Through Private Placement


WHY COMPLIANCE WITH THE RULES OF CIVIL PROCEDURE IS CRITICAL FOR YOUR LEGAL CASE

In a recent Rhode Island Supreme Court decision, the perils and dangers of not knowing the applicable rules of procedure was once again showcased. In Ponagansett 2 LLC d/b/a Peter Bibby Heating & Air v. Eleticia Garcia et al., No. 2023-0069-A, the Supreme Court was confronted with a breach of contract and mechanics lien case in which the defendant failed to answer the complaint in the applicable time period after she was served. Due to the defendant's failure to timely answer the complaint, the plaintiff moved for and was granted a default judgment against the defendant.

When it came time to assess the amount of damages owed, a hearing was held before the Superior Court. At this hearing, the defendant attempted to introduce evidence regarding the validity of the underlying claims; claims for which she had already been defaulted. Both the hearing justice and the Supreme Court determined that the defendant's failure to timely answer the complaint and the resulting default judgment precluded her from raising defenses and acted as implied concession that she was liable. Such a result is provided for by Rule 12(h) of the Superior Court Rules of Civil Procedure.

Thus, while the defendant may have had a viable defense to the breach of contract and the mechanics lien claims, her simple failure to answer the complaint within the time period provided by the Rules of Civil Procedure doomed her ability to defend herself against such claims.

If you have questions pertaining to a legal case in Rhode Island and/or the Superior Court’s Rules of Civil Procedure, contact please contact PLDO Partner Patrick J. McBurney at 401-824-5100 or email pmcburney@pldolaw.com.

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THE BACK END OF THE CONTRACT MATTERS

In negotiating a contract, it tends to be the items in the front of the document that command a party’s attention. These “what gets done” and “what gets paid” provisions represent the deliverables that the party is negotiating – the heart of the deal, effectively. Obviously, ample attention needs to be dedicated to clearly stating what is expected of each party and eliminating ambiguities that may give rise to conflicts. However, the “back” end of the contract should not be treated as boilerplate to gloss over. These provisions, often lumped under the “Miscellaneous” heading, can be extremely important, particularly when a dispute arises over the performance of the contract’s deliverables. A party that can clearly demonstrate a counter-party’s breach can quickly find itself with no effective remedy based on these often-ignored back-end provisions.

Certain contract provisions operate in tandem to frustrate a party’s ability to recover for a breach. The first is a Limitation of Liability provision. As its name implies, this provision serves to limit a party’s potential recovery to an amount that may be far less than its actual damages. Moreover, such limitations typically apply across the spectrum of legal theories, so a claim for fraudulent inducement would suffer the same limitations as the underlying claim for breach of contract.

Often, a vendor’s liability is limited to the amount the customer has paid for the disputed service over the past twelve months. Obviously, if the vendor’s services have significant impact on the customer’s revenues, such as a medical billing company or a credit card processing service, the damages caused by the vendor’s breach may far exceed the fees paid to the vendor in the designated look-back period. Moreover, if the customer stops paying due to the vendor’s breach, the non-payment itself serves to further limit the customer’s recovery under such a provision.

Alongside a Limitation of Liability provision, a Disclaimer of Warranties can also severely restrict a party’s right to recover for a breach. Warranty disclaimers often restrict a party from pursuing “warranty” theories such as fitness for a particular use. Then, a Choice of Forum provision may compound the customer’s challenges by requiring any dispute to be heard before the courts of the vendor’s home state, meaning that the injured customer must find a lawyer in that foreign jurisdiction to pursue whatever remedies it may have.

Of course, one’s viewpoint on these provisions likely depends on whether one is the vendor or the customer. For the vendor, these may be critical provisions that keep one rogue customer mishap from creating a liability that existentially threatens the company. For the customer, these provisions may create a degree of revenue risk that creates that very same threat. The key takeaway is that these provisions matter, and their potential impact must be closely assessed whenever a party is contemplating a new contractual relationship.

If you have questions about a business contract, please contact PLDO Partner Joel K. Goloskie at (617) 771-1154 or at jgoloskie@pldolaw.com.

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A capitalization table or “Cap Table” is a document that depicts the current owners of a company and their respective interests in that company. In the case of start-ups and early-stage companies, the Cap Table is fairly straightforward. However, as the company matures, the need for a Cap Table grows and its components become more complex.

Although Cap Tables are not generally mandated, maintaining a current and accurate Cap Table is considered a “best practice” for privately held companies that have two or more parties. In a recent Client Advisory, PLDO Partner William F. Miller discusses why businesses, no matter their size, should develop and maintain a Cap Table, and best practices for what should be included. To access the Advisory, click here. If you have questions about Cap Tables or other business and legal matters, please contact Attorney Miller at 508-420-7159 or email wmiller@pldolaw.com.

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There is a myriad of ways that closely held businesses can raise capital to expand their operations and grow their business. When debt financing is not a viable option, which is often the case for companies in their infancy, raising capital through private placement can be an effective means to achieve goals by offering shares of the business to a select group of accredited investors. However, choosing this path requires specific steps to ensure success and legal/regulatory compliance.

Click here to read PLDO Principal Gary R. Pannone’s Advisory, which outlines the process for issuing shares through private placement, and provides best practices for developing a business plan, structuring the offering, attracting investors and complying with federal and state regulations. Engaging the assistance of legal and financial professionals is always recommended. For further information on private placements and other financing methods, please contact Attorney Pannone at 401-824-5100 or email gpannone@pldolaw.com.

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