The Proof Of The Drafting Is In The Reading: Contract Drafting Mistake Costs Millions
There is a saying in carpentry: “measure twice, cut once.” A similar thing could be said about lawyers drafting agreements: Proofread twice, then get a second pair of eyes to do the same again, and only then, should you have your client read and sign the document. A recent case decided by the United States District Court for the District of Massachusetts, Dahua Technology USA Inc. v. Zhang, highlights the importance of careful and precise drafting of contracts. The parties in the Dahua case entered into a severance agreement with a release of claims in connection with the termination of Zhang’s employment (the “Release Agreement”). The Release Agreement provided for Dahua’s payment of severance to Zhang. The payment provision stated: “In consideration for your execution, non-revocation and compliance with this [Release] Agreement, [Dahua] agrees to make monthly severance payments to you in the amount of $680,000 for sixteen (16) months following the offer termination Date (the ‘Severance Period’)….”
There seems to be no question that Dahua intended to pay Zhang a total of $680,000 in monthly installments of $42,500. But, according to the Court, the Release Agreement was unambiguous and therefore could not be interpreted other than in accordance with its plain reading. The Release Agreement, as written, required Dahua to pay Zheng a total of $10,880,000. Despite recognition that the contract likely contained an obvious mistake, and that both parties knew or should have known that it was a mistake, the Court still refused to reform the contract under equitable principles. The Court referenced two important points that played into the decision. First, the Release Agreement was drafted by Dahua and, in general, the risk of a mistake is borne by the drafter. Second, the Court noted that Dahua’s representative signed the Release Agreement without ever reading it.
Among the most important lessons from this case are that a lawyer needs to be very careful when drafting payment provisions in contracts; and attorneys and their clients should review contracts scrupulously before signing them.
Post Date: 4/8/2024
Sovereign Immunity—The Commonwealth Not Bound To Honor A Trustee Wage Attachment
In Eno v McGinn, Gregory Eno was severely injured when the defendant McGinn drove her car over him three times. McGinn was convicted of leaving the scene of an accident and negligent operation of a motor vehicle. Gregory Eno then obtained a civil judgment against McGinn in November of 1999. Gregory Eno passed away in 2015, never having received payment from McGinn.
In 2018, Gregory Eno’s father, Walter, moved to substitute himself for Gregory and holds an amended judgment in the amount of nearly $5 million.
McGinn did not pay the judgment, so Walter obtained a wage garnishment order in the form of a writ of trustee attachment, and served McGinn’s employer, the Commonwealth of Massachusetts. The Commonwealth refused to honor the writ of attachment and thereby garnish McGinn’s wages. Walter objected to this refusal, but the Superior Court sided with the Commonwealth, and Walter appealed.
The Appeals Court stated that while trustee process is an appropriate method, for intercepting a defendant’s wages in order to satisfy a judgment, this process is subject to the long-recognized principle “that trustee process actions against the Commonwealth are barred by sovereign immunity.” The Court explained that “[s]overeign immunity is an ancient doctrine [that] … protects the public treasury against money judgments and public administration from interference by the courts at the behest of litigants except in instances and by procedures the Legislature has authorized.”
The Court added that while the Commonwealth could not be compelled to comply with a trustee process attachment, it could have complied if it chose to do so. In this case, the Commonwealth declined to honor the trustee attachment and neither Walter nor the Court could challenge that decision. However, Walter was not left completely out of luck. In a footnote, the Appeals Court left open the possibility of Walter seeking an attachment of McGinn’s wages after they are paid to McGinn and deposited in her bank account, or by seeking a payment order in a separate proceeding in which the Commonwealth would not be a party.
Still, it seems unjust that the sovereign can honor or reject a trustee process attachment at its whim, especially because the funds at issue once owed as wages no longer were assets of the Commonwealth.
Post Date: 1/31/2024
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