Real-World Litigation Effects of Energy Contract Clauses: ‘No Waiver’ Clauses

Morgan Lewis - Power & Pipes

Morgan Lewis - Power & Pipes

Authored by litigators from our energy team, the Not Just Boilerplate series on Power & Pipes provides real-world examples of the impact that certain contract clauses can have on energy companies. Whether in repeat form agreements, employment agreements, or heavily negotiated one-off deals or mergers, there can sometimes be a tendency to just “grab” clauses from prior agreements, with the thinking that “it has always worked before . . .”

Our energy lawyers have experience with a wide array of litigation matters that have turned on various common contract clauses, some of which may have not received much attention at the time they were included in the agreement. We thought it might be useful to pass on some real-world “lessons learned” from the litigators who have actually fought the battles. Such perspectives might help to inform your next contract—or dispute.

And so, some observations on our first topic: “no waiver” clauses.

Companies and their commercial lawyers usually want the contract, once it is finalized and signed, to be the final word on what is covered. Frequently, “integration” clauses are included, to the effect that “no amendment or modification to this Contract shall be effective unless set forth in writing and duly executed by both Parties.” That can be a leaky protection, at best.

Courts and cases have often held that such integration or no-modification clauses can be trumped by evidence of alleged course of dealing, acquiescence, waiver, and the like. Some cases to that effect in Florida, where we recently ran into this issue in a $100 million-plus arbitration over a failed power plant in which the developer claimed such waiver, include Linear Corp. v. Standard Hardware Co., 423 So. 2d 966, 968 (Fla. 1st DCA 1982) (“[T]he parties to a contract may modify the written agreement by subsequent oral agreement or course of dealing with one another despite the requirement of a writing in order to modify.”), and White v. Ocean Bay Marina, Inc., 778 So. 2d 412, 412 (Fla. 3d DCA 2001) (“A written contract may be modified by a subsequent oral agreement or subsequent conduct of the parties, even though the written contract purports to prohibit such modification.”). Sometimes claiming such waiver can be enough for an opponent to get past summary judgment, and to a hearing or jury, even though the contract’s plain written terms would dictate otherwise.

If the desire is really to nail down the rights and obligations of the parties as tightly as possible within the four corners of the contract, consider including an independent no-waiver clause, as a term separate and apart from the integration or no-modification clause.

Call the provision “no waiver,” and include language along the lines of “the delay or failure of a Party to insist, in any instance, on the strict performance of any of the terms and conditions herein shall not be construed as a waiver of such Party’s right in the future to insist upon strict performance of such terms and conditions.”

Cases in Florida, where our recent power plant dispute occurred, that have held such no-waiver clauses to be separately enforceable include National Home Communities, LLC v. Friends of Sunshine Key, Inc., 874 So. 2d 631, 634 (Fla. 3d DCA 2004) (Florida courts “have consistently enforced [anti-waiver] clauses”); Rybovich Boat Works, Inc. v. Atkins, 587 So. 2d 519, 522 (Fla. 4th DCA 1991); and Sacred Heart Health Sys., Inc. v. Humana Military Healthcare Services, 601 13 F.3d 1159, 1182 (11th Cir. 2010) (collecting Florida cases).

The waiver and course-of-dealing cases typically do not contain such clauses. In our Florida case, having that no-waiver clause in the contract allowed us to simply and persuasively dismiss the opponent’s very voluminous evidence regarding alleged waiver, to distinguish all of their cited cases, and to secure a partial summary judgment that substantially narrowed the case.

So, a little extra thought—and maybe a separate no-waiver clause—can pay big dividends if things go south and wind up in disputes territory.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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