October 11, 2003

Bye-Bye, Carolina; Hello, California

Late last month, a North Carolina customer of Oracle Corporation found itself involuntarily headed for California to pursue its lawsuit against Oracle. This came to pass because the customer -- probably without even knowing it -- agreed to a forum-selection clause when it bought its Oracle software license.

The Forum Selection Clause

The customer apparently signed an order form which stated that its terms were governed by the Oracle License and Services Agreement. That agreement contained a fairly typical choice-of-law and forum-selection clause:

This agreement is governed by the substantive and procedural laws of California and [ACC] and Oracle agree to submit to the exclusive jurisdiction of, and venue in, the courts in California in any dispute relating to this agreement.

The customer, unhappy about something (the court's opinion doesn't say what exactly), sued Oracle in North Carolina despite the forum-selection clause.

The Court's Analysis

The forum-selection clause didn't automatically mean that the case would be transferred to California. The judge still had to go through a detailed, 11-factor analysis to determine whether the interests of justice and the convenience of the parties would be best served by transferring the case or by keeping it in North Carolina.

In the end, the judge concluded that the case should be transferred. He quoted a prior case that said that "once a mandatory choice of forum clause is deemed valid, the burden shifts to the plaintiff to demonstrate exceptional facts explaining why he should be relieved from his contractual duty."

The customer now faces the increased expense and inconvenience of having to litigate its case across the continent from where it originally hoped. That likely will give Oracle some bargaining leverage.

(AC Controls Co. Inc. v. Pomeroy Computer Resources, Inc., No. 3:03CV302 (W.D.N.C. 09/29/2003))

Possible Lessons

1. Read all contracts before you sign them.

2. Know that, if your contract contains a forum-selection clause, you may well have to live with litigating your case in a courtroom far, far away.

October 11, 2003 in Contracts, Litigation, Purchasing, Sales | Permalink | Comments (0) | TrackBack

September 16, 2003

Side Letter in Sales Deal Leads to SEC Fraud Suit

Last week the SEC announced that it had filed a civil lawsuit against a former Logicon executive who allegedly placed a $7 million order with Legato Systems that included a secret side letter giving Logicon the right to cancel its purchase. According to the SEC, the Logicon executive not only knew that Legato planned to fraudulently misstate its financial results, he even advised Legato's sales people how to conceal the cancellation right from the Legato finance department.

LESSON: The SEC's news release quoted Helane L. Morrison, District Administrator for the Commission's San Francisco District Office, as saying, "Sales executives who book phony deals often rely on assistance from people who work for their customers. Today's action highlights the Commission's resolve to hold such persons responsible when they knowingly assist in fraudulent revenue recognition practices."

September 16, 2003 in Accounting, Contracts, Embarrassments / Bad Career Moves, Purchasing, Sales, Securities law, SEC regs / actions | Permalink | Comments (0) | TrackBack

August 15, 2003

Cheating on Educational Discount
Results in Damage Award,
Mail-Fraud Conviction

Hewlett-Packard announced yesterday that it had recovered some $1.8 million from a company that bought computers using an educational discount but then resold them to commercial customers. See story.

(Perhaps of greater interest to corporate managers, the company's owner reportedly pleaded guilty to related federal mail-fraud charges.)

Lesson: Don't lie about being eligible for discounts or other special deals -- that is, unless you think you might look good in handcuffs.

August 15, 2003 in Criminal Penalties, Purchasing | Permalink | Comments (0)