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When should a contract clause say “arising out of or relating to the Agreement”?

In drafting a contract, when should you refer to matters “arising out of or re­la­ting to ” the agreement, as opposed to just those matters “arising out of” the agree­ment?

This can be an important question when you’re drafting — or reviewing — an attorneys’ fees clause; a forum-selection clause; a governing-law clause; or an arbitration clause, to name four common examples.

More after the break.

A forum-selection clause might say, for example, that “Any action arising out of or relating to the Agreement may be commenced in any court having juris­dic­tion” in a specified location.

That might be more than you really want, how­ever — you might be willing to have “arising out of” matters litigated in the other side’s forum, while (quietly) leaving open that other matters might be litigated elsewhere.

Or you might be willing to arbitrate “arising out of” matters instead of taking them to court, but you might not be willing to arbitrate every conceivable claim that might ever arise between the parties.

Here’s a hypothetical example, involving a forum-selection clause:

a) Vendor is a software company. Customer, a Cleveland company, has recently bought a license to use Vendor’s Software Product A.

b) Carol, one of Customer’s IT employees, comes on-site at Vendor’s office for training in the use of Software Product A.

c) During a break in the training session, Carol notices that Vendor’s trainer has left a DVD containing Software Product B sitting on the desk at the front of the classroom. Carol surreptitiously steals the DVD and takes it home with her.

d) Carol’s boss congratulates her for having stolen the DVD. He directs her to start using (the stolen) Software Product B in Customer’s business.

e) Another Customer employee, Casey, learns of the theft. Troubled, Casey calls up a friend of his who works for Vendor and blows the whistle.

f) Vendor tries to work things out amicably with Customer, but the response from (thieving) Carol’s boss is “sue us.”

g) The license agreement between Vendor and Customer contains a forum-selection clause, requiring all matters “arising out of or relating to ” the license agreement to be litigated in Cleveland, Customer’s home city.

Under this forum-selection clause, would Carol’s theft of Software Product B have to be litigated in Cleveland?

Carol’s theft doesn’t seem to “arise out of” the license agreement. Arguably, though, it might indeed be “related to” the agreement.

If I’m representing Vendor, I might not mind agreeing to litigate, say, Cust­om­er’s warranty claims about Software Product A in Cleveland.

On the other hand, I probably wouldn’t want to be forced to litigate Carol’s theft of Software Product B in Cleveland; I’d want Vendor to have a choice in the matter.

Lesson: Before agreeing to “arising out of or relating to ” language in a contract, give some thought to the possible future ramifications.

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