Is This Really the Best We Can Do? American Courts’ Irrational Efforts Clause Jurisprudence and How We Can Start to Fix It

NOTE

Is This Really the Best We Can Do? American

Courts’ Irrational Efforts Clause Jurisprudence and

How We Can Start to Fix It

CHARLES THAU* TABLE OF CONTENTS

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 666

I. AN INTRODUCTION TO EFFORTS CLAUSES . . . . . . . . . . . . . . . . . . . . . . . . . . 668

A. WHAT ARE EFFORTS CLAUSES, AND WHY DO THEY EXIST? . . . . . . . . 668

B. THE LINGUISTIC VARIETY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 670

C. HOW MOST PRACTITIONERS AND COMMENTATORS VIEW EFFORTS

CLAUSES............................................... 671

II. WHAT THE CASE LAW ACTUALLY SAYS . . . . . . . . . . . . . . . . . . . . . . . . . . . 673

A. HOW DO COURTS DEFINE “BEST EFFORTS”? . . . . . . . . . . . . . . . . . . . . 673

1. Duty of Good Faith. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 675

2. Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 676

3. All Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . 677

4. Comparing the Predominant Approaches . . . . . . . . . . . . 678

B. “BEST EFFORTS” IN RELATION TO OTHER EFFORTS STANDARDS. . . . . 679

1. The Majority Position. . . . . . . . . . . . . . . . . . . . . . . . . . . 679

a. New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 680

* Georgetown University Law Center, J.D. 2020; Washington University in St. Louis, B.A. 2017. ©

2021, Charles Thau. Special thanks to Professors Frances DeLaurentis and Greg Klass for their

thoughtful commentary. Thank you to my Senior Writing Fellow colleagues, and particularly Claire

Fischer, for their thoughts on an early draft. Thank you to all of my incredible colleagues on the The

Georgetown Law Journal, especially Orion de Nevers, Anna Stacey, Hannah Flesch, Adam Mitchell,

and Nick Mecsas-Faxon for their diligent efforts to see this Note through to publication. Thank you to

Professor Diana Donahoe for teaching me how to become a legal researcher and writer. To Matt Gerson,

Susan Kaplan, Alex Gerson, and Lucy Gerson: I am eternally grateful for all of your love and support

throughout the COVID-19 pandemic. To Jessie Gerson: I love you, and you are the best partner I could

ever ask for. To my family—Jackie Weiss, Jon Thau, Rebecca Thau, and Warren Weiss—you mean

everything to me. I dedicate this Note to my late grandfather, Herbert B. Thau, the original Thau family

lawyer.

665

b. Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 681

2. The Small but Vocal Minority . . . . . . . . . . . . . . . . . . . . 682

C. WHY IS THERE A DISCONNECT BETWEEN PRACTITIONERS AND THE

COURTS?............................................... 684

III. WHY COURTS SHOULD INTERPRET EFFORTS CLAUSES

HIERARCHICALLY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 685

A. LINGUISTIC COHERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 686

B. PRUDENTIAL CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 688

IV. HOW COURTS CAN INTERPRET EFFORTS CLAUSES ON A SLIDING SCALE . 693

A. A HIERARCHICAL APPROACH TO EFFORTS STANDARDS IS WORKABLE 693

B. A HIERARCHICAL APPROACH TO EFFORTS STANDARDS IS

“REASONABLE” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 698

V. HOW TO NAVIGATE THE CURRENT SYSTEM AND MODEL CONTRACT

LANGUAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 699

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702

INTRODUCTION

“My best endeavours shall be done herein.”

1

Imagine the following scenario: Jon is a bright, but lazy high school junior. He

received straight As in middle school and loved all of his classes, but teenage mal-

aise and angst have overtaken him during the last few years. His grades have suf-

fered, and Jon’s mother, Jackie, is extremely concerned—after all, the dreaded

college process is just around the corner. Jackie knows that her son responds only

to incentives at this point, so she offers him a deal: pick up your grades, and we

will buy you a puppy. Now this draws Jon’s attention; he’s wanted a dog for

years, but Jackie has always balked at the idea.

Though only seventeen, Jon is litigious, and he wants to negotiate terms so his

mom can’t pull the rug out from under him. Jackie—a lawyer herself—is amused

and agrees. They’re both fully convinced that Jon is smart enough to earn straight

As again if he simply tries harder in his classes, but they want to control for exog-

enous factors. So, Jackie tells him to select one of two terms: (1) Jon shall receive

a puppy only if he puts forward his “best efforts” to receive straight As during the

next year; or (2) Jon shall receive a puppy only if he puts forward his “reasonable

1. WILLIAM SHAKESPEARE, THE MERCHANT OF VENICE act 2, sc. 2 (Lerner Publ’g Grp. 2003) (1605).

666 THE GEORGETOWN LAW JOURNAL [Vol. 109:665

efforts” to receive straight As during the next year. Which option should Jon

choose?

I suspect that most people—nonlawyers and lawyers alike—would argue

that Jon should pick the latter term. Why? Because it seems intuitively eas-

ier to put forth one’s “reasonable” efforts than one’s “best” efforts. Jon

would likely be surprised to learn, however, that the majority of courts in

the United States do not perceive a difference between these two standards.

2

Parties use efforts provisions—like those proposed by Jackie—to specify

contractual obligations when performance is contingent on nonparties or

outside events.

3

In my example, Jon does not completely control his GPA; a

teacher could grade his work arbitrarily or he might become sick before the

semester ends, among other possibilities. Jackie therefore included an

efforts clause to guard against those variables and ensure that Jon’s indus-

triousness alone determines his performance. By qualifying and clarifying

parties’ obligations, efforts clauses thus help parties avoid costly litigation

and liability for breach while also encouraging dealmaking.

4

Lawyers utilize myriad linguistic formulae in drafting these clauses—“best

efforts,” “reasonable efforts,” “commercially reasonable efforts,” and “diligent

efforts,” to name a few.

5

Many practitioners perceive efforts provisions as operat-

ing on a sliding scale of onerousness, with “best efforts” imposing more burden-

some obligations than “reasonable efforts,” for example.

6

The majority of

American jurisdictions, however, have rejected that notion, notably including

New York and Delaware.

7

This Note argues that the approach of these courts is

incorrect; efforts standards should instead be interpreted hierarchically, both to

increase linguistic coherence and to better represent the intent of contracting

parties.

Why does this seemingly mundane linguistic question matter? It’s signif‌icant

because efforts clauses permeate contracts throughout commercial industries:

2. See, e.g., Kenneth A. Adams, Interpreting and Drafting Efforts Provisions: From Unreason to

Reason, 74 BUS. LAW. 677, 684–85 (2019); Shawn C. Helms, The Fallacy of the “Best Efforts”

Standard, 42 LES NOUVELLES 432, 433 (2007); see also infra Section II.B (reviewing different standards

employed by courts).

3. See Adams, supra note 2; see also infra Section I.A.

4. See infra notes 26–27 and accompanying text.

5. See infra Section I.B. For a comprehensive discussion of many of these standards, see generally

Ryan Aaron Salem, Comment, An Effort to Untangle Efforts Standards Under Delaware Law, 122 PENN

ST. L. REV. 793 (2018).

6. See, e.g., Helms, supra note 2, at 432; infra Section I.C.

7. See infra Section II.B.1. New York and Delaware courts maintain outsized importance within

American corporate law. See About the Division of Corporations, DEL. DIVISION CORPS., https://corp.

delaware.gov/aboutagency [https://perma.cc/PVP9-YUFL] (last visited Dec. 13, 2020) (“More than

1,000,000 business entities have made Delaware their legal home. More than 66% of the Fortune 500

have chosen Delaware as their legal home.”); Business & Headquarters: Top 25 Largest Companies

Headquartered in New York City (NYC) 2019 Report - Ranked by Revenue, BARUCH C., https://www.

baruch.cuny.edu/nycdata/business-headquarters/headquarters.htm [https://perma.cc/74GE-KW5Q] (last

visited Dec. 13, 2020) (listing major companies headquartered in New York City).

2021] IS THIS REALLY THE BEST WE CAN DO? 667