Testing Your Legal Acumen

It wasn’t long ago that our business was largely sealed with a handshake and the only time the association planner found it necessary to consult a lawyer was if someone was injured during an event. How the industry has changed! It is now common for associations to retain at least one lawyer as legal counsel. In addition, it has become increasingly important for association professionals to be proficient in legal fundamentals.

Here is your chance to measure your legal proficiency. The five following questions represent commonly misunderstood issues that, if mishandled, could spell all sorts of trouble. We’ve assembled a panel of lawyers who collectively represent hundreds of associations to enlighten you on the correct responses to these situations.

Hotel Contract Cancellation Fees

Q: A meeting professional negotiated a rooms-only hotel contract for an event scheduled to take place 12 months from the date of signing. Cancellation fees were a major sticking point, but the hotel sales person, desperate to make a booking quota, agreed to delete the cancellation provision if the group would sign the contract by a certain date. The meeting professional signed and returned the contract by the agreed date. A month later, the group canceled the contract for reasons other than force majeure or acts of God. The group then received an invoice from the hotel for 100 percent of the room revenue the hotel would have received had the event taken place. Since the signed contract did not contain a written cancellation provision with stated cancellation fees, is the group legally obligated to pay the hotel?

Mark Roysner: Maybe. The actual amount payable to the hotel, if any, depends on the actual damages the hotel incurred due to the cancellation, and whether the hotel was able to resell some or all of the canceled room block. A “cancellation” under contract law occurs when the other party ends a contract prior to completion of one or both parties’ performance obligations due to a breach, and the non-breaching party retains the right to seek any available remedy (usually monetary compensation) for damages. In this instance, just because a contract did not contain a written cancellation provision, it does not release the group from liability arising from the harm the hotel incurred due to the group’s cancellation of the contract. In this case, if both parties had actually intended that no cancellation fees were due if the group canceled, the best way to do this would have been to include a provision in the contract expressly stating just that or that the cancellation fee would be a stated nominal amount.

The hotel’s original cancellation provision, with the cancellation fees spelled out, is known as a liquidated damages provision. Liquidated damages are contractually pre-determined damages that one party agrees to pay to the other party if they breach some provision of the contract. Just because the parties agreed to delete the liquidated damages provision, that does not automatically waive the hotel’s legal right to seek compensation for the actual damages it incurred. To the contrary, removing the cancellation provision only changed the type of damages the hotel could seek, from liquidated damages to actual damages. Therefore, although the hotel would not be able to enforce a demand for 100 percent of the total gross rooms revenue, it has the legal right to seek compensation for lost profits and possibly some types of incidental damages, but only after the hotel has exercised its duty to mitigate its losses by trying to resell the unsold rooms in the room block. However, because calculating the actual damages owed is contingent on the hotel’s duty to mitigate its losses, payment could be withheld until after the originally scheduled event dates and the hotel could demonstrate accounting proof verifying its actual losses after trying and failing to resell the canceled room block.

Force Majeure and Your Meeting

Q: An association booked its annual meeting in a city several years ago, and it’s scheduled to take place in a month, but attendance is way down because the economy has declined. The association does not believe that it should be liable for performance guarantees in guest rooms and catering due to the economy. Can it successfully claim that the dip in the economy is a force majeure that prevents it from being liable for attrition in guest rooms and catering?

John S. Foster: It depends on what the contract states. Even without a force majeure clause, and assuming no other contrary wording in the contract exists, contract law allows one or both parties to terminate or suspend its performance obligations without liability if any one of three legal standards is met: Performance is made impossible after the contract is signed due to actions outside the control of either party; performance is made impracticable and is not due to the acts or omissions of a party; or the purpose of one of the parties has been frustrated by events after the contract is signed that renders performance substantially without value to the party whose performance has been frustrated. To rely on this standard, the purpose relied upon must be stated in the contract.

It must also be said that in order to successfully invoke any of the three standards, the adverse act or event causing performance to be affected must be unforeseeable at the time the contract was entered into. Foreseeability is a critical aspect of successfully invoking the force majeure standards.

This hypothetical question about the effect of the economy on performance in contracts has proved to be a relevant one. Courts have held that the economy has always gone up and down. Therefore, because changes in the economy are predictable and not unforeseeable, an organization adversely affected by the economy cannot claim force majeure as an excuse unless the contract explicitly provides for it. There are, however, ways to effectively cover economic changes in your contract.

Terrorism and Your Event

Q: In light of the continued threat of terrorism, what actions can an organization take to protect its event?

Luke Puschnig: Obtain the appropriate amount of terrorism insurance coverage and make sure your group’s duties in case of a terrorist attack are clearly outlined in your contract or lease. The U.S. Congress recently extended the Terrorism Risk Insurance Act of 2002, or “TRIA,” through 2020. Originally passed in response to the events of 9/11, the act makes it easier to obtain, for a reasonable premium, the insurance coverage necessary to protect businesses and events in case of a terrorism event. The coverage should be as broad as you can get it and obtained through an insurance company that can actually pay if such a thing does occur.

In your lease with the host facility, your language needs to be clear about who makes the decision to close the facility and, potentially, your event. Most event organizers will state that they want to make that decision; however, a joint decision will be just as good or better in that you might avoid litigation if the decision to close is made jointly.

Copyright in Volunteer Work Product

Q: A committee of volunteers, made up of association members, drafts a set of professional guidelines. The chairman did most of the drafting, but wording was contributed by other members, and the final result was approved by the board. The guidelines are then posted on the association’s website. Who owns the copyright?

Paula Cozzi Goedert: All the committee members who contributed wording. Under current U.S. copyright law, creators of intellectual property own their work product. If multiple authors contribute to the work product, they own the work product jointly.

In this example, the committee members were not asked to execute a copyright assignment and they should have been even though there was an implied license to display the work product. An implied license is not good enough. Associations should make a copyright assignment a necessary part of any committee appointment if the committee will produce a written work product. A committee assignment letter can be provided to each committee member, congratulating them on the committee assignment and asking them to sign a statement along the following lines: I hereby assign to the association copyright in all work product produced for the association in my role as a member of this committee. The committee member should then sign and date the acknowledgment and agreement.

Alleged Sexual Harassment

Q: Clare, a meeting planner for the association, complains about what she perceives to be advances by a member. Clare feels that she is being sexually harassed. Is there reason for concern?

Jonathan Howe: Yes. There is a potential case because Clare feels it is a hostile environment. Her supervisor should undertake an investigation and place Clare outside of the reach of this member. In cases of alleged sexual harassment, an association should always take those two steps to the best extent possible.

Our Panel of Legal Experts

Mark Roysner