California Cannabis Supply Chain Contract: Fee Transfer Regulations

California’s cannabis system aims to divide each link in the supply chain into different license types: cultivation, manufacturing, distribution, testing, and retail, to name a few. Except for some vertically integrated companies, almost all cannabis companies must rely on other companies in the supply chain to transport products from farms to consumers.

To this end, our California cannabis attorneys regularly draft “supply chain” agreements, which are a broad term that includes cannabis contracts such as purchase agreements, distribution agreements, manufacturing agreements, supply agreements, and licensing agreements. We have published a series of posts identifying common issues with California cannabis supply chain contracts and will continue to do so in the coming months. If you have not read an earlier article on this topic, I suggest you start with the following:

Today, I will delve into the very dry but very important terms of the supply chain agreement. Frankly speaking, this is an important topic for any contract, but this series of articles is about supply chain contracts, so we insist on doing so.

In some cases, the general rule in the United States is that in contract-based litigation (that is, a claim for breach of contract or the interpretation or execution of the contract), each party must bear its own attorney’s fees. This means that if one party wins or loses, it usually has to pay its own legal costs, not the other party’s legal costs. This is called the “American rule”, in contrast to the “English rule”, in which the loser pays attorney’s fees to the winner.I won’t touch on the nuances of the differences between these two systems, but there is a your If you are interested in reading such things, which scholarship is better.

Another important aspect of American rules is that there are many exceptions. The government usually enacts regulations (statutory laws) to provide for the transfer of costs in disputes. For example, in some cases, attorney fees may change under the federal Lanham Act (Lanham Act) or corresponding state regulations. In this case, the law will set out the specific standards by which the expenses can be transferred. There will be more discussion on this later.

Regarding supply chain agreements, parties who wish to transfer costs need to be aware of US rules and realize that if there is no provision for attorney fees, transfer costs may not occur.Even who do not Wanting to transfer costs may still think that it is a good idea to actually say this in the contract, so that the content of the contract can be clearly stated so that no one wastes time to deal with the issue during the litigation.

Fee transfer regulations are usually set in the miscellaneous part of the contract or elsewhere near the end, and for obvious reasons, are usually tied to the governing law and dispute resolution clauses. There are many different ways of writing and many different nuances. E.g:

  • When listing the types of recoverable expenses, some jurisdictions may require speciality. If the clause only states attorney fees, the winning party may not be able to obtain compensation for expert witnesses or other legal counsel fees. In the same sense, if no comments are sought, court or arbitration fees or appeal fees may not be recoverable.
  • Most contracts will only specify reasonable Attorney fees are recoverable. This can lead to a lot of disputes about which are chargeable and which are not recoverable. For example, if one party’s lawyer spends 10 hours to settle fees that a general lawyer might spend 2 hours, then the party that is forced to pay these fees will usually refuse. Viewing billing records line by line can be a time-consuming process. Even if the contract does not stipulate that only reasonable expenses can be reimbursed, the court or arbitrator can still read the standard without unreasonably awarding high expenses.
  • Generally, the language used in these terms refers to the fees charged by the “party”. Given the complexity of today’s commercial litigation, it is not always clear which party will prevail. What if there are more than two parties in the litigation and there are many overlapping complaints, and each party wins in a few claims but loses in the others? The contract can indeed conduct in-depth research on this, and can further define the winning party, or just note that the “substantial winning party” will charge fees.

To make this point more tortuous, remember that I once said about some exceptions to the statutory fee transfer law in the “U.S. Regulations”? So, what happens if there is no provision for transfer fees in the contract of a certain lawsuit, or the transfer of fees is explicitly prohibited, and a statutory requirement for a transfer fee clause is proposed in the same lawsuit? In this case, it is easy for the parties to be honest in the end, especially in contracts involving intellectual property rights, because many different intellectual property laws and regulations have fee transfer provisions, and many supply chain agreements involve intellectual property rights.

The answer to the above question is very complicated and will largely depend on whether the judge, jurisdiction, and written agreement remain silent on the matter or explicitly prohibit fees. In some cases, the court does not allow expenses related to certain tasks in litigation, and allows in other tasks. This is indeed a fact-related issue. It is wise for all parties to consider the type of contract.

Although this is definitely a dry area of ??the law, it is an important consideration for contracting parties. Please stay tuned to the Canna Law blog for more information on the California Cannabis Supply Chain Agreement.

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