When someone wants to discuss my giving expert testimony in a dispute over the meaning of part of a contract, it’s a safe bet that the confusion over meaning will involve one or other (or both) of the following kinds of ambiguity:
- Syntactic ambiguity, which arises from uncertainty over what part of a sentence a given phrase modifies, or what part of a phrase a given word modifies. MSCD chapter 11 explores syntactic ambiguity, and chapter 11 (Numbers and Formulas) includes a discussion of syntactic ambiguity in formulas. And I’ve blogged plenty about the subject, including here.
- Ambiguity of the part versus the whole—that’s my term for uncertainty over whether in a given provision a single member of a group of two or more is being referred to, or the entire group. It includes uncertainty over the meaning of and and or. MSCD chapter 10 covers this kind of ambiguity.
If I’m asked to submit expert testimony to a court on any other topic, I’ll likely decline. Instead, assuming that my analysis would be helpful, I’ll offer to act as a consultant, leaving counsel to present the arguments.
Why make this distinction? Caselaw supports the proposition that no expert testimony is admissible for purposes of determining whether contract language is ambiguous. (Arbitrations and other noncourt proceedings are a different matter.) I’m nevertheless willing to offer expert testimony on syntactic ambiguity and ambiguity of the part versus the whole—courts routinely flub that kind of analysis, so it makes no sense to prohibit expert testimony on the subject, and I think that I could get a court to agree with me. (For more on that, see this June 2009 post on the AdamsDrafting blog.) But a court is very unlikely to allow expert testimony on other kinds of ambiguity, given that they’re easier to grasp, so there’s little point in my offering such testimony.
This all came to mind when via reader @JFBrashear I learned of this post on Roetzel & Andress’s Franchise Follow-Up blog. It discusses an order of the U.S. District Court for the Northern District of Georgia in Coyote Portable Storage, LLC v. PODS Enterprises, Inc., 2011 WL 1870593 (N.D. Ga. May 16, 2011) (go here for a PDF copy).
Background
The case involves a dispute over franchise agreements that the three plaintiffs entered into with defendant PODS. PODS is a franchisor of storage and moving businesses. Under the franchise agreements, the plaintiffs were required to pay PODS a monthly royalty fee equal to a percentage of the franchisee’s “Net Sales.”
The franchise agreements’ definition of Net Sales is a mess:
The royalties and [Marketing and Advertising Fund] shall be calculated on the “Net Sales”, which is the total revenue as shown on the “Sales by Item Summary—Complete Summary”, excluding sales tax and insurance as explained above, less discounts, credit memos or adjustments and bad debt expense, and monies received as part of the cross country move program, which are distributed separately on a monthly basis and not included in this summary.
According to the plaintiffs, “monies received as part of the cross country move program” were specifically excluded from Net Sales. PODS initially responded by saying that the definition of Net Sales was “patently ambiguous, and was the result of a scrivener’s error and mistake.” But it subsequently submitted expert testimony to the effect that “monies received as part of the cross country move program” should be included in Net Sales. The court ruled that the expert’s testimony was inadmissible.
Syntactic Ambiguity
A sentence can exhibit potential ambiguity. Whether potential ambiguity results in actual ambiguity depends on how the potential ambiguity relates to other elements of the provision.
Consider the language at issue. It’s essentially a formula expressed in prose. If you strip down the formula, using “equals” instead of “which is”, using “minus” instead of “less” and “excluding”, and replacing the individual values with letters, here’s what you get:
“Net Sales” equals A minus B and C, minus D, E or F and G, and H.
The definition contains three instances of potential syntactic ambiguity, each caused by uncertainty over the order of operations. The three sets of possible alternative meanings are shown below; consistent with mathematical convention, the operations within parentheses are performed first (noted in brackets are relevant sections of MSCD):
- … A minus (B and C), minus (D … ) … or … A minus (B and C, minus D … ) … [see MSCD 13.10]
- … minus D, (E or F) and G … or … minus D, E or (F and G) … [see MSCD 10.61]
- … minus (D, E or F and G, and H) or … minus (D, E or F and G), and H [see MSCD 11.13]
So the definition could conceivably have eight different meanings. The parties argued about only the third instance of potential ambiguity, but eliminating all potential ambiguity would have made life easier for the reader.
As regards the language in dispute, if I were providing expert-witness testimony, I’d limit it to specifying whether the language exhibits syntactic ambiguity. I doubt I’d address whether you could use other aspects of the definition to resolve the ambiguity—the court would presumably consider itself capable of that analysis, thank you very much. But I’d share my views with counsel.
The Expert Testimony
But things played out a bit differently in Coyote Portable Storage.
The expert was Ross Guberman, who specializes in litigation writing. Guberman concluded that based on the punctuation used, the language in dispute isn’t ambiguous. For reasons that I won’t go into here, I’m not sure I agree.
But perhaps because his background is in litigation, he went beyond issues of syntactic ambiguity. In particular, he construed the language at issue by applying noscitur a sociis, a canon of construction holding that the meaning of an unclear word or phrase should be determined by the words immediately surrounding it.
Rules of construction such as noscitur a sociis represent a quick and dirty way for courts to resolve ambiguity. So by offering an interpretation that made use of a rule of construction, Guberman was in effect taking upon himself a function of the court.
Unsurprisingly, the court didn’t respond favorably—it held inadmissible Guberman’s entire testimony, including his testimony regarding use of punctuation. The court explained itself as follows (citations omitted):
The question of what the contract provision means is for the Court to determine. The admission of such testimony would give the appearance that the court was shifting to the expert the responsibility to decide the case.
Would the court have admitted Guberman’s testimony if it had been limited to the effect of punctuation? The court cited cases to the effect that other than when it’s offered for purposes of clarifying technical terms, expert-opinion testimony on the meaning of a contract isn’t admissible (although in those cases the meaning at issue didn’t relate to anything as fundamental, and as technical, as syntactic ambiguity). So the court might not have accepted any of the expert’s testimony.
But the court also noted that Guberman “does not simply state the applicable rules of grammar.” That suggests that the court just might have been receptive to a more limited analysis.
The Moral of the Story
What I take from Coyote Portable Storage is that I’m going to stick with my approach to giving expert-witness testimony on ambiguity: Limit it to the more technical forms of ambiguity. Demonstrate why you can’t assume that courts are equipped to undertake this sort of analysis unaided. And try to assure the court that far from usurping a court’s authority, such testimony would help provide the court with a surer foundation from which to establish meaning.
Is that approach assured of success? Hardly. But the alternative—having counsel make the arguments instead—is a decent fallback position.
Of course, from the drafter’s perspective the moral of the story is a very different one: become attuned to sources of syntactic ambiguity, and purge it from your contracts!
An example of why it makes sense to express formulas in contracts algebraically, as Ken does in his explanation of possible interpretations.
Another way to deal with this ambiguity is to use an example. I noticed that an agreement I signed recently as a consumer (I can’t remember if it was my mortgage refinance or a credit card application) had formulas like the one given.
In each case, the paragraph following the formula set out an example of a calculation using actual number. So in the case above, the following paragraph might read: “So assume that “total revenue as shown on the ‘Sales by Item Summary—Complete Summary’” is equal to $15M; that discounts are equal to $2.5M; insurance equals $500K…” Then the “Net Sales” are calculated as follows: ($2.5M – ($2.5M + $500K)…”
I thought that was a clever way to eliminate ambiguity by showing exactly what was meant using actual numbers to arrive at a single number answer. I would be interested to know what others think of that method.