What Does An Exclusive Use Clause Have In Common With The Affordable Care Act?

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What a diff’rence a word makes, twenty-four little meanings.

Chief Justice Roberts, last Thursday, in his majority opinion in the Affordable Care Act case, did a much better job than Ruminations has ever done in explaining how courts interpret statutes or agreements. We’d like to think that he (and the other five justices joining the opinion) learned the law by reading Ruminations, but even we don’t have that quantum of chutzpah.

We’ll save readers the effort of reading that Court’s decision in King v. Burwell, the health care law case decided last Thursday. It was decided on the basis that courts don’t interpret words or phrases independently of the host statute or agreement; they interpret entire statutes or agreements. Yes, once a court finds a word or a group of words as capable of having more than one meaning, it will interpret that word or those words in the context of, and in a way that is consistent with, the overall objective of the statute (or agreement). That’s been a regular Ruminations theme.

Disappointment awaits those readers who are looking for a fist fight. Today’s posting is about interpreting agreements, not politics or social policy. It was just too tempting not to grab a piece of the action. Other pundits have grabbed spots on mainstream media, micro-analyzing the Supreme Court’s decision. Ruminations wanted a piece of the action, but could only find self-employment. Here’s our take (and then we’ll delve into a couple of leasing cases that got decided using the same approach that the Supremes used with the Affordable Care Act).

Before we dive in to the “technical” side, let’ ask and answer the question: “Why does it matter? Why should we be careful about every word choice?” Obviously, some word choices are just plain wrong: Ten Thousand Dollars is wrong when the real number is Eleven Thousand Dollars. Landlord “will pay” is wrong when the agreement is that the tenant “will pay.”

We’re not going to address the just plain wrong situation caused by carelessness. We are addressing the situation where the word or group of words used “could” mean what the drafter meant or “could” mean something else. We are talking about being able to draft unambiguous agreements. Why is that important if courts, in the end, will figure that out? Well, using last week’s Supreme Court decision as our example, where the parties take sides and assert that their leg of the ambiguity is the intended meaning, one of them will be disappointed. Both will pay (money) that needn’t have been spent. The parties will dislike each other (if they already did, than even more).

One way to describe the problem with writing an ambiguity into an agreement is that the parties get to choose their preferred meaning when something “happens,” and aren’t locked into taking a position at the time the agreement is signed. [For the sake of full disclosure, Ruminations thinks it is wise, at times, to deliberately include an ambiguity in an agreement. If you’d like to know why we think so, click HERE. Today, we are talking about unintended ambiguities.] Basically, people are misled by reading what they think to be the “plain meaning” of the chosen word or words. [Some might say that they are misled by their desire for a particular outcome.] Then, one party or the other “loses.” Even where a party, at the time of signing, understood the particular word or group of words to mean “something,” there is a loss – the loss of the “losing” party’s expectations.

With all that has been said and written about the meaning of those four or six words in the Affordable Care Act: “an Exchange established by the State,” we won’t dissect the court’s basis for its ruling. We’ll just recite a whole bunch of interpretation rules or guidelines written by Chief Justice Roberts. In some cases, he just cited the “rules” from earlier opinions penned by Justice Scalia. When reading them, substitute “agreement” for “statute,” because these interpretive principles are the same.

[This may provide small comfort to those of us who craft agreements for a living. We aren’t alone when it comes to our document writing craft. According to the Supreme Court, “The Affordable Care Act contains more than a few examples of inartful drafting.”]

[We] must do our best, bearing in mind the fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.

A provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme [because] only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law.

The context and structure of the Act compel us to depart from what would otherwise be the most natural reading of the pertinent statutory phrase.

A fair reading of legislation demands a fair understanding of the legislative plan.

If the statutory language is plain, we must enforce it according to its terms. … But oftentimes the meaning — or ambiguity — of certain words or phrases may only become evident when placed in context.

When deciding whether the language is plain, we must read the words in their context and with a view to their place in the overall statutory scheme.

And, to come full circle:

Our duty, after all, is to construe statutes, not isolated provisions.

Now, what would the Supreme Court think about a less-momentous dispute about the “plain meaning” of a word, in our first (leasing) case, the word: “adjoining?” How tricky can that word be? How about its cousin, “adjacent”? For those stalwarts who want to see where this first lease dispute is explained in greater detail, click HERE.

The disputed word, “adjoining,” appeared in a shopping center lease as follows:

Landlord agrees not to lease adjoining space to any retail establishment or to a MD Podiatrist or to a business like a nail salon or a dog groomer.

For those without a dictionary at hand, here is how Webster’s Third International Dictionary Unabridged 27 (2002) defines “adjoining.” It generally means: “to join or attach physically” to, “to lie next to,” or to “be in contact with” another thing.

So, if the landlord placed a retail establishment (like a liquor store) at the same shopping center across a 500 square foot unrentable hallway from the leased space, would it be in violation of the quoted lease provision?

The plain meaning of “adjoining” would seem to require that the spaces touch each other. Yet, the court ruled that’s not what “adjoining” meant in THIS PARTICULAR LEASE. The upper case emphasis is for emphasis. The key is that the same word may mean different things in different leases or other kinds of agreements. The court looked at the overall context of the lease, not this single word. Had the overall context  called for the “touching” requirement, the court’s decision would have come out that way.

In the actual case, the court took note that the tenant of this lease was a podiatrist and one of the listed, prohibited activities for an “adjoining” space was a podiatrist. With that in its mind, the court thought it was nonsensical to say that the protection negotiated by the podiatrist-tenant against a competitor depended on whether the competitor’s space shared a wall with the tenant’s space. To Ruminations, that is logical and makes sense.

Think, however, about some hypothetical facts that could change the result. What if there were spaces at the property actually touching the leased space as well as ones not touching the leased space? What if the gap, i.e., the unleasable corridor, gave the impression of the two spaces being unrelated to each other? What if the property was zoned to permit retail establishments, but was actually leased only to health and personal care professionals? [Is that why there was the “no retail establishment” restriction?] The court’s decision tells us very little about what the shopping center looked like and how it was populated.

What would have been the outcome had the restriction said only: “Landlord agrees not to lease adjoining space to any retail establishment,” thus giving the court less (possibly, no) support for its reasoning? Are not businesses like a nail salon or a dog groomer actually retail establishments, and if so, why didn’t the court puzzle that one over?

Ruminations wasn’t there, and the lower court’s decision (not the one we read) wasn’t available. Perhaps it pondered all of those questions. The point to be taken is that the word “adjoining” has to be understood in the context of the lease and the lease has to be understood in the context of the shopping center’s layout, etc.

Was “adjoining” chosen to distinguish one part of the shopping center from another? If it was so intended, it doesn’t seem like a good choice. If that isn’t what was intended, what was? Those are things to think about when writing a lease, not when writing pleadings in a law suit. Do you really want to use the word, “adjoining”?

Of course, it isn’t a big stretch to interpret “adjoining” to cover “across the hall.” After all, it might have just been a poor choice of word. So, we’ll finish up with another case where the same word was involved.

Few of us were alive when the coal mining lease from S. M. Napier made Eversole its tenant  in 1917. In fact, most readers were not alive when a 1951 court was forced to interpret the meaning of “adjoining or adjacent” in the following:

Lessee may only use the leased premises “for any and all purposes that may be necessary or proper, or by the lessee deemed necessary or proper, in the mining operations of the lessee upon the leased premises, and upon other property owned, leased or acquired by the lessee adjoining or adjacent thereto * * *.” [Emphasis ours.]

The tenant was in the coal mining business. It owned two parcels that were, without dispute, adjoining or adjacent to the leased parcel.

The tenant built coal processing facilities on the leased land. It used those facilities to process coal mined from the leased land and also from its two close-by, owned parcels. The controversy was that the tenant also used the leased land to process coal from other parcels nowhere as close as the two it owned alongside the leased parcel. To add to the controversy, it processed purchased coal at the leased parcel.

It was an easy call for the Kentucky Court of Appeals to nix the processing of purchased coal. [To see its entire decision, click HERE.] But, what about the tenant’s owned or leased parcels beyond the two next to the leased parcel?

The court looked at an earlier edition of the same dictionary we cited above. The definition for “adjoining” was the same. As to “adjacent,” that meant lying close but not necessarily in actual contact. Prior caselaw (i.e., prior to 1951) had accepted that “adjacent” could be anywhere from 1,000 feet to 25 miles. Let’s repeat that: 25 miles. With that much latitude, how did the Kentucky court interpret “adjoining or adjacent”?

By this time, the chorus may step in. It took a look at the purpose of the lease and determined it was to be the “front” for the tenant’s extensive mining operation in the immediate vicinity of the leased land. Importantly, the court recognized that the words, “adjoining or adjacent,” had to be words of some kind of restriction. That led to the court deciding that those words, IN THIS LEASE AND SITUATION, meant other lands that were closely related to the operations on the leased land, meaning lands that were in the vicinity of the leased land. Those other parcels didn’t have to be geographically “close.” They had to be “operationally” close.

What’s the take-away? We’ll offer two of them. Whether writing an exclusive use provision, a permitted use provision, or monumental national legislation, you need to understand how the deal “works.” Generic writing can be careless writing. Be careful – choose words that say what you mean, and then mean what you say.

Thank you, Mr. Chief Justice of the United States, for taking us all back to drafting basics.

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  1. Robert Roth says:

    Thank you, Ira.

    Regarding the very last sentence, there are two books that come to mind, “The Fundamentals of Legal Drafting” (Boston, Little Brown, 1965) and “Cases and Materials on Legislation” (St. Paul, West, 1969), both by F. Reed Dickerson, one of the foremost authorities on the subject. [A list of his works can be found here: http://law.indiana.edu/lawlibrary/services/bibliography/FrederickReedDickerson.shtml%5D

    A favorite memory for all of use who studied with Prof. Dickerson was one of his favorite quotes:

    “’When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’” (From Lewis Carroll’s “Through The Looking Glass)

    A simple but great piece of guidance when drafting.

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