Ambiguity: am·bi·gu·i·ty (ambəˈɡyo͞owədē/) – noun – uncertainty or inexactness of meaning in language. Secondary meaning: what we write into our agreements so that generations of lawyers can send their children to law school.
Should we illustrate an ambiguity? Of course, what is Ruminations waiting for? Here is a disputed provision from the property purchase agreement in front of a United States District Court whose May 19, 2016 decision can be read by clicking HERE.
Buyer expressly releases Seller and agrees to waive all rights that it may have to seek contribution from Seller for any response costs or claims that may arise as a result of the actions or inactions of Seller and any previous owner, operator or third party on or with respect to the Property relating to Hazardous Substances.
Now, here’s the story, very little of which will be found in the court’s decision. An aluminum producer operated a factory in ten story, reinforced concrete building adjacent to a serious river. Its manufacturing process required furnaces to heat aluminum billets to soften them for shaping. The billets (and other items) were moved with fork-lift trucks. Those trucks had hydraulic lifts. Normal hydraulic fluid has a relatively low flash point, making use of the forklifts near the furnaces “unwise.”
The way you raise the temperature tolerance of hydraulic and similar oils is to add PCBs. We don’t know if that’s done any more now that everyone knows that PCBs are carcinogens. That’s why the presence of PCBs make people very, very nervous.
Hydraulic fork lifts leak fluid. Concrete is porous; yes, concrete is porous, spongelike. If anyone doesn’t believe it, all you’d have to do was to look up from the floor below the furnaces and see the liquid clinging to the ceiling. Further, the forklifts drove throughout the building, up and down the elevators, dripping fluid as they went. This went on for decades.
When the factory closed [can you imagine a heavy manufacturing factory in a ten story building? We guess it made sense in 1917.], the property was sold to a developer planning to build a tall apartment building. Don’t ask why anybody, especially a well-funded, major real estate company would buy such a property, but it did about 50 years ago. The problem was then discovered and the new owner, abandoned the property, whereupon its lender, a very large bank, took ownership through a subsidiary. It appears that the property wound up back in the hands of the original manufacturer or one of its affiliates.
With the passage of time, and the expenditure of money in the neighborhood of nine digit numbers, a resolution was reached with the state. In fact, the state’s governor did a press conference there, using the river as a backdrop. Basically, it was agreed that the building would be demolished, debris container by debris container, each of which would be tested for PCBs. The “clean” containers would become fill; the “dirty” ones were trucked to a hazardous waste disposal site.
That’s where the court’s factual recital begins.
Despite professional environmental investigations, and readers would be right to assume that the property had been picked over by many experts, no one knew that there were two underground fuel oil tanks under the slab of one of the auxiliary buildings. Other tanks had been discovered and reported, but not these two. They were under concrete and it appears that access manholes had been covered as well.
Though the tanks were for fuel oil, the remaining contents were contaminated with PCBs. The speculation was that PCB laden fluids were added to the fuel oil while the factory was operating as a way of disposing those fluids.
So, what was the “legal” issue, you ask. Well, thank you for your patience. Ruminations wanted to tell the story first so that we and our readers would have a dose of humility. This property was extensively and expensively examined and remediated. The business people (and, seemingly their advisors) appeared to have assumed that everything “environmental” had been discovered. And, that wasn’t the case.
The text quoted at the beginning of today’s post was in a 1997 purchase agreement. There was a follow-up environmental indemnity agreement with its own issues. But, as to the 1997 agreement, the question was whether the quoted text served to bar a claim by the buyer against the seller. We don’t know the final outcome (because the court is permitting the issue to go to trial), but we do know that, as a matter of law, it did not. In ruling that the release language was ambiguous, here is what the court said:
On its face, the contract is ambiguous as to whether it releases only the right to seek contribution (i.e. whether “seek contribution” modifies both “response costs” and “claims”) or whether it is a blanket release. [The seller argues] that “contribution” should not be given its technical meaning as a term of art, but rather its common meaning. The technical meaning would not release the claims here; the common meaning would. This is a textbook example of contractual ambiguity. [Emphasis by Ruminations.]
Yes, we could have pointed readers to this case and had only 25 or so words for this week’s posting. Of course, no one would have known the back story, one that we were able to tell by reason of personal familiarity with the property.
Now, we also realize that we haven’t really added any of our own words of wisdom about ambiguity and how smart it is to not write ambiguous provisions into our agreements. We could have pointed out that it isn’t only novices who don’t think through what they write. Rest be assured, the agreements for the sale of this property cost a pretty penny to get done. Nonetheless, even though no one involved in this deal could have been blind to the property’s history, the parties settled on use of the word “contribution” as the core of what the environmental release was to cover. To us, that is inexplicable.
Was this the result of a compromise? Was the starting language more comprehensive and then it got whittled down to what we see above? If so, and that process often takes place, did no one re-read what remained?
Did the negotiators and the document drafters not know that “contribution” has a very specific, long-used, legal meaning?
Did the parties conflate the “possibility” of contamination with its “probability” and conclude that an extremely low probability made it acceptable to treat the presence of unremoved hazardous wastes as “not possible,” or, to use a single word: “impossible”?
What is today’s take-away? What we are thinking, is that when it comes to word-laden agreements with lots of untested language, they need to be reviewed afresh by someone (figuratively) standing in the shoes of the party that “side” represents and that reviewer need to understand business and law, not just one or the other. Given that people with that combination of skills represent a teaspoon’s worth in a big bowl of soup, perhaps a second set of eyes would make sense. Of course, in a lot of cases, fortunately not all cases, that would challenge the ego of the person who wrote the document.
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