A New Case About a Subset of “Or” Ambiguity

[Revised 6:30 p.m. EDT, October 13, 2012, to reflect suggestions by Rodney Huddleston.]

Thanks to a recent case, I stumbled on a subset of ambiguity associated with or.

Consider Ohio Rev. Code Ann. § 1705.35 (West):

Instruments and documents providing for the acquisition, mortgage, or disposition of property of a limited liability company are valid and binding upon the company if the instruments or documents are executed by one or more members of the company or, if the management of the company has not been reserved to its members, by one or more of its managers.

If a member of a limited liability company whose management has not been reserved to its members signs a promissory note and mortgage (fraudulently) on behalf of the LLC, are those documents valid under Ohio Rev. Code Ann. § 1705.35? The Ohio Court of Appeals considered that issue in Brooks Capital Services, LLC v. 5151 Trabue Ltd. (PDF copy here). A reader told me about this case; he learned of it via an item circulated on the LNET-LLC listserv by Russell R. Rosler of the Columbus office of the law firm Vorys.

The lender said that under the statute, loan documents signed by one of the members served to bind the LLC; the LLC obviously thought otherwise. The trial court granted summary judgment to the LLC; the Court of Appeals affirmed.

In reaching its conclusion, the Court of Appeals said that “R.C. 1705.35 is ambiguous and susceptible of different interpretations.” The dissent disagreed.

I agree with the majority. The following example might make it easier to figure out the alternative meanings:

  • [1]      I’ll have dinner with Fred or, if she’s in town, Nancy.
  • [1a]    I’ll have dinner with Fred or Nancy; if Nancy is not in town I’ll have dinner with Fred.
  • [1b]    I’ll have dinner with Nancy if she’s in town; if she isn’t I’ll have dinner with Fred.
  • [2]      I’ll have dinner with Nancy, if she’s in town, or with Fred.

Example [1] is analogous to the language at issue in Brooks Capital Services, in that the second item (Nancy) has a conditional clause attached. Examples [1a] and [1b] are the possible alternative meanings of [1], with [1a] perhaps being the more natural reading; the Court of Appeals opted for the meaning analogous to [1b]; the dissent opted for the meaning analogous to [1a]. Examples [1a] and [1b] are also the possible alternative meanings of [2], with [1b] perhaps being the more natural reading. The difference between [1] and [2] is that in [2], the conditional clause is associated with the first item.

The difference between the majority and the dissent can be explained by the fact that, using the terminology of the philospher Grice, [1] says [1a] but implicates [1b]. In other words, the more restricted meaning of [1b] isn’t derived from a strict reading of [1]; instead, the reader understands that it’s implied. The implicature arises from referring at all to Nancy’s presence in town. If the choice were between Fred and Nancy, regardless of whether Nancy were in town, you wouldn’t need to refer to Nancy’s presence in town: if she’s out of town, it follows that I won’t be having dinner with her. (You want more on Grice and implicatures? Go here.)

The Court of Appeals offered the following analysis of the language at issue in Brooks Capital Services:

Had the legislature intended what plaintiffs contend, it easily could have stated that either a manager or member has the authority to bind the LLC in the transactions described in R.C. 1705.35. It did not. Similarly, had the legislature intended the interpretation the trial court ascribes, it again could have stated its intent more clearly, providing that a member may bind the LLC, but if the LLC is manager-managed, then the manager can bind the LLC in the transactions the statute describes. The legislature did neither, and we are left to determine, through application of the rules of statutory construction, what it intended.

I think the court got one part of its analysis mostly right, the other part wrong. First, saying that either a manager or a member has the authority to being the LLC would have eliminated the ambiguity, but the crucial component isn’t use of either … or, which the court subsequently emphasized, but instead elimination of the conditional clause. If a member can sign whether or not the LLC is manager-managed, there is no need to mention the if condition since it is self-evident that a manager will only be able to sign if there is a manager, in other words if the LLC is manager-managed.

And second, using but in the manner suggested by the court wouldn’t have been sufficient to preclude the possibility of a member’s signing.

The Court of Appeals sought to distinguish Ohio Rev. Code Ann. § 1705.35 from another provision of the same statute:

Nor does R.C. 1705.44 suggest a different interpretation of R.C. 1705.35. R.C. 1705.44 provides that “the members of a dissolved limited liability company who have not wrongfully dissolved the company, a liquidating trustee selected by those members, or, if the management of the company has not been reserved to its members, its managers may wind up the affairs of the company.” Although the language bears some similarity to both R.C. 1705.27 and 1705.35, it compels a different interpretation. Unlike R.C. 1705.27 and 1705.35, R.C. 1705.44 lists three entities possibly able to dissolve the LLC, its members, liquidators or managers, and connects them with “or.” Such language typically is construed to mean any of the three. To achieve the same result with the two alternatives used in R.C. 1705.27 and 1705.35, the statute would need “either-or” language lacking in both statutes.

I agree with the court’s conclusion. But it offered no analysis, so here’s mine, which uses the followings examples:

  • [3]      I’ll have dinner with Inga, Fred, or, if she’s in town, Nancy.
  • [3a]    If Nancy is in town I’ll have dinner with Inga, Fred or Nancy; if Nancy is out of town I’ll have dinner with Inga or Fred.
  • [3b]    * If Nancy is in town I’ll have dinner with Nancy; if Nancy is out of town I’ll have dinner with Inga or Fred.
  • [4]      I’ll have dinner with Inga or Fred or, if she’s in town, Nancy.
  • [4a]    If Nancy is in town I’ll have dinner with Inga, Fred or Nancy; if Nancy is out of town I’ll have dinner with Inga or Fred.
  • [4b]    If Nancy is in town I’ll have dinner with Nancy; if Nancy is out of town I’ll have dinner with Inga or Fred.

Example [3] is analogous to Ohio Rev. Code Ann. § 1705.44, in that it features three elements rather than two. Example [3a] is an alternative, and perhaps clearer, way of saying the same thing. But most readers of [3] wouldn’t conclude that it conveys the meaning of [3b], which is analogous to [1b] (hence the asterisk next to [3b]). That’s because if dinner with Nancy were to take priority, you would expect the three names to be presented not in a group of three, as in [3], but in two groups, with Nancy by herself and Inga and Fred in a second group separated from Nancy by one or, with a second or between Inga and Fred, as in [4].

One of the two alternative meanings of [4] is [4b], which is the same as [3b]. Obviously, if you wish to convey the meaning of [4b], you’d be advised to use the wording of [4b] rather than [4], so as to avoid also conveying the meaning of [4a].

The shortcomings in the court’s analysis of the ambiguity in Ohio Rev. Code Ann. § 1705.35, and the dissent’s unwillingness to see any ambiguity, serve as a reminder that you can’t assume that judges will have the semantic acuity required to sort out this kind of ambiguity. That’s why courts are misguided in excluding expert testimony on the subject of ambiguity. That’s something I discuss in this post.

Although the language at issue is from a statute, this sort of ambiguity could arise in a contract; that’s why it caught my attention. From the drafter’s perspective, the conclusion to draw from this dispute relates to the point I made in this post: if you use unambiguous language (in this case, language that’s analogous to the examples above in italics), you’ll be spared having to go through this sort of post mortem.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.