Reader D.C. Toedt let me know about the recent opinion of the Eighth Circuit Court of Appeals in Camelot LLC v. AMC ShowPalace Theatres, Inc., and he wrote about it himself here.
But I take away from it a slightly different lesson than does D.C., in that I think it provides a useful reminder to practitioners that what matters is the deal broadly considered rather than the dictionary definition of a term of art used in articulating that deal, in this case the verb extend.
The litigants were party to a lease. Here’s the language at issue:
[T]his Lease [will be] extended on the same terms and conditions set forth herein, except that … (ii) no Rent concessions, abatements, lease buyouts, tenant allowances or limitations on tax or expense passthroughs granted with respect to the Lease Term hereof shall be applicable to any Option Period, (iii) Minimum Rent for each Option Period shall be as shown above.
Camelot argued that this language granted AMC an option to renew if the parties agreed on new, negotiated terms, that it didn’t constitute an option to extend on the terms contained in the existing lease. For reasons I won’t go into, the district court agreed with Camelot, and the Eighth Circuit affirmed.
It caught my eye that AMC didn’t attempt to argue that use of the word “extended” means that the language at issue constituted an option to extend. But I suspect that if presented with that language, many practitioners would regard use of the word “extended” as reason enough to attribute to that provision the meaning sought by AMC.
The same literal-mindedness is what has practitioners thinking that something won’t constitute a representation unless it includes the word “represents,” or believing that use of the word “indemnify” necessarily brings in its wake all sorts of implications that wouldn’t apply if you were simply to say “will be liable for.” (That’s something I discussed a couple of weeks ago in this blog post).
When a drafter uses in a contract a word or phrase that scholars or judges use as a term of art, there’s no reason to assume that the drafter is using that word or phrase to convey the same meaning as that conveyed by the term of art. So when considering the meaning of a given word or phrase as used in a contract, consider the broader context. It would make sense to do so, and Camelot LLC suggests that that’s the approach that at least some courts would adopt.
2 thoughts on “A Reminder of the Limitations of Terms of Art”
I’ve got a slightly different take on this from either Ken or D.C. I think the real term of art that got mangled here was “[Intentionally Omitted].” Normally, when I see that expression, it functions in exactly the way D.C. described, as a means of preserving paragraph numbering. In fact, in my recollection (which may now be skewed because of this case), one usually omits the title of the section as well as its text. The failure to do this is what got the court in a tizzy: if there was nothing to indicate that there had been any concessions, etc., granted to the tenant, it would have been more difficult to construct the argument that mysterious cyphers really amounted to unknown concessions.
Ken’s larger point, though, is valid: don’t rely on a magic label to do the heavy lifting when it’s possible to describe the results you want (and if you can’t, or dare not, describe the results you want, you or your client probably shouldn’t want them). In my experience, at least here in Massachusetts, courts don’t distinguish between “extend” and “renew” as radically as they do in Minnesota (and, I guess, Texas), and look to what the parties intended–which, in most leases and other contracts I read, tend to be spelled out.
Vance: You make a great point—I’ll be sure to incorporate it in MSCD3. Ken