I generally explain the concept of ambiguity by saying that if reasonable people read a given contract provision and derive different meanings from it, that provision is ambiguous.
But that doesn’t quite capture the problem that alternative meanings pose for the contract drafter. It’s not only the reasonable reader that you’re worried about. Instead, you’re worried about anyone, reasonable or not, who misunderstands a given provision and is willing to fight about it—winning a lawsuit is a distant second-best to not being involved in litigation in the first place.
Furthermore, different people—in particular, different judges exhibiting different levels of semantic acuity—can have different views as to whether something is ambiguous.
Due to those two factors, any drafter should aim to avoid ambiguity by a wide margin. It’s not good enough that reasonable people couldn’t come up with alternative meanings. Instead, you want to preclude the other side, no matter how belligerent, addled, or poorly advised, from coming up with a remotely plausible alternative meaning that’s more favorable to them.
These thoughts came to mind on reading something that Ur-reader Michael Fleming sent my way: Portfolio Mgmt. Group, LLC v. Bitach Fund I, LLC, Case No. 09-CV-3193 (D. Minn. Mar. 2, 2010). (Click here to go to a pdf copy.)
Here’s the contract provision at issue:
5.9 CHOICE OF LAW AND JURISDICTION. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Minnesota. [Bitach] specifically agrees to the Courts of Minnesota as sole jurisdiction for litigation of any controversies arising out of this Agreement.
The plaintiff Portfolio Management Group (“PMG”) sued Bitach in state court in Minnesota; Bitach removed that action to federal district court; PMG moved for an order remanding the case to state court, but beforehand, Bitach moved to compel arbitration. The latter motion was presented to one Magistrate Judge Boylan, who issue a report and recommendation (“R&R”) recommending that the federal district court grant Bitach’s motion.
The R&R addressed the issue of state court jurisdiction, and here’s what the federal district court had to say in response:
This Court sits in Minnesota, but it is not a court of Minnesota. It is instead a court of the United States of America. The Court respectfully disagrees with Judge Boylan’s conclusion in the R&R that the phrase “Courts of Minnesota” in the forum-selection clause could reasonably be construed to include federal courts in Minnesota and is therefore ambiguous. R&R at 4. Instead, the Court agrees with the majority of federal courts that the phrase “courts of” a particular state unambiguously refers only to that state’s courts, not to federal courts sitting within the boundaries of that state.
The federal court thought that the jurisdiction provision was unambiguous, and their reading does make sense. But in terms of lessons for the contract drafter, just as relevant is the fact that another judge thought it was ambiguous. It would have been preferable if the provision at issue had been drafted so that even that judge would have thought it unambiguous.
How might that have been accomplished? If the parties had indeed intended that only state courts would have jurisidiction, I’d have referred to “any state court of Minnesota.” I don’t think you’d need to say “any state court of the state of Minnesota.” (And incidentally, I’d have written the entire provision differently.)