Making Mischief with “May” in Litigation Involving the Merger of JPMorgan and Bear Stearns

If I argue that a particular contract usage can create confusion, it’s nice when I can point to a court opinion that inadvertently confirms as much.

So I was delighted when cousin Joshua Stein sent my way one such opinion, 383 Madison LLC v. The Bear Stearns Companies, Inc., a 2008 New York Supreme Court slip opinion (here). It involves contract language that uses the word may.

In the 2008 merger agreement providing for JPMorgan’s acquisition of Bear Stearns, it was stated that if the merger didn’t go through, JPMorgan would be given, instead of a break-up fee, an option to purchase the building at 383 Madison Avenue. (Obviously, the merger did take place.)

That prompted the owner of the land, 383 Madison LLC, to sue, claiming that the option in the merger agreement was inconsistent with the right of first offer that Bear Stearns granted 383 Madison in the ground lease for the property.

But the ground lease provided for the following exemption from the right of first offer:

Notwithstanding anything to the contrary contained in Section 16.2(a), Tenant shall in no event be obligated to give to Landlord any Sales Notice or to otherwise comply with the provisions of Section 16.2(a) in the event that Tenant shall determine to sell, transfer or otherwise dispose of its interest in this Ground Lease to (i) any entity into which or with which Tenant may be merged, consolidated or combined or any entity which shall purchase all or substantially all of the assets of Tenant; ….

The owner of the land argued that the exemption would apply only if Bear Stearns merged with the purchasing entity. The court disagreed, holding that because this provision referred to an entity “with which Tenant may be merged” (emphasis added), “the safe harbor provision is applicable even to those situations where a potential merger is contemplated, and it is not contingent upon the actual occurrence of a merger.”

I suggest that the court’s analysis is fatally weak.

What we’re dealing with here is use of “may” in a restrictive relative clause. MSCD offers as an example, in table 17 (on page 96), If Acme sells Assets to one or more Buyers that Roe may introduce to Acme. In this context, may means “might,” and it’s extraneous, as nothing in that sentence suggests any certainty that Roe will in fact introduce buyers to Acme.

That’s the use to which may is put in the exemption in the ground lease. The meaning conveyed is “any entity into which or with which Tenant merges, if it does merge.” But use of “any” in the original makes it clear that the notion of a merger occurring is entirely hypothetical. The “may” is extraneous.

Could the “may” convey some other meaning? Not any meaning that makes sense.

One could argue that “may” does indeed mean “might,” but with the language at issue in effect meaning “any entity into which or with which Tenant could conceivably be merged.” That would be nonsense: Bearn Stearns could conceivably have merged with any number of entities.

Or one could argue that “may” in fact conveys discretion. But for that to work, the language at issue would have to be in the passive voice, with the by-agent dropped. In the active voice, it would read “any entity into which or with which __________ may merge Tenant,” with the blank acting as a placeholder for what was the missing by-agent in the original. As a matter of M&A mechanics, it doesn’t make sense to refer to someone (presumably Bear Stearns’s shareholders) having discretion to cause Bear Stearns to merge, and it really doesn’t make sense to refer to them as having discretion to merge Bear Stearns into a particular entity.

So the only conceivable meaning conveyed by “may” in the language at issue is a meaning that renders that “may” extraneous. It follows that the judge got it wrong—the owner of the land had the better argument.

So what lessons are to be drawn from this?

First, the phrase “may be merged” is widely used—it occurs in more than 1,700 contracts filed on the SEC’s EDGAR system in the past year. So there’s lots of potential for this use of may to create confusion. The fix is simple: stop using may like this!

Second, I wonder what kind of expertise the owner of the land had on hand when arguing for its meaning. None, I suspect. When a contract dispute hinges on this sort of nuance, you’d be advised to get yourself an expert.

And third, on a personal level, thinking about this issue made me realize that MSCD‘s treatment of it is inadequate. You can expect a beefed-up analysis in the fourth edition, with pride of place being given to 383 Madison LLC. Although it will doubtless make him cocky, my thanks go to Joshua Stein for giving me this lead.

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.