Reminder: Affiliates as of When?

[Updated October 24, 2014: The New York Court of Appeals affirmed the lower court’s ruling. (Go here for a PDF copy of the opinion; thank you to Steven Sholk for sending me a copy.) Here’s most of what the court had to say on this issue (citations omitted):

Absent explicit language demonstrating the parties’ intent to bind future affiliates of the contracting parties, the term “affiliate” includes only those affiliates in existence at the time that the contract was executed.

Furthermore, the parties did not include any forward looking language. If the parties intended to bind future affiliates they would have included language expressing that intent. Absent such language, the named entities and other affiliated companies of EMI’s predecessor which existed at the time are bound by the provision, not entities that affiliated with EMI after execution of the Agreement. As it is undisputed that the affiliated foreign subpublishers at issue here were not affiliates at the time the Agreement was executed, they are not members of the Second Party.

Additionally, the use of present tense language in the Agreement also demonstrates that the parties intended that the Agreement would bind only affiliates in existence at the time of the Agreement.]

***

In this 2009 post, I discuss the importance of making it clear, in a contract providing for ongoing relations, whether a reference to affiliates or subsidiaries refers to affiliates or subsidiaries at the time of signing or at any given time in the future.

If you keep an eye on the caselaw, you can expect to learn the same lessons repeatedly. So courtesy of this post on ContractsProf Blog (via Vance Koven), this particular lesson has come around again, in the form of Ellington v. EMI Music Inc., 106 A.D.3d 401, 964 N.Y.S.2d 141 (2013). (It’s being appealed.)

You can go to ContractsProf Blog for the details; for our purposes, here’s the relevant part of the Appellate Division’s opinion (citation omitted):

Notwithstanding plaintiff’s argument, we note that the motion court correctly determined that the agreement’s definition of “Second Party” included only the parties named therein and “other affiliates of Mills Music, Inc.” that were in existence at the time the agreement was executed. The definition did not include foreign subpublishers that had no existence or affiliation with Mills Music at the time of contract.

As far as I can tell from the court opinions, the contract didn’t make it explicit what the pertinent timeframe was. It would be best to make it explicit, if you want to avoid this sort of fight.

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.