On Tweetdeck, I have a column for tweets that contain the words “contract” and “drafting.” From the tweets that show up there, every so often I learn about stuff that I might otherwise have missed.
For example, today I saw the following:
New Alert: First Circuit's lesson on necessity of precision in loan contract drafting http://t.co/OGhw94XOPB
— Tim Durken (@TDurken) January 3, 2014
So thanks to Mr. Durken’s tweet, I learned about the First Circuit Court of Appeals decision in VFC Partners 26, LLC v. Cadlerocks Centennial Drive, LLC, 735 F.3d 25 (1st Cir. 2013) (PDF copy here).
This decision relates to a dispute between a borrower and its guarantor (the appellants), on the one hand, and a lender, on the other hand, over various expenses incurred in foreclosing on a parcel of real estate following a loan default.
Here’s what the court says about the language at issue:
The Indemnity Agreement provides in relevant part that Cadle and Cadlerocks would indemnify the Original Lender and its assignees and successors (“Indemnitees”) “from and against all … costs, … demands, … expenses” and other liabilities “of any kind or nature whatsoever … sought from or asserted against Indemnitees in connection with, in whole or in part, directly or indirectly, … the presence, suspected presence, release, suspected release, or threat of release of any Hazardous Material” on or around the Property. It further specifies that “[s]uch Liabilities shall include” seven particular categories of liability, only one of which is arguably applicable here: “the cost required to take necessary precautions to protect against the release of any Hazardous Materials in, on, or under the Property, the air, any ground water, waterway or body of water, any public domain or any surrounding areas to the Property.”
The question was whether the appellants had to reimburse costs of environmental testing; the First Circuit held that they did not.
In that part of the opinion that concerns us, the court held that “the second sentence limits the terms of the first.” More specifically, the court held that given the context, “It makes more sense to read the second sentence as imposing reasonable limitations on the first.”
The court then said the following (citations omitted):
We also note that the second sentence does not include the typical language parties often use to introduce a list of non-exclusive examples, such as “shall include but not be limited to,” or “without limiting the foregoing, [the term] shall include.” Although such language is of course not obligatory, its absence does weigh against reading the second sentence as a list of non-exclusive examples.
In MSCD 13.271 I cite other caselaw to the same effect, but those cases didn’t lead me to conclude that I should always use without limitation when introducing a non-exclusive list with including. This case won’t change that, for two [no, three] reasons:
First, the primary meaning of including is that that the items in the list that follows are illustrative examples. There’s plenty of caselaw that endorses that meaning. That being the case, always tacking on without limitation would, to the average reader, seem a tautology, and an annoying one at that.
And second, some courts have been willing to hold that including or includes is restrictive even when so modified. (See MSCD 13.274–78. So you can’t count on without limitation to preclude a restrictive meaning.
[And third, drafters use without limitation and but not limited to reflexively, without stopping to think, with respect to any given instance of including, “Is this use of including in fact unrestrictive?” Drafting on autopilot is never a good thing.]
So I recommend a different approach. I’m careful with how I use including. For one thing, I don’t follow it with a list of obvious examples of the noun or noun phrase preceding including. In other words, I wouldn’t say fruit, including oranges, lemons, and grapefruit—that’s just asking for a court to wonder whether “fruit” means “citrus fruit.”
Instead, I using including when I want to make it clear that the preceding noun includes something that otherwise might not fall within its scope—fruit, including tomatoes. (Are tomatoes a fruit or a vegetable? Your answer might depend on whether you’re a botanist or a cook.) That sort of disciplined use of including precludes a court from giving it a restrictive meaning.
If the client’s needs leave me no choice but to include a list of obvious members of the class, putting the general word last can provide a clearer way to do so without having a restive meaning attributed to the list—oranges, lemons, grapefruit, and other fruit, whether or not citrus. That structure allows you build in a phrase such as whether or not citrus, which provides a sure means of ensuring a nonexclusive meaning.
So as regards the language at issue in VFC Partners 26, I wouldn’t seek to fix it by adding “without limitation” before “including.” Instead, I’d do it over. That might require adjusting both the first sentence and the second sentence.
A few comments:
1/ The subject passage fails in the disciplined use of “shall.”
2/ The case outcome could have been reversed in any of at least three ways as follows.
3/ “And not just.” “Is liable for all Hazardous Material Liability, and not just the following seven categories.”
4/ “General words last.” “Is liable for the following seven categories of liability and all similar and dissimilar Hazardous Material Liability.”
5/ “Definition.” “Including” means ‘including without limitation’ in the exemplary and nonrestrictive sense, and not under the rule of ejusdem generis.”
6/ In the VFC case, it would have sufficed to reverse the result if the court had seen “including without limitation.”
7/ Using “including without limitation” seems low-risk; courts rarely read it restrictively. Nevertheless, when the stakes are high or when a drafter wants always to follow best practices regardless of the stakes, reject “including” and its variants — and not just the disciplined use of ‘including’ — in favor of one of the alternatives in paragraphs 3, 4, and 5 above or something still clearer.
An awful decision and bizarre reasoning. Did they even look at a dictionary?
As AWrightBurkeMPhil suggests, I think that the use of the use of the word “shall” may have been the fatal flaw. I wonder if the sentence had been “Liabilities include A, B, or C” the result would be different? If the indemnity had read “X indemnifies Y for all liabilities of any kind or nature relating to HazMats, including A, B, or C.” the intent would seem clearer still, even though it is the functional equivalent of the separate sentence “Liabilities include”.
It seems to me that the most obvious argument here is that if the parties really intended the statement to be a limitation (read definition) of the Liabilities, they would have done so. The indemnity would read “X indemnifies Y for the Liabilities” and Liabilities would be a defined term: “Liabilities means A, B, and C”.
And in a last flippant remark, by the court’s reasoning, perhaps MSCD should in the next edition recommend using either the phrase “including and limited to” or “including but not limited to” for clarity, since include by itself is confusing to the courts.
My thanks to you and A. Wright Burke for taking a closer look at the language at issue than I had the patience for.
“Including” raises two distinct issues:
(1) Are the words after “including” definitional (=exhaustive)?
(If not, you can make that fact clear using “without limitation”).
(2) If the words after “including” are not definitional, are they nevertheless under the rule of eiusdem generis, so that unnamed members of the set are similar to the named ones?
(If not, using “without limitation” will not suffice to make this clear, since that formulation doesn’t address the similarity or lack of similarity of the unnamed members to the named members.)
To be concrete, “fruit, including lemons and limes” is doubly unclear in that it fails to specify
(1) whether the two examples are exhaustive, and
(2) if they are not exhaustive, whether the additional members are all other fruits or only other citrus fruits.
“Without limitation” cures (maybe) the first but (definitely) not the second.
I think Ken’s approach when he means “all fruit” and wants to make it as clear as human effort can make it, would be to say “all fruit” and leave it at that unless there’s a good reason to say more, such as “including tomatoes,” where it might not be clear otherwise that for this contract, tomatoes are deemed fruit and not vegetables.
That’s the “disciplined use of ‘including'” as recommended by MSCD, I think.
With boundless respect, I prefer the formulation “tomatoes and all similar and dissimilar fruit” because
(1) it eliminates both kinds of uncertainty at one stroke;
(2) it does the job on site without reference to any other part of the contract (e.g., definitions or drafting conventions), and
(3) it requires no knowledge of MSCD or any other reference outside the contract’s four corners.
Similarly, in choice of law provisions, I would go with: “the law of Ohio governs tort claims, contract claims, and all similar and dissimilar matters arising under this agreement.”
I call it “the disciplined nonuse of ‘including.'”