What Does “Hereunder” Refer To?

Thanks to @TraciRiccitello, I learned of this Kelley Drye analysis of a recent Maryland Court of Appeals case, Weichert v. Faust. This dispute serves as a reminder of the potential ambiguity of -here and -there words, in this case hereunder.

This case involved a dispute between a real-estate agency, Weichert, and its former vice president, Faust. The jury found that Faust had breached her duty of loyalty to Weichert, but found that Faust had not breached the no-soliciting provision in her employment agreement.

After the jury trial both Weichert and Faust filed motions with the court to recover attorneys’ fees. At issue was a fee-shifting provision in the employment agreement. That provision was located in a subsection of the no-soliciting provision; here’s what it said:

If COMPANY brings any action(s) (including an action seeking injunctive relief) to enforce its rights hereunder and a judgment is entered in the COMPANY’S favor, then MANAGER shall reimburse COMPANY for the amount of the COMPANY’S attorney fees incurred in pursuing and obtaining judgment. If MANAGER prevails in such a suit, then COMPANY shall reimburse MANAGER for the amount of MANAGER’s fees incurred in the same.

Here’s Kelley Drye’s account of what happened:

Weichert asserted that the term “hereunder” in the fee-shifting provision referred to the entire employment agreement.  Because it had obtained a judgment against Faust for a violation of the employment agreement, Weichert argued, the fee-shifting provision required Faust also to pay its attorney fees. Faust contended that, because the fee-shifting provision was found in a subsection of the non-solicitation clause, the term “hereunder” referred only to that clause. Even though she lost on the duty of loyalty claim, Faust argued that she, and not Weichert, was entitled to attorney fees because she had prevailed against Weichert on the non-solicitation claim.

The trial court agreed with Faust, and ordered Weichert to pay her $946,014.50, a ruling that was upheld by the Maryland Court of Special Appeals and then the Court of Appeals. Ultimately, the courts found that the placement of the fee-shifting provision within the non-solicitation clause was dispositive. The employment agreement contained 22 paragraphs.  Only one of the paragraphs—the non-solicitation clause—was broken into subparagraphs. The court found that the subparagraphs “establishe[d] the parties rights and obligations under the non-solicitation clause, as well as the mechanisms for enforcement of the non-solicitation obligation.”

For drafters, here’s the  moral of the story: All -here and -there words have the potential to be ambiguous. What does any given -here or -there refer to—the entire contract, or only a part of it? Usually one would be hard pressed to argue that only a part of the contract is being referred to, but how the contract is organized can influence interpretation.

In this case, if the drafter had intended for the fee-shifting provision to apply to all disputes, they sure messed up by making it a subsection of the no-soliciting provision.

So ensure that your structure makes sense. But more to the point, you’re better off not using -here and -there words unless, in the case of -there words, you’re echoing something that was expressed in full earlier in the provision (the merger agreement dated May 12, 2011, between Acme, AcmeSub, and Widgetco and any amendments thereto).

An incidental benefit to cutting back on -here and -there words is that your contract prose will be less fusty.