Private Equity

An old proverb proclaims that “for want of a nail, … the kingdom was lost.”  The message of that proverb is clear: failing to focus on even the smallest detail can result in catastrophic losses.  But does this proverb apply to a detail as seemingly insignificant as the existence or placement of a comma?  According to the U.S. Court of Appeals for the First Circuit, the answer, most assuredly, is yes!

In O’Connor v. Oakhurst Dairy, No. 16-1901 (1^st Cir. March 13, 2017), “for want of a comma,” drivers of trucks that delivered dairy products, but were not involved in “packing” those products for delivery, were entitled to overtime pay despite a broad exemption from the Maine overtime law that applied to anyone involved in “[t]he canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of” various perishable food products that were agreed to include the dairy products these truck drivers were delivering.  The drivers had sought overtime pay that had been denied them based on the Dairy’s position that the final activity in the exemption applied to the “distribution” of dairy products independent of the penultimate activity of “packing for shipment.”  According to the drivers, the final activity in the exemption only applied to “the single activity of ‘packing,’ whether the ‘packing’ is for ‘shipment’ or for ‘distribution.’”  And it turns out there is apparently a distinction between “shipment” and “distribution.”  It seems “that ‘shipment’ refers to the outsourcing of the delivery of goods to a third party carrier for transportation, while ‘distribution’ refers to a seller’s in-house transportation of products directly to recipients.”

The court summarized the dispute over the meaning of the final activities included in the exemption as follows:

Specifically, if that exemption used a serial comma to mark off the last of the activities that it lists, then the exemption would clearly encompass an activity that the drivers perform.  And, in that event, the drivers would plainly fall within the exemption and thus outside the overtime law’s protection. But, as it happens, there is no serial comma to be found in the exemption’s list of activities, thus leading to this dispute over whether the drivers fall within the exemption from the overtime law or not.

The First Circuit took a long trip through various rules of construction and grammar, and it ultimately concluded that the last phrase in the exemption was ambiguous as to whether it exempted the activity of “distribution” independently of the activity of “packing.”  The case was a WrestleMania of grammar; and yes, among the many arguments the court considered (and recognized as strong) was the Dairy’s assertion that the lack of a conjunction before the word “packing” strongly suggested that “distribution” (which followed the conjunction “or”) was a separate exempted activity.  But among the many counter-arguments noted by the drivers was the fact that all of the terms describing the exempted activities (including “packing”) ended with “ing.”  The term “distribution” follows “packing for shipment or” and the last item is not the term “distributing” as would seem necessary to be consistent with the other named activities had the activity of “distribution” been intended as a stand-a-lone exemption.  There were lots of other arguments and counter-arguments discussed in the decision.  But the court ultimately called the grammar wrestling match regarding the actual text of the statute a draw.  The court then relied upon the overriding purpose of Maine’s overtime laws and the stated legislative purpose that they “be liberally construed to accomplish their remedial purpose,” in ruling in favor of the driver’s construction of the exemption.  Assuming that the drivers “engage[d] in neither packing for shipment nor packing for distribution,” they were protected by Maine’s overtime laws.

So what does this case of statutory construction have to do agreements that deal professionals and their counsel negotiate in the private equity space?  Well, this is not the first case to turn on the absence or existence of an Oxford comma.

As just one example, in Medfusion v. Allscripts Healthcare Solutions, Inc., No. 14 CVS 5192, 2015 NCBC 31 (N.C. Bus. Ct. March 31, 2015), the court refused to dismiss a breach of contract claim alleging damages for loss of profits notwithstanding an excluded losses provision that precluded liability for “any loss or damage to revenues, profits, or goodwill or other special, incidental, indirect, or consequential damages of any kind.”  The reason:  By failing to include an “Oxford” (or serial) comma after the word “goodwill,” it was ambiguous whether the parties intended the phase “or other special, incidental, indirect, or consequential damages” to modify only “goodwill” or to also modify “revenues” and “profits.”  The argument was that if the phrase modified all three categories of damages then it effectively meant that only revenues and profits that otherwise constituted consequential, special, incidental, or indirect damages were actually precluded, not revenues and profits that would constitute direct damages.

The Oxford comma is a tool that, if consistently used in an agreement, is deemed by some courts to avoid the application of the much maligned “last antecedent” rule (mostly applicable to statutes, but also applied to contracts) so that not only the last antecedent in the disputed phrase (“goodwill”), but all proceeding antecedents (“revenues, profits, or good will”) in that phrase are also modified by the qualifying phrase (“or other special, incidental, indirect, or consequential damages”). The absence of an Oxford comma in a particular clause, where it is present in other clauses, can also be evidence of intent that the last antecedent is in fact the only one qualified by the qualifying phrase.  But the “rule” is supposed to be only a guide to interpretation not a rigid construct.

And the existence of a comma does not necessarily disambiguate an otherwise ambiguous clause.  This is from a famous dispute a number of years ago involving Bell Aliant and Rogers Communications in Canada (Ken Adams, the contract drafting guru,¹ was apparently an expert witness on this one):

Subject to the termination provisions of this Agreement, this Agreement shall be effective from the date it is made and shall continue in force for a period of five (5) years from the date it is made, and thereafter for successive five (5) year terms, unless and until terminated by one year prior notice in writing by either party.

The issue, of course, was whether the right to terminate by one year’s notice existed only during the renewal terms, or also existed during the initial 5 year term.  The case was ultimately resolved by examining the French version of document, which apparently did not suffer from the same ambiguity.²

The best advice is not to draft in a manner that the last comma can be meaningful one way or the other (and for goodness sakes try to avoid such ambiguous terms as consequential and special damages if at all possible³).

¹ Ken Adams has written extensively on this topic (including on the Oakhurst Dairy case); and he does not believe the serial comma is the proper means of achieving disambiguation in contract drafting.  See e.g., Ken Adams, Why I Don’t Pin My Hopes on the Serial Comma, Adams on Contract Drafting, March 15, 2017.

² Kenneth A. Adams, Behind the scenes of the comma dispute, The Globe and Mail, Published Tuesday, Aug. 28, 2007, 9:12AM EDT.

³ See e.g., Glenn West, Excluded Losses Part II: An English Perspective on the Continued Failure of Predictability Regarding the Use of the Phrase “Consequential or Special Losses”, Weil Insights, Weil’s Global Private Equity Watch, December 12, 2016; Glenn West, “Excluded Losses” Provisions and the “Butterfly Effect”—the Continued Failure of Predictability Regarding Consequential Damages Waivers in M&A Agreements, Weil Insights, Weil’s Global Private Equity Watch, November 7, 2016.