Wednesday, May 25, 2011

Adventures in Boilerplate: Is You Of or Is You In?

I try to prevent this blog from getting too lawyerly, but I have to comment on an opinion handed down yesterday by the federal Ninth Circuit Court of Appeals that reached the appropriate result in the silliest way possible.  The main issue in the case was whether Expedia had violated federal law by sending out e-mail purchase confirmations that contained the expiration date of the customer’s credit card.  I’ll say a few words about that below.  But first the most lawyerly topic of all:  Choice of Venue.

This is a little clause in the back of many contracts that specifies which court the parties will go to if they have a fight.  It can be very important and should never be taken for granted.  If you’re drafting a “form” contract that people won’t negotiate with you, the clause should always be there and should always say what you want it to say.  Usually, that’s that the fight will happen on your home turf (for your convenience).  Sometimes, people want to select a court they think will do a better job of handling the fight (e.g. the Delaware Chancery Court).  Occasionally, the clause is used to force the other party to fight somewhere so inconvenient and expensive that they just won’t be able to do it (yes, I’ve seen it done).

All of that said, the clause is very simple to draft.  Here’s how it should read in all but the rarest of circumstances:  “Exclusive venue for the resolution of any dispute between these parties will be in the state and federal courts for [COUNTY NAME], [STATE NAME].”

Needless to say, Expedia couldn’t bring itself to do this.  Instead, its standard terms and conditions (at the time) stated that “You hereby consent to the exclusive jurisdiction and venue of courts in King County, Washington . . . in all disputes arising out of or relating to the use of this Website.”

Notice the difference?  They didn’t specify federal and state courts, leaving a question as to whether they meant only the county courts (i.e. state courts) or all of the courts that had jurisdiction over the county (i.e. the federal ones, too).

If I were presented with this needless mess, I would tend to resolve the ambiguity in favor of more courts, on the theory that I’m not going to restrict the parties any more than they clearly agreed.  But I can see it going either way . . . on the basis of trying to figure out the parties intention.

Instead, the Ninth Circuit decision makes it turn on the parties’ preposition.  According to the Ninth Circuit (working from some equally silly precedent of the same court), if Expedia had said it wanted the courts “of” Kings County, the plain language would have indicated state courts only.  By contrast, “in” meant state and federal courts, again as a matter of the only possible reading of the plain language.

Clearly, some courts have lost sight of common sense when it comes to the interpretation of contracts and statutes.  I agree that a valid interpretation has to comport with the actual language and that certain words just can’t support certain interpretations, even if there’s pretty good evidence the drafters might have thought they could.  But it’s not a good idea to try to interpret purposive language outside of a search for actual intention.  I’m not quibbling with the result here.  As noted above, I’d probably go that way.  But it’s crazy that the parties could end up in state or federal court, solely because their hapless lawyers happened to use “of” instead of “in” (probably because they thoughtlessly copied the language out of some other contract).

The same pattern mars the main subject of the opinion.  The 2003 FACT Act prohibited merchants from printing the expiration date on a credit card receipt.  The obvious point of this was to limit the information someone could get from picking up the small slips of paper that many people toss out, either at the point of sale or later in their unshredded trash.  Senator Feinstein said as much when she introduced a predecessor bill in early 2003:  “This prevents identity thieves from stealing credit card numbers by retrieving discarded receipts.”

Sending someone an e-mail just doesn’t present this problem.  So unless the language of the act unavoidably covers e-mails, the easy answer is that they aren’t covered.

The act says it applies only to receipts that are “electronically printed” at the “point of sale.”  It’s obvious that those words don’t unambiguously include e-mail receipts.  So, given the obvious point of the act and the possibility of interpreting the language to comport with it, I wouldn’t need a dictionary to tell someone who’s complaining about getting his expiration date in his e-mail inbox to go away.  Not so the Ninth Circuit.  Instead, it felt the need to go into a long-winded disquisition of the history and dictionary meaning of “printed.”  It never discusses the purpose of the statute.

Again, I have no problem with the result.  But establishing Ninth Circuit precedent that the word “printed” has to mean paper could easily have unintended consequences.

It’s this kind of decisionmaking, deliberately divorced from common sense, that gives transactional lawyers sleepless nights.  Not only do you have to worry about the parties trying to give your agreement a bad faith interpretation when their interests change, you also have to worry that some crazy judge will ignore the deal and follow a dictionary.