Jottings By An Employer's Lawyer

Sunday, November 28, 2004

This Employment Contract Is A "Badly Drafted Agreement"

It was just a bad week for lawyers in the 1st Circuit. The day before upholding punitive damages against a lawyer for her actions in connection with the settlement of a lawsuit, see Sometimes the Settlement Is Only The Beginning, the Court delivers a blunt assessment of an employment contract, at least partially drafted by the company's lawyer. Its view --"it is a badly drafted agreement." Ouch. Nadherny v. Roseland Property Company, Inc. (1st Cir. 11/23/04) [pdf]. The agreement in question was the employment contract of the head of the Boston office for the Roseland property development company. The district court granted summary judgment for the terminated employee, agreeing with his construction that he was entitled to a participation interest in 4 properties begun under his tenure. Although the development company's argument is that because he was not "vested" in any of the properties when he was terminated he lost all his interest, at the 1st Circuit, the more modest goal of just reversing the summary judgment in the his favor was successful.

While noting that the district court's view of the intent of the contract might ultimately prove true, the Court found it was not ripe for summary judgment. To show why, the court noted just a few of the problems with the language of the contract:

The contract language is ambiguous and subject to conflicting interpretations. At the least, three of the clauses appear to be at war with each other. The first sentence of Paragraph Eight reads: "You will be entitled to a participation interest in all new projects which originate out of Roseland's Boston office during the period of your employment." This sentence appears to give Nadherny rights in any project which originated during the period Nadherny worked for Roseland. Whether that reading is correct is cast into doubt by later sentences. That reading is at odds with the fourth sentence of Paragraph Eight, which reads: "Your interest in such new projects will vest at the same time that the Roseland Entity's interests vest." This can be read to give Nadherny rights only on vesting. But what "vesting" means is unclear.

As the district court recognized, the parties agree that such vesting occurs only at project closing/start. None of the projects at issue, it is agreed, had reached the closing/start stage at the time of termination of Nadherny's employment. In conflict with the reading that Nadherny had no rights in the project before vesting, Nadherny offers a supposedly reconciling interpretation: that "vesting" refers not to his right to receive payment but only as to when such payments are to be received. This is far from self-evident. The first definition of the word "vest" in Black's Law Dictionary is "to confer ownership of [property] upon a person." Black's Law Dictionary 1594 (8th ed. 2004). The ambiguity about vesting creates an ambiguity about the first sentence of Paragraph Eight.

There is a further ambiguity about the meaning of the two clauses in Paragraph Eight when they are read against the at will employment and termination clause in Paragraph Fifteen, which provides: "[E]either you or Roseland may terminate your employment and this relationship at any time with or without cause . . . ." This clause raises the question of what "this relationship" means and suggests it means something different from employment. But then, in turn, "relationship" is used in varying ways in other clauses in the contract. For example, in Paragraph Four, the contract refers to the agreement governing both "your relationship to Roseland and your interests in projects." This suggests that "relationship" is different from "interests in projects," but perhaps not from "employment." Yet it is also true that Paragraph Fourteen of the agreement permits Nadherny to enter into other development contracts after the "termination of our relationship." That Paragraph also provides that "all Roseland Business will remain with Roseland following termination of our relationship for any reason." The "relationship" language complicates rather than resolves the tension between the first sentence and the vesting sentence in Paragraph Eight.

The words alone do not decide the issue.

In all fairness to the drafter of the agreement, those "tensions" may very well have been what caused the deal to happen in the first place, as the court notes the contract "was a culmination of many months of discussions and draft proposals back and forth between Nadherny and Mr. Tycher." If that is what happened, it would certainly not be the first contract purposely made somewhat ambiguous by "papering over" a difference between the parties. That such a practice may be costly, does not mean that it will not only happen again, but often.

The opinion also has a good summary of the rules of contract construction, including my favorite:
"In short, words matter; but the words are to be read as elements in a practical working document and not as a crossword puzzle." Fleet Nat'l Bank v. H&D Entm't, Inc., 96 F.3d 532, 538 (1st Cir. 1996).

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