Corporate & Securities Law

?Because? and Causation Issues in Contracts

By Ken Adams

Thanks to reader Steven Sholk, I learned that the U.S. Supreme Court recently considered the “ordinary meaning” of the words because of. Here’s how the CCH Workday blog described the issue:

Construing this critical preposition in the text of the Age Discrimination in Employment Act (ADEA), a five-Justice majority concluded the statute?s requirement that an adverse employment action was taken ?because of? age means that ?age was the ?reason? that the employer decided to act.? (Gross v. FBL Fin Servs, Inc., USSCt, Dkt 08-441). Thus, held the majority, to establish a disparate treatment claim under ?the plain language? of the ADEA, ?a plaintiff must prove that age was the ?but-for? cause of the employer?s adverse decision.? Age bias must be the sole cause, not just one cause.

Of course, as we all know, reasonable minds can differ. And in this case, four Justices had an entirely different take on the meaning of those two little words: ?The most natural reading of this statutory text prohibits adverse employment actions motivated in whole or in part by the age of the employee,? wrote Justice Stevens, joined by Justices Souter, Ginsburg and Breyer, dissenting.

Issues that arise in statutory construction have a way of cropping up in contracts, too, and I can imagine that this one might.

I say in MSCD 12.456 that you should be cautious about using in contracts the word because?outside of the recitals, contracts aren’t the place for explanation. But I assume that it’s relatively commonplace for contracts to contain the construction If X because of Y, then Z. (Or If X due to Y, then Z.) And I can imagine parties fighting over the issue that arose in Gross: does Y have to be the sole cause of X, or is it enough that Y was one of a number of factors contributing to X?

I can’t research this issue online, as unsurprisingly enough Lexis and Westlaw don’t consider because a legitimate search term. I’ll have to wait until the fall, when I’ll have access to Penn Law’s copy of Words and Phrases. Meanwhile, if anyone is aware of any relevant caselaw or disputes, or has encountered this issue firsthand, please post a comment.

Of course, the issue for the drafter would be how to express either meaning rather than leaving it to the courts to resolve any confusion. Once I get a sense of the extent to which this is a real issue, I’ll come up with some wording.

Full post as published by AdamsDrafting on June 30, 2009 (boomark / email).