Corporate & Securities Law

More on ?Relating To? (Wherein Adams Eats Some Crow)

By Ken Adams

In my post on the AAA standard arbitration clause, I reiterated my doubts about the relating to part of arising out of or relating to. Here’s what MSCD 12.10 says on the subject:

In arising out of [or] relating to, the phrase arising out of might express a narrower meaning that does relating to. Think in terms of how one arises out of one’s parents but is related to a broader group of people. But the caselaw on the distinction isn’t categorical. And more to the point, a drafter should seek to convey any intended meaning without relying on the reader to attribute a given meaning to phrases that are open to alternative interpretations.

Relying on relating to presents two risks. The first is the risk that a court will conclude, contrary to your interests, that something not directly implicated in a contract is too remote to be considered related to it.

The second is that you might be unpleasantly surprised by the consequences of something unexpectedly falling withing a given relating to. Imagine that in drafting a contract you provide that California law will govern all disputes arising out of it?you know that from your perspective, California law would treat more favorably a key issue under the contract. But you also provided that California law will govern all disputes relating to the contract. Thereafter you find yourself embroiled in a tangential dispute that you hadn’t anticipated, and you certainly didn’t check out the pros and cons of having this particular dispute governed by California law. In this kind of context, relating to represents a roll of the dice.

You’d address those two risks?the risk that something might be left out and and the risk that something unexpected might be included?in different ways.

First, let’s consider the risk that something unexpected might be included. If this is an issue, you’d specify what regime applies in an arising out of context and either specify an alternative regime for matters falling under relating to or you’d be silent about that.

But now it’s time for me to get real: The risk of something unexpected being included might indeed be an issue in a governing-law provision, but it’s hard to image it being an issue in the context of arbitration. For that to be the case, someone would have to opt for arbitration using relating to but then realize belatedly that it would have been far preferable to have some noncontract claim handled by litigation. Seems unlikely. So I’ve belatedly revised my alternative to the AAA standard arbitration clause to include relating to. My thanks to those who nagged me about that.

Second, let’s consider the risk that something might be left out. I suggest that whether or not you use relating to, the cautious approach would be to broaden the provision in question to bring explicitly within its scope any potentially significant noncontract claims.

To use an example cited in MSCD, if you want to make sure that a governing-law provision covers tort claims, say so rather than groping at that meaning using relating to.

But I’m now thinking that to make it clear that a given provision covers not only contract claims, it would be best to refer also to the subject matter of the agreement. For example, in a governing-law provision you could refer to this agreement and any proceedings arising out of [or relating to] this agreement or its subject matter, including any tort claims. (Using the pronoun its is less clunky that saying the subject matter hereof.) My revised alternative to the AAA standard arbitration clause tracks this language.

You could be less generic. For example, if you’re drafting an employment agreement and you want to make sure that the arbitration provision covers not just disputes arising out of the contract but also any defamation claims that the employee brings after his employment has ended, you could say any disputes arising out of or relating to this agreement and the Employee’s employment by the Company, including any tort claims. But simplicity favors the generic language.

So to summarize, here’s my approach to relating to: Be on the lookout for the risk that relating to might bring within the scope of the provision in question some unpleasant surprises. And if you want to make sure that the provision includes something, be explicit about it rather than relying on relating to. I think that expresses it less rigidly than my previous attempts.

A closing question: One could presumably refer not only to tort claims but also statutory claims. Would that be overkill?

Full post as published by AdamsDrafting on September 08, 2009 (boomark / email).