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Drafting tip: Be explicit about exclusivity

From the Recent-Developments Desk: When drafting a contract, it pays to be explicit about whether the contract is exclusive or non-exclusive. A drafter who leaves the issue unaddressed might see her client visited by an unpleasant surprise.

Silence might mean no exclusivity …

In Rhode Island’s JPL Livery Services, Inc., a company had a contract with the state of Rhode Island to pick up dead bodies and transport them to the medical examiner’s office. The contract said nothing about exclusivity.

To save money, the medical examiner’s office started having its own people pick up some of the bodies. That cut into the company’s business. JPL Livery Services, Inc. v. Rhode Island Department of Administration, Nos. 2013-119 and 2013-120 (R.I. Apr. 17, 2014) (affirming trial-court judgment).

The company filed suit against the medical examiner’s office. It claimed that its body-hauling contract was exclusive, and thus the ME’s office breached the contract by having its own people pick up bodies.

The trial court rejected the claim, and the state supreme court affirmed:

… the contract provided … that JPL’s services were to be provided “as requested” by the state. The plain and ordinary meaning of this phrase indicates that JPL was obligated only to transport human remains when the state desired it to do so. This language is not ambiguous, and we find nothing else in the contract to suggest that the state was required to rely solely on JPL for its livery needs.

Id. at part III-A.

But silence also might leave room for exclusivity

On the other hand, in Alaska’s AAA Valley Gravel case, a gravel-mining lease agreement was likewise silent as to whether it was exclusive. In a first appeal, the state supreme court held (over a dissent by the chief justice) that the lease agreement was ambiguous whether the lease was exclusive: “[The lease agreement] does not mention exclusivity, but even though silent, some of its provisions may make sense only if the lease had been intended to be exclusive. Thus [the lease agreement] is ambiguous on its face as to exclusivity.” AAA Valley Gravel, Inc. v. Totaro, 219 P.3d 153, 160-61 (Alaska 2009) (vacating and remanding trial-court decision) (footnote omitted).

Subsequently, the trial court found that the lease agreement was indeed exclusive; the supreme court affirmed, again over a dissent by the chief justice. See AAA Valley Gravel, Inc. v. Totaro, No. S-14680 (Alaska Apr. 25, 2014) (affirming trial-court judgment).

Lesson for drafters: Spell it out

A drafter whose client is granting a right of some kind should seriously consider stating explicitly that the grant is non-exclusive, assuming that’s in fact the intent.

On the other hand, a drafter whose client is receiving a right of some kind should seriously consider stating explicitly that the grant is exclusive, again assuming that’s in fact the intent.

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