Landlord Loses Over Definition of “Affiliates”

by | Mar 28, 2017 | Firm News

The dictionary definition of “affiliated” may be narrower than you think. It only covers companies who are related by ownership. It does not cover persons who have some interest in common. As will become apparent, the thing affiliates have in common is that someone is in control. If the accused person was not controlling the person who caused the injury, whether directly or indirectly, or at least under the common control of a person who controlled the bad actor, directly or indirectly, then that accused person was probably not an affiliate.

If you see the words “affiliate” or “affiliated” in a contract, ask what the author means. The two sides may need to further define it or delete it.

Iqbal v. Ziadeh, decided March 24, 2017, was a lawsuit by a mechanic who was not an employee, for catastrophic injuries he suffered while working on a car at a dealership. Initially he sued the dealership and settled. Then he sued the landlord who had delivered the car the plaintiff had been working on when he was injured, for sale on consignment. The trial judge decided that the word “affiliates” in the release section of the settlement agreement, included the landlord-consignor. The Court of Appeal reversed, primarily relying on the following dictionary definitions:

Black’s Law Dictionary defines an “affiliate” outside of the securities context as “[a] corporation that is related to another corporation by shareholdings or other means of control; a subsidiary, parent, or sibling corporation.”

The online Oxford Dictionary defines “affiliated” as being “connected with a larger or more established body, often as a branch or subsidiary part; that is associated with a main or major group; that is an affiliate or member.”

Under the Oxford Dictionary definition, a fan might be considered affiliated with a favorite sports team, and graduates of a school might be considered affiliated with their alma mater. However, for legal purposes, this case says that it does not include a landlord and a tenant or a consignor and a consignee. By the same logic, it would not include parties to most other kinds of contracts, such as buyers and sellers, and lenders and borrowers.

On the other hand, the Court of Appeal had other reasons for adopting this narrower definition. The word appeared in a list of offices and relations associated with a business:

“present and future officers, directors, stockholders, attorneys, agents, servants, representatives, employees, subsidiaries, affiliates, partners, predecessors and successors in interest, and assigns and all other persons, firms, or corporations, with whom any of the former have been, are now or may hereafter be affiliated.”

The Court of Appeal also relied on correspondence between the attorneys who negotiated the settlement agreement, which never mentioned the landlord or anyone else not specifically named as a defendant in the first lawsuit against the dealership.

The base rule of interpretation from which other rules and exceptions branch off, is that “The words of a contract are to be understood in their ordinary and popular sense. . .” Civil Code §1644. So there could be fact settings and issues where the broader sense of people or companies being associated without being legal affiliates could nonetheless be considered affiliated in that particular context.

If you see the words “affiliate” or “affiliated” in a contract, ask what the author means. The two sides may need to further define it or delete it. Or ask your attorney.