On Plain Meaning and Pacific Gas — Greg Klass

Post by Greg Klass

Judge Traynor’s opinion in Pacific Gas & Electric v. Thomas Drayage & Rigging is a bête noire of textualist judges and contracts scholars. Judge Kozinski’s assessment is typical:

Pacific Gas casts a long shadow of uncertainty over all transactions negotiated and executed under the law of California. As this case illustrates, even when the transaction is very sizeable, even if it involves only sophisticated parties, even if it was negotiated with the aid of counsel, even if it results in contract language that is devoid of ambiguity, costly and protracted litigation cannot be avoided if one party has a strong enough motive for challenging the contract.

Trident Center v. Connecticut Gen. Life Ins. Co., 847 F.2d 564, 569 (9th Cir. 1988).

The objection is that permitting extrinsic evidence significantly increases the probability that a court will find ambiguity. The facts in Pacific Gas appear to illustrate the worry. Whereas the scope of the indemnification clause at issue was clear, covering “all loss, damage, expense and liability resulting from * * * injury to property, arising out of or in any way connected with the performance of this contract,” the defendant wanted to introduce extrinsic evidence that in fact the parties meant it to cover only third-party losses. Permitting that evidence in created ambiguity where none existed before.

But Pacific Gas also shows how a competent lawyer might prove ambiguity with no more than a good dictionary. Traynor’s opinion appears to accept the trial court’s conclusion that the literal meaning of the indemnification clause unambiguously covered owner losses. What he does not mention is that the intermediate appellate court concluded otherwise. The trial court appears to have focused on the words “all loss, damage, expense and liability.” The Court of Appeals, in distinction, emphasized the meaning of “indemnify,” which California statute defined as “sav[ing] another from a legal consequence of the conduct of one of the parties, or of some other person.” Cal. Civ. Code § 2772 (emphasis added). Because the damage to the plaintiff’s turbine was not a “legal consequence,” the court reasoned, it fell outside of the indemnification clause’s plain meaning. Pac. Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co., 62 Cal. Rptr. 203, 204 (Ct. App. 1967). The Court of Appeals further reasoned that insofar as the indemnification clause was ambiguous, it should be interpreted against the drafter—which was the plaintiff-owner, leading to the same result. Id.

Of course this is only one example—though interested readers might want to take a look at the recent the California Court of Appeals’ recent opinion in Jibe Audio LLC v. Beats Electronics, LLC, which turns on the meaning of “a headphone.” But it makes an important broader point. It is fairly obvious that permitting extrinsic evidence to interpret a writing increases the probability that a court will find new possible meanings in it. The question is how much more. Texts that are unambiguous at first glance can sometimes reveal themselves to be ambiguous upon closer inspection, without recourse to extrinsic evidence. (In Utterer’s Meaning and Intention, Paul Grice suggests another example: “If I shall then be helping the grass grow, I shall have no time for reading.”) The question is how often this is the case, or the delta between the probability that a good lawyer will find an ambiguity in the text alone and the probability that she will with the addition of extrinsic evidence. On that question, we don’t have a lot of data.


Leave a Comment