In one corner we have Choi, Stephen J. and Gulati, Gaurang Mitu and Scott, Robert E., The Black Hole Problem in Commercial Boilerplate (November 25, 2016). Available at SSRN: https://ssrn.com/abstract=2835681
Rote use of a standard form contract term can erode its meaning, a phenomenon made worse when the process of encrustation introduces various formulations of the term. The foregoing process, when it occurs, weakens the communicative properties of boilerplate terms, leading some terms to lose much, if not all, meaning. In theory, if a clause is completely emptied of meaning through this process it can create a contractual “black hole.” The more frequent and thus potentially more pervasive problem arises when, as the term loses meaning, random variations in language appear and persist, resulting in what we term a “grey hole.” The question that follows is what interpretive strategy courts should use when parties exploit these variations, persuading a court to adopt an interpretation of the grey hole term that (a) surprises the market that previously had disregarded the term and (b) results in an interpretation that the market disavows. Traditional doctrine holds that even if the court errs, parties have an incentive to revise the standard language to exclude the aberrant interpretation. But what if the assumptions about the costs and motivations to revise this type of boilerplate are wrong? We seek to gain purchase on this question with a study of the pari passu clause, a standard provision in sovereign debt contracts that almost no one seems to understand. This clause gained fame in 2011 because of a series of court decisions in New York arguably misinterpreting a particular variation of the clause. Even though the courts’ interpretation put at risk a multi-trillion dollar debt market, meaningful revisions to the language of the boilerplate term did not begin to appear until late 2014. Market forces, in other words, worked very slowly to remedy a major systemic problem, leading to considerable costs. We ask, therefore, whether courts might not do more to avoid the problem at the front end rather than depend on market forces to correct court error at the back end.
In the other corner we have Anderson, Robert and Manns, Jeffrey David, Boiling Down Boilerplate in M&A Agreements: A Response to Choi, Gulati, & Scott (January 1, 2019). Available at SSRN: https://ssrn.com/abstract=3327687
“Boilerplate” consists of standardized terms whose meaning is intended to be consistent from one transaction to the next, and these provisions are ubiquitous in contracts and related transactional documents. In their recent Duke Law Journal article Stephen Choi, Mitu Gulati, and Robert Scott have highlighted the potentially corrosive effect of the legal drafting process on boilerplate provisions. They show how incremental edits to boilerplate pari passu clauses for sovereign debt agreements have led to textual “black holes,” which potentially undercut the standardization purpose, wording, and substantive meaning of these boilerplate provisions. In this Article we offer preliminary evidence of a similar textual “black hole” phenomenon taking place in the mergers and acquisitions context.
We show that the mergers and acquisition context epitomizes the problem of unreflective copying of precedent provisions combined with ad hoc edits to individual clauses, which erode the textual integrity and meaning of boilerplate provisions. Each agreement is based on a prior deal precedent, and drafters frequently incorporate sections of the prior deal without sufficient scrutiny about the degree to which idiosyncratic novelties have been introduced in the precedent document that may be inapplicable to the new deal. At the same time, high levels of “editorial churning” take place in the process of transforming each precedent into the current acquisition agreement. The result is a problem of “drafting drift.” Boilerplate provisions live on from deal to deal, yet gradually shed their textual integrity and potentially lose their clear meaning as ad hoc edits are copied from deal to deal and new ad hoc edits are added at each stage.
We show how it is possible to identify the paragraphs of acquisition agreements which serve as boilerplate and to document both the degree and type of textual “drift” of these provisions over multiple generations. We construct “family trees” for boilerplate provisions by tracing the ancestors of each provision backwards in a linear way to each prior precedent. Then we reverse the process to show how ancestor provisions have progeny extending out in multiple directions which become increasingly dissimilar to their original ancestor and to each other over a few generations of acquisition agreements.
Our study shows that incremental changes in boilerplate from one generation to the next foster rapid “speciation” of the terms. Small additions and deletions from boilerplate text lead to significant cumulative effects over multiple generations. We demonstrate that this textual “drift” takes place both within individual boilerplate lineages, but also even more broadly for boilerplate provisions that have a common ancestor precedent, yet evolve separately along different lineages of precedents. Like the Big Bang, the heterogeneity of boilerplate text appears to increase in all directions, which supports an “expanding universe” theory for boilerplate that undermines the textual integrity and the meaning of boilerplate terms. While we will expand on the quantitative and qualitative analysis of the evolution of boilerplate in a future work, the preliminary evidence presented in this paper reinforces the case for the textual “black hole” theory.
