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Georgia Court of Appeals Concludes the Term “Affiliate” is Ambiguous

2/4/19

By: Jake Carroll
In Salinas v. Atlanta Gas Light Company,[1] the Georgia Court of Appeals’ recently examined whether Georgia Natural Gas (“GNG”) and Atlanta Gas Light Company (“AGLC”) were “affiliates.” Both AGLC and GNG were owned and controlled, either directly or through an intermediary, by a company named AGL Resources, Inc.
In Salinas, AGLC sought to dismiss Plaintiff’s claims and compel arbitration. In support of its argument, AGLC relied on a term in GNG’s service agreement that required the Plaintiff to arbitrate any disputes with GNG’s “affiliates.” However, since the term “affiliate” was not defined in GNG’s agreement, the Court of Appeals looked at how the term “affiliate” is defined in the Georgia Code, Black’s Law Dictionary, and other jurisdictions, and ultimately determined that the term is ambiguous. The Court of Appeals construed the agreement against GNG—the drafter of the contract—and as a result, AGLC could not demand arbitration of Plaintiff’s dispute.
While the Court of Appeals did not set-out a specific definition for “affiliate,” the Court’s analysis provides a couple of practice tips to anyone involved in drafting, reviewing, or enforcing contracts, including commercial agreements, government contracts, or insurance policies.

1. Define Your Terms: The Salinas Court may not have had to address the meaning of “affiliates” if the Agreement had defined the term. But, since the term was not defined, the Court looked elsewhere, including other jurisdictions, the Georgia Code, and the dictionary to determine its meaning. Including a definitions section is an easy way to set out the agreed-upon meaning of a term throughout a contract, and should not be overlooked.
2. Be Explicit: If there is a certain sibling or parent corporation that should be a beneficiary of a contract, consider listing the specific “affiliates” to which the contract or agreement should apply.
3. Check Your State’s Code: The Court noted that the term “affiliate” is defined over 20 times in the Georgia Code, and the definitions vary. For example, in the context of financial institutions, an affiliate is an entity that controls the election of a majority of directors, trustees of a financial institution, or an entity that owns or controls 50 percent or more of the financial institution. O.C.G.A. § 7-1-4 (1). In Georgia’s Corporations Act, the definition of affiliate is broader: “a person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a specified person.” O.C.G.A. § 14-2-1110 (1).[2] Depending on the type of corporate entity, “affiliate” may not include every entity in a corporate structure, and certain rules regarding ownership and control may be relevant.

If you need help with this issue, or any other commercial law questions, Jake Carroll practices construction and commercial law, is licensed to practice in Georgia and Florida, and is a member of Freeman Mathis & Gary’s Construction Law and Tort and Catastrophic Loss practice groups. He represents corporations and manufacturers in a wide range of litigation and corporate matters involving breach of contract, business torts, and products liability claims. He can be reached at jcarroll@fmglaw.com.

[1] 347 Ga. App. 480; 819 S.E.2d 903 (2018).

[2] See also O.C.G.A. § 18-2-71 (1) (B) (“Affiliate” has multiple definitions, including “[a] corporation 20 percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by the debtor or a person who directly or indirectly owns, controls, or holds with power to vote 20 percent or more of the outstanding voting securities of the debtor[.] …”).