FACTS
Appellant is Staffing Specifix, Inc. ("Staffing"), a temporary staffing agency based in Florida. The agency is owned by Dr. Margarita Lermo. Her son, Alex Fernandez, is the CEO. Respondent TempWorks Management Services, Inc. ("TMS") contracts with smaller agencies, such as Staffing, to provide payroll and other services.
In 2012, Staffing and TMS executed a contract, drafted by TMS-the "TMS Services Agreement." Under the contract, TMS became the employer of record for Staffing's temporary workers while Staffing interacted with client companies that contracted for tempоrary workers. TMS became the owner of all "Accounts Receivable" from Staffing's clients and processed payroll for the temporary workers hired by Staffing. Staffing earned a "Commission" under the contract that was "equal to the gross amount of accounts receivable" less any fees owed to TMS. Among those fees were "Management Fees," which included, relevant to this appeal, "the actual total cost of payroll or fees" for the temporary workers. "[A]ctual total cost of payroll" was not defined in the contract. The contract also specified that TMS would "maintain, administer, and pay for workers' compensation insurance."
The initial contract term between Staffing and TMS was for 18 months, with automatic renewals in 12-month increments, "unless sooner terminated under Article 11, or the mutual, written consent of the parties." Article 11 of the contract set out the requirements for termination. Section 11.1 stated: "Subject to the below exceptions, [Staffing] may only terminate this Agreement with the written consent" of TMS. Section 11.2 stated that Staffing could terminate the contrаct any time after the first calendar year by "buy out"-"a payment equal to two times the total Management Fees which [TMS] earned in the immediately-preceding year, less actual costs of payroll."
On May 29, 2014, Staffing sent an email notifying TMS of its intent not to renew the contract upon the expiration of the initial 18-month contract term. The notice generated a dispute as to whether the "buy out" provision of the contract had been triggered. The parties negotiated a "compromise" whereby Staffing would pay TMS $65,000 "in lieu of a buyout fee." The compromise was never reduced to writing and signed, but TMS subtracted $65,000
Eventually the parties negotiated a written contract, called the "Tricom Agreement," to terminate the TMS Services Agreement. Under the new contract, a company called Tricom would pay TMS a "[f]inal [p]ayoff [a]mount" of about $1.2 million, which represented "90% of the total aging balance of TMS' accounts receivable plus fees earned by TMS." The Tricom Agreement did not end the dispute between the pаrties because of disagreement over the meaning of a material term: "fees earned by TMS." TMS interpreted the phrase to include a buyout fee of approximately $280,000, minus the $65,000 it had already withheld from Staffing's carry-forward balance. TMS considered the $65,000 amount to be factored into the "final payoff amount" in the Tricom Agreement. Staffing, by contrast, did not consider the amount agreed to in the Tricom Agreement to include any "buyout," and maintained that TMS still owed it $65,000.
Staffing then sued TMS for, among other things, breach of contract. Central to the dispute was whether the "final payoff amount" stated in the Tricom Agreement accurately and completely reflected the balance of funds owed to Staffing and TMS, respectively. Specifically, the parties disputed (1) whether TMS had improperly "withheld" as "management fees" its workers' compensation costs; and (2) whether Staffing owed TMS a buyout fee.
On a motion before trial, the district court ruled that the TMS Services Agreement was ambiguous, and that parol evidence would be admitted "to explain the intent of the parties." The court did not specify which provisions were ambiguous.
At trial, the parties offered conflicting evidence on the workers' compensation issue. Alex Fernandez testified that Staffing entered into the TMS Services Agreement with the initial understanding that Staffing was responsible for workers' compensation costs, but that he later believed otherwise based on the contract terms. TMS's generаl counsel testified that the "total cost of payroll" used to calculate the management fees did not specifically mention workers' compensation costs because the term was intended to be "purposefully expansive."
With respect to whether the Tricom Agreement included accounting for a buyout fee, TMS introduced an email betwеen David Dourgarian, TMS's CEO, and an attorney for Tricom. The email detailed the accounting for the $1.2 million figure in the Tricom Agreement as follows:
Factoring Aging 1,354,800.38 Buyout Fee 280,370 Less Buyout Fee Collected (65,000) Carry Forward (171,126.47) AR Reserve (177,076.09) NFE Balance $1,221,967.82
Staffing objected to the introduction of the email. Staffing argued that the district
Staffing's breach-of-contract claims were submitted to the jury. The district court instructed the jury as follows:
Contract-Meaning
If you find the contract is ambiguous, you should determine the intent of the parties.
When contract language is reasonably susceptible to more than one interpretation, the ambiguous contract terms are to be construed against the drafter.
Both during and after trial, TMS objected to this instruction, arguing that the instruction erroneously directed the jury to simultaneously determine the intent of the parties and construe ambiguous terms against the drafter. The district court overruled the оbjection of TMS and denied its later motion for a new trial.
The jury found for Staffing on its breach-of-contract claim and awarded damages of $451,732.77. Staffing appealed the dismissal of certain claims and denials of certain motions that are not relevant to this appeal. TMS cross-appealed, arguing again that the district court improperly instructed the jury on contract meaning.
The court of appeals reversed the district court and remanded for a new trial. The court of appeals held that the district court erroneously instructed the jury both to "determine the intent of the parties" and to construe ambiguous terms against the drafter. Staffing Specifix, Inc. v. TempWorks Mgmt. Servs., Inc. ,
The сourt determined that TMS was substantially prejudiced by the erroneous instruction. Id . at 132. Accordingly, the court remanded for a new trial on Staffing's breach-of-contract claims.
We granted Staffing's petition for review.
ANALYSIS
The issue before us is whether the district court properly instructed the jury on "contract meaning," or how to interpret contracts. We review a challenge to jury instructions for an abuse of discretion. Hilligoss v. Cargill, Inc. ,
Here, we address two issues regarding the district court's jury instruction-whether the district court erroneously instructed the jury to determine if the contracts were ambiguous and whether the district court erroneously instructed the jury to both determine the intent of the parties and construe ambiguous terms against the drafter. Neither TMS nor Staffing sought review in the court of appeals regarding the portion of the "Contract-Meaning" jury instruction that told the jury to determine whether the contracts were ambiguous. But, the court of appeals addressed this separate legal issue. Ordinarily, we would not consider an issue not decided by the district court. See Thiele v. Stich ,
I.
"[T]he primary goal of contract interpretation is to determine and enforce the intent of the parties." Motorsports Racing Plus, Inc. v. Arctic Cat Sales, Inc. ,
If the district court determines that a contract is ambiguous, it may admit parol, or extrinsic, evidence of the parties' intent. Flynn v. Sawyer ,
Here, the district court, having held before trial that the TMS Services Agreement was ambiguous, admitted parol еvidence to explain the parties' intent. Later, during trial, the district court held that the Tricom Agreement was ambiguous, and admitted additional parol evidence. When the district court instructed the jury on contract meaning, however, the district court directed the jury to determine whether the contracts at issue were ambiguous, rather than instructing the jury that the contracts were ambiguous. Because determining whether contract terms are ambiguous is unquestionably the role of the court, and not of the jury, we agree with the court of appeals that the district court erred in this portion of the jury instructions.
Having decided that the district court erred in leaving the issue of ambiguity to the jury, we also conclude that the district court erred in instructing the jury how to interpret ambiguous contract terms. It is necessary to decide this issue because neither party disputes that the contracts are ambiguous as to which party is responsible for workers' compensation costs and whether Staffing owed TMS a buyout fee. Neither party challenges the district court's admission of parol evidence "to explain the intent of the parties." And, neither party contends that the contracts were the products of adhesion or grossly disproportionate bargaining power.
The rule that ambiguous contract terms are to be construed against the drafter has been called the canon of "contra proferentem ." The rule is commonly (but not exclusively) applied in the insurance context. See Midwest Family Mut. Ins. Co. v. Wolters ,
In cases involving parties of relatively equal sophistication and bargaining power, we have always treated contra proferentem as a supporting-not deciding-rationale, even if we have not said explicitly that extrinsic evidence must be considered before ambiguous terms are construed against the drafter. Three cases are illustrative.
First, in Turner v. Alpha Phi Sorority House , we considered an ambiguous indemnification clause of a construction subcontract.
Second, in ICC Leasing Corp. v. Midwestern Machinery Co. , we addressed an equipment leasing agreement between commercial parties.
Third, in Wick v. Murphy ,
[I]t is a well-established rule of construction that where a contract is open to two interpretations, the one more favorable to the party who did not draft the instrument should be adopted in the absence of a clear showing that a contrary meaning was intended by the parties at the time of execution.
These cases demonstrate that we have applied the rule of contra proferentem only after an attempt is made to determine the parties' intent behind an ambiguous term, using extrinsic evidence if available. Consistent with ICC Leasing Corp. , the appropriate burden of proof on intent is a preponderance of the evidence. See
Accordingly, the jury instruction in this case materially misstatеd the law twice. First, it erroneously directed the jury to determine whether the contracts were ambiguous. Second, it erroneously directed the jury to both "determine the intent of the parties" and construe ambiguous terms against the drafter without specifying which task must be completed first.
Given that the instruction was erroneous, we must determine whether the error prejudiced the cоmplaining party, TMS. "A jury instruction is prejudicial if a more accurate instruction would have changed the outcome in the case." George v. Estate of Baker ,
The court of appeals dеtermined that "[c]harging the jury with prioritized instructions ... would likely have changed the trial's result" because "the [extrinsic] evidence on the intent of the parties regarding workers' compensation costs was strong." Staffing Specifix ,
Further, there was little evidence of the parties' mutual intent regarding the buyout fee. The only evidence admitted regarding the number calculated in the Tricom Agreement (the email between Dourgarian and a representative of Tricom ) clearly demonstrates that the number accounted for a buyout fee. There was scant evidence, however, that Staffing understood or agreed to this calculation.
It is not clear that the erroneous jury instruction prejudiced TMS. By the same token, we cannot say it did not. Because our precedent gives the benefit of the doubt to the complaining party, we must affirm the remand of the court of appeals for a new trial.
CONCLUSION
For the foregoing reasons, we affirm the decision of the court of appeals.
Affirmed.
THISSEN, J., not having been a member of this court at the time of submission, took no part in the consideration or decision of this case.
Notes
Respondents are TempWorks; TempWorks Software, Inc.; ARA, Inc.; David Dourgarian, CEO and owner of TempWorks; Gregg Dourgarian, founder and chairman of TempWorks Software, Inc., and founder, chairman, and CEO of ARA, Inc.; John Reid, General Counsel for TempWorks, TempWorks Software, Inc., and ARA, Inc.; Mari Kautzman, COO of TempWorks Software, Inc.; and Doug Greene, a manager with TempWorks.
At some point during the relationship, Alex Fernandez requested that commissions to Staffing not be paid regularly. Thus, TMS would "hold onto" commissions owed to Staffing and issue disbursements to Staffing as requested by Fernandez. TMS maintained this "carry-forward balance" in an account owned by TMS.
Further, although it was not the basis for TMS's objection to the jury instruction, nor was it briefed by the parties on appeal, the court of appeals held that the district court made an additional error: failing to instruct the jury which provisions of the two contracts were ambiguous as a matter of law.
The parties here dispute the meaning of "or" in this sentence of Turner . See