ABA Section of Business Law

These generalizations constitute a useful analytical framework for this article.

While heeding the directives of one's client is almost always good advice to any lawyer, it is of particular significance here where the client's relationship with the other party is of comparable if not greater importance than the outcome of the present negotiation. The first bit of guidance that is required from the client is whether this is in fact a situation where the continuing relationship is of significance. Cases do exist where maximization of the client's legal and economic position for the particular transaction is the client's primary (or only) objective even when dealing with a customer.

However, in most cases, the client will advise that it desires to balance the considerations so that it obtains a reasonable arrangement today with the prospect of further dealings tomorrow. In any case, the important point is that so long as the lawyer conducts herself in an ethical manner, it is for the client to determine the tenor and direction of the negotiations.

The experienced lawyer will guide the client in making this determination by expressly inquiring at the outset of the transaction as to the client's preferences. For example, it's good to be advised of the client's expectations (or hopes) as to future dealings with this customer. If the customer is viewed as an important prospect, it is probable that the client will ask the lawyer to expedite the negotiations and "give" on more points than if the customer is viewed as marginal. Similarly, the lawyer should inquire as to relevant aspects of prior dealings with the other party that may serve to identify present points of sensitivity to be stressed or avoided where possible.

The lawyer and client should work together to establish ground rules for the negotiation and both should be aware of the intended approach. For example, if the client believes that the customer is an excellent prospect for being a source of large profits but is known for being somewhat impatient, it may be necessary for the lawyer to be especially flexible with respect to what are normally noneconomic issues such as choice of forum or choice of law but to "hang tough" with respect to direct pricing (usually the sole domain of the client) or even price determination mechanical issues such as the formula for appraisal. By the same token, if the customer is known for being litigious, pure legal issues may have to be stressed to a much greater extent.

While timing or billing considerations may militate against a full blown letter from client to lawyer (or vice versa) setting forth the understanding as to the philosophy with which the lawyer is to approach the negotiation, it is a good idea for these issues to be orally and explicitly addressed.

Whatever approach is agreed on, it is essential to properly plan for its implementation by setting priorities. This means that in advance of her discussions with the other side, the lawyer must think about which issues are of greatest significance to her side. While this is always beneficial, it is imperative in a situation where the client desires to minimize and expedite negotiations. For the most part, this will involve differentiating between those issues that from the client's perspective are negotiable and those that are not. In some cases, the client will conclude that finishing the deal warrants virtually any concession. However, it will usually be the case that each side will feel that while there are several points where it must obtain an accommodation from the other side, if the same is forthcoming, it will be able to extend similar accommodations on many other points.

Once the major issues are identified by each side, it is much easier to deal with them first and make clear that a favorable resolution will allow the prompt conclusion of the negotiation. Too many lawyers simply proceed through the document from top to bottom with fundamental issues interspersed with minutiae. This protracts the process and causes nonlawyers to feel that the other side is difficult to deal with. An added benefit of an explicit prioritization is that it is likely to minimize the time spent on the matter that holds down client frustration with the bill and allows the lawyer to do other (hopefully remunerative) things with the time saved.

Where a negotiation is crisp and focused, it often maximizes the likelihood that each side will come away with what it considers most important, as opposed to a situation where issues are addressed randomly or chronologically. While there will always be cases where the same issue is important to both sides and can only be resolved if one yields, a prioritization will often illustrate cases where the parties are focused on different issues and it is possible for each party to get its way on the items that are most important.

The author has found that if time permits, it is usually helpful for the lawyer to work with her client at the beginning of the negotiation process to develop a written schedule in descending order of importance of issues that are likely to encounter.

Very few things alienate nonlawyers more than a lawyer who devotes a great deal of attention to a noneconomic issue where the matter itself involves very little to the clients. Such a practice in the context of a small transaction evokes the specter of a protracted negotiation being the inevitable result of a much larger transaction. While client preferences are certainly to be given effect, it is also part of the lawyer's job to determine and advise the client as to the likely significance of any particular point. Where the amount at issue is not material to the client, it is unlikely that any particular legal issue will be worthy of lengthy discussion. Conversely, where the amount is material, it may be essential to the client that its viewpoint prevail. Minimizing discussion of noneconomic issues in the context of smaller transactions substantially bolsters counsel's credibility when such an issue must be addressed in the context of a larger transaction.

For example, the condemnation provision of a real estate mortgage or sale contract may be of minimal consequence in a "routine" transaction involving a 20,000-square foot property worth $300,000 in an area where the government has not condemned any property since World War II. However, it may be of great moment in a transaction involving a 40-story building worth $100 million and having some historical significance in an area where the local government has condemned several properties in the past year for redevelopment or historic-preservation purposes.

Counsel should evaluate the materiality of the transaction based on her client's specific circumstances and not based on an absolute standard. For example, a $100,000 transaction is likely to be of minimal significance to a firm such as General Motors but may be of great significance to a community bank. Of course, if for whatever reason, the client believes that the transaction's significance to it can not be adequately measured strictly by reference to its direct economic value, this must be noted by counsel. Even assuming a particular point is important to your client in the first transaction with another party, this does not mean that the point should be revisited in the next transaction with the same party. While the author is most assuredly not advocating practicing law merely by marking up old documents to change names, dates, prices, etc., he is advocating not changing a negotiated document without good reason. It is most frustrating to devote substantial effort to reaching agreement on a genuinely important issue in one transaction yet have the other party place the issue back on the table in the next transaction without any explanation of why the original solution is no longer adequate.

Counsel who have been in practice for any length of time will almost always be able to identify one or more ways in which they could improve in some sense on any contract that is of more than minimal complexity. In some cases, this will be the perfectly reasonable result of changes in law or circumstance in the interim or a genuine need to correct a material oversight. If this is the case, and it is so stated, all is usually well. For example, a default remedy that may have worked for a transaction involving an outstanding credit may be unduly loose if the company has experienced economic reversals in the interim so that a default is a much greater possibility. Similarly, the more time that passes between occasions for consideration of the issue, the less likely that the original solution should be used in its entirety.

However, any change in a previously negotiated document is likely to require consultation (and billing) between the other party and its counsel in order to evaluate the acceptability of the change. If the only explanation is that counsel had a new thought, or worse, that the syntax of the prior version could stand improvement, counsel's client will get a reputation for arbitrary behavior that will deter other parties from dealing with it. Where the parties invested significant effort (and fees) in resolving a given issue, they will normally apply a heavy presumption in favor of the sufficiency of such resolution in the future. Counsel should apply a similar presumption.

In many customer contract negotiations, counsel will be called on to deal with the other side's nonlawyers in addition to or in lieu of counsel. This should prompt some thought as to the conduct that is formally required as well as that which is advisable. In view of the concern that is found in the Model Rules of Professional Conduct (in most states, the basic source of guidance as to the professional obligations of lawyers) for lawyers overreaching laypersons, this situation calls for some reflection.

For example, Section 4.2 of the Model Rules, which Rule governs "Communication with Person Represented by Counsel," provides: "In representing a client, a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter unless the lawyer has the consent of the other lawyer or is authorized by law to do so." Section 4.3 of the Model Rules, which governs "Dealing with Unrepresented Persons" provides: "In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer's role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding."

Counsel should be cautious when engaged in communications with the other principal to avoid even the inference of overreaching the other party. Among other things, counsel should make clear whom she is representing and the desirability of the other party consulting with its own lawyer with respect to legal matters. Where it is evident that it has done so, substantive discussion outside the presence of such counsel should be avoided. Wherever possible, counsel should avoid statements that involve the provision of legal advice or conclusion — at least outside the earshot of the other side's counsel. Counsel should say nothing directly to the other party that she would not say to the party's lawyer.

While it is sometimes the case that one business person will ask for a legal judgment from counsel for the other, it is essential to avoid the inference that the counsel from whom such advice is requested has an undisclosed conflict of interest or is seeking to mislead the other side as to the law. If the law is not settled with respect to the point at issue, this should be so stated to the other business person along with an admonition to consult with their own counsel.

Of course, when dealing with opposite counsel, one should state the proposition in the optimal manner for their client that is reasonably supportable without the need for any caveats. The Preamble to the Model Rules emphasizes the need for the lawyer to act "zealously" in the pursuit of the client's interest but directs the lawyer acting as negotiator to seek "a result advantageous to the client but consistent with requirements of honest dealing with others."

Counsel must also be acutely sensitive to her own client's prerogatives. Simply put, this means that the lawyer must not make a decision that is reserved to the client without appropriate consultation and must not commit the client without appropriate authority to do so. The lawyer is an agent and as such has the power to commit her principal to a binding contract. It is both the stuff of a disciplinary charge and embarrassing to both lawyer and client if the lawyer advises her opposite number that the client is agreeable to a particular position only to have the client disavow such commitment. No one wishes to deal with an opposite number if they can not rely on their (or their representatives') commitments. If the agreement is sufficiently important, litigation to enforce it may be the result. Even if it is not, bad feelings inevitably will be. A note pertaining to the special responsibilities of lawyers for commercial lenders is useful. There has evolved a body of authority pertaining to institutional lenders known as "lender liability" whereby the lender is held to a higher standard than mere compliance with the four corners of the documentation. An article that commented on a recent case in this area summarized the view of many courts as follows:

"The moral of the story is that when a contract grants discretion to a lender, that discretion does not provide a lender with carte blanche to act arbitrarily; the discretion must be exercised in good faith." Gerstel, Dyckman "The banker's nightmare: The implied duty of good faith," Corporate Counsel Magazine October 1997, commenting on Maharaja Travel Inc. v. Bank of India 94 Civ. 8308 (U.S.Dist. Ct. SDNY 1997) In light of the law of lender liability, counsel for lenders must be especially cautious with their statements to borrowers and borrowers' counsel, taking particular care to avoid even potentially misleading statements, since the totality of lender conduct will likely be evaluated in any litigation.

As noted at the beginning of this piece, so long as the client is breaking no laws and not asking the lawyer to violate any ethical duty, the lawyer must do the client's bidding. However, the author has found that the preceding guidelines will almost invariably assist both parties in fulfilling their roles. The right orientation of counsel is likely to bring the growth instead of the destruction of customer relationships.