ABA Section of Business Law

T o a business lawyer, the phrase, "Let's make a deal" is not a game show. It's business and it's serious.

Deal making can often be a routine and tedious process, constantly taking into account the same issues and the same concerns. But there are times when it can be a real experience, exposing those involved to a whole new set of issues that they may not have taken into account – and may even teach them a lesson or two.

A number of business lawyers were asked to pick one or two instances out of the many cases they have handled that particularly stuck in their minds. These were unique because they taught the lawyer something that he or she was previously unaware of, and strengthened their future in the law by changing the way they practice. We hope their stories might do the same for you.

Mark Boulding, New York City, learned to be sensitive to a whole set of new issues after leaving private practice to become general counsel of the Internet company Medscape. "Instead of comfortably circulating drafts over a period of weeks, I had to negotiate and paper significant transactions in a matter of days, or even hours," Boulding said. This came into play with several strategic deals Medscape was involved in, including those with CBS and AOL, as well as with Medscape's IPO. Boulding also took part in a three-way merger/acquisition that made Medscape the company it currently is.

With Boulding's change of pace came some new insights. "I learned an important lesson about getting the real terms of the relationship into the written agreement," he said. "We often saw draft contracts that bore no resemblance at all to what the business people told us the deal was about. By focusing on getting the big picture into the paperwork, and using simple, direct language, we helped nonlawyers understand how the deal they had in their heads translated to the written page."

Boulding accomplished this task by changing the physical format of the contracts he worked on. He moved the boilerplate into a separate part of the contract where it was in a smaller type size and less emphasized. He credits this change with helping to make the contract more helpful in more situations than a normal contract "written in fruitcake-thick legalese" would be.

"If you expect a contract to be helpful in situations the parties did not anticipate," Boulding said, "then an agreement that captures the spirit of the business relationship will be much more helpful than a thousand-word indemnity clause."

Robert Dahlquist, of Latham & Watkins in San Diego, also has some experience with a new kind of thinking. A few years ago, he found himself and his client in a bind. He represented the owner of a commercial/industrial property that was located in an area with groundwater contamination. The contamination was believed to have come from a neighboring business that had gone bankrupt. The authorities, however, were looking for other sources of contamination — as well as other sources of income to help clean up the area.

"The regulatory authorities were treating every property in the area as potential sources of contamination under a ‘guilty until proven innocent' approach," Dahlquist said. "My client had ceased operations at its facility and wanted to sell the property. But the stigma and uncertainties associated with the contamination made it nearly impossible to sell using conventional methods."

So, Dahlquist had to focus on unconventional methods. He brought the property into the discussion during an unrelated lunch meeting with an engineer at an engineering firm. The firm had been looking to open a new office in the area where the property was located. They were able to acquire it at a substantially cheaper price than it would have been normally because of the stigma. The engineering firm also agreed to assume most of the risks of the environmental uncertainties in the area.

Dahlquist learned that the role of the lawyer goes beyond the scope of simply identifying the problem; the lawyer must also work to solve the problem. "Lawyers must be problem-solvers, not just problem-identifiers," he said. "In this situation, when the conventional methods of selling the property did not work, we had to develop alternatives. Most clients today expect their lawyers to assist in identifying and facilitating business solutions to legal problems. It is not enough for lawyers to identify problems; they must also identify solutions."

"Sometimes the solutions to significant legal problems come from totally unexpected sources," Dahlquist said. "I went to lunch to discuss one matter, but the solution to another, unrelated problem emerged from the discussion. The creative lawyer will be continuously looking for solutions to his or her client's problems."

One person who sees the solutions is Ian Ballon of Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, in Palo Alto, Calif. Ballon has found a way to look beyond the often concrete and unbending stated terms of the parties to determine their interests in areas that are not the subject of the debate.

In one instance, Ballon was involved in a suit against a software developer who had failed to perform. He realized that simply focusing on lost revenue would not help either party. Instead, Ballon worked out a deal where the failing product was split into two different products — a light version and a fully functional version. In the end, everyone ended up making more money.

In another case, Ballon represented a company accused of copyright infringement. Determining if his client infringed and how much they might owe the other company looked to be a daunting task. Instead of going down that road, he chose to focus instead on working out a contract for electronic rights that ended up being a "win-win" situation.

"I find that if there is a way to help the client figure out a new way for everyone to make money," Ballon said, "it is easier to side-step more difficult and contentious issues." He credits this strategy as something he learned from a course in negotiations.

But a class isn't always the answer, as Jim O'Reilly knows all too well. O'Reilly is now a professor at the University of Cincinnati, but before that he was the associate general counsel of Procter & Gamble. When P&G decided to acquire a corporation worth more than $2 billion, it also decided to do the deal in house using "people with real families and real schedules."

"Our lawyers chose to stay home and use conference calls, faxes and e-mails to present our client division's position to the seller," O'Reilly said. "The seller elected to use a phenomenally expensive midtown New York M&A firm whose name and bills are legendary. The seller's law firm was stunned that we did not wish to come to a crowded conference room in midtown Manhattan, eat $5 doughnuts and feel the stress of flight schedules."

The firm from New York disliked the approach that the P&G lawyers were taking, but the New Yorkers eventually came to them to work out the deal.

"We were the buyer; we held our venue," O'Reilly said. "They came to us when necessary. Our schedules and families controlled the timing of the transactional details."

The deal was a success for P&G, saving them approximately $1 million in fees. O'Reilly sees this as a lesson about the fast-paced life of the firms on the coasts and encourages his students to take a different approach to their legal careers by staying in the Midwest.

"Today, watching the Faustian bargains being offered, of $145,000 for 2,700 hours of one's life," O'Reilly said, "I ask my students: Why not bloom where you are planted, and why not have a satisfying life as well as a good career?"

In some instances, many of those 2,700 hours are spent unnecessarily because when negotiations lack a level of trust, they can get very bogged down in details. Eric Schweitzer, of Ogletree, Deakins, Nash, Smoak & Stewart, P.C., in Columbia, S.C., learned this when he was involved in the acquisition of a chemical company by a larger outfit. His firm was not in charge of the acquisition, but handled the environmental issues involved in the deal. The smaller company, whom Schweitzer represented, had been built from scratch by its president and was closely held. The principals of the two companies had met and agreed on a purchase price and some other terms of the deal.

Lawyers were called in to make the deal happen and iron out the details. "After several months, the lawyers had worked so diligently to protect their respective clients that the deal was about to come apart," Schweitzer said. The lawyers for the purchaser proposed clauses like one requiring the president of the smaller company to stay within 25 miles of the plant unless he received permission from the buyer to leave. These kinds of details showed a lack of trust that did not exist on behalf of the principals, who believed that each other was honest.

"We finally advised our client, in the presence of the principal from the purchaser, to go into the conference room and tell all the lawyers present that they had two hours to get a contract that could be signed or they would all be fired," Schweitzer said. "The two principals went in together, delivered the message, and had a contract in an hour and a half. The deal was done."

Schweitzer said this was a valuable learning experience for him, as it probably was for everyone involved, especially the lawyers whose jobs were supposedly on the line.

"Remember what your client's goals really are," he said. "Your value is making it happen, not explaining why it shouldn't happen."

Schweitzer also realized that the issues the lawyers were debating — like the principal staying within the physical proximity of the company, were not real ones. "Learn to differentiate between real issues and everything else. No one can anticipate every possible scenario — don't try. The ‘reasonable man' standard is a good one."

Karl Berolzheimer was involved in a deal that may have taken the notion of not taking into account every possible scenario a little too far, by failing to take into account a very important scenario. Berolzheimer's company acquired a cable television company. He had drafted a contract for the deal but when it came time to close, a problem arose concerning the number of subscribers that the cable company claimed. The problem ended up being a dispute over what the definition of "subscribers" was.

Berolzheimer's company eventually held back their final payment on the cable television company and litigated the issue of the number of subscribers. His company went through billing records, facility records and historical records in an effort to determine how many subscribers there actually were. Eventually, a great deal of animosity developed between the two companies and their lawyers over whether the representation of subscribers had been met.

"You can never be too careful about your definitions," said Berolzheimer, who used to work at Ross and Hardies in Chicago before becoming general counsel of Centel Corp. "You cannot assume that you are thinking about the same definition or quantification that is in the mind of the other party."

Berolzheimer took this negative experience and turned it into a positive one by creating a one-day workshop based on the contract for all the people in his department. They examined the problems with the contract and especially the problems with definitions.

Early in his career, Berolzheimer had another experience that was important to his development as a lawyer. When he was just a couple years out of law school and a young associate at his firm, the partner that he worked with sent him to iron out the details of a contract. The contract was mostly complete but there were about six issues that were still unresolved.

The other lawyers were curious as to why the partner was not at the negotiations; Berolzheimer simply said that he was at the office. When they got to the second point, one of the other lawyers decided to call the partner and discuss the matter with him. When the lawyer returned, he said that the partner had the same position that Berolzheimer had articulated and was even slightly less flexible about it.

"I'm sitting there saying, ‘God, I hope [the partner] realizes the jam I'm in,'" Berolzheimer said. "He did, and after that no one ever suggested again that I didn't have the authority to negotiate on behalf of my client. [The partner] realized that he'd sent me into the lion's den and he was going to stand by me."

For Berolzheimer, it was a great lesson in mentoring and maintaining consistency under any circumstances.

Catherine Bauer works in Los Angeles, which means that she is often exposed to people with very different cultural backgrounds. Bauer, who works for the Bank of America, finds it very important to remember this and be very culturally sensitive as a bankruptcy mediator.

"I often encounter creditors who are unfamiliar with the concept of a bankruptcy discharge as it exists in this country," Bauer said. "Some of these people come from countries that have debtors' prisons. Not surprisingly, before we can get into any kind of meaningful discussion, I have to have a real heart-to-heart with these people. Sometimes I go back as far as our forefathers — no joke."

Obviously, the legal ramifications of bankruptcy are very different depending on where the bankruptcy takes place. It is always important for Bauer to be sensitive to the needs of those who think they might be headed for a long prison stay.

Maury Poscover learned a valuable lesson early on in his career — which has spanned more than 30 years — about taking charge. He was involved in a "complex, multi-party transaction." The client that his firm represented was not the major party in the deal. The deal ran into problems from the start when no one took control. "It was chaotic," said Poscover, who is now with Husch & Eppenberger in St. Louis.

Eventually a senior lawyer in Poscover's firm took charge of the deal, even though his client was not the major party. The lawyer kept everyone on track by setting the schedule and arranging for conference calls to review the progress of the deal.

"From that point forward, the deal went fairly smoothly and closed to everyone's delight," Poscover said. "I learned that all the good lawyering is for naught unless someone manages the deal."

Poscover is now involved on a daily basis in mergers, acquisitions and depositions and commercial-finance transactions. He makes sure to have daily meetings or conference calls in order to ensure that everyone is fulfilling their responsibilities and that the deal as a whole is coordinated. He also uses e-mail to inform all the members of the group what's going on.

"If there are meetings, I develop an agenda and if no one else takes charge, I do," Poscover said. "Being a deal manager is part of what I bring to the table and the value I add."

Bennet Koren, of McGlinchey Stafford in New Orleans, narrowly avoided some deep trouble when he saw it coming and took charge to make sure he wasn't held responsible. He was handling a closing that required the borrowers to put a fixed amount of equity into the project in order to receive funding. However at the closing, the terms of the deal quickly changed.

"They didn't show up with the funds," Koren said. "Instead, they offered equipment and other goods and services as their equity contribution."

Koren was immediately suspicious and wanted to make sure of the quality and status of the equipment offered. His clients had a different idea; they wanted to go ahead immediately. He required the parties to sign a waiver acknowledging that the terms of the agreement had changed and that the equipment was going to be accepted "as is" in lieu of cash.

It turned out that Koren's suspicions were valid. "The project failed and it turned out that the equipment was mortgaged or in some cases not even owned by the borrowers, some of whom ultimately went to jail," Koren said.

He learned to make sure his bases were covered when the terms of a deal mysteriously changed. "Because of the pressure exerted by the parties, I was not able to stop the closing," Koren said. "I was able to protect myself and my firm by obtaining the waivers."

R. Clark Wadlow, of Sidley & Austin's Washington office, also learned to look beyond what seemed apparent when he represented the Tribune Co. in its acquisition of the Times Mirror Co. in one of the largest media acquisitions to date.

Initially, many in the newspaper industry believed the deal would not go through. "It was generally believed in the newspaper industry, and at Times Mirror, that the trust documents prohibited the sale of the newspapers," Wadlow said.

The Tribune Co., reluctant to ask for trust documents from Times Mirror directly at an early stage of negotiations, asked Wadlow to dig up the original trust documents that created the family trust that controls Times Mirror Co. in 1934. After searching the SEC for the documents and coming up empty, Wadlow decided to check with the FCC, knowing that Times Mirror used to hold several FCC licenses for television stations. The search of the FCC files was successful, yielding the original trust documents. What Wadlow found out was surprising.

"One of my partners who specializes in trusts and estates reviewed the documents and concluded that the trustees would not be in violation if they sold the L.A. Times or even the entire company," Wadlow said. "The ‘lore' that had grown up around the trust documents was simply not justified – or at least not justified under modern interpretations."

Nevertheless, there was another roadblock in the way of the acquisition. The FCC has a rule that prohibits the same owner from possessing a newspaper and a television station that serve the same market. This posed a problem because the Tribune Co. owned television stations in Los Angeles, New York and Hartford, Conn., and Times Mirror published newspapers in those same markets. The FCC, however, only has jurisdiction over TV stations, not newspapers. The rule states that no license for a broadcast station will be granted to someone who also owns a newspaper in the market.

Wadlow knew that the broadcast license had just been renewed by the Tribune and would not need to be renewed until late 2006. The license was not in danger of being revoked, but solely in danger of not being renewed in 2006, by which time Wadlow hopes to get the rule changed, or in the worst-case scenario the Tribune Co. would have to sell either the stations or the newspapers at that time.

"In a transaction, you should be prepared to question even the most basic general understanding of the facts and the law," Wadlow said. "The original documents should be reviewed and the underlying sources of the law must be considered. One should not be afraid to question the underlying precepts in order to find a way to do a transaction that the parties desire."

And so, a number of lessons. Chances are, at least one could help your next deal move along more smoothly.