In that spirit, I recently read this article by Alison Frankel for the American Lawyer. It describes as follows the circumstances leading to a lawsuit on appeal before the Seventh Circuit Court of Appeals:

A class of Bell Atlantic pension plan participants filed suit against Bell successor Verizon, claiming that Verizon miscalculated—by $1.67 billion!—the lump-sum cash payments they were due because it applied a particular multiplier only once, not twice. It turned out that the sentence in the ERISA plan that implied the multiplier should be applied twice was a drafting error: An in-house Verizon lawyer inadvertently neglected to delete a phrase about the multiplier from the end of a sentence after he inserted the same phrase in the middle of the sentence.

The Seventh Circuit affirmed the holding of the lower court declining to enforce the plan provision with the mistake. Apparently, an important factor was that no one relied on the mistake.

I recommend that you not take away from this case that the courts will save you from your mistakes. I’m not inclined to start researching the caselaw on mistake, but I recall that in one case—I wrote about it in this August 2008 blog post—the court declined to save a contract party from the consequences of a drafter’s having inadvertently used the word less instead of more. I’m confident that I could easily enough compile one list of cases where the court cut some slack and another list where the court let a contract party live with the consequences of mistake.

Of course, hoping for a favorable outcome from the courts after having made a mistake is a distant second to not making a mistake in the first place.

The director and the school board in question entered into a contract that stated “This is a general at will agreement.” (Emphasis in original.) But it also stated that it was for the work year July 1, 2008 to June 30, 2009 and that “Positions will automatically renew for one year after one year of service unless specific actions are taken by the board before April 15th of each year.” The director was terminated on May 7, 2009.

The court held that Mr. Ellis was an at-will employee, saying as follows:

The plain language of the “at-will” phrase overrides the general rule for construing a fixed-term contract, expressly replacing any implication that might have been drawn from the reference to start and end dates. The asserted tension between the at-will declaration and the stated dates of service does not create ambiguity.

But this has to represent something of a Pyrrhic victory for the school board, in that they would have avoided the dispute had the contract not been worded such that a reader could conclude that it provided for a one-year term, despite the at-will language. Don’t send mixed signals in your contracts!

Latham & Watkins and Manatt Phelps & Phillips are the targets of a malpractice lawsuit filed by ECC Capital Corp., which accuses the firms of botching a deal to sell its mortgage-origination business and a subprime-loan portfolio to Bear Stearns & Co.

…

In the suit–filed on Friday in Los Angeles Superior Court–ECC Capital claims that two law firms drafted an agreement with Bear Stearns that was flawed and incomplete. Specifically, the complaint states, provisions that should have shifted the risk of early defaults in the loan portfolio to Bear Stearns were not properly drafted.

…

The complaint goes on to state that ECC Capital specifically informed Latham and Manatt that it was critical for the executed agreement between the two parties to clearly and unambiguously describe the transfer of risk this way. …

…

The filing cites several instances of what it describes as malpractice, including the drafting of the agreement, which, ECC Capital claims, fails to clearly stipulate that Bear Stearns would assume the risk related to early defaults as agreed.

ECC’s complaint also says the firms failed to have the appropriate Bear Stearns subsidiary sign the agreement regarding the loan-portfolio purchase. As a result of this confusion, ECC claims, Bear Stearns refused to buy loans shortly after they were originated, and imposed requirements that borrowers make first payments before the loans would be purchased.

Although I have no notions as to the merits of ECC’s complaint, this dispute brought to mind a couple of points:

First, in the press of business it’s alarmingly easy to forget to include in a contract an important but out-of-the-ordinary deal point. To reduce the odds of that happening, I’ll usually start with a term sheet that the client signs off on, so as to ensure that the important deal points are included from the get-go. Going straight to a contract makes it harder for all concerned to do that sort of checking. A term sheet is in effect a checklist, a concept that’s generated a lot of chatter recently, with publication of Atul Gawande’s The Checklist Manifesto: How to Get Things Right. I discussed Gawande’s notions regarding checklists in this December 2007 blog post.

Second, getting the right party to sign a contract would seem a laughably basic matter, but sometimes things can be complicated. I recall the comments to this July 2008 blog post on having a company enter into a contract “on behalf of” an affiliate.

The case involved a dispute over an acquisition earnout. AmerisourceBergen had agreed to acquire Bridge Medical Inc. for $27 million plus additional payments to be made to former Bridge shareholders contingent on certain targets being met over a two-year period. The bit that interested me was the confusion caused by the fact that a provision in the contract used the word less when it evidently should have used the word more. Here’s the relevant passage of the opinion (footnotes omitted):

Defendant’s challenge to the timeliness of plaintiffs’ challenge to the 2003 EBITA payments may be easily rejected. The merger agreement provides:

[ABC']s Earnout Calculations will be deemed to be accepted by [Plaintiffs] and shall be conclusive for purposes of determining the final amount of the related Earnout Payment, if any, except to the extent, if any, that [Plaintiffs] shall have delivered to [ABC] no less than twenty (20) Business Days immediately following the applicable Earnout Payment Date a statement describing the objections of [Plaintiffs] thereto . . . .

Both parties agree that ABC sent notice of the earnout calculation on February 12, 2004, and plaintiffs raised their objection on March 18, 2004. By the terms of the agreement, plaintiffs were obligated to raise an objection no less than twenty business days after, February 12, 2004. They did so twenty-six days later; twenty-six being no less than twenty, which would seem to be the end of the matter.

Defendant asserts that it is “absurd” to conclude that the term “no less than” means “more than or equal to” a given number. Instead, ABC insists that “no less than” constitutes an ambiguous term, and then demands that this Court take up the judicial blue pencil to somehow make “more than” mean “less than.” To defendant, the absurdity arises because, as written, § 2.6(g)(ii) would never give conclusive effect to the earnout calculations.

I am unconvinced. First, “no less than” is a term of mathematical precision, and it is difficult to imagine how “more” somehow means “less.” Second, it is untrue as a matter of law that the clause provides no legally enforceable time limit. Where a contract is silent on the time given to a party to perform a condition, then this Court will assume that the parties contemplated a reasonable time. Although determining reasonableness might pose a challenge in some hypothetical case, it is inconceivable that a twenty-six business day delay is unreasonable or imposed any hardship upon defendant. Finally, although the Court of Chancery possesses the equitable jurisdiction to reform a contract in a case of mutual mistake, there is no reason to exercise that power in this case.

To see that granting defendant the relief it seeks would be the height of inequity, one has only to imagine the decision facing plaintiffs after the earnout payment date, when they presumably looked back at the merger agreement to determine how to respond. Assuming arguendo that defendant is right and that words “less than” are the result of mistake, plaintiffs were pierced on the horns of a dilemma: should they provide notice after twenty days, complying literally with the terms of the agreement, or should they provide notice on day nineteen, thus complying with what defendant now says “common sense” clearly dictates but risking later accusations of breach of the clear language of the contract?

Defendant is a major international corporation and was assisted by qualified and professional counsel at the time it entered into the merger agreement. In many areas, it now appears that the merger agreement was unhappily drafted. Nevertheless, defendant faces no significant prejudice as a result of plaintiffs’ actions, and there is no call for this Court to negate the clear language of the agreement. Plaintiffs are entitled to summary judgment on this issue.

My only observation is that this case is yet another example of how an ostensibly minor drafting glitch can end up causing considerable embarrassment and financial pain. You can’t count on a court to fix a mistake.

As David noted in the comments to my previous post on the Bear Stearns merger agreement, today’s New York Times contains a story detailing how “mistakes” in the Bear Stearns merger agreement contributed to J.P. Morgan and Bear Stearns discussing whether to reprice the deal.

Here’s the relevant bit:

JPMorgan and Bear were prompted to renegotiate after shareholders began threatening to block the deal and it emerged that several “mistakes” were included in the original, hastily written contract, according to people involved in the talks.

One sentence was “inadvertently included,” according to a person briefed on the talks, which requires JPMorgan to guarantee Bear’s trades even if shareholders voted down the deal. That provision could have could allow Bear’s shareholders to seek a higher bid while still forcing JPMorgan to honor its guarantee, these people said.

When the error was discovered, Mr. Dimon, who was described by one participant as “apoplectic,” began calling his lawyers at Wachtell, Lipton, Rosen & Katz to seek a way to have the sentence modified, these people said. Finger pointing over the mistakes in the contracts began as bankers blamed the lawyers and vice versa.

Why am I not surprised? As I said in my recent article on the Cerberus litigation, dysfunctional prose in M&A contracts greatly increases the likelihood of a mistake going unnoticed.

J.P. Morgan is represented by Wachtell Lipton, an M&A titan. Evidently Wachtell’s contracts are as problematic as the next guy’s, perhaps more so.

Words and Numerals

Drafters will often do the words-and-numerals thing when stating amounts of money: Acme shall pay Widgetco One Million Dollars ($1,000,000). The idea is that whereas numerals are easier to read than words, they’re more prone to typographic errors; adding words provides a safety net, as courts generally hold that if there’s a discrepancy between words and numerals, the words govern.

But stating numbers in words and numerals distracts the reader and represents another possible source of inconsistency, yet adds little or nothing of value in return. If your proofreading isn’t up to making sure that when you say 12 you really mean 12, the words-and-numerals system isn’t going to save you.

Generally, I recommend that you use words for numbers up to ten and numerals thereafter. (MSCD 10.4 mentions some obvious exceptions.) The Chicago Manual of Style 9.23 recommends that you use for stating amounts of money the same approach you use for numbers generally. But for purposes of contracts, I recommend that you state all amounts of money using only numerals. In a commercial context, it would be very odd to use words for nine dollars but numerals for $12.

If you’re dealing with a big number in a sensitive context—if, for example, you’re stating in a promissory note the principal amount of the loan—and using both words and numerals makes you feel more secure, then go ahead. Indulging in words-and-numerals every so often won’t hurt anyone.

Decimal Fractions

The Chicago Manual of Style 9.24 says that when stating amounts of money you should use zeros after a decimal point only when fractional amounts appear in the same context. In other words, say $2 rather than $2.00, unless the provision in question also refers to $3.78 and $12.93. I suspect that most U.S. drafters would use $2.00 whatever the context, but I’m with CMOS on this.

If you’re stating less than a whole unit of currency, put a zero before the decimal point, as in $0.32.

Very Large Amounts

It’s commonplace for drafters to use a mixture of words and numerals to express large amounts of money: $4.4 billion; $3 million. This approach can make make amounts of money easier to read, particularly if a given provision includes several large amounts. But don’t switch to a mxiture of words and numerals if other numbers in the same context use all numerals. And don’t go beyond one decimal point to express fractional amounts.

Currencies

Any reference to an amount of money would have to specify the currency. You can accomplish that by using a currency sign or by using the three-letter currency code specified for that currency in ISO 4217, the list established by the International Standards Organization. For example, the currency sign for the Euro is €; the currency code is EUR. And the currency sign for the Norwegian Kroner is Kr; the currency code is NOK. Which choice is preferable is a function of custom.

Some currency signs are shared by many currencies, and you can make it clear which currency you’re referring to by supplementing the currency sign. For example, the dollar sign ($) is used for currencies in many countries other than the U.S., principally those using currencies denominated in dollars (including Australia, Brunei, and Canada) or pesos (including Argentina, Chile, and Mexico). If a contract between parties from different countries refers to a currency that uses the dollar sign, using a currency code or a suitably modified currency sign, such as A$ for Australian dollars and Mex$ for Mexican pesos, would make it clear which currency is being referred to.

In many countries, especially those in the English-speaking world, the practice is to place the currency sign before the amount. In other countries, it’s placed after the amount. I’d be inclined to always put it before, whatever the currency.

Always put a space between the currency code and the numeral: EUR 2,400,000. If a currency sign consists of one or more letters, put a space between the currency sign and the numeral: SFr. 334,583. But if the currency sign consists of a symbol, don’t use a space, even if you add one or more letters in front of the symbol: C$655,000.

Provision Specifying Drafting Conventions

An alternative way to make it clear what currency is being referred to is to use a provision specifying drafting conventions, such as A$ means Australian dollars. This is one of the few such provisions that does something other than state the obvious.

You could conceivably use such a provision as an excuse not to modify a multi-currency sign. You could, for example, in a given contract use a simple dollar sign in referring to Australian dollars and say $ means Australian dollars. But it would be best to add the extra letter every time you state an amount of money in that contract, as that by itself should be enough to inform most readers what currency is being referred to.

A sideshow in the litigation was the expert report of Professor John C. Coates that the RAM entities submitted to the court and how Chancellor Chandler dealt with that report.

In addition to addressing customary deal structures for buyouts of public companies, Professor Coates offered in his report some thoughts on customary practices of M&A lawyers:

26. … One of the ways that the parties commonly economize on time and costs is not to attempt to review every provision of every related agreement every time a new change is made, particularly when documents are in the final stages of negotiation. Rather, they rely on succinct but legal terms of art to achieve what is, in essence, “editing” of the entirety of a document with minimal change. Among the terms of art customarily relied upon are phrases such as “subject to” or “notwithstanding.” These phrases allow the parties to specify that one phrase or provision will take precedence over others, and thus avoid the need to attempt to synthesize every provision of every related agreement that is or may be partly or wholly in conflict with the provision in question.

27. Another reason that such legal drafting techniques are used is that they reduce the amount of blacklining and editing that must be reviewed by numerous parties who must approve and sign off on the final documentation. If, for example, drafters can add a single sentence that contains the phrase “subject to” or “notwithstanding,” the various interested parties (banks, bank lawyers, managers, target lawyers, investment banks, their lawyers, buyout sponsors, their lawyers, co-investors, their lawyers, etc.) can simply look at the one sentence to see the meaning of the change. If, on the other hand, a sentence is added while other sentences are modified or deleted to reflect the meaning of the new sentence and eliminate any potential apparent conflicts, more blacklining, on more pages, will have to be reviewed and evaluated by each party. In my practice (as an occasional participant in contracting as a principal), I have on many occasions attempted to minimize the number of changes, and to minimize the number of pages on which marked changes would be made, and one way to do that would be to use “subject to” or “notwithstanding” terminology.

In this regard, Professor Coates could perhaps have achieved his clients’ needs if he had said, in essence, the following: “When in negotiating complex M&A agreements the parties agree to make a change that renders a given provision meaningless, in the interest of expedience it’s commonplace for that change to be incorporated by (1) leaving in the now-meaningless provision, (2) adding the new language, and (3) using one or both of the phrases notwithstanding and subject to to indicate that the new language takes precedence over the now meaningless provision.”

But instead, Professor Coates offered a more general analysis that I found confusing, and I suspect that it prompted confusion on the part of others who tried to understand it.

The Core Concept

It’s commonplace for a piece of writing to intentionally contain statements that conflict. That’s certainly the case in contracts. The phrases notwithstanding and subject to serve to indicate which statement takes precedence.

Here’s an example:

A. Acme shall pay the Employee a signing bonus of $1,000,000.

B. If the Employee’s last name begins with the letter “A,” Acme will not be required to pay the Employee any compensation other than the Employee’s annual salary.

These provisions are inconsistent. Let’s assume that section B takes precedence. You could indicate that in one of two ways: You could add to the beginning of section B “Notwithstanding section A.” Or you could add to the beginning of section A, “Subject to section B.” It would be redundant to add both. (Nevertheless, both phrases were used in the provisions at issue in this litigation.)

That’s a simple enough concept, but it’s not what’s expressed in Professor Coates’s report. From what I can tell, lurking in Professor Coates’s report are two distinct points.

“Notwithstanding Anything in this Agreeement to the Contrary”

First, when in the first paragraph quoted above he refers to avoiding the need to “review every provision of every related agreement every time a new change is made,” he might be alluding to use of the phrase notwithstanding anything in this agreement to the contrary.

In that it indicates that the provision in question trumps everything else in the agreement, that phrase does indeed apparently spare the drafter from having to figure out how that provision relates to others, if at all. Often it’s thrown in, as insurance, even if the drafter is unaware of any nexus with any other provisions.

So the phrase has expedience going for it, but I recommend that in general you avoid using it. To reduce the chance of a drafting error, and to make life easier for the reader, it would be best to determine whether the provision in question in fact needs to trump another provision and, if it does, to specify which provision.

As to whatever else Professor Coates might have been aiming at in the paragraph in question, I was confused by his saying that phrases such as notwithstanding and subject to “allow the parties to … avoid the need to attempt to synthesize every provision of every related agreement that is or may be partly or wholly in conflict with the provision in question.” If provisions are in conflict, I don’t see how synthesizing—did Professor Coates mean harmonizing?—them could be an alternative to flagging which takes precedence.

What a Reader Would Have to Read

Second, regarding the issue of economy (which Professor Coates addresses in the second paragraph quoted above), if you tack on to the front of a given sentence the phrase notwithstanding anything in this agreement to the contrary, then any reader could, to use Professor Coates’s phrase, “simply look at the one sentence to see the meaning of the change.” (As mentioned above, that expedience comes at a cost.)

But more generally, if section A begins “Subject to section B,” a reader would need to read both section A and section B to understand the meaning of section A. The same would apply if section B were to begin “Notwithstanding section A.”

The Relationship Between “Notwithstanding” and “Subject To”

Regarding blacklining economy (which Professor Coates addresses in the second paragraph quoted above), if one were adding section B, including in section B “Notwithstanding section A” would indeed allow you to make just one change. But if you were to add section B and then add “Subject to section B” at the front of section A, you’d need to make two changes.

Unless I were facing a deadline crisis, I’d always opt for adding subject to. That’s because notwithstanding undercuts, at a remove, some other provision in a contract. As a result, a reader might well read the provision being undercut without realizing that it’s trumped by another provision. Using subject to signals to the reader that if the reader wants to know the full effect of that provision, he or she would need to read the provision that trumps it.

Chancellor Chandler’s Response

Chancellor Chandler’s decision on Professor Coates’s report contained the following footnote (citations omitted):

Remarkably, in his report, Professor Coates appears to excuse practices that can only be described as inartful drafting as “one of the ways that the parties [to buyout negotiations] commonly economize on time and costs.” Professor Coates states that the parties, in contravention of basic principles of contract interpretation and drafting, use certain phrases (e.g., “subject to” or “notwithstanding”) so as to “avoid the need to attempt to synthesize every provision of every related agreement that is or may be partly or wholly in conflict with the provision in question.” Not surprisingly, disputes often arise precisely because of provisions that are “partly or wholly in conflict” with each other.

Chancellor Chandler could have focused simply on the notion that when M&A practitioners add to a contract a provision that renders another provision meaningless, it’s customary to retain the now-meaningless provision. But I suspect that the generalized and rather confusing nature of Professor Coates’s report lead Chancellor Chandler to say something debatable—that it represents poor drafting to use phrases such as notwithstanding and subject to to indicate which among two or more conflicting provisions takes precedence.

It would be unreasonable to think that one could draft and negotiate contracts without at some point needing to include provisions that conflict—that’s an invetable part of any kind of writing.

The drafter should accept that and instead focus on weeding out any conflict that’s avoidable (namely by deleting any meaningless provisions) and on expressing as efficiently and clearly as possible which provision takes precedence. I’ve offered some suggestions above. MSCD 9.30–9.38 offers some additional detail.

By the way, this post simply represents my attempt to determine how Professor Coates’s report relates to my understanding of notwithstanding and subject to. Given that his report represents the highest-profile discussion of these phrases that I’ve encountered in a while, I thought it worth looking into.

URI sued the RAM entities for having bailed on a $4 billion deal to acquire URI. The RAM entities claimed that URI couldn’t force them to consummate the merger; instead, under the merger agreement URI was entitled to only a $100 million breakup fee.

The suit was brought in Delaware Chancery Court, and last week Chancellor Chandler issued his opinion, in which he found in favor of the RAM entities.

But the holding is of less interest to me that the underlying drafting issues. In that regard, here’s my verdict—What a fiasco!

The Provisions in Dispute

Rather than force you to wade through the dysfunctional language of the merger agreement, here’s a drastically boiled-down version of the provisions that gave rise to the dispute (the text in bold italics is verbatim):

A. URI is entitled to specific performance to enforce RAM’s obligations under this agreement. This section A is subject to section B.

B. Notwithstanding section A, URI’s right to terminate the agreement in specified circumstances and its right to receive the breakup fee will be URI’s only remedy for any damages it suffers as a result of that termination. Whether this agreement has been terminated or not, RAM will not be liable for any damages in excess of the breakup fee and in no event shall [URI] seek equitable relief or seek to recover any money damages in excess of such amount from [RAM].

The court was faced with determining how these two provisions relate to each other.

URI’s Argument

URI argued that under section A, it was entitled to specific performance—it was entitled to force RMA to consummate the merger.

Doesn’t the first sentence of section B say that the breakup fee is URI’s only remedy? URI argued that it does not—that the breakup fee only served as the exclusive remedy on termination, and neither side had terminated the agreement.

But doesn’t the second sentence of section B say that URI isn’t entitled to equitable relief? URI argued that the closing modifier in excess of such amount modified not only the phrase seek to recover any money damages but also went further back up the sentence and modifed the phrase seek equitable relief, meaning that URI was only precluded from seeking equitable remedies that include monetary damages in excess of the breakup fee. (Our old friend syntactic ambiguity rears its head.) URI argued that this reading was required because otherwise this sentence would render section A devoid of meaning.

URI also argued that if the RAM entities had wanted to eliminate URI’s rights to specific performance in all circumstances, it could have simply stricken section A.

The RAM Entities’ Argument

For its part, the RAM entities argued that if it had been intended that operation of section B would apply only if the merger agreement had been terminated, it would have been redundant to say in section A that the specific performance provisions of section A were subject to section B—specific performance wouldn’t have been available in those circumstances, as one cannot specifically perform an agreement that has been terminated.

The RAM Entities also argued that would be unreasonable to limit the phrase “equitable relief” to those equitable remedies that include monetary damages.

The Holding

The court concluded that the arguments offered by URI and by the RAM entities were both reasonable as a matter of law, and that as a result summary judgment would be inappropriate.

Instead, the court considered extrinsic evidence to ascertain the meaning of the merger agreement. URI bore the burden of demonstrating that the parties intended that URI be entitled to specific performance. The court held that URI failed to meet that burden.

Let’s look at what the lawyers might have done differently in terms of drafting language or revising language drafted by the other side.

URI Drafting Failures?

I’m not sure that URI’s lawyers could have done much to ensure that the provisions clearly had the meaning sought by URI. For one thing, the current language of section B does tie the breakup fee to termination. The problem wasn’t with the language so much as the idea—having payment of the breakup fee occur only on termination was evidently too restricting.

And URI’s lawyers could have structured the second sentence of section B to make it clear that the restriction was on equitable remedies that include monetary damages, but that too seems an unlikely idea.

So from URI’s perspective, the problem went beyond drafting. That being the case, it’s no surprise that the court found in favor of the RAM entities.

RAM Entity Drafting Failures?

By contrast, deleting section A would have spared the RAM entities the lawsuit. According to the RAM entity view of things, section A was meaningless. If you allow a contract to contain meaningless language, you’re leaving yourself open to unpleasantness down the road.

Lawyers for the RAM entities could also have insisted on a more sensible regime for payment of the breakup fee, rather than having it artificially tied to termination.

And they could also have structured the second sentence of section B so as to preclude the interpretation that URI sought.

The Real Culprit

URI’s counsel was Simpson Thacher—enough said. They prepared the first draft of the merger agreement. The RAM entities were represented by Lowenstein Sandler, a well-known New Jersey law firm. Simpson Thacher’s presence at the table indicates that this was high-stakes M&A.

So how did it come to pass that the lawyers failed to produce an agreement that reflected a meeting of the minds on so important an issue?

I think the fault lies with how even the most exalted law firms go about generating deal documentation:

• First, start with precedent contracts generated by a haphazard process of accretion and without recourse to any set of rules.
• Second, have the drafting done by junior associates who have learned by osmosis rather than through any structured process. One can count on them to regurgitate, on a wing and a prayer, the language of precedent contracts.
• Third, have the drafting reviewed by senior associates and partners who have never had to measure their drafting against any objective standards. Generally they’re serenely confident of their superior talents and immune to suggestions that their documentation is flawed.
• Fourth, in revising contracts during the course of negotiation, shoehorn the revisions into the existing language, no matter how cumbersome the result.
• And fifth, do all this at a breakneck pace that precludes measured reflection.

The result is that you end up wallowing in verbiage of the sort excerpted in Chancellor Chandler’s opinion. It’s no surprise that lawyers lose control of deal documents.

Some might be inclined to shrug this off, on the grounds that the deal’s the thing and that it’s naive to think you can capture it in the contracts. A post on Concurring Opinions discussing the URI-Cerberus litigation exemplifies this approach:

[L]awyers, for all their pretensions of being at the center of a deal are often flies swarming around the galloping steed that is the deal itself, and the focus on the contract as the source of the problem is merely a fly’s-eye view.

…

Perhaps it is because I have actually been in the shoes of an M&A lawyer trying to craft a linguistic solution, or have been the client of M&A lawyers trying to craft linguistic solutions for me, that I chuckle at the charges of “sloppy drafting” as though lawyers have the absolute power (a reductive, rational, scientific, but unrealistic assumption) to control all outcomes through language. One of my rules of thumb in negotiating language was to change as little as possible to achieve the desired outcome. That’s an art not a science, and Cerberus’ lawyer’s judgment ultimately bore out in this case. Who knows what would have happened if he tried to make the change by deleting rather than trumping?

This sort of reasoning attempts to rationalize dysfunction. For my part, I’m confident that if I can’t control all outcomes through language, I come pretty darn close, a lot closer than Simpson Thacher and Lowenstein Sandler did in this case.

What Are the Prospects?

In this October 2006 post, I suggested that when it comes to contract drafting, law departments are more open to change than law firms. I’ve seen nothing since then to change my opinion.

But I noted with interest an article in the current issue of The Metropolitan Corporate Counsel by Robert A. Profusek and Lyle G. Ganske, co-chairs of Jones Day’s M&A practice. It’s entitled It’s Time to Rethink the Lawyer’s Role in Dealmaking: Start by Facing Up to the New Realities. In it, Profusek and Ganske in effect suggest that dealmaking has become a sterile exercise in scrivening, and that instead M&A lawyers should focus on what really matters in a deal.

Here’s what they propose:

In sum, we think of it this way: The old legal rituals should not be permitted to obscure actual thinking and foresight. We need to clear the way for the stuff that’s really important. At Jones Day, we have started moving in this direction already. We are spearheading an initiative to rethink deal documentation fundamentally, and we intend to invite other leading firms to join our effort. Our goal is to come up with an entirely new documentation regime – a regime that builds on the realities of today’s environment and requires that people think through what clients really need. Our goal is to come up with standardized base documents, and common language, that can be used in any transaction, whether it’s a merger, a loan, or a capital markets event. That way, we’ll free ourselves to think about the business purpose of a deal, rather than its paper trail.

It certainly sounds laudable. But to increase the chances of success, any fundamental rethinking of deal documentation should be really fundamental—it should take into account the five factors mentioned above.