Stray Thoughts on “Efforts” Provisions in Cooper Tyre v. Apollo Tyres

I’ve had occasion to consider the dispute between Cooper Tyre and Apollo Tyres, as the Wall Street Journal asked me about the efforts language at issue.

That’s something that Steven Davidoff considered in this recent item in the New York Times Dealbook:

Section 6.3 of the acquisition agreement requires that Apollo “in the most expeditious manner possible” use its “reasonable best efforts” to obtain all necessary consents “under any applicable laws.” This provision, which is in every acquisition agreement, generally requires Apollo to obtain regulatory clearance for the transaction for things like antitrust approvals. That is what obtaining consents under “applicable laws” refers to.

Section 6.12 of the acquisition agreement requires that Apollo use its “reasonable best efforts” to obtain all third-party consents that “may be required in connection with the consummation of the merger” based on the terms of any contract set forth on an undisclosed schedule to the acquisition agreement.

This provision is meant to deal with consents to outside parties, like provisions in contracts requiring consent for their transfer.

The big difference between the two provisions is that Section 6.3 requires that the party to act “expeditiously” while Section 6.12 does not.

MSCD 8.48 has some bearing on this:

[I]mposing on Acme an obligation to use reasonable efforts to sell widgets doesn’t make sense unless you indicate how many widgets it must sell, and how quickly. And that imposing on Acme a reasonable-efforts obligation to file a registration statement doesn’t make sense unless you include some indication of how soon it has to file it. For purposes of an obligation to use reasonable efforts, always incorporate a standard for measuring performance. A vague standard—for example, one using promptly—would be sufficient.

By that standard, section 6.12 of the merger agreement has more teeth. (Go here for the merger agreement.)

While we’re on Cooper Tyre, “reasonable best efforts” is an awkward hybrid. And note how sections 5.1(a) and 5.1(c) of the merger agreement use “commercially reasonable efforts,” whereas elsewhere the phrase used is “reasonable best efforts.” Furthermore, a trivial but still annoying bit of variation is that some references are just to “reasonable best efforts,” whereas others are to “its reasonable best efforts” and “all reasonable best efforts.”

So evidently what we have here is another embarrassing BigLaw copy-and-paste palimpsest. I assume it was drafted by Apollo’s counsel, Sullivan & Cromwell.

Posted in Selected Usages | 2 Comments

  • timhadley

    It might not be a copy-and-paste discrepancy. It’s just as plausible that the discrepancy was typed in word for word. This was probably a heavily negotiated document. It’s very common for someone proposing revisions to a draft contract to do so without paying attention to the way other, similar provisions were drafted. When those provisions aren’t side by side — sections 6.3 and 6.12 were separated by 13 pages — it becomes less likely that reviewing lawyers will catch the usage inconsistencies that have been introduced.

    However, though the mechanism may be different, the underlying trade-off, in which consistency is traded for speed in turning drafts around and wrapping up negotiations, is probably the same as what you find in copy-and-paste scenarios.

    It occurs to me that although I would never advise a client to accept an obligation to do anything “in the most expeditious manner possible,” because of how vague that phrase is, I can imagine being overruled on something like that by a client who really wants to get the deal signed.

  • AWrightBurkeMPhil

    In Connecticut, the state courts tend to condense the several standards of proof into just four: probable cause, preponderance, clear and convincing, and beyond a reasonable doubt. The third one, “clear and convincing,” has numerous variations all over the state statutes, but the courts read them all to mean the same third-level standard.

    In the “efforts” context, perhaps judges, to save themselves pretzel gymnastics, will downplay the canon that if you use different words, you must mean different things, and just interpret all these variations as belonging in one or another of just a few boxes.

    If memory serves, the general MSCD approach is to use a concise general term (‘reasonable,” “promptly”) coupled with something specific when it matters (“but in no event more that two days later,” “reasonably necessary repairs not to exceed a cost of $1,000″). That way you run the risk of how a court will interpret the general phrase, and you attempt to limit that risk by drawing boundaries.

    Where regulatory approvals are concerned, that general approach may not help much. It’s easy to come up with general terms like “shall diligently pursue,” but hard to figure out boundaries that make sense in the world of bureaucracy.