Law Offices of Vance R. Koven | Latest Blog

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Law Offices of Vance R. Koven | Latest Blog

Know your exposure!

Saturday, April 18, 2015

"You're over-lawyering it!" is one of the most common complaints leveled by a client's representative at a transactional attorney. What usually precipitates the comment is when the lawyer returns an agreement drafted by the client's counter-party and the lawyer has lavishly decorated it with comments and edits.

It can be quite dismaying to see such a document; it means that the negotiating road ahead may be steep and rocky, with the date of signature not right around the corner, and a very real possibility that there won't be one at all if it turns out there are fundamental impediments to agreement.

And yes, there is such a thing as over-lawyering, by which I mean insisting on lots of trivial changes in proportion to the overall value of the deal, but whether it is so in any instance is not a matter of whether the lawyer's comments do or don't involve the major "deal points" on which the commercial representatives of the parties have agreed. There's a lot of risk lurking in the "boilerplate" and in contract language that appears bland and anodyne on the surface.

Sometimes the "over-lawyering" charge arises even in large, complicated agreements where the counter-party has major bargaining power and the client is trying to get a foot in the door; this is especially true when the larger party--in my experience more likely than not the customer--is a foreign entity. It lays down a behemoth of a contract, with onerous terms that sometimes seem to have nothing to do with the deal, to which it either says or implies that the pipsqueak supplier must submit meekly. The client then says to the lawyer, "yes, the terms are tough, but what can we do? As long as they've agreed to our price (or we have agreed to theirs), we can just do what we said we'd do and we'll be fine."

The person who makes a remark like that is either naive or cynical. Which it is depends on how long that person expects to be employed by the client. Landing a big sale, with tantalizingly large gross revenue numbers, dances visions of bonus-plums in the sales exec's eyes, and if the nasties come back to bite, it won't be a) until the exec is gone or b) not charged to his or her budget. In these cases, pointing out the risks to keeping the revenue that the top line promises is what turns all those gaily colored edits into very proper lawyering indeed.

For example, I've seen contracts in which the customer blandly states that the supplier will design its product to be "state of the art." That sounds like the kind of marketing hype the supplier routinely puts in its sales literature, so why not repeat it in the contract? Because a phrase like that can be interpreted to override the exacting specifications that the contract contains, that's why not. And another clause I've seen is where the customer gets the supplier to agree to cooperate with the customer's satisfaction surveys (so far so good), and then to do root cause analysis and implement corrective action if the survey shows widespread dissatisfaction. Well, whoops, what were those specifications for? If the product meets them, and hasn't broken with respect to them, whose fault is it that the agreed feature set isn't what the end customer prefers? And who pays when new features are required?

This sort of thing comes up in contract negotiations everywhere, but it becomes especially problematic in deals between American and foreign companies. Americans (and to some extent the British) have a well-deserved reputation for padding contracts with an inordinate amount of detail, because our legal system emphasizes freedom of contract, and there are relatively few statutes that supply "background" rules that contracting parties internalize. But foreign parties, whose legal culture differs in that respect, often make it practically a fetish to pound out every possible wrinkle in a contract when they know the contract will be subject to Anglo-American common-law principles. Thus, challenging some of these overbearing clauses can be tricky, since the people drafting the agreement (the foreign parties) are less comfortable with the drafting process in the first place, and take any request for change as if it were an insult to their dignity. A fair degree of diplomacy, combined with dogged insistence, will be necessary to get the document to the desired degree of suppleness and fairness to both parties.

The client's nerves will need to be strong, but the end result will be a document that clearly shows where the risk factors lie that could turn profit into loss, and how the client can avoid "gotchas" and plan the proper implementation of the deal it thought it was getting. That's not over-lawyering, that's doing the job.