By George M. Taylor, III – Burr and Forman LLP
In addressing conflicts with other counsel over contract language, I frequently go back to a lesson that I learned early in my career. At that time our now 350-lawyer firm had only 32 lawyers. No lawyer was particularly specialized, and we all pitched in where needed, particularly those of us who had not been around very long.
We were working on a loan transaction for a bank client who had come to us after failing to get a deal worked out with one of our competitors. The controversy was all about contract language, which put the lawyers front and center. Folks who think lawyers just put deals together once the terms are set probably have not seen a deal fall apart solely due to lawyers being unreasonable. The prior lender had refused a request to remove the jury trial waiver – if my client made that decision, we would likely lose the deal as well.
The 12-person jury is a staple of American jurisprudence and sets our system of dispute resolution apart from that of many other countries. The jury system is designed to put decisions regarding facts (as opposed to law) in the hands of our peers, who theoretically are as well-suited as a judge in making such decisions.
However, as our country has evolved and controversies have become more complex, many business people have developed a decided preference for having cases decided by a judge, not a jury. The thinking is that a judge is better armed to deal with numbers and complex clauses and will consistently yield a result more in keeping with the original intent of the parties.
The particular circumstance I reference is a case where a borrower approached a bank for a loan and was presented with “standard” documents for borrowing, which included a jury trial waiver. The potential borrower, who had immigrated here from a European country, and, after great effort, had become a naturalized citizen, refused to permit the waiver clause in the document.
His explanation for his position was solid – he had gone to great lengths to obtain the benefits of U.S. citizenry, including the right to a jury trial, and was unwilling to relinquish them simply because of what he considered to be an arbitrary bank policy.
As mentioned, my client was the second bank to consider the loan and, like the first bank, had a very strict policy requiring the inclusion of a jury trial waiver in loan documents. However, my client did something that the first banker did not do. He asked our firm for a detailed analysis of what the clause meant and what would be lost if it were deleted.
At that point, I explained to our client that while in any given case the jury trial waiver could be very important, a very small number of bank loans actually go into default (at the time, something like two percent), which meant that in 98 percent of the cases it would make no difference. To analyze further, I pointed out the need to consider the following:
- The likelihood that litigation would be instituted as a result of the default (say 50 percent, with the other half being worked out without litigation or bankruptcy), and
- The likelihood that once instituted, the case would go all the way to trial (95 percent of instituted litigation either settles or is disposed of via summary judgment).
By doing the math, you reach the conclusion that there is a .05 percent chance that it will matter whether there is a jury trial waiver in the document in any particular case. This does, in a sense, beg the question because the presence or absence of a jury trial waiver might shift the bargaining position of the parties and this might affect settlement terms, but the basic analysis is sound.
You wind up with a compelling argument that the jury trial waiver in any particular case will have very little impact on the lender. On a system-wide basis, the policy could have a huge impact, because with thousands of loan defaults there is a strong likelihood that it will be critical in one or more cases. However, waiving the policy in a single instance is not likely to have an impact.
The purpose of these observations is not to argue for or against jury trial waivers in documents. They have become very standard in acquisition documents and are even being replaced entirely in some agreements by arbitration clauses.
Rather my point is two-fold: First, no client or lawyer advising a client should ever take an absolute position with respect to a contract clause that is not central to the terms of the transactions. There is never a case (other than some combination of pride or arrogance) for letting a deal fall through based on boilerplate language.
Even more important is the second point: It is the lawyer’s role in automotive acquisitions to advise the client as to the meaning of language, not to make decisions about whether to include it or not. Any lawyer worth his salt should be able to articulate the precise reason for each and every clause in an agreement. Arguments based on language being “standard” are not enough to support a position. The lawyer’s role is to inform and to advise – it is the client’s role to decide.
After listening to my explanation, the bank officer decided very wisely that the jury trial waiver was not central to the transaction or likely to have an impact on the relationship of borrower and bank down the road. While I was unable to guarantee that at some point we might not regret going forward without the clause, there was a calculated risk to be taken.
The bank officer listened to the analysis and made the decision. Both lawyer and client fulfilled the proper role, and as a result the bank was able to start a very beneficial relationship with the client that lasted for years.
My advice to you is simple. Let lawyers be lawyers and clients be clients. A documentation decision that might kill an acquisition should be the subject of the lawyer’s advice, but the client’s decision. The pair of minds, working in their proper roles, ultimately has the greatest chance of choosing the path that is ultimately most likely to be best for the client.
George M. Taylor is the chair of Burr & Forman’s Corporate Section, which consists of the Corporate and Tax practice group, the Banking and Real Estate practice group and the Creditors’ Rights and Bankruptcy practice group, encompassing lawyers from the entire five-state footprint of the firm. He can be reached at (205) 458-5254 or gtaylor@burr.com.
