Monday, October 10, 2022

Matt Levine on the culture of lawyers

 As we've said before, anyone with even a passing interest in business should sign up for Levine's email newsletter. Among his other strengths, his background as a lawyer and an investment banker allows him to supply interesting context like this.

Third, a sort of a sociological point, one that stereotypes far too broadly but has some truth to it. There are two sorts of lawyers in the world, [2]  litigators and deal lawyers. Deal lawyers do things like negotiate merger agreements and debt financing, and make sure that all the funds flows and paperwork are right for the closings of those mergers and financings. One part of their job is to think about how the other side might try to betray them, and write protections against that into the contract. But another big part of the job is to work with the other side in a cooperative way to make everyone happy, so that the deal moves smoothly and feels like, and is, a win for both sides. And then most of the time the deal closes on schedule and everyone really is happy.

Every so often a deal goes wrong, and then the litigators come in to do the lawsuit. The litigators are trying to win: When the deal has become a lawsuit, the possible outcomes are much more zero-sum than they were when it was a deal. Litigators fight. The litigators for one side send the other side discovery requests saying “send us all the documents you’ve written about this deal,” and the litigators for the other side send back objections saying “this request is ridiculous and we could never do that,” and then they go to court and fight bitterly about what documents they should send each other. That has been the main action in the Twitter case so far, arguing over documents ahead of the trial, and it is the main action of much of modern US litigation, fighting over what documents you have to send to the other side. (Deal lawyers love sending documents to the other side. The other side has to sign them!)

When a deal turns into a bitter lawsuit the litigators take over, and the deal lawyers go off and do something else. No deal lawyer is going to send a closing memo to her counterpart on the other side in a lawsuit this bitter; the litigators would never allow it. What if the closing memo gives the other side some information? What if it tacitly admits something? No, the deal lawyers are too cooperative and conciliatory to be allowed near litigation.

Most lawsuits settle, and when you negotiate a settlement you will want to have a good litigator on your side to say things like “if you don’t accept this settlement you will have to deal with me in court and you won’t like that.” But in this case, the settlement will take the form of closing a merger. And to do that, you need the deal lawyers to come back. You need them because they know the paperwork and funds flows and incantations that are required to close a merger, but you also need them because of how they work. The deal lawyers on one side send a funds flow memo to the deal lawyers on the other side, and the deal lawyers on the other side send back a note that is like “this looks good, thanks, but FYI we will have wires coming from two separate accounts, here they are,” and the deal lawyers on the first side send back a note that is like “thanks, we’ve updated to reflect that.” Litigators do not reply to discovery requests with notes that say “this looks good, thanks, but FYI you probably will want to read a few other documents, we’ve added those.”

The deep point of the stay in this case is to make the litigators go away. They have been punching each other in the face for months, because that is their job and because they enjoy it, but now they have to stop, so the deal lawyers can come back and actually close the deal. If you leave the litigators in charge of the closing, they will litigate everything. “We really punched them in the face over this closing memo,” they will say as they high-five each other. And then it will never get done.

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