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Joseph Catalano is general counsel of San Mateo-based Bay View Capital Corp., a publicly traded financial services institution that buys and securitizes auto loan contracts. Bay View began as a local savings-and-loan in the early 20th century, merged in 1998 with Eureka Bank and sold its branches to U.S. Bank in 2002. The company then went through a period of collecting and liquidating its banking-related assets on behalf of shareholders. Bay View currently has auto financing-related contracts in place with about 7,000 auto dealers in 31 states. Catalano also serves as president of the San Francisco Bay Area chapter of the Association of Corporate Counsel. Catalano was interviewed by Scott Graham, editor in chief of The Recorder, which publishes GC California magazine. Scott Graham: How did you get from criminal defense to being the GC of a financial services organization? Joseph Catalano: I started a law firm with a law school classmate, right out of school, in Stockton. The first time I set foot in Stockton was the day I signed the lease for the space. We felt it was a good location for two young lawyers who wanted to practice law unfettered by the burdens and trappings of a large law firm. We wanted to be independent. And we did that for six years. We had some fun, we made some money. My practice gradually moved toward real estate, and I became aware of an opportunity at American Savings & Loan, which was based in Stockton. I decided to trade the excitement of private practice for the security of working for what was the largest S&L in the country at the time. Ten days later, the SEC forced the holding company to restate its earnings. That started a roller coaster ride on which, I will say, I had the opportunity to really learn how to manage major transactional relationships with outside lawyers. We had $60 million, $70 million, $100 million dollar loans in default all over the country. And I was told, with very little direction, to go hire lawyers in Dallas or Miami or Chicago or New York and work these out — go collect them. I did that for about six years. Then I went to First Nationwide Bank, again on the real estate side, based in San Francisco. Later, Bay View was looking for a house attorney. They had a general counsel and one other lawyer, and they needed somebody with some real estate expertise. I started working here in 1993. Q. I imagine that as the company went through changes and transformations, so did the legal department. A. Since I’ve been here, the largest lawyer headcount in the department has been five. We currently have two full-time lawyers. The legal issues that arise — other than the securitization of loans, which is a fairly complex transaction — are not that esoteric. We buy loans, we collect on them. What has happened, however, is that the winding up of the liquidation of the Bay View Bank assets and liabilities has taken more of our time. There are claims from buyers or sellers of loans to us that say, “You said this loan was this, and it turned out to be this plus that, and we wanted the other.” You kind of wrestle with those things. The other thing that I think is a tremendous burden for a small company is just the fact of being publicly traded overlays everything we do. It requires quite a bit of process, particularly in light of what I consider to be a relatively knee-jerk piece of legislation. Q. You’re talking about Sarbanes-Oxley? A. Yeah. And I don’t think reactive legislation ever catches the people to whom you’re reacting because they’re always one step ahead of you. You know, they’re zagging when you’re zigging. Q. But in the meantime, there’s all this extra work that’s created? A. When you are as small as we are, the reporting requirements become disproportionately burdensome. If you’re General Electric or Citicorp, you can have a Sarbanes-Oxley department of 30 people and you wouldn’t even see it on the balance sheet. But when you’re a company of our size and you have 12 people whose primary activity is to comply with Sarbanes-Oxley, or you have your own staff plus six or eight consultants that you have to bring in to grind through the description of your financial controls reporting process, it becomes a fairly material line item in your budget. There’s also the disruption of your ability to focus on the work of the work because you are doing all that work of reporting. Q. Let’s talk a little bit about outside counsel and your two-lawyer department. How do you decide what work is going to go out and what work is going to stay in? A. Virtually all litigation cases go out. We don’t go to court. On occasion, we have received complaints and have been able to resolve them with a quick phone call, applying my theory that the first dollars are the best dollars in the resolution of any litigation case. Say the case is worth $25,000. You’d be ill-advised to pay $25,000 to your law firm and let the other side churn $25,000 on their side — especially if there’s an attorneys fees provision — take the time it takes to manage it, to go back and forth, do discovery and all the rest of it, which is an embedded cost, not a revealed cost. When I can get out of it for $25,000 on day one, I’ll do that every day of the week. Q. You mentioned you have contracts with auto dealers in more than 30 states. Do you look for law firms that have a reach into multiple states? Or are you happy to go with a different firm in each state? A. We have found that there are a number of firms that have footprints that traverse several different states. For example, we work with Reed Smith. And now, with Crosby Heafey [Roach & May] under their wings, Reed Smith has come into California. Crosby was a firm that we had known before as well. So Reed Smith is a firm we go to. We use them for the review of licensing agreements in different states. Q. What are some of the other firms that you work with? A. Buchalter [Nemer, Fields & Younger] is actually our primary licensing firm because they have a tailored sort of [arrangement] for a flat fee. We tell them what state we want to go into, and for a flat fee they’ll assess our activity and help us get licensed, which is very helpful. They have a database of all our information that’s required. Then they can just download it to the Web site [of the licensing agency]. Q. How about when your company itself has been involved in a transaction, such as the liquidation or the merger with Eureka Bank? How do you decide if and when you’re going to get outside help on transactions like that? A. We’ve used outside counsel on all the major transactions the company has undertaken, whether it’s been divestiture of the branch system, purchase and sale agreements and other such matters. We’ve used Duane Morris of Philadelphia — which also has a growing San Francisco presence — for much of that work. Q. How did you decide on that firm? A. They were introduced to us by our current chairman, Bob Goldstein, who has been doing bank reorganizations and turnarounds and who had met the Philadelphia group of Duane Morris through various relationships over the years. Bob has been in the banking industry for 35 years, and they know him well enough that they have an appreciation for the kinds of sensitivities he would want to address. They work well with him. And they’re very sophisticated and very fine lawyers. These are matters where you don’t have the luxury of making mistakes. You have to do it right. And the way to do it right is to get people who have done it before, who do it routinely and who do it three times before breakfast. Q. So the law firm’s track record in that area is important to you? A. Certainly the track record is, along with the firm’s expertise. Fees are always a factor. Even if I’m going to the same law firm sequentially, I will say, “Look, the first time you had to do this transaction, there was a learning curve. On this one, the dates are different, the numbers are different, but it’s the same structure. I don’t anticipate paying the same amount of money for this transaction.” Q. Maybe they were giving you a break the first time because you were a new client. A. Well, fine. But now it’s easier. Law firms have to survive, and we recognize that. We think that law firms have a very difficult balancing act. They want to satisfy the client but they want to keep their doors open. One of the things that I learned being in private practice before I came in-house was the fact that, however just the cause, if you can’t pay the rent, you can’t help. Q. What kinds of things might persuade you to try out a new law firm? A. I have chosen law firms on the basis of my own exposure to their lawyers, either at seminars or presentations to the Association of Corporate Counsel. That’s a great venue for lawyers to demonstrate particular expertise in an area. Other factors are reputation, what my colleagues and my peers are doing, who they’re hiring for similar problems. On a national basis, ACC has a listserv for eight or 12 different disciplines — intellectual property, litigation, licensing, trademark, etc. You can post a question — “I need a licensing lawyer in Vermont. Does anybody know one?” You may or may not get an answer, but if someone were to respond positively to a query like that, that would be a pretty high endorsement. You wouldn’t put your name out there associated with an outside law firm unless you really believed they were good. I have gotten names that way.

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