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All of us in the profession have at one time or another been asked what lawyers do. There are probably as many different answers to the question as there are lawyers. But, in essence, we wonder if there is any real difference in the work of a litigator as opposed to the work of a transactional lawyer. If not, is there a role for litigators in the transactional environment? We would suggest that all lawyers do the same thing regardless of the area of expertise. The essence of lawyering is accumulating all the relevant facts, gathering the evidence relevant to prove or disprove those facts, articulating the universe of the legal implications of those facts, and assigning probabilities to the various outcomes, which might be adopted by a decision-maker. This process of lawyering for a litigator is to identify the legal options and articulate the one most favorable to his client to a judge, jury or arbitration panel. On the other hand, a lawyer culminating a transaction must identify alternatives, reach a decision with his client and negotiate and ultimately document that decision. To perform this task the transactional lawyer must complete the process of lawyering before beginning documentation. Many of us who frequent the courtroom would be inclined to identify draftsmanship to be of less value than persuasiveness. Those of us who spend our careers toiling at the task of documenting each aspect of a business transaction and assuring that all of the transactional i’s are dotted may find “argument” less productive than “negotiation” or even “draftsmanship.” In essence, however, the lawyers are performing the same tasks, just utilizing different skill sets. Were this not the case, law schools would not be producing lawyers, and a return of going to the bar through clerkship, prevalent 100 years ago, would still be the norm. The penumbra of skills is, in reality, just a series of add-ons to the essential function of accumulating alternatives and assigning probable outcomes, which is at the heart of lawyering. Those very skills emphasized by the litigator do, however, carve out a unique place for a “lawyer-litigator” in a transactional environment. Lawyers are human, and they bring to their task human frailties. Even the best transactional lawyer near the end of the process becomes invested in the transaction. He will suffer from pride of authorship, a not uncommon fault. Litigators, when introduced into the transactional environment, do not suffer from this pride and investment in the deal. Litigators are generally people who have spent their careers finding out what is wrong with the deal. They identify the defects in the documentation. Litigators are frequently described as the businessman’s worst enemy because of what is viewed as a negative mindset. DEVIL’S ADVOCATE John D. Rockefeller was once quoted as saying he preferred a particular lawyer because “he does not tell me what I cannot do, he tells me what I must do in order to accomplish what I want to do.” To the transactional lawyer the importance of this role should not be minimized. But making the deal happen is not the sole function of a lawyer in a transactional environment. The deal must make sense on all business levels to the client and be at the right price. The lawyers must make the deal as unassailable as possible, in the client’s interest. The hard questions are frequently best conceived and blithely asked by the litigator, the true devil’s advocate. The advantage of introducing a true devil’s advocate to the transactional environment should be obvious. For if the transaction is going to be ultimately scrutinized, it most likely will be scrutinized by those of us who are most experienced in the courtroom. Given our litigious society it is almost a certainty that that scrutiny will take place either in the courtroom or in contemplation of bringing a case to a courtroom. It is there that the text of the transaction and documents will be taken apart. Accordingly, an early exposition of the weaknesses, strengths, risks, advantages and disadvantages of litigation is only moving forward that point in time in which the scrutiny will take place. Litigators in a transactional environment have the advantage of bringing a series of litigation commandments to the task of examining a transaction. They are the commandments that have served them well in the courtroom. Learning these commandments has made litigators question everyone and everything. Unlike Rockefeller, they come to the table like W.C. Fields, trusting everybody but “cutting the deck.” A view of the Ten Commandments of Litigators may help us understand why introducing a litigator in a transactional environment may add a value that might otherwise be overlooked. 1. Gather all of the facts as early as possible, separating those that are relevant from those that are irrelevant. 2. Never be surprised by a relevant fact. Never fail to consider a relevant fact. Never discard as irrelevant a fact that is relevant. 3. Establish a way of proving or disproving each relevant fact and a separate list of ways to explain facts that may be argued by your adversary. 4. Analyze the facts and identify a critical path for your side to succeed. 5. Identify the current state of the law in relation to each issue, carefully noting trends in the law, including minority and majority views. 6. Articulate the outcomes that the alternate legal implications lead to as a result of the facts, and assign probabilities to all potential outcomes. 7. Communicate the entire results to the client. 8. Communicate the results in a way that the client can understand. 9. Listen to the client and be sure you understand its business goals. 10. Repeat the process to be sure that the analysis has taken into account every aspect of the client’s aspirations. Failure to obey the Ten Commandments of litigators ensures that certain things will happen. First, it ensures that the risk of loss will be understated and the price of success will be unknown. Second, failure to follow the commandments ensures that the predictions of success or failure will be fatally flawed. Third, failure to obey the commandments almost guarantees that the client will be underinformed or will misunderstand what the risks of the transaction are. Finally, failure to follow the commandments exposes the client and the lawyers to criticism for failure to adequately assay the implications of the transaction they are about to undertake. All of these outcomes are not good for the lawyer or the client. Following the Ten Commandments will eliminate many of these bad outcomes and uncertainty. While the outcome of future litigation is never assured, understanding the probabilities is better than simple guessing. No client likes to be surprised. It generally makes them unhappy. No lawyer should ever be surprised. It generally makes them fail at their endeavors. NOTING PROBABLE OUTCOMES Following the Ten Commandments is not difficult, but it is a process. A process that is common among litigators and less frequently employed by transactional lawyers. Following these Ten Commandments is the process we call “decomposition.” Needless to say, selecting the right litigator is an important part of the decomposition process. For purposes of the analysis here, we assume an experienced litigator, familiar with decision tree analysis, probability theory, game theory and cost-benefit analysis is chosen. Taking apart the various elements of a proposed transaction, finding its weakness and communicating it effectively to a client permit the litigator to literally begin to predict likely outcomes and identify problems. Identifying probable outcomes and perceiving problems is probably the most obvious result of decomposition. There is a given universe of probable outcomes. The universe does not change but the likelihood or probability of each outcome will vary from transaction to transaction. Lawyers generally can agree on the prediction of a single fact being proven. The degree of variance on outcomes will vary more widely. As a result of using probability theory over the entire complex of factual and legal issues that are encompassed by a transaction, the differences of opinions on outcome will mathematically evaporate and the most probable outcomes will be readily and easily identifiable. But the task of decomposition does not end with identifying likely outcomes or even identifying the various probabilities assigned to them. The next value that a litigator can bring to a transactional environment is pricing. We are all familiar with what needs to be done when the summons arrives. The decomposition analysis will enable us to predict with some degree of certainty the likelihood of it arriving. But the decomposition process requires us to identify the costs attributable to the litigation, should one occur. What is the actual hard cost of litigation? Having analyzed the facts and looked at the probability of litigation, litigators should be able to predict with some degree of comfort what steps they anticipate in a litigation. For example, the cost of a case that most likely will be dismissed on a motion is substantially less than the cost of a litigation that will require a trial. Having assigned probabilities to each step in litigation and attributing costs to each of those steps, we have effectively developed a litigation budget, which is keyed directly to the possible paths the litigation will take. If this is done with probability weights, we have both a budget and an item of cost of the transaction. Why is this important in a transactional environment? The cost of litigation, if it occurs, is in fact a cost of the transaction. But, it is not the litigation budget alone that is an item of cost a litigator can best define. In the event the matter is settled, the amount of money for which it is settled is an added cost of the transaction. That quantum of dollars can be adjusted based on the probability of settlement. Thus, a case with a 50 percent chance of settling for $100,000 has a cost attributable to settling of less than $100,000. How much less is simply a matter of the probability and mathematics. But budget and the cost of settlement are not the only costs of litigation. In the event the case does not settle and is actually tried to verdict, the value of the judgment becomes a cost of the transaction. If there is an appeal the cost of the appeal becomes an item of transactional cost. The time value of money becomes an item of cost. Settling for $100,000 today has a different value to the client than settling for $110,000 a year from now. The litigator can bring to the transactional environment an in-depth analysis of these costs. Through the application of simple concepts of budgeting and game theory, litigators can help the transactional lawyer and the businessman make a financial decision on a more informed basis — the true cost of the transaction. GAME THEORY In the process of determining the cost of transactions in the context of a litigation, probability theory and decision tree analysis are the two most commonly used tools in identifying the universe of outcomes and the weight of each. There is another interactive skill that litigators have which can be of enormous value. It is the answer to the question what will our adversary do if we do such and such. In the transactional environment the litigator and the transactional attorney together have the ability to use more than sheer gut reaction to estimate an adversary’s probable course of conduct. The technique is generally described in books in the management field describing game theory. The basic rules of game theory are commonly known. Their use in a litigated or transactional environment is less frequent than is warranted. However, in estimating the likelihood of particular outcomes or the cost of reaching those outcomes, game theory is an important tool in bringing certainty and accuracy to the process. Decomposition without game theory is not complete. Game theory without decomposition analysis is not accurate. Litigators must bring to the transactional environment a combination of both. They must be willing to put aside their normal gut reaction analysis, which is of an inestimable value in the courtroom, and rely instead on the time-honored tools of the boardroom in performing their analysis. The end result of following the decomposition process and using these well-known business tools will help the litigator be better understood by the transactional lawyer and more readily accepted at the level of the board of directors. CONCLUSION What does a litigator bring to a transactional environment? A litigator brings that unique combination of skills often overlooked in the process, which takes into account the lawyer’s experience and judgment in dispute resolutions. The probability of outcomes, the cost associated with those outcomes, and the in-depth analysis or facts and legal options are the only safeguards that our clients have. Many lawyers who have spent their careers building and documenting transactions may shy away from the type of analysis that litigators do. We would suggest that in doing so they fail to capitalize on the skills and experience of litigators who are completely aware of the hidden cost of their clients’ transactions. Recently, we had the opportunity to undertake the decomposition analysis described above for a client about to entertain a major financial transaction. The cost of the transaction was initially thought of as minimal. After a decomposition analysis, the client fully understood that the largest parts of the costs of the transaction were those that were hidden within the threat of litigation. Indeed, the cost was easily twice what the client originally anticipated. Most transactional lawyers fear that this type of decomposition analysis may discourage deal-making. They are reluctant since they are in the business of helping their clients make deals happen. In reality, however, the business people who made the ultimate decision with this analysis in hand were able to adjust their fee structure and their anticipated rate of return and were able to inform their board of directors more precisely as to the likely outcomes. In essence, they had acquired power by involving litigators in their transactional environment and capitalizing on the litigator’s knowledge. Gordon Gekko taught us in the movie “Wall Street” that information is power. When a litigator has been involved in the transactional environment, the team of transactional and litigation counsel, through cost analysis and decomposition, gives our clients power. Harold J. Ruvoldt is managing partner of the New York office of Edwards & Angell (www.ealaw.com). If you are interested in submitting an article to law.com, please click here for our submission guidelines.

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