Patrick Baldwin and Rachel Jones had a problem. They wanted to talk liabilities — specifically, which liabilities would transfer to their private-equity client should they move ahead with a $50 million purchase of a folding trailer business. However, their counterparts in this negotiation weren’t interested in discussing liabilities or other details just yet. They wanted to get a feel for how serious the buyer was about the purchase, particularly since the sellers were in tight financial straits.
“We need a letter of intent” before getting into the minutiae of the deal,” said April Finn, representing the seller with Jennifer Langley. “We just want to make sure this isn’t a wild goose chase.”
Jones, with a penchant for authoritative hand gestures, stood her ground and steered the conversation back to liabilities. “How interested are we? It depends on the price and what we’re buying,” she said. Jones explained that her client’s $50 million offer assumed that the business will come free and clear of liabilities.
With their dark suits and legal pads, Jones and Baldwin looked the part of corporate attorneys trying to reach a business deal. In reality, they are both 3Ls at the University of Georgia School of Law. Their negotiation took place not in a gleaming law firm office but in a conference room at the Drexel University Earle Mack School of Law in Philadelphia last month. Jones and Baldwin’s negotiation session with Finn and Langley, students at Washington and Lee University School of Law, was part of a law school competition focused on transactional skills — the dealmaker equivalent of moot court.
The first-of-its-kind transactional lawyering competition, which drew 12 teams from 10 law schools, was part of a fledgling movement among legal educators to better prepare students to be dealmakers. “Law school does a terrible job of teaching people how to approach legal problems before they happen,” said Drexel law professor Karl Okamoto, who spearheaded the transactional law competition. “We’re very good at teaching people to figure out how to beat each other up over what has already happened.”
Okamoto teaches a transactional law course that places students in the role of dealmakers, in which they must anticipate legal problems and create agreements that avoid those pitfalls. When his students expressed a desire to put their newfound transactional skills to the test — much as would-be litigators do in moot court — they came up empty. The American Bar Association has held a law student negotiation competition for more than 20 years, but that event is not geared specifically toward students with an interest in transactional law. “After some initial disappointment, we thought, ‘Why don’t we build one?’ ” Okamoto said.
Unlike moot court, in which students relitigate an actual case, Okamoto had to build the transactional competition from the ground up. He devised the scenario in which a private-equity firm called Chestnut Hill Capital Partners has made a preliminary offer to purchase the folding trailer business from struggling recreational vehicle manufacturer WanderWagen. Half of the student teams represented the buyer, while the other half represented the seller. Teams were given a case statement, a videotaped interview with their client and the opportunity to ask their client 20 questions to discern the client’s position and interests. Each side had certain information to which the other was not privy, as attorneys would in real negotiations.
Each team drafted and submitted a letter of intent before the competition, and those documents served as the framework for three rounds of negotiations. Teams faced off against fresh opponents during each of the three rounds, with one law professor and two practicing attorneys judging each negotiation. The students were evaluated on their professionalism, their understanding of their client’s objectives, their interaction with the opposing team and their effectiveness.
The buyer and seller teams with the highest cumulative scores faced off in one final negotiation scored by senior mergers and acquisitions partners from several of Philadelphia’s most prominent law firms. Those partners then demonstrated how they would have negotiated the deal.
“This is fantastic because it adds a practical, real world element to the law school experience that has been absent for transactional attorneys,” said Pepper Hamilton corporate associate Matt Pilcher, who helped judge the first-round negotiation between the Georgia and Washington and Lee teams. “It segues nicely with what you see in the law firm training environment.”
His fellow evaluator Justin Watkins, an associate at Drinker Biddle & Reath, agreed. “I remember being in law school and not even knowing what a transactional lawyer was.”
The team from Temple University James E. Beasley School of Law picked up on a potentially important detail: In addition to initiating a deal with WanderWagen, Chestnut Hill Capital Partners may have been in talks to purchase the folding trailer business’s competitor, Omni Sports.
That scenario could have proved dangerous for WanderWagen should the deal with the private-equity firm fall through after detailed financial information and business plans have been exchanged, said Eric Spurlin, representing the trailer manufacturer with teammate Nathaniel Morris.
“We would need to put something in the letter of intent to protect our client,” Spurlin told Baldwin and Jones.
Morris pointed out another potential problem: Omni Sports controls the brand name that WanderWagen licenses for its most popular line of trailers and was already threatening to discontinue that licensing agreement. Morris suggested terms that would bar Chestnut Hill from buying any WanderWagen competitors before the deal closed. Baldwin and Jones remained collected and focused, but the team from Temple proved a worthy adversary and retained a firm grasp on the issues at play in this proposed deal.
“We’re a private-equity firm,” Jones responded. “Purchasing businesses is what we do.” Baldwin added that he didn’t want any elements of the proposed deal to be construed as anti-competitive. He offered to enumerate a list of prohibited actions to address the seller’s concerns and move the discussions forward. It was clear that he and Jones were comfortable with the give-and-take of the negotiation process, but they stood their ground on the issues most important to their client.
Tina Stark knew she was on to something when 170 professors from 90 law schools showed up for Emory University School of Law’s inaugural conference on teaching transactional law in 2008 — an unexpectedly high turnout. The year before, Stark had established the Emory Law Center for Transactional Law and Practice, now recognized as a leader in the emerging field of dealmaking curriculum.
“Historically, the teaching of transactional law is about 15 or 20 years behind the teaching of litigation skills,” she said. “In the last five years, there has been a sea change in interest.”
That interest has translated into more transactional law courses focused on business and dealmaking principles, but law schools still have a long way to go before they are as good at producing transactional attorneys as they are at graduating would-be litigators.
“The people who started legal education, largely at Harvard in the late 1800s, developed case law,” said Jeffrey Lipshaw, a professor at Suffolk University Law School in Boston. “Law school education largely became education though reading cases. Transactional law is more akin to doing business, negotiating and compromising, than it is to finding out what the law is. Law schools have had a hard time adjusting to that.”
Stark points to traditional 1L courses on contracts law, in which students read appellate decisions to learn how to apply the law to a set of facts and create persuasive arguments. “That’s not what deal lawyers do and how they think,” Stark said. “They don’t work with static sets of facts.”
Emory offers a certificate program in transactional law that combines traditional business-oriented courses such as accounting and tax law with skills courses such as contract drafting and deals — a class that covers due diligence, letters of intent and risk analysis, to name a few highlights. Student interest in Emory’s program has been high. The same goes for the Transactional Lawyering Competition — Okamoto said that he had to turn schools away when the available slots quickly filled. Emory’s second transactional conference will be held June 4 to 5, and Stark hopes for even higher attendance than last time.
Although interest is growing, the burgeoning transactional law education movement faces a significant hurdle in law school faculty hiring habits. Law schools tend to hire professors who went to a top law school, completed a clerkship and spent two or three years at a prestigious firm, often in the litigation department. Too much experience as a practitioner is frowned upon, but it’s experienced dealmakers who are the ideal teachers for transactional law courses, a number of law professors said.
Additionally, transactional law courses are time-intensive for instructors and require a low student-to-faculty ratio because they often involve elaborate simulations of business deals. They are expensive for law schools to mount and the time commitment makes it difficult for instructors to publish articles — a key to attaining tenure.
“It’s hard right now,” Stark said. “There are a lot of things being done, but no magic bullet. We’re in an experimental phase.”
The pressure was on.
More than 50 law students, professors and practicing attorneys watched Jones and Baldwin from the tiers of a large lecture hall as they negotiated with the team from Indiana University Maurer School of Law – Bloomington.
Both teams dominated their competition during earlier rounds, leading them to this final-round negotiation. The team from Indiana, Casey Plant and Cole Parker, were Jones and Baldwin’s toughest adversaries yet. Unlike the other teams, Plant and Parker didn’t back away from their client’s desire for a stock-transfer transaction instead of the asset sale Jones and Baldwin were pushing. “Should we do an asset sale, you would need to substantially come up in price,” Parker said. Jones and Baldwin were reluctant to discuss any figures higher the preliminary $50 million offer.
Having reached an apparent impasse over the structure of the sale, the two teams tabled that issue. They took up liabilities, licensing and other key provisions, all while remaining cordial but firm with each other. Neither team seemed to have the upper hand as the talks wore on. After an hour and a half, the four students stood up, shook hands and awaited the decision of the attorney judges who would decide which team better represented the interests of its client.
In the end, the judges deemed the negotiation too close to call. That was perfectly fine with the two final teams, who clearly still felt the adrenaline of the talks.
“That was fun,” said Baldwin, who will join teammate Jones next year as a clerk at the U.S. Court of Appeals for the 11th Circuit. “If I didn’t know before, I now know what I want to do.”
Contact Karen Sloan at email@example.com.