Fucking Sue Me (2011)

I recall a study somewhere (can't find it now, unfortunately) that concluded: it's not actually that entrepreneurs are people who intentionally take bigger risks than others. It's that they have so much self-confidence that they believe things are less risky than they really are -- somewhat self-delusional, perhaps? But hey, that's how things get done.

But you have a classic agency problem. It's in the lawyers interest to spend 20 hours, both because it increases hours and because that minimizes his chance of being wrong. It's probably in the client's interest to go for the 10 hour solution, because whatever risk is created by those unexplored avenues is likely outweighed by the extra time and cost.

Importantly, the threshold of risk is lower for the lawyer than for the client. Say one of those unexplored avenues requires delaying some deal by 2 days. That delay may be monetarily inconsequential to the client but is stinging for the lawyer because has advice has been found wanting, and that jeopardizes the client relationship.

Otoh if you take away that "pay for time" aspect you end up with someone who might be likely to cut corners because they are being compensated in a way in which they are disadvantaged if they spend more time than they need to.

After all you did also say: " They do not gouge too aggressively - after all they want future billable hours" so there is some "governor" on the process that prevents them from eating like a goldfish with unlimited food supply.

One of them basically just negotiated his own payment into contracts. He negotiated an extra $8,000 on a contract. His bill was $8,000. What a coincidence!

Another lawyer I had was so busy she just wanted to get in and get done (this was a more boilerplate contract as well). Her total was like $200 which was ridiculously cheap. But I don't think she did much other than make sure all the pages where there.

I'm sure most lawyers want to reach an appropriate balance. But that may not necessarily be appropriate amount of risk for you. It may be the appropriate amount of billable hours for them.

From a lawyer perspective, a written contract may have all sorts of areas in which it falls short of an ideal in capturing all key issues potentially affecting a client. There are recitals (defining factual context), covenants (setting forth promises), conditions (defining when an obligation kicks in), and (often) representations and warranties (defining the extent to which parties stand behind what is purporting to be sold, etc.). In any of these areas, a lawyer can potentially find things that are inconsistent with what a client says the deal is supposed to be. Sometimes this happens because of unequal bargaining power, where a big company essentially presents a host of oppressive boilerplate terms and conditions as "take-it-or-leave-it" items. Other times, it happens because of what I call "slicko" tactics by the other party, where something that appears to say "x" in fact has a legal meaning of "not x" owing to the use of weasel wording and the like. Still other times, it happens because entrepreneurs are trying to cobble together their own contract by picking and choosing what sounds good from others they have seen and, in the process, failing to ensure that things don't conflict with each other or perhaps just omitting to address key legal issues by having put an exclusive focus on the business issues. Finally, it can come about simply because of either poor drafting by a lawyer on the other side or simple attempts by a party to overreach.

When you see this as a lawyer, what do you do about it?

First, the final say on such issues belongs to the client and not to the lawyer. So, after a high-level assessment, you talk with your client, explain the general range of issues and problems, and get direction on the desired level of response. Is the deal such as even to warrant legal review? Is it to be a high-level review only, just enough to let the client know what key risks exist and to address only egregious things that go to the heart of the deal? Is it to be comprehensive to try to catch and fix everything that is even potentially material, even if it deals only with issues that are highly unlikely to arise? Or is it to be something in between? This need not be an elaborate discussion and often takes only a few minutes. But it is vital to the process because it lets the client make an informed choice about how to proceed with the legal review.

Having gotten client direction, it is still important in all but mega-deals to keep a sharp practical focus in doing a review. What good is it to do a scorched-earth review and markup if the result will be overkill that is likely to alienate the other side (some lawyers who do this do deserve to be called deal-killers)? It really is poor business lawyering simply to proceed unthinkingly and one-dimensionally in every case to review and mark up everything no matter how remote the risk or how likely it is to be material. There is a dynamic to negotiations and nothing galls the parties more than to have to sort through a lot of lawyer comments over what they see as non-essential points for their deal.

On the other hand, it never pays arbitrarily to cut corners in doing a review. Just because a client says "spend no more than an hour on this" doesn't mean a proper review can be done with such bounds. If a lot is at stake, and a client is just being penny-wise and pound-foolish, it is better not to do the review at all than to gloss over all sorts of serious problems in the name of economy.

The lesson from this piece, to me, is that entrepreneurs can do well in keeping a sharp eye on the practicalities of managing their business opportunities and they should not let lawyers get in the way of that. A related lesson, in case a lawsuit ever did result on signing any complex contract blindly, is that entrepreneurs can act foolishly in casually inviting lawsuits by failing to manage the legal review process at all and simply signing complex contracts as is. The net of this is: use your lawyers in proper cases but make sure to use lawyers who have a good practical focus in addition to legal skill and then manage that relationship to get what you need from the services for your deal. In any deal that really matters, it is usually a mistake to proceed without lawyers and it is an equally big mistake to give the lawyers sole discretion in how to do the project. Be proactive and smart in this, just as you would be in making any other business decision.