Conflict Resolution|systems design

Collaborative Law Approaches to M&A Disputes

John Levitske of Duff & Phelps, who serves as Vice-Chair of the ABA Business Law Section’s Dispute Resolution Committee, assembled a provocative panel in Chicago on the topic: “Whether Collaborative Law Can be Used to Effectively and Efficiently Resolve Post-Merger and Acquisition Disputes.”  He described it as an effort to articulate the intersection between a little-known technology and a felt business need. 

Paul Faxon of Massachusetts posed some introductory questions.  Who should be the “sovereign” of the dispute resolution process — the client, the neutral or the attorney?  When in the life of the dispute should it occur?  Should your attorney’s interests be aligned with yours?  Should the neutral be a subject expert?  Are key relationships and reputation valuable as pertains to this particular deal?  Are clients aware of the breadth of ADR options available?

Anne Shuttee explained that Collaborative Law is a tested method, first used in American family law but now accepted in many jurisdictions.  The International Academy of Collaborative Professionals noted that 86% of matters using the technique were settled, and more than 80% were satisfied with the costs and the process.  It is a joint problem-solving process (and so many business issues are joint problems) that is voluntary in which lawyers are committed to find a resolution, and are not only not retained to prepare for litigation, but are contractually disqualified from pursuing litigation in the event that settlement effort fail.  Thus the interests of lawyer and client are both aligned towards early resolution and resources are committed to settlement as a primary goal, rather than a tangential detour of a litigation effort.

Meetings involve clients directly.  They are conducted pursuant to agenda, prepared, off-the-record, and confidential.  There may or may not be a facilitator at the meetings.  Concerns and goals are identified and articulated; relevant information is gathered, including from jointly engaged experts whose reports are not prepared for use in litigation; settlement options are developed and assessed for viability; and a selection is made.  If the process fails, clients can engage trial lawyers and negotiate the utility of any of the information gained.

Paul Faxon used this process in business disputes, successfully.  He said that the use of a joint expert alone can advance the problem-solving effort and substantially reduce costs.  Parties can include certain of these steps as provisions of a deal agreement, anticipatorily, rather than waiting for a dispute to arise.

Christian Fabian of Mayer Brown is an M&A attorney who came to the concept of collaborative processes in that context.  Fabian identified five buckets of private M&A disputes:  Breaches of reps and warranties; purchase price adjustment disputes; disputes arising from expected earn-outs indicated prior to the deal; breaches of obligations post-closing (such as non-competes); and claims of intentional nondisclosure/misrepresentation (fraud).  Some of these are susceptible to collaborative problem-solving but others (such as breach of a non-compete or fraud) are not, in Fabian’s view.  Issues such as technical compliance with GAAP might be amenable.  Purchase price disputes could well be better resolved through collaboration than adversarial arbitration.  Dissolution of joint ventures seem highly suitable – they involve, at heart, a business divorce.  Fabian did have hesitations about the concept of disqualification of counsel from trial work, or ethical considerations that may be needed distinct from those that now exist.  He also doesn’t assume that the parties will always act in good faith, and wondered what the consequences may be from failure to do so.

The consequences of disqualification were pursued by the audience.  How does it work that an M&A firm can act as a collaborative lawyer, knowing that his firm would have to withdraw?  Or should a different firm be brought in to do the collaborative process, with the firm retained as M&A and also as litigator.

Christine Castellano, General Counsel of Ingredion Incorporated, noted that her company doesn’t necessarily choose her deal lawyer’s firm as litigators, and would likely retain a collaborative specialist to collaborate.  Her company has grown almost exclusively through acquisitions.  Without realizing it, she already engages in these practices.  Litigation is a loss and arbitration not much more attractive.  The company was already building “executive resolution” into its protocols, because the company relies on relationships.  Joint experts are often used outside the United States, often appointed by the court, so its use was also familiar to Castellano.

Anthony C.S. Pagano of Royal Bank of Canada echoed this experience.  His company seldom enters ripe post-merger disputes because executive negotiation is by far the most effective means to resolve business issues.  By contrast, non-competes or restrictive covenants tend not to be negotiated because of a lack of shared interest or trust.  Questions of future pay-outs and joint ventures are critical to negotiate because the relationship going forward is so important.  The disqualification procedures of collaborative law do raise an issue for Pagano, increasing cost of bringing another firm on board in the event of failure of the negotiating process.

Melissa K. Bjella of CF Industries Holdings agreed that there are concepts of collaborative law that are almost intuitively observed and practiced – using a “time out” for business people directly to work on terms of resolution, or the informal use of joint experts.  Disqualification posed problems and inefficiencies for her, too.  For one thing, collaborative lawyers’ interests are not so aligned as one would think; the collaborative lawyer has a high incentive to settle on any terms and the client wants a settlement only on acceptable terms.  The panel discussed why the disqualification principle needed to be “hard-wired” for the process to be successful.  Ms. Shuttee said that, at least in the case of family law, disqualification poses an obstacle for parties to leave the table and go to court.  By contrast, a company wants to control its business, not to achieve wins, and sitting with a collaborative counselor is often more promising than sitting with a litigator.

There may be a conceptual boundary to the applicability of collaborative law to business deals.  Disputants in family law have shared interests that can almost always be satisfied without litigation as a fallback.  By contrast, business disputes ought to be able to be settle by skilled negotiating and counseling lawyers, without the added burden and cost of a quadripartite agreement disqualifying counselors and adding costs and settlement pressures.

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