Jay Reding.com

What A Difference One Sentence Makes…

David Bernstein points to a case where a simple drafting error may have consequences in the billions:

JPMorgan and Bear were prompted to renegotiate after shareholders began threatening to block the deal and it emerged that several “mistakes” were included in the original, hastily written contract, according to people involved in the talks.

One sentence was “inadvertently included,” according to a person briefed on the talks, which requires JPMorgan to guarantee Bear’s trades even if shareholders voted down the deal. That provision could allow Bear’s shareholders to seek a higher bid while still forcing JPMorgan to honor its guarantee, these people said.

When the error was discovered, James Dimon, JPMorgan’s chief executive, who was described by one participant as “apoplectic,” began calling his lawyers at Wachtell, Lipton, Rosen & Katz to seek a way to have the sentence modified, these people said. Finger pointing over the mistakes in the contracts began as bankers blamed the lawyers and vice versa.

Everyone in law, myself included, have been bitten by the occasional typo—in a profession that produces reams of paper a day, errors are an inevitability. At the same time, it’s shocking how many blatant errors can pop up in critical documents—one would think that a deal this large would have been scrutinized many times over before anything was signed.

It just goes to show that bad documents are frequently symptomatic of bad corporate cultures: they can be the product of a corporate culture that rushes to meet deadlines, or the product of a corporate culture that is so tribal that drafters of documents don’t feel comfortable sharing their work with others to get feedback.

There’s also a lesson for the legal education community here—business schools teach working in groups. Law schools don’t. Even though most law schools push the BigLaw career track, they still tend to teach students the skills needed to be sole practitioners. Fortunately this is changing, and while it’s harder to add group work to core courses like Property or Criminal Law, it makes a difference in courses like Contracts where one attorney probably shouldn’t be drafting a contract without at least one other attorney taking a look at it. That sort of socialization is even more important when something as small as one sentence, one word or even one punctuation mark can make a difference in the billions.