Many a junior corporate associate dreams of going inhouse at one of the firm’s investment-bank clients. In reality, most of the junior-level ibank legal jobs are worse than the big-firm grind.
At least in the firm, even junior lawyers are relatively close to the top of the food chain (compared to paralegals, admins, support staff, etc.), because they’re revenue generators. At banks, lawyers are lumped in with the rest of the overhead – and treated and compensated as such. And believe it or not, the work is actually worse.
Firm lawyers in the know laugh at juniors who jump too soon, because they invariably end up spending their days “negotiating engagement letters.” Why that’s worse than due diligence is another subject…
Those engagement letters are today’s subject, because one of them will potentially cost Goldman Sachs a lot of money. Details after the jump (and the one good thing about taking the otherwise bad job).
The Deal Lawyers Blog has the story of Baker v. Goldman Sachs:
The Baker case arose out of Goldman’s service as a financial advisor to Dragon Systems, Inc. in connection with its ill-fated sale to Lernout & Hauspie Speech Products, a Nasdaq-listed Belgian company that collapsed in the aftermath of an accounting scandal that surfaced shortly after the deal was completed. L&H acquired Dragon in an all stock deal, and the buyer’s subsequent collapse resulted in a loss to Dragon’s controlling shareholders of approximately $300 million.
Dragon’s two controlling shareholders filed a lawsuit against Goldman Sachs and related entities. The plaintiffs alleged that Goldman Sachs negligently advised Dragon to merge with L & H without adequately investigating the buyer’s value. The plaintiffs made a variety of contractual and other common law claims, including breach of fiduciary duty and negligent misrepresentation, and also alleged that Goldman’s conduct violated the Massachusetts Unfair Trade Practices statute.
But the bank’s lawyer used a public-company engagement letter, and the client was a privately held company. The public-company letters have standard carveouts against third parties – including shareholders – relying on the bank’s opinion. Typically, only the board and senior management can rely on these opinions, and that’s exactly what this letter said. And here’s the gotcha! moment:
What the plaintiffs did was to simply point out to the court that one of the two controlling shareholder-plaintiffs was a member of the Board, and was thus within the group entitled to the benefits of the agreement. Goldman argued that in using the quoted language, it was referring to the board in its representative capacity. However, the court looked at some other potentially ambiguous phrasing in the engagement letter, including the fact that the letter was addressed to the shareholder-director and the letter’s use of the personal pronoun “you” instead of “the company” in describing the persons to whom it was providing its services, to justify its conclusion that Goldman appreciated that others aside from the board in its representative capacity would benefit from its advice.
That was enough for Judge Patti Saris of the to deny the defendants’ motion for summary judgment with respect to the breach of contract, intentional misrepresentation, and willful misconduct and bad-faith claims against all the defendants and the third party beneficiary and implied covenant of good faith and fair dealing faith claim by one of the plaintiffs.
Goldman is going to have to go trial over the breach of fiduciary duty, negligence, negligent misrepresentation, the Massachusetts unfair-practices claim, and the third-party-beneficiary claims by one of the plaintiffs.
Alan Cotler (Penn BS ‘72, MBA ‘74, Georgetown JD ‘77) and Joan Yue (Immaculata College AB ‘68, Suffolk JD ‘78) of Reed Smith represent the plaintiffs. (And if anyone from the firm is reading this, your attorney directory has some of the worst search and navigation we’ve seen)
John Donovan (Harvard AB ‘75, BC JD ‘81) of Ropes & Gray represents Goldman.
Neither firm was on the original deal back in 2000. Brown Rudnick’s Philip Flink (Dartmouth AB ‘78, Virginia JD ‘81) represented Lernout & Hauspie, and Sarah Rothermel (Wellesley BA ‘78, BU JD ‘81) then of Hale & Dorr (now WilmerHale) represented the sellers.
So even though spending your days negotiating engagement letters is awfully monotonous and less-than-stimulating (hell, the only real variety is negotiating the NDAs, right?), this case goes to show that you have to be thoughtful every single time.
As far as benefits go, being inhouse with the bankers is one step closer to becoming a banker. If that’s your goal and you have a strong finance background, go inhouse at a bank earlier. Otherwise your next-best shot is to make partner and go in at the MD level, when Excel skillz aren’t nearly as important.
Related posts:
Anyone with a conscience would refuse to work for those thieving banksters.
i have no conscience and I wouldn't work there.