Tuesday, July 29, 2008


One of the many good things about the practice is that we get to debate and worry about matters like ambiguity.

I was reminded of this by a case I just read, where the lawyer warned the client that some contract language was ambiguous. The client said don't raise it now, we are close to signing, it might change the deal, we are better off with the ambiguity than losing the point now.

So the lawyer went along, and later even took a position in court to support the client, and ultimately the client lost over the ambiguity. And so sued the lawyer. And the lawyer settled for seven figures.

As to ambiguity:

The second-trickiest part is to recognize it. In negotiations an awful lot of things become part of the deal's culture, shared understandings of what is meant, what will be done, etc. So the writing may not completely capture the idea, but because of deal fog no one sees the gap or the double meaning. Until later, when others read the same language and put their spin on it and take it to a judge who may never have done a deal in his or her career.

The first-trickiest part is how to handle it. The East Coast lawyer's approach is to raise any ambiguity and resolve it, in almost every case. I used to be contemptuous of this, thinking it unsubtle. But the longer I'm around the more I think it's right. Swat all the flies you can see. There will others you've missed. And if the client insists on an ambiguity, put a note in the file. It won't protect the client but it may protect you and your firm.

Finally, the interesting extra-credit question. Where does an ambiguity sit with respect to a party's representation - or his lawyer's opinion - that the contract is enforceable according to its terms?


Friday, July 25, 2008

What happened to the Clayton Act?

The Clayton Act makes it unlawful for one corporation engaged in commerce to acquire the stock or assets of another, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly. InBev, the world’s second-largest brewer, is on the verge of taking over A-B, the third-largest, and which has nearly 50 percent of the US market, to create the world’s largest brewer.

Any fair-minded reading of the Clayton Act would say that the InBev transaction violates the plain terms of the statute. The Supreme Court, in U.S. v. Pabst Brewing Co., 384 U.S. 546 (1966) upheld a challenge under the Clayton Act to the acquisition of Blatz, the eighteenth largest brewer, by Pabst, the tenth largest.

Clearly Pabst has been the subject of considerable modification in subsequent cases. But it has not been overruled, and the Clayton Act has not been repealed.

What we need is a complete rethinking of the Clayton Act, to get back to its essential purpose of stopping the undue concentration of economic power. Making this happen would require top-notch lawyering, out-of-the-box thinking, maybe a good measure of luck, and probably a well-funded parens patriae action. But I believe it is not impossible.

Of course I am partisan. I love St. Louis, Missouri, and for its sake I hate this deal. Is St. Louis better off after the acquisitions of Ralston Purina, TWA, McDonnell Douglas, Boatmen’s Bank, May Department Stores… this depressing list goes on and on. All of these transactions raised legitimate antitrust concerns. None were stopped, or even slowed down.

I know that the Clayton Act is not the Save St. Louis Act. But what we are talking about is the use of mergers to concentrate economic power into fewer and fewer hands, and in this context St. Louis will be again the loser. This concentration is not because of entrepreneurship. It will happen because of the power of the financial markets and their ability to finance mergers, which is at the heart of the Clayton Act. As the Supreme Court said in Pabst: “Many believe that …the disappearance of small businesses with a correlative concentration of business in the hands of a few is bound to occur whether mergers are prohibited or not. But it is not for the courts to review the policy decision of Congress that mergers which may substantially lessen competition are forbidden…”