Who is Calling the Shots? When the Attorney Crosses the Line, Deals Can Go Bad

Negotiating a deal can be a tricky proposition for an attorney. Every attorney wants to do his/her best job and not only assure that the client is adequately protected, but also to try to get the best deal possible for the client.  As to the former, the attorney is and should be given great latitude.  But ultimately, the client will weigh the risks and make the decision.  If the attorney is doing his/her job properly, legal terms will be thoroughly debated, drafted and re-drafted so that the clients can see a nearly final product and the attorney can say “I did the best I could” and explain how the client is protected and where language could be stronger.  That way, the client can make an educated decision as to whether to proceed.

Business terms are another issue. These are the client’s domain.  The client gives parameters that the attorney should negotiate within.  During negotiations, there comes a point when both sides have to have discussions with their clients about which direction to proceed and whether to alter the parameters or terms.  Sometimes, an attorney forgets this role and speaks and acts as if he is the client.  When this happens, your deal can implode.

I recently worked on a future advance loan for a client. For some reason, the bank did not retain the same attorney to close the future advance loan who closed the original loan 2 years prior.  The original loan was an $8.9 million term loan which we amicably negotiated.  We hammered out all of the terms of the original note, mortgage, guaranties and other loan documents with the bank and the original attorney.  Negotiations were tough but fair, and the bank agreed to many of our requests to change standard bank provisions as well as numerous business terms.

The bank’s new attorney for the relatively small future advance ($425,000) did not have this history and it appeared as if he did not read the original loan documents. Clearly, he was not familiar with them because the first draft of the future advance loan documents did not include any of the terms that had been previously negotiated.  The drafts were very much the bank’s original form documents with the new terms of the future advance filled in.   All of the standard objectionable terms that we had negotiated out in the original loan had been re-imposed.  Special provisions that we had negotiated in, were omitted.  In addition, I was not satisfied with the way the attorney proposed to document the new provisions that the bank required for the future advance.  Frankly, he was not documenting the loan as a future advance and loan modification.  As I began to explain my requests, he summarily rejected them as out of hand without discussing them with his client, the bank.

The deal froze in its tracks. The attorney insisted that he was right because the credit approval made no mention of the revisions we had made to the original loan and therefore, he was supposed to amend and restate the loan documents and re-impose the original language.  I was astonished that he would not discuss this interpretation with his client.

By taking this position, he increased the interest rate of the original loan which was not the deal. The future advance interest rate was about 100 basis points higher than the original loan interest rate.  There was no intent on the bank or my client’s part to increase the rate of the original loan.  In addition, each loan was to have a 5 year prepayment penalty, with the penalty decreasing each year.  By amending and restating the loans, the original loan’s prepayment penalty period restarted.  Again, not intended.  Again, the attorney would not listen.  To me, these weren’t even items to negotiate.

To save the deal, I had to have my client intervene directly with the loan officer. Ultimately, the bank accepted every request that I made except one and that one was modified, I believe to appease the attorney.

I am fine when someone makes a mistake as this attorney obviously did. I’m not ok when they refuse to admit it or refuse to go back to the client to see if they did.  This guy, either through arrogance or ignorance decided it was his place to tell me no to every point that I raised.  What’s worse was that he asked me why I was so hostile about everything going on in the deal!  I flat out had to tell him that he was unprepared and that he refused to ask his client about anything I raised.  You can imagine how that went over.  Let’s just say that 4 weeks after closing he is still trying to find “mistakes” that our office made only to find that he remains unprepared and unfamiliar with the language in his own documents.

Attorneys who try to act as the client by making decisions for them and without being thorough and careful, do so at the risk of the deal for their client.

One thought on “Who is Calling the Shots? When the Attorney Crosses the Line, Deals Can Go Bad”

  1. Sounds like the other attorney was trying very hard to prove how “smart” he was to the bank and accomplished just the opposite.

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