The Dawn of the I-502 Era

My law firm, particularly through my partner Heather Wolf, has taken the lead in coming to grips with the subtleties and nuances inherent in the new Washington marijuana legislation, and it’s been quite a ride for marijuana investors, licensees and their professional advisers!

One of the areas that I have become involved in as a business attorney is the funding of newly-licensed marijuana production and processing operations.

The problem is simple. Banks are extremely reluctant to make loans to I-502 operations, whilst license holders are desperate for operating capital to build out facilities to comply with the terms of their licenses. Then, because there are a limited number of licenses in existence and a lot of folks who want to invest in 1-502 operations, the folks with the funds aggressively seek out licensees to invest in.

As a result of this dynamic, we typically see either investors who end up with horribly-structured investments with little knowledge of what they are getting into, or, cash-poor, desperate licensees who literally give away the farm through lack of planning. To make matters considerably worse, the investment transactions are all too often in violation of federal and state securities laws and almost never involve any sort of agreement between the founders and new investors.

If you are an I-502 licensee or potential investor in an I-502 operation, proceed with caution.

You Can’t be Serious?

I was spammed this morning by a recognized provider of legal works and education seminars. The title? “Planning with Intentionally Defective Grantor Trusts”. Seriously? This encapsulates all that’s wrong with so much…..

Arab Spring

I am fortunate to have been able to help clients in many parts of the world having practiced in diverse jurisdictions.  This past week has been no exception as I have been asked to try to resolve a matter that has the Arab Spring as its background!  This is probably what I love most about what I do, being engaged in the broader society and feeling that I am contributing to it in some small way.  We truly are inter-connected.

Policy Anyone?

It’s been a while since I blogged.  No excuse really, but here I am, writing about a topic that has always interested me both in a practical and immediate sense, and in a broader philosophical context.

My children have attended a private, Waldorf school.  The philosophical underpinnings of the school date back to the 20^th Century War years during and following which the school’s founder, Rudolph Steiner, reflected unfavorably on slavish subservience to rules without challenging their moral underpinnings.  The Waldorf School movement that he spawned has since that time preferred to operate more on the basis of a shared belief system and a synthesis of competing views rather than top-down rule-making.  It requires self-reflection, judgment and moral fortitude.

Most recently though, I have watched with great interest how a large section of our school body is demanding greater rigidity in structure, and a policy-driven environment in which judgment and discretion may be avoided in the face of nuance, typically justified by a stated desire to achieve uniform results to avoid inequity.  This challenge to flexibility must and will be debated and resolved somehow within the school community, but it mirrors a broader tendency within our society to grasp reflexively for rules and certainty when confronted with what legal philosophers have referred to as “penumbral”, or grey areas.  It also, to my mind, relieves us of the burden of having to exercise judgment and is predicated on the mistaken assumption that a consistent, perfect result is always attainable and will be uniformly accepted.

The problem with a policy-driven environment is that it usually creates more problems than it solves, particularly in a small, personal environment such as a school.  The policy seldom fits unique circumstances resulting in a lack of uniform application, which in turn discredits it.  This means that at best, the policy has to be so broadly framed to be sufficiently adaptable to a wide range of situations that it becomes pretty meaningless. 

The more interesting question though is what is driving this reflexive desire for uniformity, and to substitute a rule for judgment?  And how desirable is rigidity, uniformity and predictability?  See my next post…

Death of Common Sense

I blogged (fairly) recently about the death of good ‘ol common sense, but a recent transaction I was involved in reinforced my (sometimes) jaundiced view of humans’ ability to interact with one another using plain common sense.

We had a willing buyer and willing seller.  We had a price.  We identified who was buying what and how payment was to be made.  So the parties had it all pretty much figured out.

Six weeks later, the parties walked away from the deal in abject frustration, considerably poorer as a result.  What happened? 

The buyer wanted to use a standard purchase form that covered a multitude of risks and scenarios that in often simply bore no relation to the business that was being acquired.  This left the seller in the position of trying to convince the buyer that the standard form was inapplicable in many cases, which in turn prompted further investigative questions by the buyer to parse out the seller’s objections.  Rather than working with a document that was tailored specifically to the agreed terms, the standard form approach left the seller frustrated, often mystified, and put to the cost of needlessly trying to convince the buyer that one of the remote risks identified in the standard form was simply not applicable. This led to the buyer becoming increasingly suspicious, trust rapidly eroded and the deal died.

The real tragedy was that it didn’t have to be that way.  This was a classic case in my view of trying to commoditize a transaction; and it highlights the pitfalls of the one-size-fits-all approach.  Had the parties brought some plain common sense to bear, I believe this outcome could have been avoided.

Playing God?

Since I first starting practicing law in the US, I was struck by the fact that clients’ moral compasses often appeared to be guided purely by rules of law rather than a common-sense approach of what is right or wrong.  Take the following example:

Client:  “I want to sue my brother for breach of contract.”

Simon:  “I wouldn’t recommend that; first, this is your family.  Second, your brother has a family that would suffer the consequences of your unresolved fraternal conflicts.  Third, it just doesn’t seem right to me”.

Client.  But the law says I can do it, right? 

Simon.  Yes it does, but that doesn’t mean that it’s an appropriate way to deal with something.  Have you tried calling your brother to discuss this?

Client.  You think that might help?

This conversation is entirely fictitious, but the substantive content is a thread that permeates a significant number of my attorney-client interactions, and underscores the point that there is a difference between what is lawful and what is right.

I’m going out on a limb here, but is this perhaps the logical by-product of our constitutional democracy?  That is to say, the result of the fact that the glue that binds the nation is essentially a collection of laws – necessarily generic, rigid and of universal application – rather than a shared set of normative values derived from collective history with rules in place merely to regulate extreme transgressions of those values.  The United Kingdom for example does not have (nor seems to need) a written constitution and much of the way their society behaves is determined by generally accepted and long-established custom.  Granted, not all of those customs are necessarily palatable and perhaps require rule-based modification, but as a general matter, I believe that recourse to a set of generic rules as a template for a personal code of conduct breeds rigidity, lack of personal responsibility, a reluctance to think, and often fairly extremist views.  I also believe this has profound implications for the way we interact as citizens, and the way our nation interacts with other nation states. 

It may also explain the general antipathy toward the legal profession; perhaps we have become regarded as demi-gods, with tremendous power to influence personal choice?  I don’t know, but for myself, I would prefer clients to act out of an innate sense of decency and what’s plainly right, rather than the alternative.

Buy-Sell Agreements

Key Drafting Tip

I believe lawyers (and in the future, computers/whatever) should be able to write clear, simple agreements that have a cohesive thread running through them rather than simply reproducing antiquated, legalese-ridden forms that laypersons don’t understand. 

There is a secret to this which has served me well over the years, and which I’m about to impart – it’s all in the “Introduction”!

I can almost guarantee you that wherever a legal document contains an introductory paragraph that succinctly and cogently summarizes the agreement’s subject matter in five or six bullet points, you will hold in your hands a great agreement.  I have written a great many legal documents over the years, but the most effective, readable ones were absolutely those to which I devoted a great deal of effort in first identifying the key issues or transaction, and then summarizing and presenting them in a logical sequence at the beginning of the document.  Sometimes, that process would take me about a third of the entire drafting time, but it always proved invaluable, particularly in the case of unusual or complex transactions.  If you can’t summarize the issues, the reader is unlikely to understand them.

Go ahead; try it.  You won’t be disappointed.

A Day in the Life of the Business Lawyer

Ever wondered what that high-priced lawyer actually does in the office?  Well here’s your chance to find out (of course, I am making the bold assumption that there may be someone out there who has such an interest, and it definitely doesn’t include my kids, whose eyes glaze over after a few seconds of explanation).  There’s not much glamour in it, that’s for sure, despite the high price tag. 

It all starts with sitting in the same chair, in front of the same monitor.  Delicately, my fingers brush the keyboard entering the same password I’ve had since I can remember to access the network.  My fingers delicately caress the keyboard again to open, in precisely this order each day, the following software: Word, Outlook, PC Law, and Safari.  This is the stuff of lawyering! (and of every other conceivable office job).  The first cup of coffee follows, before delving into Outlook (always the first port of call).

I review my tasks and calendar.  Then I retrieve emails, my lifeblood.  Now for the fun part; I start entering time into PC Law, which involves clicking the same scroll-down menu I’ve clicked a gazillion times to find the correct client, and then clicking the stopwatch button while I read the incoming email associated with that client.  Then I respond to the email, again recording time.  I do this pretty much all day, every day, punctuated only by preparing agreements when asked to, or spending time on the telephone, all requiring the mandatory clicking of the stopwatch button.

Excited yet?

Well, maybe the document preparation might pique your curiosity.  How do lawyers prepare their documents?  Well, we start by remembering when we last did a document that was pretty similar.  If one exists, we copy it and use it as a template to work from.  Since most of the work has already been done, the client usually benefits since we generally charge by time and the work won’t take long (I’ve discussed this ad nauseam on this blog).  If we can’t find a form, we either start from scratch (rarely), or try to find a close approximation in our own data bank that we can customize (typical).  In these cases, the prep time goes up and clients tend to pay too much.  Big firms will delegate this task to young lawyers or paralegals, and simply check the end-product.  In smaller firms, the partners may do the job themselves – I do, because trying to create simple, practical documents has always been something I’ve enjoyed, and I think clients deserve this.

Oops, time to log out (of course, using the same delicate keyboard caress, with the same exit code).  Until tomorrow.

Legalease, and Why Lawyers Do It

For as long as I can remember, people have complained that they cannot understand legal documents.  And I can’t blame them, because so often it’s absolutely true.  For example, take the following fairly typical wording:

      “The parties hereby agree and confirm with one another that immediately subsequent to the incorporation of the Corporation, all assets owned by them shall be transferred to the Corporation by Bill of Sale or Assignment, as the case may be, free of all liens, mortgages, security interests or other encumbrances, in consideration for which the parties shall caused the Corporation to issue to the parties shares of its Common Stock in the proportion that their respective contributions of assets bears to all assets contributed”.

Aside from the fact that it’s not clear who must transfer assets and the needless capitalization of common nouns, there is nothing much wrong, technically, with this wording.  But you could also say:

            “Immediately after the company is formed, the parties must transfer all their assets to it, free of any liens, in return for a proportionate number of company shares.”

So why do lawyers write this way?  For a combination of reasons: first, that’s the way it’s been done for a long time, and if you write differently, you separate yourself from the herd, which is scary for most lawyers; second, many lawyers are lazy – it’s easier for them to find a “standard form” than to think through the issues for themselves; third, many lawyers have simply never been trained to write simply or translate legal concepts into plain English; fourth, I think lawyers often gratify their own egos by using legalese; and lastly, lawyers tend to believe that if they simplify language, they must be leaving something out which exposes them to the threat of litigation (ironically, it’s the agreements that say too much with language that no-one understands that are often the most contentious and litigated).

When I started practicing, I was fortunate enough to be assigned to a very senior, eminent lawyer who reviewed each and every document and letter that I wrote during a two year apprenticeship.  He literally used to interrogate me about my choice of phrases and use of words, strike through most of my language with a red pen and instruct me to try again.  He drummed into me that one should use short paragraphs and short sentences.  Replace technical words with simple ones that non-lawyers understand.  Use the active voice wherever possible so that the reader knows who has to do what.  Describe carefully who has to do something, when it must be done, how it must be done and where it must be done.  Never use words you don’t understand.

It’s the hallmark of a competent lawyer to be able to distill the very essence of any transaction or task to its essentials, and then write these down so that his or her client understands them.  After all, isn’t that the very essence of lawyering?