[Midtown steakhouse — May 2, 2012, 12:48 PM]
Trask had been at the restaurant since at least noon.
I knew this because the wine was already decanted — a 2008 Pomerol, not the house Bordeaux, which meant he had called ahead and asked for the bottle to be opened when he confirmed the reservation, which meant he had been planning this lunch longer than the invitation had implied. The bottle was a quarter gone before I sat down.
"Don." He set down the menu. "I ordered the wine. I hope that's all right."
"It's fine." The chair had the particular weight of furniture that costs more than it looks like it costs. "What are we eating."
"I am having the ribeye. I recommend the halibut."
"I'll have the halibut."
He poured me a glass without asking if I wanted it poured. Owen Trask was around fifty-five with silver cufflinks and the specific patience of a man who had watched a lot of people make the same mistake at different points along the curve of not having enough money. His suits were not expensive enough to announce themselves. His watch was expensive enough that it had stopped needing to. The distinction was considered.
The waiter came. We ordered. He left. Trask picked up his glass and considered me the way you consider a document that has one interesting clause buried in the middle.
"I want to explain the boutique alliance program," he said.
"All right."
"Because I think your reading of it is probably incomplete, and I would rather we start from the same set of facts."
"Go ahead."
He set the glass down. Laced his fingers. He had the manner of someone who had delivered this particular speech before and had improved it incrementally over each iteration.
"Pearson Darby announced the program eleven days ago. Two boutiques have signed. Three are in negotiation. The program offers something that looks, from the outside, like a partnership: PD's international infrastructure on call, their brand alongside yours on the pitch materials, access to their compliance and document review teams at a preferential rate." He paused. "What it does not offer is what it does not say."
"The origination credit."
"The origination credit." He picked up the glass again. "Under the program terms — which are in a twenty-two-page participation agreement that neither of the firms that signed had their counsel review — origination credit for any client introduced to PD's extended service platform passes to PD after eighteen months. If your client uses PD's international offering for a London deal, or their compliance team for an FDA matter, PD gets origination credit for that work. Six cycles of that and PD has the relationship. Not you."
The Library had not had this framed this cleanly. I had known the rough shape — the meta-knowledge had said boutique absorption, origination-credit mechanism — but the eighteen-month window and the six-cycle estimate were specific. Worth four LP to model against my actual client list.
I authorized the search.
"That's a patient play," I said.
"It is. PD doesn't need boutiques to fail. They need boutiques to gradually become unnecessary. The ones that sign the alliance program will have better cash flow for twelve months and then discover their client relationships are legally ambiguous. The ones that don't sign will face the rate undercutting and the international reach argument without the runway."
"And then they come to you."
"Some of them." He said it without any particular warmth, the way a weather forecaster states rain probability. "Some of them come to me before that, which is why I called."
The Library returned. The tag chain was slower than usual — I had 5.2 LP entering this lunch and had just spent four of them, which left me running on fumes. The search gave me the shape of the case-control provision Trask was about to propose, cross-referenced against the ethics rules, and two brittle points lit red.
The first was the settlement threshold. Trask's standard provision gave funders the right to veto settlements below a floor amount — he would tell me the floor was reasonable, and it probably was, but the floor was fixed at the deal's inception. If a client's circumstances changed and a below-threshold settlement was objectively in their best interest eighteen months from now, I would be in the position of either violating my client's autonomy or breaching my funder agreement. Model Rule 1.2. Clean conflict.
The second was subtler. The provision required disclosure of the funding arrangement to clients, and while that was ethical and correct, the disclosure language was broad enough that it could surface in discovery if an opposing party subpoenaed Klein Legal's engagement terms. In any case where confidentiality of the funding mechanism mattered — and there were cases like that — I would be handing the opposing side a deposition target.
Neither point was a dealbreaker in the abstract. Together they were a vise.
"What's the term?" I asked.
"Operating capital covering eighteen months of overhead at your current burn rate. Draw-down in four tranches, first tranche on signing. In return, a case-control provision on matters over two hundred and fifty thousand dollars with a settlement floor of three hundred thousand."
"And your fee structure."
"Eighteen percent of net recovery on funded matters. Standard."
"What's your floor on the settlement."
"Three hundred thousand. As I said."
"That's higher than your standard."
He looked at me with something that was not quite appreciation and was not quite surprise. It was the professional version of a nod.
"My standard for boutiques in your position is two hundred and fifty. I set it at three hundred for you because I think your matters are going to run larger than average, and I think you know what I mean when I say that."
The halibut arrived. We ate for a minute. The halibut was, in fact, excellent. I made a note to remember the restaurant, which I probably would not come back to for this purpose.
"The eighteen-month timeline," I said. "That's the same clock as PD's alliance program."
"It is."
"So you're pricing yourself against the alliance as the alternative."
"I am pricing myself against the alliance as the alternative."
"And when the eighteen months end."
"When the eighteen months end, you reassess. If you want to extend, we negotiate new terms. If you don't, the obligation ends. I do not do relationship captivity, Don. I do relationship efficiency."
I believed him. Trask was, in his way, a man who had built a reputation on fair offers, which was rarer than it sounded in his line of work. The Library had confirmed as much in the basic search before this lunch — no boutique that had dealt with Trask had accused him of sharp practice. Some had failed anyway, but that was the case with or without the funder.
The problem was not Trask. The problem was the settlement floor, and the origination-credit disclosure risk, and the small fact that the case-control provision would mean that every case over two-fifty had a second voice in the room that was not mine and was not my client's.
I had built Klein Legal on twelve words from a deathbed: do the work yourself, know the room, keep your clients. The settlement floor and the disclosure clause were direct weight on all three of those.
"I want to understand the settlement provision," I said. "The floor is fixed at signing?"
"At signing, yes."
"What mechanism exists for variance if client circumstances change?"
He looked at me carefully. "You would need to make a written case to me as the funder. I would review within ten business days. I have approved variances."
"How often."
"In my experience, once in seven years."
"That's a number I trust more than a policy."
"It's a number I give people I think will actually use it." He picked up the fork again. "Most people who ask about the variance provision never have to invoke it. You would be the exception, which is one of the reasons I called."
I let that land without answering it. The Library was nearly dead — 1.2 LP was enough for a basic keyword pull but the modeling was gone. I was running the rest of this on what I had already absorbed.
The brittle points were real. The offer was also real. And the Pomerol was good enough that I thought about it for a second before deciding I did not have the LP or the leisure to like it.
"I'm not going to give you an answer today," I said.
"I know."
"I want the full term sheet. Including the variance language."
"I'll have it to you by Friday."
"And I want a conversation about the disclosure provision. The language as you described it is broader than it needs to be."
He tilted his head. That was a point he had not expected me to push on. Or had expected me to push on eventually, and had not expected today. He took a sip of wine and thought about it.
"What are you proposing."
"Disclosure limited to the specific engagement being funded, in language I draft. Not a blanket disclosure of the relationship applicable to all matters."
"That creates due-diligence complexity on my side."
"It does. In exchange, it limits my discovery exposure, which limits the risk that a funded matter gets torpedoed by an opposing party's subpoena of my engagement terms. That outcome is bad for both of us."
He looked at me the way he had been looking at me since I sat down, with the same calm attention. Then he made a small adjustment in his posture that was the visible equivalent of a yellow flag on an internal document.
"I'll review the disclosure language."
"That's all I'm asking."
He raised the glass, very slightly. Not a toast. An acknowledgment.
The waiter brought the bill. I reached for it. He was already holding his card.
"I'll get it," he said. "I invited you."
"I know. But you also did not know whether I would let you."
He considered that. He put his card down and let me take the bill.
We walked out through the restaurant's front door into the Midtown sidewalk noise. He handed me his card. He had taken it from his breast pocket before we stood. He set it in my hand face-up, without ceremony, the way you leave a key on a table for someone who might need to get back in.
"Friday," he said.
"Friday," I said.
He walked toward Sixth Avenue. I walked south.
The card was heavy-stock ivory. Clean serif font. Owen Trask, Principal — Trask Capital. A New York number. No address.
I put it in my inside breast pocket.
The four LP I had spent were gone. The 1.2 that was left would get me through a basic search, maybe two. The term sheet would arrive Friday, and I would need to read it on what I had, which was the two brittle points I already knew and the conversation I had just had.
I turned east toward the subway. Somewhere on the fourth line of the vulnerability list in my desk drawer, one name was still uncrossed. I had not thought about that list in six weeks. It had stopped feeling urgent because Klein Legal had started feeling stable.
The list was a document about things I needed before I ran out of runway.
I walked faster.
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