7. An Abuse of Process

I have been deposed.

The plaintiffs needed to know what I would say on the witness stand, if it came to that. In a sense, I was the only third party witness who had seen and heard it all. I had been one of three people in the room when the deal was first struck – the other two being the CEO of my client, as seller, and the buying company’s CEO. I had also been a party to all the subsequent, more formal negotiations. I knew the deal history as well as anybody.

The deal had taken place back when I was a banker in the firm I had co-founded. Immediately after the deal, the seller had founded a new company with me on the inside – for which role I had to leave the investment banking business – so now, several years later, the plaintiffs’ lawyers knew that I would be a very hostile witness.

The plaintiff’s allegations were wholly false, as I knew, but it’s not like I could just give the battery of very smart, very highly paid lawyers that I was facing the facts and they would go away. That would’ve been a five-minute process; I think the deposition took five or six hours. They were looking to trip me up any way they could. They grilled me on matters large and small, circling round and round the matter at issue. When I walked out, I felt like I had been in a fifteen round boxing match – old style.

If I may say so without seeming too immodest, I think I surprised them. I don’t think that they had expected me to have the clarity of mind that I displayed. I remembered everything, and was very, very careful with words.

So I would be a formidable witness, granted. That certainly didn’t stop the fight. It was more like a war’s opening battle.

The deal in dispute was the sale of the CEO’s first business for $174 million to a much larger company. The buyers had not insisted on a strong noncompete; I’m pretty sure that they figured that with that kind of money the CEO would go sit on a beach with a martini and maybe a pretty young lady or two. Indeed, just before the closing, the buyer’s Chairman had said to my client – in my presence – that he knew that the deal would allow him to go back into the business. “Go ahead and do a few deals” the Chairman said “and we’ll buy them from you too.” That quote is a paraphrase, but as it happens I remember the actual words the Chairman used, decades later.

My ex-client had gone back into the business, clearly, but he was doing it on a much grander scale – and to much more damaging effect, from the buyer’s perspective – than they had ever dreamed that he would. The very fellow who had told him to go ahead and do a few deals was the one who had initiated the lawsuit claiming that he was behaving improperly in how he had gone back into business. Our theory was that the plaintiff – who surely knew as well as we that the basis of the lawsuit was false – was suing because he was embarrassed by how things were turning out. His subordinates were presumably asking what on earth he had been thinking, giving such a vast sum to the seller without also getting a promise that he would go away.

For a while – months and months – the discovery process ground on, with armies of their lawyers poring over every document they could get their hands on, trying to find something, anything to back up the plaintiff’s claims. The contractual documents relating to the deal all looked as clear to me as the deal-related conversations I remembered; both sides had employed excellent lawyers. But there is no contract in which ambiguities cannot be found. And once those ambiguities are identified, the search for corroborating information can be endless.

We were spending a fortune defending what should have been a simple (non-) dispute; they were spending a bigger fortune trying to make it look as if we were in the wrong. But here’s the thing: they could afford these expenses far more easily than we, and they knew it. After the deal, the buyer had also been sold – to a company with a market capitalization in the multiple billions. For the plaintiff, who still ran the buyer as a subsidiary of the corporate behemoth he had sold it to, the costs of employing armies of litigators were as nothing when compared with the benefits of saving face and possibly strangling our baby in its crib.

At length, the CEO decided to beg the plaintiff to back off. In a mano-a-mano meeting in which I was not present, they talked. In business, many big decisions come down to hand to hand combat among competitors, but rarely as overtly as in that meeting.

When the CEO returned to our office, he told me that he had agreed to give the buyer/plaintiff a few million dollars worth of our assets, in return for which the suit would be dropped. The buyer/plaintiff would spin this concession as an admission of fault to his company’s employees – but from our perspective it was the price of peace. The other team could’ve used the lawsuit to hobble us for years, and the value of what the CEO had given away paled when compared to what our costs of continuing to fight the battle would have been.

At the cost of distinct pain, the CEO had made the only practical choice.

We got our revenge later – much later. But that’s another story.

 

M.H. Johnston

 

P.S. In my career, I have seen character flaws, acts of betrayal, criminality, official corruption and lies – innumerable lies. I have also seen more than occasional genius and generosity.  I have disinterred some of these stories over the last week. For now, I think I’ll keep digging them up. The hard part will be deciding which ones to leave buried.

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