III. Transactional Competencies27
While half of all lawyers will go on to become transactional lawyers, they will engage in widely varied kinds of transactional practices as well as in many different office sizes, locations, and settings. A transactional attorney may focus on real estate transfers, property management, corporate issues, or deals and buyouts. A transactional attorney may work in a large firm where the deals are complex or may practice in a small town or city as a general practitioner.28 Setting minimum competencies is designed not to prepare lawyers for a specific type of transactional practice, but to provide them with the baseline of knowledge for the major areas of transactional practice. Clearly, the transactional attorney will build upon this baseline in the practice of law.29 Thus, this article introduces
minimum transactional competencies for both the “deal” lawyer and for the general practitioner. While this article will address how to achieve these minimal competencies,30 it is the competencies themselves that will guide law students, young lawyers, and law firms as they prepare for transactional practice.
A. Transactional Competencies for the Deal Lawyer
A lawyer who is an expert in putting together business agreements is often known as a “deal” lawyer. Business agreements are legal contracts, and an appropriately constructed contract “express[es] the parties’ business deal.”31 Thus, most of the baseline transactional competencies for deal lawyers are related to acquiring adequate background context for business agreements and acquiring the skills necessary to negotiate and draft a business agreement. As noted by one commentator:
Your junior transactional attorneys take on tough tasks right away, including drafting contracts and performing due diligence.
The big problem? Fed a strict diet of case-method analysis in law school, these new practitioners don’t have the necessary background to handle their duties effectively. . . .32
So what do “junior deal lawyers”33 need to know to hit the ground running in transactional practice? While the following list is fleshed out in more detail below, the essential competencies for a deal lawyer34 are as follows: (Summer 2003) [hereinafter Stark, Training — Third and Fourth Years].
1. The ability to understand business associations, advise about business structures, and draft documents related to business associations.35 2. The ability to investigate facts and research the law (with emphasis on due diligence). 3. The ability to draft and negotiate contracts. 4. The ability to identify and address the ethical implications of transactional practice.
1. A Deal Lawyer Must Understand the Structure of Business Associations
At the very least, junior deal lawyers need to understand the various business organizations and the practical and legal implications of each.36 That is, what are the attributes of a corporation, partnership, limited partnership, agency, or sole proprietorship? The lawyer should know how to create all types of business entities and how each entity is governed. The lawyer should be able to advise a client as to the advantages and disadvantages of doing business as a particular entity. The young lawyer should be able to answer the questions of who is in charge of the entity and who can act on behalf of this entity. She should be able to identify other persons and entities that may do business or enter into deals with business associations, such as trustees and beneficiaries, conservators, personal representatives, business promoters, lenders, borrowers, and the like. Again, the legal and practical implications of the nature of these persons and entities should be known. The young business lawyer should be knowledgeable in basic entity finance, including an understanding of financial statements.37
2. A Deal Lawyer Must Know How to Investigate Facts and Research the Law
The young lawyer will need to have investigative and research tools in her bag of competencies. The young lawyer must have an understanding of due diligence. Due diligence is investigation of facts; however, it is a special kind of investigation understood as the “examination of a business or portion thereof in connection with a proposed transaction.”38 The young transactional attorney must understand the potential areas of due diligence, including how to review of corporate documents and how to obtain information about capitalization and stockholders, to name only a few.39 The junior deal lawyer must know how to construct relevant areas of inquiry and formulate questions to uncover facts. The junior attorney must have interviewing and counseling skills that will assist her in obtaining information from clients and other parties.40 The transactional lawyer must have a basic understanding of legal research and those research resources unique to transactional law.
3. A Deal Lawyer Must Know How to Draft and Negotiate a Contract
The competencies of drafting and negotiation are intertwined skills. A young lawyer must understand drafting in order to better negotiate the business deal. Further, the negotiation and drafting process are recursive; often negotiation continues throughout the drafting process. Before beginning to draft, the transactional lawyer must first understand that writing a contract is not like other types of legal writing.41 As noted by Charles Fox:
The writing that we are exposed to on a day-to-day basis (even in law school) is almost entirely expository writing, the goal of which is to persuade or provide information to the reader. A contract is different: the goal of a contract is to describe with precision the substance of the meeting of two minds, in language that will be interpreted by each subsequent reader in exactly the same way.42
Once the transactional lawyer begins drafting, the most important drafting skill is an understanding of the building blocks of a contract. The building blocks of a contract are those components of the contract that are necessary to translate the deal into a legally effective document, including representations and warranties, covenants, rights, conditions, discretionary authority, and
declarations.43 Seasoned drafters understand that a party may lose the negotiated advantage of a contract term by failing to use the appropriate building block. Another required drafting skill is understanding the basic parts of contract, that is, the large-scale structure of a contract (introductory provisions, definitions, action sections, etc.).44 Further the young lawyer must know and understand the particular language used to memorialize a building block or to signify an organizational component of the contract.45 Principles of clear and unambiguous drafting must be understood, including format, sentence structure, and tabulation.46 The young attorney must not only understand how to draft a contract, but also, as a key tool in the negotiation process, how to review and comment on a contract drafted by another lawyer.47
4. A Deal Lawyer Must Understand the Ethical Implications of Transactional Practice
Any list of competencies for lawyers must include ethical considerations. In the Carnegie Foundation report, Educating Lawyers, the authors urge a more deliberate integration of ethics and professionalism during the education of lawyers, be they transactional lawyers or otherwise.48 Indeed, the report notes that “[p]rofessional education is . . . inherently ethical education in the deep and broad sense.”49 The need to integrate ethical considerations into educating lawyers is universal, and some of the ethical considerations that transactional lawyers face are universal practice considerations. However, as one commentator noted, the ABA Model Rules of Professional Conduct, as well as case law and ethical opinions, focus on ethical issues that arise in litigation; thus, the ethical considerations unique to transactional practice may not be as transparent to young lawyers who have been trained using these resources.50
The young transactional lawyer must understand how to allocate responsibility between client and attorney.51 She must have a thorough understanding of the scope of knowledge and experience she should obtain
before endeavoring to carry out a particular transaction.52 The transactional attorney must understand how to interact with third parties and the scope of the attorney’s duties to those third parties who may not be clients of the attorney, or even direct beneficiaries of the deal.53 The ethical parameters of joint representation, a situation allowed in transactional practice, must be clearly understood by the transactional attorney.54 Finally, the transactional attorney must be aware of the ethical implications of multi-jurisdictional transactions.55
B. Additional Transactional Competencies for the General Practitioner
Most non-litigation legal transactions fall within the definition of a “deal.” Therefore, the general practitioner who engages in transactions (and every general practitioner will) needs to have all of the transactional competencies of the deal lawyer. Interestingly, while a lawyer who focuses on deals may undertake deals having considerably higher financial stakes than the general practitioner, because the general practitioner does not have the luxury of focusing on deals, the general practitioner needs a broader base of transactional competencies than the deal lawyer. The general practitioner may never need to further his or her self-education to the level of a large firm deal lawyer; however, the general practitioner will need a base of knowledge broader than the deal lawyer to effectively oversee the many types of legal transactions that will arise in her practice. Thus, to be competent as a transactional lawyer, a general practitioner must (1) achieve all of the competencies of the deal lawyer; (2) know how to acquire, manage, and transfer property; (3) understand basic tax; (4) understand basic estate planning and probate; and (5) understand the law governing marital dissolution. 56
Basic transactional practice requires an understanding of the nature of both real and personal property.57 general practitioner should know how to acquire, manage, and transfer property.58 This would include not only a basic understanding of the underlying law, but also an understanding of the documents necessary to undertake a particular transaction.59 The attorney should be able to negotiate, draft, and explain documents related to common property transactions, such as leases, real estate purchase and closing documents,
documents related to the purchasing and selling of personal property and goods, debt instruments, and the like.60
In addition, a general practitioner must understand basic tax law. 61 At one time, income tax was a required course in most law school curriculums. It no longer is.62 However, a general practitioner needs to have an understanding of the potential tax implications of a transaction. Although a “deal” lawyer may have “on call” tax professionals with whom that lawyer can confer, the general practitioner does not always have such ready access to tax professionals. What the general practitioner needs is the ability to recognize a potential tax issue, whether it is an income tax issue or estate and gift tax issue. The general practitioner needs to know enough to know when to obtain outside assistance from more expert lawyers.
Another competency essential to general practitioners is an understanding of basic estate planning and probate.63 A general practitioner should have an understanding of both federal and state law related to the transfer of property on death.64 This would include the ability to identify potential estate tax issues and draft a basic will.65 The general practitioner should have an understanding of the probate process, the relevant time frames, and the documents necessary to complete the process.66
Furthermore, a general practitioner must understand the law governing marital dissolution. While family law is not generally identified as an area of “transactional” law, most dissolutions are concluded by agreement of the parties. That is, the parties enter into a contract dividing their assets and determining their rights and responsibilities with respect to minor children. Because a contract is the heart of the dissolution, the general practitioner must have the competencies of a deal lawyer in order to effectively negotiate and draft the dissolution agreement. However, because family law is a unique and sensitive area of the law, the general practitioner should also have an understanding of the statutory and case law that governs the rights and responsibilities of the parties. The general practitioner must know how to counsel the client, obtain information from the client, investigate formally and informally, draft pleadings, and analyze financial information. In addition, the general practitioner must know how to negotiate and draft effective dissolution documents.
27 This article is not the first document to address transactional competencies. While the MacCrate Report does not generally isolate transactional competencies, its Statement of Skills and Values broadly addresses skills necessary for both litigation and transactional attorneys. See MacCrate Report, supra n. 4, at 138-39. Prior to the MacCrate Report, the University of Montana School of Law created a detailed list of transactional competencies. See Gregory S. Munro, Outcomes Assessment for Law Schools 93-94 (Inst. for L. Sch. Teaching 2000). The University of Montana list is found in U. Mont. L. Sch., ABA Self-Study Report (Apr. 11, 1995) (copy on file with J. ALWD) [hereinafter Montana Competencies].
28 When working in various small practice settings, my response to the question “what’s your specialty?” was “whatever just walked through the door.” Attorneys who work in less populated areas or as general practitioners often have to be pretty darn good at almost anything that needs legal attention. If your specialty did not just walk through the door, it is sure to walk out of it. Students should understand that being a “competent” lawyer in the manner required by the ABA Model Rules of Professional Conduct does not always mean “passing” on a particular transaction. Model R. Prof. Conduct 1.1 cmt. 2 (ABA 2006). The competencies necessary to comply with that rule may often be attained by self-education. Id. Clearly, a lawyer should know his or her limitations. Id., cmt. 1. However, law school provides an excellent education in education; thus, most lawyers should be confident in their ability to self-educate.
29 In two articles identifying training areas for transactional associates, Tina Stark first identifies basic training for first- and-second year associates. Tina Stark, Training Junior Transactional Associates — First and Second Years, 17 The ALI-ABA Insider: A Newsletter of In-House Training Developments (Winter-Spring 2003) [hereinafter Stark, Training — First and Second Years]. However, her second article recognizes the need to go beyond baseline training for “mid-level and senior associates” to ensure their productivity. Tina Stark, Training Junior Transactional Associates — Third and Fourth Years, 17 The ALI-ABA Insider: A Newsletter of In-House Training Developments
30 I do not underestimate the importance of the sources for achieving these competencies and that is precisely why they are included in this article. As Susan Irion writes, as a business lawyer, she had to learn her trade from the school of “hard knocks.” That is, she didn’t learn how to draft and negotiate a contract in law school, but on the job. She comments “but it shouldn’t be that way.” Susan J. Irion, The New Classroom: Learning How to Draft Contracts in the Real World, 16 Bus. L. Today 49 (Sept.-Oct. 2006) (available at http://www.abanet.org/buslaw/blt/2006-09-10/irion .shtml).
31 Tina Stark, Drafting Contracts: How and Why Lawyers Do What They Do 9 (Aspen Publishers 2007).
32 Charles Fox, Overview, Online Survival Skills Training Program: What Junior Deal Lawyers Need to Know, http://www.pli.edu/product/clenow_detail.asp?id=35865. (last accessed June 2, 2008).
33 Charles Fox calls them “junior deal lawyers.” See id. Tina Stark calls them “junior transactional associates.” See Stark, Training — First and Second Years, supra n. 29.
34 These competencies are derived from various sources, but particularly noteworthy are the materials of Tina Stark and Charles Fox. In Tina Stark’s article on training first and second year associates, she identifies topic areas for foundational training similar to the competencies noted by this article. See Stark, Training — First and Second Years. Tina Stark’s consulting website is another source rich in information about transactional training. See Tina L. Stark, Stark Legal Education, Inc., http://www.starklegaled.com/tinastark/ (last accessed June 2, 2008). Charles Fox identifies several similar areas of training in his Survival Skills course offered by Fox Professional Development and outlined at the Practicing Law Institute’s website. See Fox, supra n. 32; see also Charles Fox, Fox Professional Development, LLC, http://www.foxprof.com/ (last accessed June 20, 2008). See also Jo Anne D. Ganek, Successful Development for Transactional Lawyers, K929 ALI-ABA 165, 167-68 (ALI 1994).
35 Both Tina Stark and Jo Anne D. Ganek include “substantive law training” as part of a transactional training program. See Stark, Training — First and Second Years, supra n. 29; Ganek, supra n. 34, at 167-68. (The substantive law training they suggest is more specific than the first of my transactional competencies. This is because those articles are particularly directed at large law firm training where the substantive area of law to be undertaken by associates is known; the first competency I note is more limited because it is directed to the most basic of transactional competencies.)
36 See Stark, Training — First and Second Years, supra n. 29; Fox, supra n. 32; Ganek, supra n. 34, at 167-68.
37 The Survival Skills Program offered by Charles Fox provides a more extensive overview of these subjects and, particularly, business finance. See Fox, supra n. 32. While the extensive list of skills and competencies in the “Business 101” module would admittedly be beneficial, this article attempts to identify minimum transactional competencies, rather than optimum large firm transactional competencies.
38 Charles M. Fox, Working With Contracts: What Law School Doesn’t Teach You 273 (PLI 2002).
39 See e.g. John F. Seegal, Initial Due Diligence Checklist, 1610 PLI/Corp. 365 (June-July 2007).
40 Potentially, interviewing and counseling skills might occupy an entire competency. However, because interviewing and counseling are so closely related to obtaining information from the client, I have included these competencies in investigation and research.
41 Fox, supra n. 38, at 4.
42 Id.
43 See Stark, supra n. 31, at chs. 2-4; Fox, supra n. 38, at 9.
44 See Stark, supra n. 31, at chs. 5-17, 27; George W. Kuney, The Elements of Contract Drafting with Questions and Clauses for Consideration ch. 2 (2d ed., Thomson West 2006).
45 See Stark, supra n. 31, at chs. 2-17.
46 Id. at chs. 18-23; Fox, supra n. 38, at ch. 4: Kuney, supra n. 44, at ch. 3.
47 See Stark, supra n. 31, at ch. 28; Fox, supra n. 38, at ch. 6; Kuney, supra n. 44, at ch. 4.
48 See Carnegie Report, supra n. 14, at 14.
49 Id. at 30.
50 Stark, supra n. 31, at 377-78. Interestingly, Professor Stark notes that the lack of case law and ethical opinions related to transactional work is likely related to the private forum within which transactional lawyering takes place. While litigation occurs in a highly public forum and generally provides some sort of public “record,” the private nature of transactional lawyering makes disciplining a transactional lawyer more difficult.
51 Id. at 378-79.
52 Id. at 379-80.
53 Id. at 380-81.
54 Id. at 381.
55 Id. at 381-82.
56 The transactional competencies of a general practitioner are based on the MacCrate Report’s SSV, supra n. 6; the Montana Competencies, supra n. 27; and my observations and experience related to general law practices.
57 See Montana Competencies, supra n. 27, at 6.
58 See id.
59 See id. at 6-9.
60 See id.
61 While I worked as a small-town, small-firm practitioner, one of my business clients was adamant that I do the legal work for a like-kind exchange. The income tax course I took in law school provided me with the basic knowledge I needed; I supplemented that basic knowledge with self-education and solid advice from other lawyers.
62 Survey of Law School Curricula, supra n. 21, at 17.
63 See Montana Competencies, supra n. 27, at 12-14.
64 See id.
65 See id.
66 See id.