Energy contracts are long documents, often spanning more than 100 pages.  It can take a couple of days just to carefully read one.  Changing one sentence in an energy contract can be like pulling a string on a sweater.  One change leads to another, and the second to yet more.  So, efficient legal work demands restraint when it comes to redlining an agreement.  Only redline what needs to be changed.  Unfortunately, the trend seems to be going the other way for several reasons:

• Unsupervised Young Lawyers.  Lazy partners “manage” their young lawyers by giving them an agreement from an earlier deal and telling them to redline the new contract to make it look like the old one.  The young lawyer may have no idea which differences are, relatively speaking, more important than others.  This leads to the young lawyer turning the target contract into the original one.  If the young lawyer was being properly supervised, the partner would dial back these changes to only those that really matter—and use the differences as a teaching moment.  More and more, though, I am seeing unfiltered redlines from young lawyers who have little understanding of the provisions they are revising.  Maybe this is because the percentage of lawyers who are partners at the 200 largest law firms has dropped from 31.9% to 22.2% while the number of lawyers at these firms has doubled—which likely translates into less supervision and training of young lawyers.  20 Trends from 20 Years of Am Law 200 Data (July 2022).

• One-Sided Contracts.  The other driver for too many redlines is when lawyers serve up a one-sided agreement.  These lawyers operate on the assumption that they can “win” the negotiation by starting with extreme positions.  Such attempts at anchoring merely lead to more redlining and the wasting of everyone’s time and money.  Lawyers and clients will have to sit through hours of negotiations to reach the same middle-of-the-road terms that everyone else in the industry is agreeing to.

• Old Contract Forms.  The terms and conditions of energy agreements have evolved considerably over the course of my career.  A contract from decades ago is missing many of the provisions that are now industry standard.  There are still in-house counsel downloading forms from floppy disks in the bowels of the server room that date back to the premier of Ferris Bueller’s Day Off.  For those of you who may not have been of movie-going age then, that was 1986.  Please update your forms regularly.

• Circling Back.  Contract negotiations are supposed to resemble a funnel.  The most redlines are on the first read.  Then, each side accepts some and proposes compromises on others, gradually reducing the number of redlines.  And one day, the two sides have nothing further to discuss.  In order for this process to work efficiently, neither side has the right—on a subsequent read of the document—to make changes to any language that the other side did not revise or delete on the last version.  Doing so is the sin of “circling back.”  It usually means a lawyer was not paying attention the first time around and missed something.  Lawyers who “circle back” lose the respect of their peers and cost everyone time and money with more redlining.    

• Swarm Negotiating Tactics.  The swarm negotiating tactic occurs when experienced lawyers substantially rewrite an otherwise decent agreement—by redlining many provisions that did not have to be redlined.  They know which clauses are the most important, but they hope that their important changes will slip through due to the other side’s lawyer not wanting to spend hours sorting through the swarm.  It’s sort of the “herd of zebras crossing the crocodile infested river” approach to redlining.  The more redlines, the more that survive.  Unlike the African savannah, though, this tactic is prone to failure.  Experienced lawyers on the other side will take the time to sort through the swarm, and they will simply accept all of the harmless redlines and reject every single redline that matters.  In contrast, if lawyers only redline those provisions that materially improve their clients’ positions, then the other side has to accept some of those redlines.  After all, who rejects every comment?                       

In 1986, Wachtell, Lipton, Rosen & Katz had the highest profits per partner of any law firm—$880,000, which adjusted for inflation would equal about $2,500,000 today (Washington Post, July 10, 1986).  In 2022, Wachtell’s profits per partner were $7,300,000 (Economist, August, 2, 2023).  So, between 1986, when the first Top Gun movie was the number one movie in America, and 2022, when its sequel Top Gun: Maverick took the same honor, top law partners bested inflation by 3X.  Given the high rates charged by today’s legal talent, we should be mindful of the above causes for too many redlines, which needlessly drive up legal costs for our clients.       

About the Gaille Energy Blog. The Gaille Energy Blog discusses issues in the field of energy law. Scott Gaille is the Managing Partner of GAILLE PLLC, a Lecturer in Law at the University of Chicago Law School, the author of eight articles in the Energy Law Journal, and co-author of the award-winning travel book, Strange Tales of World Travel (Bronze Medalist, IPPY Awards for Best 2019 Travel Essay; ForeWord Magazine Finalist for Best Travel Book of 2019; North American Travel Journalists’ Honorable Mention for Best Travel Book of 2019).

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