Faculty Members Gather to Celebrate, Discuss New Book by Professor Robert E. Scott

The Three and a Half Minute Transaction analyzes the law firm culture behind the continued use of boilerplate contract language.

New York, December 18, 2012—Dozens of Columbia Law School faculty members packed into Case Lounge recently to celebrate—and discuss— their colleague Robert E. Scott’s newest book, which casts a critical eye on the culture of law firms through the lens of boilerplate contract language.

Professor Robert E. Scott

Scott, the Alfred McCormack Professor of Law and a nationally recognized scholar and teacher in the fields of contracts, commercial transactions, and bankruptcy, was joined in the accompanying discussion by his co-author Mitu Gulati, a professor at Duke Law School; Ronald J. Gilson, the Marc and Eva Stern Professor of Law and Business at Columbia Law School; and Lee Buchheit, a partner at Cleary Gottlieb Steen & Hamilton LLP specializing in sovereign bonds.

The authors’ new book, The Three and a Half Minute Transaction: Boilerplate and the Limits of Contract Design, investigates the phenomenon of “sticky” boilerplate contract clauses. These clauses stick around for so long that few lawyers even remember their original meaning or purpose. Even though they’re often badly and ambiguously written, they continue to appear in contract after contract, according to research by Scott and Gulati.

The book focuses on one such clause, the obscure pari passu clause in cross-border sovereign debt contracts. For more than a century, the clause lay undisturbed. But it began making headlines recently, including in a Second Circuit decision interpreting the clause as allowing Argentina’s creditors to recover their debt by attaching the country’s assets. The decision forcing a sovereign nation to pay its debts was one of the first issued by a court in centuries.
Scott and Gulati used that case as a starting point to determine if lawyers adjusted cross-border sovereign debt contract language after the ruling. What they found surprised them: For the most part, lawyers did not adjust boilerplate language. The book, and the discussion at Columbia Law School on Dec. 4, analyzed why that might be.
 Professor Joseph Raz  Professors Katharina Pistor, left, and Charles Fried Dean David Schizer, left, and Professor Jagdish Bhagwati
 “There was a visceral sense from the practicing bar that the phrase has been there from time immemorial and to not attach it would be malpractice,” said Buchheit, an expert on the topic. “But if you interviewed five practicing lawyers about what it meant, you’d get six different interpretations.”
The authors argue that the perpetuating existence of the pari passu clause is due to the nature of the modern corporate law firm. The high volume of transactions these firms undertake to stay financially viable and the resulting need for speed discourage deviations from boilerplate language.
“The cost structure of a law firm does not permit a [carefully crafted contract],” Gilson said. “Clients prefer a three and a half minute contract to an exercise in craft.” As a result, contracts are standardized into fill-in-the-blank forms that even a junior associate can navigate, Gilson said. 
(from left) Mitu Gulati, Professor Ronald Gilson, Lee Buchheit, and Professor Gillian Metzger Visiting Professor Anthea Roberts
At the discussion, faculty members also inquired into their role as legal educators in contributing to the phenomenon.
“I teach contracts at a high level,” said Scott, but there is a disconnect between “what we prepare our students to do, and what they face in the work place.”
In addition to encouraging faculty to recognize the realities outside the Law School’s doors, the panelists suggested the modern law firm should be a subject of academic inquiry.
“Law firms may be the single most important law-making institution we have,” Gilson said. The way that these massive law firms act upon and filter the law is different from the formal way in which the courts and legislatures state the law, he added. The pari passu clause is only one such example.
At Columbia, “We’re the best place in the world” to study these major law firms said Gilson. “If we’re not doing it, no one is.”