Negotiations went slowly until Green's colleague, Antonia Chayes, found a way to penetrate Jasse's tough shell. A former undersecretary of the United States Air Force, she capitalized on Jasse's respect for her experience. "One of Jasse's goals was to become a major supplier to the air force," says Green. "Toni told him, 'You know these air-force types -- even the hint of trouble will send them away. The last thing you need is a theft-of-secrets case.' "
The Resolution
Negotiations continued for two months. Finally, on January 10, The New York Times reported that the two companies had decided to merge; Shepherd Intelligence would acquire all shares of DTI. "The deal ends a legal dispute between the two companies," the item said -- a bloodless summary that captured none of the angry battles of three years' duration.
What They Saved
Each company saved at least $100,000 in legal fees. A trial was probably six months to several years away -- on top of the three years they had already waited.
LAWSUIT #2
The Case of the Price-Fixing Cartel
The Litigants
Financial Interchange Inc. (FII): A nonprofit corporation with a membership of more than 1,600 financial institutions in Texas and adjoining states. A significant portion of the members are small banks, savings and loans, and credit unions. FII's sole purpose is to operate Pulse, one of the largest consumer networks of electronic funds transfer (EFT) machines, including automatic-teller machines (ATMs), in the country. First Texas Savings Association: One of the largest S&Ls in Texas and a subsidiary of First Texas Financial Corp. In March 1988 First Texas was the largest operator within Pulse, owning 862 of the network's 4,500 ATMs.
The Conflict
First Texas Savings Association was in trouble. Its financial condition was deteriorating rapidly. Then came another blow, and this one was too much to take without a fight.
Through the summer of 1987, the 16-member Pulse board considered a major change in the ATM network's fee structure. A bank whose customer used another bank's ATM would pay a fee to that bank for the transaction; the new structure would lower the payment on cash withdrawals. Banks that owned few or no ATMs -- most small financial institutions fit this description -- stood to save money. On the other hand, a big ATM owner such as First Texas figured that at least a couple million dollars in revenues would evaporate each year.
First Texas warned Pulse that the proposed fee changes would violate federal antitrust laws; the Pulse members, First Texas charged, comprised an illegal buying cartel that fixed prices. "I always said, 'You can't do it, you can't do it,' " says Scott Engle, a former Pulse board member and then head of the First Texas ATM network. "I warned that First Texas would probably sue if the changes were adopted. I said there was too much money at stake and that we had a good case.
"There was a lot of animosity," Engle continues, "especially near the end when it looked like we would sue." In October the board approved the change over Engle's strong dissent. Pulse braced itself for the lawsuit.
First Texas, though, never arrived at the courthouse. Pulse attorney Donald Baker, a partner with Sutherland, Asbill & Brennan, in Washington, D.C., proposed that the parties try binding arbitration instead.
The advantages of arbitration were impossible to ignore. Baker had headed the antitrust division of the U.S. Department of Justice from 1976 to 1977, and he understood that an antitrust suit could tie up the parties for years. "A couple years in Texas banking is a long time," Baker says dryly. Worse still, the acrimony would imperil any continuing business relationship between the two. "We'd emerge with a better relationship with Pulse if we used arbitration than we would if we went to court," Engle says.
Arbitration would also save money. Because of the complexity of antitrust cases, each party could expect to pay at least $3 million in legal fees over the life of the case -- a sum neither could afford. First Texas was close to insolvency; nonprofit Pulse would have had to assess its members to pay the lawyers' bills, which could easily reach $100,000 a month. With arbitration, though, they would have only a few months, not years, to prepare their cases.
What sealed the decision in favor of arbitration was being able to choose the neutral. If antitrust law was complicated, then trying to apply it to a technically and financially complex area such as ATMs was truly intimidating. "It was better to rely on an antitrust expert than a jury or even a judge unschooled in antitrust law," says Robert M. Cohan, an attorney for First Texas and a partner in Cohan, Simpson, Cowlishaw, Aranza & Wulff, in Dallas.
The two sides signed the arbitration agreement on March 23, 1988, and easily agreed on the arbitrator -- Thomas E. Kauper, Baker's predecessor as antitrust chief at the Department of Justice. And they agreed to a cap on the amount Pulse would pay First Texas if Kauper declared the fee agreement illegal and if he found that First Texas suffered damages because of it.
The 'Trial'
The short preparation time, 70 days, forced both sides to discipline their approach to gathering information. When the final seconds ticked off the clock, they had filed some 30 depositions and 116 exhibits with Kauper, just a fraction of the discovery that would have taken place in typical litigation.
Kauper read the material and told the attorneys which of the witnesses he wanted to appear at the hearing. On May 31 Kauper called the hearing to order. Over the next five days, he conducted a proceeding that Cohan describes as "the most enjoyable time I've had as a litigator."
