The Laws of Friendship

Ethan Leib in The New York Law Journal, February 01, 2012

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by Ethan Leib

The public friendship dispute between Ron Perelman and Don Drapkin over $16 million dollars, in which a jury found for Drapkin after a trial in the Southern District of New York, reminds us that our legal system still is fundamentally ambivalent about whether friendship matters in the halls of our courtrooms.

Don Drapkin's breach of contract complaint, filed three years ago, begins with a clear statement that his close friendship with Ron Perelman during the 20 years they spent working together should have some effect on the outcome of the case, some effect on how binding and how generously the text of a contract should be read.

Some hint that friendship is at the core of this dispute is that two exceptionally wealthy people are bickering over what for them is a relatively small sum of money. And any chance Drapkin gets, he talks about Perelman's friendship obligations that should inform the legal dispute. Drapkin mentions it in the papers and he mentioned it on the witness stand. Although the jury never needs to explain itself, it seems likely that the nature of the friendship was part of the deliberations. Is there something about friendship between business partners that changes the way we see and interpret business deals? The law has been struggling with this question for centuries.

A bit of background on the case. Perelman and Drapkin worked together for many years in Perelman's holding company; Drapkin was Perelman's top dealmaker. Their relationship was also clearly personal: Drapkin claimed that he was one of Perelman's only "real friends," that they ate virtually every meal together on work days, and that they had private pet names for one another.

When Perelman and Drapkin decided to end their business relationship at the holding company (Drapkin took a new job at Lazard), they entered into a traditional contract of separation, which specified some continuing payments and support that Drapkin would receive over the coming years, so long as Drapkin complied with certain housekeeping provisions (like returning some documents and files) and so long as Drapkin didn't publicly disparage Perelman's company or encourage employees to quit.

The continued support included some health benefits, which Perelman thought were ultimately being abused after Drapkin left. Based on the failure to return some files, the feeling that Drapkin was billing Perelman's company for too many medical bills (Drapkin decided not to take Lazard's health insurance), and a claim that Drapkin disparaged Perelman and encouraged an employee to leave (an employee Drapkin claims to be "one of his closest friends"), Perelman's company stopped paying Drapkin's severance.

Drapkin sued over Perelman's failure to pay him, referencing the friendship. Perelman's company asked the court to bless its decision not to pay Drapkin further, referencing nothing about the friendship. For Drapkin, Perelman was supposed to honor the promise to pay the severance as an obligation of friendship, informing the contract dispute.

The alternative to Drapkin's narrative about friendship's role in thinking through the contractual arrangement is easily summarized in the well-known defense: "it isn't personal; it is just business." This is exactly the narrative Perelman's team pressed at trial, highlighting that Drapkin could have easily complied with the contract but chose not to. One could go further to support Perelman's rendering of the legal story, too: anyone who thinks friendships in business are to be relied on is delusional. The legal system should ignore personal relationships in business and remain indifferent to claims of friendship disloyalties. If Perelman is "nitpicking" as a way out of payment to an old friend, that may be his right under the strict terms of the contract. Every commercial court cannot become as acrimonious as divorce court. Perelman knows as well as anyone why that would be unappealing.

Yet, Drapkin's view about the relevance of the friendship in the law should probably prevail, and the jury sided with Drapkin. Since the real dispute between Drapkin and Perelman is so deeply intertwined with relational facts, having a court put on blinders by staring only at the paper deal does not conduce to contractual justice.

Many of our business deals have relational dimensions that structure and frame how even sophisticated businesspeople transact. To have a legal system ignore that would be paying a tribute to formalism's vices. As Boris Pasternak's Yurii says in Doctor Zhivago, "Your health is bound to be affected if, day after day, you say the opposite of what you feel." The same is true of a legal system enforcing contracts: if courts are forced to suppress their moral instincts about how a contract should be enforced, we will not have a healthy contracts system or a healthy body politic. It is probably the case that the lay jurors allowed considerations of friendship to color their decisions. And that is nothing to criticize.

Ironically, what we might be able to criticize is that Drapkin won some key decisions at the summary judgment stage by getting the judge to ignore extrinsic evidence that might have cast the agreement in a different light.

Drapkin's lawyer successfully got the court to adopt a strict construction of the contract's text with respect to whether he needed to sign up for health coverage at Lazard before making Perelman's company cover his remaining health expenses. Drapkin shouldn't have it both ways, though: if the friendship teaches us that Perelman is nitpicking about electronic files Perelman's company doesn't really need, perhaps Drapkin was disloyal to the friendship in his own way by not signing up for Lazard's health insurance when he started there.

Drapkin was surely right that the text of the agreement didn't require him to do so. But if friendship matters, the whole contract must be read in light of that relational background, not just parts of it. The jury should have heard about Drapkin's literal reading of the contract on the health expenses side so that they could weigh that fact in the complicated question of who was the worse friend.

Refusing to admit considerations of friendship in public policy is a more general problem, even outside the courts. When the government fails to respect and think about friendship, we have a tendency to make bad decisions. When governments give people vouchers to move out of their neighborhoods to higher income communities—hoping that the change of scenery will give people a boost out of a life of reproduced poverty—we disrupt friendship networks and sources of support. It is thus no wonder that these programs actually can leave the poor families "moving up" feeling alienated. When we insist that hospitals consult with family before friends to help make end-of-life decisions for the incapacitated, we are likely following family wishes rather than respecting the autonomy of the individual. Friends often know us better, so shouldn't the law, as a default, defer more to our "BFF" to make some of these calls on our behalf?

Sociologists have sounded alarms recently about the decline of friendship. Notwithstanding our elaborate technologies that enable us to be in touch more often and notwithstanding our promiscuous "friending" practices, it may be that we are often failing to develop intimate bonds outside the family. It is unrealistic to think that some quick tinkering with our public policies—or disposing of a lawsuit between two hugely wealthy people in a New York court with attention to friendship disloyalty—will restructure our patterns of affinity and lead to greater social cohesion. But it is dangerous for our laws and courts only to focus on formal private ordering and to ignore our chosen bonds that provide us with so much support, fulfillment and community.

Ethan J. Leib is professor of law at Fordham Law School and the author of "Friend v. Friend: The Transformation of Friendship—and What the Law Has to Do With It." (Oxford University Press 2011).

Reprinted with permission from the February 1, 2012 edition of the The New York Law Journal (c) 2012 ALM media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, reprints@alm.com or visit www.almreprints.com.