Wachtell Defeats Malpractice Suit Over Takeover Advice

Bloomberg BNA’s Corporate Law & Accountability Report is available on the Corporate Law Resource Center. This news service keeps corporate practitioners informed of legal developments of...

By Michael Greene

March 31 — Wachtell, Lipton, Rosen & Katz won't have to face a malpractice lawsuit arising from its representation of an oil refinery company that was taken over by corporate raider Carl Icahn, a federal judge ruled March 29.

Judge Richard J. Sullivan from the U.S. District Court for the Southern District of New York dismissed plaintiff CVR Energy Inc.'s malpractice suit on the grounds that the claims either were or could have been litigated in New York state court.

The lawsuit—originally filed in October 2013 in Kansas federal court—alleged that Wachtell committed malpractice by failing to advise CVR about unfavorable terms contained in retention agreements with financial advisers Goldman Sachs & Co. and Deutsche Bank. Under the agreement, the two advisers were entitled to receive substantially higher fees if CVR was acquired than if it remained independent.

Wachtell Sues in State Court

Two months after CVR filed its lawsuit in Kansas, Wachtell sued CVR and Icahn in New York State Supreme Court seeking a declaration that its representation was in line with legal profession standards. While both cases were pending, the Kansas case was transferred to the Southern District of New York .

In 2015, the New York Supreme Court dismissed CVR's counterclaims against Wachtell. The state court determined that its prior decision finding that CVR had ratified the retention agreements barred the company from claiming that it suffered losses because of the law firm's representation.

The state court stayed discovery of Wachtell's lawsuit pending resolution of the action in the Southern District of New York.

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com