Wachtell: ‘Bully’ Icahn tried to shake us down with ‘malicious’ lies

December 19, 2013

In October, when I told you about a malpractice suit against Wachtell, Lipton, Rosen & Katz by Carl Icahn’s CVR Energy, I pointed out the undertone of devilish glee that ran through the Kansas federal court complaint. Icahn is the ultimate activist investor, a perennial foe of corporate board defender and long-term value guru Martin Lipton. Icahn beat Wachtell when he succeeded in acquiring CVR last year, despite CVR’s anti-takeover advice from the firm and Goldman Sachs and Deutsche Bank. His suit accusing Wachtell of malpractice – for supposedly failing to warn CVR’s board about the fees the company would have to pay Goldman and Deutsche Bank if Icahn prevailed – seemed to be icing on Icahn’s already tasty cake.

But now it’s Wachtell’s turn to make accusations.

In a pair of filings in Icahn’s case in Kansas and its own new suit against CVR and Icahn in New York State Supreme Court, the law firm argues that Icahn and CVR are maneuvering for position in a fee dispute with Goldman and Deutsche Bank, after CVR’s Icahn-controlled board refused to pay the banks $18 million apiece. According to Wachtell, Icahn has violated confidentiality orders in the fee litigation, maliciously misrepresented the facts of Wachtell’s work for CVR, and used the threat of the malpractice suit in an unsuccessful attempt to shake down Wachtell for a return of the money the law firm received from CVR. (Oh, and by the way, Wachtell also argues that Icahn improperly sued the firm in Kansas, when the appropriate venue for his complaint is New York, where State Supreme Court Justice Peter Sherwood is already presiding over the Goldman and Deutsche Bank claims that CVR breached their contracts when new board members backed by Icahn refused to pay their fees.)

Wachtell thinks it knows exactly why Icahn is engaged in what it regards as naked chicanery: to bully his anti-takeover nemeses at the law firm. “The Icahn-sponsored CVR litigation amounts to a scare tactic to intimidate those lawyers willing and able to help clients faced with Icahn’s opportunistic attacks,” Wachtell said in its New York case, which seeks a declaratory judgment that Wachtell committed no malpractice and that Icahn and CVR breached confidentiality orders protecting discovery from the banks’ fee litigation. “In a number of high-profile situations, Wachtell Lipton has helped clients fend off Icahn, including assisting Clorox in defeating an Icahn takeover assault in 2012 and assisting Dell when Icahn unsuccessfully sought to break up a premium transaction in order to buy the company for himself in 2013,” the firm asserted. “Icahn resents any resistance and thus has for years attacked Wachtell Lipton in the press for its fierce commitment to its clients. With his new litigation campaign, Icahn takes his bullying campaign to a new level, seeking to intimidate lawyers who help clients resist his demands by making wild allegations and threatening liability.”

Wachtell says it has news for Icahn: “Those tactics will not work here.” (See, isn’t this fun?)

In all seriousness, though – and the Wachtell filings are nothing if not serious – the firm strenuously protests the most damning of the assertions from CVR’s malpractice suit in Kansas, that Wachtell supposedly falsified the minutes of a CVR board meeting from February 2012 to make it seem as though the board was apprised of the fees it would have to pay Goldman and Deutsche Bank if Icahn won the takeover contest. CVR and Icahn asserted that no one at the board meeting except for Wachtell recalled the fee presentation the firm recounted in its after-the-fact draft of the board meeting minutes.

In its new filings, Wachtell says Icahn’s “incendiary” claim is belied by the documentary evidence from the Goldman and Deutsche Bank fee litigation. Handwritten notes from the CVR board meeting, the firm asserts, confirm that partner Benjamin Roth explained the nuances of the bank fees to board members. Moreover, Wachtell sent its draft of the board minutes to CVR’s general counsel. He approved the draft and passed the minutes along to CVR’s board, which approved them. Top CVR officials subsequently signed off on the minutes. “CVR is thus alleging that Wachtell Lipton prepared handwritten notes of a board discussion that never happened, drew on those notes to draft false minutes to ‘hide’ a dispute that it did not know existed, and then gave the false draft minutes to CVR’s general counsel & secretary, who approved the false minutes and then passed them on to the CVR board, which in turn reviewed and approved them (notwithstanding their supposed falsity),” the firm said in its New York filing. “This claim is not just contrary to the evidence – it is malicious.”

In fact, according to Wachtell, it took particular care to make sure the CVR board was aware that an Icahn acquisition would trigger the same fees for its financial advisers that the banks would receive if the company were sold to a white knight brought in to vanquish Icahn. In a markup of the company’s engagement letter with the banks in March 2012, according to Wachtell, the law firm added the phrase “inclusive of any Icahn proposal” to make it clear that CVR was on the hook for change-of-control fees to its financial advisors regardless of who acquired the company.

Wachtell also argues that until Icahn took control of CVR – which was after its work for the company concluded – CVR board members were completely satisfied with the firm’s work, which included negotiations with Icahn when CVR failed to attract an alternative bidder. CVR paid Wachtell’s fees in full.

Wachtell contends that Icahn Group general counsel Keith Schaitken attempted to recoup some of those fees by showing the firm the draft malpractice complaint ultimately filed in Kansas. According to the firm, after Goldman and Deutsche Bank sued to force CVR to pay them the $18 million they contend they’re owed, Wachtell documents were subpoenaed in the banks’ consolidated litigation. The material was covered by a protective order, Wachtell says, but Icahn nevertheless used it to draw up a draft malpractice complaint, which Schaitken supposedly showed the firm last September at Icahn’s direction. According to Wachtell, Schaitken wasn’t just warning Wachtell that the suit might be filed, he was using it in an attempt to force the firm to cough up some of the money it had received from CVR. “When Wachtell Lipton refused Icahn’s demand for a money payment, Icahn caused CVR to file a claim for legal malpractice against Wachtell Lipton,” the firm claims.

Wachtell wants Icahn’s Kansas suit to be tossed and CVR’s malpractice claims to be litigated before Justice Sherwood, who will presumably know whether a protective order he signed has been violated.

I called Schaitken at Icahn Group but didn’t get a response. A Wachtell representative said the firm had no comment beyond its filings.

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