For Mylan lawyers at Cravath, suit vs. Kirkland has familiar ring

May 4, 2015

(Reuters) – Cravath, Swaine & Moore learned the hard way about conflict of interest claims in hostile takeover fights. Back in 2010, a company called Airgas sued Cravath in Pennsylvania, claiming that the firm dropped Airgas as a corporate client when a rival company, Air Products, decided to use Cravath as its counsel in an unsolicited bid for Airgas. Alleging that Cravath was privy to confidential corporate information, Airgas tried to have the firm disqualified from advising Air Products in the M&A fight. To make a very long story short, the disqualification issue ended up before Chancellor William Chandler of Delaware Chancery Court, who found Cravath’s work for Airgas had been too limited to disadvantage the company if Cravath continued to represent Air Products.

Even after Air Products dropped its offer for Airgas, Airgas continued to press its breach of duty claims against Cravath. In 2011, after U.S. District Judge Eduardo Robreno of Philadelphia refused to toss the case, Cravath settled with Airgas on undisclosed terms.

I’m recounting this ancient history because on Friday, a new Cravath M&A client, the Dutch pharmaceutical company Mylan, sued its onetime lawyers at Kirkland & Ellis, asking for Kirkland to be disqualified from representing the Israeli pharma company Teva in Teva’s hostile $40 billion bid for Mylan. Cravath, in other words, seems to have drawn a tactical lesson for Mylan from its own unpleasant experience in the Airgas fight.

To be clear, Cravath’s name isn’t on Mylan’s complaint against Kirkland, which is signed by lawyers from Wilson Sonsini Goodrich & Rosati, Peacock Keller & Ecker and Pietragallo Gordon Alfano Bosick & Raspanti. The firm didn’t respond to my email noting parallels between the Airgas and Mylan disqualification litigation. But Cravath is Mylan’s lead U.S. M&A counsel. It’s hard to imagine the firm wasn’t deeply involved in Mylan’s decision to sue Kirkland over Kirkland’s alleged conflict of interest.

Mylan contends Kirkland learned critical and confidential information through a client relationship that began in 2013. The company’s 15-page complaint is short on details about Kirkland’s work for Mylan but does mention that Kirkland advised Mylan on “highly proprietary pricing strategies” for some Mylan products and that Kirkland has counseled Mylan about one of its big products, the epinephrine auto-injector EpiPen. Kirkland allegedly promised Mylan undivided loyalty on EpiPen matters, despite its long-running relationship with Teva. Mylan’s complaint, filed in the Philadelphia Court of Common Pleas, asserts that by representing Teva in its hostile bid, Kirkland has breached its duty to Mylan.

In a statement issued late Friday, Kirkland said Mylan had signed a conflicts waiver letter so its suit is meritless. The statement didn’t offer details about the waiver letter and Kirkland representative declined to expand Monday on precisely what conflicts Mylan agreed to waive and in what context. A Mylan spokesman said Monday that the waiver letter “is not applicable to the present situation.”

Mylan probably won’t get Kirkland kicked off of Teva’s team. As you can see from the Airgas case, judges consider disqualification an extreme measure. Kirkland’s work for Mylan seems to have been even narrower and more discrete than Cravath’s work for Airgas. And unlike Kirkland, Cravath had no conflicts waiver at all from Airgas.

The Airgas case isn’t a perfect analog to Mylan’s new suit because Airgas was decided under Delaware law, which discourages disqualifying lawyers in the heat of a takeover battle. Mylan’s U.S. subsidiary is incorporated in Pennsylvania, so presumably Pennsylvania law will apply, and Pennsylvania may not be as deferential as Delaware to the wishes of corporations in M&A fights. But from Judge Robreno’s Airgas ruling, it seems like Pennsylvania has a more exacting standard than Delaware for establishing a lawyer’s breach of duty to a client, which should help Kirkland.

As Cravath knows, however, lawyers take client conflict and breach of duty accusations very seriously. If nothing else, Mylan’s suit will distract Kirkland – which is also quite familiar with the tactic of filing a disqualification motion in M&A fights. In 2009, Kirkland tried to bounce Wachtell Lipton Rosen & Katz out of representing Rohm & Haas in litigation stemming from its failed merger with Kirkland client Dow Chemical, claiming that Wachtell’s previous (but unrelated) representation of Dow was a conflict.

That motion failed, like most disqualification bids. But these accusations leave bruises. Ask Cravath. It’s been on both sides.

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