There’s an air of devilish glee in a new malpractice complaint against Wachtell, Lipton, Rosen & Katz, filed on Oct. 24 by CVR Energy in federal court in Kansas. Wachtell, as the suit explains, counseled CVR in its 2012 defense of a hostile tender offer by Carl Icahn. Icahn won the takeover fight, despite the involvement of the outspoken anti-takeover law firm and its investment-bank allies from Goldman Sachs and Deutsche Bank. So CVR is now an alter ego of Carl Icahn, who is using this suit to thumb his nose at Wachtell, his frequent opponent in takeover battles and the issuer of countless pronouncements about the scourge of activist investors like him.
Icahn’s complaint, filed by his longtime outside lawyer Herbert Beigel as well as the Kansas firm Smithyman & Zakoura, is also a bit of litigation gamesmanship. Its claims are not based on Wachtell’s anti-takeover advice – Icahn’s already won that game – but on the firm’s supposed failure to disclose to the CVR board the terms of the company’s revised fee agreement with Goldman and Deutsche Bank. According to Icahn, Wachtell should have informed CVR’s board that under the company’s second engagement letter with the banks, Goldman and Deutsche actually stood to reap millions of dollars more in fees if CVR’s takeover defense failed than the flat $9 million they’d each receive if the company succeeded in warding off Icahn’s tender offer. It’s no coincidence that Goldman and Deutsche Bank are litigating that very fee dispute in parallel breach-of-contract suits against CVR in New York State Supreme Court. The banks, represented by Stroock & Stroock & Lavan, filed their suits after the new Icahn-backed directors at CVR refused to approve $18 million in fees to each of them.
But even if you read CVR’s complaint against Wachtell with an eyebrow raised in skepticism, you have to pay attention to a suit that accuses a preeminent corporate firm of falsifying board minutes to protect fees for its investment banking friends. According to the complaint, when Wachtell submitted minutes of a Feb. 28, 2012, board meeting to CVR’s directors in May 2012, the minutes noted a presentation on the banks’ revised engagement agreements by Wachtell partner Benjamin Roth – but (again, according to the CVR suit) Roth’s presentation didn’t actually take place “in form or substance.” The Icahn-controlled company provided additional detail about the supposedly falsified minutes in a brief opposing summary judgment for Goldman and Deutsche Bank in the New York litigation, asserting that no one else who attended the 90-minute board meeting in February 2012 supports Roth’s account. “Indeed, the only witness who claims Mr. Roth made this presentation is Mr. Roth, while all others…have either testified under oath that Mr. Roth did not make such a presentation or cannot recall him doing so,” the brief said.
I should point out here that Wachtell sent me an email statement denying CVR’s allegations. “This lawsuit is entirely without merit and we will defend ourselves vigorously against Mr. Icahn’s baseless claims,” the statement said. “This is nothing more than a tactic by Mr. Icahn in his long-running battle related to a contract between a company under his effective control and its financial advisors.” Icahn GC Keith Schaitkin declined to comment; Melvin Brosterman of Stroock, who represents the banks in the New York litigation against CVR, didn’t return my call.
You’re probably wondering how Goldman and Deutsche justified charging CVR $18 million each for failing to keep the company out of Icahn’s control when they would have received a flat $9 million fee if they’d succeeded. The answer lies in a provision of the second engagement letter between the banks and CVR that said Goldman and Deutsche Bank would receive an “enterprise value” fee – a percentage of CVR’s value – if the company engaged in a “sale transaction.” If CVR’s “raid defense” worked, on the other hand, they’d receive $9 million. (Under the original engagement letters, which preceded Icahn’s hostile tender offer, Goldman was to receive $2 million and Deutsche Bank $1 million; the banks asked for new terms after Icahn’s bid launched on Feb. 16, 2012).