Court OKs Cravath Role in Takeover Bid re Ex-Client; Proof of 'Extreme' Ethics Misstep Lacking
In a teleconference ruling today in a hard-fought case over a pending $5.1 billion corporate takeover bid, the Delaware Court of Chancery has OK’d the continuing representation of Air Products and Chemicals Inc. by Cravath Swaine & Moore.
Ex-client Airgas Inc. failed to prove by clear and convincing evidence the “extreme” violation of professional ethics rules required to win the “Draconian” order sought in its motion for disqualification, the court says. And, in fact, Airgas hasn’t demonstrated “even simply persuasively” that it is disadvantaged by the Cravath representation of Air Products.
An ex-client of the firm and competitor of Air Products that is the target of the takeover attempt, Airgas had sought to disqualify Cravath, contending that the renowned New York law firm had obtained confidential information in its work for Airgas and was hence conflicted out of the current matter. However, the court found that the representation is proper under the Delaware Lawyers Rules of Professional Conduct and Delaware common law. (Airgas had argued that Pennsylvania ethics rules apply and prohibit the representation.)
A copy of the opinion (PDF) issued today by Chancellor William Chandler III was provided to the ABA Journal by Cravath. It is a court reporter’s transcript of a teleconference ruling Chandler made over the phone to move forward the underlying litigation matter—which concerns the Airgas board’s handling of the potential combination of the two Delaware companies—as quickly as possible.
Explaining his ruling during the teleconference today, Chandler said that “no basis exists for me to disqualify Cravath Swaine & Moore from representing Air Products in the litigation pending in this court,” despite disagreement about the facts of the case and the propriety of the law firm’s role. That is, he states, because Airgas has failed to provide “clear and convincing evidence establishing a violation of the Delaware Rules of Professional Conduct so extreme that it calls into question the fairness or the efficiency of the administration of justice.”
Litigants have a right to select their own counsel, Chandler also notes, and motions seeking disqualification “are often viewed with suspicion,” he says, “as they are known to be filed for tactical reasons rather than genuine concerns about client loyalty.”
Airgas has not proven even persuasively, he states, that Cravath has obtained confidential information about corporate strategy or defense tactics during its “narrowly focused” work for the company between 2001 and 2009, “or that such information, even if available to Cravath, would prejudice the fairness or the integrity of this proceeding.” (Cravath has, Chandler adds, erected the customary “ethical wall” to prevent information about Airgas debt financings and the company’s perspective about the proposed combination from being shared with Air Products.)
In a written statement provided to the ABA Journal, Cravath says, “Chancellor Chandler’s ruling speaks for itself. We have no comment beyond it.”
Its longtime client, Air Products, says in a press release that the disqualification effort by Airgas was “a side show to divert attention from the real issue—the continuing effort by Airgas to block its shareholders from receiving a 38 percent all-cash premium and immediate liquidity for their shares.”
Airgas expresses disappointment about the ruling today in a written statement provided to the ABA Journal. “Ultimately, however, the real issue in Air Products’ unsolicited tender offer is value, and this ruling doesn’t change the fact Air Products’ $60 per share offer grossly undervalues Airgas,” the statement continues. “We are prepared to take all necessary steps to preserve and protect stockholder value.”
Earlier coverage:
ABAJournal.com:”Ex-Client of Cravath Battles Firm’s Current Client in Conflict Case Venue War”
ABAJournal.com: “Cravath Fires Back in Conflict Case, Says Ex-Client is Doing Battle in Wrong Court”
ABAJournal.com: “Federal Judge Steps Aside, Allows Del. Court to Decide Claimed Cravath Conflict Issue”
