Law Firms

One word in a purchase agreement leads to $310M malpractice suit against 2 BigLaw firms

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A former corporate client suing two large law firms for $310 million contends that a plural word in a purchase agreement wrongly suggested that it was responsible for an accelerated payout in the event of a second purchaser’s bankruptcy.

The law firms facing the Oct. 13 malpractice lawsuit are Orrick Herrington & Sutcliffe and Cleary Gottlieb Steen & Hamilton, report, Law360 and Bloomberg Law.

The wrong word was “buyers,” which should have been “Holdco buyer,” a reference to the company that agreed to accelerated payments in some circumstances, according to the suit filed in New York state court.

The suit stems from a 2014 purchase and sale agreement for the assets of a renewable energy company.

TerraForm Power said it contracted to buy the existing facilities of solar and wind-farm developer First Wind Holdings for cash. TerraForm parent company SunEdison Inc., on the other hand, agreed to pay for First Wind Holdings’ development projects that were still under construction for cash, a note and deferred “earnout” payments for projects that became operational.

In the event of SunEdison’s bankruptcy or other “acceleration events,” SunEdison’s earnout payments would be accelerated, according to the TerraForm suit.

But the contract’s use of the word “buyers” wrongly suggested that TerraForm and SunEdison were responsible for the accelerated earnout payments, the suit says.

“The use of the collective term ‘buyers’ … was flat wrong,” the suit says.

Orrick and Cleary Gottlieb had caught the error, but neither made sure that it was corrected, according to the suit.

After SunEdison filed for bankruptcy in 2016, a New York judge ruled that TerraForm Power was responsible to pay $327 million in acceleration payouts.

The judge, in a December 2020 ruling, said it wasn’t obvious that the term “buyers” in the acceleration clause was a mutual mistake of the parties, according to Bloomberg Law and That case settled earlier this year.

Orrick and Cleary Gottlieb said the lawsuit is without merit in statements to Bloomberg Law, Law360 and Orrick was lead counsel for TerraForm and SunEdison, while Cleary Gottlieb advised TerraForm’s corporate governance conflicts committee about any potential conflicts arising from the deal.

“TerraForm Power’s allegations are completely without merit, and we intend to defend ourselves vigorously in court,” said a Cleary Gottlieb spokesperson.

“The lawsuit is without merit and irresponsibly mischaracterizes the circumstances of our representation. We will respond accordingly,” said an Orrick spokesperson.

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