To Delete or Not to Delete? Not Doing So Puts Deal Lawyer on Hot Seat
In Peter Ehrenberg’s 34-year legal career, testifying in December in a Georgetown, Del., courtroom was clearly a low point for the Lowenstein Sandler partner. Like other M&A lawyers, he had found the second half of 2007 a difficult time to try to close deals. But Ehrenberg got particularly unlucky.
Contested language in a merger document between his client, Cerberus Capital Management, and United Rentals Inc. became critical after the merger failed. So Ehrenberg wound up on the witness stand last year in a Delaware Court of Chancery case, in an effort to explain exactly what the contract meant, reports the American Lawyer, in a lengthy article about the legal fallout from the failed Cerberus deal.
The issue was whether United Rentals could sue Cerberus for specific performance, instead of getting merely a break-up fee. The fee was the standard remedy, when the merger agreement was drafted, the magazine article explains, and Ehrenberg and other counsel for Cerberus say they and opposing lawyers agreed at the time that specific performance would not be permitted. But, if that was clearly the intent of the parties, lawyers for United Rentals pointed out, why didn’t Ehrenberg simply cross out the specific performance language in the contract? (Instead, he testified, he added another sentence intended to nullify it.)
The case exemplifies the tension between a common practice of agreeing to contracts that aren’t perfect, in order to move forward with a deal, and what can happen when a deal goes bad, if the contract is ambiguous. However, whether lawyers for both sides made such a compromise in the Cerberus case, or Ehrenberg made a mistake by not striking the specific performance language, isn’t known, American Lawyer notes.
Especially in the current market, the case serves as a cautionary tale about the need for careful draftsmanship. “Notwithstanding the pressures of the deal, you really have to think hard about every provision,” says Kevin Rinker of Debevoise & Plimpton.
