The Red Zone and Cadwalader Legal Malpractice Case
As Christine Simmons of the New York Law Journal reports today: "Cadwalader Wickersham & Taft failed to defeat a malpractice suit brought by Red Zone, an investment vehicle run by the owner of the Washington Redskins, after a state judge found the firm did not prove it gave adequate warning that a side letter it reviewed may not have limited Red Zone's liability in a proxy fight." In an unusual turn of events, plaintiff was granted partial summary judgment.
Red Zone LLC retained Cadwalader to advise it in connection with a potential acquisition of the entertainment company, Six Flags. Red Zone owned 8.76% of Six Flags' common voting stock. Red Zone desired to acquire Six Flags and was advised by Cadwalader in connection with the Engagement Agreement whihc included a $10 million fee to UBS bank.
Disputes arose over the reach of the agreement, and exactly what had to be done to trigger the fee payment. A side agreement was reached, which ultimately did not benefit Red Zone. It eventually had to pay the $ 10 million.
Supreme Court found that Cadwalader took two inconsistent positions on whether they warned Red Zone, and presented no evidence to create a material issue of fact on the warning. Supreme Court fond that a gap in the side letter was unreasonable as a matter of law, and that problems were easily forseeable.
Result: Summary judgment to plaintiff.