The scope of legal malpractice litigation is wide, and sometimes surprisingly deep.  Wachtell, Lipton, Rosen & Katz v CVR Energy, Inc.  2015 NY Slip Op 30270(U)  February 24, 2015
Supreme Court, New York County  Docket Number: 654343/2013  Judge: O. Peter Sherwood is a case that involves Carl Ichan, huge sums of money and a starkly stated claim of legal malpractice.  It involves litigation in Kansas, the Southern District, and this case in Supreme Court, New York County.

“This dispute arises out of the same transaction as the related actions; Goldman Sachs & Co. v CVR Energy, Inc. (Index No. 652149/2012) and Deutsche Bank Securities, Inc. v CVR Energy (Index No. 652800/2012) (the Bank Actions). In January 2012, CVR Energy, Inc. (CVR) learned that Carl Icahn and his affiliated companies (collectively, Icahn) had acquired a substantial minority interest in CVR. CVR believed Icahn was preparing to acquire or influence control over CVR. CVR wanted to resist this attempt. Wachtell was CVR’s counsel. CVR hired Goldman Sachs and Deutsche Bank (the Banks) to act as CVR’s financial advisors. CVR entered into initial agreements with each of the Banks. The agreements were embodied in letters of engagement (the Initial Engagement Letters). ”

“Each Initial Engagement Letter provided for flat rate fees, applicable in a variety of transactions or situations in which CVR may become involved, and for reimbursement of each Bank’s reasonable out-of-pocket expenses. In each Initial Engagement Letter, the contracting parties anticipated that, in the event of a sale or similar transaction, the parties would enter into a second agreement governing the specific transaction and setting forth new fee provisions. After Icahn announced a tender offer for outstanding CVR stock, each Bank advised CVR that it required a new fee arrangement. CVR then entered into a new engagement letter with each Bank (the Second Engagement Letters). The Second Engagement Letters confirmed CVR’s retention of the Banks to provide advisory and investment banking services to CVR and its Board relating to Icahn’s attempt to obtain control over CVR. Each letter also set forth schedules of flat rate fees, including an independence fee, an announcement fee, a proxy contest fee, and a termination fee, and fees based upon a percentage of the value CVR stock, such as a sale transaction fee and a success fee, each payable upon different triggering events and dates, among other terms. CVR claims the Board was never aware the Second Engagement Letters were operative and did not understand the terms of those agreements. Mr. Frank Pici, CVR’s Chief Financial Officer, signed the Second Engagement Letters on behalf of CVR. Mr. Edmund Gross, General Counsel of CVR, was also aware of the Second Engagement Letters, but did not understand that the Banks would earn the fee for a successful sale if the Icahn tender offer succeeded (counterclaim, ~ 28). CVR’s counterclaim alleges Wachtell “failed to advise CVR that under the terms of the [Second Engagement Letters], CVR would face claims by [the Banks] for $36 million even if [Icahn] acquired control of CVR … , double the fees that [the Banks] would charge if CVR remained independent” (counterclaim,~ 3). CVR claims it would not have agreed to the Second Engagement Letters if it had understood the fee term (id.). ”

“CVR did not pay the Banks, and litigation followed. The Banks began the Bank Actions, seeking their fees pursuant to the Second Engagement Letters. On October 24, 2013, CVR sued Wachtell and two individual partners of the firm for legal malpractice in the United States District Court for the District of Kansas (the “Federal Action”), claiming that Wachtell advised it poorly about how much it could end up owing Deutsche Bank and Goldman Sachs. That action was removed to the Southern District of New York. Meanwhile, on December 18, 2013, Wachtell filed this action with claims for (I) a declaratory judgment stating that Wachtell’s representation of CVR was consistent with the standards of the legal profession and caused no loss to CVR; (2) breach of a protective order and agreement regarding the production of documents against all defendants, claiming that documents produced by Wachtell pursuant to protective orders in the Bank Actions were improperly disclosed to Icahn and used in the Federal Action; and (3) abuse of process, claiming defendants were using the Bank Actions and the Federal Action to harass and elicit funds from Wachtell. ”

“To state a claim for legal malpractice, a plaintiff must allege negligence of the attorney, which was the proximate cause of the loss sustained, and proof of actual damages (Reibman v Senie, 302 AD2d 290 [1st Dept 2003]; Schwartz v Olshan Grundman Frome & Rosenzweig, 302 AD2d 193, 198 [1st Dept 2003]). To show proximate cause, a plaintiff must demonstrate that “but for” the attorney’s negligence, the plaintiff would not have sustained any “ascertainable damages” (Brooks v Lewin, 21 AD3d 731, 734 [1st Dept 2005], lv denied 6 NY3d 713 [2006]; Reibman, 302 AD2d at 290-291 ). Wachtell does not dispute that the counterclaim alleges negligence and damages. CVR alleges that Wachtell failed to provide CVR with information about the Second Engagement Letters, failed to “competently represent CVR in negotiating fair and appropriate fee terms,” falsified the minutes of a board meeting to make it appear that Wachtell had provided information about the Second Engagement Letters, and failed to represent CVR’s best interests with respect to the fee terms in the Second Engagement Letters (answer and counterclaim, NYSCEF Doc. No. 42, at ii 44). CVR claims the amounts it will be required to pay the Banks are its damages. Wachtell argues that because the Board ratified the Second Engagement Letters, CVR’s allegation that Wachtell’s negligence proximately caused CVR’s damages must fail. ”

“Here, CVR, while in possession of all of the relevant information about the fee terms, ratified the Second Engagement Letters. CVR also accepted the benefits of the Banks’ work performed pursuant to those agreements. Accordingly, New York State law precludes CVR claiming its attorney’s malpractice caused it to enter into those agreements (see id.). As CVR alleges those agreements are the sole source of its damages, it has failed to allege the causation element of a malpractice claim.”