Legal Ethics, Mergers and Acquisitions

Cravath in Ménage à Trois with Industrial Gas Suppliers

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Industrial gas supplier Airgas has sued its former law firm, Cravath, Swaine & Moore, alleging conflict of interest and breach of fiduciary duty. Airgas wants Cravath booted from representing an Airgas rival, Air Products, in a $5.1 billion hostile bid for Airgas.
Yesterday a Pennsylvania state court judge denied Airgas’s request for a temporary restraining order that would have sidelined Cravath in the takeover fight. But Judge Albert Sheppard said he would revisit the matter next Tuesday and decide whether Cravath should be permanently enjoined from repping Air Products.
Cravath has worked on numerous deals for Airgas over the past decade or so, as early as May 2001 and as recently as fall 2009. So Cravath should be conflicted out of representing Air Products, argues Airgas.
But it’s not that simple, according to Cravath. This may, in fact, be a bizarre love triangle….


The Airgas argument is simple and straightforward. From Bloomberg:

“This is quintessential adversity your honor,” Airgas lawyer Jeffrey Weil argued. “You cannot represent two clients at the same time who are adverse.”
Cravath served as Airgas’s legal counsel in at least 25 financing deals between 2001 and October 2009, when it notified the company it could no longer occupy that role because of a conflict. Lawyers for Airgas [yesterday] argued that New York-based Cravath had access to confidential information while helping Air Products prepare a takeover bid.

The Airgas complaint (PDF) provides a laundry list of Airgas deals that Cravath handled and mentions that Airgas paid CSM over $2 million in legal fees. Airgas Complaint ¶¶ 9-10.
Seems like an open and shut case, right? Well, not exactly. The affidavit (PDF) of Cravath partner Ronald Cami, who was the Airgas relationship partner, makes some good points (which could be roughly summarized as follows):

  • Cravath’s work for Airgas “was essentially confined to a defined, narrow area — debt financing execution…. That the representations were so limited was not an accident. When Airgas first retained Cravath to assist on a debt financing matter, Airgas bluntly told us that the relationship would not go beyond executing debt financing. Airgas’s Chief Executive Officer (a former lawyer) and then-General Counsel, we were told, maintained deep personal relationships at other law firms. As such, there was little chance of the company changing counsel for the large majority of the company’s legal work.” Cami Affidavit ¶ 6.
  • Debt financing execution work is not very strategic in nature. (The Cami affidavit goes to great pains to make this work sound unsophisticated, lame, even TTT — which makes one wonder why a firm like Cravath was doing it in the first place.)
  • In the course of representing Airgas in this rather routine work, Cravath didn’t acquire any confidential Airgas information. Cravath lawyers working on Airgas matters never met anyone really important at the company — and when Cami wanted to meet with the new Aigas general counsel, he got shot down. Ouch. Cami Affidavit ¶ 9.
  • When Airgas first hired Cravath, it was informed that Cravath had a preexisting, longstanding relationship with Air Products. So Airgas’s claim that it didn’t know about Cravath’s representation of Air Products is false. Cami Affidavit ¶ 8.

We haven’t delved deeply into the facts here, and right now all we have are the competing claims of the parties (no discovery). But if the claims of Cravath are true, the firm’s position seems reasonable.
Think of this in terms of dating and relationships. Cravath is in a relationship with Air Products. Airgas comes along and wants to get with Cravath, but she’s a bit of a floozy — she “maintain[s] deep personal relationships” with many men, and she doesn’t want to commit. She does lots of hook-ups with Cravath, but makes clear that Cravath will never be her boyfriend.
And that’s fine with Cravath. After all, Cravath has an existing, more serious relationship with Air Products — which Airgas knows about when she and Cravath start their “friends with benefits” arrangement.
Now Airgas is in a big catfight with Air Products, and Cravath is siding with Air Products. Airgas wants Cravath to butt out; Cravath refuses. Why? Because he has a longer and more substantial relationship with Air Products, which Airgas knew about all along. Since Airgas and Cravath were never more than f**k buddies — cf. Ryan (George Clooney) and Alex (Vera Farmiga) in Up in the Air — it’s unreasonable for Airgas to expect Cravath to ditch Air Products for her.
Moral of the story: that rich, handsome stud might do some debt financings hook up with you a few times, but he’ll never leave a prior long-term relationship — e.g., his marriage. And if he ends up siding with his wife over you, don’t act all surprised.
But this is just our quick-and-dirty take on the situation. Readers, any thoughts?
Cravath Allowed by Judge to Represent Air Products [Bloomberg via ABA Journal]
Is Cravath One Step Closer to Getting Out of Conflicts Lawsuit? [WSJ Law Blog]
Cravath Calls Airgas’s Claims a Bunch of Hot Air [Am Law Daily]

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