Don’t Represent Buyers and Sellers

At Truth on the Market:

First, the resigning directors allege Cravath acted improperly as both Deason’s counsel in connection with his bid and counsel to corporation in responding to the bid.  (The directors said in a letter to Deason “We also find it curious that your counsel in connection with your [purchase] proposal, Cravath, Swaine & Moore, is now serving as the company’s outside counsel.”  Cravath’s response to the NYT was “We had no conflict. We represent Mr. Deason, the chairman of the board of directors.”  Uhm, what?

I’ve always been somewhat dumbfounded by how frequently transactional lawyers end up representing buyers and sellers. You can’t do it.

True, people do it all the time, like Cravath. But you can’t. At least you shouldn’t.

Each time I see a transaction set up that way, I wonder: how could that possibly happen? Then I think of some of my own cases and cases I have seen. Sometimes you get the case after it was filed, sometimes a number of the parties have an alliance outside of litigation; perhaps they’re friends or business partners. Once the litigation gets going, it’s obvious that you are on one side with your clients and the lawyers on the other side with their clients. Of course you’re all in it together.

Don’t believe it — any time there is more than a single plaintiff and a single defendant there could be a conflict. It doesn’t matter how “close” your clients are. It doesn’t matter how strong or weak you think the relative claims are, or how likely certain claims are to be dismissed or proven at trial. If you start giving up any of your clients claims, you’re walking on thin ice.

Have another lawyer look at the situation. Discuss it with the clients. Write letters to the clients. But don’t just let it happen.

I revisited this issue more than two years later in “The Perils of Being The Lawyer for The Situation.”