Delaware Litigation Lawyer & Attorney : Francis G. X. Pileggi : Corporate, Business, Commercial, Delaware Chancery Court

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In Metcap Securities LLC v. Pearl Senior Care Inc., 2007 WL 1498989 (Del. Ch., May 2007), read opinion here, the Delaware Chancery Court addressed an issue that arose in connection with a lawyer who described himself (as many do) as a "deal lawyer" purportedly representing several parties in a transaction. The problem in this case developed because after a long negotiating session, shortly before midnight, the principals left the lawyer with signature pages for a document that they thought was nearly complete. There were a team of lawyers from a particular firm, but the only one who remained after midnight to complete the deal made a last minute change to the document that allegedly made it more difficult for the investment banker to collect a fee. One issue that arose was whether that "deal lawyer" had the authority to make that change and whether it was binding on the client. The investment banker (who was not a party to the agreement) sought reformation.

The facts are quite intricate and the parties and non-parties involved in the  suit are numerous. Read the decision at the above link for all the sordid details. I suspect that anyone who considers himself or herself a "deal lawyer" will want to read this opinion as a cautionary tale for, among other things, the dangers that may lurk if one were to describe oneself as a "deal lawyer" without clearly defining what party or parties one is representing and what the scope of that representation is.

 This opinion decided a Motion to Dismiss claims for reformation of a contract, fraud, unjust enrichment and damages under a third-party beneficiary contract theory,  based on Rule 12(b)(6) (failure to state a claim) and Rule 9(b) (failure to plead fraud or mistake with particularity).

Anyone who considers himself to be a “deal lawyer” or “deal counsel” needs to read footnotes 71 and 79 of this opinion.  There the court observed that the definitional contours of the title “deal lawyer” are “without well defined, independent significance, presenting a recurring conundrum.”  (footnote 71.)

In footnote 79, the court expressed its awareness that it is not uncommon for “deal counsel” to represent more than one party and that:  “parties to a transaction and their counsel must be able to rely - - and to act accordingly - - on the negotiating authority generally accorded transactional attorneys.  This is especially true [as here] when the negotiations are ongoing and the principals have abandoned the negotiation field after leaving signature pages.”  However, the court also warned that the conflict presented by the “deal lawyer” representing more than one party created factual issues regarding the actual scope of engagement and would ultimately need to be resolved by the ethical rules that control the conduct of lawyers.

There was an issue about whether the person who described himself as the “deal lawyer” was conflicted based on his apparent representation of several parties in the same deal.  The court determined that when an agent has divided loyalties (such as a conflict), or where the agent’s own interests run adverse to one of the principals, notice to, or knowledge of, an agent will not be considered to be notice to, or knowledge of, both principals.

Regarding the third-party beneficiary claim, an interesting aspect of that analysis that most lawyers are not familiar with is the following: if an intended third-party beneficiary has relied on the terms of an agreement to his detriment, that agreement can not be amended without the consent of that intended third-party beneficiary.  (See footnote 62.)