Delaware Chancery Court Rules That Wachtell Firm Not Disqualified Due to Prior Representation of Dow, From Suing Dow for Rohm and Haas

Posted on February 12, 2009 by Francis Pileggi

The Delaware Chancery Court ruled today that it would deny a motion to disqualify the Wachtell Lipton firm from representing Rohm and Haas in its pending suit against Dow Chemical despite the prior representation of Dow by Wachtell.  Rohm and Haas Co. v.  Dow Chemical Co., (Del. Ch., Feb. 12, 2009), read opinion here.

The expedited lawsuit, filed earlier this month and now scheduled for trial on March 9, is an effort by Rohm and Haas to force Dow to consummate a merger based on the terms of the merger agreement, and  was highlighted on this blog here. Although Delaware adheres to the objective theory of  contracts and is not inclined to treat sophisticated parties like children who want to be relieved of a bad decision, (see, e.g., here), the Chancery Court is a court of equity and is famously capable of considering the fairness aspect of even the most sophisticated and complex business dispute.

Bloomberg News has a helpful summary of the decision here.  It was also reported today  (before the court  issued its decision) that for the first time in its over 100 year history, Dow has reduced its dividend. Another pre-decision overview of the issues in the case, prior to today’s decision, was published today on Deal.com here.

The court noted its concern for the timing of motions such as these and  it also made clear that it is not enough to establish that a technical violation of the professional rules of conduct has been shown.  See, e.g., a similar result in an unrelated case that denied a similar motion that was highlighted here.

Before the Chancery Court will grant a motion  to disqualify counsel, the court must be convinced that the information obtained in the prior representation could be used against the client in the current case, and that there would be a material threat to the fair and efficient adminstration of justice. The court concluded  in this case that:

… I am not persuaded that Wachtell’s access to this information will materially advance Rohm and Haas’s position or undermine the fair and efficient administration of justice

  • thomason

    The Chancellor, as do many jurists, nearly takes a pass on assessing the specifics of the alleged conflict. That’s OK since the RPC are self-enforced by attorneys. Two points for thought are the time-based aspects on which the motion was denied, and whether the NY or DE RPC & comments govern.
    The Chancellor determines that Dow is a former client, based on a earlier-presented “final” billing. This put the question under RPC 1.9 rather than 1.8, and specifically, changes the standard from whether the representation might be “materially limited” per 1.8(a)(2), to the risk that earlier-acquired information might be used. Also, the ruling was the Dow’s defense focused on changed market conditions from 12/08,when the agreement was made, to the time the deal was broken off. Comment [3] to 1.9 notes that info “acquired in a prior representation may have been rendered obsolete by the passage of time,” but that this is but one factor in determining if the two representations are “substantially related.” In the Chancellor’s ruling, the time factor was apparently dispositive. Last, comment [3] differs in the DE and NY versions. The NY comment adds an objective test, i.e., that “under the circumstances a reasonable lawyer would conclude that there is a substantial risk” that earlier-acquired info would become material. The DE version just says “if there is otherwise a substantial risk.” Grammarians can debate whether “otherwise” is inclusive or not of a “reasonable” lawyer’s views, once it is decided if the DE or the NY rules apply.

  • http://community.martindale.com/blogs/delawarelitigation/archive/2010/03/06/chancery-denies-motion-to-disqualify-cravath-firm-in-airgas-air-products-battle.aspx Delaware Corporate and Commercial Litigation Blog

    Chancery Denies Motion to Disqualify Cravath Firm in Airgas/Air Products Battle

    Air Products and Chemicals, Inc. v. Airgas, Inc., No. 5249 (Del. Ch., March 5, 2010), transcript of ruling