At some point in every corporate lawyer's career, they are thrust into a situation pitting their obligation to zealously advocate in helping a client achieve its goals, against their professional and ethical obligations to objectively view the state of established law and act consistent with ethical standards.
The Delaware Court of Chancery's thoughtful decision in Bandera Master Fund LP v. Boardwalk Pipeline Partners, LP highlights the potential bad outcomes that can result when a law firm loses its objectivity and professionalism in an effort to assist a client in obtaining a financial objective.
In 2005, Loews Corporation (Lowes) formed Boardwalk Pipeline Partners, LP (Boardwalk). Thereafter, Loews took Boardwalk public but wanted to retain the flexibility to take Boardwalk private. Boardwalk's partnership agreement granted Loews a right to repurchase Boardwalk's partnership units from limited partners, subject only to Boardwalk receiving and approving an opinion of counsel satisfactory to Loews Boardwalk's general partner.
Loews sought and obtained an opinion of counsel allowing Lowes to exercise its buyback option. Shareholders impacted by the transaction, brought suit challenging the legal opinion that authorized Lowes to exercise the buyback option.
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The Chancery Court found that the opinion was "contrived" to yield the result that Loews desired, and it was delivered in "bad faith," because Loews was the "propulsive force" in securing the legal opinion that used "counterfactual assumptions" to create a "simple syllogism" to get a desired result, in the face of significant uncertainty of key facts.
The Court found that Loews' efforts to obtain the "sham opinion" constituted "willful misconduct" and that Lowes had "participated knowingly" in preparing the opinion and "provided the propulsive force that led the outside lawyers to reach the conclusions that Loews wanted." The court ruled Lowes was not protected by the provision in partnership agreement affording Lowes a conclusive presumption of good faith when relying on legal opinions and awarded more than $690 million in damages to the harmed shareholders.
Key Takeaways:
Attorneys cannot reach legal conclusions based upon undue pressure from a client and must not rely on facts that the attorney knows to be untrue, or for which the lawyer has not performed adequate diligence.
When delivering a legal opinion, a law firm can make good faith predictions about the future, but it cannot assume what will happen in the future for purposes of the opinion. Any interpretations about the underlying agreement, and the rationales therefor, should be explicitly stated in the legal opinion.
While zealous advocacy is a hallmark of successful in-house counsel and outside law firms, such advocacy must always be tempered by adherence to ethical rules, professionalism, and most importantly, common sense.
Originally published by Today's General Counsel.
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