conrad o’brien pc nancy j. gellman (i.d. no. 12472...
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CONRAD O’BRIEN PC
Nancy J. Gellman (I.D. No. 12472) [email protected] John A. Guernsey (I.D. No. 25730) [email protected] Robert N. Feltoon (I.D. No. 58197) [email protected] Nicholas M. Centrella (I.D. No. 67666) [email protected] 1515 Market Street, 16th Floor Philadelphia, PA 19102-1921 Attorneys for Defendant Tel.: (215) 864-9600 Cravath, Swaine & Moore LLP Fax: (215) 864-9620
AIRGAS, INC. Plaintiff, vs. CRAVATH, SWAINE & MOORE LLP Defendant.
COURT OF COMMON PLEAS OF PHILADELPHIA COUNTY FEBRUARY TERM, 2010 NO. 000857
MEMORANDUM OF LAW IN OPPOSITION TO AIRGAS INC.’S MOTION FOR
SPECIAL INJUNCTION AND PRELIMINARY INJUNCTION
TABLE OF CONTENTS
Page
i
TABLE OF AUTHORITIES ......................................................................................................... iii
PRELIMINARY STATEMENT .....................................................................................................1
RELEVANT BACKGROUND .......................................................................................................8
I. The Cravath Firm .................................................................................................................8
II. Cravath’s Limited Relationship with Airgas .......................................................................9
III. Cravath’s Conclusion That It Must Decline Future Airgas Engagements. ........................11
IV. Cravath Informed Airgas That It Must Decline Future Airgas Engagements. ..................12
V. Airgas Repeatedly Received Notice That Air Products Was Moving Forward with a Transaction with Advice From Cravath. .........................................................................14
VI. Air Products’ Offer and the Delaware Lawsuit .................................................................16
VII. Because of the Limited Representation Provided to Airgas, Cravath Has No Material Nonpublic Information That Could Assist Air Products in Its Attempt to Acquire Airgas. ..................................................................................................................17
VIII. Cravath Has Not Used Any Airgas Confidential Information in Connection with the Air Products Transaction and, in an Abundance of Caution, an Ethical Wall Was Erected to Ensure that the Cravath Air Products Deal Team Cannot Access Information Airgas Previously Supplied to the Firm .........................................................21
APPLICABLE STANDARD.........................................................................................................22
ARGUMENT .................................................................................................................................24
I. Airgas Cannot Establish a Strong Likelihood of Success on the Merits. ..........................26
A. Airgas Cannot Show a Breach of Fiduciary Duty. ................................................26
1. The alleged conflict is insufficient to establish a breach of duty. ..............26
2. Airgas cannot show a conflict of interest. ..................................................30
B. Airgas Cannot Show Injury From the Alleged Breach. .........................................37
C. There is No Basis for the Extreme Remedy of Depriving Air Products of its Choice of Counsel. ............................................................................................38
II. Airgas Will Not Suffer Immediate and Irreparable Harm if the Preliminary Injunction Is Denied. ..........................................................................................................40
III. The Balance of Equities Does Not Favor Airgas. ..............................................................41
IV. The Injunction Will Not Restore the Parties to the Status Quo. .......................................43
V. The Proposed Preliminary Injunction Is Overbroad. .........................................................44
CONCLUSION ..............................................................................................................................45
iii
TABLE OF AUTHORITIES
Page(s)
Cases
Albert M. Greenfield & Co. v. Alderman, No. 1555, 2001 WL 1855056 (Pa. Com. Pl. May 14, 2001) .......................................23, 39, 43
AmSouth Bank, N.A. v. Drummond Co., 589 So. 2d 715 (Ala. 1991) ....................................................................................33, 34, 35, 36
Brewster v. Highway Materials, Inc., Nos. 08-09940, 08-09353, 2009 WL 2055951 (Pa. Com. Pl. March 17, 2009) ......................25
City of Reading v. Firetree, Ltd., 984 A.2d 16 (Pa. Commw. Ct. 2009) ......................................................................................24
Commonwealth ex. rel. Corbett v. Snyder, 977 A.2d 28 (Pa. Commw. Ct. 2009) ......................................................................................44
Commonwealth ex rel. Davis v. Van Emberg, 347 A.2d 712 (1975) ................................................................................................................25
Commonwealth Ins. Co. v. Graphix Hot Line Inc., 808 F. Supp. 1200 (E.D. Pa. 1992) ..........................................................................................31
County of Allegheny v. Commonwealth, 544 A.2d 1305 (Pa. 1988) ........................................................................................................23
Eaton v. Coca-Cola Co., 640 F. Supp. 2d 203 (D. Conn. 2009) ......................................................................................33
George v. Wausau Ins. Co., No. 99-6130, 2000 WL 276915 (E.D. Pa. Mar. 13, 2000) ................................................23, 39
Greenmoor, Inc. v. Burchick Const. Co., 908 A.2d 310 (Pa. Super. Ct. 2006) .........................................................................................40
Griffin-El v. Beard, No. 06-2719, 2009 U.S. Dist. LEXIS 81028 (E.D. Pa. Sept. 4, 2009) ..............................38, 39
Gross v. Gross, No. 97-cv-883, 1997 WL 653909 (E.D. Pa. Oct. 20, 1997) ............................................ passim
Hamdan v. Alwalidi, No. 4437, 2001 WL 1807393 (Pa. Com. Pl. Nov. 2, 2001) ...............................................26, 43
iv
In re R.P., 918 A.2d 115 (Pa. Super. 2007) ...............................................................................................26
In re Rite Aid Corp. Sec. Litig., 139 F. Supp. 2d 649 (E.D. Pa. 2001) .......................................................................................34
Kempner v. Oppenheimer & Co., 662 F. Supp. 1271 (S.D.N.Y. 1987).........................................................................................34
Lee Pubs., Inc. v. Dickinson School of Law, 848 A.2d 178 (Pa. Commw. Ct. 2004) ....................................................................................25
Maritrans GP Inc. v. Pepper, Hamilton & Scheetz, 602 A.2d 1277 (Pa. 1992) ................................................................................................ passim
McCarthy v. Southeastern Pa. Transportation Auth., 772 A.2d 987 (Pa. Super. Ct. Apr. 10, 2001) ...........................................................................23
McCluskey v. Washington Twp., 700 A.2d 573 (Pa. Commw. Ct. 1997) ....................................................................................23
Med. Resources, Inc. v. Miller, Nos. 2242, 111041, 2001 WL 1807934 (Pa. Com. Pl. Jan. 29, 2001) .........................22, 23, 25
Quantitative Fin. Strategies Inc. v. Morgan Lewis & Bockius, LLP, No. 3809, 2002 WL 434380 (Pa. Com. Pl. Mar. 12, 2002) .....................................................33
Reutzel v. Douglas, 582 Pa. 149 (2005) ...................................................................................................................33
Rizzo v. Haines, 555 A.2d 58 (Pa. 1989) ......................................................................................................27, 37
Rohm & Haas Co. v. Dow Chem. Co., No. 4309-CC, 2009 WL 445609 (Del. Ch. Feb. 12, 2009) ................................................35, 40
Romy v. Burke, No. 1236, 2004 WL 3050866 (Pa. Com. Pl. Dec. 28, 2004) .............................................27, 37
School Dist. of Wilkinsburg v. Wilkinsburg Educ. Ass’n, 667 A.2d 5 (Pa. 1995) ..............................................................................................................22
Selvaggi v. Prudential Prop. & Cas. Ins. Co., 871 F. Supp. 815 (E.D. Pa. 1995) ..............................................................................................8
Shade v. Great Lakes Dredge & Dock Co., 72 F. Supp. 2d 518 (E.D. Pa. 1999) .........................................................................................39
v
Soja v. Factoryville Sportsmen’s Club, 522 A.2d 1129 (Pa. Super. Ct. 1987) .................................................................................23, 43
Summit Towne Ctr., Inc. v. Shoe Show of Rocky Mt., Inc., 573 Pa. 637 (Pa. 2003) .............................................................................................................23
Unanue v. Unanue, No. 204-N, 2004 WL 602096 (Del. Ch. Mar. 25, 2004) ...................................................33, 35
Warehime v. Warehime, 860 A.2d 41 (Pa. 2004) ............................................................................................................22
Weber v. Lancaster Newspapers, Inc., 878 A.2d 63 (Pa. Super. 2005) .................................................................................................39
Werther v. Rosen, No. 1078, 2003 WL 1848570 (Pa. Com. Pl. Feb. 13, 2003) ........................................29, 30, 37
West Pittsburgh P’ship v. McNeilly, 840 A.2d 498 (Pa. Commw. Ct. 2004) ....................................................................................41
Statutes & Rules
Pa. R. C. P. 1531(a)........................................................................................................................24
Pa. R. Professional Conduct § 8.5(b) .............................................................................................27
Rule of Professional Conduct 1.7 ..................................................................................................34
Rule of Professional Conduct 1.9 ............................................................................................30, 32
Other Authorities
Douglas B. Richmond, Choosing Sides: Issue or Positional Conflicts of Interest, 51 Fla. L. Rev. 383 (1999) ...................................................................................................................28
Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering § 20.10 (3d ed. 2010) ........................................................................................................................................33
19A Wright & Miller, Federal Practice & Procedure Appx. G Part III, sec. J (2d ed. 2009). .............................................................................................................................8
1
Defendant Cravath, Swaine & Moore LLP (“Cravath”) respectfully submits this
opposition to plaintiff Airgas Inc.’s (“Airgas”) motion for a preliminary injunction, which seeks
immediately to enjoin Cravath from advising Air Products and Chemicals Inc. (“Air Products”)
in connection with Air Products’ proposed acquisition of Airgas.
PRELIMINARY STATEMENT
Special and preliminary injunctions are “harsh” and “extraordinary” remedies.
Those remedies—which must be narrowly tailored to protect the plaintiff from clear, urgent and
irreparable harm—may issue only if the plaintiff “fully and completely” satisfies several
“essential preconditions.” In addition, to obtain a special injunction, the plaintiff must show that
such harm is almost certain to occur before a hearing on a preliminary injunction can be held.
This case—where Airgas has known about Cravath’s representation of Air Products for months,
where the moving papers do not even attempt to argue that three of the five “essential
prerequisites” for any injunctive relief have been satisfied, and where Airgas has incurred and
will incur no injury (let alone immediate and irreparable injury)—warrants no such remedies.
The complicated context of this unusual lawsuit—which Airgas fails adequately
to explain in its moving papers—is highly material. Airgas’s complaint is the latest effort by
Airgas and its Board of Directors to prevent Airgas shareholders from having the opportunity to
decide for themselves whether to accept an offer from Air Products to acquire their shares at a
38% premium to the market price. The suit is one front in a battle by Airgas’s CEO and its other
officers and directors to entrench themselves at the expense of their shareholders. In a maneuver
that Airgas planned for months, as Airgas’s attorney Stephen Cozen told the press yesterday,1
1 See Alison Frankel, “Cravath Sued for Breach of Fiduciary Duty in Airgas M&A Battle,”
AmLaw Litigation Daily, Feb. 8, 2010 (“Cozen told us that Airgas has been contemplating a suit against
2
Airgas now accuses Air Products’ counsel of breaching its fiduciary duties because it previously
represented Airgas in a narrowly circumscribed set of debt financing-execution matters that have
no bearing on the proposed acquisition. Airgas’s purported concern that Cravath will misuse
Airgas’s confidential information is both unfounded and disingenuous. As Cravath has
repeatedly told Airgas, (a) Cravath does not have confidential Airgas information of any
relevance to its representation of Air Products, (b) Cravath has not used any nonpublic Airgas
information in its representation of Air Products, and (c) Cravath will not use any nonpublic
Airgas information in its possession in its representation of Air Products. Airgas has no basis to
believe otherwise.
If Cravath did in fact have relevant confidential information of Airgas, and if
there were in fact some imminent danger of Cravath sharing such information with Air Products
to support a transaction that Airgas has told this Court that it views as the “death knell” of the
company, Airgas would surely have been in this Court months ago. This lawsuit is simply an
effort to deprive Air Products of its counsel of choice, to derail Air Products’ efforts to make an
attractive offer to Airgas shareholders and, in a classic case of forum shopping, to end-run a
lawsuit pending against Airgas in Delaware Chancery Court addressing breaches of fiduciary
duty by Airgas’s officers and directors. Airgas’s claim against Cravath is baseless, as is its
request for a special injunction and preliminary injunction precluding Cravath from further
advising Air Products.
Air Products, a Delaware corporation with headquarters in Allentown,
Pennsylvania, has been trying for several months to engage Airgas and its Board of Directors in
Cravath for about two months, after Cravath told Airgas that it did not agree the firm had a conflict and refused Airgas’s demand that it withdraw as counsel to Air Products in the takeover battle.”).
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a discussion concerning a potential combination of the companies’ respective businesses. Airgas
has known since October that Cravath is representing Air Products in the proposed transaction.
Airgas’s Board of Directors has refused adequately to inform themselves about, or engage with
Air Products to discuss, the offer. Given this refusal, after the trading markets closed on
February 4, 2010, Air Products publicly announced a non-discriminatory, all-cash offer to
purchase all outstanding Airgas shares for $60 per share—a 38% premium over that day’s
closing price. Shortly after that public announcement, Air Products filed a lawsuit against Airgas
and its Board of Directors alleging that the Board’s failure properly to consider Airgas’s offer
and inform its shareholders of that offer was a violation of their duty of loyalty to Airgas
shareholders. Air Products filed its lawsuit in Delaware, which is the state where Airgas is
incorporated, whose laws govern the action, and whose courts routinely address such fiduciary
duty claims by shareholders.
The very next day, Airgas filed this lawsuit—which it planned months ago—
seeking to enjoin Cravath from advising Air Products. By necessary implication, Airgas also
seeks to disqualify Cravath from serving as Air Products’ litigation counsel in the Delaware
action. Airgas filed its lawsuit in this Court, seeking expedited relief, despite the pendency of
the Delaware action and the fact that both Air Products and Airgas are Delaware corporations.
Airgas has known all along that Cravath was advising Air Products in connection with the
proposed acquisition, it knows that Cravath does not have relevant nonpublic Airgas information,
and it has been repeatedly assured that Cravath’s advice to Air Products has not been based in
any way, shape or form on any information that Cravath may have acquired from the limited and
unrelated work that it previously did for Airgas. It is no coincidence that the sudden need for
4
emergency relief arose the day after Air Products informed Airgas shareholders of the offer that
the Airgas Board had tried to keep under wraps. This is a tactical move and nothing more.
In this context, it is worth noting that the financial advisor to Airgas’s board of
directors in connection with its response to the Air Products proposal, Goldman Sachs, has been
a long-time advisor to Air Products. As such, Goldman Sachs has spent considerable time with
the Air Products Board of Directors, including annual meetings to review mergers and
acquisitions matters such as takeover defenses and prospects for future acquisitions. (Affidavit
of Paul E. Huck (“Huck Aff.”) ¶ 8.) Air Products has not complained or made an issue of this
because it is generally understood that, in the world of mergers and acquisitions, these situations
arise frequently and are of little relevance to a board’s actions in connection with a takeover offer
or of any consequence to the outcome of takeover contests. (Id.)
Airgas’s request for injunctive relief fails for multiple reasons. As an initial
matter, Airgas is not entitled to a special injunction. Airgas has known about Cravath’s
representation of Air Products for months, but it deliberately took no steps to enforce its alleged
rights, preferring instead to spring this trap once its efforts to keep Air Products’ offer secret
from shareholders had failed. Because the advice that Cravath has been giving to Air Products
does not rely on any Airgas confidential information, as Airgas has been told on numerous
occasions and as Cravath has now represented to the Court in sworn affidavits, Airgas will
plainly suffer no harm between the date of the hearing on a special injunction and the date when
the Court hears Airgas’s application for a preliminary injunction. A special injunction is
unwarranted and unsupported and should therefore be denied. (See infra at 24-25.)
Airgas’s request for a preliminary injunction also should be denied. Airgas has
failed in its moving papers even to address three of the five “essential prerequisites” to a
5
preliminary injunction, which by itself warrants denial of Airgas’s motion. (See infra at 25.)
And even if Airgas had not so completely disregarded its obligation to address each of the
relevant factors, Airgas’s motion fails because none of the applicable prerequisites is satisfied.
First, Airgas cannot make the requisite “strong showing” that it has a “clear right”
to the relief it seeks. Airgas’s sole cause of action is for breach of fiduciary duty. Although
Airgas argues at length that Cravath has breached the Rules of Professional Conduct (which is
not true), the law is clear that a breach of those rules does not itself create a cause of action
against an attorney. To show a breach of fiduciary duty, Airgas must prove that Cravath has in
fact misused confidential information it received from Airgas. Airgas has not even attempted to
make such a showing, nor could it do so. Cravath has no material nonpublic information about
Airgas; the information about which Airgas professes to have so much concern is publicly
available; and in fact much of it has been affirmatively disclosed by Airgas. And, in any event,
Cravath has used an ethical wall to ensure that any confidential information learned from
representing Airgas in the limited set of debt financing-execution matters on which Cravath was
engaged has not been shared with the team of lawyers advising Air Products. (See infra
Argument Section I.A.1.) Furthermore, as explained below, there is no conflict of interest here.
Airgas is a former client, and the discrete matters on which Cravath previously represented
Airgas are not “substantially related” to the proposed transaction. (See infra Argument Section
I.A.2.) And even if Airgas had shown a breach of duty (which it has not), Airgas has failed to
prove any injury from that breach. (See infra Argument Section I.B.) Finally, there is simply no
basis in law or equity for the drastic remedy Airgas is seeking and, at a minimum, Cravath’s
ability to advise Airgas should be addressed in the first-filed Delaware proceeding. (See infra
Argument Section I.C.)
6
Second, Airgas cannot prove that it will suffer irreparable injury if Cravath is
allowed to continue to advise Air Products while the merits of this dispute are sorted out. In fact,
Airgas has supplied no proof that it will suffer any harm from Cravath’s representation of Air
Products. The fact of the matter is that, for months, Airgas has known that Cravath was advising
Air Products on the contemplated transaction. If there were irreparable harm to Airgas from
Cravath’s representation of Air Products, particularly given Airgas’s resistance to Air Products’
approaches over the past few months and the extreme description of the Air Products offer in
Airgas’s moving papers, Airgas would not have allowed that supposedly irreparable harm to
continue to be perpetrated for so long. Thus, it is no surprise that Airgas has not identified any
confidential Airgas information that Cravath has supposedly misused or could misuse to the
benefit of Air Products. As explained in the Cami affidavit, the information cited by Airgas in
its papers was either not received by Cravath, made public or not relevant to Air Products’
attempt to acquire Airgas. (See infra Argument Section II; Affidavit of Ronald Cami (“Cami
Aff.”) Section II.)
Third, the balance of the equities, which Airgas fails to address in its moving
papers, does not favor Airgas. Put simply, despite knowing for months that Cravath was
advising Air Products, Airgas did not move to enforce its alleged rights and filed this lawsuit
only after Air Products’ offer was made public and the Delaware litigation had already
commenced. Airgas’s tactical choice to sit on its hands and then file this lawsuit to hinder Air
Products’ offer and the Delaware action cannot be reconciled with Airgas’s claim that it is in
need of emergency relief. That tactical decision also severely undercuts the credibility of the
claim that Cravath even has information concerning Airgas that has not already been made
public. On the other hand, the harm to Air Products and Cravath is plain. Air Products has been
7
relying on Cravath’s advice for months and it is entitled to its counsel of choice. Depriving Air
Products of its counsel will substantially prejudice its efforts to offer a significant cash premium
to Airgas shareholders, which is after all the very purpose of this lawsuit. While Cravath’s own
interests are of course secondary, Cravath does care a great deal about serving its clients and
guarding its professional reputation. If Cravath is enjoined from representing Air Products, after
having done nothing wrong, its ability to serve a client will be affected and its professional
reputation will suffer. (See infra Argument Section III.)
Fourth, Airgas has failed to show—and does not even attempt to show—that a
preliminary injunction would restore the status quo. Because of Airgas’s tactical decision to
keep its alleged conflict claim in its pocket for months, the relevant status quo is that Cravath is
and has long been Air Products’ counsel on the proposed transaction. Thus, an injunction would
affirmatively and meaningfully change the status quo and give Airgas a significant advantage in
its attempt to prevent its shareholders from having a chance to accept the Air Products offer.
There is simply no way to put the parties back in the position they were in back in October, when
Cravath promptly notified Airgas that it could not take on future assignments. (See infra
Argument Section IV.)
Finally, the proposed preliminary injunction is overbroad. The only way in which
Cravath could harm Airgas is by misusing its confidential information, which Cravath has not,
will not and (given that Cravath does not have relevant confidential information) could not do.
The preliminary injunction proposed by Airgas, however, would have Cravath stop advising Air
Products altogether, irrespective of the source of information Cravath used in connection with
rendering its advice. That order is not reasonably necessary to protect Airgas’s interest—its
8
client confidences and nonpublic information—and, for that reason, it is impermissible as a
matter of law. (See infra Argument Section V.)2
RELEVANT BACKGROUND
I. THE CRAVATH FIRM
Cravath is one of the oldest law firms in the country. (Affidavit of Stuart W. Gold
(“Gold Aff.”) ¶ 2.) Founded nearly 200 years ago, Cravath currently employs over 500 lawyers,
approximately 90 of whom are partners of the Firm. (Gold Aff. ¶ 2.) Cravath’s corporate
practice, led by approximately 50 partners, covers all aspects of transactional work. (Gold Aff. ¶
2.)
Cravath’s practice has been built over the years upon a tradition of faithful
representation of its clients. (Gold Aff. ¶ 3.) To ensure that Cravath lawyers are in strict
compliance with the rules that govern the profession of law, Cravath uses, among other things, a
careful conflicts check protocol. (Gold Aff. ¶ 3.) Cravath routinely declines to represent
clients—old and new—where the results of the conflicts check protocol indicate that such
representations are impermissible under the applicable rules. (Gold Aff. ¶ 3.)
Where the potential for a conflict arises between former and current Cravath
clients, the conflicts check process is even more rigorous. (Gold Aff. ¶ 4.) Where Cravath
accepts representation that is potentially adverse to a former client, strict ethical walls are used to
2 In opposing Airgas’s request for a special injunction and/or a preliminary injunction, Cravath
does not waive any of its substantive or procedural rights. Due to the expedited nature of Airgas’s application, Cravath has not yet completed review of its procedural options, e.g., transfer, removal. Cravath reserves the right to exercise those options as provided by the applicable law and rules; Cravath has not yet decided to submit the merits of this case to this Court for adjudication and does not seek any affirmative relief from this Court. See 19A Wright & Miller, Federal Practice & Procedure Appx. G Part III, sec. J (2d ed. 2009); Selvaggi v. Prudential Prop. & Cas. Ins. Co., 871 F. Supp. 815, 817-18 (E.D. Pa. 1995).
9
ensure that client confidential information is protected from disclosure. (Gold Aff. ¶ 4.) As
shown below, Cravath employed all of those safeguards here.
II. CRAVATH’S LIMITED RELATIONSHIP WITH AIRGAS
Cravath first represented Airgas in 200l. (Cami Aff. ¶ 6.) Then and going
forward, Cravath’s work for Airgas was essentially confined to a narrow area—the execution of
debt financings. (Cami Aff. ¶ 6.) The representations were purposefully limited. When Airgas
first hired Cravath to assist on a debt financing-execution matter, Airgas told Cravath that the
relationship would not go beyond executing debt financings. (Cami Aff. ¶ 6.) It was explained
that Airgas’s founder, President, largest shareholder, Chief Executive Officer and Chairman of
the Board of Directors, Peter McCausland (a former lawyer) and Airgas’s then-General Counsel
maintained deep personal relationships at other law firms. (Cami Aff. ¶ 6.) As such, there was
little chance that Airgas would retain Cravath for the large majority of the company’s legal work.
Debt financing-execution matters were an exception—Airgas had an upcoming debt financing
need and decided to cease using the firm that Airgas had previously used when debt financing-
execution matters presented themselves. (Cami Aff. ¶ 6.) For that reason, Airgas’s Treasurer
Joseph Sullivan sought new debt financing-execution attorneys and eventually retained Cravath
for an assignment. (Cami Aff. ¶ 6.)
Consistent with Airgas’s statements at the time of the initial retention, Cravath’s
representations of Airgas remained essentially confined to the realm of executing debt
financings. (Cami Aff. ¶ 9.) The contacts between Cravath and Airgas executives reflected the
limited nature of the engagements. Despite always serving as Airgas’s primary contact at
Cravath, Mr. Cami never addressed, met or even conversed with Airgas’s Founder, President,
Chief Executive Officer and Chairman of the Board of Directors (Mr. McCausland), or any other
10
Board members. (Cami Aff. ¶ 9.) Indeed, with the exception of Mr. Sullivan, Mr. Cami never
interacted with any of Airgas’s top management, nor did he ever travel to Airgas’s headquarters
in Radnor. (Cami Aff. ¶ 9.) Notably, despite working on debt financing-executions for Airgas,
Mr. Cami never had any direct contact with Airgas’s Chief Financial Officer. (Cami Aff. ¶ 9.)
And although Airgas regularly engaged in acquisitions work (using other counsel), Mr. Cami
had no interaction with Leslie Graff, Airgas’s Senior Vice-President for Corporate Development.
(Cami Aff. ¶ 9.) Perhaps most telling, even though the principal point of contact with most of
Cravath’s clients is the general counsel, Mr. Cami never met, addressed or conversed with
Airgas’s prior general counsel and had only minor contact with the current general counsel, Mr.
Robert Young. (Cami Aff. ¶ 9.) In fact, shortly after Mr. Young was hired as general counsel,
Mr. Cami asked for a meeting at Airgas’s offices in Radnor, Pennsylvania to discuss expanding
Cravath’s relationship with Airgas. That request was rebuffed.
The debt financing-execution advice Cravath provided to Airgas was inherently
episodic, and was initiated in each instance by a decision by Airgas to incur debt. (Cami Aff. ¶¶
9, 11.) At the conclusion of every matter, Cravath understood that the next assignment might go
to a new firm. (Cami Aff. ¶ 12.) Indeed, in 2005, at the conclusion of one debt financing,
Cravath was notified that it was “in jeopardy” of not being retained for future debt financing-
executions. (Cami Aff. ¶ 12.)
As explained in detail in the attached Cami affidavit, contrary to Airgas’s
assertions, Cravath has not represented Airgas in litigations, acquisitions, personnel matters, or
advised on corporate strategy. (Cami Aff. ¶¶ 7, 10, 19.) Further, even within the financing
realm, Cravath’s representation was limited to execution of decisions already made by Airgas
before Cravath became involved. Cravath has not advised Airgas on other aspects of financing
11
including (1) developing a strategy regarding the company’s business direction, (2) evaluating
the company’s financing needs or (3) determining the type of financing—whether bonds, bank
loans or securitization facilities—that Airgas should pursue. (Cami Aff. ¶ 7.)
III. CRAVATH’S CONCLUSION THAT IT MUST DECLINE FUTURE AIRGAS
ENGAGEMENTS.
In the latter part of 2009, Air Products raised with Cravath Corporate Partner James
Woolery the possibility of Cravath representing Air Products in exploring a friendly transaction
involving Airgas. (Affidavit of James C. Woolery (“Woolery Aff.”) ¶ 4.) Air Products has
relied on Cravath’s representation in corporate matters for over 21 years. In that two-decade
span, Cravath attorneys have counseled Air Products on a wide variety of general corporate
issues, financings, and insurance coverage. (Woolery Aff. ¶ 3.) Cravath has also advised Air
Products on a litany of major transactions, particularly acquisitions and divestitures. For
example, Cravath recently advised Air Products in the sale of its vinyl acetate-ethylene polymers
interests to Wacker Chemie AG for $265 million and the sale of its European Methylamines and
Derivatives business to Taminco for $211 million. (Woolery Aff. ¶ 3.)
The CEO of Air Products met with the CEO of Airgas on October 15, 2009 to explore the
possibility of a privately-negotiated transaction. (Woolery Aff. ¶ 4.) While having never
worked for Airgas, Mr. Woolery knew that Cravath had represented Airgas from time to time in
financing matters. (Woolery Aff. ¶ 5.) Accordingly, several Cravath partners held a series of
discussions to determine whether the Firm could represent Air Products in connection with a
potential transaction with Airgas. (Woolery Aff. ¶ 5; Affidavit of C. Allen Parker (“Parker
Aff.”) ¶ 4.)
After careful review, they concluded that Cravath could represent Air Products in
connection with the potential transaction so long as Cravath did not take on any new assignments
12
for Airgas. (Woolery Aff. ¶ 6; Parker Aff. ¶ 5.) Further, they discussed the importance of
adhering to Cravath’s practice of establishing ethical walls between clients, and ultimately
implemented, and abided by, procedures to ensure compliance with that practice. (Woolery Aff.
¶ 7; Parker Aff. ¶ 6.)
IV. CRAVATH INFORMED AIRGAS THAT IT MUST DECLINE FUTURE AIRGAS
ENGAGEMENTS.
After Cravath concluded its investigation, on October 28, 2009, Mr. Cami called
his main contact at Airgas, Treasurer Joseph Sullivan. (Cami Aff. ¶¶ 33-34.) Mr. Cami told Mr.
Sullivan that he needed to speak with Airgas’s general counsel (Robert Young) about a conflicts
issue. Mr. Sullivan patched him through to Mr. Young. Mr. Cami told Mr. Young that he was
calling to inform Airgas that, at least for the time being, Cravath would decline any new
representations from Airgas due to the risk of a conflict developing with another client. (Cami
Aff. ¶ 34.)
After a couple of questions, Mr. Young stated, “I understand” and thanked Mr.
Cami for proactively contacting him rather than waiting until Airgas approached Cravath with a
new assignment, thereby avoiding time pressure to consider counsel when the need arose. Mr.
Young asked Mr. Cami to recommend a lawyer that Airgas could consider for future financing
executions. (Cami Aff. ¶ 35.)
Two days later, on October 30, 2009,3 Mr. Cami received an email from his
secretary asking him to call back Mr. Young. (Mr. Cami remembers the day well because he
was traveling back from Washington, DC. (Cami Aff. ¶ 37.)) Mr. Cami called Mr. Young on
his cell phone. (Cami Aff. ¶ 37.) Mr. Graff—as noted above, one of Airgas’s senior advisors on
3 Mr. Young’s affidavit misidentified the date of this conversation.
13
corporate strategy and acquisitions—was also on the line. (Cami Aff. ¶ 37.) Mr. Young, during
a back-and-forth exchange in which Mr. Young was agitated and had an aggressive tone, (1)
stated that Airgas had determined that Cravath’s potential conflict was due to Air Products’
interest in starting acquisition talks with Airgas, (2) implied that Cravath’s decision was
motivated by financial gain, and (3) asserted that Cravath had a conflict and that Airgas objected
to Cravath’s representation of Air Products. (Cami Aff. ¶ 37.) Finally, Mr. Young asserted that
if the transaction became hostile, Airgas would use “every arrow in its quiver” to oppose Air
Products, including by challenging Cravath’s representation. (Cami Aff. ¶ 37.)
During the same back and forth, Mr. Cami told Mr. Young that Cravath takes
ethical obligations very seriously and that the Firm’s reputation is extremely important to the
Firm. (Cami Aff. ¶ 38.) Mr. Cami noted that the transaction was not adversarial at that point,
but understood that it had the potential to become so and that was the reason for his call earlier in
the week. (Cami Aff. ¶ 38.) Mr. Cami also conveyed to Mr. Young that Air Products was a
longstanding client of the Firm, one which had repeatedly relied on Cravath for strategic advice,
particularly in the realm of transactions, such that Cravath believed Air Products would be
harmed by its inability to choose Cravath as its counsel on an important strategic matter. (Cami
Aff. ¶ 38.) Mr. Cami did not say that Cravath’s decision was motivated by financial
considerations. (Cami Aff. ¶ 39.)
Mr. Cami eventually brought the conversation to a close by telling Mr. Young
that, while he disagreed with Mr. Young’s view, he acknowledged that Airgas was objecting to
Cravath’s representation of Air Products. (Cami Aff. ¶ 40.)
Following his call with Messrs. Young and Graff, Mr. Cami had no more than
three conversations with Mr. Sullivan, beginning on October 31 and ending the following week.
14
(Cami Aff. ¶ 41.) The principal purpose for these conversations was to discuss Cravath’s
recommendations for other counsel Mr. Sullivan might hire for future debt financing-execution
assignments. (Cami Aff. ¶ 41.) During those conversations, Mr. Sullivan expressed his personal
dismay about the approach Airgas had taken with Cravath, which he described as “tactics.”
(Cami Aff. ¶ 41.)
V. AIRGAS REPEATEDLY RECEIVED NOTICE THAT AIR PRODUCTS WAS
MOVING FORWARD WITH A TRANSACTION WITH ADVICE FROM
CRAVATH.
On November 12, 2009, after Airgas’s Board of Directors initially turned down a
friendly transaction with Air Products, Mr. Young wrote a letter to Mr. Cami, which he claimed
was intended to serve as “notice that Airgas does not consent to Cravath’s continued
representation of Air Products in matters concerning Airgas.” (Affidavit of Robert Young
(“Young Aff.”) Ex. 1.)
Mr. Cami provided Mr. Young’s letter to Stuart Gold, a Litigation Partner whose
responsibilities include compliance with ethics rules. (Cami Aff. ¶ 42; Gold Aff. ¶ 5.) After
confirming Cravath’s earlier analysis that the continued representation of Air Products was
permissible, Mr. Gold responded to Mr. Young’s letter, explaining that Cravath had concluded
that it was not “in possession of material nonpublic information with respect to Airgas” and that
Cravath’s lawyers had not had “significant contacts with [Airgas’s] senior management on any
subject that would be relevant here.” (Young Aff. Ex. 2.) Mr. Gold further stated that “nothing
in [Cravath’s] past representation of Airgas . . . would require any consent from Airgas for
Cravath to represent Air Products in a transaction involving Airgas.” (Id.)
Upon receiving Mr. Gold’s November 23 letter, Airgas again chose not to seek an
emergency injunction against Cravath or other relief. Instead, sixteen days later, Airgas
15
responded with another letter to Mr. Gold. On December 9, 2009, Mr. Young wrote that “Airgas
is entitled to require [Cravath] to desist from further representation of Air Products with respect
to any contemplated transaction involving Airgas” under New York State Rules of Professional
Conduct. (Young Aff. Ex. 3.) Mr. Gold responded promptly to Mr. Young, on December 11,
2009, standing by Cravath’s prior analysis. Mr. Gold again informed Mr. Young that Cravath
did not believe that it was required to withdraw from representing Air Products. (Young Aff. Ex.
4.) After receiving Mr. Gold’s December 11 letter, Airgas once again took no legal action to
address its supposed concerns. Instead, on December 14, Mr. Young penned yet another letter to
Mr. Gold. (Young Aff. Ex. 5.)
In the meantime, the dialogue between Air Products and Airgas continued. On
December 17, 2009, Air Products’ CEO John E. McGlade sent Mr. McCausland a letter revising
Air Products’ offer to acquire Airgas. (See Exhibit A to this brief.) Mr. McGlade’s letter
conspicuously copied Mr. Woolery of Cravath. He was prominently identified on the letter as an
attorney (“James C. Woolery, Esq.”), and he is well known to Airgas’s legal advisors at
Wachtell, Lipton, Rosen & Katz, LLP, who have dealt with Mr. Woolery on numerous
occasions. If this highly important “offer letter” received anything more than cursory review by
Airgas and its advisors, and if Airgas truly believed that Cravath’s representation of Air Products
could cause it harm, they could not have failed to notice (and indeed look for) the identity of Air
Products’ legal counsel. After receiving Mr. McGlade’s letter that was copied to a Cravath
attorney, Airgas again took no action against Cravath.
On February 1, 2010, Cravath attorneys contacted Airgas’s legal advisors at
Wachtell and informed them that Air Products was very serious about moving forward with a
transaction. (Woolery Aff. ¶ 11.)
16
VI. AIR PRODUCTS’ OFFER AND THE DELAWARE LAWSUIT
On February 4, 2010, Air Products sent a public letter to Airgas announcing a
non-discriminatory, fully financed, all-cash offer to purchase all outstanding Airgas shares for
$60 per share—a 38% premium to that day’s closing price of $43.53. (Exhibit C to Airgas’s
Memorandum in Support of Airgas’s Motion to Disqualify and Enjoin Cravath (“Airgas Br.”).)
Later that evening, Air Products filed a Verified Complaint in the Delaware Chancery Court
against Airgas and its Board of Directors, seeking declaratory and injunctive relief for the
Board’s breaches of its fiduciary duties to Airgas’s shareholders—including Air Products.
(Airgas Br. at 6.)
Hours after Air Products’ offer for Airgas was public and the Delaware litigation
was instituted, attorneys for Airgas filed a verified complaint, a petition for an emergency
injunction, a proposed order, supporting affidavits and a lengthy memorandum of law reflecting
considerable legal research—papers that clearly had to have been prepared well in advance of
February 5. Indeed, just yesterday, Airgas’s lead counsel told the press Airgas has been planning
this lawsuit for “about two months.”4 While Airgas did not file an expert report with its
application, Cravath has learned that Airgas had retained an ethics expert the week before Air
Products’ offer. As succinctly put by The New York Times: “Airgas responded [to Air Products’
offer] in unusual fashion.”5 The New York Times further noted that, because the purported
conflict alleged by Airgas is “common” in this type of setting and because Airgas has known
4 See Alison Frankel, “Cravath Sued for Breach of Fiduciary Duty in Airgas M&A Battle,”
AmLaw Litigation Daily, Feb. 8, 2010.
5 See New York Times Dealbook, “Legal Broadsides Kick Off Air Products-Airgas Battle,” available at http://dealbook.blogs.nytimes.com/2010/02/05/legal-broadsides-kick-off-air-products-airgas-battle.
17
about it for months, the lawsuit is merely a “sideshow.”6 The Philadelphia Inquirer similarly
noted that Airgas’s filing of this lawsuit was meant to “counter[]” Air Products’ public offer and
the Delaware litigation7
VII. BECAUSE OF THE LIMITED REPRESENTATION PROVIDED TO AIRGAS,
CRAVATH HAS NO MATERIAL NONPUBLIC INFORMATION THAT COULD
ASSIST AIR PRODUCTS IN ITS ATTEMPT TO ACQUIRE AIRGAS.
Cravath does not have confidential information about Airgas that could assist Air
Products in its attempts to acquire Airgas. (Cami Aff. ¶¶ 3, 43.) For reasons explained in greater
depth in Mr. Cami’s affidavit, this is not surprising or unexpected given the limited scope of
Cravath’s representation of Airgas. (Cami Aff. ¶¶ 6-31.)
Though filled with sweeping statements, Airgas’s papers notably fail to explain
exactly what Cravath did for Airgas. An understanding of that work—i.e., assistance to Airgas
issuing bonds or borrowing under credit facilities—explains why Cravath does not possess
confidential information about Airgas that would, if revealed to Air Products, materially advance
Air Products’ efforts to acquire Airgas. (Cami Aff. ¶ 3.)
A credit facility (including a receivables facility) is a contract executed and
negotiated between a borrower and a group of lenders. (Cami Aff. ¶ 14.) The negotiations over
the terms of a bank facility (for example, the borrowing limit amount and the covenants
providing lenders protection) are driven in large part by prevailing (obviously public) interest
rates and the financial condition of the borrower, as rated by the several agencies that publish
such information. (Cami Aff. ¶ 14.) The key information that flows out of these arrangements is
6 See New York Times Dealbook, “Can Airgas Ride Out Air Products’ Gale?,” available at
http://dealbook.blogs.nytimes.com/2010/02/08/can-airgas-ride-out-air-products-gale/.
7 See Philadelphia Inquirer, “Air Products goes public in bid for Airgas,” available at http://www.philly.com/inquirer/business/83701372.html?cmpid=15585797.
18
the terms. (Cami Aff. ¶ 14.) In the case of a publicly traded company like Airgas, the material
terms of the facility must be publicly disclosed through SEC filings. (Cami Aff. ¶ 14.) In other
words, the material terms of every facility that Cravath has negotiated for Airgas is in the public
domain, available readily and free of charge through the SEC’s or Airgas’s websites. (Cami Aff.
¶ 14.) Most debt facilities, including Airgas’s facilities, include so-called change of control
provisions that require the debt of those facilities to be repaid upon a change of control. (Cami
Aff. ¶ 14.) Because of this feature, which is publicly known, the underlying terms of these
facilities (e.g., interest rates, covenants) are not particularly relevant to a potential acquirer’s
analysis. (Cami Aff. ¶ 14.)
A bond issuance involves debt securities issued to a group of investors. (Cami
Aff. ¶ 15.) Bond offerings are conducted through a public offering process following prescribed
SEC rules or in a so-called “Rule 144A offering,” which is exempt from SEC requirements.
(Cami Aff. ¶ 15.) In either case, a key part of the offering is the preparation of a marketing
document (referred to as a prospectus in a public offering or an offering memorandum in a Rule
144A offering) provided to potential investors. (Cami Aff. ¶ 15.) An important task for Cravath
would be to draft the prospectus or offering memorandum. (Cami Aff. ¶ 15.) The most
important part of this task is to ensure that the prospectus or offering memorandum discloses all
facts known to the company that are material to the investors, including the financial condition of
the company, risks in the company’s business, and so forth. (Cami Aff. ¶ 15.) Indeed, Cravath
would deliver a so-called “10b-5 letter” at the completion of the offering to the banks
underwriting the bonds that states, among other things, that the firm believes, based on its work,
that the company has disclosed all material facts in the prospectus or offering memorandum.
(Cami Aff. ¶ 15.) To be in a position to deliver such a letter, the firm engages in a “due
19
diligence” process of the company’s business, condition and operations. (Cami Aff. ¶ 15.) Upon
the completion of the offering, therefore, the prospectus or offering memorandum contains all
the information at that time that is material to investors. (Cami Aff. ¶ 15.) In addition to
Cravath, an independent firm retained by the bond’s underwriters (i.e., not Airgas’s counsel)
would conduct the same due diligence and similarly ensure that all information material to
investors is in the prospectus or offering memorandum, and deliver a similar 10b-5 letter. (Cami
Aff. ¶ 15.)
Another role Cravath would play in the bond offering is the review and
negotiation of the relevant agreements, the most important of which is the bond indenture.
(Cami Aff. ¶ 16.) Similar to the credit facilities, the bond indentures contained “change of
control” provisions. (Cami Aff. ¶ 16.) These provisions, which are publicly available, require
the company to offer to repurchase the bonds at a premium upon a change of control. (Cami Aff.
¶ 16.)
A final relevant part of Cravath’s work in connection with debt financings
execution is to ensure that Airgas’s board of directors had authorized the relevant debt financing.
(Cami Aff. ¶ 17.) Like many companies, Airgas would obtain a so-called “evergreen” resolution
that provides the company’s management with the ability to implement a debt financing at some
(often unknown) future date. The date of the resolution has no bearing on the date of the
ultimate debt financing. (Cami Aff. ¶ 17.) It can be many months, even years, after the
resolution is obtained that a financing is actually completed. (Cami Aff. ¶ 17.) This resolution
caps the amount of new debt at a specific dollar amount, and therefore, when a company nears
that cap, it is prudent for it to seek a new resolution in order to provide the company’s
management the maximum flexibility to implement new debt financings. (Cami Aff. ¶ 17.) At a
20
point early in Cravath’s representation of Airgas (probably 2001), Cravath prepared such an
“evergreen” resolution. (Cami Aff. ¶ 17.) Ever since then, Airgas would prepare any new
resolutions internally, with only limited assistance from Cravath. (Cami Aff. ¶ 17.)
While Cravath did not discuss with anyone at Airgas (much less senior
management) strategic matters such as future financing plans and the company’s desired capital
structure and acquisition strategies, the top management of the company frequently gives
extended, highly-detailed presentations (subsequently posted on Airgas’s website) to stock
analysts regarding all of these topics, and even future earnings guidance. By way of example, at
a December 15, 2009 presentation for analysts available on Airgas’s website, see
http://investor.shareholder.com/arg/events.cfm, the company’s most senior executives
participated in delivering a 125-slide PowerPoint presentation. One slide in the presentation,
titled “Capital Structure,” in a “chapter” presented by the company’s Chief Financial Officer
(whom nobody at Cravath ever met in the course of representing Airgas), explains how the
company revised its capital structure guidelines to be more conservative based on strong cash
flow and the scale of operations. (See Exhibit B to this brief at Slide No. 113.) The slide
specifies the company’s target debt/EBITDA ratio and its debt/capital ratio, which are financing
goals that were not discussed with Cravath. Id. Another slide describes the company’s
“upcoming financing transactions.” Id. at Slide 114. That slide reveals that current refinancing
rates available to the company were higher than its current facilities, but that the company
intended to improve its credit ratings and debt profile to give itself “more levers” to reduce its
borrowing costs on future financings. Id. Accordingly, the company “remain[ed] confident in
[its] ability to refinance [its] AR [Accounts Receivables] Securitization and Credit Facility
coming due over next 18 months.” Id. A separate section of the December 2009 presentation
21
focuses on Airgas’s acquisition strategy—another topic on which Cravath received no insights
from Airgas. The presentation was delivered by Senior Vice President for Corporate
Development Mr. Graff, another top executive with whom Cravath has not worked. Id. at Slides
93-104.
Like any publicly traded company, Airgas publicly discloses information
concerning its actual and financial performance, including information concerning its key
metrics such as revenues, debt levels, cash flows, etc., on a periodic basis. Transcripts of
Airgas’s earnings calls are available on the Internet,8 and relevant financial information is
available on Airgas’s website (www.airgas.com).
VIII. CRAVATH HAS NOT USED ANY AIRGAS CONFIDENTIAL INFORMATION
IN CONNECTION WITH THE AIR PRODUCTS TRANSACTION AND, IN AN
ABUNDANCE OF CAUTION, AN ETHICAL WALL WAS ERECTED TO
ENSURE THAT THE CRAVATH AIR PRODUCTS DEAL TEAM CANNOT
ACCESS INFORMATION AIRGAS PREVIOUSLY SUPPLIED TO THE FIRM
As noted, Cravath has a long-standing practice of establishing and maintaining
ethical walls to ensure that clients’ confidential information is protected from disclosure when
the situation requires. (Gold Aff. ¶¶ 3-4; Woolery Aff. ¶ 7.) Cravath understood the importance
of adhering to that practice in connection with its representation of Air Products in the potential
transaction with Airgas, implemented procedures to ensure compliance with that practice and
adhered to those procedures. (Woolery Aff. ¶ 7.)
In connection with its representation of Air Products, Cravath has not used, and it
has no intention of using, any information in the Firm’s possession that was obtained during
Cravath’s representation of Airgas. (Woolery Aff. ¶¶ 8-10; Affidavit of Francis P. Barron
8 See, e.g., http://seekingalpha.com/article/185488-airgas-inc-f3q10-qtr-end-12-31-09-earnings-
call-transcript?source=bnet (last visited Feb. 8, 2010).
22
(“Barron Aff.”) ¶¶ 5-6.) Mr. Cami has never been consulted in connection with the Air Products
transaction, except with regard to Airgas’s allegations of conflict of interest, and he has been
“walled off” from the Air Products team. (Cami Aff. ¶¶ 4-5.)
Air Products’ financial advisors are JPMorgan Chase. (Huck Aff. ¶ 3.)
JPMorgan Chase’s valuation of Airgas for purposes of the offer Air Products made to Airgas
shareholders on February 4 was based exclusively on publicly available information and
information supplied by Air Products. (Huck Aff. ¶ 7.)
APPLICABLE STANDARD
A party seeking a preliminary injunction must establish each of a number of
“essential prerequisites.” Warehime v. Warehime, 860 A.2d 41, 47 (Pa. 2004). In particular, the
petitioner must prove that
“[1] the activity sought to be restrained is actionable and the petitioner has a clear right to relief therefrom; [2] the injunction is necessary to prevent immediate and irreparable harm that cannot be compensated by monetary damages; [3] the injunction will restore the parties to the status quo as it existed prior to the wrongful conduct; [4] greater injury will result from refusing to issue the injunction than from issuing it; and [5] the injunction is reasonably suited to abate the activity in question.”
Med. Resources, Inc. v. Miller, Nos. 2242, 111041, 2001 WL 1807934, at *3 (Pa. Com. Pl. Jan.
29, 2001) (Sheppard, J.) (citing School Dist. of Wilkinsburg v. Wilkinsburg Educ. Ass’n, 667
A.2d 5, 6 n.2 (Pa. 1995)).
Because a preliminary injunction is a “harsh” and “extraordinary” remedy, it may
be granted only where the plaintiff has made a “strong showing” that it has a “clear right to the
relief sought.” Soja v. Factoryville Sportsmen’s Club, 522 A.2d 1129, 1131 (Pa. Super. Ct.
1987); Maritrans GP Inc. v. Pepper, Hamilton & Scheetz, 602 A.2d 1277, 1283 (Pa. 1992).
23
A court may issue a preliminary injunction only “if each element [of the five part
test] is fully and completely established.” Med. Resources, 2001 WL 1807934 at *3 (emphasis
added) (quoting McCluskey v. Washington Twp., 700 A.2d 573, 576 (Pa. Commw. Ct. 1997)).
Put differently, if a petitioner fails to establish any one of the “essential prerequisites” the
application for injunction must be denied. Summit Towne Ctr., Inc. v. Shoe Show of Rocky Mt.,
Inc., 573 Pa. 637, 646 (Pa. 2003); see also County of Allegheny v. Commonwealth, 544 A.2d
1305, 1307 (Pa. 1988) (“For a preliminary injunction to issue, every one of [the] prerequisites
must be established; if the petitioner fails to establish any one of them, there is no need to
address the others.”).
Orders that preclude attorneys from representing clients are “a serious remedy
which must be imposed with an awareness of the important interests of a client in representation
by counsel of the client’s choice.” Albert M. Greenfield & Co. v. Alderman, No. 1555, 2001
WL 1855056, at *5 (Pa. Com. Pl. May 14, 2001) (citing McCarthy v. Southeastern Pa.
Transportation Auth., 772 A.2d 987, 991 (Pa. Super. Ct. Apr. 10, 2001) and George v. Wausau
Ins. Co., No. 99-6130, 2000 WL 276915, at *1 (E.D. Pa. Mar. 13, 2000)). Furthermore, courts
are even more reluctant to grant motions depriving a client of its ability to employ counsel of its
own choosing where it is apparent that they are being used “for tactical purposes.” Alderman,
2001 WL 1855056 at *5.
A party that seeks a special injunction prior to a hearing on preliminary injunctive
relief must prove that “immediate and irreparable injury will be sustained before notice can be
given or a hearing held.” Pa. R. C. P. 1531(a); City of Reading v. Firetree, Ltd., 984 A.2d 16, 22
(Pa. Commw. Ct. 2009).
24
ARGUMENT
Cravath is not in the business of misusing its clients’ information. It is regrettable
that, in the face of repeated assurances that Cravath has complied and would continue to comply
with duties it owes to its former client, Airgas has decided that attacking Cravath’s professional
reputation would be a responsible way to fight off Air Products’ offer to acquire Airgas at a
substantial premium, derail the proposed transaction and block (or significantly delay) the first-
filed Delaware action. Airgas’s allegations attacking Cravath’s professional reputation are
utterly without merit, and Cravath looks forward to proving to the Court that it takes its ethical
obligations seriously. At this stage, the drastic remedy Airgas is seeking—an order immediately
prohibiting Cravath from providing advice to Air Products—should be promptly denied.
As a threshold matter, to the extent Airgas is seeking a special injunction, it is not
entitled to one. Nothing in Airgas’s papers comes close to establishing that, in the days between
February 9 and a hearing on the request for preliminary injunction, Airgas will suffer any injury
from Cravath’s continued representation of Air Products. Airgas has known about Cravath’s
representation of Air Products for months, yet chose to do nothing about it until after its
shareholders were told that its board was standing in the way of the Air Products offer and after
the Delaware action was filed. The advice Cravath has been giving to Air Products does not rely
on any Airgas confidential information—indeed, Cravath does not even have relevant nonpublic
information—and Airgas’s inactivity in protecting its alleged rights belies any argument that
Cravath’s representation must be stopped, let alone immediately. Because Airgas will suffer no
harm before the Court has a chance to consider an application for preliminary injunction, a
special injunction should be denied. Commonwealth ex rel. Davis v. Van Emberg, 347 A.2d
712, 715 (1975) (vacating temporary restraining order where there was no showing that
25
immediate or irreparable injury would have occurred had the trial court delayed issuing the
injunction).
Airgas’s request for a preliminary injunction is also deficient. Even the most
cursory review of the moving papers reveals that Airgas has failed even to address no fewer than
three of the “essential prerequisites” to a preliminary injunction. In particular, nothing in
Airgas’s papers addresses whether “the injunction will restore the parties to the status quo as it
existed prior to the wrongful conduct,” whether “greater injury will result from refusing to issue
the injunction than from issuing it” or whether “the injunction is reasonably suited to abate the
activity in question.” Med. Resources, 2001 WL 1807934 at *3. Because Airgas must “fully
and completely establish” its entitlement to a preliminary injunction but has failed even to
address three essential parts of the applicable test, the request for preliminary injunction must be
summarily denied. Id.; see also Lee Pubs., Inc. v. Dickinson School of Law, 848 A.2d 178, 189
(Pa. Commw. Ct. 2004) (“because we conclude that, as a matter of law, the [plaintiffs] . . . failed
to establish one of the prerequisites for obtaining a preliminary injunction, as was their burden, . .
. we must reverse the trial court’s order granting the injunction”); Brewster v. Highway
Materials, Inc., Nos. 08-09940, 08-09353, 2009 WL 2055951 (Pa. Com. Pl. March 17, 2009)
(holding that where the petitioner “fail[s] to satisfy one of the requisite elements for the grant of
a preliminary injunction, thereby necessitating the denial of the[] petition,” the court “need not
address [the petitioner’s] arguments concerning any of the remaining requisite elements”);
Hamdan v. Alwalidi, No. 4437, 2001 WL 1807393, at *2 (Pa. Com. Pl. Nov. 2, 2001) (“if one
element is lacking, relief may not be granted”).9
9 Because Airgas failed to address three preconditions to a preliminary injunction in its opening
papers, it should be precluded from addressing them in its reply brief or during the preliminary injunction
26
And even if the Court were to overlook that fundamental and fatal deficiency in
Airgas’s pleadings, the request for preliminary injunction fails because Airgas cannot prove any
of the “essential prerequisites” to the remedy it seeks.
I. AIRGAS CANNOT ESTABLISH A STRONG LIKELIHOOD OF SUCCESS ON
THE MERITS.
Airgas’s claim for breach of fiduciary duty is based solely on an alleged violation
of the Rules of Professional Conduct. Airgas cannot prevail on its claim because no such
violation has occurred. Further, even if there had been such a violation, that alone would not
make out a claim for breach of fiduciary duty. Airgas must instead show misuse of its
confidential information. In addition, even if Airgas could prove a breach of duty, it cannot
demonstrate that it was injured by that breach. Finally, even if Airgas were able to establish all
the elements of its claim for beach of fiduciary duty, it has failed to show that an order
completely prohibiting Cravath from advising Air Products in any and all matters relating to the
acquisition of Air Products is appropriate relief.
A. Airgas Cannot Show a Breach of Fiduciary Duty.
1. The alleged conflict is insufficient to establish a breach of duty.
According to Airgas, Cravath has a disabling conflict of interest barring it from
representing Air Products in the proposed transaction solely because it previously represented
Airgas in certain discrete (or, to use Airgas’s word, “distinct” (Compl. ¶ 8)) debt financing-
execution matters, which are unrelated to the proposed acquisition. The law is clear, however,
that violations of the Rules of Professional Conduct (assuming that such violations could be
established) “do not per se give rise to legal actions that may be brought by clients or other
hearing. In re R.P., 918 A.2d 115, 120 n.2 (Pa. Super. 2007) (noting that “[i]t is well-settled that it is improper to raise new issues in a reply brief”).
27
private parties.” Maritrans, 602 A.2d at 1279. Indeed, the Professional Rules themselves could
not be clearer: a “[v]iolation of a Rule should not itself give rise to a cause of action against a
lawyer nor should it create any presumption in such a case that a legal duty has been breached
. . . . The Rules are . . . not designed to be a basis for civil liability.” Pa. R. P. C., Preamble
¶ 19.10 To prevail on its sole cause of action, therefore, Airgas must show not just an ethical
violation but that Cravath also committed an actual breach of a fiduciary duty. Rizzo v. Haines,
555 A.2d 58, 68 (Pa. 1989); Romy v. Burke, No. 1236, 2004 WL 3050866, at *2 (Pa. Com. Pl.
Dec. 28, 2004).
Airgas has not shown—and cannot show—that Cravath has breached any
fiduciary obligation to Airgas. As counsel, Cravath’s fiduciary obligation is to preserve its
client’s confidences and not to misuse them. Maritrans, 602 A.2d at 1283-84. There is no
evidence that Cravath has disclosed or misused any nonpublic information of Airgas in its
representation of Air Products. Indeed, Cravath does not even have any nonpublic Airgas
information that would be in any way useful in the context of the proposed transaction. (Cami
Aff. ¶ 43.) The fact that Airgas waited for over three months to commence this lawsuit destroys
the credibility of any assertion that Cravath has confidential information that it may share with
Air Products; if that were true, Airgas would have brought this suit in October, not three months
10 Because the Cravath lawyers who interacted with Airgas are based in New York and because
Airgas is a Delaware corporation in litigation with Air Products in Delaware, Cravath believes that the applicable rules of ethics are those of New York and Delaware (as interpreted by the Courts of those States), rather than those of Pennsylvania (as interpreted by Courts in this Commonwealth). See Pa. R. Professional Conduct § 8.5(b). Indeed, Airgas itself previously took the position that Cravath’s conduct was governed by the New York Rules of Professional Conduct (See Young Aff. Ex. 3) and appears to have changed its position solely for tactical reasons associated with this lawsuit. However, Cravath steadfastly maintains that its actions were proper under the Pennsylvania ethics rules, and, for that matter, any other applicable rules. For purposes of this motion only, Cravath will address the alleged conflict under the Pennsylvania Rules of Professional Conduct, which Airgas, having now changed its position, argues apply to this action.
28
later and on the very day after Air Products made public its offer and commenced litigation in
Delaware.
Furthermore, Cravath has taken steps to ensure that any Airgas information,
whether confidential or not and whether relevant or not, has been and will continue to be
protected. (Gold Aff. ¶ 12; Woolery Aff. ¶ 7; Cami Aff. ¶¶ 4,5, 33-42.) No confidential
information was used and no confidential information will be used by the Air Products deal
team. (Woolery Aff. ¶¶ 8, 10; Barron Aff. ¶¶ 5-6; Affidavit of Rodney M. Miller, Sr. (“Miller
Aff.”) ¶ 6; Huck Aff. ¶ 6.) The Air Products deal team’s work with respect to Airgas was done
based exclusively on public information and information received from Air Products. (Woolery
Aff. ¶ 8; Barron Aff. ¶ 5; Miller Aff. ¶ 3; Huck Aff. ¶ 5.) Thus, even assuming that Airgas could
prove some technical violation of the Rules of Professional Conduct (which Airgas cannot do),
Airgas cannot prove a breach of fiduciary duty.
While Airgas spends much of its brief attempting to shoehorn this case into the
mold of Maritrans, those efforts are unavailing. For one thing, the extreme facts of Maritrans are
clearly distinguishable and, as commentators have noted, Maritrans is “best limited to its facts.”
Douglas B. Richmond, Choosing Sides: Issue or Positional Conflicts of Interest, 51 Fla. L. Rev.
383, 409 (1999). There, after an evidentiary hearing, the evidence showed that the attorney
defendants had engaged in a series of multi-year, elaborate efforts actively to deceive a current
client, while simultaneously—and behind the scenes—advising several of their client’s closest
and largest competitors on matters that the court found to be “substantially related.” Maritrans,
602 A.2d at 1279. Further, the lawyers were Maritrans’s principal outside counsel on the very
same subject (labor relations) on which they were advising Maritrans’s competitors. Id. at 1280.
Those lawyers were “intimately familiar with Maritrans’ operations” and knew “the complete
29
inner-workings of the company along with Maritrans’ long-term objectives.” Id. The trial court
in Maritrans also found that (a) the principal lawyer on the matters had affirmatively
misrepresented to his clients that he was not working for certain competitors, id. at 1281, (b) the
lawyer had given false testimony under oath to the trial court, id., and (c) the firm “breached its
obligation, which was fortified by a specific promise, to keep from [the lead partner] that which
was learned after the erection of the ‘Chinese Wall’”, id. at 1282.
Those facts are a far cry from the ones at issue here. Cravath forthrightly advised
Airgas of the situation and has made no effort to deceive. Rather than being principal outside
counsel with deep knowledge of the company, Cravath had a narrow and limited role for Airgas,
and has had no interaction with its senior executives. Cravath’s representation of Air Products is
unrelated to the limited debt financing-execution advice that Cravath previously provided, and
Cravath does not have relevant nonpublic Airgas information. Further, unlike in Maritrans, the
Cravath lawyer who is alleged to have received information from Airgas has been “walled off”
from the Air Products deal team, and there is zero evidence that the ethical wall Cravath set up
has been breached or is in any way a sham.
Furthermore, Maritrans stands only for the unremarkable proposition that, where
the facts bear it out, a client can assert a breach of fiduciary duty against its former attorney and
that a court of equity may order the attorney to abide by his/her fiduciary obligations. As this
Court recognized in Werther v. Rosen, No. 1078, 2003 WL 1848570, at *3 (Pa. Com. Pl. Feb.
13, 2003), Maritrans did not alter the longstanding principle that “[t]he mere breach of a
professional duty . . . does not suffice to create a cause of action.” The decision is based on the
“belief that one client will be harmed by the attorney’s use, in his/her representation of the
30
adverse party, of confidential information obtained from the first client.” Werther, 2003 WL
1848570 at *3 (emphasis added). Maritrans plainly has no application here.
2. Airgas cannot show a conflict of interest.
Even if the Rules of Professional Conduct had created private causes of action
(which they clearly do not), there is no conflict of interest here. Cravath has had a narrow and
episodic relationship with Airgas and, as of September 12, 2009, Cravath had substantially
completed all work related to Airgas’s 2009 bond issuance. At that point, Cravath was entitled
to terminate its relationship with Airgas and Cravath did so at the very latest on October 28,
2009, when Mr. Cami informed Airgas that Cravath could not take on any new assignment.11
On the assumption that Cravath’s conduct is subject to review under the
Pennsylvania Rules of Conduct, the conflict of interest question is governed by Pennsylvania’s
Rule of Professional Conduct 1.9, which relates to former client representation. That rule states,
in relevant part:
“A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client.”
Pa. R. P. C. 1.9(a) (emphasis added). Airgas does not argue that Cravath’s former representation
of Airgas, which was limited to debt financing-execution matters, is “the same” as the proposed
11 In an effort to allege a conflict on Cravath’s part, Airgas suggests (mistakenly) that Cravath
was actively working on Airgas projects immediately before Cravath formally terminated the relationship on October 28, 2009. (Compl. ¶¶ 15-21.) Mr. Cami’s sworn affidavit disposes of that claim. (Cami Aff. ¶¶ 26-31.) By October 28, 2009, Cravath had completed its last debt financing-execution assignment for Airgas and Cravath had no other ongoing assignments. The “draft Board Resolution” that Cravath allegedly delivered to Airgas on October 28, 2009, was simply a boilerplate document that Cravath sends to clients for which it has done debt financing-execution work as a matter of course. (Cami Aff. ¶ 30.) In sum, Cravath was not working on Airgas projects on October 28, 2009, the date when Cravath formally and effectively terminated the attorney-client relationship. Although Airgas references in its moving papers a bill that Cravath submitted for payment in October 2009 (Young Aff. ¶ 5), the bill reflects work Cravath had substantially completed by September 12, 2009. (Cami Aff. ¶ 27.)
31
acquisition of Airgas that allegedly gives rise to the conflict. Thus, the existence of a conflict
turns on whether there is a “substantial relationship” between the proposed acquisition of Airgas
by Air Products and the “distinct” (Compl. ¶ 8) debt financing-execution matters that Cravath
episodically performed for Airgas.
Two matters are “substantially related” when they involve “the same transaction
or legal dispute” or if there is a “substantial risk that confidential factual information as would
normally have been obtained in the prior representation would materially advance the client’s
position in the subsequent matter.” Pa. R. P. C. 1.9, cmt [3] (emphasis added). In determining
whether a substantial relationship exists, Pennsylvania courts consider (1) the nature and scope
of the prior representation at issue, (2) the nature of the matter the attorney has undertaken
against its former client and (3) whether, in the course of the prior representation, the client
disclosed to his attorney confidences which could be relevant to the present action and whether
any such confidences could be detrimental to the former client in the current matter.
Commonwealth Ins. Co. v. Graphix Hot Line Inc., 808 F. Supp. 1200, 1204 (E.D. Pa. 1992). In
evaluating the first part of the test, courts focus on the former client’s “reasons for the retention
of counsel and the tasks which the attorney was employed to perform.” Id. Under the second
part of the test, a court must evaluate the issues raised by the present matter and the underlying
facts. Id. Finally, in answering whether relevant confidences “might” have been disclosed
during the prior representation, “courts should not read the word ‘might’ literally” but should
focus on whether the prior representation could be reasonably expected to involve disclosure of
substantially related information. Id. The burden of establishing a substantial relationship
between the matters falls upon the party alleging a conflict, which in this case is Airgas. Gross
v. Gross, No. 97-cv-883, 1997 WL 653909, at *2 (E.D. Pa. Oct. 20, 1997).
32
For all its efforts to exaggerate the scope of Cravath’s representation of Airgas,
which efforts cannot be reconciled with reality (Cami Aff. ¶¶ 2-31), Airgas cannot prove that a
conflict exists under Rule 1.9. As explained in Mr. Cami’s affidavit, Cravath’s former
representation of Airgas was narrow and provided little, if any, insight into Airgas’s business that
did not subsequently become a matter of public record. (Cami Aff. ¶¶ 2-31.) The nature of
Cravath’s current efforts on behalf of Air Products is entirely distinct from the narrow range of
work Cravath previously did for Airgas—indeed, Cravath does not have any nonpublic Airgas
information that would in any way be useful to Air Products. (Cami Aff. ¶¶ 2-31.) Finally, there
is simply no scenario under which Cravath would disclose Airgas’s confidential information, as
demonstrated by the sworn affidavits submitted to this Court and by the fact that Cravath has
been advising Air Products for months without breaching its obligations to Airgas. (Woolery
Aff. ¶ 10; Barron Aff. ¶¶ 4-6; Cami Aff. ¶¶ 2-31.)
Rather than address the applicable ethics rules, which are those relating to former
clients, Airgas argues that Cravath’s termination of Airgas was ineffective by virtue of the so-
called “hot potato” rule. In other words, Airgas urges the Court to treat Cravath as Airgas’s
current attorneys for the purpose of determining whether a conflict of interests exists, despite the
fact that Cravath permissibly terminated its relationship with Airgas at a time when it was not
engaged by Airgas on any matter, and after Cravath so advised Airgas.
The “hot potato” rule has no application here. Under appropriate circumstances,
an attorney may terminate its relationship with one client in order to continue representing
another longstanding client without raising a conflict of interest. Contrary to Airgas’s
33
contention, there is no “well settled” rule that an attorney may never effect such a termination.12
(Airgas Br. at 9.) Although the “hot potato” rule may apply when “firms drop older clients in
favor of newer, more profitable clients,” it makes little sense to apply it where firms are merely
seeking to continue relationships with “long-standing clients.” Eaton v. Coca-Cola Co., 640 F.
Supp. 2d 203, 207 (D. Conn. 2009). Furthermore, the rule also is not appropriate where the
former client is a sophisticated, “multi-billion dollar corporation” like Airgas, which can easily
obtain new counsel. Id. Ethics commentators have similarly noted that construing the “hot
potato” rule as uncritically and uncategorically as Airgas would have it, would be inconsistent
with the permissive withdrawal scheme envisioned by the ethics rules. See Geoffrey C. Hazard,
Jr. & W. William Hodes, The Law of Lawyering § 20.10 (3d ed. 2010).13
Not surprisingly, courts in Pennsylvania, Delaware and other states allow
attorneys to terminate their relationship with one client when the continuation of that relationship
might present a conflict. See Gross, 1997 WL 653909, at *3-4; Unanue v. Unanue, No. 204-N,
2004 WL 602096, at *1-4 (Del. Ch. Mar. 25, 2004) (permitting withdrawal from 15-year
relationship with client Goya, a large corporation, in order to represent another client); AmSouth
12 Airgas’s attempt to ground this “well settled” rule in Section 132 of the Restatement (Third) of
the Law Governing Lawyers fails. (Airgas Br. at 7-8.) Pennsylvania courts have not adopted this section of the Restatement. Reutzel v. Douglas, 582 Pa. 149 (2005), on which Airgas relies, did not mention Section 132. Instead, it was the concurring opinion that discussed the Restatement, and its view of the Restatement’s applicability to the case was affirmatively rejected by the majority. Similarly, Quantitative Fin. Strategies Inc. v. Morgan Lewis & Bockius, LLP, No. 3809, 2002 WL 434380 (Pa. Com. Pl. Mar. 12, 2002), did not involve Section 132.
13 Incidentally, while attempting to secure the services of an ethics expert, Cravath learned that Professor Hazard had been retained by Airgas’s litigation counsel for purposes of this matter in approximately late January, during the period in which Airgas was contemplating this litigation as confirmed yesterday by Mr. Cozen’s press interview. That fact belies the suggestion in Airgas’s papers that it did not know Cravath was continuing to represent Air Products until February and further confirms that this lawsuit has nothing to do with any supposed concern over the threat of Cravath sharing confidential information, and is instead a tactic Airgas is employing in connection with the Air Products transaction.
34
Bank, N.A. v. Drummond Co., 589 So. 2d 715, 717-22 (Ala. 1991); In re Rite Aid Corp. Sec.
Litig., 139 F. Supp. 2d 649, 658 (E.D. Pa. 2001); Kempner v. Oppenheimer & Co., 662 F. Supp.
1271, 1276-79 (S.D.N.Y. 1987). In Gross, plaintiff’s counsel withdrew from representing the
defendant in another ongoing lawsuit so that he could continue representing the plaintiff without
creating a conflict of interest. Gross, 1997 WL 653909, at *1. The defendant, in her motion to
disqualify under Rule 1.7, argued that plaintiff’s counsel “should not be allowed to drop
[defendant] like a ‘hot potato’ in order to represent [plaintiff] against her in this suit.” Id. at *3.
The court rejected defendant’s argument and denied the motion to disqualify, since the defendant
could not reasonably have believed that an attorney-client relationship existed at the time of her
motion: plaintiff’s counsel had represented the plaintiff before in litigation against the
defendant, and the defendant had chosen other counsel for that litigation. Id. at *4. Under such
circumstances, it was clear that the defendant could no longer have expected a confidential
relationship with plaintiff’s counsel.14 Id.
Similarly, in AmSouth, the Supreme Court of Alabama held that a law firm
should be permitted to withdraw from representing one client in order to avoid a conflict where
the law firm moves swiftly to correct the conflict and considers the prejudice that its clients
would suffer from withdrawal. Upon realizing that it was representing two parties (AmSouth
and Drummond) on opposite sides of litigation, the law firm of Arnold & Porter requested that
AmSouth waive the conflict but AmSouth refused. After AmSouth moved to disqualify Arnold
& Porter, the firm terminated its relationship with AmSouth. AmSouth, 589 So. 2d at 717.
AmSouth argued that Arnold & Porter should not be allowed to drop it like a hot potato, but the
14 In light of this fact, the court noted that the defendant’s motion appeared to have been filed for
impermissible tactical reasons, rather than a genuine concern for enforcing ethical standards or protecting client confidences. Id.
35
court disagreed, finding that Arnold & Porter had carefully considered the potential conflict once
it arose and acted appropriately in requesting withdrawal. Id. at 719. The court also noted that
Arnold & Porter had done significantly more work for Drummond than for AmSouth at the time
of the disqualification motion: as such, Drummond would have been more prejudiced by
withdrawal than AmSouth. Id. at 717, 719.
Much like the withdrawals in Gross and AmSouth, Cravath’s proactive decision
to inform Airgas it could no longer accept future assignments was a proper means of avoiding a
conflict of interest. Once the Cravath lawyers representing Air Products learned of the
possibility of a conflict of interest, Cravath investigated the proper course of action and then
notified Airgas of the conflict. There was no deception. After Airgas refused waiver, Cravath
promptly terminated future representations, leaving Airgas with no doubt that its relationship
with Cravath had ended. Indeed, Cravath made clear in subsequent communications that it
represented Air Products, not Airgas. (Young Aff. Exs. 2, 4.) As such, Airgas cannot
reasonably say that it believed an attorney-client relationship between it and Cravath still existed,
or exists to this day. See Gross, 1997 WL 653909, at *4; Unanue, 2004 WL 602096, at *4;
Rohm & Haas Co. v. Dow Chem. Co., No. 4309-CC, 2009 WL 445609, at *2 (Del. Ch. Feb. 12,
2009) (“I am not convinced by the argument that Dow reasonably believes it is a current client
. . . . Dow obtained its own separate counsel to represent Dow in the merger negotiations.”).
The authorities on which Airgas relies in its attempt to argue for a categorical rule
barring withdrawal are inapposite and do not undermine the precedents explained above. In each
of the “hot potato” cases Airgas cites, an attorney sought to terminate its relationship with a
client that it was currently representing in ongoing litigation. (Airgas Br. at 9.) The courts in
those cases understandably did not want to permit an attorney to dispose of a client in the middle
36
of an ongoing court proceeding. That is not remotely the case here. Similarly, the advisory
Pennsylvania bar association ethics opinions cited by Airgas (Airgas Br. at 9-10) involved
situations where it was clear that the attorney was representing both clients in ongoing matters.
Here, by contrast, Cravath had no ongoing work for Airgas when it terminated the relationship.
(Cami Aff. ¶¶ 26-31.)
It is important to note that, while Air Products would suffer severe prejudice as a
result of Cravath’s withdrawal, there would be no prejudice to Airgas if its opportunistic motion
is denied. See AmSouth, 589 So. 2d at 717, 719. Cravath has conducted substantial work for
Air Products in connection with the proposed acquisition and, while it was fully aware of
Cravath’s activities, Airgas did not attempt—for tactical reasons—to enforce its alleged rights.
Enjoining Cravath from advising Air Products after months of work would visit significant harm
on Air Products. (Huck Aff. ¶ 9.) And while Airgas seeks to portray itself as the victim of a
grave betrayal, the record does not bear that out. Put simply, Airgas is no “hot potato” and it has
never been treated as such. When Cravath told Airgas it could no longer represent it, Mr. Cami
recommended to Airgas new financing-execution counsel. (Cami Aff. ¶¶ 33-42.) And since Air
Products began its attempts to acquire Airgas, Airgas has received advice from Wachtell, Lipton,
Rosen & Katz, Goldman Sachs and Merrill Lynch (Woolery Aff. ¶ 11), and there is no indication
that Airgas would prefer to have the counsel of Cravath, which has never done mergers and
acquisitions work for Airgas. Airgas’s attempt to gain a tactical advantage over Air Products by
suing Air Products’ counsel—after sitting on its alleged rights for months—only underscores the
parties’ equities and the disingenuous nature of Airgas’s request. See Gross, 1997 WL 653909,
at *4.
37
B. Airgas Cannot Show Injury From the Alleged Breach.
As this Court has recognized, even if Airgas could prove a violation of the rules
of professional responsibility, Airgas cannot show a breach of fiduciary duty unless it also
proves injury stemming from that breach. Werther, 2003 WL 1848570 at *3 (“When it is alleged
that an attorney has breached his professional obligations to his client, an essential element of the
cause of action . . . is proof of actual loss.”); Pa. Std. Jury Instructions (Civ.) 4.16 (3d ed. 2005)
(noting that the elements of breach of fiduciary duty claim include that “the plaintiff suffered
injury; and that the agent’s failure [to fulfill its duty] was a real factor in bringing about the
plaintiff’s injuries”); Rizzo, 555 A.2d at 68 (holding that harm is an “essential element” of the
cause of action for breach of fiduciary duty); Romy, 2004 WL 3050866, at *2. Failure to
demonstrate the existence of injury is fatal to a claim for a breach of fiduciary duty. Werther,
2003 WL 1848570, at *3 (“The mere breach of a professional duty . . . does not suffice to create
a cause of action”). And, of course, the failure to demonstrate that the plaintiff will suffer
irreparable harm is fatal to a request for an injunction. Maritrans, 602 A.2d at 1283. Irrespective
of the relief sought, if an attorney’s conduct did not and will not result in injury to the plaintiff, a
claim for breach of fiduciary duty must fail. Werther, 2003 WL 1848570, at *4 (allowing
concurrent representation of clients with divergent interests where no harm would result from
disclosure).
As shown above, Airgas has not established—and cannot establish—that it is
being injured by Cravath’s representation of Air Products. Cravath does not have confidential
Airgas information that would assist Air Products in its attempt to acquire Airgas; the
information about which Airgas purports to be concerned is either not known to Cravath, not
confidential, or would not assist Air Products. (Cami Aff. ¶¶ 2-31.) Furthermore, Cravath has
38
not used any nonpublic Airgas information in its representation of Air Products, and has taken
steps to ensure that it will not do so. (Woolery Aff. ¶¶ 7-8.)
Airgas’s attempts to plead harm are unavailing. Airgas’s allegation that it “has
already been harmed” because it had to “retain new outside counsel to seek to enforce Cravath’s
ethical and fiduciary obligations, and it has incurred legal fees and costs in doing so” (Airgas Br.
at 15) is meritless on its face. After repeated assurances that Cravath would not misuse its
information, Airgas cannot fabricate a breach of duty claim by filing a baseless complaint and
claiming legal expenses it is unnecessarily incurring as “injury.” Similarly, Airgas’s claim that it
has “had to retain replacement counsel” after Cravath informed Airgas that it could no longer
represent Airgas (id.) does not withstand scrutiny. Put simply, Airgas could have had no
expectation that Cravath would serve as its counsel in perpetuity and Cravath diligently
completed all outstanding assignments before terminating its relationship with Airgas. Cravath
gave Airgas notice prospectively, before a new debt financing-execution matter arose, for which
Airgas’s general counsel thanked Cravath. Finally, the allegation that Air Products’ offer has
made it more difficult “to obtain new financing at more favorable rates” (id.) is not in any way
tied to Cravath’s alleged breach.
C. There is No Basis for the Extreme Remedy of Depriving Air Products of its
Choice of Counsel.
As the Pennsylvania Rules of Professional Conduct make clear a “violation of a
Rule does not necessarily warrant any other nondisciplinary remedy, such as disqualification of a
lawyer.” Pa. R. P. C., Preamble ¶ 19; see also Griffin-El v. Beard, No. 06-2719, 2009 U.S. Dist.
LEXIS 81028, at *12 (E.D. Pa. Sept. 4, 2009) (“Even if the court finds that an attorney violated a
disciplinary rule, disqualification is never automatic.”). To obtain a remedy like the one sought
by Airgas here, the petitioner “bears the burden of clearly showing that continued representation
39
would be impermissible. Vague and unsupported allegations are not sufficient to meet this
standard.” Id. Motions seeking remedies that deprive a client of its choice of counsel should be
viewed with particular skepticism where it appears that they were filed “for tactical purposes,”
rather than out of genuine concern about client loyalty. Alderman, 2001 WL 1855056, at *5;
Shade v. Great Lakes Dredge & Dock Co., 72 F. Supp. 2d 518, 520 (E.D. Pa. 1999) (noting that
the “purpose of the Rules [of Professional Conduct] can be subverted when they are invoked by
opposing parties as procedural weapons.”). Because “a party’s choice of counsel is entitled to
substantial deference,” a court should enjoin an attorney’s representation only if it determines
that such an order “is an appropriate means of enforcing the applicable disciplinary rule.”
George v. Wausau Ins. Co., No. 99-6130, 2000 WL 276915, at *1 (E.D. Pa. Mar. 13, 2000).
Indeed, under Pennsylvania law, to obtain the remedy Airgas is seeking, a party must prove that
“another remedy for the [alleged] violation is not available.” Weber v. Lancaster Newspapers,
Inc., 878 A.2d 63, 80 (Pa. Super. 2005) (citations omitted). Because there is no risk that
Cravath’s representation of Air Products in the proposed transaction would cause harm to Airgas,
the drastic and punitive remedy Airgas seeks is wholly unwarranted.
In addition, there can be no serious doubt that Airgas’s motion was filed for
purely tactical reasons. This lawsuit is part and parcel of the effort by Airgas and its Board to
prevent Airgas shareholders from having the opportunity to consider Air Products’ offer of a
38% premium. Indeed, after Cravath terminated its relationship with Airgas in October 2009,
Airgas told Cravath that it would use “every arrow in its quiver” to oppose Air Products,
including by challenging Cravath’s representation (Cami Aff. ¶¶ 33-42), and Airgas’s lead
counsel has been telling the press that this lawsuit has been in the works for months. The
propriety of the actions of Airgas and its Board is already the subject of litigation in the
40
Delaware Chancery Court, where Cravath serves as Air Products’ litigation counsel. That case,
which was first-filed, necessarily involves the same subject matter—and the same alleged
conflicts of interest—as this action, and the Delaware court will also have the benefit of
considering these issues in the context of the broader dispute. In the interest of efficient
administration of justice, Cravath respectfully submits that the Delaware tribunal, which is well
equipped to handle this complicated matter and oftentimes deals with alleged conflicts of interest
questions in contested M&A transactions, is best situated to hear Airgas’s complaint for breach
of fiduciary duty. See, e.g., Rohm & Haas, 2009 WL 445609.
II. AIRGAS WILL NOT SUFFER IMMEDIATE AND IRREPARABLE HARM IF
THE PRELIMINARY INJUNCTION IS DENIED.
To prove entitlement to an injunction, “a plaintiff must present concrete evidence
demonstrating actual proof of irreparable harm.” Greenmoor, Inc. v. Burchick Const. Co., 908
A.2d 310, 314 (Pa. Super. Ct. 2006) (emphasis added) (citations and internal punctuation
omitted). “The plaintiff’s claimed ‘irreparable harm’ cannot be based solely on speculation and
hypothesis.” Id.
As demonstrated above, Airgas’s moving papers fall far short of establishing that
Cravath has done or will do anything to cause Airgas any harm, let alone concrete, irreparable
harm. Airgas has not shown—and cannot show—that it is being injured by Cravath’s
representation of Air Products. As the Cami affidavit explains in detail, Cravath does not
possess confidential Airgas information that would assist Air Products in a transaction with
Airgas. (Cami Aff. ¶¶ 2-31.)
Furthermore, Cravath has not used any nonpublic Airgas information in its
representation of Air Products, and has taken steps to ensure that it will not do so. (Woolery Aff.
¶¶ 7-8.) The fact that Airgas sat on its hands for three months—while knowing that Cravath was
41
advising Air Products—simply cannot be reconciled with (1) Airgas’s current assertions that
Cravath has (or had) relevant non-public information that it might share with Air Products, and
(2) Airgas’s current assertion that it needs emergency relief to prevent Cravath from disclosing
such information. Airgas’s tactical decision to delay filing its lawsuit also underscores that—
despite its supposed concerns—Airgas in fact knows that Cravath will not and cannot harm it;
indeed, if Cravath were truly intent on exposing Airgas’s alleged secrets, it would have done so
long ago and the relief Airgas now requests would have been futile.
As also demonstrated above, the only type of harm Airgas has alleged—the
expenses it has incurred to hire replacement counsel for Cravath, sue Cravath and enter in credit
facilities—is purely monetary. Because Airgas has not proven irreparable harm, the motion for
preliminary injunction must be denied.
III. THE BALANCE OF EQUITIES DOES NOT FAVOR AIRGAS.
In considering whether “greater injury would result from refusing an injunction
than from granting it,” courts also consider whether an injunction would “substantially harm
other interested parties in the proceedings.” West Pittsburgh P’ship v. McNeilly, 840 A.2d 498,
505 (Pa. Commw. Ct. 2004). On the facts of this case, it is clear that the balance of equities—
which Airgas failed even to address in its moving papers—does not favor Airgas.
On the one hand, it is clear that Airgas’s decision to commence litigation against
Cravath is not a legitimate effort to protect client confidences, but a tactical response to Air
Products’ offer. Airgas has known for months that Cravath was representing Air Products.
Airgas’s decision not to enforce its alleged rights after being told again and again that Cravath’s
representation of Air Products was continuing was thus clearly a tactical choice, as was Airgas’s
decision to initiate its long-planned litigation against Cravath just hours after the offer was
42
announced. Airgas’s wait-and-see attitude cannot be reconciled with its current claim that
immediate emergency relief is necessary. Put simply, if Airgas were truly concerned that
Cravath was misusing its confidential information—despite Cravath’s repeated assurances that
that was not the case—it should have taken prompt action months ago, immediately after Airgas
was told that Cravath could no longer represent it because of a conflict of interest, or at the very
least after being repeatedly notified that Cravath would continue to advise Air Products (and
after seeing Cravath copied on the December 17 offer letter). Airgas’s tactical decision to sit on
its hands cannot be reconciled with Airgas’s claim that it is in need of immediate relief.
On the other hand, the harm to Cravath and its client Air Products is clear. As
demonstrated in the affidavits submitted in opposition to this motion, neither Cravath nor Air
Products has done anything wrong. Cravath undertook a rigorous, objective analysis to
determine whether it may continue to represent Air Products. (Gold Aff. ¶¶ 6-11; Woolery Aff.
¶ 6.) Upon determining that such representation was appropriate, Cravath erected an “ethical
wall” to ensure that no confidences belonging to its former client (assuming Cravath had any)
could be accessed by the Air Products deal team. (Gold Aff. ¶ 12; Woolery Aff. ¶ 7.) Cravath
proactively terminated its relationship with Airgas and advised it of the reason why it was doing
so. (Cami Aff. ¶¶ 33-42.) None of the advice Cravath has provided to Air Products was based
on any confidential Airgas information. (Woolery Aff. ¶ 8; Miller Aff. ¶ 6; Huck Aff. ¶ 6.) In
short, Cravath was open with Airgas and acted in good faith, and Airgas’s tactical maneuvering
cannot alter those simple facts. Whereas denying the injunction would not cause Airgas any
harm (and would indeed leave it in the same position it has been in for months), granting the
injunction that Airgas has opportunistically sought against its former counsel would unjustifiably
and unfairly stain the professional reputation of Cravath and its lawyers.
43
In addition, if a preliminary injunction is entered Air Products will immediately
be deprived, potentially for an indefinite time, of its counsel of choice. That, of course, is
precisely the harm that Airgas hopes to inflict through this litigation. It would leave Air
Products with no choice but to hire and educate new outside counsel on an exceedingly complex
and time-sensitive matter, resulting in significant expense and delay, as well as meaningful
disruption to the proposed transaction and substantial prejudice to Air Products’ efforts to give
Airgas shareholders an opportunity to decide for themselves whether to accept Air Products’ all-
cash offer. (Huck Aff. ¶ 9.) The law is clear that orders like the one Airgas is seeking are “a
serious remedy which must be imposed with an awareness of the important interests of a client in
representation by counsel of the client’s choice.” Alderman, 2001 WL 1855056, at *5. That
remedy should be granted even more reluctantly where, as here, the attempt to enjoin counsel is
nothing but a tactical ploy. Id.15
IV. THE INJUNCTION WILL NOT RESTORE THE PARTIES TO THE
STATUS QUO.
Before it is entitled to an injunction, a petitioner must prove that the injunction
“will restore the parties to the status quo as it existed prior to the wrongful conduct.” Hamdan,
2001 WL 1807393, at *1. While, as noted, Airgas’s papers do not even address this part of the
applicable test, and the Court should deny the application on that basis alone, it is clear that the
proposed injunction would not restore the parties to the status quo. To the contrary, granting the
15 The matter is further complicated because, if the Court were to enter a preliminary injunction,
Airgas would need to post a bond. Soja, 522 A.2d at 1131 (the bond requirement is “mandatory and an appellate court must invalidate a preliminary injunction if a bond is not filed by the plaintiff.”). Because an order prohibiting Cravath from providing advice to Air Products would require new counsel to be brought up to speed on this complicated transaction, that order would significantly slow down the timeline for Air Products’ acquisition and potentially visit significant injury upon Air Products, and upon Airgas’s shareholders, that is very hard to calculate. That fact further militates against entry of the injunction, for which only a very substantial bond could suffice.
44
injunction would alter the status quo that Airgas has known about, and intentionally permitted to
continue, for months. Cravath’s representation of Air Products in connection with the proposed
transaction is and has been the status quo. Now that Air Products’ offer has been communicated
to the Airgas shareholders, it is Airgas that is seeking to change the status quo (of which it has
long been aware) and to deprive Air Products of its chosen counsel. Were the Court to grant the
requested injunction, Airgas would not be restored to the status quo; rather, it would be given a
meaningful advantage in its dispute with Air Products—which is of course the very purpose of
this action.
V. THE PROPOSED PRELIMINARY INJUNCTION IS OVERBROAD.
Finally, Airgas cannot show—and indeed has not even attempted to show—that
the preliminary injunction it has asked the Court to enter is “reasonably suited” to protect its
legitimate interests. Commonwealth ex. rel. Corbett v. Snyder, 977 A.2d 28, 54 (Pa. Commw.
Ct. 2009). As noted, Cravath agrees that if there were any relevant nonpublic information of
Airgas in Cravath’s possession (which there is not), such information could not be used to assist
Air Products. Any injunction for breach of fiduciary duty would have to be limited to
prohibiting such misuse. However, there is no need for an injunction because Cravath has never
used any nonpublic information of Airgas to assist Air Products, and never will do so. Thus,
there is no basis for an injunction. But even if there were, the injunction requested by Airgas
extends far beyond requiring Cravath to continue to safeguard its former client’s confidences,
and instead seeks to deprive Air Products of any Cravath advice in connection with the proposed
transaction. That too demonstrates that this motion is not about a purported breach of duty by
Cravath; it is about Airgas trying to get a leg up in the takeover fight. Because the relief Airgas
is seeking is overbroad, the request for preliminary injunction should be denied.
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CONCLUSION
For all the foregoing reasons, Airgas’s request for a special injunction and a
preliminary injunction prohibiting Cravath from advising Air Products in connection with its
proposed acquisition of Airgas should be denied.
Dated: February 9, 2010 Respectfully Submitted, By: s/Nancy J. Gellman NANCY J. GELLMAN (I.D. No. 12472)
JOHN A. GUERNSEY (I.D. No. 25730) ROBERT N. FELTOON (I.D. No. 58197) NICHOLAS M. CENTRELLA (I.D. No. 67666) Conrad O’Brien, PC 1515 Market Street, 16th Floor Philadelphia, PA 19102-1921 Tel.: (215) 864-9600 Fax: (215) 864-9620
Attorneys for Defendant
Cravath, Swaine & Moore LLP
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CERTIFICATE OF SERVICE
I hereby certify that on the date set forth below I caused to be served a true and correct
copy of the foregoing Memorandum of Law in Opposition to Airgas Inc.’s Motion For Special
Injunction and Preliminary Injunction and supporting affidavits by electronic mail to the
following:
Stephen A. Cozen, Esquire
Jeffrey G. Weil, Esquire Thomas G. Wilkinson, Jr., Esquire Cozen O’Connor 1900 Market Street Philadelphia, PA 19103
[email protected] [email protected] [email protected]
Attorneys for Plaintiff Date: February 9, 2010 s/ Nancy J. Gellman Nancy J. Gellman