CVR Energy Sues Wachtell Over Role in Icahn Spat

, The Am Law Daily

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CVR Energy's nitrogen fertilizer plant in Coffeyville, Kansas.
CVR Energy's nitrogen fertilizer plant in Coffeyville, Kansas.

The long-running feud between Carl Icahn and Wachtell, Lipton, Rosen & Katz is heading to a new battleground.

In a suit filed Thursday in federal court in Kansas City, Kan., CVR Energy, which Icahn now controls, accuses Wachtell and corporate partners Andrew Brownstein and Benjamin Roth of malpractice in connection with its representation of the oil refining company last year as it attempted to fend off the activist investor's hostile takeover bid.

At the heart of the 16-page complaint is the claim that the firm, which earned $6 million for its work advising CVR in connection with that takeover bid, did not adequately advise the company about how much it would owe financial advisers Goldman Sachs and Deutsche Bank in the event Icahn succeeded in gaining control of the company. The suit alleges that Wachtell ignored CVR's own interests in order to preserve its close ties to Goldman and Deutsche Bank.

The events at issue in the litigation began in January 2012, when Icahn paid $144.7 million for a 14.5 percent stake in suburban Houston-based CVR, which promptly adopted a “poison pill”—the takeover defense mechanism first crafted by Wachtell founding partner Martin Lipton—to prevent Icahn or anyone else from amassing more than 15 percent of the company's shares.

In addition to retaining Wachtell, the complaint states that CVR hired Goldman and Deutsche Bank as part of its effort to defeat Icahn's subsequent $2.6 billion tender offer for the company. CVR initially urged shareholders to resist Icahn's overtures, but as reported last year by The Am Law Daily, the company eventually made peace with Icahn, dropping its poison pill in April 2012 and clearing the way for the corporate raider to take control of CVR.

Icahn—who now owns roughly 80 percent of CVR—officially claimed victory in the proxy fight that same month. Wachtell's work for CVR came to an end in early May 2012 as Icahn assumed control of the company, says Herbert Beigel, a solo practitioner in Tucson advising CVR in both its suit against Wachtell and separate litigation initiated against the company by both Goldman and Deutsche Bank.

The financial services giants sued CVR last year in New York state court in Manhattan seeking a combined $37 million in advisory fees for their work on the Icahn matter. Specifically, the banks seek $18.5 million apiece that they claim CVR agreed to pay in the event of any transaction involving the company, including Icahn's eventual takeover. CVR has refused to pay the fees—Icahn has said publicly they don't deserve to be paid—which has left the company defending itself against separate breach of contract suits filed by lawyers for both banks at Stroock & Stroock & Lavan.

In both litigation with Goldman and Deutsche Bank and its own suit against Wachtell, CVR claims it only hired the banks to ward off Icahn, and agreed to pay them $9 million apiece if that effort succeeded.

"I'd sure like to get paid twice as much for losing," Beigel told The Am Law Daily in a phone interview on Friday morning.

The CVR complaint also alleges that Wachtell drafted minutes of company board meetings—and that Brownstein and Roth approved those minutes—that did not appropriately explain the fees CVR would owe Goldman and Deutsche Bank. The suit further states that when CVR decided to challenge those fees, Wachtell advised the company that it needed to retain separate counsel if it wanted to take on Goldman and Deutsche Bank.

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