Not sure if the title conveyed the concept well. What I’m wondering about is whether attorney client privilege stands even when the legal communication in question is itself the issue at hand, versus being evidence about something else.
The case that brought this to mind is the Williams/Energy Transfer merger lawsuit. In brief, Energy Transfer Equities (ETE) aggressively pursued a takeover of Williams back when energy was riding high, but then the energy sector collapsed and ETE was desperate to get out of the deal. They had a signed merger agreement in place, with significant penalties for backing out, but they hung their hats on a clause in the agreement which stated that it was contingent on their law firm issuing a key legal opinion as to the tax status. The law firm says they can’t issue this opinion, and ETE says this gets them off the hook. Williams’ position (shared by me) is that the only reason the law firm is holding back is out of loyalty to their client (ETE). So the key question is whether this is true. And I was wondering whether Williams could access communication between ETE and the law firm in an effort to prove that ETE signaled to the firm that they would prefer that they find some justification to not issue the opinion.
As I see it, it’s different from a case where the issue was not directly related to anything to do with the law firm and the issue was whether you could access the communication in order to find evidence relating to that other matter. In this case, the company’s actions in communicating with their law firm are themselves the key legal issue at hand, and if that’s prohibited, then there’s not going to be much to go by.
But I don’t know if that’s a distinction that the law recognizes.
Williams may have two different arguments to pursue. One, that ETE waived its privilege by citing the law firm’s opinion as the basis for backing out. Two, that ETE and the law firm committed fraud by issuing a stated legal justification while concealing the true basis of the firm’s action. The specific language of the merger agreement about the opinion, and the specific language of the law firm’s decision not to provide the opinion will be key facts.
Disclaimer: This is not legal advice and should not be relied upon. This is simply anonymous speculation.
As Tom Tildrum says an argument could be made that privilege has been waived. I don’t think the fraud argument will hold much water unless additional evidence could be had to show it as a possibility; otherwise, it’s just a fishing expedition.
Williams knew that clause was in the merger deal … Williams knew it could be used in this fashion … Williams signed the merger deal anyway.
The law firm, Latham & Watkins, may not want to issue an opinion … and I’m not sure if they can be compelled to. They simply may not know what kind of tax event would happen and don’t want to be on the hook if they’re wrong. We are talking about the IRS and the Tax Code after all, seems a completely reasonable position.
Do we have any probable cause that ETE communicated with Latham & Watkins instructing them to withhold their opinion so the deal would be killed? If not, then this looks like a fishing expedition. They may have communicated, but we won’t know for sure until we read all the communications between the two.
The article seems to indicate that there is a precedent in that court of forcing the merger and/or some cash settlement to back out … perhaps looking at this precedent will bring you the factual answer you seek.
I assume their argument is that they expected that clause to be used in good faith.
OTOH, they’re a law firm whose job it is to issue such opinions. It’s not like we’re dealing with some poor slob struggling with his taxes.
I’m not aware of any direct evidence, hence the significance of the privilege issue. But it’s widely known and accepted that ETE is desperate to get out of the deal (or significantly restructure it).
Those cases did not involve this specific legal question, AFAIK.
Seems like they might need to raise the first argument first (waiver of privilege); only if that is successful could they begin to fish up any evidence of some fraud or improper collusion.
I think the term you’re looking for is collusion; it’s when two parties make a secret agreement to defraud a third party.
Attorney-client privilege does not protect either party when it’s being used to commit fraud. So if the collusion existed, the attorney-client privilege is waived.
But the issue here is you don’t know if collusion existed and you’re trying to get the attorney-client privilege waived so you can discover whether a fraud was committed. Unfortunately, I was unable to find via a quick search what the standards are for overriding attorney-client privilege based on the possibility that fraud exists.
The OP has identified an issue that is capable of resolution. As I understand the question, it is something like this: while everyone understands the idea of legal professional privilege, how does one test its validity in marginal cases without breaching it? Yet it would be absurd if a party could simply assert LPP without there being any capacity to test it, as though we had to take a party’s word for it.
This problem arises in many contexts. In many jurisdicitons, there is is an immunity from production of, say, national security documents held by the government, but do we have to take the govt’s word for it? Yet testing the government’s claims might involve revealing the content of the documents.
The answer is that there is limited disclosure for the purpose of testing the validity of the claim. Thus, in UK derived jurisdictions, national security documents are shown to the judge first, and he decides if they qualify for the privilege, with the other side making such submissions as they can from what they do know about the document without seeing it at this stage. If the judge agrees that it is protected, then it is not disclosed. If not, then it is disclosed.
At a lesser level, LPP claims are litigated at the threshhold on the basis that the relevant witnesses who can give evidence about the allegedly priviliged disclosure give their evidence, necessarily disclosing the allegedly privileged evidence, on a preliminary basis. A ruling is made about whether LPP applies. If it does, then the other party is precluded from using what they might have learned. If not, disclosure is ordered, and the other party may make whatever use it can justify of material so disclosed. Sometimes these hearings are in private so as to minimise the damage of premature disclosure of what might turn out to be privileged information getting out into the public domain.
Am I understanding thus correctly? The law firm says it “can’t” issue an opinion, and Williams believes that, in effect, ETE instructed the law firm to make that claim, their motive being it would allow them to back out of the deal.
If this law firm was hired to provide this opinion, on what basis could they legitimately refuse to do so? They might say “The law means this” or “The law means that” or “The law and case history are not enough settled to provide an authoritative answer.” But even the last case is in fact a legal opinion, if not a very helpful one.
So I would think that the contract clause would be something more along the lines “If our law firm confirms the legal validity of X, we will finalize the merger”.
Again, even if the law firm states “We cannot confirm, or definitively deny, the legal validity of X”, they HAVE issued an opinion.
Ok, but stating, “We can’t definitely say that there won’t be consequences because of these unknown factors” is STILL issuing an opinion. In this case, I would say they didn’t “refuse” to issue an opinion, they issued one that one side claims is illegitimate based on the known issues and must therefor be a product of collusion.
What do you think legal arguments ARE, except semantics? Your OP claimed they refused to issue an opinion. Now you’re suggesting they DID issue an opinion, but one that may have been unreasonably favorable to one of the two parties in the suit. That’s a BIG difference.
I’m not suggesting that they did issue an opinion etc. You’re the one suggesting that.
What I’m saying is that even if you were theoretically right (that saying they can’t issue a specific opinion itself constitutes issuing an opinion), it’s a purely semantic point with zero relevance to any legal issues relevant to the trial or this thread (or anything else I can think of).
From the citation in your citation, “ETE-Williams Shows Need for Tax (Opinion) Reform”, I get the feeling this clause is rather common place. Apparently, the law firm is liable for their opinion, “Plus, no law firm welcomes the potential liability of being wrong on a big tax issue. So the practice has gone on largely unchallenged for decades.”
The deal is “I’ll buy this from you if there’s no tax event, let me check with my lawyers”. Lawyers say “We have no idea if this will cause a tax event”. So let’s restructure the deal “I’ll buy this from you and if there is a tax event, you pay”. Where’s the bad faith here?
What you said earlier was: “The article seems to indicate that there is a precedent in that court of forcing the merger and/or some cash settlement to back out … perhaps looking at this precedent will bring you the factual answer you seek.” My response to this was that those precedents involving courts forcing mergers did not involve cases where the issue involved the firm’s outside attorneys not issuing an opinion, and therefore there was no precedent for questions involving this situation. Your response to this is another non-sequitor.
Bad faith is if the law firm could have issued the necessary opinion and would have done so if their clients still favored the merger and are only holding back because they know their clients want an out.
“That said, Williams’ and ETE’s merger agreement says Latham & Watkins has to be able to give the tax opinion, and Latham says it might not be able to. Other buyers have gotten out of deals by arguing for a plain reading of the language of their contract, no matter how poorly it squared with its spirit.”
Perhaps I’m not reading this correctly then. These “other buyers [that] have gotten out of deals” never got dragged into court (apparently).
How is this bad faith on the part of ETE? If Latham & Watkins acted in bad faith, that’s a different issue … William’s should sue them then.
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“… the key legal issue is how one interprets reasonable best efforts …”. Are we to require ETE to release any liability on Latham & Watkins if their opinion is wrong?
The factual answer to your general question is that attorney/client privilege is waived if and only if evidence exists that such communications were criminal in nature. If ETE never told Latham & Watkins to kill the deal … and Latham & Watkins killed the deal anyway … then ETE is not liable IMO.
No, those other buyers were dragged into court, and over issues involving the plain reading of the contract versus the spirit of the contract, but not about the inability/unwillingness of the buyer’s tax lawyers to issue a necessary legal opinion. Therefore those other cases have relevance to the court case, but not to the question raised in this thread.
ETE would have been acting in bad faith in communicating to the law firm that they wanted them to find some justification to not issue an opinion.
The purpose of the clause was to allow them to back off if there were legitimate tax issues, and using it as an escape clause is perverting the intention of that clause.