Case 1:14-cv-06566-RJS Document 171-1 Filed 09/04/18 Page 1 of 24

UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
CVR ENERGY, INC.,

)
)
Plaintiff,
)
vs.
)
)
)
WACHTELL LIPTON ROSEN & KATZ, )
BENJAMIN M. ROTH and
)
ANDREW R. BROWNSTEIN,
)
)
Defendants. )

No. 14-cv-06566 (RJS)
Jury Trial Demanded

SECOND AMENDED COMPLAINT
The Plaintiff, CVR Energy, Inc. ("CVR"), by and through the undersigned
attorneys, states the following cause of actions:
1. NATURE OF CASE
1.

This Second Amended Complaint adds to the pending malpractice claim

against defendant Wachtell, Lipton, Rosen & Katz (“Wachtell”) additional causes of
action for breach of contract and breach of the implied covenant of good faith and fair
dealing, as well as demands for, and allegations supporting, an award of punitive
damages against Wachtell and two of its partners, defendants Benjamin M. Roth
("Roth") and Andrew R. Brownstein (“Brownstein”).
2.

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3.

. Therefore, even though Wachtell is hired
by its client to, among other things, get the best deal for its client when engaging
investment bankers (many of whom Wachtell introduces to the client and has previously
worked with) for takeover “defense” assignments, Wachtell is perversely incentivized to
negotiate engagement letters that benefit the investment bankers, not its client, which is
exactly what happened with CVR. In CVR’s case, even though the investment banks
they hired, Goldman Sachs & Co. (“Goldman”) and Deutsche Bank Securities Inc.
(“Deutsche”, and collectively with Goldman, the “banks”), failed completely in their “raid
defense” assignment, they received double what they would have earned if they had
actually prevented a takeover of CVR by Carl C. Icahn (“Icahn”). This arrangement not
only doubly rewarded the banks for losing but also benefited Wachtell to the tune of $6
million for losing. This Kafkaesque method of billing was never disclosed to CVR, and
Wachtell has gone to great lengths to avoid scrutiny, by clients, the Bar, and the public
of its billing practices.
4.

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5.

Although Wachtell has worked on numerous occasions in tandem with,

and has represented, Goldman over the years, it was legally and ethically obligated to
act solely in CVR’s best interests. Wachtell was therefore duty-bound to obtain for CVR
the best and lowest fee terms with Goldman (and Deutsche), and to ensure that CVR
understood the fees it might owe under every possible scenario. Yet, it failed to do that
– perhaps not surprising to cynics of the legal profession -- in view of the fact that, as
explained below, Wachtell could purportedly justify (if only in its own mind) a higher fee
for itself if the banks received a higher fee.
6.

Consistent with the undisclosed manner by which Wachtell based its fee, it

failed to advise CVR that under the terms of the engagement letters entered into with
Goldman and Deutsche upon the advice of Wachtell, CVR would face claims for fees of
$36 million by Goldman and Deutsche even if the Icahn Parties succeeded in the Icahn
Tender Offer and acquired control of CVR at the original $30 offer price (in other words,
even if Goldman and Deutsche completely failed in their assignment to defeat, or at
least cause Icahn to increase the offer price of, the Icahn Tender Offer, and fail they
did). Moreover, as detailed below, Wachtell prepared false or misleading minutes of a
CVR Board meeting that made it appear that Wachtell had explained the fee terms that
would be owed to the banks if CVR was sold.
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7.

For the average CVR shareholder, $36 million is a lot of money, even if

something favorable were accomplished. But, even worse, that amount was double the
amount of fees that Goldman and Deutsche would have charged if CVR – with the
assistance of its preeminent counsel and its heralded “raid defense” strategy – had
remained independent, which was supposedly Wachtell’s mission, as well as its highly
touted brand. Had CVR and its Board understood that the banks, or Wachtell, would
receive a higher fee for completely failing in their efforts, CVR would never have agreed
to such an arrangement. Indeed, the agreements entered into by CVR, with the advice
of Wachtell and without approval of CVR’s Board, created a perverse incentive for
Goldman and Deutsche — and “perverse” is the very word that was in fact used by
Wachtell lawyers in a private email message to characterize the investment banks’
incentive to promote CVR's defeat.
8.

Moreover, Wachtell’s undisclosed basis for calculating its own fees, was

equally perverse. It turns out that, although their engagement letter suggested nothing
of the sort, Wachtell’s fees, like the fees of Goldman and Deutsche, were higher for
failing than succeeding. And, to make Wachtell’s $6 million fee even more outrageous,
Wachtell’s services provided absolutely no benefit to CVR, because the sole purpose of
Wachtell’s retention was to defeat the Icahn Tender Offer, which neither Wachtell nor
the banks accomplished – not only did their “raid defense” efforts fail to keep Icahn from
gaining control of CVR, they even failed to cause Icahn to raise the offer price of the
Icahn Tender Offer by even one penny.
9.

Yet Wachtell never explained their fees, or the banks’ fees, to CVR. And

consistent with defendants’ woefully negligent representation vis-à-vis the negotiation
and explanation of the banks’ engagement letters, Wachtell also prepared certain
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misleading and inadequate disclosures concerning those letters that were required to be
filed pursuant to the federal securities laws.

That negligence created a risk of

burdensome regulatory action (which materialized) and sanctions against CVR (which
CVR managed to avoid through the diligent efforts of successor counsel, thereby
reducing Wachtell’s liability for its malpractice concerning those disclosures). Finally, as
indicated above, Wachtell breached its express and implied contractual obligations to
CVR and otherwise acted in bad faith by basing the amount of fees that it charged on
the amounts of fees Goldman and Deutsche would charge, contrary to its written terms
of representation and its ethical obligations.
10.

In short, but for defendants’ dereliction of their professional obligations

and duties owed to CVR, CVR would not have been subjected to messy, expensive and
substantial lawsuits for tens of millions of dollars with Goldman and Deutsche, and
would not be many millions of dollars out of pocket due to a burdensome investigation
by the SEC and due to Wachtell’s improper billing of CVR.
II. THE PARTIES

11.

Plaintiff is a corporation organized under the laws of the State of Delaware

with its corporate offices in the States of Kansas and Texas, from which its activities are
directed.
12.

Defendant Wachtell, Lipton, Rosen & Katz is a partnership, with its

principal place of business in New York, New York.
13.

Defendant Benjamin M. Roth is now and, at all relevant times, has been a

partner of Wachtell, and lives in the state of New Jersey. Although assisted from time to
time by associate lawyers at Wachtell, Roth was individually and directly responsible for
representation of CVR between January of 2012 and May of 2012.
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14.

Defendant Andrew R. Brownstein is now and, at all relevant times, has

been a partner of Wachtell, and lives in the state of New York. Although assisted from
time to time by associate lawyers at Wachtell, Brownstein was individually and directly
responsible for representation of CVR between January of 2012 and May of 2012.
III. VENUE AND JURISDICTION
15.

Pursuant to 28 U.S.C. §1332, this Court has subject matter jurisdiction, as

there is complete diversity of citizenship--defendants are not citizens of Delaware,
Texas or Kansas, and there is more than $75,000 in controversy, exclusive of interest
and costs. There is no dispute that defendants are subject to the jurisdiction of this
Court, to which this action was transferred from the U.S. District Court for the District of
Kansas pursuant to 28 U.S.C. § 1631.
16.

Pursuant to 28 U.S.C. § 1391, venue is proper in this District.
IV. MATERIAL FACTS

A.

Background.
17.

In early January of 2012, the Icahn Parties announced that they had

acquired a substantial minority stake in plaintiff, a public company engaged in the oil
refining and fertilizer business.
18.

CVR became concerned that the Icahn Parties or others might launch a

proxy fight or tender offer to acquire a controlling interest in CVR and therefore decided
to retain Deutsche and Goldman to assist CVR in connection with any attempts to
acquire the stock or assets of CVR or to otherwise obtain control of CVR, including
attempts to change the composition of CVR’s Board of Directors by proxy, consent
solicitation, or otherwise.
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19.

Pursuant to an engagement letter dated January 16, 2012 sent by

defendant Roth to Edmund Gross, General Counsel of CVR, in Kansas City, Kansas,
Wachtell, a firm noted for its defense of companies that are the target of proxy contests
and hostile tender offers, agreed to advise CVR on all matters of “shareholder activism,”
including any matters relating to the activities of the Icahn Parties (the “Engagement”).
Pursuant to the Engagement, defendants Roth and Brownstein assumed primary
responsibility for CVR’s representation.
20.

The Engagement included, as an attachment, a statement of Wachtell’s

“Billing and Retention Policies,” as follows:
“Wachtell, Lipton, Rosen & Katz provides a distinctive
service to our clients.

We focus on matters that require

attention, extensive experience, high expertise and the
reputation of our partners. In order to provide this
distinctive service, we do not generally handle routine matters
and we limit the number and type of matters we do undertake.
We typically operate with a ratio of partners to associates of one
to one, which reflects our substantial partner-level involvement in
each matter. Thus, matters undertaken by the firm are at all
times afforded the direct personal attention of partners having
expertise and sophistication with respect to the issues, and
staffing is designed to provide the highest quality representation.
In order to operate in this manner we must base our
fees not on time, but on the intensity of the firm's efforts, the
responsibility assumed, the complexity of the matter and the
result achieved. Overall, we seek to obtain outstanding results
for our clients for a fee that our clients will feel fairly values
our services.
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We recognize the budgeting requirements of our clients
and are pleased to discuss our billing policies and attempt to
estimate fees in advance of undertaking a matter. While our
fees are not based on the amount involved in a matter,
experience indicates that merger and acquisition and takeover
fees have typically ranged 1% or more on matters under $250
million and .10 of 1% or less on matters over $25 billion.
Depending on their nature and amount, we may also request
reimbursement for expenses. Statements for fees are rendered
periodically or at the conclusion of a matter. Interim statements
for fees do not represent the final fee; they are on account of the
final fee. The firm does not furnish long-form descriptions of
services or details as to particular lawyers and hours.” (Emphasis
supplied)

21.

Pursuant to the Engagement Letter, Wachtell billed and CVR paid an

initial deposit of $200,000, and ultimately billed CVR another six million dollars,
which was promptly paid.
22.

As CVR had no experience whatsoever in proxy contests and hostile

tender offers, and in view of the broad terms appearing in its Engagement – which also
touted Wachtell’s “distinctive service,” “extensive experience” and “high expertise,” and
which said the firm would represent CVR with regard to “any related matters that may
arise out of or result from” Icahn’s surfacing at the company – defendants knew, or
should have known, that CVR would rely on Wachtell to protect its interests in the
negotiation of fee terms with Goldman and Deutsche and to fully advise CVR as to the
terms of those banks’ Engagement Letters (and which they ultimately advised were
“OK” to sign).
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B.

The First Engagement Letters.
23.

In engaging Deutsche and Goldman, the Board, with the assistance of Mr.

Frank Pici ("Pici"), CVR’s new Chief Financial Officer, negotiated a flat $2 million fee for
Goldman (with monthly payments of $100,000 credited against the $2 million), and a $1
million fee for Deutsche, for services in connection with a proxy fight and additional
monthly payments of $100,000 for their advisory services, all in connection with a
possible proxy fight and other efforts by the Icahn Parties to obtain control of CVR,
which fees were reflected in the First Engagement Letters, signed by Mr. Pici.
24.

This was the only fee arrangement that the CVR Board ever thought was

operative through any and all further attempts to take control of CVR, including a hostile
tender offer, because defendants never advised CVR’s Board as to the existence of the
terms of the Second Engagement Letters, as alleged below.
C.

Negotiation and Execution of the Second Engagement Letters.
25.

On February 16, 2012, the Icahn Parties announced the “Tender Offer” for

all CVR stock at $30 per share.
26.

As noted above, Goldman and Deutsche sued CVR for approximately $40

million in fees in two separate lawsuits pending in New York Supreme Court. Goldman
and Deutsche claimed that they were entitled to a substantial fee (“Success Fee”), as
purportedly set forth in the Second Engagement Letters, based on the full enterprise
value (the “Enterprise Value”) of CVR because Icahn’s Tender Offer (which was
completed at the same $30 per share price as it was launched) ultimately resulted in the
acquisition of more than fifty percent of the shares of CVR.
27.

Defendants had the obligation and responsibility to review the Second

Engagement Letters, to accurately advise plaintiff of the fee terms of said letters, and to
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that end, to actively participate in the negotiation and drafting of the Second
Engagement Letters.
28.

Nevertheless, defendants failed to inform Mr. Pici or anyone else at CVR

of the effect of the fee terms, as alleged by Goldman and Deutsche in the Second
Engagement Letters, to wit, that although Goldman and Deutsche had been retained to
defend CVR from the success of the Icahn Parties’ Tender Offer, the triggering events
for a fee based on the Enterprise Value of CVR included a successful tender offer by
the Icahn Parties (a tender offer resulting in the Icahn Parties owning more than fifty
percent of the shares of CVR) even at the original $30 per share offer price.
29.

Moreover, defendants neither informed the CVR Board of even the

existence of the Second Engagement Letters, nor the fee terms of the Second
Engagement Letters.
30.

Upon the launch of the Tender Offer, but prior to the drafting of the

Second Engagement Letters, Goldman and Deutsche told Mr. Pici that the time had
come for a new engagement letter with fees relating to the defense of the Tender Offer
and “success” fees if CVR was sold, the proposed terms of which defendants were fully
aware.
31.

Goldman and Deutsche sent Mr. Pici a one-page bullet point summary of

proposed fees, titled “Raid Defense,” which Wachtell also received, and which included
an “Independence Fee” of $9 million if CVR remained independent (applicable if the
Tender Offer did not result in the Icahn Parties obtaining more than fifty percent of the
stock of CVR or control of the Board through a proxy fight) and an Enterprise Value fee
(expressed as a percentage of the value of CVR) if CVR was sold, denominated a “Sale
Transaction.”
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32.

The Raid Defense summary did not define “Sale Transaction,” and neither

Goldman, Deutsche, nor defendants explained to Mr. Pici that if the result of the Icahn
Tender Offer was the acquisition of more than fifty percent of CVR’s stock by the Icahn
Parties, with no increase in the $30 per share consideration, the very result that
Goldman and Deutsche were hired to prevent, then Goldman and Deutsche would
consider even this event a “Sale Transaction,” triggering the Enterprise Value fee, a fee
that would amount to more than $18 million to each financial adviser.
33.

Based on its own review of the Second Engagement Letters, in draft and

final form, defendants knew or should have known that even if Goldman and Deutsche
failed to defeat Mr. Icahn’s $30 per share Tender Offer, a “Sale Transaction” would be
considered by Goldman and Deutsche to have occurred, thus triggering the Enterprise
Value fee, a fact that Wachtell failed to explain to Mr. Pici or anyone else at CVR.
34.

In the absence of any other explanation of the meaning of “Sale

Transaction,” Mr. Pici understandably believed that “Sale Transaction” meant that if
CVR determined to defend itself by throwing itself into the arms of a white knight rather
than to have CVR succumb to the $30 per share Icahn Tender Offer (presumably at a
price in excess of $30 per share offered by the Icahn Parties), then that would also
generate a fee for Goldman and Deutsche, a belief that Wachtell made no effort to
correct.
35.

Similarly, Mr. Gross, General Counsel of CVR and the only other

individual at CVR who was aware of the Second Engagement Letters (defendants had
not even bothered to discuss the proposed fees with either Mr. Lipinski, the President of
CVR, or the Board of Directors of CVR), did not understand that the Success Fee would
result from the completion of the Icahn Tender Offer (according to Goldman and
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Deutsche), resulting in the acquisition of more than 50 percent of CVR stock.
Defendants never had any discussion with Mr. Gross concerning this subject.
36.

The Minutes of a February 28, 2012 meeting--drafted two months later by

Wachtell lawyers and approved by Roth and Brownstein, after the CVR Board was
informed for the first time that Goldman and Deutsche intended to charge CVR the
Success Fee—included the following statement:
Mr. Lipinski then requested that Mr. Roth of Wachtell Lipton provide an
overview of the financial advisors’ fees in connection with the Indigo
matter. Mr. Roth explained to the Board that, under their respective
engagement letters with the Company, each of Goldman Sachs and
Deutsche Bank would receive a fee based on a percentage of the
Company’s enterprise value if the Company were sold and a different,
fixed fee if the Company were to remain independent after the Indigo
[Icahn] proxy context and tender offer. Mr. Roth noted that the financial
advisors would also be entitled to payment for certain expenses, including
their respective legal expenses. Following the discussion of advisory fees,
Mr. Lipinski again called a break to the Board’s discussion and stated that
the Board would reconvene later that afternoon.
However, Roth never actually made this presentation in form or substance. In fact,
neither Roth nor Brownstein, nor anyone else at Wachtell, ever explained the new
proposed fees to the Board of CVR, or even the existence of the Second Engagement
Letters, notwithstanding, remarkably, having attended every CVR Board meeting from
January to late April 2012.1
37.

On or about March 1, 2012, Wachtell caused and advised CVR to file a

required SEC form “14D-9” under the federal securities laws, which characterized the
fee terms entered into with Goldman and Deutsche as “customary,” when in fact
1

The statement quoted from the Minutes is, in any event, highly misleading, inaccurate, and
incomplete because: (a) as of February 28, the only Engagement Letters in place were the First
Engagement Letters; (b) no drafts of Second Engagement Letters had even been circulated; (c)
without further explanation, the phrase “if the Company were sold” could only be reasonably interpreted
by the listener as a sale of CVR, not the completion of Mr. Icahn’s $30 per share Tender Offer; and (d)
there is no mention even of the amount of the new fees. These factors only further demonstrate that
Roth never made the presentation attributed to him in these Minutes

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Wachtell knew or should have known that (a) there was at least a substantial question
as to whether they were customary, and (b) CVR’s Board had no knowledge of the
specifics of those fee terms, especially the substantial fees Goldman and Deutsche
would claim in the event that the Icahn Tender Offer resulted in the acquisition of more
than fifty percent of the stock of CVR.
38.

Beginning on March 2, 2012, drafts of the Second Engagement Letters

were circulated among Deutsche, Goldman, Wachtell, and Mr. Gross. In connection
with these drafts and subsequent revisions, defendants failed to explain to anyone at
CVR that under the Second Engagement Letters, Deutsche and Goldman could claim
the Enterprise Value fee if they failed in their efforts to prevent the Icahn Parties from
acquiring more than fifty percent of CVR’s stock.
39.

In late March, Mr. Pici signed the Second Engagement Letters, having

received no advice whatsoever from defendants regarding their fee terms, other than
being advised by Wachtell that the letters were “OK” to sign. Moreover, although drafts
of the Second Engagement Letters were vetted and revised by defendants, they neither
proposed nor made any changes to the fee terms, and they failed to explain the fee
terms to anyone at CVR, whom they knew had absolutely no experience retaining
advisors to defend in hostile takeover battles.
40.

Throughout this time period, the CVR Board only knew (and defendants

did not inform the Board otherwise) that in January 2012 Deutsche and Goldman had
been retained to advise CVR on defending against any Icahn efforts to obtain control of
CVR for a flat fee of no more than $4 million in total and reasonably believed that this
was the total amount of fees to be paid to Deutsche and Goldman. Only after the CVR
Board realized that the Icahn Tender Offer would succeed in April, a month after Mr.
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Pici had signed the Second Engagement Letters with Deutsche and Goldman, did the
Board learn that Deutsche and Goldman, incredibly, would claim entitlement to the
Success Fee, based on their failure to defeat Mr. Icahn, and claim that a successful
Icahn Tender Offer, even at his original $30 per share price, constituted a “sale”, based
on Goldman and Deutsche’s interpretation of the Second Engagement Letters.
D.

Events following the signing of the Second Engagement Letters.
41.

By mid-April, it became clear that the Icahn Parties would obtain

ownership of more than fifty percent of CVR’s stock in response to their $30 per share
Tender Offer. The CVR Board, aware of the inevitable success of the Tender Offer,
instructed Wachtell to meet with Icahn representatives to negotiate the process of the
closing of the Tender Offer.
42.

Once it became clear that an agreement (“Transaction Agreement”) for

closing of the Tender Offer with the Icahn Parties was about to be completed, Mr. Pici
took another look at the Second Engagement Letters on April 17, 2012 and realized, for
the first time, that Deutsche and Goldman might claim that they were entitled to the
Enterprise Value fee. Significantly, neither Roth nor Brownstein, nor anyone else at
Wachtell, bothered to tell Mr. Pici or anyone else at CVR that on April 14, 2012 Wachtell
lawyers had prepared a chart of fees under the Second Engagement Letters, a chart
that they, including Roth and Brownstein, concealed from CVR. The defendants did not
inform the Board at its April 18, 2012 meeting, where the Board approved the
Transaction Agreement with Mr. Icahn, of the fees that Goldman and Deutsche would
claim they were entitled to as a result of the successful Tender Offer. In fact, one of the
lawyers at Wachtell, who actively participated with Roth and Brownstein in Wachtell’s
representation of CVR, noted in an email to another lawyer at Wachtell on April 14,
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2012, while preparing the chart of fees under the Second Engagement Letters, that
Goldman and Deutsche’s alleged entitlement to the Enterprise Value fee upon
completion of the Icahn Tender Offer at the original $30 per share price represented a
“perverse incentive.”
43.

Notwithstanding the fact that defendants well knew Goldman and

Deutsche would claim entitlement to the Success Fees, defendants also prepared for
the Board’s adoption on April 18, 2012 a boiler plate resolution that approved paying
fees to Goldman and Deutsche (as well as $6 million for Wachtell) without bothering to
explain to the CVR Board that the fees Goldman and Deutsche would charge were not
the fees set forth in the First Engagement Letters, but the fees set forth in the Second
Engagement Letters.
44.

After the conclusion of the Board call/meeting approving the signing of the

Transaction Agreement on April 18, 2012, the Board remained on the call with Mr.
Gross and Mr. Pici; Goldman, Deutsche, and defendants having dropped off. Mr. Pici
then disclosed to the Board for the first time the existence of the Second Engagement
Letters and the possibility that Goldman and Deutsche would bill CVR for the Enterprise
Value fee of more than $18 million each. Shocked that Mr. Pici had entered into the
Second Engagement Letters without Board approval and that the Board had not been
informed of the Second Engagement Letters or these fees by defendants, the Board
instructed Mr. Pici to contact Goldman and Deutsche to request that they not bill the
Enterprise Value fees. Goldman and Deutsche thereafter refused to not charge the
Enterprise Value fees, and litigation between those banks and CVR ensued.
45.

On or about April 23, 2012, Wachtell caused and advised CVR to file a

required form 14D-9 under the federal securities laws, which characterized the fee
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terms entered into with Goldman and Deutsche as “customary,” when in fact Wachtell
knew that there was at least a substantial question as to whether they were customary,
and even if they were customary – which, given their perverse nature, would come as a
surprise to stockholders – the specific terms should have been disclosed, especially the
substantial fees Goldman and Deutsche would claim in the event that the Icahn Tender
Offer resulted in the acquisition of more than fifty percent of the stock of CVR.
46.

With respect to both form 14D-9 filings, CVR relied completely on

Wachtell’s advice in believing the disclosures referenced above were appropriate and in
compliance with the law.
47.

On or about May 2, 2012, defendants submitted to the Board for the first

time and in bulk draft Minutes of the Board meetings since February 2012, including
what purported to be Minutes of the Board meetings of February 28 and April 18, 2012
without calling the Board’s attention to: (a) the false statement in the February 28
Minutes that Roth of Wachtell had made a presentation to the Board summarizing the
fee terms of the Second Engagement Letters, (b) the boilerplate resolution in the April
18 Minutes purportedly authorizing CVR to pay fees to Goldman and Deutsche, which
Wachtell knew would be more than $18 million each, based on Goldman and
Deutsche’s interpretation of the Second Engagement (an interpretation with which
defendants agreed, as evidenced by the chart Wachtell lawyers had prepared on April
14, 2012), and (c) Wachtell’s basing its ($6 million) fee on the amounts the banks would
be paid.
48.

On or about May 3, 2012, in anticipation of the closing of the Tender Offer

and the replacement of the CVR Board with Icahn appointed new members, Goldman
and Deutsche submitted their invoices to CVR for a total of more than $36 million,
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based on their calculation of the Enterprise Value of CVR. Upon receiving the invoices,
the CVR Board, knowing that the new Icahn-appointed Board would be installed on May
7, 2012, decided to defer consideration of the invoices to the new Board. This deferral
was confirmed with Icahn representatives, who informed Mr. Lipinski that the invoices
should not be paid, pending review of all of the facts and circumstances by the new
Board. That new CVR Board, after reviewing all of the facts and circumstances and
consulting with newly retained outside counsel – a hire rendered necessary by
Wachtell’s refusal to assist CVR (as further described below) – did not approve the
invoices for payment.
49.

But, before CVR decided not to approve the banks’ invoices for payment

and hired new counsel, Mr. Lipinski, CVR’s Chairman, called Brownstein – whose firm
had already received the $6 million in fees it charged – and asked for an explanation of
what had occurred. Brownstein refused to respond substantively to Mr. Lipinski and
stated that Wachtell no longer represented CVR and CVR should consult other counsel.
50.

In 2014, the SEC initiated an investigation of CVR concerning whether the

above-described form 14D-9 disclosures were appropriate and in compliance with the
law.
51.

In January 2017, the SEC entered a cease-and-desist order against CVR,

finding that CVR had violated the federal securities laws by failing to disclose to CVR
shareholders the terms of the Second Engagement Letters – a failure caused by
defendants.
COUNT I. PROFESSIONAL MALPRACTICE
52.

Plaintiff realleges Paragraphs 1-51, above.
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53.

On January 16, 2012, by letter to Mr. Gross, in Kansas City, Kansas,

Wachtell agreed to represent CVR in all matters relating to Mr. Icahn and affiliates’
stock ownership in CVR and potential future “activism” for an initial fee of $200,000 and
estimated future fees of as much as $6 million.
54.

By virtue of its representation of plaintiff, defendants owed plaintiff a duty

of due care, prudent advice, and representation of plaintiff in plaintiff’s best interests.
55.

On information and belief, Wachtell’s long-standing relationship with

Goldman in jointly representing companies that were the targets of proxy contests and
hostile tender offers, affected its professional competence and judgment in its
representation of CVR regarding the fee terms of the Second Engagement Letters,
including the preparation of the inaccurate Minutes of the February 28, 2012 CVR Board
meeting, the preparation of a resolution approving fees to Goldman and Deutsche at the
April 18, 2012 Board meeting, and the gross failure to inform CVR of the existence of
the Second Engagement Letters and their perverse fee terms.
56.

Defendants were negligent and breached their duties to plaintiff and fell

below the standard of care applicable to lawyers and failed to exercise that degree of
skill commonly exercised by an ordinary member of the legal community, including, but
not limited to the following:
a.

Defendants knew that CVR and its management had no prior

experience with respect to Proxy Contests or hostile tender offers, yet took no
action to competently represent CVR in negotiating fair and appropriate fee terms
with Goldman and Deutsche or explaining the terms of the Second Engagement
Letters prepared by Goldman and Deutsche;
b.

Defendants never advised the CVR Board about the existence or
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terms of the Second Engagement Letters and otherwise misrepresented the
basis on which Goldman and Deutsche would claim Success Fees;
c.

Although the Second Engagement Letters were addressed to Mr.

Lipinski, defendants never communicated any of their terms to Mr. Lipinski, or
even informed him of their existence;
d.

Defendants negligently and affirmatively misadvised and otherwise

failed to explain to anyone at CVR, including Messrs. Mr. Pici and Mr. Gross and
the CVR Board, the fee terms of the Second Engagement Letters;
e.

Defendants negligently and affirmatively misadvised and otherwise

failed to explain to anyone at the CVR, including Mr. Pici and Mr. Gross and the
CVR Board, that Goldman and Deutsche believed that the fee terms of the
Second Engagement Letters would entitle them to fees based on the Enterprise
Value of CVR in the event the Tender Offer resulted in the acquisition of more
than fifty percent of the stock of CVR;
f. Defendants created false minutes of the February 28, 2012 meeting of
CVR’s Board, as described above; any statements attributed to Wachtell in the
aforesaid Minutes were false and misleading in that they (a) falsely represented
that the existing engagement letters provided for the fees described, (b) omitted
to disclose that a sale of the Company included a successful acquisition of
control of CVR as a result of the Tender Offer;
g. Defendants negligently and recklessly presented a resolution to the
Board on April 18, 2012 approving fees to be paid Goldman and Deutsche,
without disclosing that Goldman and Deutsche would claim entitlement to the
Enterprise Value fees;
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h. Defendants otherwise failed to represent CVR’s best interests with
respect to the fee terms of the Second Engagement Letters, as described in
detail above;
i. Defendants “washed their hands” of any responsibility for what had
occurred by informing Mr. Lipinski that CVR needed to retain separate counsel
to deal with the fee claims of Goldman and Deutsche; and
j.

Defendants negligently misadvised and otherwise caused CVR to

file form 14D-9s that created the substantial risk that the SEC would initiate an
investigation into the adequacy and sufficiency of the disclosures regarding the
fee terms entered into between CVR and Goldman Sachs and Deutsche,
and the considerable risk that government enforcement action would be taken
against CVR.
57.

Defendants’ wrongful conduct proximately caused economic loss to CVR,

including but not limited to, (a) legal fees and costs of defense of actions brought by
Goldman and Deutsche in New York Supreme Court, (b) monetary loss occasioned by
settlement of Goldman’s and Deutsche’s claims for their Success Fees after they were
awarded summary judgment in those State court actions, and (c) legal fees and costs
which CVR incurred as a result of the SEC investigation.
58.

But for defendants’ wrongful conduct described above, CVR would not

have agreed to the fee terms of the Second Engagement Letters and would not have
suffered the economic loss set forth in Paragraph 56, above
59.

Plaintiff is therefore entitled to recover from defendants no less than the

Success Fees paid to Goldman and Deutsche.
60.

Moreover, the inescapable conclusion based upon the conduct of
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defendant described above is that, as a result of their long-standing and continuing
relationship with Goldman and their own self-interest, defendants, recklessly or
intentionally, ignored CVR’s legitimate best interests and preferred the best interests of
Goldman and Deutsche and themselves to the exclusion and/or detriment of CVR’s best
interests, all as described in detail above. Plaintiff is therefore also entitled to recover
from defendants punitive damages, as their conduct as alleged above constituted gross,
wanton, or willful fraud, or morally culpable conduct to an extreme degree, reflected a
criminal indifference to CVR, and a violation of the trust their client had placed in them.
COUNT II. BREACH OF CONTRACT
61.

Plaintiff realleges Paragraphs 19-21.

62.

Wachtell’s Engagement constituted a binding and enforceable contract.

63.

The Engagement indicated that Wachtell’s fees would be based “not on

time, but on the intensity of the firm's efforts, the responsibility assumed, the
complexity of the matter and the result achieved” and that “Overall, [Wachtell
would] seek to obtain outstanding results for our clients for a fee that [its] clients will
feel fairly values our services” (emphasis added).
64.

Purporting to act pursuant to the Engagement, Wachtell then billed,

and CVR paid, an initial deposit of $200,000, and then in or about late April 2012, the
firm billed CVR six million more dollars.
65.

CVR believed that Wachtell’s six million dollar fee was based upon the

various factors set forth in the “Billing and Retention Policies” attachment to Wachtell’s
Engagement letter and promptly paid it, thereby fully performing under the contract.
66.

But that is not what Wachtell’s fee was based on. Wachtell instead billed
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CVR six million dollars based on the amount of the Success Fees invoiced by Goldman
and Deutsche – resulting in a much larger fee than the law firm promised to charge or it
was otherwise entitled to – and the firm did so without informing CVR of that.
67.

Wachtell’s bill for six million dollars constituted a breach of contract

because, contrary to the terms of the Engagement, the fee it charged was not “based on
. . . the result achieved.”

In fact, Wachtell did not achieve any positive result

whatsoever since a large majority of CVR shareholders tendered their shares for
the original price Icahn had offered ($30 per share). Nor was Wachtell’s enormous
fee based on the “responsibility assumed,” as defendants – in a new demonstration
of chutzpah – subsequently asserted/conceded (after being sued) that the firm did
not actually bother to negotiate the banks’ engagement letters, claiming that it was not
asked to do so.
68.

The aforesaid basis for Wachtell’s fee was unethical and in violation of

Rule 1.5 of the New York Rules of Professional Conduct in that (a) it was excessive,
(b) the true basis for the fee was not communicated to CVR, (c) it was not aligned
with CVR’s interests, as the more fees to which Goldman and Deutsche would
receive, the higher Wachtell would bill for its services, thus creating a material
conflict of interest on the part of Wachtell and incentivizing Wachtell to, as alleged
above, not disclose to CVR that Goldman and Deutsche would be entitled to a
Success Fee in the event Icahn’s tender offer resulted acquisition of more than fifty
percent of CVR’s shares, (d) Wachtell’s fee was not based on “the amount involved”
in the Icahn tender offer, and (e) Wachtell’s true fee structure, not disclosed too
CVR, was otherwise not a fee customarily charged in New York, Kansas, Texas or
anywhere else in the United States, for similar legal services.
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69.

As a result of Wachtell’s breach of contract, CVR has been damaged.

70.

CVR is entitled to the return of the fees paid to Wachtell, and is also

entitled to recover from defendants punitive damages, as their conduct as alleged
above constituted gross, wanton, or willful fraud, or morally culpable conduct to an
extreme degree, reflected a criminal indifference to CVR, and a violation of the trust
their client had placed in them.
COUNT III: BREACH OF THE COVENANT OF GOOD FAITH
AND FAIR DEALING
71.

Plaintiff realleges Paragraphs 19-21, 66 & 68.

72.

The Engagement contained a covenant of good faith and fair dealing

implied by law, which required Wachtell to act in good faith, honestly, openly, and
sincerely, without deceit or fraud, separate and apart from any of the express
contractual duties specifically set forth in the Engagement, including the purported
bases on which it would bill CVR, and which forbade it from acting upon, or otherwise
being influenced by, conflicts of interest when representing and billing CVR.
73.

By virtue of its conduct alleged above in this Complaint, Wachtell

breached its implied covenant of good faith and fair dealing, resulting in damage to CVR
and entitling it to a judgment for the fees CVR paid to Wachtell.
74.

Defendants’ conduct as alleged above constituted gross, wanton, or willful

fraud, or morally culpable conduct to an extreme degree, reflected a criminal
indifference to CVR and a violation of the trust their client had placed in them, entitling
Plaintiff to an award of punitive damages.
DEMAND FOR JURY TRIAL
Plaintiff demands a trial by jury on all issues so triable.
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WHEREFORE, plaintiff prays for a judgment in its favor and against defendants
as follows:
a. Compensatory and punitive damages as a court and jury deem appropriate,
including the amounts paid Goldman and Deutsche, Wachtell, and CVR’s attorneys fees
and expenses incurred in connection with outside counsel’s representation of CVR in
the SEC investigation.
b. Costs and such other relief as the Court deems appropriate under law.
Dated: August

, 2018.
LAW OFFICES OF HERBERT BEIGEL
By: /s/ Herbert Beigel
Herbert Beigel
38327 S. Arroyo Way
Tucson, AZ 85739
520-825-1995
Fax: (520) 844-6215
767 Fifth Avenue, #4700
New York, New York 10153

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