Thursday, February 21, 2008
Here is a nice Easterbrook opinion on fairness opinions just out of the Seventh Circuit. I am happy to say that he cites my article Fairness Opinions. There are also some good points/quotes in it. My favorite:
Much of the Trust’s brief reflects a view that fairness opinions are worthless (but expensive) paper, purchased by corporate managers at the urging of the Supreme Court of Delaware in decisions such as Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985) (Trans Union). . . .
But why should it matter to this case who is right in that debate? If the Supreme Court of Delaware had held in a tort suit that all of HA-LO’s promotional mugs must be shipped in crates made of inch-thick steel, to prevent all risk that pottery shards from breakage in transit could escape and injure anyone, that would greatly increase the costs of doing business and injure HA-LO’s investors but would not support an award of damages against the sellers of steel crates. Like our hypothetical crate maker, CSFB is fulfilling a market demand. The possibility that judges, regulators, or legislators have caused “too much demand” for a particular service, inducing firms to buy something worth less than its price, is no reason to mulct the service’s provider.
In any event the opinion is a nice salve for investment banks and I think takes the common sense holding that, to the extent fairness opinions are required or given, they are not insurance policies. Rather they are to be assessed at the time they are given. Here, Easterbrook relies heavily on the engagement letter between CSFB and HA-LO to determine that CSFB's reliance on management numbers was appropriate since the engagement letter requires it. These engagement letters have always been quite favorable to the investment banks -- a policy which paid off here.