M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Tuesday, October 13, 2009

“This is a stew of great complexity”

The BAC-ML legal stew continues to simmer.  In the SEC-BAC case, parties are gearing up for trial and BAC has signaled its intention to waive the attorney client privilege.  Remember, in the federal case, BAC is arguing, in effect, that it relied on advice from counsel regarding which disclosures were material.  Indeed, I think Lewis' defense is something like, "I don't do disclosures.  That's lawyer work."

Here's the statement from the SEC:

"We have reached agreement with the Bank of America on proposed terms of a court order governing disclosure of information previously withheld on the basis of legal privileges. The order is subject to the approval of Judge Jed Rakoff. If entered by the court, the order would result in a broad waiver of the attorney-client and other legal privileges on matters that are the subject of our pending action against the Bank as well as ongoing investigation.

"In particular, the order negotiated by the SEC would allow us to assess further details surrounding the Bank's failure to disclose to its shareholders critical information concerning the award of bonuses to Merrill employees, including any relevant information previously withheld based on attorney-client or other privileges. In addition, the order would allow for investigation of previously privileged details of Bank of America's consideration of whether to invoke the material adverse change clause in its agreement to merge with Merrill Lynch, its decisions about whether to disclose impairment of goodwill of Merrill Lynch and other financial results of Merrill Lynch during the fourth quarter of fiscal year 2008, and its communications with the Federal Reserve Board, the U.S. Department of the Treasury, and other federal officials regarding the provision of federal assistance in connection with its merger with Merrill Lynch.

In the BAC-ML shareholder suit in Delaware, Vice Chancellor Strine refused to dismiss the case.  The two sides' arguments can be summarized as follows (HT: Bloomberg): 

Lawyer Lawrence Portnoy, representing the bank’s directors, told Strine they didn’t act in bad faith toward shareholders, and that Merrill’s distress “was not a secret” and the losses weren’t unexpected.

Investors’ lawyer Robert J. Kriner Jr. told Strine bank directors showed a “lack of care,” and said in court papers that “directors faithlessly subverted the best interest of Bank of America and its stockholders.”

This case is interesting.  And if the plaintiff's duty of care argument is going to work, then the case may turn on whether in the face of a known duty to disclose (as told to them by their counsel) the directors chose not to.  Myself, I'm waiting for someone at BAC to try to raise a statutory defense (DGCL Sec. 122(12)), but that's just me.



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