M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Tuesday, November 20, 2012

Bingham on Big Boy Language

Bingham just issued this interesting Legal Alert on Pharos Capital Partners, L.P. v. Deloitte & Touche.

In that case, on Oct. 26, 2012, the United States District Court for the Southern District of Ohio granted summary judgment in favor of Credit Suisse, holding that, under New York or Ohio law, plaintiff Pharos Capital Partners failed to prove it justifiably relied on Credit Suisse in connection with its private equity investment in National Century Financial Enterprises  (a business that was later found to be fraudulent) because Pharos expressly disavowed any such reliance in a letter agreement with Credit Suisse.

According to Bingham:

The decision is significant for the financial industry because it enforces a party’s representations in an agreement that it was relying on its own due diligence investigation in connection with its investment, rather than any alleged representations made by a placement agent. Prior to the decision in Pharos, many courts have been reluctant to enforce such agreements to defeat claims for fraud and negligent misrepresentation.



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Interesting distinction between this approach and the recent Australian decision in Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200. Where the trial judge's finding that a credit rating agency was liable for the misleading and deceptive triple A rating it gave to a CPDO (constant proportion debt obligation).

What was interesting was a much more restrictive view of mandate letter carve outs like:

3.2 ABN AMRO will have no responsibility for providing or obtaining on the Company’s behalf any legal, regulatory, accounting, taxation or other specialist advice in connection with the Transaction. The Company shall be responsible for obtaining any such advice from independent advisors which the Company has chosen and may not rely on ABN AMRO for any such advice. Any such advice provided to the Company shall be the direct legal responsibility of the provider of such advice and not of ABN AMRO.


3.4 The Company acknowledges that ABN AMRO is not acting as fiduciary but is an independent contractor retained solely for this Transaction. Defining the scope of any due diligence exercise, conducting any due diligence, analysis of any due diligence results, and the prudence, desirability and commercial merits of the Transaction are all entirely decisions for and ultimately the sole responsibility of the Company...

Posted by: Andrew Lumsden | Nov 21, 2012 9:07:36 PM

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