Wachtell's home at the CBS Building in New York City.
Wachtell’s home at the CBS Building in New York City. (Photo by Adam Kuban)

After earlier defeats in both state and federal court, billionaire investor Carl Icahn caught a break this week in a legal showdown with Wachtell, Lipton, Rosen & Katz.

New York’s Appellate Division, First Department on Thursday revived malpractice claims against Wachtell brought by Icahn-controlled CVR Energy Inc. The appellate panel reversed lower court judge O. Peter Sherwood of New York Supreme Court in Manhattan, who had previously dismissed CVR’s malpractice allegations. 

The dispute has been pending since 2013, when CVR filed federal malpractice claims against Wachtell and two partners, Benjamin Roth and Andrew Brownstein.

CVR alleged that Wachtell failed to explain the terms of the company’s fee agreement with a pair of investment banks, which CVR hired as financial advisers in an unsuccessful attempt to fend off a 2012 acquisition by Icahn. CVR wants Wachtell to repay $36 million that the investment banks claimed that they were owed, and $6 million for Wachtell’s fee. 

After CVR filed the federal suit, Wachtell lodged a declaratory judgment action in New York state court against CVR and Icahn, asking for a ruling that the firm hadn’t engaged in malpractice. CVR then brought malpractice counterclaims in state court. In 2014, Sherwood refused to dismiss Wachtell’s declaratory action, and in 2015 the judge agreed to throw out CVR’s malpractice counterclaims. 

The parties appealed both rulings to the First Department, where Wachtell tapped former federal judge John Gleeson to argue its case. Gleeson, who spent more than two decades as a U.S. district judge in the Eastern District of New York, left the bench earlier this year and joined Debevoise & Plimpton as a litigation partner. Zuckerman Spaeder represented Wachtell in the lower court. 

CVR tapped Tucson-based lawyer Herbert Beigel to lead its case, along with Robert Viducich of New York. 

On Thursday, the New York appellate panel took issue with Sherwood’s rulings, saying that CVR’s choice to bring the suit in federal court deserved deference. The appeals court described Wachtell’s state suit as “unusual” and “strongly suggestive of forum shopping.” The First Department also reinstated CVR’s malpractice allegations. 

“CVR is gratified by the ruling of the court upholding our right to proceed with our malpractice action,” Beigel said on Friday. 

Gleeson couldn’t immediately be reached for comment. 

In light of the First Department’s ruling against Wachtell, it’s likely that the case will now resume in federal court, where CVR has continued to pursue the malpractice claims against the law firm. 

U.S. District Judge Richard Sullivan in Manhattan dismissed the federal suit in March, finding that Sherwood’s earlier ruling for Wachtell in state court doomed the federal action. CVR contested the decision, but its appeal has been on hold since May, awaiting the First Department’s ruling.