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Ahmanson v. Salomon Brothers Inc.5/7/1991
COURT OF APPEAL OF CALIFORNIA, SECOND APPELLATE DISTRICT, DIVISION SEVEN
No. B049202
1991.CA.40873 ; 280 Cal. Rptr. 614; 229 Cal. App. 3d 1445
May 7, 1991
H. F. AHMANSON & COMPANY ET AL., PLAINTIFFS AND APPELLANTS,
v.
SALOMON BROTHERS, INC., ET AL., DEFENDANTS AND RESPONDENTS
Superior Court of Los Angeles County, LASC No. C712594, Ronald W. Sohigian, Judge.
Belin & Rawlings and Daniel N. Belin, Douglas M. Rawlings and Lisa D. Norlander for Plaintiffs and Appellants.
Wachtell, Lipton, Rosen & Katz, Douglas S. Liebhafsky, Alschuler, Grossman & Pines, Frank Kaplan and Michael Linfield for Defendants and Respondents.
Opinion by Johnson, J., with Lillie, P. J., and Woods (Fred), J., concurring.
Johnson
Plaintiffs appeal from an order denying their motion to disqualify defendants' attorneys on the ground of conflict of interest. We affirm.
Facts and Proceedings Below
Plaintiffs H. F. Ahmanson & Company and others (hereafter Ahmanson) hired defendant Salomon Brothers, Inc., to provide financial advice and investment banking services in connection with Ahmanson's acquisition of Bowery Savings Bank. Ahmanson contends it suffered over $100 million in damages as a result of Salomon Brothers' negligent and self-serving advice in the course of the Bowery transaction. Ahmanson filed a complaint against Salomon Brothers alleging breach of fiduciary duty, fraud, negligence, negligent misrepresentation and breach of contract. Salomon Brothers filed a cross-complaint against Ahmanson for breach of contract.
Before us is the question whether the trial court erred in refusing to disqualify the lead counsel representing Salomon Brothers, the New York law firm of Wachtell, Lipton, Rosen & Katz (hereafter Wachtell).
Prior to any involvement by Wachtell, the Bowery Savings Bank found itself in severe financial difficulty resulting from the fact the interest it was required to pay to attract depositors exceeded the income the bank earned on its fixed-rate loans. In order to avoid insolvency, Bowery and the Federal Deposit Insurance Corporation (FDIC) entered into an assistance agreement designed to protect Bowery from credit and interest rate risks.
Under the interest rate risk protection, Bowery paid the FDIC the fixed rate of income received from its assets and the FDIC paid Bowery a variable rate of interest on those same assets based on current market rates. Thus, Bowery's interest cost and interest income were both variables. When interest rates went up, Bowery's income from interest payments by the FDIC also went up, guaranteeing Bowery's income would stay ahead of its interest obligations to its depositors.
Under the credit risk protection, the FDIC promised, with respect to certain Bowery assets, that if the asset went into default the FDIC would purchase it from Bowery. However, if Bowery sold one of these protected assets to a third party and replaced it with another asset the FDIC credit protection was lost as to that asset and did not apply to the replacement asset.
One problem with the assistance agreement was that some of the assets protected by the agreement would not mature until after the agreement expired. Thus, after the agreement expired, Bowery once again would be exposed to the same financial problems it had before the agreement. Bowery enga
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