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After a jury waived trial, the Court held
a prominent Boston firm (“Firm”) liable for negligence
in issuing a “no litigation” opinion letter in
connection with a corporate acquisition. In June 1998,
Suiza Foods Corporation, through its wholly-owned
subsidiary Garelick Farms, Inc. (“Garelick”), acquired
all of the stock of Scangas Bros. Holding, Inc., the
parent company of West Lynn Creamery (“West Lynn”). In
connection with the acquisition, the Firm issued an
opinion letter confirming West Lynn’s disclosure to the
effect that no litigation was pending or threatened
against it, and stating that “nothing has come to our
attention which causes us to doubt the accuracy of [the
disclosure schedule].”
In October 1997, the Firm had represented
West Lynn in responding to a grand jury subpoena
relating to a tax evasion charge against one of its
customers (the “Customer”). In the course of that
representation, one of the Firm’s attorneys (the
“Defense Attorney”) spoke to the Customer’s criminal
defense attorney, who stated his belief that West Lynn
was guilty of commercial bribery. On November 20, 1997,
one of West Lynn’s employees testified before the grand
jury. On November 26, 1997, the Defense Attorney spoke
to the Customer’s criminal defense attorney, who stated
that he believed the U.S. Attorney was also considering
charges against West Lynn. On December 4, 1997, the
Defense Attorney spoke to the Customers’ civil attorney, |
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who also made comments suggesting
wrongdoing by West Lynn. After early December 1997, the
Firm did no other work on this matter until after the
acquisition had closed.
In connection with the acquisition, the
Firm met with its client to discuss whether the grand
jury subpoena should be disclosed to Garelick. The
Defense Attorney stated that it was his “guesstimate”
that the matter had gone away. He would later testify
that he did not understand that the Firm would rely on
this guesstimate in issuing an opinion letter. The Court
also found that the Firm failed to follow its standard
procedure of having a “countersigning partner” verify
the statements in the opinion letter.
On September 10, 1998, approximately two
months after the acquisition closed, the Firm received a
letter from the U.S. Attorney’s Office advising him that
West Lynn was the target of a Federal grand jury
investigation. West Lynn would later plead guilty and
resolve the matter by paying a $7.2 million fine.
The Court found “a significant breakdown
in the careful process established at [the Firm]
regarding opinion letters.” It held the firm liable for
negligent misrepresentation and negligence, but declined
to impose individual liability on any of the attorneys
involved. The Court rejected Garelick’s claim under
M.G.L. ch. 93A, § 11. The Court ruled that the $7.2
million fine was an appropriate amount to assess as an
element of damages.
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