Billionaire activist investor Carl Icahn speaks with attendees during a charity event in New York on May 19, 2015. (Photo: Victor J. Blue/Bloomberg)

Battling CVR Energy, Wachtell, Lipton, Rosen & Katz argues it's far too late for the Carl Icahn-controlled company to add new claims to its legal malpractice suit against the firm. Further, Wachtell claims, its own initial engagement letter with CVR was “too indefinite to be enforceable.”

Wachtell has been battling CVR Energy's legal malpractice lawsuit for nearly five years. The refining and fertilizer company is alleging Wachtell failed to advise that CVR would face claims by Deutsche Bank AG and The Goldman Sachs Group Inc. for $36 million under the terms of engagement letters with the banks.

Seeking to amend the suit, CVR said last week it had learned that Wachtell based its $6 million legal fee to CVR on the amount charged by the investment banks, which, the company claims, was not consistent with the terms of the law firm's engagement letter with CVR.

CVR is asking a federal judge for permission to add new claims to the malpractice lawsuit for breach of contract and breach of the covenant of good faith and fair dealing and to seek punitive damages.

CVR, in a redacted letter last week to U.S. District Judge Richard Sullivan of the Southern District of New York, said the proposed additions stem from information “we learned late in discovery.”

But in a late Sept. 7 filing, Wachtell's counsel, Michael Shuster, a partner at Holwell Shuster & Goldberg, urged Sullivan to reject the additions, saying CVR “unreasonably waited” to add the claims until after the close of fact discovery.

Wachtell says CVR is “injecting new legal and factual issues into a claim that the parties have been litigating for five years” and says CVR's “sole excuse” is that those claims are based on information it learned from SEC testimony transcripts it received in July. (The U.S. Securities and Exchange Commission investigated whether CVR Energy properly disclosed the structure of investment bank fees it agreed to prior to Icahn's successful 2012 takeover bid.)

Wachtell said the SEC testimony at issue—by the individual defendants in the malpractice suit, Wachtell partners Benjamin Roth and Andrew Brownstein—concerned factors that the firm considered in determining its legal fee to CVR for its services in 2012.

CVR could have elicited that information from Wachtell during fact discovery years ago, Wachtell says, adding, “CVR's conduct is the antithesis of diligence.” Further, an amended complaint raises the specter of more depositions of the people who discussed and approved Wachtell's fee, including CVR's general counsel and its entire board of directors, the law firm claims.

Wachtell also argues the proposed new claims are “futile,” citing the terms of a one-page attachment to its engagement letter to CVR. That document notes that the firm says its “expectation is that upon conclusion of the matter or from time to time upon the achievement of major milestones, our final compensation will be agreed with you, mutually and reasonably, and will reflect the fair value of what we have accomplished for the company.”

Citing a Second Circuit case, Wachtell contends a “purported contract that leaves the compensation term to be determined by future negotiations—like the engagement letter here—is 'a mere agreement to agree' and under New York law is deemed too indefinite to be enforceable.”

Wachtell argued this is confirmed by the parties' subsequent written fee agreement. Following CVR board's approval in April 2012 to pay a $6 million legal fee to Wachtell, Wachtell partner Brownstein contacted Edmund Gross, the former general counsel, to request he countersign an attached fee letter on behalf of CVR, which Gross did, according to Shuster's letter. That fee letter confirms a $6 million fee for “legal services.”

“CVR's proposed amendment is frivolous—a term we do not use lightly. Wachtell Lipton has waited long enough to defeat CVR's malpractice claim on the merits,” Shuster wrote.

Herbert Beigel, CVR's attorney in the malpractice suit, said Shuster's court letter is “factually inaccurate in a number of respects,” declining further comment.