Bankruptcy

Fairness Opinion Upheld

By J. Michael McBride

On February 20, the Seventh Circuit Court of Appeals issued an opinion in which it held that the issuance of a fairness opinion by Credit Suisse First Boston right before the tech bust of 2000 was not gross negligence. In this instance, a Liquidating Trust established for the benefit of unsecured creditors sued SCAB for gross negligence arguing that it should have known that the deal they were saying was fair was instead about to implode when the market turned. The Court of Appeals upheld the ruling by the US District Court that CSFB did not commit gross negligence in issuing its opinion and that they were not able to predict the tech bust any more that anyone else watching the markets at that time.

Moreover the Court held that CSFB was using financial information which was provided to it, thus alleviating its responsibility for the quality of the underlying data. "CSFB followed the norm in this business -- more to the point, it followed the rules in its contract with HA-LO -- and relied on management's numbers. It told HA-LO to hire someone to check the numbers. Separating number-creation from number-evaluation is not illegal and may make business sense....The Trust's assertion that CSFB should have foreseen the end of the dot-com era is an appeal to hindsight."

Here is a link to the Seventh Circuit Court of Appeals Opinions, Case No. 06-3842:
http://www.ca7.uscourts.gov/fdocs/docs.fwx?dname=opinion

Michael

Full post as published by Texas Lawyer Blog on February 26, 2008 (boomark / email).