IN THE UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF PENNSYLVANIA

________________________________________ AIRGAS, INC. Plaintiff, v. CRAVATH, SWAINE & MOORE, LLP Defendant.

) ) ) CIVIL ACTION No. 10-612 ) ) ) ) ) )

________________________________________)

SUPPLEMENTAL MEMORANDUM OF LAW IN SUPPORT OF

AIRGAS’S MOTION TO DISQUALIFY CRAVATH, SWAINE & MOORE LLP

COZEN O’CONNOR Stephen A. Cozen, Esquire Jeffrey G. Weil, Esquire Thomas G. Wilkinson, Jr., Esquire 1900 Market Street Philadelphia, PA 19103 215-665-2000

Attorneys for Plaintiff, Airgas, Inc.

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Table of Contents

Page

STATEMENT OF FACTS ............................................................................................................. 2 ARGUMENT................................................................................................................................ 10 A. Pennsylvania’s Rules of Professional Conduct Apply ..................................................... 10 B. Cravath Has Violated Rule 1.7(a) of the Pennsylvania Rules of Professional Conduct And Must, Therefore, Be Disqualified ............................................................................. 11

1. Airgas Was A Current Client Of Cravath While Cravath Was Advising Air Products ................................................................................................ 12 2. Cravath’s Representation of Air Products Is Adverse To Airgas ................ 17

C. In The Alternative, Cravath Has Violated Pa.R.P.C. 1.9(a)’s Prohibition On Former- Client Conflict of Interest ................................................................................................. 18 D. Disqualification Is the Proper Sanctions For Cravath’s Violations of Pennsylvania’s Rules of Professional Conduct.......................................................................................... 23

1. The Court's Role in Protecting the Public Interest....................................... 24 2. There Are No Cases Allowing Concurrent Representation of Adverse Parties, Without Express Consent................................................................ 25 3. The Timing of Airgas’s Motion to Disqualify Has No Bearing on Its Motion to Disqualify.................................................................................... 27 4. Air Products Will Not Be Unduly Prejudiced By Cravath’s Disqualification............................................................................................ 28

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TABLE OF AUTHORITIES

Page(s)

CASES

Acierno v. Hayward, 2004 WL 1517134 (Del. Ch. July 1, 2004)..............................................................................32

Air Prods. and Chems., Inc. v. Airgas, C.A. 5249 (Del. Ch. Feb. 4, 2010)...........................................................................................15

Appel v. Kaufman, 2009 WL 1139593 (E.D. Pa. Apr. 24, 2009) ...........................................................................16

Argue v. David Davis Enterprises, Inc., 2004 WL 2480836 (E.D. Pa. Nov. 4, 2004) ................................................................21, 29, 31

CenTra, Inc. v. Estrin, 538 F.3d 402 (6th Cir. 2008) ...................................................................................................17

Del-Chapel Assocs. v. Ruger, 2000 WL 488562 (Del. Ch. Apr. 17, 2000) .............................................................................28

Dworkin v. Gen. Motors Corp., 906 F. Supp. 273 (E.D. Pa. 1995) ......................................................................................27, 29

Gambone v. Lite Rock Drywall, 288 Fed. App’x. 9 (3d Cir. 2008).............................................................................................17

Greenwood Land Co. v. Omnicare, Inc., 2009 WL 2595652 (W.D. Pa. Aug. 2, 2009) .....................................................................29, 35

Gross v. Gross, 1997 WL 653909 (E.D. Pa. Oct. 20, 1997)........................................................................22, 25

Imbesi v. Imbesi, 2001 WL 1352318 (E.D. Pa. Oct. 30, 2001).................................................................... passim

In re Congoleum Corp., 426 F.3d 675 (3d Cir. 2005).....................................................................................................16

In re Diet Drugs, 282 F.3d 220 (3d Cir. 2002).....................................................................................................17

In re Woehrle, 2000 WL 354365 (Bktcy. M.D. Pa. Mar. 24, 2000) ................................................................31

iii

Int’l Longshoremen’s Ass’n, Local Union 1332 v. Int'l Longshoremen’s Ass’n, 909 F. Supp. 287 (E.D. Pa. 1995) ................................................................................21, 23, 31

J&J Snack Foods Corp. v. Kaffrissen, 2000 WL 562736 (E.D. Pa. May 9, 2000) ...............................................................................31

James v. Teleflex, Inc., 1999 WL 98559 (E.D. Pa. Feb. 24, 1999) ...................................................................21, 27, 30

Jones & McClain, LLP v. Jones, 271 B.R. 473 (Bkrtcy.W.D.Pa. 2001) ................................................................................29, 31

Jordan v. Phila. Housing Authority, 337 F. Supp. 2d 666 (E.D. Pa. 2004) .......................................................................................34

JPMorgan Chase Bank v. Liberty Mut. Ins. Co., 189 F.Supp.2d 20 (S.D.N.Y. 2002) ...................................................................................31, 32

Kaiser v. Stewart, 1997 WL 186329 (E.D. Pa. Apr. 10, 1997) .............................................................................31

Lease v. Rubacky, 987 F.Supp. 406 (E.D. Pa. 1997) .............................................................................................31

Malewicz v. Michael Baker Corp., 2003 WL 21982955 (Pa. Com. Pl. Aug. 6, 2003)....................................................................34

Monument Builders of Pa., Inc. v. The Catholic Cemeteries Ass’n, Inc., 190 F.R.D. 164 (E.D. Pa. 1999)...............................................................................................30

Municipal Revenue Servs., Inc. v. Xspand, Inc., 537 F.Supp.2d 740 (M.D. Pa. 2008) ........................................................................................35

Norfolk Southern Ry. Co. v. Reading Blue Mountain & Northern R.R. Co., 397 F. Supp. 2d 551 (M.D. Pa. 2005) ......................................................................................34

Pressman-Gutman Co., Inc. v. First Union Nat’l Bank, 2004 WL 2980403 (E.D. Pa. Dec. 22, 2004)...........................................................................31

Pyle v. Meritor Savings Bank, 1993 WL 483196 (E.D. Pa. Nov. 23, 1993) ............................................................................21

Reading Anthracite Co. v. Lehigh Coal & Navig. Co., 771 F.Supp. 113 (E.D. Pa. 1991) .......................................................................................27, 30

SBC Interactive v. Corporate Media Partners, 1997 WL 770714 (Del. Ch. Dec. 9, 1997)...............................................................................18

iv

Schwartz v. Indus. Valley Title Ins., 1997 WL 330366 (E.D. Pa. Jun. 5, 1997)..........................................................................18, 31

Skloff v. Bickley, 1986 WL 14999 (E.D. Pa. Dec. 31, 1986).........................................................................27, 32

Unanue v. Unanue, 2004 WL 602096 (Del. Ch. Mar. 25, 2004).......................................................................19, 22

United States v. DeJesus, 1990 WL 79685 (E.D. Pa. Jun. 7, 1990)..................................................................................27

United States v. Denson, 2009 WL 261137 (W.D. Pa. Feb. 4, 2009) ..............................................................................29

United States v. Stout, 723 F. Supp. 297 (E.D. Pa. 1989) ......................................................................................27, 30

Walsh v. Consol. Design & Eng’g, Inc., 2008 WL 131135 (E.D. Pa. Jan. 14, 2008) ............................................................28, 29, 31, 35

White Consol. Indus., Inc. v. Island Kitchens, Inc., 884 F.Supp. 176 (E.D. Pa. 1995) .............................................................................................16

OTHER AUTHORITIES

Civ. R. 83.6(IV) .............................................................................................................................16

Ernest Scheyder, Air Products Goes Hostile In Bid for Airgas, Reuters.com,

http://www.reuters.com/article/idUSTRE61A2TH20100211. ......................................................24

Restatement of the Law Governing Lawyers, § 132, cmt. .................................................20, 21, 27

Rule 1.7 of the Pennsylvania Rules of Professional Conduct........................................7, 17, 21, 28

Rule 8.5 of the Pennsylvania Rules of Professional Conduct........................................................16

Phila. Bar Ass'n Guidance Op. 2009-4, 2009 WL 934625 (March 2009) .....................................22

Pa.R.C.P. 1.9 ......................................................................................................................25, 28, 30

Rule 1.9(a)......................................................................................................................................24

Rule 1.10(a)....................................................................................................................................29

Plaintiff, Airgas, Inc. (“Airgas”), files this Memorandum of Law in support of its pending

motion to disqualify the law firm of Cravath, Swaine & Moore LLP (“Cravath”).

Cravath has represented Airgas continuously since 2001 and now is acting as counsel on

the other side of a corporate takeover battle launched against Airgas by another Cravath client,

Air Products & Chemicals, Inc. (“Air Products”). Cravath’s behavior violates Rule 1.7 of the

Pennsylvania Rules of Professional Conduct. That Rule prohibits “concurrent” representation of

adverse clients, without express consent of both clients. Despite Airgas’s timely and repeated

objections to its law firm appearing on the other side of this acquisition attempt, Cravath

continues to act as counsel for Air Products and against Airgas.

Cravath has sought to “cure” the obvious conflict presented by representing two clients

which are adverse by dropping Airgas – the less lucrative client – like a “hot potato” in the midst

of the concurrent representation. Ironically, Cravath maintains that by committing an additional

breach of loyalty (dropping Airgas in the midst of representing them) it has cured the original

breach of loyalty (concurrently representing two clients which are adverse to one another). It

should come as no surprise that such tactics are not countenanced by courts – courts charged

with preserving the public confidence in the legal profession and the integrity of the judicial

system.

The courts of this Circuit (and state) uniformly recognize that disqualification is the

appropriate remedy in such an extreme situation as concurrent representation of adverse clients.

Indeed, we could find no case that permits a law firm to act against its client in a situation such

as this – where the client has consistently and vigorously objected to the representation and the

law firm’s solution was to fire the less lucrative client in the midst of the concurrent

representation.

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STATEMENT OF FACTS

Airgas is the United States’ largest distributor of industrial, medical, and specialty gases

and related equipment, safety supplies and MRO products and services to industrial and

commercial markets. Through approximately 400 acquisitions, Airgas has built the largest

national distribution network in the packaged gas industry. Airgas maintains its headquarters in

Radnor, Delaware County, Pennsylvania. Air Products has been a rival and competitor of Airgas

in at least some market segments since at least 2001. Unbeknownst to Airgas, its own law firm,

Cravath, began advising Air Products, likely in September 2009, on how to acquire Airgas, while

at the same time it was advising Airgas on financings critical to Airgas’s financial well-being.

Indeed, on October 14, 2009, Cravath sent a bill for $322,800 to Airgas for work performed, and,

THE VERY NEXT DAY, Air Products made its first offer to acquire Airgas, being advised in

that endeavor by Cravath.

Airgas has used Cravath – and no other firm – to provide legal advice with various

corporate financing transactions since 2001. Since then, Cravath has continuously served as

strategic and legal counsel to Airgas on at least 25 distinct substantial financing transactions

through October 2009. (See Affidavit of Joseph C. Sullivan, attached hereto as Ex. A, ¶ 5.)

Cravath has also assisted Airgas with sensitive personnel issues, including the departure of

Airgas’s President and COO in 2005, and with the financing for Airgas’s European acquisitions

in 2008. (Id.) In the winter of 2008-09, Cravath provided legal counsel regarding the issuance

of a senior note offering during negotiations for the acquisition of a Florida-based gas

distribution company. Cravath also provided counsel with respect to potential litigation

involving Accounts Receivable Co-Purchasers. (Id.)

Over the course of this nine-year relationship, Airgas has paid well over $2 million to

Cravath for its legal services – with $322,800 of it coming in October, 2009. (See Affidavit of

Robert H. Young, Jr., attached hereto as Ex. B, at ¶¶ 4, 7; see also Sullivan Aff. ¶ 4.) During its

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nine years as the exclusive financing counsel to Airgas, Cravath has had access to Airgas’s

confidential corporate records, including minute books, contracts, and other non-public and

sensitive information concerning Airgas’s internal operations, finances, and corporate strategies.

(See Young Aff ¶ 6; Sullivan Aff. ¶ 8.) Airgas’s executive staff routinely shared with Cravath

attorneys non-public financial and other strategic business information regarding, for example,

Airgas’s capital structure, financing preferences, projected liquidity position and anticipated

operating performance. (Sullivan Aff. ¶ 6.) Even as recently as September 2009, Cravath

lawyers participated in a conference call where the following topics were discussed:

• Discussion of “[c]hanges to [Airgas’s] general corporate strategy. Is [Airgas] considering any material strategic actions that may adversely affect the company’s ability to service its debt obligations?”

• Discussion of “[Airgas’s] outlook and strategy for acquisitions.”

• Discussion of whether “[Airgas] anticipate[s] significant changes in its operating costs or costs structure” and “[c]omment on the pricing trends for the company’s key raw materials in FY2010.”

• “Detailed breakdown of capital expenditures outlook.”

• Discussion of “Airgas’s key risk management strategies”

• “Update on expense reduction initiatives”

• Discussion of “[Airgas’s] plans to address maturities of AR facility (2010) and revolver (2011)”

• “Review [of] liquidity and bank credit line availability”

(See Email from Bob McLaughlin to Les Graff and Joe Sullivan and attached Business Due

Diligence memo, dated September 3, 2009, attached to Young Aff. as Ex. 1.)

Airgas Remains A Client of Cravath Through The Fall of 2009

As set forth above, Cravath was actively representing Airgas in September 2009, when

the above described due diligence took place. That due diligence was part of an Airgas bond

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issuance, which closed on September 11, 2009, and for which Cravath was Airgas’s sole

financing counsel. Throughout September 2009, Cravath continued to provide legal counsel to

Airgas, and Airgas anticipated working with Cravath in connection with a series of pending

financing transactions involving Airgas’s senior debt instruments. (Sullivan Aff. ¶ 7.) During

these months, Joseph Sullivan (“Sullivan”), Airgas’s Vice President and Treasurer, conferred

with Cravath partner Ronald Cami (“Cami”) concerning a range of issues to be discussed at an

upcoming Finance Committee meeting. (Id. ¶ 6.) These discussions required disclosure to

Cravath of confidential information concerning Airgas’s capital structure, financing preferences,

projected liquidity position, business strategies, business concerns, and anticipated operating

performance. (Id.) Airgas also circulated to Cravath a September 2009 confidential financing

“roadshow” presentation regarding a senior notes offering. (Id. at ¶ 9.) On October 28, 2009,

Cami delivered to Sullivan a draft Board Resolution, prepared by Cravath at Airgas’s request,

concerning a debt issuance requiring Airgas board approval. (Id. ¶ 7.)

Even after the bond issuance closed on September 11, 2009, Cravath continued in its role

as Airgas’s sole financing law firm. On September 25, 2010, Sullivan emailed Cami asking

advice with respect to vendor financing to accumulate a large customer relationship, and Cami

responded with legal advice. (See Ex. C.) A few days later, Cami sent Sullivan an email which

read:

Hey Joe - Hope you are well. We are hearing that Vanguard is sending a letter to the CEOs of nearly 1,000 companies regarding corporate governance. I am not sure Airgas will be on their radar screen, but if you are, we have people here who deal with that sort of thing all the time and would be very happy to help in any way we can.

(Ex. D.) Sullivan responded, “[t]hanks,” and proceeded to ask Cami further legal advice.

Sullivan in no way indicated that Airgas would not take Cami up on Cravath’s offer of advice

regarding a potential corporate governance response. Thus, at the very end of September,

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Cravath not only anticipated doing Airgas’s legal work – but it was asking to expand that work.

In that very same email chain, Sullivan stated Airgas’s plan to make note purchases “next

quarter” and asked legal advice in connection with this possibility. (Id.)

Cami himself put on his website bio that Airgas was a “key” client of Cravath. For

example, in conjunction with an October 8-9, 2009 CLE in California, Cami’s faculty bio lists

“Airgas” as a “key” Cravath client.1 (See Ex. E.) Indeed, Cami provided further legal advice to

Sullivan throughout the month of October. On October 16, Cami responded to Sullivan’s request

to review certain provisions of a customer agreement. (See Ex. F.) Cami’s response concluded

with a question for follow-up by Sullivan, suggesting that this response was not intended to be

the “final” communication regarding the legal questions presented. Another email from Cami to

Sullivan on October 16 provided legal advice in connection with guarantor note disclosure. (See

Ex. G.) Again, on October 19, Cami and Sullivan engaged in a back and forth, with Sullivan

requesting Cami review of commercial contract provisions. (See Ex. H.) And again, in Cami’s

response, he asked a few questions of Sullivan to better help him provide the proper advice,

indicating that his response was not final, and the provision of advice was ongoing. Then, on

October 20, Cami wrote to Sullivan with a more in-depth discussion of the guarantor footnote

issue, articulating the legal standard and applying it to Airgas’s circumstances. (See Ex. I.)

Finally, in the afternoon of October 28, 2009, Cami transmitted a resolution to be passed by the

Airgas Board of Directors authorizing management to issue additional debt securities, making

the revisions requested by Sullivan. (See Ex. J.)

Cami was not the only Cravath partner maintaining the attorney-client relationship with

Airgas through October 2009. On October 14, 2009 Airgas’s Assistant Treasurer Robert Bartos

1 Plaintiff believes Cami kept Airgas on his website bio until approximately mid-January, when his website bio was revised, undoubtedly for tactical reasons, to airbrush out the reference to Airgas as a Cravath client. Interestingly, Cravath partner Kris Heinzelman still lists Airgas as a Cravath client on his website bio.

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(“Bartos”) emailed Cravath partner Joel Herold stating, “We are starting to think about the

impending renewal of the liquidity facilities in March 2010.” (See Ex. K.) Bartos attached a

summary of terms and asked that Herold review and provide comments. Bartos also listed

several questions with respect to the paperwork, and requested a call with Herold to discuss.

Herold responded that day, stating that he would take the “next couple of days” to review the

documents. Bartos and Herold agreed to set up a call for a week later, on October 21, to speak

further on the issues. On October 20, Herold emailed Bartos, stating that something had come

up and asking to reschedule the call, promising to “get back to [Bartos] with some other

days/times that would work as soon as I can.” (Id.)

Thus, there can be no reasonable dispute on this point: throughout September and

October 2009 – as it had for the previous nine years – Cravath was actively representing Airgas.

Indeed, on October 14, 2009, it sent Airgas a bill for $322,800 (See Young Aff., Ex. 2.) Yet, at

that very same time, it was advising Air Products on how to acquire Airgas. Although nothing

could be more adverse, Cravath never disclosed to Airgas that it was representing Air Products in

its attack on Airgas (1) until it had been paid in full on its October 14 bill, (2) until two weeks

after when Air Products made its initial offer for Airgas, and (3) until two days after it

inexplicably dropped Airgas as a client.

Airgas Learns of and Objects to the Conflict of Interest

On October 28, 2009, the same day Cami provided the draft Board Resolution to Airgas,

and only days after another Cravath partner (Herold) promised to engage in detailed legal

discussions with Bartos regarding upcoming financing, Cami spoke with Robert H. Young, Jr.

(“Young”), Airgas’s Senior Vice President and General Counsel, regarding a conflict of interest.

(Young Aff. ¶ 8.) Cami informed Young that Cravath could no longer represent Airgas in

financing transactions, because Cravath also had a client which was involved in a transaction

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with Airgas. (Young Aff. ¶ 8.) Amazingly, Cami did not disclose the identity of the other

Cravath client or the specific nature of the potential transaction. Two days later, Cami and

Young spoke again. Both Cami and Young agree that Young vigorously and clearly objected to

Cravath’s representation of Air Products in any attempted acquisition of Airgas. (Id. ¶ 9; see

also Affidavit of Ronald Cami.)

Young surmised that Cravath was representing Air Products, because at about the same

time he had his conversations with Cami he learned from his CEO that, on October 15, 2009, Air

Products had made an unsolicited offer to acquire Airgas. On November 12, 2009, Young sent

Cami a letter stating that Cravath’s representation of Air Products in a potential merger or

business combination transaction with Airgas would constitute a serious conflict of interest and

that Airgas would not consent to Cravath representing Air Products. (See Young Aff., Ex. 3.)

Cravath responded by letter dated November 23, 2009, asserting that it was “not in possession of

material nonpublic information with respect to Airgas” and that it “[found] nothing in [its] past

representation of Airgas that would require any consent from Airgas for Cravath to represent Air

Products in a transaction involving Airgas.” (See Young Aff., Ex. 4.) The author of the Cravath

letter, a Mr. Gold, had no personal knowledge of the matter, as he had not participated in any

aspect of the Airgas representation. Through October 2009, however, Cravath continued to

provide legal counsel to Airgas, while simultaneously representing Air Products in the potential

acquisition of Airgas. (Young Aff. ¶¶ 2-3; Sullivan Aff. ¶¶ 15-17.)

On December 9, 2009, Young wrote another letter to Cravath, making clear that

Cravath’s duty of confidentiality to Airgas, while representing Air Products in the potential

takeover of Airgas, would be compromised because of the non-public information about Airgas

that Cravath had amassed during the course of its representation of Airgas. (See Young Aff., Ex.

5.) In his letter, Young noted that Cravath was having conversations with Airgas regarding near-

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term financing, while, at the same time, apparently counseling Air Products as to how best to

acquire Airgas subject to that debt financing and at the lowest price. Airgas’s concern stemmed

from the understanding that an appreciation of Airgas’s financing structure and debt would be a

key component in assessing Airgas’s valuation for purposes of a buyout or takeover offer.

Young also explicitly stated that Air Products’ position with respect to Airgas was adverse,

thereby creating a conflict of interest. Young demanded that Cravath cease and desist from any

further representation of Air Products in the potential Airgas transaction. (Id.)

Cravath responded with a letter on December 11, 2009, continuing to deny that it

possessed any confidential information that would form the basis of a conflict of interest

compromising its representation of Air Products in pursuing the potential takeover. (See Young

Aff., Ex. 6.) Young sent another letter to Cravath on December 14, 2009, explaining that

Cravath “has had detailed conversations with members of senior management of Airgas

regarding impending debt issuances, note repurchases, and the renewal of the Company’s

liquidity facilities.” In particular, as Young explained, on October 14, 2009, Cravath received

for review a package of materials relating to the renewal of Airgas’s liquidity facilities. Young

explained that Air Products’ proposal to Airgas could negatively impact the very same liquidity-

related transactions on which Cravath had been advising Airgas. (See Young Aff., Ex. 7.)

Cravath has not responded to Airgas’s most recent correspondence. (Young Aff. ¶ 18.)

Instead, it persists in its representation of one client (Air Products) now in a hostile takeover

attack on another client (Airgas) – over the express objection of Airgas. On February 4, 2010,

Air Products made public its offer to acquire Airgas; and in a February 5, 2010 press release, Air

Products identified Cravath as Air Products’ legal advisor in its acquisition of Airgas. (See Ex.

L.) A New York Times article that same day also lists Cravath as Air Products’ counsel in the

proposed takeover of Airgas. (See Ex. M.)

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Procedural History

On February 4, 2010, Air Products filed an action against Airgas and members of its

Board in Delaware Chancery Court, alleging breach of fiduciary by Airgas’s Board of Directors

in rejecting Air Products’ offer and seeking an injunction to prevent Airgas from taking action

that would impede Air Products’ attempt to acquire Airgas. Air Prods. and Chems., Inc. v.

Airgas, C.A. 5249 (Del. Ch. Feb. 4, 2010). Cravath is named on the papers as Air Products’

counsel.

On February 5, 2010 – less than 24 hours after Air Products and Cravath went public

with this attempted acquisition of Airgas – Airgas filed this action against Cravath in

Philadelphia County Common Pleas Court, seeking to enjoin Cravath attorneys from further

breaches of their fiduciary duties owed to Airgas under Pennsylvania law and for damages.

Airgas also moved to disqualify Cravath from further representing Air Products in any matter

adverse to Airgas, including all representations of Air Products in its corporate or litigation

attempts to acquire Airgas. See Airgas, Inc. v. Cravath, Swaine & Moore LLP, Feb. Term 2010,

No. 000857 (CCP Phila. Cty. Feb. 5, 2010). Initially, Air Products chose not to remove the

matter and chose instead to appear at a TRO hearing on February 9, 2010. However, when the

state court judge set the matter down for evidentiary hearing on February 16, 2010, Cravath

removed this action to this Court at 5:00 p.m. on the last business day before the scheduled

hearing.

For the reasons discussed below, Airgas requests that this Court grant Airgas’s motion to

disqualify Cravath from further representation of Air Products in this matter and any other

matters regarding the potential acquisition of Airgas.

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ARGUMENT

A. Pennsylvania’s Rules of Professional Conduct Apply

As the forum state for this action, Pennsylvania’s choice of law principles apply. White

Consol. Indus., Inc. v. Island Kitchens, Inc., 884 F.Supp. 176, 179 (E.D. Pa. 1995). This Court

has adopted the Pennsylvania Rules of Professional Conduct promulgated by the Pennsylvania

Supreme Court as its ethical rules. Local Civ. R. 83.6(IV); see also Appel v. Kaufman, 2009 WL

1139593 (E.D. Pa. Apr. 24, 2009). Rule 8.5 of the Pennsylvania Rules of Professional Conduct

determines choice of law in professional responsibility diversity cases. Id.; see, e.g., In re

Congoleum Corp., 426 F.3d 675 (3d Cir. 2005) (“State precedents as to professional

responsibility should be consulted when they are compatible with federal law and policy and do

not balkanize federal law.”) Under Pa.R.P.C. 8.5(b)(2), “for any other conduct, the rules of the

jurisdiction in which the lawyer's conduct occurred, or, if the predominant effect of the conduct

is in a different jurisdiction, the rules of that jurisdiction shall be applied to the conduct. A

lawyer shall not be subject to discipline if the lawyer’s conduct conforms to the rules of a

jurisdiction in which the lawyer reasonably believes the predominant effect of the lawyer's

conduct will occur.”

Airgas and Air Products are both headquartered in Pennsylvania, and the conduct at issue

– Cravath’s provision of legal advice to Air Products despite a concurrent conflict of interest

through its representation of Airgas – occurred in Pennsylvania. The central issue in this matter

is the hostile takeover by Air Products of Airgas, which would occur in Pennsylvania, with the

injury felt solely in Pennsylvania. Moreover, the “predominant effect” of Cravath’s violation of

the ethical rules is felt in Pennsylvania, where Cravath’s two clients are physically located.

Therefore, Pennsylvania’s law of ethics governs this dispute. Nevertheless, an application of

Delaware law would lead to the same outcome, as Pennsylvania’s rules of ethics mirror those of

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Delaware. See, e.g., D.L.R.P.C. 1.7, 1.9, 8.5; see also CenTra, Inc. v. Estrin, 538 F.3d 402, 409-

10 (6th Cir. 2008) (applying, in a professional responsibility diversity-based action, the ethical

laws of the forum state, and noting that a choice of law analysis is not necessary as “Michigan’s

standards of professional conduct are consistent with the other possible sources of law, making

any asserted conflict of laws a false conflict.”).2

B. Cravath Has Violated Rule 1.7(a) of the Pennsylvania Rules of Professional

Conduct And Must, Therefore, Be Disqualified

Pennsylvania’s Rules of Professional Conduct explicitly restrict an attorney’s ability to

represent concurrently two clients whose interests are adverse. Specifically, Rule 1.7 of the

Pennsylvania’s Rules of Professional Conduct provides:

(a) Except as provided in paragraph (b), a lawyer may not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

(1) the representation of one client will be directly adverse to another client; or \

(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

2 This Court has the power to enjoin Cravath’s behavior, even outside of this jurisdiction, because it has personal jurisdiction over Cravath. See, e.g., Gambone v. Lite Rock Drywall, 288 Fed. App’x. 9, 13-14 (3d Cir. 2008) (affirming injunction prohibiting non-Pennsylvania party from transferring patent, upon finding that district court had personal jurisdiction over party); see

also In re Diet Drugs, 282 F.3d 220, 229 (3d Cir. 2002) (stating, in affirming injunction by Pennsylvania District Court aimed at behavior by counsel in Texas litigation, that “[b]ecause the District Court enjoined counsel [in a Texas litigation] from pursuing the mass opt out, it must first have obtained personal jurisdiction over these attorneys”).

12

(2) the representation is not prohibited by law;

(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

(4) each client gives informed consent.

Pa.R.P.C. 1.7. As set out in Comment [1] to this Rule, “Loyalty and independent judgment are

essential elements in the lawyer’s responsibilities to a client. Concurrent conflicts of interest can

arise from the lawyer’s responsibilities to another client[.]” Comment [6] further explains:

“Loyalty to a current client prohibits undertaking representation directly adverse to that client

without that client’s informed consent. Thus, absent consent, a lawyer may not act as an

advocate in one matter against a person the lawyer represents in another matter, even when the

matters are wholly unrelated.”

1. Airgas Was A Current Client Of Cravath While Cravath Was Advising Air Products

Pa.R.P.C. 1.7 is applicable here, because Cravath concurrently represented Airgas and

Air Products. As shown above, Airgas was a current “Cravath client” through at least October

28, 2009. See Schwartz v. Indus. Valley Title Ins., 1997 WL 330366, at *4 (E.D. Pa. Jun. 5,

1997) (stating that an implied attorney-client relationship will be found if “the purported client

sought advice or assistance from the attorney; the advice sought was within the attorney’s

professional competence; the attorney expressly or impliedly agreed to render such assistance;

and it is reasonable for the putative client to believe the attorney was representing him.”); see

also SBC Interactive v. Corporate Media Partners, 1997 WL 770714, at *4 (Del. Ch. Dec. 9,

1997) (stating that an attorney-client relationship exists where there is “a preexisting relationship

that would create a reasonable expectation on the ‘client’s’ part that the attorney was

representing his interests, and reliance by the client upon that expectation.”) Cravath had been

Airgas’s counsel on each of Airgas’s financings since 2001, and Airgas paid well over $2 million

13

to Cravath in legal fees over this time. Time and again, and for nine years, Airgas returned to

Cravath to seek guidance and strategy with respect to its financing matters. Airgas, then, had a

“reasonable expectation” of continuing to use Cravath’s services for anticipated future

financings, some of which were being handled by Cravath at the time of the October 28, 2009

phone call.

As detailed above, Cravath represented Airgas in a September 2009 bond issuance and

did considerable due diligence in connection therewith. It sent Airgas a bill for $322,800 on

October 14, 2009. It listed Airgas as a “key” client in Cami’s bio for an October CLE. Indeed, it

still lists Airgas as a client in Mr. Heinzelman’s website bio. And on October 28, 2009 – the

same day it “fired” Airgas as a client – it also delivered a draft board resolution to facilitate an

impending financing for Airgas.

Cravath knew, by virtue of the work that it performed for Airgas leading up to the end of

October 2009, and by virtue of conversations with Airgas’s Treasurer, that there was more

financing work for Airgas in the pipeline during October 2009 and afterwards. Moreover, before

October 28, 2009, Cravath gave Airgas no indication that it no longer considered Airgas a client.

Cf. Unanue v. Unanue, 2004 WL 602096, at *4-5 (Del. Ch. Mar. 25, 2004) (finding that client

was not “current”, precluding concurrent conflict of interest analysis, where attorney repeatedly

told client that it was terminating the relationship and where attorney sent client “final bill.”).

Meanwhile, playing both sides of the fence, Cravath was providing counsel to Air

Products with respect to its proposed takeover of Airgas at least as early as late September/early

October 2009. Indeed, as the allegations in Air Products’ own Complaint in the Delaware action

make clear, Air Products made its initial acquisition offer on October 15, 2009. (Delaware

Complaint ¶¶ 16, 23.) The Air Products Complaint affirms that prior to this October 15 overture,

Air Products had engaged in “careful study” of the potential benefits of an acquisition. (Id. ¶

14

24.) Surely Cravath, as Air Products’ lead counsel on the transaction, was involved in the

“careful study” leading up to the October 15 offer.3 Thus, by Air Products’ own allegations, and

considering the common practice of engaging counsel and investment bankers to help put

together offers, it is highly likely that Cravath was working with Air Products on its acquisition

plans or strategy by September 2009 – the same months in which it was closing a bond financing

for Airgas. And in any case it is undisputed that there was an overlap of representation from

mid-October to October 28, 2009 – before Cravath ever told Airgas about the conflict. As the

Declaration of Professor Geoffrey Hazard makes clear, “The time overlap in Cravath’s two

representations, between no later than October 15 and October 28, was per se a concurrent

conflict of interest, in violation of PRPC 1.7 and the corresponding Delaware and New York

rules.” (See Declaration of Geoffrey C. Hazard, Jr., attached hereto as Ex. N, at ¶ 5.)4

Cravath’s attempted termination of Airgas as a client – after the conflict with its

representation of Air Products was created – did not transform the nature of the conflict under

the relevant ethical rules. A “present-client conflict may not be transformed into a former-client

conflict by the lawyer’s withdrawal from the representation of the existing client.” Restatement

(Third) of the Law Governing Lawyers, § 132, comment [c]. The Restatement continues:

“Withdrawal of a lawyer thus only renders a representation ‘former’ when it occurs at a point

that the client and the lawyer contemplate as the end of the representation, or if the client fires

3 Airgas has asked Cravath for time records and other documents that would provide the exact date upon which Cravath began advising Air Products, but Cravath has ignored the request and tacitly decided not to reveal that date in its otherwise detailed Affidavits. 4 Professor Hazard is a Distinguished Professor of Law, Hastings College of the Law, University of California; and Trustee Professor of Law, University of Pennsylvania School of Law, University of Pennsylvania. He is a member of the bars of California and Pennsylvania. He previously taught at Yale, Harvard, the University of Chicago and the University of Michigan. For over forty years he has studied, done research, taught, practiced and engaged in professional consulting in the filed of professional ethics. He has been recognized as an expert in that field in many jurisdictions, including the Commonwealth of Pennsylvania. A copy of his professional biography is attached to his Declaration as Exhibit 1.

15

the lawyer, or if other grounds for a mandatory or permissive withdrawal by the lawyer exist.”

Id. Therefore, Cravath’s simultaneous representation of both Airgas and Air Products in an

adverse transaction and this current litigation is appropriately analyzed under the concurrent

conflict of interest rule, Rule 1.7.

It is well settled that “an attorney may not drop one client like a ‘hot potato’ in order to

avoid a conflict with another, more remunerative client.” See Hazard Decl., ¶ 5; see also Int’l

Longshoremen’s Ass’n, Local Union 1332 v. Int'l Longshoremen’s Ass’n, 909 F. Supp. 287, 293

(E.D. Pa. 1995) (holding that “an attorney may not drop one client like a ‘hot potato’ in order to

avoid a conflict with another, more remunerative client”); Argue v. David Davis Enterprises,

Inc., 2004 WL 2480836, at *2 (E.D. Pa. Nov. 4, 2004) (stating, in response to attorney’s offer to

cease representation of one of the conflicted clients, that “[t]his will not cure the conflict because

‘an attorney may not drop one client like a ‘hot potato’ to avoid a conflict with another’”); James

v. Teleflex, Inc., 1999 WL 98559, at *7 (E.D. Pa. Feb. 24, 1999) (stating that the “fact that

[attorneys] purportedly have withdrawn their representation of Teleflex does not cure the

conflicts presented by [attorneys’] representation of James in this lawsuit. The fact that [attorney]

withdrew, or at least told Teleflex that he was withdrawing, as counsel for Teleflex … when the

conflict of interest was brought to his attention indicates behavior that violates an attorney's duty

of loyalty to his client,” and invoking the hot potato rule); Pyle v. Meritor Savings Bank, 1993

WL 483196, at *2, n.2 (E.D. Pa. Nov. 23, 1993) (stating that a law firm may not undertake

representation of two potentially adverse clients and then, when a conflict arises, choose between

the clients) (citing Stratagem Dev. Corp. v. Heron Int’l N.V., 756 F. Supp. 789, 794 (S.D.N.Y.

1991) (stating that in a situation where the representation of two clients is adverse, an attorney

may not “jettison the uncooperative client”; rather, the attorney “has no choice but to withdraw

from representing either client in this case”) (emphasis added)); Phila. Bar Ass'n Guidance Op.

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2009-7 (July 2009) (stating that the “hot potato rule in general disallows a law firm from

discharging a client for the purpose of eliminating a conflict where it desires to accept the

representation of another client. This rule is a salutary one in that it prevents law firms from

violating a duty of loyalty to a client that already exists in favor of a perhaps more lucrative

client relationship.”); Phila. Bar Ass'n Guidance Op. 2009-4, 2009 WL 934625 (March 2009)

(advising that law firm’s representation in asset purchase by client, Company A, who had

purchased patents from another firm client, Company B, adverse to Company B, implicated the

“hot potato rule”; “[T]he inquirer cannot represent Company A because the matter is directly

adverse to the interests of the inquirer’s current client, Company B. Moreover, the ethical

violation cannot be avoided by the inquirer terminating his representation of Company B.”); cf

Gross v. Gross, 1997 WL 653909 (E.D. Pa. Oct. 20, 1997) (finding the hot potato doctrine

inapplicable in this particular case, because, in considering the long history of litigation between

the two parties, the frivolous claims filed by petitioner, and the previous implied consent to her

attorney’s representation of her adversary in one of these proceedings, the court found that the

disqualification motion was merely an oppression tactic).5

5 Unanue, 2004 WL 602096, is inapposite here. In Unanue, the Chancery Court did not reach the issue of the “hot potato” doctrine because it found - for the limited purposes of the motion for disqualification - that the representation of petitioner had effectively been terminated by explicit statements to this effect by the attorney, and by petitioner's receipt of bill from attorney marked “Final Bill.” Moreover, the court found the “hot potato rule” inapplicable because the case involved a small company that was once represented by the lawyer, but the company’s interests soon diverged with those of one of its directors, Joseph. As the court noted, “In this case, the Gibbons Firm's relationship with Goya had long been through Joseph, as its Chairman and CEO. When Joseph's minority position on the board of directors became potentially adverse to the majority of the Goya board, Griffinger sought to distance himself and his firm from Goya. Eventually this resulted in the Gibbons Firm sending correspondence to Goya in the fall of 2003 indicating that the two or three open matters they had were now closed.” Thus, the circumstances in Unanue are distinct from the circumstances here, where Airgas and Air Products were always two separate clients.

17

A lawyer cannot cure one violation of his duty of loyalty (simultaneously representing

two clients who are adverse to each other) by committing a further breach of loyalty (dropping

one of the clients like a hot potato). The termination of one client to facilitate representation of

another, more lucrative client is a clear violation of an attorney’s duty of loyalty. Int’l

Longshoremen's Ass’n, 909 F. Supp. at 293. Thus, Cravath’s attempt to obviate the conflict by

terminating Airgas as a client in favor Air Products, purely because Air Products had provided

Cravath with more work over the preceding years, is only further corroboration of Cravath’s

violation of the ethical rules.

2. Cravath’s Representation of Air Products Is Adverse To Airgas

Moreover, in satisfaction of Pa.R.P.C. 1.7(a), there is no dispute that Air Products’

position vis-à-vis Airgas is “adverse.” The two parties are now on opposing sides of this

litigation. See Int’l Longshoremen’s Ass’n, 909 F.Supp. at 293 (“In this case, counsel are

defending one client against claims brought by another client. This is the most direct of conflicts

and therefore satisfies the ‘directly adverse’ requirement.”) And, Air Products has launched a

hostile takeover of Airgas which threatens the very existence of Airgas as a distinct corporate

entity. Clearly, parties to a corporate acquisition are considered “adverse.” (See Hazard Decl. ¶

5 (“Nothing is more adversarial to a corporate client than providing tactical and strategic advice

to a direct competitor in a takeover strategy”)). The adversity of the relationship between Air

Products and Airgas was explicitly conveyed to Cravath, time and again. From the time of Air

Products’ very first overture to Airgas, Airgas has consistently made clear to Cravath that the

proposed transaction with Air Products is not welcome and will not be “friendly.” (See Young

Aff. ¶ 12, 14.) The non-friendly nature of the relationship is now unmistakable; on February 11,

2010, Airgas made its bid for Airgas hostile. Ernest Scheyder, Air Products Goes Hostile In Bid

for Airgas, Reuters.com, Feb. 11, 2010,

18

http://www.reuters.com/article/idUSTRE61A2TH20100211. And, Airgas has been clear – in

every communication with Cravath – that it does not consent to Cravath’s representation of Air

Products in its overtures towards Airgas.

And, in separate satisfaction of Pa.R.P.C. 1.7(a), there can be no dispute that Cravath’s

representation of Air Products will be materially limited by Cravath’s ethical and fiduciary

responsibilities to Airgas. Cravath had been advising Airgas on sensitive business, financial, and

internal issues, including counsel regarding Airgas’s financing strategies and structure and

timing of its debt, while simultaneously providing Air Products with legal counsel in its

proposed takeover of Airgas. Cravath is armed with nine years’ worth of non-public, sensitive

information about Airgas, relating to its internal affairs, personnel, finances, and short- and long-

term financing objectives, alternatives, and preferences. An understanding of Airgas’s financing

structure and debt would be a key component in Air Products’ formulation of litigation and

takeover strategy.

C. In The Alternative, Cravath Has Violated Pa.R.P.C. 1.9(a)’s Prohibition On

Former-Client Conflict of Interest

Although the Court need not reach this issue, Cravath’s conduct is also a violation of

Pa.R.P.C. 1.9 and Cravath should be disqualified under that analysis as well. Rule 1.9(a)

provides:

A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing.

There is no dispute that Airgas was represented by Cravath. And, as described more fully

above, there is no dispute that Air Products’ interests are now materially adverse to the interests

of Airgas. Moreover, Cravath’s representation of Air Products – in both its corporate advice re

the acquisition and it litigation representation attendant to the acquisition – is substantially

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related to the work it has done for Airgas since 2001. Under Pennsylvania jurisprudence, in

order to determine whether matters are “substantially related” for purposes of Rule 1.9, a court

will consider: (1) the nature of the present lawsuit against he former client; (2) the nature and

scope of the prior representation at issue; and (3) whether in the course of the prior

representation, the client might have disclosed to its attorney confidences which could be

relevant in the present action. Imbesi v. Imbesi, 2001 WL 1352318, at *3 (E.D. Pa. Oct. 30,

2001). Importantly, “the standard is not whether confidential information was actually disclosed

in the prior representation which could be used in the subsequent one, but rather whether it might

have been disclosed.” Gross, 1997 WL 653909, at *2 (emphasis added) (citing Commonwealth

Ins. Co. v. Graphix Hot Line, Inc., 808 F.Supp. 1200, 1204 (E.D. Pa. 1992)). The subsequent

representation need not be a carbon copy of the former representation, so long as they are

sufficiently related. See, e.g., Pa.R.P.C. 1.9, comment [3] (describing, as an example illustrating

a substantially related representation that would violate Rule 1.9, “ a lawyer who has represented

a businessperson and learned extensive private financial information about that person may not

then represent that person's spouse in seeking a divorce”). Notably, “close calls” are decided in

favor of the party seeking disqualification. Imbesi, 2001 WL 1352318, at *3 (citing Reading

Anthracite Co. v. Lehigh Coal & Navig. Co., 771 F.Supp. 113, 115 (E.D. Pa. 1991) (stating that

even though the “nexus between the prior representation and the present case is not entirely clear

… [a]ny doubts [ ] must be resolved in favor of the movant.”))

In Imbesi, 2001 WL 1352318, this Court held that where an attorney previously

represented a client in many of the matters forming the basis for the current client’s litigation

against the former client, where the former client might have disclosed to the attorney

confidences that could be relevant in the present action, and where the attorney “was in a

position where it could have received information which the Plaintiffs might reasonably have

20

assumed the [attorneys] would withhold from [the current client],” a substantial relationship was

found to exist. Id. at *4. Cravath’s nearly decade-long representation of Airgas in its financing

matters, and its provision of strategic advice relative to these financings, have exposed Cravath

to confidential information about Airgas’s financing preferences and goals that would materially

advance Air Products’ takeover attempts of Airgas. For example, the information that Cravath

attorneys were privy to on the business due diligence call as recently as September 2009 –

including “[c]hanges to [Airgas’s] general corporate strategy”, “[Airgas’s] outlook and strategy

for acquisitions”, “Airgas’s key risk management strategies”, “[Airgas’s] plans to address

maturities of” certain facilities and revolvers, and Airgas’s “liquidity and bank credit line

availability” – clearly relate to acquisition strategies Cravath would provide to Air Products in its

current attempt to take over Airgas. (See Young Aff., Ex. 1.) The Delaware litigation involves

the propriety of Air Products’ overture to Airgas. An analysis of whether Air Products’ offer to

Airgas is, in fact, proper would call into question some, if not more, of the information learned

about Airgas by Cravath with respect to its financing preferences and goals. Cravath’s position

as lead counsel on the Air Products attempted takeover will certainly create a substantial risk that

confidential information obtained by Cravath would enable Air Products to make more informed,

strategic decisions with respect to the takeover in light of this information. Thus, Cravath’s

current representation of Air Products is “substantially related” to its representation of Airgas.

(See Hazard Decl. ¶ 5.)

Airgas is not required to set forth exactly which confidential documents Cravath accessed

during its representation of Airgas. Pursuant to Pa.R.P.C. 1.9 comment [3], “A former client is

not required to reveal the confidential information learned by the lawyer in order to establish a

substantial risk that the lawyer has confidential information to use in the subsequent matter. A

conclusion about the possession of such information may be based on the nature of the services

21

the lawyer provided the former client and information that would in ordinary practice be learned

by a lawyer providing such services.”; see also Hazard Decl. ¶ 5; Teleflex, 1999 WL 98559, at *4

(“There is no requirement that the defendants prove that [attorney] actually received information

in the course of his prior representation that is relevant to the current representation.”) (citing

Reading Anthracite Co., 771 F. Supp. at 117). Indeed, Pennsylvania courts have held that a

sufficiently substantial relationship between the attorney’s representation of two clients – even if

that nexus is not entirely clear – will “trigger the ‘irrebuttable presumption’ that confidential

information relevant to the dispute might have been obtained by” the attorney. Reading

Anthracite Co., 771 F. Supp. at 117 (E.D. Pa. 1991) (disqualifying attorney based on this

irrebuttable presumption) (citing Oyster v. Bell Asbestos Mines, 568 F. Supp. 80, 81 (E.D. Pa.

1983) (“In fact, where the subject matter of the present and prior representation are ‘substantially

related’, an irrebuttable presumption arises that confidential information was disclosed during the

course of the former representation.”)); see also Skloff v. Bickley, 1986 WL 14999, at *6 (E.D.

Pa. Dec. 31, 1986) (noting that in seeking disqualification, “the evidence need only establish the

scope of the legal representation and not the actual receipt of allegedly relevant confidential

information”, and holding that “where a ‘substantial relationship’ is found, a presumption arises

that confidences potentially damaging to the client have been disclosed to the attorney during the

period of representation”); United States v. Stout, 723 F. Supp. 297, 310 (E.D. Pa. 1989) (stating

that “the law charges [an attorney] with the virtually unrebuttable presumption that he has

received confidential information from his client.”); United States v. DeJesus, 1990 WL 79685,

at *1 (E.D. Pa. Jun. 7, 1990) (same); Dworkin v. Gen. Motors Corp., 906 F. Supp. 273, 279 n.7

(E.D. Pa. 1995) (same); Restatement (Third) of the Law Governing Lawyers, § 132, cmt. d(iii)

(2000) (“When the prior matter did not involve litigation, its scope is assessed by reference to the

work that the lawyer undertook and the array of information that a lawyer ordinarily would have

22

obtained to carry out that work.”). The nexus between Cravath’s nine-year representation of

Airgas in a variety of strategic, financing, and personnel issues and its current representation of

Air Products in a hostile takeover of Airgas is unmistakable, and, therefore, an irrebuttable

presumption exists that confidential information was exchanged.

While Cravath may have performed more lucrative work for Air Products, and for a

longer period of time, Cravath’s ethical obligations to Airgas are not determined by the length of

its representation of Airgas or by the amount of business provided by Airgas. Any former client

is owed duties under Pa.R.P.C. 1.9 if its attorney takes on a representation substantially related to

the prior representation and adverse to the former client. The Delaware Chancery Court made

this message clear in Del-Chapel Assocs. v. Ruger, 2000 WL 488562, at *6 (Del. Ch. Apr. 17,

2000), when it stated that while a law firm’s former representation of a client may have been

many years prior, and while the law firm has now been representing the current client

consistently for a much longer period of time, and while “it is understandable that these attorneys

feel a greater sense of duty to appear in this matter on behalf of [the current client] than to

withdraw due to the relationship of this matter to the prior representation” – “[n]evertheless,

Rule 1.9 does not allow the court or the lawyers to weigh the interests of one client against those

of another.” Id.; see also Walsh v. Consol. Design & Eng’g, Inc., 2008 WL 131135, at *3 (E.D.

Pa. Jan. 14, 2008) (stating, in response to attorney’s choosing to represent one client adverse to

another concurrent client, and attempting to withdraw from representation of the other client, that

“[t]he Rules of Professional Conduct, however, forbid such a choice,” and disqualifying attorney

for violation of Rule 1.7).

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D. Disqualification Is the Proper Sanctions For Cravath’s Violations of

Pennsylvania’s Rules of Professional Conduct6

Here, Cravath’s continued representation of Air Products is in clear conflict with its

representation of Air Products. Courts have the power to disqualify upon a showing that the

continued representation would be impermissible. United States v. Denson, 2009 WL 261137

(W.D. Pa. Feb. 4, 2009) (“At the outset, the court must determine whether an actual or serious

potential conflict of interest exists. … If waiver is not possible, the attorney must be

disqualified.”); Walsh, 2008 WL 131135, at *3 (“Disqualification ordinarily is the result of a

finding that a disciplinary rule prohibits an attorney’s appearance in a case.”).

Moreover, any doubts regarding the propriety of Cravath’s conduct should be resolved in

favor of the party requesting disqualification. Greenwood Land Co. v. Omnicare, Inc., 2009 WL

2595652, at *6 (W.D. Pa. Aug. 2, 2009) (citing INA Underwriters Ins. Co. v. Nalibotsky, 594 F.

Supp. 1199, 1207 (E.D. Pa. 1984)); Argue, 2004 WL 2480836, at *3 (disqualification is favored

in “close case[s]”); Imbesi v. Imbesi, 2001 WL 1352318 (E.D. Pa. 2001) (stating that “any doubts

regarding the existence of a violation of an ethical rule should be construed in favor of

disqualification”) (citing Int’l Bus. Mach. Corp. v. Levin, 579 F.2d 271, 283 (3d Cir. 1978)). As

6 Under Pa.R.P.C. 1.10(a), the conflict of those lawyers who dealt directly with Airgas in its financing matters is imputed to Cravath as a firm. See Jones & McClain, LLP v. Jones, 271 B.R. 473, 481 (Bkrtcy.W.D.Pa. 2001). Pennsylvania’s ethical rules do not provide for a screen or “Chinese Wall” as a proper remedy for violation of Pa.R.P.C. 1.7 or 1.9. See Pa.R.P.C. 1.10, comment [2] (When a lawyer moves from one firm to another, the situation is governed by [the rule that allows for screening as a cure]); see also Dworkin, 906 F.Supp. at 278 (stating that Rule 1.10(a) was not applicable in this matter because it involved a conflict created by lateral movement); Heimbuch v. Mfr.’s Assoc. of Northwestern Pa., 46 Pa. D. & C. 208, 210 (Pa. Com. Pl. 2000) (stating that “Chinese walls” have been used to avoid disqualification in relatively few cases”, and only when “the ‘Chinese Wall’ was established prior to the arrival of the new attorney at the firm and when the ‘Chinese Wall’ in question is a formal, written, screening procedure.”). Rather, the screen is available as a cure only in the very limited circumstance of a former-client conflict of interest created when a lateral lawyer who represented a client joins a firm who represents that former client’s adversary. See Pa.R.P.C. 1.10(c). There is no allegation here of conflict created because of lateral movement, and as such, any screen allegedly implemented by Cravath is irrelevant with respect to compliance with the ethical rules.

24

such, Cravath should be disqualified from representing Air Products in its attempted hostile

acquisition of Airgas, as well as representing Air Products in its litigation in Delaware Chancery

Court directly adverse to Airgas.

1. The Court's Role in Protecting the Public Interest

This Court has the power to supervise the conduct of attorneys and to discipline attorneys

for failure to abide by their ethical obligations. As such, “[t]o further the courts’ interests in

protecting the integrity of their judgments, maintaining public confidence in the integrity of the

bar, eliminating conflicts of interest, and protecting confidential communications between

attorneys and their clients, a court has the power to disqualify counsel from representing a

particular client.” Teleflex, 1999 WL 98559, at *7.

This Court has routinely recognized its responsibility to protect the integrity of the

judiciary and the public’s confidence in the legal system, and loyalty to this responsibility has

warranted disqualification. See, e.g., Imbesi, 2001 WL 1352318, at *6 (disqualifying attorneys

and stating that “this Court finds that the purposes of RPC 1.9, such as the Plaintiffs’ interest in

attorney loyalty and the Court's interest in protecting the integrity of the proceedings and

maintaining public confidence in the judicial system outweigh the countervailing

policies”); Monument Builders of Pa., Inc. v. The Catholic Cemeteries Ass’n, Inc., 190 F.R.D.

164, 167 (E.D. Pa. 1999) (“Our duty to protect the integrity of the bar outweighs [plaintiff’s]

interest in representation by co-counsel of its choosing and [attorney's] interest in practicing

freely. That duty here requires us to disqualify [counsel].”); Reading Anthracite, 771 F.Supp. at

116 (noting that while parties should seek the counsel of their choice, the Court “must balance

this right against both [the Court's[ fundamental obligation to ensure the integrity of the judicial

process and the general need to maintain the highest standards of the profession”); Stout, 723

F.Supp. at 312-13 (holding that where there is an actual conflict of interest presenting “the risk of

25

eroding the public's confidence in the bar and the judicial process, [the Court] must exercise [its]

supervisory authority over the members of the bar and [grant disqualification]”).

2. There Are No Cases Allowing Concurrent Representation of Adverse Parties, Without Express Consent.

There have been no instances where a court in this Circuit – faced with a concurrent

conflict of interest, where the parties are clearly adverse, and where the parties have not given

their attorney consent to continue such representation – did not disqualify the attorney from the

adverse representation. Rather, courts in this Circuit have consistently disqualified attorneys for

breaches of Pa.R.P.C. 1.7. See, e.g., Walsh, 2008 WL 131135; Pressman-Gutman Co., Inc. v.

First Union Nat’l Bank, 2004 WL 2980403 (E.D. Pa. Dec. 22, 2004); Argue, 2004 WL 2480836,

at *3; Jones & McClain, LLP, 271 B.R. 473; J&J Snack Foods Corp. v. Kaffrissen, 2000 WL

562736 (E.D. Pa. May 9, 2000); In re Woehrle, 2000 WL 354365 (Bktcy. M.D. Pa. Mar. 24,

2000); Lease v. Rubacky, 987 F.Supp. 406 (E.D. Pa. 1997); Schwartz, 1997 WL 330366; Kaiser

v. Stewart, 1997 WL 186329 (E.D. Pa. Apr. 10, 1997) (stating that once “client’s interests

become actually opposed or directly adverse, then disqualification should be ordered”); Int’l

Longshoremen’s Ass’n, 909 F.Supp. at 293 (stating that “[i]n this case, the conflicts of interest

are simply too severe to allow the defense team to remain on the case, despite counsel’s

assurances that the conflicts will in no way interfere with their professional judgment.”).

In a recent case in the Southern District of New York, JPMorgan Chase Bank v. Liberty

Mut. Ins. Co., 189 F.Supp.2d 20 (S.D.N.Y. 2002), the Honorable Judge Rakoff disqualified

Davis Polk from its concurrent representation of Chubb and its primary subsidiary Federal, on

the one hand, while prosecuting a major lawsuit against Federal. Rakoff found that “where, as

here, there is in effect concurrent representation of two adverse clients, the potential for conflict

is hardly limited to the trial context but can infect, actually or potentially, a broad spectrum of

activities …” Id. at 23. Rakoff continued, “the Court here confronts the issue of disqualification

26

near the very outset of the litigation when, on the one hand, determining the potential for ‘trial

taint’ is difficult, and where, on the other hand, the prejudice to plaintiff in having to substitute

new counsel is relatively modest.” Id. Ultimately, Rakoff found that disqualification of Davis

Polk was necessary so as not “to undercut a lawyer’s duty of loyalty to his client and cast

considerable doubt on the independence of his professional judgment, but also [so as not] to

provide support for the public’s increasingly cynical view of the legal profession.” Id. at 24.

Here, Cravath has essentially absconded with the confidential information it obtained

from one client and gone over to the “enemy.” Cravath has chosen to represent Airgas’s

competitor in an attempted acquisition which, if successful, would be the death knell for Airgas

as an independent company. As a longstanding client of Cravath, Airgas is entitled to assurance

that its lawyers will not steal secrets, breach confidences, or betray loyalty; and yet, that’s

exactly what Cravath has done by unilaterally firing Airgas and continuing to advise Air

Products in its effort to take over Airgas. And, while Cravath maintains that any information it

received from Airgas was made public in SEC filings, courts have previously dismissed such

allegations. See, e.g., Skloff, 1986 WL 14999, at *6 (stating the broad understanding of

‘confidential information’ in the ethical rules, and that “[t]he use of th[e] term [‘information’

rather than ‘confidences’ or ‘secrets’] reveals the drafters’ intent to protect all knowledge

acquired from a client, without regard to whether someone else may be privy to it.”) (citing NCK

Organization, Ltd. v. Bregman, 542 F.2d 128 (2d Cir. 1976) (client’s privilege in confidential

information is not nullified by the fact that the circumstances to be disclosed are part of the

public record, or that there are other available sources for such information, or by the fact that

the lawyer received the same information from other sources.”)); see also Acierno v. Hayward,

2004 WL 1517134, at *7, n.51 (Del. Ch. July 1, 2004) (stating, in response to argument that any

information obtained by counsel was available to the public, that “Abbot was [client]’s lawyer –

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not a member of the general public whose access is limited to the trial transcript and opinion.

Representing a client involves far more than the information that is eventually presented to the

Court and opposing counsel.”); Hazard Decl. ¶ 5 (“Consultations with clients are not at such

arms’ length. Even discussions between client and lawyer about ‘public’ information in such

matters normally involve confidences about the potential legal significant of public

information.”).

3. The Timing of Airgas’s Motion to Disqualify Has No Bearing on Its Motion to Disqualify

Airgas’s decision to file its Motion to Disqualify on February 5, 2010 – the day after the

Air Products offer became public – does not undermine Airgas’s request for Cravath’s

disqualification. Airgas objected to Cravath’s representation of Air Products from the very

beginning. Indeed, Cami states in his affidavit that as early as October 30, 2009, Airgas’s

General Counsel said he’d use “every arrow in his quiver” to oppose Cravath’s continued

representation of Air Products’ attempted acquisition of Airgas. Airgas could not file a lawsuit

to enjoin Cravath's representation of Air Products adverse to Airgas without publicly disclosing,

or facing the serious risk that others would publicly disclose, Air Products’ confidential

acquisition offer and thus place the Company “in play”, and thereby play havoc with the stock

price and generate enormous speculation in the market for the stock and the future direction of

the Company, among other significant adverse consequences. (Declaration of Stephen A. Cozen,

attached hereto as Ex. O, at ¶ 4; Young Aff. ¶ 24.)

Because Airgas repeatedly made clear that it did not consent to the conflict of interest, it

did not waive its right to bring this motion. To begin with, the issue with waiver is whether a

law firm was led to believe that consent had been given. Once consent is given, it is unfair, later,

to try to disqualify the law firm. The cases require a party to object to concurrent representation,

but there is no requirement that they sue. As a result, courts in this Circuit have held that

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reasonable delays in bringing motions to disqualify have no bearing on the propriety of

disqualification. See, e.g., Imbesi, 2001 WL 1352318, at *5-6 (finding no prejudice in party’s

filing of disqualification motion four months after conflict became clear, where, like here, party

repeatedly told the attorney that representation was improper and that steps would be taken to

contest the representation; “This amount of delay is insufficient to constitute a waiver of their

right to assert disqualification.”); Jordan v. Phila. Housing Authority, 337 F. Supp. 2d 666, 679

(E.D. Pa. 2004) (“Timeliness [of the disqualification motion] should not be dispositive because a

court's supervision of the ethical conduct of attorneys practicing before it is designed to protect

the public interest and not merely the interest of the particular moving party.”); Malewicz v.

Michael Baker Corp., 2003 WL 21982955, at *5 (Pa. Com. Pl. Aug. 6, 2003) (“This court finds

that a delay of less than three months does not constitute a significant passage of time to waive a

party’s right to object to counsel.”); Norfolk Southern Ry. Co. v. Reading Blue Mountain &

Northern R.R. Co., 397 F. Supp. 2d 551, 554, n.2 (M.D. Pa. 2005) (noting, in rejecting argument

that one month delay in bringing suit for disqualification upon conflict, that “[plaintiff] certainly

never consented to [attorney]'s employment, nor could its one month of silence possibly be

construed as consent. [Attorney] never provided written notice to [plaintiff]. Thus, the one month

delay was not unreasonable under the circumstances.”).

4. Air Products Will Not Be Unduly Prejudiced By Cravath’s Disqualification

The potential prejudice to Air Products does not weigh against disqualification. First of

all, Cravath can still represent Air Products. It is not losing a client here; the request is simply

that it not act for Air Products in its takeover attack on Airgas. Moreover, Air Products can

easily find new counsel, as Airgas was forced to do when Cravath unilaterally, and without

warning, attempted to cease its representation of Airgas. In fact, Airgas has had to obtain

replacement financing counsel, while in the midst of possible new financings, because its

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counsel for the past nine years was now orchestrating a possible takeover of Airgas. (See Young

Aff. ¶ 11.) There is no reason why Air Products cannot find replacement counsel to help advise

it with its attempted acquisition of Airgas. There is no hearing or trial date in the Delaware

action and the acquisition still has a long ways to play out.

In addition, although Air Products’ choice of counsel is one issue, it is not paramount.

The courts in this Circuit have stated that “the right of the public to counsel of its choice is, of

course, secondary to the paramount importance of maintaining the highest standards of

professional conduct and the scrupulous administration of justice.” Walsh, 2008 WL 131135, at

*3 (E.D. Pa. Jan. 14, 2008) (quoting Baglini v. Pullman, Inc., 412 F.Supp. 1060, 1066 (E.D. Pa.

1976)). In considering whether disqualification is warranted, the Third Circuit has noted that

“plaintiffs do not have an absolute right to retain particular counsel.” Municipal Revenue Servs.,

Inc. v. Xspand, Inc., 537 F.Supp.2d 740 (M.D. Pa. 2008) (quoting Int’l Bus. Machines Corp., 579

F.2d at 283).

Finally, Cravath is in this situation by its own doing. It knew from the moment it began

work for Air Products in its takeover bid for Airgas that it was simultaneously representing

Airgas. It knew it had a conflict. But instead of declining the representation, or even seeking

immediate consent from Airgas, it hid the matter from Airgas for a month or more – and then

dropped Airgas like a “hot potato.” Air Products was told in December of the conflict of

interest, and therefore Cravath’s disqualification should not come as a surprise. (Young Aff. ¶

19.) Moreover, any argument about the quality of Cravath’s legal services is immaterial in the

Court’s calculation of whether disqualification is warranted. See, e.g., Greenwood Land Co.,

2009 WL 2595652, at *8 (finding no prejudice in disqualification because “the Court observes

that nothing in the record suggests that there is a distinctive value to representation by a

particular attorney or firm.”)

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CONCLUSION

For all of the foregoing reasons, Airgas respectfully requests that this Court disqualify

Cravath, Swaine & Moore LLP from further representing Air Products in connection with the

potential takeover of Airgas, along with such other and further relief as this Court may deem just

and proper.

Respectfully submitted,

BY: /s/ Jeffrey G. Weil_____________________ Stephen A. Cozen, Esquire Jeffrey G. Weil, Esquire Thomas G. Wilkinson, Jr., Esquire COZEN O’CONNOR 1900 Market Street Philadelphia, PA 19103 215-665-2000 Attorneys for Plaintiff, Airgas, Inc. Dated: February 16, 2010

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CERTIFICATE OF SERVICE

I, Jeffrey G. Weil, Esquire, hereby certify that on February 16, 2010, a copy of the

foregoing Supplemental Memorandum of Law In Support of Motion To Disqualify Cravath,

Swaine & Moore LLP was filed electronically with the Court. A copy of these documents is

available for viewing and downloading from the Court’s ECF system. The following were also

served via electronic mail:

Nancy J. Gellman, Esquire John A. Guernsey, Esquire Robert N. Feltoon, Esquire

Nicholas M. Centrella, Esquire Conrad O’Brien, P.C.

1515 Market Street, 16th Floor Philadelphia, PA 19102

Attorneys for Defendant, Cravath, Swaine & Moore, LLP

/s/ Jeffrey G. Weil___________