Target Shareholders Can’t Compel Target Law Firm to Disclose Merger File


Court says that the target law firm represented the target not the target shareholders in the merger, and the buyer acquired the target law firm files in the merger.

M&A Stories

January 8, 2021


The shareholders of an acquired company often receive rights to post-closing contingent payments. Common post-closing payments are earnouts and contingent value rights. Not surprisingly, there can be significant disputes between the buyer and selling shareholders over the calculation of such payments.

The deal

The target in this case was a privately held insurance group that provided workers’ compensation insurance and related services, mainly to small businesses, in 31 states. The buyer acquired the target by merger for $138 million in cash and contingent value rights.

The lawsuit

A dispute broke out between the selling shareholders and the buyer over the value of the rights. This resulted in the sellers filing a $80 million lawsuit against the buyer. The sellers accused the buyer of manipulating reserves, falsely stating its liabilities and misrepresenting the rights and payments due to the contingent value rights holders to deprive them of the purchase price to which they were entitled. 

In the course of the litigation the sellers requested that the target’s M&A law firm disclose certain files about the contingent value rights. The law firm refused stating that it had represented the target, not the selling shareholders, and that the law firm’s target files were now owned by the buyer.

The Nebraska Supreme Court agreed: “Additionally, … (Target Law Firm) … has no obligations to Target shareholders extending from … (Target Law Firm’s) … agreement to represent …(Target) … in the merger process. … (Target Law Firm’s) … representation was limited to … (Target) … as the corporate entity and explicitly did not extend to … (Target’s) … shareholders. This representation is detailed in the engagement letter, signed by (a representative of the Target shareholders designated by the shareholders in the acquisition documents) …, stating that … (Target Law Firm’s) … client would be … (Target) … and stipulating that “this engagement does not create an attorney-client relationship with any related persons or entities, such as. . . shareholders. . . .” 

This case is referred to as Yeransian v. Farr, No. S-19-320, Supreme Court of Nebraska, (Filed May 1, 2020). 


There is always a risk to the sellers of a business when agreeing to receive post-closing payments; especially if the amount of the payment is contingent.

By John McCauley: I help people manage M&A risks involving privately held companies.



Telephone:      714 273-6291 

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