The Bad Drafting Underlying the Spat Between Icahn and Ackman

Yesterday Law360 published this article by reporter Liz Hoffman about the contract language at the root of the brawl between financiers Carl Icahn and Bill Ackman. It quotes yours truly. (Subscription required, but you can get a free trial.)

You can find the contract language at issue in this Business Insider article by Linette Lopez; this 2011 New York Times story by Azam Ahmed has additional background.

Here’s the gist: The contract provided that Icahn was required to pay Ackman on the “sale or other transfer” of the securities in question. The issuing company was subsequently acquired by merger. When Ackman asked for his money, Icahn claimed that the provision didn’t apply, as he hadn’t sold his shares.

Icahn ultimately lost, as the New York court hearing the dispute ruled that “sale or other transfer” was broad enough to encompass a merger (go here for a PDF of the opinion), and that ruling was affirmed on appeal.

For drafters, here’s the moral of the story: If you want to avoid a dispute, you have to be precise. If instead you elect to address an issue more broadly, you can’t complain if someone who’s disgruntled or bears a grudge seizes on that as grounds for a dispute. You don’t have to give them a winning argument—they might be happy just to have a pretext for fighting. You might win in the end, but winning is a distant second-best to not having a fight in the first place, particularly if the party picking the fight has, like Icahn, the resources to wage a scorched-earth battle.

In this case, for both Icahn and Ackman the money at stake was trivial, so they were able to indulge in litigation as sport. But for us mere mortals, it’s more important to make sure your contracts work. If Ackman’s lawyers had wanted to spare him this fight, they should have made explicit what kinds of transfer were covered.

Incidentally, another aspect of the dispute was whether, for purposes of reimbursement of attorneys’ fees, the indemnification provision covered claims between the parties as well as nonparty claims. In Gotham Partners, L.P. v. High River Ltd. Partnership, 76 A.D.3d 203, 906 N.Y.S.2d 205 (2010), a New York court held, five years after the ruling on the “sale or other transfer” language, that the indemnification provision didn’t unequivocally reflect an intent to cover claims between the parties. That too is a basic issue to bear in mind when drafting indemnification provisions; I mention it in this blog post.

So it seems that in drafting the contract at issue, Ackman’s lawyers twice dropped the ball in ways that worked to their client’s detriment in the ensuing litigation.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

2 thoughts on “The Bad Drafting Underlying the Spat Between Icahn and Ackman”

  1. Copy of 2010 judgment here:

    Can anyone suggest a simple form of words to include in an indemnity that makes it “unequivocally clear” that the indemnity covers inter-party claims as well as third party claims? I don’t recall ever seeing any wording that specifically addresses this issue. My starting assumption has been that indemnities cover both, unless they include words such as “third party claims” which would limit them to third party claims. So it is a little alarming to discover this line of New York case law.

    However, I am aware that some US lawyers seem to think of indemnities in terms of third party claims (even if the wording of the indemnity does not explicitly so limit the indemnity), so that proposals to limit indemnities to third party claims (which is more often that not what I am seeking to do) are sometimes readily accepted.


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