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BASS PUB. LTD. v. PROMUS COS.

November 30, 1994

BASS PUBLIC LIMITED COMPANY, BASS INTERNATIONAL HOLDINGS N.V., BASS (USA) INCORPORATED, HOLIDAY CORPORATION AND HOLIDAY INNS, INC., Plaintiffs, against THE PROMUS COMPANIES INCORPORATED, Defendant.


The opinion of the court was delivered by: SHIRLEY WOHL KRAM

 SHIRLEY WOHL KRAM, U.S.D.J.

 In this action arising under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j, and Securities and Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5, defendant The Promus Companies Incorporated ("Promus") appeals from an April 25, 1994 Memorandum and Order issued by Magistrate Judge Naomi Buchwald compelling the law firm of Latham & Watkins ("Latham") to produce certain documents to plaintiffs. Latham argues that the documents are not discoverable as they contain privileged attorney work product and attorney-client communications. For the reasons set forth below, Promus' appeal is denied.

 BACKGROUND

 The facts of this case are set forth in detail in this Court's Memorandum Opinion and Order, dated January 7, 1994 (the "January 7 Opinion"), familiarity with which is presumed. Background facts relevant to this motion are briefly summarized below.

 I. The Merger

 Until 1989, Holiday Corporation ("Holiday") was a publicly-held company with several substantial businesses, including Holiday Inn hotels. Holiday also owned several non-Holiday Inn businesses, including Embassy Suites hotels, Hampton Inns hotels, Homewood Suites hotels, and Harrah's casino-hotels.

 In 1989, Holiday, as part of the divestiture of its Holiday Inn businesses, created a wholly-owned subsidiary, Promus, to which it transferred its non-Holiday Inn businesses in preparation for a merger. Thereafter, on August 24, 1989, Holiday, consisting solely of Holiday Inns, was merged into Bass, U.S.A., a wholly-owned subsidiary of Bass Public Limited Corp. ("Bass"), to form one corporation ("Post-merger Holiday"). The transaction was executed pursuant to a merger agreement (the "Merger Agreement") signed by representatives of Bass, Holiday and Promus.

 Pursuant to the Merger Agreement, each share of Holiday common stock was cancelled, and in return, each shareholder of the cancelled stock received approximately a one-quarter share of Bass and one share of the new company, post-merger Holiday, for every share held of Holiday. On February 7, 1990, the effective date of the merger, Promus, Holiday and Bass also entered into a tax sharing agreement whereby Promus agreed to be responsible for the taxes of Holiday and its subsidiaries for all taxable periods up to the time of the merger (the "Tax Sharing Agreement"). At the same time, the non-Holiday Inn businesses continued operating as subsidiaries of Promus with the same shareholders, board of directors, senior managements and corporate headquarters as Holiday.

 In connection with the merger, the parties to the Merger Agreement agreed to certain representations and warranties involving, inter alia, the disclosure of matters that had a material and adverse effect on the Holiday Inn business. Promus also agreed to indemnify plaintiffs if any of the representations and warranties were breached. The representations and warranties survived only as to claims made within two years after the closing of the merger, and indemnity claims were allowed only as to breaches of representations and warranties that were known to ten designated "knowledge parties" chosen in light of their existing knowledge about the Holiday Inn business.

 II. Procedural History

 On February 6, 1992, plaintiffs filed the instant complaint, alleging that Promus had breached a number of representations, warranties and covenants made in the Merger Agreement. Plaintiffs alleged further that Promus had refused to indemnify Bass and to transfer certain assets. Specifically, plaintiffs alleged that Promus (1) violated the Securities Exchange Act (Count I); (2) intentionally and/or negligently misrepresented material facts in connection with the Merger and Tax Sharing Agreements (Counts II and III); (3) breached express warranties and indemnification (Counts IV-VII); and (4) breached the Merger and Tax Sharing Agreements (Counts VIII and IX).

 On April 17, 1992, plaintiffs moved for an order disqualifying Promus' counsel, Latham, on the ground that, as Latham had represented Holiday since 1986 in connection with the merger and various other matters, Latham should not be allowed to represent Holiday's adversary, Promus, in this case. In the January 7 Opinion, the Court denied plaintiffs' motion, finding disqualification inappropriate in the present circumstances. Specifically, the Court rejected plaintiffs' argument that Latham had switched sides in representing Promus against post-merger Holiday, reasoning that Latham consistently had represented the selling corporations, namely Holiday and Promus. Concluding that Latham had represented the same "community of interests," and noting that there is no expectation that confidential information would be ...


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