Dean Foods Co. v. Pappathanasi

On June 30, 1998, Garelick Farms Inc. (Garelick) (plaintiff) purchased West Lynn Creamery (West Lynn) pursuant to a stock purchase agreement (SPA). Rubin and Rudman LLP (R&R) (defendant) was legal counsel to West Lynn and the sellers. The SPA included a representation by the sellers that no litigations or investigations were pending or had been threatened against West Lynn. As a closing condition, sellers’ counsel was required to deliver a third-party legal opinion to Garelick. R&R’s internal policy concerning the issuance of opinions required partner review and approval of a back-up file supporting each opinion. On June 18, 1998, prior to the transaction and issuance of the opinion, Gene Barton (an R&R partner who supervised the transaction and opinion) asked Michael Altman (another R&R partner) about the status of a preexisting grand jury subpoena and criminal investigation concerning West Lynn. Altman told Barton he believed the investigation had ended. Altman did not know Barton later relied on this statement to issue a no-litigation legal opinion at closing, that stated that, to R&R’s knowledge, no litigations or investigations against West Lynn existed at that time. The opinion included caveats that R&R had relied on representations in the SPA for purposes of the opinion and that R&R had not independently investigated whether any litigations or investigations existed but that nothing to the contrary had come to their attention. However, the criminal investigation had not ended, and in 2001, West Lynn plead guilty in the investigation, received a fine of $7,200,000, and incurred attorneys’ fees and expenses of approximately $2,171,354. Garelick sued R&R for negligent misrepresentation and common-law negligence concerning the legal opinion.