In 2002, a private customer of Bank of America entered into a “cashless collar” transaction with the bank on 500,000 shares of Dreyer’s Ice Cream, Inc., at the time a publicly traded company of which the customer’s beneficiary was a senior executive and major shareholder. Just a few months later, Dreyer’s was acquired by Nestle in a share-for-share transaction and the bank’s derivatives traders adjusted the strike prices of the embedded options to reflect the decreased volatility of the Dreyer’s shares as a result of the Nestle deal. The customer sued the bank in New York state court alleging that the adjustment breached the collar transaction agreements.

During a two-week bench trial in June of 2006, the judge heard extensive testimony from both sides, including expert testimony on the interpretation of ISDA documents governing the derivatives transaction called a “cashless collar.” In its November 13, 2008, opinion, the Court concluded that our client, Bank of America, had acted within the scope of the discretion granted by the transaction documents to make adjustments to the strike prices of the options in the event of such a merger, and it dismissed the customer’s claims in full.

The Davis Polk trial team was lead by partner Robert F. Wise Jr. and included former associate Thomas Childs, associates Hayward H. Smith and Ciaran P.A. Connelly, and former summer associates Elyse Jones Cowgill (now an associate), Russell Maxwell and Nicole Vanatko (now an associate).