So how do Wachovia and Wells Fargo expect to withstand a possible legal challenge from Citigroup?

Citi, which agreed on Monday to acquire the banking operations of Wachovia for $1 per share, says that the $7-per-share deal between Wells Fargo and Wachova is "a clear breach of an exclusivity agreement between Citi and Wachovia."

Richard Kovacevich, the chairman of Wells Fargo, emphasized on CNBC this afternoon, "We have the only signed merger agreement."

So is it the exclusivity agreement or the merger agreement? The devil, of course, is in the details.

Copies of the exclusivity agreement between Citi and Wachovia appeared on a number of Web sites. In it, the parties have agreed to have their agreement governed by New York law and argued in a New York court.

The language of that letter looks rock solid, at least as far as what is known as the "choice of law" provision in any contract. And it could be that the Clear Channel battle between buyout bidders and their banks played a part in the vetting of that language.

Less clear, so to speak, is whether the agreement would stand up in a New York court, or, let's say, the courts of Delaware or North Carolina, where Wachovia is incorporated: Most such agreements, as they head toward a definitive contract, provide an escape clause for the board of directors.

After all, they are the ones who get paid a pretty penny for looking out for the shareholders. The directors have a fiduciary duty to find the best possible deal for shareholders.

Even so, the letter does not recite the boiler-plate escape clause that would give directors an out. Whether that was an oversight, by a sleep deprived associate, or intentional, could be soon decided in a New York courtroom.

Lawyers from Skadden, Arps, Slate, Meagher & Flom and Davis Polk & Wardwell, who advised Citi in the first Wachovia transaction, may have to testify about what they thought "exclusive" meant. It will be their word against the lawyers from Sullivan & Cromwell, who advised Wachovia in deal No. 2 --- the one with Wells Fargo, and those from Wachtell Lipton Rosen & Katz.

Trust me when I tell you that this is one mean tea party. All involved could take heart from testimony from Eric Swedenburg, the Simpson Thacher lawyer who advised about what was meant in another busted-up deal --- one between United Rentals and the giant hedge fund and private equitiy firm Cerberus. In December 2006, United Rentals sought specific performance against Cerberus and it landed in the Delaware Chancery Court. The testimony showed that lawyers, like a lot of other people, can be ambiguous when it suits their purposes, and then think better of it afterward.

The judge found the Simpson Thacher lawyers should have known better, essentially.

Karen Donovan

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