January 14, 2009

Wrigley Case: Illinois Court Dismisses Shareholder Claims Against Financial Advisor

– by Kevin Miller, Alston & Bird

In a decision entered yesterday – in Young v. Goldman Sachs – the Circuit Court of Cook County, Illinois County Department, Chancery Division, applying New York law, dismissed a putative class action brought by a shareholder of Wm Wrigley Jr. Company against Goldman Sachs & Co. alleging that Goldman Sachs had conflicts of interest which made it unable to render unbiased financial advice and an unbiased fairness opinion because, among other things, the lion’s share of its compensation was contingent upon the consummation of the sale. The complaint also alleged breach of contract, breach of fiduciary duty and aiding and abetting breaches of fiduciary duty by Wrigley’s directors. Here is a copy of the decision.

This decision is important as it assesses the relevance and distinguishes two, somewhat dated, New York Court decisions, Schneider v. Lazard Frères and Wells v. Shearson Lehman, effectively limiting their application to situations where a financial advisor has been engaged to advise a special committee established to advise shareholders and potentially further limiting their application where the financial advisor has explicitly disclaimed a relationship or duty to shareholders:

“What is most important about Schneider and Wells, and what Plaintiff attempts [to] minimize, is the fact that in both cases there had been “special committees” formed to advise the shareholders. In Schneider, the court noted the special committee’s purpose “was to advise the shareholders with respect to a transaction that contemplated RJR’s demise and whose end and aim was to obtain for the shareholders the highest possible price for their stock.” Schneider, 159 A.D.2d at 297. Likewise, in Wells, the officers “created a committee whose purpose was to serve the shareholders by determining the fairness of the buyout. The committee hired Shearson Lehman and Bear Stearns. Anybody hired by the committee, aiding in its endeavor, was actually retained to advise the shareholders.” Wells, 127 A.D.2d at 203. . .

In the instant matter, there was no special committee formed and the Engagement Letter clearly indicates there was never the intent for Goldman Sachs to advise the Wrigley stockholders. The Engagement Letter was also very clear that there was no intent to create a duty to the Wrigley Stockholders. Further, although the fairness opinion was included in the Wrigley stockholder’s proxy materials, the introduction to the opinion states very clearly in at least two locations that [the opinion was provided for the information and assistance of the Wrigley board and was not a recommendation to any stockholder on how to vote].[Quotes from Engagement Letter and Proxy Statement omitted]”

Citing numerous cases, including the recent decision of the 7th Circuit in Joyce v. Morgan Stanley, the Illinois Circuit Court concluded that:

– Plaintiff is a Wrigley stockholder an has no privity or relationship with Goldman Sachs.

– Plaintiff is not a party to the Engagement Letter nor is he a third-party beneficiary of the Engagement Letter.

– Any duty on the part of Goldman Sachs ran to the corporation, not to the individual stockholders.