In a recent opinion, the Circuit Court of Cook County rejected a shareholder’s attempt to expand the class of defendants who potentially could be liable for alleged breaches of fiduciary duty arising out of the advice provided to a board of directors contemplating a proposed merger. Young v. Goldman Sachs & Co., No. 08 CH 28542 (Ill. Cir. Ct. Jan. 13, 2009). In Young, the plaintiff brought a putative class action on behalf of himself and other holders of Wm. Wrigley Jr. Company ("Wrigley") common stock against Goldman Sachs & Co. ("Goldman Sachs"). The factual basis for the complaint arose out of Wrigley’s proposed merger with Mars, Incorporated ("Mars"), the fairness opinion which Goldman Sachs delivered to Wrigley’s board of directors and certain language contained in Goldman Sachs’ engagement letter.

The complaint alleged that Goldman Sachs was subject to several conflicts of interest, which made it unable to render unbiased financial advice and an unbiased fairness opinion. Id. at 1. Based on the nature of Goldman Sachs’ relationship with Wrigley’s Board of Directors and the language of the engagement letter which expressly disclaimed any duty to Wrigley shareholders, the court dismissed the cause of action due to the plaintiff’s lack of standing to pursue a cause of action against Goldman Sachs.

As a general matter, the plaintiff asserted that his claims arose out of the duties owed by Goldman Sachs to Wrigley and its directors and that those duties extended to the plaintiff and the other stockholders as a matter of New York law. Id. at 5. Plaintiff relied on two prior opinions in its attempt to further expand the class of defendants who could be liable for rendering advice in the merger context: Schneider v. Lazard Freres & Co., 159 A.D. 2d 291 (N.Y. App. Div. 1st Dep’t 1990), and Wells v. Shearson Lehman/American Express, Inc., 127 A.D.2d 200 (N.Y. App. Div. 1st Dep’t 1987). In Schneider, the plaintiffs had brought suit against certain investment bankers for allegedly giving faulty advice to the special committee of disinterested directors that conducted an auction to sell the company at issue. The Schneider Court held that the plaintiff shareholders could pursue a cause of action against the investment bankers because it could not be said that "a duty of care owed by the bankers to the special committee was not intended for the benefit of the shareholders." Young, No. 08 CH 28542, slip op. at 5 (quoting Schneider, 159 A.D. 2d at 296). Similarly, in Wells, the plaintiff stockholders brought an action against investment consultants concerning the opinions they rendered to a corporation prior to a buyout for an allegedly inadequate price. The Wells Court held that, "assuming Shearson Lehman and Bear Stearns were aware (as they must have been) that their opinion would be used to help shareholders decide on the fairness of [the] stock offer, they can be liable to the shareholders." Young, No. 08 CH 28542, slip op. at 5 (quoting Wells, 127 A.D. 2d at 203).

The court in Young held that, contrary to Schneider and Wells, no such duties extended to the plaintiff or other stockholders in the present case. Id. at *8. The court distinguished this case from Schneider and Wells based on the fact that, in the two prior cases, "there had been ‘special committees’ formed to advise the shareholders." Id. at *6. In this case, not only was there no special committee, but the engagement letter for Goldman Sachs "clearly indicates that there was never the intent for Goldman Sachs to advise the Wrigley stockholders" or an intent for the letter to create a duty to the Wrigley stockholders. Id. "[T]he stockholders were made aware that the advice offered by Goldman Sachs was solely for the benefit of the Board of Directors, thus, the holdings in Schneider and Wells are simply not applicable to the instant matter and cannot be relied upon to support the proposition that Goldman Sachs owed a duty to Plaintiff." Id. at *7. The cause of action must, therefore, be dismissed because "Plaintiff is a Wrigley stockholder and has no privity or relationship with Goldman Sachs." Id. The plaintiff was not a party to the engagement letter nor was he a third-party beneficiary of that letter. Id.