Baker et al v. Goldman, Sachs & Co. et al

Filing 308

Judge Patti B. Saris: MEMORANDUM AND ORDER entered. After hearing and review of the record, the Court rules on the motions as follows: 1. Defendant Goldman Sachs & Co.s (Goldman) motion for summary judgment on the Baker plaintiffs claims (Doc. No. [1 78], 09-cv-10053) is DENIED. 2. Defendant Goldmans motion for summary judgment on the Roth plaintiffs claims (Doc. No. 133, 10-cv-10932) is DENIED. 3. Plaintiffs Robert Roth and Paul G. Bambergs motion for partial summary judgment (Doc. No. 144, 10-c v-10932) is DENIED. 4. Plaintiffs Janet and James Bakers motion for summary judgment (Doc. No. 198 , 09-cv-10053) IS ALLOWED IN PART AND DENIED IN PART. The Court DENIES the motion as to Goldmans liability for negligent and intentional misrepresent ation, and under the Massachusetts Unfair or Deceptive Practices Act. The Court ALLOWS the motion as to Goldmans counterclaims against Janet Baker. 5. Plaintiffs Janet and James Bakers motion for summary judgment as to Goldmans third-party complaint (Doc. No. 197, 10-cv-10932) IS ALLOWED IN PART AND DENIED IN PART. The motion is DENIED as to Goldmans third-party contribution claims. The Court ALLOWS the motion as to Goldmans indemnification claim. (Anderson, Jennifer)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
___________________________________
)
)
)
)
v.
)Civil Action No. 09-10053-PBS
)
GOLDMAN SACHS & CO., et al.,
)
Defendants.
)
___________________________________)
)
ROBERT ROTH and PAUL G. BAMBERG,
)
Plaintiffs
)
)
v.
)
)Civil Action No. 10-10932-PBS
GOLDMAN SACHS & CO.,
)
Defendant and )
Third-Party Plaintiff, )
)
v.
)
)
JANET BAKER AND JAMES BAKER,
)
Third-Party Defendants.)
___________________________________)
JANET BAKER AND JAMES BAKER,
Plaintiffs

MEMORANDUM AND ORDER
October 31, 2012
SARIS, U.S.D.J.
After hearing and review of the record, the Court rules on
the motions as follows:
1. Defendant Goldman Sachs & Co.’s (“Goldman”) motion for
summary judgment on the Baker plaintiffs’ claims (Doc. No. 178,
09-cv-10053) is DENIED.

Janet Baker asserts that she is a third-

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party beneficiary of the Engagement Agreement between Dragon and
Goldman, and brings claims for breach of contract and breach of
the implied covenant of good faith and fair dealing.

The Court

denied Goldman’s motion to dismiss raising this issue in Baker v.
Goldman Sachs & Co., 656 F. Supp. 2d 226, 234-36 (D. Mass. 2009),
with which the Court assumes familiarity.
Now, after discovery, Goldman presses the Court to take a
new look based on the evidentiary record, arguing that no genuine
dispute of material fact exists that Janet Baker was not an
intended beneficiary of the Engagement Agreement.

Among other

things, Goldman points to testimony by the Bakers’ counsel that
when Janet Baker rejected the provision that the shareholders
guarantee the payment of Goldman’s fees, the Engagement Agreement
was amended to strike the language in the initial draft that the
engagement was for the information of the shareholders (among
others).

In its briefs, Goldman also argues that in the

Engagement Agreement, the parties agreed that the shareholders
would not hold Goldman liable and therefore insisted on the
exculpation language in the fifth sentence of Annex A.
While there is evidence which supports defendant’s position
that Goldman did not intend to benefit shareholders, the
plaintiff, Janet Baker, highlights evidence that she was
personally addressed in the agreement and that the Goldman
analysts considered her to be their client and knew that she was

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personally relying on their advice.

Janet Baker also point out

that earlier in the litigation, Goldman stipulated that the fifth
sentence of Annex A, which provides the exculpation language1
limiting its liability to her, applies only to derivative claims,
not the direct claims presented here.

See Transcript of Oral

Argument at 17 (June 9, 2009)(No. 09-cv-10053).

In light of the

language and circumstances of the contract, the Court concludes
there is a disputed question of fact as to whether defendant
intended to give Janet Baker the benefit of the contract.
Goldman also asks the Court to revisit the viability of the
Bakers’ tort claims.

In its earlier ruling, the Court determined

that the plaintiffs brought direct tort claims under established

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The fifth sentence of Annex A states:
The Company, Seagate Technology, and Janet M.
Baker also agree that neither Goldman Sachs
nor any of such affiliates, partners,
directors, agents, employees or controlling
persons shall have any liability to the
Company, Seagate Technology, Inc., Janet M.
Baker or any person asserting claims on
behalf of or in right of the Company in
connection with or as a result of either our
agreement or any matter referred to in this
letter except to the extent that any losses,
claims, damages, liabilities, or expenses
incurred by the Company result from the gross
negligence, willful misconduct or bad faith
of Goldman Sachs in performing the services
that are the subject of this letter.

Baker, 656 F. Supp. 2d at 230.

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Massachusetts law against Goldman.

See generally Nycal Corp. v.

KPMG Peat Marwick LLP, 426 Mass. 491, 493 (1998); Former
Shareholders of Victory Distributors, Inc. v. Deloitte & Touche,
LLP, No. 07-5122-BSL1 (Mass. Super. Ct. July 1, 2008).

Because

the claims are not shareholder derivative claims, the fifth
sentence of Annex A does not apply.
To support its position that the claims are really
derivative in nature, Goldman places heavy reliance on Massey v.
Merrill Lynch & Co., 464 F.3d 642 (7th Cir. 2006), which does
have similar facts.

In Massey, the Seventh Circuit dismissed

plaintiff shareholders’ claims because they were “solely
derivative claims.”

Id. at 643.

The claims were based on

diminution in stock values caused by defendant Merrill Lynch’s
fraudulent statements in a “fairness opinion” to a corporate
board that led to the disastrous purchase of another corporation,
and resulted in a plunge in stock price and bankruptcy.
644.

Id. at

Although holding that the claims of fraud in the fairness

opinion could only be brought on behalf of the corporation under
Indiana law, the Court acknowledged that a plaintiff shareholder
could maintain a direct action where there is “a breach of a duty
owed specially to the stockholder separate and distinct from the
duty owed to the corporation.”

Id. at 648 (citing Sacks v.

American Fletcher Nat'l Bank & Trust Co., 279 N.E.2d 807, 811
(Ind. 1972))(internal quotations omitted).

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This holding is

consistent with the line drawn in established caselaw.

See

generally 12B Fletcher Cyclopedia of the Law of Corporations, §
5921 (rev. perm. ed. 1984)(“A shareholder may sue as an
individual where the act complained of . . . creates a cause of
action in favor of the shareholder as an individual, such as
where the act is in violation of duties arising from contract or
otherwise, and owed to the shareholder directly.”).
Massey is distinguishable on the facts.

The Seventh Circuit

highlighted that the opinion letter expressly stated that there
was no recommendation to any stockholder as to how a shareholder
should vote on the proposed merger, and the plaintiffs in Massey
made no allegations that “Merrill Lynch made any
misrepresentations to them as individual shareholders.”
650.

Id. at

While the line between direct and derivative liability is

not always clear, and helpful caselaw sparse and fact-specific,
here plaintiffs have asserted that Goldman made negligent and
fraudulent statements directly to them to persuade them to vote
for a merger and sign the merger agreement in exchange for a
hefty fee.

Significantly, Massey did not involve a merger

situation where the harmed corporation ceased to exist after the
merger to vindicate corporate rights.

At oral argument, Goldman

took the position that Lernout & Hauspie, the corporation which
Dragon merged into, is the only entity that could have pursued
any remedy against Goldman.

However, Lernout & Hauspie is the

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corporation that participated in the fraudulent conduct.

In

related litigation, the First Circuit held that a bankruptcy
trustee of a subsidiary of Lernout & Hauspie would not have his
own cause of action.

See Nisselson v. Lernout, 469 F.3d 143, 158

(1st Cir. 2006) (holding in pari delicto defense barred lawsuit
because subsidiary “shares the culpability of the fraud’s
progenitor”).
Goldman proclaims vehemently and vigorously that holding it
liable to shareholders for negligent or fraudulent
misrepresentations made directly to them which induced a vote to
merge would violate “basic principles of corporate law.”
However, even if the harm caused is deemed to be a corporate
injury, “the rule that a shareholder cannot sue in his own name
for an injury sustained by the corporation is not ironclad.”
Pagan v. Calderon, 448 F.3d 16, 28 (1st Cir. 2006).

There may be

an exception that shareholders may bring a direct lawsuit “if it
is absolutely inconceivable that the corporation itself would
pursue a claim for the misconduct.”

Id.

Here, such an exception

surely applies as a contrary ruling would mean Goldman would be
immune from tort liability because no corporation could pursue
the claim.
Next Goldman parries with the doctrine of judicial estoppel.
While previous testimony appears to create some inconsistencies
with certain statements made by the Bakers in this lawsuit, the

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statements do not “contradict[] clear answers to unambiguous
questions in an earlier deposition” and cannot serve as a basis
for dismissing the Bakers’ claims.

Gillen v. Fallon Ambulance

Serv., 283 F.3d 11, 26 (1st Cir. 2002); see also Pyramid Secur.,
Ltd. v. IB Resolution, Inc., 924 F.2d 1114, 1123 (D.C. Cir. 1991)
(stating that the “no contradiction” rule is less likely to apply
where the previous testimony took the form of a deposition rather
than an affidavit because a “deponent may have been confused
about what was being asked or have lacked immediate access to
material documents”).

For example, Goldman claims that Janet

Baker previously testified in 2004 that Goldman’s role did not
include performing in-depth financial due diligence on Lernout &
Hauspie for Dragon.

See Doc. 180 ¶ 15.

However, while she may

have downplayed Goldman’s role in her previous testimony, she did
generally state that the Bakers wanted Goldman to “help us do
whatever due diligence needed to be done . . .” Doc. 210 ¶ 15.
2. Defendant Goldman’s motion for summary judgment on the
Roth plaintiffs’ claims (Doc. No. 133, 10-cv-10932) is DENIED.
Genuine disputes of material fact exist with respect to when the
statute of limitations period began to run and with respect to
the merits of the tort claims.

Again, the Roth plaintiffs’

statements in this case do not support application of the
doctrine of judicial estoppel.

For example, Goldman claims that

Roth previously testified in 2004 that he had decided to merge
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with Lernout & Hauspie prior to the March 27, 2000 meeting with
Goldman, and, therefore, could not have relied on Goldman.

Roth

did say he “pretty much . . . made the decision to go ahead with
[the merger] before [the] meeting.”
13.

Doc. 135, Ex. 23 at 152:8-

However, he added, “It was only a question of whether there

was going to be some kind of . . . show-stopper.”
16.

Id. at 152:13-

A warning by Goldman not to merge could have been a “show-

stopper.”

Thus, Roth’s previous testimony is not clearly

inconsistent with his current position.
3. Plaintiffs Robert Roth and Paul G. Bamberg’s motion for
partial summary judgment (Doc. No. 144, 10-cv-10932) is DENIED.
Genuine disputes of material fact exist with respect to Goldman’s
alleged negligent misrepresentation, intentional
misrepresentation, and unfair and deceptive trade practices.
4. Plaintiffs Janet and James Bakers’ motion for summary
judgment (Doc. No. 198, 09-cv-10053) IS ALLOWED IN PART AND
DENIED IN PART.

The Court DENIES the motion as to Goldman’s

liability for negligent and intentional misrepresentation, and
under the Massachusetts Unfair or Deceptive Practices Act.
Genuine disputes of material fact exist with respect to Goldman’s
alleged negligent misrepresentation, intentional
misrepresentation, and unfair and deceptive trade practices.
The Court ALLOWS the motion as to Goldman’s counterclaims
against Janet Baker.

Janet Baker did not breach the fifth
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sentence of Annex A of the Engagement Agreement because it
applies only to derivative claims.

The indemnification provision

also does not apply to Janet Baker.

She was not a signatory to

that provision and her status as a third-party beneficiary (if
proven) does not trigger liability under that provision.

See

International Customs Assocs. v. Ford Motor Co., 893 F. Supp.
1251, 1256 n.3 (S.D.N.Y. 1995)(“The status of an intended
third-party beneficiary . . . does not give others the right to
sue that person on the contract.”).

Goldman claims Janet Baker

is liable as a “personal representative” of Dragon, which no
longer exists.

Under New York law, a “personal representative”

is “a person who has received letters to administer the estate of
a decedent.”

N.Y. EPTL § 1-2.13; see also Blacks Law Dictionary

1416 (9th ed. 2009)(defining “personal representative” as “[a]
person who manages the legal affairs of another because of
incapacity or death, such as the executor of an estate.”).

Janet

Baker is clearly not Dragon’s personal representative in this
sense.
The issue was poorly briefed by both sides.

Goldman

provided no caselaw to support its contention that a board member
and shareholder--who is a signatory to only one sentence in the
contract--is a “personal representative” of a company and is
liable under the contract’s separate indemnity provision, even
after the company no longer exists.

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To the extent the term is

ambiguous, the doctrine of contra proferentem applies because
Goldman drafted the provision.

See 151 West Associates v.

Printsiples Fabric Corp., 61 N.Y.2d 732, 734 (N.Y. 1984)
(“[A]mbiguities in a contractual instrument will be resolved
contra proferentem, against the party who prepared or presented
it.”).
5. Plaintiffs Janet and James Bakers’ motion for summary
judgment as to Goldman’s third-party complaint (Doc. No. 197, 10cv-10932) IS ALLOWED IN PART AND DENIED IN PART.

The motion is

DENIED as to Goldman’s third-party contribution claims because
genuine disputes of material fact exist with respect to the
Bakers’ alleged negligence, negligent misrepresentation, and
breach of their duty of loyalty to the Roth plaintiffs.

For the

reasons stated in paragraph 4, the Court ALLOWS the motion as to
Goldman’s indemnification claim.

/s/ PATTI B. SARIS
Patti B. Saris
United States District Judge

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