• Successor to eToys sued lead underwriter of its 1999 IPO
• IPO was at $20 per share
• On first day of trading, opened at $79 and closed at $76.56
• eToys went bankrupt in 2001
• Plaintiff claims it relied on Goldman's expertise to price IPO and that Goldman didn't disclose conflicts of interest
• Which were profit kick-back arrangements it had with those it favored with allocations in this hot IPO
• Complaint thus alleged there was an advisory relationship that was independent of the formal underwriting agreement

• Opinion 6.07.05

• Generally agrees with initial NY trial court ruling

• Plaintiff can go forward with fiduciary duty claim
• Dismisses fraud claim (with leave to replead)

• Reverses Appellate Division

• Dismisses breach of contract claim
• Dismisses professional malpractice claim
• Dismisses unjust enrichment claim

• "A cause of action for breach of fiduciary duty may survive, for pleading purposes, where the complaining party sets forth allegations that, apart from the terms of the contract, the underwriter and issuer created a relationship of higher trust than would arise from the underwriting agreement
  alone"
• Six to one decision
• Dissent objected to adding a fiduciary relationship to a contractual one

• Applying NY law, following cases hold that whether an underwriter has fiduciary obligations is a fact specific determination to be made by fact finder

• Breakaway Solutions v Morgan Stanley
  2004 WL 1949300, 2004 Del. Ch. LEXIS 125 2004
• Xpedior Creditor Trust v CSFB
  341 F Supp 2d 258 [US Dist Ct, SD NY 2004]
• MDCM Holdings Inc v CSFB
  216 F Supp 2d 251 [US Dist Ct, SD NY 2002]

• Investment bank clients have also claimed that fiduciary duties were violated in the M&A advisory context

• In re Daisy Systems
  97 F.3d 1171 (9th Cir 1996)

• Alston & Bird 6.16.05

• Morgan Stanley, Lehman, Deutsche Bank
• New York law applies per underwriting agreement

• Underpriced hot IPOs
• Got kick-backs from those it favored with allocations
• See Background

• Breach of contract
• Breach of covenant of good faith and fair dealing
• Breach of fiduciary duty
• Indemnification
• Unjust enrichment
• See Contentions

• Invoking Securities Litigation Uniform Standards Act of 1998
• Court holds state law claims weren't preempted by SLUSA
• See SLUSA

See EBC I v Goldman above

See State Law Claims for Delaware analysis

• 8. Acknowledgment. The Company acknowledges and agrees that (i) the purchase and sale of the Securities pursuant to this Agreement is an arms-length commercial transaction between the Company, on the one hand, and the Underwriter, on the other, (ii) in connection therewith the Underwriter is acting as a principal and not the agent or fiduciary of the Company, and (iii) the Underwriter has not assumed an advisory responsibility in favor of the Company with respect to the offering contemplated hereby or the process leading thereto (irrespective of whether the Underwriter has advised or is currently advising the Company on other matters) or any other obligation to the Company except the obligations expressly set forth in this Agreement

• 21. The Company acknowledges and agrees that (i) the purchase and sale of the Shares pursuant to this Agreement is an arm's-length commercial transaction
  between the Company, on the one hand, and the several Underwriters, on the other, (ii) in connection therewith each Underwriter is acting as a principal and not the agent or fiduciary of the Company, and (iii) no Underwriter has assumed an advisory responsibility in favor of the Company with respect to the offering contemplated hereby or the process leading thereto (irrespective of
  whether such Underwriter has advised or is currently advising the Company on other matters) or any other obligation to the Company except the obligations
  expressly set forth in this Agreement.

• SECTION 16.   NO FIDUCIARY DUTY. Notwithstanding any preexisting relationship, advisory or otherwise, between the parties or any oral representations or assurances previously or subsequently made by the Underwriters, the Company and the Selling Stockholders acknowledge and agree that in connection with the offering: (a) there exists no fiduciary or agency relationship between the Company or Selling Stockholders, on the one hand, and
  the Underwriters, on the other; (b) the relationship between the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other, is entirely and solely commercial, based on arms-length negotiations, and the Underwriters are not acting as advisors, expert or otherwise, to either the Company or the Selling Stockholders; (c notwithstanding anything in this Agreement to the contrary, the Company and the
  Selling Stockholders acknowledge that the Underwriters may have financial interests in connection with the offering in addition to the difference between
  the price to the public and the purchase price paid to the Company and the Selling Stockholders, respectively, by the Underwriters for the shares, and the Underwriters have no obligation to disclose, or account to the Company or the Selling Stockholders for, any of such additional financial interests. The Company and the Selling Stockholders hereby waive and release, to the fullest
  extent permitted by law, any claims that the Company or the Selling Stockholders may have against the Underwriters with respect to any breach or alleged breach
  of fiduciary duty in connection with the Transactions.