Counsel's Attempt to Collect Fees in Goldman Bonus Suit Fails
Editor's Note: This story was originally published in The New York Law Journal on Sept. 18.
Attorneys for investors who sued Goldman Sachs over excessive planned bonuses following the financial crisis, but dropped their suit when Goldman trimmed the bonuses on its own, cannot collect fees from the investment bank, a unanimous state appeals panel ruled Tuesday.
The Appellate Division, First Department panel ruled in Central Laborers Pension Fund v. Blankfein, 600036/10, that the plaintiffs' counsel, including Grant & Eisenhofer, were not entitled to fees because the plaintiffs failed to make a pre-suit demand on Goldman's board of directors, or show that such a demand would have been futile. The plaintiffs therefore lacked standing to bring the suit in the first place, the panel said.
Justice David Friedman (See Profile) wrote the opinion, joined by Justices Richard Andrias (See Profile), Rolando Acosta (See Profile), Helen Freedman (See Profile) and Darcel Clark (See Profile). The panel affirmed a September 2011 decision by Manhattan Supreme Court Justice Bernard Fried (See Profile).
The investors, the Security Police and Fire Professionals of America Retirement Fund and Judith Miller, filed a shareholder derivative lawsuit in December 2009. In 2010, two other shareholders, the Central Laborers' Pension Fund and Ken Brown, filed a similar suit, and the two actions were consolidated.
The investors alleged that the company's officers and board breached their fiduciary duty by deciding to pay about 50 percent of net revenues as employee compensation, including planned allegedly excessive bonuses for executives. The plaintiffs claimed that the bank's revenues in 2009 came largely from "accounting trickery" and from government bailout funds.
The plaintiffs said they had not first demanded that the board change its policy, normally a prerequisite to a derivative suit, because the board was not disinterested or independent.
In January 2010, Goldman announced executive bonuses that were significantly lower than what the plaintiffs had anticipated. The plaintiffs dropped their suit and, claiming victory, moved for attorney fees.
As Friedman said in a footnote to Tuesday's opinion, the case was litigated on the merits for less than a month and a half, but the dispute over attorney fees has dragged on for over three years.
Fried denied the plaintiffs' motion for fees (NYLJ, Sept. 29, 2011). He found that, even if the plaintiffs had not dropped their suit voluntarily, it would have been dismissed, since they had not made a pre-suit demand or successfully pleaded demand futility.
The plaintiffs appealed, arguing the case before the First Department in February (NYLJ, Feb. 19).