Goldman Sachs Wins Complete Dismissal of Claims Related to Financing of $3 Billion Grocery Acquisition

On May 5, 2020, Justice Andrea Masley of the New York State Supreme Court’s Commercial Division dismissed claims against Cravath client Goldman Sachs, which was sued in January 2019 by its former client, United Natural Foods, Inc. (“UNFI”), the largest publicly traded distributor of natural, organic, specialty conventional grocery and non‑food products in the U.S. and Canada and a major supplier to Whole Foods. In its complaint, UNFI brought claims alleging breach of contract and fraud relating to Goldman’s handling of the syndication of a term loan that UNFI used to finance its $3 billion acquisition of SuperValu Inc., which was announced in July 2018 and closed in October 2018. UNFI sought to recover damages in excess of $230 million, representing recoupment of fees paid and other costs of syndication, as well as incremental interest costs it expects to pay over the life of the loan.

Cravath filed a motion to dismiss the case in May 2019, and argued in July 2019 that the case rested on plaintiff’s faulty assumption that but for alleged wrongdoing, the loan would have easily sold through to the market — which was unlikely at a time when both UNFI and SuperValu reported weak financial results.

In her decision, Justice Masley rejected plaintiff’s assertion that Goldman improperly withheld additional fees and interest arising from its efforts to achieve the syndication and dismissed the case in its entirety. In dismissing the breach of contract claims, the Court held that the express terms of the relevant agreements made clear that Goldman was contractually entitled to withhold the challenged financing fees, thereby rejecting UNFI’s interpretation of the relevant contract terms. Justice Masley also rejected UNFI’s claim for breach of the implied covenant of good faith and fair dealing because it was duplicative of its breach of contract claim and UNFI’s position would nullify the express terms of the contract and create independent contractual obligations between the parties. Finally, the Court dismissed UNFI’s fraud claim because its allegations of justifiable reliance were “untenable” on the face of the complaint and UNFI failed to plead non‑speculative damages. Notably, in rejecting UNFI’s fraud claim, Justice Masley held that an increased risk of “net‑short debt activism” is an “impermissibly speculative” theory of harm to support UNFI’s claims.

The Cravath team was led by partners Michael A. Paskin, who argued the motion, Michael T. Reynolds and Lauren A. Moskowitz and included associates Clay H. Greenberg, John I. Karin, Margarita M. Botero, Alexander L. Mills, G. Alejandro Carvajal and Carolyn R.C. Young.

The case is United Natural Foods, Inc. v. Goldman Sachs Group, Inc., et al., Index No. 652185/2019 (Sup. Ct. May 05, 2020).