EBC I, Inc., Formerly Known as eToys, Inc., by the Official Committee of Unsecured Creditors of EBC I, Inc…

Summary

The Court of Appeals held that the unsecured creditors' committee adequately pleaded a breach-of-fiduciary-duty claim against Goldman Sachs as lead managing underwriter of eToys' IPO, because the complaint alleged an advisory relationship of higher trust, independent of the underwriting agreement, obligating Goldman to disclose its conflicted compensation arrangements with favored IPO investors when advising on the offering price. The Court dismissed the breach-of-contract, professional-malpractice, and unjust-enrichment claims for failure to state a claim, found the implied covenant of good faith inadequately pleaded, and found no abuse of discretion in allowing the fraud claim to be repled. Judge Read dissented in part, contending that the newly recognized fiduciary duty contradicts precedent refusing to import fiduciary obligations into arm's-length contracts between sophisticated, counseled parties and intrudes on a regulatory field better left to the SEC and the self-regulatory organizations.