Goldman Sachs Secures Dismissal of Amended Complaint by Charles Schwab and TD Ameritrade

Cleary Gottlieb represented Goldman Sachs (Goldman) on June 17, 2019, in successfully obtaining dismissal of an amended complaint filed by Charles Schwab and TD Ameritrade (collectively, the plaintiffs) on October 22, 2018, before Justice O. Peter Sherwood of the New York Supreme Court, Commercial Division.

The amended complaint alleged that Goldman breached the terms of a distribution agreement entered into by the parties in 2001 when it unilaterally terminated the agreement in September 2018. The distribution agreement—which contained no termination date—guaranteed the plaintiffs an allotment of the free retail shares for oversubscribed IPOs and follow-on public offerings that Goldman receives when it serves as an underwriter or lead bookrunner for such offerings. Goldman had not received any benefit in exchange for the plaintiffs’ allotments since 2007 at the latest, when the exclusive period under the distribution agreement expired.

Though the distribution agreement contained no explicit term permitting the plaintiffs to receive their benefit in perpetuity, the plaintiffs nevertheless argued that the distribution agreement should remain in effect for so long as Goldman serves as an underwriter. In opposition, Cleary contended that well-settled New York law creates a presumption against perpetual agreements and that, absent an explicit termination date, the distribution agreement is terminable at will. Cleary also argued in the alternative that, even should the court imply a reasonable term as opposed to finding the agreement terminable at will, no additional fact-finding was necessary for the court to find that any reasonable term it could impose had long since passed. The court granted Goldman’s motion from the bench, finding that at the time Goldman terminated the distribution agreement, any reasonable term the court could impose had passed given the absence of mutual contractual benefit since 2007.