COHEN v. SAKS INCORPORATED (2019)

Plaintiffs, shareholders of defendant Saks Incorporated, allege that the board of directors of Saks breached its fiduciary duties in connection with the $ 2.9 billion acquisition of Saks by defendant Hudson's Bay Company (the merger) insofar as the sale price failed to account for the significant value of Saks's flagship store in Manhattan.  Plaintiffs seek leave to amend the complaint to add new allegations against the Saks defendants and an aiding and abetting breach of fiduciary duty claim against Saks's financial advisor during the merger, Goldman Sachs.

The majority of plaintiffs' proposed new allegations and claims are not palpably insufficient or clearly without merit under the law of Tennessee, where Saks was incorporated, and leave to amend is granted as to those allegations and claims (see Hart v. General Motors Corp., 129 A.D.2d 179, 182, 517 N.Y.S.2d 490 [1st Dept. 1987], lv denied 70 N.Y.2d 608, 521 N.Y.S.2d 225, 515 N.E.2d 910 [1987];  Matter of Allion Healthcare Inc., 28 Misc.3d 1228[A], 2010 N.Y. Slip Op. 51519[U], *6, 2010 WL 3384898 [Sup. Ct., Suffolk County 2010];  see also CPLR 3025[b] ).  The fact that the documentary record is inconclusive with respect to the truth or falsity of many of these allegations does not mandate dismissal, as plaintiffs are not required to prove their allegations at this stage (MBIA Ins. Corp. v. Greystone & Co., Inc., 74 A.D.3d 499, 500, 901 N.Y.S.2d 522 [1st Dept. 2010] ).

To the extent plaintiffs allege that the Saks defendants breached the duty of loyalty by virtue of the accelerated vesting of equity and change of control benefits they received in connection with the merger, these allegations are palpably insufficient.  The directors' interests were aligned with those of the shareholders to obtain the highest value for their stock, and the change of control benefits stemmed from their employment agreements, which were negotiated years before any merger was contemplated and therefore did not arise by virtue of the Merger (see Chasen v. CNL Hospitality Props., Inc., No CT–002739–03 [Tenn. Cir. Ct. Sep. 13, 2006];  City of Pontiac Gen. Empls.' Retirement Sys. v. Thomas Nelson, Inc., No. 06–501–I [Tenn. Ch. May 4, 2007] ).

Although the releases in the parties' stipulation of settlement are sufficiently broad to cover the new allegations and claims, they do not pose an independent basis for denying the motion to amend, because, while class action settlements may generally be binding on the named plaintiffs even before judicial approval, the terms of the instant stipulation make clear that the releases do not become effective until after court approval, which has not yet occurred.

While plaintiffs' promise to support the stipulation and cooperate in seeking court approval is not an unenforceable statement of intention to do something in the future, it is nonetheless unenforceable.  Plaintiffs and their counsel owe fiduciary duties to absent class members and thus cannot be required to support a settlement that is contrary to the best interests of those class members (see Wyly v. Milberg Weiss Bershad & Schulman, LLP, 12 N.Y.3d 400, 412, 880 N.Y.S.2d 898, 908 N.E.2d 888 [2009];  Desrosiers v. Perry Ellis Menswear, LLC, 30 N.Y.3d 488, 497, 68 N.Y.S.3d 391, 90 N.E.3d 1262 [2017];  Blanchard v. Edgemark Fin. Corp., 175 F.R.D. 293, 298 [N.D. Ill. 1997] ).

In light of the foregoing, we need not reach plaintiffs' arguments with respect to rescission, vacatur, or the necessity of a preliminary approval determination.