In 2019, UNFI filed a multi-count lawsuit in the Supreme Court of the State of New York against Goldman Sachs to recover damages and recoup what UNFI believes are the Bank’s ill-gotten gains stemming from its improper conduct during the period in which it advised UNFI on the $2.9 billion acquisition of SUPERVALU. In May 2020, the Supreme Court of the State of New York granted the Bank’s motion to dismiss our case. UNFI has appealed this ruling with the Appellate Division and is awaiting a ruling as of November 2020.
The complaint filed by UNFI in early 2019 lays out how Goldman Sachs used its market power and influence to exploit UNFI as part of a concerted effort to maximize the Bank’s profits. UNFI entrusted Goldman Sachs to provide a full range of transaction advisory services and to arrange a multi-billion-dollar loan (the “Term Loan”) for the acquisition of SUPERVALU. While positioning itself as UNFI’s trusted advisor on the one hand and its counter-party lender on the other hand, Goldman Sachs consolidated its command over all aspects of the transaction in order to extract millions in unjustifiable interest and other fees. Claims laid out in UNFI’s initial compliant are summarized below.
Relevant Claims Included in UNFI’s 2019 Litigation
Misappropriating $40.5 Million
UNFI asserts that the Defendants are liable for breach of contract for egregiously misappropriating $40.5 million in Term Loan-related Marketing Period Fees that Goldman Sachs withheld from the funding it was obligated to provide and paid itself despite not being entitled to do so. Without legal justification and any formal communication or invoicing, Goldman Sachs directed (and both Bank of America and U.S. Bank sanctioned) the withholding of the money from the Term Loan it committed to provide UNFI at the deal’s closing. Yet the plain terms of the parties’ contract make clear that the Defendants had no basis to seek this extra fee because they had a full opportunity to market the Term Loan at issue.
Dealing with UNFI in Bad Faith and Unfairly in Excess of an Additional $140 Million
UNFI asserts that the Defendants breached their duty to act in good faith when they forced the Company to increase the cost of financing, damaging UNFI by $140 Million (present value). The Defendants were focused on maximizing their own profits, while failing to make good faith efforts to syndicate the Term Loan prior to the closing of the SUPERVALU acquisition. UNFI’s complaint includes additional examples of how the Defendants breached their duties.
Committing Fraud Against UNFI and Manipulating the $470 Million Market for SUPERVALU CDS with Sizable Damages at Trial Estimated
UNFI asserts that the Defendants made material misrepresentations and omissions of fact to induce the Company to accept their demand that SUPERVALU be added as a co-borrower on the Term Loan. They told UNFI that the impact would be minimal. But the truth is that the effect of adding SUPERVALU as a co-borrower caused significant harm to UNFI because—unbeknownst to the Company but well-known to Goldman Sachs—the change was part of an unlawful quid pro quo between the Bank and credit default swap holders to solidify their participation in the Term Loan. The co-borrower adjustment spurred an artificial and significant spike in the value of CDS protection contracts held by the Bank’s hedge fund clients.