Wells Fargo & Co. has agreed to pay Citigroup Inc. $100 million to settle a dispute related to Wells Fargo’s acquisition of Wachovia Corp. during the financial crisis in 2008. Citigroup had accused Wells Fargo of interfering with Citigroup’s attempted takeover of Wachovia and sought $60 billion in damages.
This settlement resolves “all claims related to this dispute,” New York City-based Citigroup and San Francisco-based Wells Fargo said today in a joint statement. Citigroup and Wells Fargo are the nation's third and fourth largest banks by assets.
Additional details on the terms of the settlement are available on the New York Times’ blog, DealBook.
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In Arkansas Teacher Retirement System v. Anthony Caiafa, the Supreme Court of Delaware followed case law holding that a stockholder-plaintiff loses standing in a derivative suit when the corporation-defendant merges with another company, but suggested in dicta a broadening of the fraud exception to such case law.
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In Monroe County Employees’ Retire. Sys. V. Carlson, et al., the Delaware Chancery Court affirmed that plaintiffs challenging a transaction subject to an “entire fairness” review must allege facts that demonstrate a lack of fairness at the pleading stage.
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On April 7, the Second Circuit Court of Appeals affirmed that merger negotiations generally need not be disclosed by public companies. The case, Vladmir v. Bioenvision, involved allegations by a shareholder that several of the company’s statements between February and May 2007 were rendered materially misleading by the company’s failure to disclose that it was engaged in merger negotiations.
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The Delaware Court of Chancery recently ordered defendants to pay attorneys’ fees, court costs and partial expert witness costs based on the defendants’ pre-litigation conduct in connection with the sale of a hotel property. As stated in a letter ruling issued by Chancellor William B. Chandler III, the Court had earlier found that the defendants structured the sale process to benefit themselves instead of ensuring a fair process for all involved members. The Court reasoned that the defendants stood on both sides of the transaction and therefore had a fiduciary duty to those involved in the sale to “demonstrate their utmost good faith and the most scrupulous and inherent fairness of the bargain.” According to Chancellor Chandler, “[t]hose who violated their fiduciary obligations and were the cause of this litigation are the parties who properly should bear the fees and costs made necessary solely by reason of their faithless conduct.” Such an award of fees and costs based on pre-litigation conduct, as opposed to conduct of a party during the course of the litigation, is rare. However, this case illustrates that a court may be persuaded by particularly egregious conduct during a transaction, especially when that conduct rises to the level of a breach of fiduciary duty.
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In a recent Delaware case, In re The Dow Chemical Company Derivative Litigation, the Court of Chancery dismissed a shareholder derivative suit brought against Dow’s Board of Directors in connection with Dow’s 2009 acquisition of Rohm & Haas. The ruling affirms the protections afforded to directors who employ a process designed to allow “an informed business judgment by a majority of disinterested and independent directors.”
The plaintiffs in this litigation alleged that the defendant Dow directors breached their fiduciary duties by (1) approving the merger agreement without a financing contingency for Dow, (2) misrepresenting the relationship between the transaction and a joint venture that Dow was pursuing with a Kuwaiti company, and (3) failing to detect and prevent a number of instances of alleged bribery and other corporate wrongdoing. The plaintiffs also asserted it would be futile to make a pre-suit demand on the board. In granting the defendants’ motion to dismiss, the court concluded that the Aronson standard for demand futility was not met. First, the court determined there was not a sufficient basis for concluding that a majority of the Dow directors lacked independence. Second, the court determined that the directors had acted within the protections of the business judgment rule, finding no reason to doubt that the directors’ actions were taken in good faith or that the directors were adequately informed.
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