CITY OF PROVIDENCE, on behalf of itself and all others similarly situated, Plaintiff,
FIRST CITIZENS BANCSHARES, INC., FRANK B. HOLDING, JR., JOHN M. ALEXANDER, JR., VICTOR E. BELL, III, HOPE HOLDING BRYANT, H.M. CRAIG, III, H. LEE DURHAM, JR., DANIEL L. HEAVNER, LUCIUS S. JONES, ROBERT E. MASON, IV, ROBERT T. NEWCOMB, JAMES M. PARKER, and RALPH K. SHELTON, Defendants
Submitted September 4, 2014
This opinion is subject to revision or withdrawal till it released for publication in the permanent law reports.
Christine S. Azar and Ned C. Weinberger of Labaton Sucharow LLP, Wilmington, Delaware; Christopher J. Keller, Eric J. Belfi and Michael W. Stocker of Labaton Sucharow LLP, New York, New York; Jeremy Friedman and Spencer Oster of Friedman Oster PLLC, New York, New York, Attorneys for Plaintiff.
Gregory P. Williams, John D. Hendershot and Christopher H. Lyons of Richards, Layton & Finger, P.A., Wilmington, Delaware; Sandra C. Goldstein, J. Wesley Earnhardt, and Rory A. Leraris of Cravath, Swaine & Moore LLP, New York, New York, Attorneys for Defendants Frank B. Holding, Jr., John M. Alexander, Jr., Victor E. Bell, III, Hope Holding Bryant, H.M. Craig, III, H. Lee Durham, Jr., Daniel L. Heavner, Lucius S. Jones, Robert E. Mason, IV, Robert T. Newcomb, James M. Parker, Ralph K. Shelton and Nominal Defendant/Defendant First Citizens Bancshares, Inc.
Donald H. Tucker, Jr. and Clifton L. Brinson of Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., Raleigh, North Carolina, Attorneys for Defendants John M. Alexander, Jr., Victor E. Bell, III, H.M. Craig, III, H. Lee Durham, Jr., Daniel L. Heavner, Lucius S. Jones, Robert E. Mason, IV, Robert T. Newcomb, and Ralph K. Shelton.
This action involves a challenge by plaintiff City of Providence (" Providence" ) to a forum selection bylaw (the " Forum Selection Bylaw" ) adopted by defendant First Citizens BancShares, Inc., (" FC North" ), a bank holding company incorporated in Delaware and based in Raleigh, North Carolina. The Forum Selection Bylaw is virtually identical to the ones that then-Chancellor, now Chief Justice, Strine found to be facially valid in Boilermakers Local 154 Retirement Fund v. Chevron Corporation (" Chevron " ) except in one respect: it selects as the forum the United States District Court for the Eastern District of North Carolina, or, if that court lacks jurisdiction, any North Carolina state court with jurisdiction, instead of the state or federal courts of Delaware.
FC North adopted the Forum Selection Bylaw the same day it announced it had entered into a merger agreement to acquire First Citizens Bancorporation, Inc. (" FC South" ), a bank holding company incorporated and based in South Carolina. Providence filed two separate complaints that have since been consolidated into this action. The first complaint challenges the facial validity of the Forum Selection Bylaw and asserts a claim for breach of fiduciary duty in connection with its adoption. The second complaint asserts claims against the FC North board of directors concerning the proposed merger.
In this opinion, I conclude that Providence has not stated a claim as to the facial validity of the Forum Selection Bylaw. This conclusion is compelled by the logic and reasoning of the Chevron decision. I also conclude that Providence has failed to state a claim for breach of fiduciary duty in connection with the adoption of the Forum Selection Bylaw and, further, that Providence has failed to demonstrate that it would be unreasonable, unjust, or inequitable to enforce the Forum Selection Bylaw here. Therefore, I grant the defendants' motions to dismiss both of the complaints in this action.
FC North is a Delaware corporation that is headquartered in Raleigh, North Carolina. FC North is a holding company for First-Citizens Bank & Trust Company, which operates in seventeen states but has most of its banking operations--over 70% of its total deposits and over 60% of its branches--in North Carolina. FC North has two classes of common stock: Class A shares that are entitled to one vote per share and Class B shares that are entitled to sixteen votes per share. Providence is a holder of Class A shares.
FC South is a bank holding company incorporated and based in South Carolina. FC South has voting and non-voting common stock.
Both FC North and FC South are allegedly controlled by the members and affiliates of the Holding family (the " Holding Group" ). The Holding Group beneficially owns shares representing approximately 52.2% of the votes of FC North and approximately 48.5% of the votes of FC South. As between the two, the Holding Group's economic interests are allegedly greater in FC South than FC North.
On June 10, 2014, the FC North board adopted and approved Amended and Restated Bylaws, which revised numerous aspects of FC North's bylaws and added the Forum Selection Bylaw. That same day, FC North announced that it had entered into a merger agreement to acquire FC
South for a mix of stock and cash. The aggregate value of the proposed transaction is alleged to be between $636.9 million and $676.4 million.
On June 19, 2014, Providence filed a complaint (the " Bylaw Complaint" ) against FC North and the twelve members of its board of directors (the " Board" ) challenging the Forum Selection Bylaw as invalid as a matter of Delaware law or public policy (Count I) and seeking a declaratory judgment that the Forum Section Bylaw is invalid or, alternatively, that this Court " may nonetheless exercise jurisdiction over this action and any action arising out of or relating to the [proposed merger]" (Count III). In the Bylaw Complaint, Providence also asserts that the adoption of the Forum Selection Bylaw was ultra vires and a breach of fiduciary duty (Count II).
On July 10, 2014, defendants moved to dismiss the Bylaw Complaint in its entirety under Court of Chancery Rule 12(b)(6) for failure to state a claim. They also moved to dismiss Count II under Rule 12(b)(3) for improper venue.
On August 1, 2014, Providence filed its second complaint (the " Merger Complaint" ). In the Merger Complaint, Providence asserts various class and derivative claims for breach of fiduciary duty against the Board, as well as for breach of fiduciary duty as a controlling stockholder and for unjust enrichment against certain directors in their capacity as members of the Holding Group. In essence, Providence contends that the Holding Group, through its controlling interest, unfairly forced FC North to overpay for FC South to its own benefit and to the dilution of FC North's minority stockholders.
On August 4, 2014, the defendants moved to dismiss the Merger Complaint under Rule 12(b)(3) for improper venue. On August 7, 2014, the two cases were consolidated. Providence has not filed a consolidated complaint or designated an operative complaint. Thus, within this consolidated action, there are two complaints containing discrete claims, as described above.
On the evening of August 28, Providence filed a motion to expedite and for a preliminary injunction to enjoin a September 16 vote by FC North stockholders on several proposals related to the proposed merger, including a charter amendment to increase the number of authorized shares. The parties do not dispute that the Forum Selection Bylaw purports to govern the claims Providence asserts in the Merger Complaint. Were the Forum Selection Bylaw valid, then this Court would not be
the proper venue to hear Providence's request for injunctive relief.
As to the timing between the preliminary injunction motion and the pending motions to dismiss, the parties previously stipulated that the motions to dismiss would be heard on or as soon as possible after September 3. They stipulated further that the validity of the Forum Selection Bylaw, including whether it may bar the claims Providence asserts in the Merger Complaint, should be resolved before any other substantive issues.
In accordance with the parties' own stipulation, before I consider the merits of Providence's motion to expedite to schedule a hearing on its preliminary injunction motion, I will address the potentially ...