United States District Court, D. Delaware
DAVID JAROSLAWICZ, individually and on behalf of all others similarly situated, Plaintiffs,
M&T BANK CORPORATION, HUDSON CITY BANCORP INC., ROBERT G. WILMERS, RENE F. JONES, MARK J. CZARNECKI, BRENT D. BAIRD, ANGELA C. BONTEMPO, ROBERT T. BRADY, T. JEFFERSON CUNNINGHAM, III, GARY N. GEISEL, JOHN D. HAWKE, JR., PATRICK W.E. HODGSON, RICHARD G. KING, JORGE G. PEREIRA, MELINDA R. RICH, ROBERT E. SADLER, JR., HERBERT L. WASHINGTON, DENIS J. SALAMONE, MICHAEL W. AZZARA, VICTORIA H. BRUM, DONALD O. QUEST, JOSEPH G. SPONHOLZ, CORNELIUS E. GOLDING, WILLIAM G. BARDEL, and SCOTT A. BELAIR, Defendants.
Richard G. Andrews United States District Judge
Defendants are M&T Bank Corporation, Hudson City Bancorp
Inc., Robert G. Wilmers, Rene F. Jones, Mark J. Czarnecki,
Brent D. Baird, Angela C. Bontempo, Robert T. Brady, T.
Jefferson Cunningham, III, Gary N. Geisel, John D. Hawke,
Jr., Patrick W.E. Hodgson, Richard G. King, Jorge G. Pereira,
Melinda R. Rich, Robert E. Sadler, Jr., Herbert L.
Washington, Denis J. Salamone, Michael W. Azzara, Victoria H.
Bruni, Donald O. Quest, Joseph G. Sponholz, Cornelius E.
Golding, William G. Bardel, and Scott A. Belair
(collectively, "Defendants"). Presently before me
is Defendants' Motion to Dismiss the Amended Complaint
(D.I. 61). The individual defendants were either directors of
M&T or Hudson City at the relevant time, with the
exception of Rene F. Jones, who was the CFO at M&T. The
complaint asserts the following claims: (1) a claim for
negligent violation of Section 14(a) of the Exchange Act and
Rule 14a-9 against M&T, the M&T directors and Rene F.
Jones; (2) a claim for negligent violation of Section 14(a)
of the Exchange Act and Rule 14a-9 against Hudson City and
the Hudson City directors; (3) a claim against the M&T
directors, Rene F. Jones, and the Hudson City directors as
"control persons" under Section 20(a) of the
Exchange Act; and (4) a state law claim for breach of
fiduciary duty against the Hudson City directors. (D.I. 54).
The briefing is complete. (D.I. 62; D.I. 66; D.I. 67). I held
oral argument on October 26, 2016. (D.I. 69).
following allegations are highly relevant. To bolster and
improve its business, Hudson City needed to explore new
strategies. (D.I. 54 ¶ 55). Around June 2012, Hudson
City explored possible acquisition by M&T. (Id.
¶¶ 56-57). M&T conducted intensive due
diligence regarding Hudson City's operations from June
2012 through the August 27, 2012 signing of the merger
agreement. (Id.). Hudson City and its Board did not
conduct its reverse due diligence until the week beginning
August 20, 2012. (Id.).
issued a Joint Proxy in February 2013 in connection with the
merger between Hudson City and M&T. (Id. ¶
2). The merger agreement which was in the Joint Proxy
contains a provision which stated that "M&T and each
of its Subsidiaries have complied in all material respects
with, and are not in default or violation in any material
respect of, (i) any applicable law, including ... the Bank
Secrecy Act.. . and any other law relating to . .. money
laundering prevention ...." (D.I. 63-1 ("Joint
Proxy"), App. A § 4.9). The Joint Proxy also
contains various disclaimers relating to this provision.
(See, e.g., Joint Proxy at 112-13). The merger
agreement also represented that there were no legal
violations of consumer disclosure laws (the "Consumer
Violations"). (D.I. 54 ¶¶ 5, 7). This relates
to M&T offering customers free checking, but then
switching customers to accounts which carried fees.
April 12, 2013, Hudson City and M&T jointly announced via
press release, which was accompanied by a proxy supplement,
that regulators had expressed "concerns" with
M&T's Bank Secrecy Act ("BSA")/Anti-Money
Laundering regulations ("AML") procedures, systems,
and processes. (Id. ¶ 11). On April 15, 2013,
M&T convened a public conference call which had the
effect of assuring concerned shareholders that M&T had
violated no rules and regulations and that the matter was not
a very serious one. (Id. ¶ 12).
approved the merger at a meeting on April 18, 2013.
(Id. ¶ 4). Regulators delayed the close of the
merger for two and a half years while M&T got its
regulatory house in order. (Id. ¶ 2). On
October 9, 2014, the Consumer Financial Protection Board
announced that it had taken action against M&T for the
Consumer Violations. (Id. ¶ 7). According to
the CFPB, these violations were occurring at the time the
merger agreement was signed. (Id.). On September 30,
2015, regulators approved the merger. (Id. ¶
4). A statement issued by regulators cited violations of the
BSA/AML and violations with consumer disclosure laws (the
"Consumer Violations") by M&T as factors
delaying merger approval. (Id. ¶ 8). Defendants
concede that M&T reached a settlement with the Consumer
financial Protection Bureau which required M&T pay
"redress to Affected Consumers" of $2, 045 million.
(D.I. 62 at p. 15). On November 1, 2015, the merger closed.
(D.I. 54 ¶ 4).
allege that the disclosures in the Joint Proxy were
inadequate as they provided a misleading picture of
M&T's business practices, its business risks, and its
regulatory risks. (Id. ¶ 77). They allege that
M&T was not compliant with consumer protection laws and
were weak in M&T internal controls and compliance
regiments. (Id. ¶ 130). As to the press release
and proxy supplement, they allege that no detail was provided
as to the exact type of work that would be required to
address the concerns of regulators, or the precise issues
that prompted regulatory action. (Id. ¶ 11).
They allege that this disclosure was deficient, incomplete,
misleading, and untimely. (Id. ¶ 85). As to the
public conference call, Plaintiffs allege that it failed to
adequately represent the troubles M&T had with
compliance, and the resources and time needed to fix them.
(Id. ¶ 12). Plaintiffs allege that the Hudson
City board conducted inadequate due diligence as to
M&T's BSA/AML compliance. (Id. ¶ 79).
Plaintiffs allege the Joint Proxy was an essential link in a
chain of events leading to the merger, and proximately caused
losses to Class members. (Id. ¶¶ 114-17).
Rule 12(b)(6) Standard Generally
requires a complainant to provide "a short and plain
statement of the claim showing that the pleader is entitled
to relief" Fed.R.Civ.P. 8(a)(2). Rule 12(b)(6) allows
the accused party to bring a motion to dismiss the claim for
failing to meet this standard. A Rule 12(b)(6) motion may be
granted only if, accepting the well-pleaded allegations in
the complaint as true and viewing them in the light most
favorable to the complainant, a court concludes that those
allegations "could not raise a claim of entitlement to
relief." Bell Atl. Corp. v. Twombly, 550 U.S.
544, 558 (2007).
'detailed factual allegations' are not required, a
complaint must do more than simply provide 'labels and
conclusions' or 'a formulaic recitation of the
elements of a cause of action.'" Davis v.
Abington Mem 7 Hosp., 765 F.3d 236, 241 (3d
Cir. 2014) (quoting Twombly, 550 U.S. at 555). I am
"not required to credit bald assertions or legal
conclusions improperly alleged in the complaint." In
re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d
198, 216 (3d Cir. 2002). A complaint may not be dismissed,
however, "for imperfect statement of the legal theory
supporting the claim asserted." Johnson v. City of
Shelby, 135 S.Ct. 346, 346 (2014).
complainant must plead facts sufficient to show that a claim
has "substantive plausibility." Mat 347. That
plausibility must be found on the face of the complaint.
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "A
claim has facial plausibility when the [complainant] pleads
factual content that allows the court to draw the reasonable
inference that the [defendant] is liable for the misconduct
alleged." Id. Deciding whether a claim is
plausible will be a "context-specific task that requires
the reviewing court to draw on its judicial experience and
common sense." Id. at 679.
Section 14(a) of the Securities Exchange Act of 1934
U.S.C. § 78n(a)(1) ("Section 14(a) of the
Securities Exchange Act of 1934") provides:
It shall be unlawful for any person, by the use of the mails
or by any means or instrumentality of interstate commerce or
of any facility of a national securities exchange or
otherwise, in contravention of such rules and regulations as
the Commission may prescribe as necessary or appropriate in
the public interest or for the protection of investors, to
solicit or to permit the use of his name to solicit any proxy
or consent or authorization in respect of any security (other
than an exempted security) registered pursuant to section 781
of this title.
15 U.S.C. § 78n(a)(1). "[Section] 14(a) of the
Securities Exchange Act was intended to promote the free
exercise of the voting rights of stockholders by ensuring
that proxies would be solicited with explanation to the
stockholder of the real nature of the questions for which
authority to cast his vote is sought." TSC Indus.,
Inc. v. Northway, Inc.,426 U.S. 438, 444 (1976)
(internal quotations marks omitted). Rule 14a-9 is
"issued pursuant to Section 14(a) of the Securities
Exchange Act of ...