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Jaroslawicz v. M&T Bank Corp.

United States District Court, D. Delaware

March 30, 2017

DAVID JAROSLAWICZ, individually and on behalf of all others similarly situated, Plaintiffs,
v.
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.

          MEMORANDUM ORDER

          Richard G. Andrews United States District Judge

         The 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).

         I. BACKGROUND

         The 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.).

         Defendants 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. (Id.).

         On 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).

         Shareholders 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).

         Plaintiffs 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).

         II. LEGAL STANDARD

         A. Rule 12(b)(6) Standard Generally

         Rule 8 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).

         "Though '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).

         A 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.

         B. Section 14(a) of the Securities Exchange Act of 1934

         15 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 ...


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