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Jaroslawicz v. M&T Bank Corp.

United States District Court, D. Delaware

October 27, 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, C. ANGELA 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, Defendants.

          Francis J. Murphy, Jr., Esq. and Jonathan L. Parshall, Esq. of Murphy & Landon, Wilmington, DE; Laurence D. Paskowitz, Esq. of Paskowitz Law Firm P.C., New York, NY; Deborah R. Gross, Esq. of Kaufman, Coren & Ress, P.C., Philadelphia, PA; Roy Jacobs, Esq. of Roy Jacobs & Associates, New York, NY. Counsel for Plaintiffs.

          John C. Cordrey, Esq. of Reed Smith LLP, Wilmington, DE; Geroge T. Conway III, Esq., Bradley R. Wilson, Esq., and Jordan L. Pietzsch, Esq. of Watchtell, Lipton, Rosen & Katz, New York, NY. Counsel for Defendants M&T Bank Corporation, Robert G. Wilmers, Rene F. Jones, Mark J. Czarnecki, Brent D. Baird, C. Angela 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., and Herbert L. Washington.

          Kevin R. Shannon, Esq. of Potter Anderson & Corroon, Wilmington, DE; Tracy Richelle High, Esq. and Christen M. Martosella, Esq. of Sullivan & Cromwell LLP, New York, NY. Counsel for Defendants Hudson City Bancorp, Inc., Denis J. Salamone, Victoria H. Bruni, Donald O. Quest, Joseph G. Sponholz, Scott A. Belair, Michael W. Azzara, William G. Bardel, and Cornelius E. Golding.

          MEMORANDUM OPINION

          ANDREWS, U.S., District Judge

         Plaintiffs are former stockholders of Hudson City Bancorp before it merged with M&T Bank Corporation. (D.I. 72 ¶ 26). Defendants are Hudson City, M&T, and their directors and officers at the time of the merger. (Id. at ¶¶ 27-53). Pending before the court is Defendants' motion to dismiss Plaintiffs' second amended class action complaint (the "complaint"). (D.I. 75). The complaint alleges that Defendants violated Section 14(a) of the Securities Exchange Act of 1934 (the "1934 Act") by failing to make mandatory disclosures and making misleading disclosures in the proxy statement (the "Proxy") issued in connection with the merger. (D.I. 72 ¶¶ 129-54). For the reasons discussed below, Defendants' motion is granted and the complaint is dismissed without prejudice.

         I. BACKGROUND

         Plaintiffs argue that Defendants violated Section 14(a) by failing to disclose that M&T was not in compliance with certain banking regulations, which would delay regulatory approval and consequently the closing of the merger. Plaintiffs' arguments are based on disclosures in the Proxy, an April 12, 2013 press release, and an April 15, 2013 earnings conference call, the last two items referred to by Plaintiffs as the "April Disclosures." This section provides a rough timeline of events before discussing in more detail the contents of the Proxy and the April Disclosures.

         A. Timeline of Events

         On August 27, 2012, Defendants executed a merger agreement pursuant to which M&T would acquire Hudson City, and Hudson City stockholders could elect to receive either shares of M&T stock or cash having a roughly equivalent value. (D.I. 72 ¶ 58). Hudson City filed a preliminary Proxy with the SEC on October 15, 2012 that became effective on February 22, 2013. (Id. at ¶ 11). At the time the Proxy became effective, Defendants expected the merger to close in the second quarter of 2013. (D.I. 77-1 at 103). On April 12, 2013, Defendants issued a press release announcing delays in closing the merger due to additional time needed to obtain regulatory approval from the Federal Reserve Board. (D.I. 72 ¶ 90). According to the press release, the Federal Reserve had raised "concerns" about "M&T's procedures, systems and processes relating to M&T's Bank Secrecy Act and anti-money-laundering compliance program." (Id. at ¶ 11). M&T would need additional time to "demonstrate its efficacy to the satisfaction of the Federal Reserve and otherwise meet any other regulatory requirements that may be imposed in connection with these matters." (Id. at ¶ 90). On April 15, 2013, M&T had its first quarter 2013 earnings conference call during which it discussed the contents of the press release. (Id. at ¶ 91).

         On April 18, 2013, Hudson City stockholders voted to approve the merger. (Id. at ¶ 6). Over a year later, on October 9, 2014, the Consumer Financial Protection Bureau ("CFPB") announced that it had taken action against M&T for violating consumer disclosure laws by offering free checking, but then switching customers to accounts which carried fees. (Id. at ¶¶ 7-8). A year after that, on September 30, 2015, the Federal Reserve approved the merger. (Id. at ¶ 117). The complaint alleges that the Federal Reserve delayed its approval due to M&T's non-compliance with the Bank Secrecy Act and anti-money-laundering regulations ("BSA/AML Regulations") and violations of the consumer disclosure laws (the "Consumer Regulations") addressed by the CFPB. (Id. at ¶¶ 4, 117). The merger closed on November 1, 2015. (Id. at ¶ 6).

         B. The Proxy Disclosures

         The complaint alleges that the italicized portions of the following statements were misleading. The first statement discusses compliance and appears in M&T's annual report on Form 10-K for the year ended December 31, 2011, which was incorporated into the Proxy by reference. The second statement discusses timing and appears in the Proxy.

[The USA Patriot Act] imposes obligations on U.S. financial institutions, including banks and broker dealer subsidiaries, to implement and maintain appropriate policies, procedures and controls which are reasonably designed to prevent, detect and report instances of money laundering .... In addition, provisions of the USA Patriot Act require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution's anti-money laundering activities when reviewing bank mergers and BHC acquisitions. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences for the institution. The Registrant and its impacted subsidiaries have approved policies and procedures that are believed to be compliant with the USA Patriot Act.

(D.I. 72 ¶ 80 (alterations and emphasis in original)).

Although we currently believe we should be able to obtain all required regulatory approvals in a timely manner, we cannot be certain when or if we will obtain them or, if obtained, whether they will contain terms, conditions or restrictions not currently contemplated that will be detrimental to or have a material adverse effect on M&T or its subsidiaries after the completion of the merger.

(Id. at ¶ 81 (emphasis in original)). Several other sections of the Proxy discussed timing for closing the merger. For example, the section quoted by Plaintiffs refers to another section of the Proxy, titled "The Merger-Regulatory Approvals Required, " for more details. That section states:

There can be no assurances that the regulatory approvals discussed above will be received on a timely basis .... In recent similar transactions, the Federal Reserve Board has taken a longer time to render a decision on applications than the typical time period for approval set forth in the Federal Reserve Board's regulations.

(D.I. 77-1 at 101). In addition, the section titled "Effective Time of the Merger" warns "there can be no assurance as to when or if the merger will ...


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