In re Fifth Third Bancorp Derivative Litig.
| Decision Date | 30 March 2022 |
| Docket Number | 20 C 4115 |
| Parties | IN RE FIFTH THIRD BANCORP DERIVATIVE LITIGATION |
| Court | U.S. District Court — Northern District of Illinois |
Fifth Third Bancorp (“Fifth Third”) shareholders filed this shareholder derivative action against Defendants Fifth Third; Fifth Third board members Nicholas K. Akins, B. Evan Bayh III, Jorge L. Benitez, Katherine B. Blackburn, Emerson L. Brumback, Jerry W. Burris, Greg. D. Carmichael, C. Bryan Daniels, Mitchell S. Feiger, Thomas H. Harvey, Gary R Heminger, Jewell D. Hoover, Eileen A. Mallesch, Michael B McCallister, Marsha C. Williams (the “Director Defendants”); and former Fifth Third officers Tayfun Tuzun and Frank Forrest (the “Officer Defendants ” and together with the Director Defendants, the “Individual Defendants”). In this action Plaintiffs seek to remedy wrongdoing allegedly committed by the Individual Defendants from February 26, 2016 through the present (the “relevant time period”). Specifically, Plaintiffs allege that the Individual Defendants breached their fiduciary duties to Fifth Third, were unjustly enriched, wasted corporate assets, and committed violations of Sections 10(b) and 14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), codified at 15 U.S.C. §§ 78j(b) and 78t(a), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5. Defendants now move to dismiss the consolidated complaint pursuant to Federal Rule of Civil Procedure 23.1 for failure to plead demand futility and pursuant to Federal Rule of Civil Procedure 12(b)(6) and the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) for failure to state a claim. Because Plaintiffs have failed to specifically allege the futility of a demand upon the Director Defendants, the Court grants Defendants' motion to dismiss [58] without prejudice.
BACKGROUND [1]
Fifth Third, headquartered in Cincinnati, provides financial services to corporations, individuals, and non-profits, including an assortment of checking, savings, and money market accounts, wealth management solutions, payments and commerce solutions, insurance services, and credit products such as commercial loans and leases, mortgage loans, credit cards, installment loans, and auto loans. Fifth Third operates full-service banking centers across Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia, and North Carolina.
Fifth Third employed a cross-sell strategy during the relevant time period, in which employees could sell services and/or products to existing customers to meet aggressive sales targets, all supported and awarded through various incentive programs. To meet these sales targets, management encouraged or pressured employees into using improper sales tactics, such as gaming. Doc. 47 ¶ 133.
The Director Defendants are current and former members of Fifth Third's Board of Directors. When this action was filed, [2] the Board consisted of fourteen members, Fifth Third's Chief Executive Officer, Carmichael, and thirteen independent directors: Akins, Bayh, Benitez, Blackburn, Brumback, Daniels, Feiger, Harvey, Heminger, Hoover, Mallesch, McCallister, and Williams. Burris resigned from the Board in June 2020.
The Director Defendants have all served on various Fifth Third committees. The Audit Committee has oversight responsibilities relating to Fifth Third's accounting and financial reporting processes and the audits of its financial statements. The Audit Committee also monitors Fifth Third's system of internal controls and compliance with applicable legal and regulatory requirements. Akins, Benitez, Blackburn, Brumback, Burris, Harvey, Hoover, Mallesch, McCallister, and Williams have served on the Audit Committee.
Blackburn, Brumback, Hoover, and Williams also served on the Regulatory Oversight Committee, which had oversight responsibilities relating to compliance with regulatory findings and supervisory issues between 2015 and December 2016, after which some of its responsibilities moved to the Risk and Compliance Committee. The Risk and Compliance Committee oversees the risk management policies of Fifth Third's global operation and oversight of its global risk management framework. It also oversees Fifth Third's operational, legal, and reputational risks. Benitez, Blackburn, Brumback, Burris, Daniels, Harvey, Heminger, Hoover, Mallesch, and Williams have served on the Risk and Compliance Committee.
Akins, Brumback, Heminger, Mallesch, McCallister, and Williams served on the Human Capital and Compensation Committee. This committee oversees the development and implementation of Fifth Third's incentive compensation strategy, policies, and programs. Finally, Akins, Bayh, Blackburn, Harvey, Heminger, and Williams have served on Fifth Third's Nominating and Corporate Governance Committee. This committee develops, recommends, and performs annual reviews of Fifth Third's corporate governance policies and guidelines. It also identifies and nominates director and committee member candidates.
Several of the Director Defendants have longstanding business and personal relationships with one another and Fifth Third. Harvey, Daniels, and Feiger all have ties to MB Financial Bank, N.A. (“MB Financial”), where Harvey served as Chairman of the Board of Directors, Daniels served as a director, and Feiger served as president and CEO. On May 3, 2019, MB Financial merged with and into Fifth Third Bank, N.A., with Fifth Third Bank, N.A. as the surviving entity. Fifth Third Bank, N.A. is an indirect subsidiary of Fifth Third. Feiger then served as the chairman and CEO of Fifth Third Bank Chicago until he retired from these positions on May 29, 2020. Upon Fifth Third's acquisition of MB Financial, Daniels became a Fifth Third director. Daniels is also the co-founder and principal of Prairie Capital, a private equity firm that has done business with MB Financial and Fifth Third.
Bayh previously served on the board of Marathon Petroleum Corporation, for which Heminger served as the CEO and Board Chair. Mallesch, Burris, and Carmichael have all had management and leadership positions at General Electric in the past, with Mallesch having served as its Chief Financial Officer.
Finally, Blackburn serves as the Executive Vice President of the Cincinnati Bengals. Fifth Third has paid the Bengals $1.8 million for sponsorship arrangements, tickets, and advertising expenses. Around the same time that Blackburn became a director, Fifth Third signed a five-year extension contract with the team, paying a total of $7.9 million to the Bengals. Fifth Third's 2020 proxy statement discloses that “[b]y virtue of Ms. Blackburn's being an executive officer and a principal owner of the Cincinnati Bengals, she is deemed to be a related party having a direct material interest in these arrangements.” Id. ¶ 430.
The Director Defendants receive compensation from Fifth Third for their service as Board members, including stock awards. Carmichael has served as Fifth Third's President since September 2012, its CEO since November 2015, a director since 2015, and the elected Chairman of the Board since 2018. At the end of fiscal year 2019, Carmichael received $8, 999, 237 in compensation from Fifth Third, including $1, 100, 070 in salary, $4, 462, 507 in stock awards, $787, 498 in option awards, $2, 200, 000 in non-equity incentive plan compensation, and $449, 162 in other compensation. As of December 31, 2019, Carmichael owned 1, 336, 633 shares of Fifth Third's common stock. From 2016 through 2019, Carmichael made the following sales of Fifth Third's common stock:
Date
IS" umber of Shares
Price
Proceeds
10/29/2019
55, 251
$29.59
$1, 634, 877, 09
02/13/20 IS
S7, 613
$32.37
$2, 836, 032.81
11/16/2016
36, 821
$25.11
$924, 575.31
11/10/2016
17, 689
$23.45
Similarly, both Hoover and Brumback sold Fifth Third's common stock during the relevant time period. Hoover made the following sales of Fifth Third's common stock:
Date
IS"umber of Shares
Price
Proceeds
06/03/2019
3, 739
$26.51
$99, 120.89
02/12/2018
3, 700
$32.40
$119, 880.00
04/28/2017
2.000
$24.82
Id. ¶ 387. Brumback made the following sale of Fifth Third's common stock:
Date
Number of Shares
Price
Proceeds
03/05/2018
3, 000
$33.44
Fifth Third maintains a Code of Business Conduct and Ethics (the “Code of Conduct”), which applies to all officers, directors, and employees. The Code of Conduct states that “[k]eeping the customer at the center of everything we do and delivering a world-class customer experience every time are paramount to our success, ” and that “every employee plays a part in building and maintaining a strong culture at Fifth Third, a culture in which ethics and compliance are the standard.” Id. ¶ 235. The Code of Conduct requires all employees to raise any issues when they become aware of misconduct or other violations of the Code.
The Code of Conduct reiterates Fifth Third's “commit[ment] to providing customers with financial products and services in ways that avoid any practices that could be deemed predatory, unfair, deceptive or abusive.” Id. ¶ 239. In a section entitled “Fair and Honest Business Practices, ” it specifically provides:
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