Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Stumpf
| Decision Date | 08 February 2012 |
| Docket Number | No. C 11-2369 SI,C 11-2369 SI |
| Court | U.S. District Court — Northern District of California |
| Parties | PIRELLI ARMSTRONG TIRE CORPORATION RETIREE MEDICAL BENEFITS TRUST, and CITY OF WESTLAND POLICE AND FIRE RETIREMENT SYSTEM, derivatively on behalf of WELLS FARGO & CO., Plaintiffs, v. JOHN G. STUMPF, et al., Defendants, -and-WELLS FARGO & CO., a Delaware corporation, Nominal Defendant. |
On January 27, 2012, the Court held a hearing on defendants' motion to dismiss plaintiffs' verified complaint. After consideration of the parties' papers and arguments, defendants' motion to dismiss is GRANTED IN PART and DENIED IN PART. If plaintiffs wish to amend the complaint, the amended complaint must be filed by February 24, 2012. The Court also GRANTS defendants' request for judicial notice.
This is a shareholder derivative action on behalf of nominal party Wells Fargo & Company against its board of directors, alleging claims for breach of fiduciary duty, abuse of control, gross mismanagement, and corporate waste.
Wells Fargo & Company (the "Company") is a diversified financial services company that provides retail, commercial, and corporate banking services principally in the United States. Verified Consolidated Shareholder Derivative Complaint for the Breach of Fiduciary Duty, Abuse of Control, Gross Mismanagement, and Corporate Waste, ("Compl.") ¶ 32. Wells Fargo is incorporated in Delaware. Id. At the time of filing,1 Wells Fargo's Board (the "Board") consisted of fifteen directors. Fourteen of those directors are named individual defendants in this action: John G. Stumpf ("Stumpf"), John D. Baker II ("Baker"), John S. Chen ("Chen"), Lloyd H. Dean ("Dean"), Susan E. Engel ("Engel"), Enrique Hernandez, Jr. ("Hernandez"), Donald M. James ("James"), Mackey J. McDonald ("McDonald"), Cynthia H. Milligan ("Milligan"), Nicholas G. Moore ("Moore"), Phillip J. Quigley ("Quigley"), Judith M. Runstad ("Runstad"), Stephen W. Sanger ("Sanger"), and Susan G. Swenson ("Swenson"). Id. at ¶¶ 33-48. A past board member, Richard D. McCormick ("McCormick"), and former Chief Financial Officer and Executive Vice President Howard I. Atkins ("Atkins"), are also named defendants.2 Id. at ¶¶ 34, 41. Of the named directors, only Stumpf is an inside or management director. Id. at ¶ 33. Current board member Elaine L. Chao ("Chao") is not a named defendant because her appointment occurred a month after the filing of the original complaint. Wells Fargo's Certificate of Incorporation contains an exculpatory provision limiting its directors' liability for breaches of fiduciary duty to actions involving disloyalty, bad faith, or improper personal benefits. Declaration of Marc P. Wolf Ex. D. Art XIV.
Plaintiffs Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust and City of Westland Police and Fire Retirement System are both current shareholders of Wells Fargo. Compl. ¶¶ 30-31. They have held shares since January 26, 2009, and May 2009 respectively. Id.
As early as 2007, Wells Fargo and its subsidiaries began home foreclosure proceedings around the country. Id. at ¶ 74. Wells Fargo implemented a policy of mass processing the declarations or affidavits to be submitted in court proceedings to accelerate these proceedings. Id. Plaintiffs allege that this policy, known as "robo-signing," had the effect of recklessly avoiding "the work and cost associatedwith obtaining facts or documents representing ownership, standing and the right to foreclose on properties." Id. at ¶ 75. Therefore, plaintiffs allege, this policy had the effect of concealing the possibility that title and standing could not be perfected and would require Company employees to cause Wells Fargo to file false affidavits with courts and state agencies. Id. at ¶¶ 75, 77. Plaintiffs allege that several Wells Fargo employees routinely executed affidavits without personal knowledge of their contents. Id. at ¶¶ 83-85, 86-89. This policy is alleged to have continued into the period in which plaintiffs owned Wells Fargo stock. Id. at ¶ ¶ 78, 86, 172.
In 2010, two Wells Fargo employees testified that they signed unverified affidavits. On January 4, 2010, Stanley Silva ("Silva") testified that he routinely executed notices of default without verifying the accuracy of the information contained therein. Id. at ¶ 88. On March 9, 2010, Xee Moua ("Moua") testified that she signed Wells Fargo loan documents without verifying their contents other than her name and title. Id. at ¶ 83. Later in 2010 news articles regarding Wells Fargo's alleged fraudulent mortgage practices were published. On October 2, 2010, dailyfinance.com published an article entitled "Robo-signing: Documents Show Citi and Wells Also Committed Foreclosure Fraud" which discussed Wells Fargo's robo-signing practices. Id. at ¶ 104. On October 13, 2010, the Star Tribune published an article summarizing the above evidence. Id. at ¶ 108. The Financial Times published a similar article on October 14, 2010. Id. at ¶ 109.
In a conference call on October 20, 2010, defendant Atkins stated that the robo-signing policy was designed by the Company, that the Company had confidence that the policy was sound and accurate, and that the Company did not plan to initiate a moratorium on foreclosures to investigate the policy. Id. at ¶¶ 16, 77, 107. During the call defendant Stumpf stated at least twice that the person who signed the affidavits and the person who reviewed them for accuracy was the same individual. Id. at ¶ 112. One week later, on October 27, 2010, Wells Fargo issued a press release admitting that its foreclosure processes did not adhere to its formal policy and that a review of more than 55,000 foreclosure affidavits was underway. Id. at ¶ 114.
On January 6, 2011, the New York City Comptroller sent a letter to Moore, Chairman of the Audit Committee, calling on the Audit Committee "to conduct an independent review of the Company's internal controls related to loan modifications, foreclosures, and securitizations." Id. at ¶ 137. TheAudit Committee is responsible for ensuring compliance with legal and regulatory requirements. Id. at ¶ 138. On January 9, 2011, the Comptroller issued a press release calling on the Audit Committee of the Board of Wells Fargo, among other banks, to launch an investigation into their foreclosure practices. Id. at ¶ 140.
On February 25, 2011, the Company filed its Annual Report to the SEC in which it stated that the "Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective." Id. at ¶ 144.
On March 21, 2011, the Company filed its §14(a) Proxy Statement with the SEC. Id. at ¶ 148. Contained in the statement was a stockholder proposal calling for the Board's Audit Committee to conduct an independent review of the company's internal controls related to foreclosures. Id. The Board recommended that shareholders vote against the proposal because it "has already undertaken comprehensive self assessments and reviews of our mortgage servicing processes," and "[a]n additional independent review would not constitute an effective use of the Company's resources and could distract our efforts to cooperate with reviews undertaken by our federal banking regulators." Id. at ¶ 149.
Plaintiffs allege, however, that Wells Fargo was in fact not cooperating with government inquiries. Id. at ¶ 165. According to the complaint, on May 17, 2011, Sense on Cents issued an article entitled "Sense on Cents Calls Out Jamie Dimon, Vikram Pandit, Brian Moynihan, Michael Carpenter, and John Stumpf," stating that the banks, including Wells Fargo, had been filing motions to quash discovery and appeals in order to stall the United States Trustee's investigations. Id. Plaintiffs also allege that the banks, including Wells Fargo, have refused to provide details on their overall policies and procedures to government investigators. Id. at ¶¶ 165-66. Furthermore, Wells Fargo is alleged to have continued robo-signing even after stating that the practice had been halted more than six months before. Id. at ¶ 172.
As part of their mortgage practice, Wells Fargo hired Mortgage Electronic Registration System, Inc. ("MERS") to simplify the tracking of individual mortgages. Id. at ¶ 51. On April 13, 2011, MERS and its parent corporation MERSCORP entered into a consent order with government regulators regarding irregularities in its mortgage documentation practices. Id. ¶ 162.
Defendants Stumpf and Atkins were awarded millions of dollars in bonuses for fiscal year 2010. Id. at ¶ 150.
Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This "facial plausibility" standard requires the plaintiff to allege facts that add up to "more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). While courts do not require "heightened fact pleading of specifics," a plaintiff must allege facts sufficient to "raise a right to relief above the speculative level." Twombly, 550 U.S. at 544, 555.
In deciding whether the plaintiff has stated a claim upon which relief can be granted, the Court must assume that the plaintiff's allegations are true and must draw all reasonable inferences in the plaintiff's favor. Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the Court is not required to accept as true "allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (...
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