Washenik v. Pub. Pension Funds (In re Bank of Am. Corp. Sec., Derivative, & Emp. Ret. Income Sec. Act (Erisa) Litig.)
| Decision Date | 05 November 2014 |
| Docket Number | Docket Nos. 13–1573L,13–1830con,13–1798con,13–1853con.,13–1677con |
| Citation | 772 F.3d 125 |
| Parties | In re BANK OF AMERICA CORP. SECURITIES, DERIVATIVE, AND EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA) LITIGATION. Michael Washenik, Orloff Family Trust DTD 10/3/91, Orloff Family Trust DTD 12/31/01, St. Stephen, Inc., Leonard Masiowski, Maryann Masiowski, Michael J. Rinis, Babette Rinis, Michael J. Rinis, IRA,Objectors–Appellants, Charles N. Dornfest,Plaintiff, v. Public Pension Funds, The Public Pension Fund Group, Steven J. Sklar, as (IRA Account Beneficiary), on Behalf of himself and all others similarly situated, Rhonda Wilson, Alma Alvarez, Michael R. Bahnmaier, Mark Adams, Elizabeth Eagen, Vernon C. Dailey, Richard Adame, Arlene Kahn, Petra Chatman, Stichting Pensioenfonds ABP, Grant Mitchell, New York State Teachers' Retirement System, Public Employees' Retirement Association of Colorado, Steve R. Graber, Individually, as assignee of claims of the SRG 2008 Trust, Schwab SP500 Index Fund, Schwab 1000 Index Fund, Schwab Institutional Select SP500 Fund, Schwab Dividend Equity Fund, Schwab Core Equity Fund, Schwab Premier Equity Fund, Schwab Fundamental U.S. Large Company Index Fund, Schwab Total Stock Market Index Fund, Schwab SP500 Index Portfolio, Schwab Markettrack Growth Portfolio, Schwab Markettrack Balanced Portfolio, Schwab Investments, Schwab Capital Trust, Dr. Salomon Melgen, Flor Melgen, SFM Holdings Limited Partnership, International Fund Management S.A., Deka International S.A. Luxemburg, Deka Investment GmbH, DI, Aaron Katz, Joel Katz, Sylvia Weissmann, Parker Family Investments L.L.C., Jeffrey R. Parker, The 1997 Jeffrey R. Parker Family Trust, Drew E. Parker, The 1994 Drew E. Parker Family Trust, Keith D. Parker, Julie M. Sorin, The 1991 Jeffrey R. Parker Family Trust, The 1994 Julie P. Mantell Family Trust, Michael A. Parker, Mark D. Wender, Elliot Wender, Penina Wender, Stanley L. Wender, Razelle M. Wender, Jill W. Goldstein, Jerry E. Finger, Ambassador Life Insurance Company, Select Investors Exchange Fund, L.P., Richard Finger, Jef Family Trust, 1976 Real Estate Trust, Walter Finger, The Jerry E. Finger Family Trust D/T/D 12/28/1989, The Jerry E. Finger Family Trust, Leo R. Jalenak, Peggy E. Jalenak, Kers & Co., Robert Gegnas, 198 Locha Drive, Jupiter, FL 334587752, Steven L. Shapiro, Harvey M. Mitnick, Nathan A. Friedman, Bonnie Friedman, Kenneth A. Ciullo, Joanna Ciullo, Thomas P. DiNapoli, Comptroller of the State of New York, as Administrative Head of the New York State and Local Retirement Systems And As Sole Trustee Of The New York State Common Retirement Fund, Schwab Financial Services Fund, Plaintiffs–Appellees, v. Bank of America Corp., Gary A. Carlin, Nelson Chai, Kenneth D. Lewis, John A. Thain, Frank P. Bramble, Sr., William Barnet, III, John T. Collins, Gary L. Countryman, Tommy R. Franks, Charles K. Gifford, Monica C. Lozano, Walter E. Massey, Thomas J. May, Patricia E. Mitchell, Thomas M. Ryan, Meredith R. Spangler, Robert L. Tillman, Jackie M. Ward, Neil A. Cotty, Joe L. Price, Banc of America Securities L.L.C., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bank of America, J. Steele Alphin, Amy Woods Brinkley, Barbara J. Desoer, Liam E. McGee, Timothy J. Mayopoulos, Brian T. Moynihan, Bruce L. Hammonds, Richard K. Struthers, Bank of America Corporation Corporate Benefits Committee Defendants, Bank of America Compensation and Benefits Committee Defendants, Keith T. Banks, Teresa Brenner, Carol T. Christ, Armando M. Codina, Virgis W. Colbert, Gregory Curl, John D. Finnegan, Gregory Fleming, Fox–Pitt Kelton Cochran Caronia Waller (USA) L.L.C., J.C. Flowers & Co., L.L.C., Judith Mayhew Jonas, Aulana L. Peters, Joseph W. Prueher, Ann N. Reese, Michael Ross, Charles O. Rossotti, Peter Stingi, Thomas K. Montag, Kenneth D. Davis, Martin I. Fineberg, Kenneth A. Lewis, Merrill Lynch & Co., Inc., 4 World Financial Center, New York, N.Y. 10080, Bank of America Corporation, 100 N. Tryon Street, Charlotte, NC 28255, Joseph L. Price, Jeremy Fineberg, O. Temple Sloan, Jr., Defendants–Appellees, Peter Kraus, Defendant. |
| Court | U.S. Court of Appeals — Second Circuit |
Steve A. Miller, Steve A. Miller, P.C., Denver, CO, for Objector–Appellant Michael Washenik.
N. Albert Bacharach, Jr., N. Albert Bacharach, Jr., PA, Gainesville, FL, for Objectors–Appellants Leonard Masiowski, MaryAnn Masiowski, Michael J. Rinis, Babette Rinis; and Michael J. Rinis, IRA.
Robert N. Kaplan, Kaplan Fox & Kilsheimer LLP, New York, NY, (Steven B. Singer, John J. Rizio–Hamilton, Bernstein Litowitz Berger & Grossman LLP, New York, NY; David Kessler, Sharan Nirmul, Kessler Topaz Meltzer & Check LLP, Radnor, PA; Frederic S. Fox, Kaplan Fox & Kilsheimer LLP, New York, NY, on the brief) for Plaintiffs–Appellees Public Pension Funds and Grant Mitchell.
Daniel J. Kramer, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, (Brad S. Karp, Audra J. Soloway, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY; Mitchell A. Lowenthal, Lewis J. Limin, Cleary Gottlieb Steen & Hamilton LLP, New York, NY; Julia Guttman, Baker Botts LLP, Washington D.C.; Colby A. Smith, Debevoise & Plimpton LLP, Washington D.C.; Adam S. Hakki, Shearman & Sterling LLP, New York, NY, on the brief) for Defendants–Appellees.
Before: WINTER, PARKER, and HALL, Circuit Judges.
In this appeal, we consider several challenges to the district court's approval of a settlement agreement between representative plaintiffs and the defendant Bank of America in a class action lawsuit alleging violations of the Securities Act of 1933, 15 U.S.C. § 77a et seq., and the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. The underlying litigation traces its origins to Bank of America's negotiations with Merrill Lynch in the Fall of 2008, which culminated in the two financial institutions merging in January 2009. Holders of Bank of America stock and derivative options brought claims against Bank of America when it was discovered that senior officers at the Bank had withheld information leading up to the shareholder vote on the merger—information that included Merrill Lynch's losses of more than $20 billion in the final quarter of 2008 and agreements regarding bonuses orchestrated by the two financial institutions in anticipation of the merger. The district court consolidated these claims and named lead plaintiffs to pursue the actions on behalf of the larger class in conformance with the Private Securities Litigation Reform Act, 15 U.S.C. § 78u–4(a)(3)(B)(i). Before trial commenced, the parties negotiated a settlement agreement. Pursuant to Federal Rule of Civil Procedure 23(e), the district court approved the notice of the settlement to class members. After that notice issued, certain nonnamed class members objected to the settlement. We address these objections.4
The amended class action complaint, filed in October 2010, recounts the conduct alleged to have been perpetrated by Bank of America and Merrill Lynch officers. The false and misleading statements made by Bank of America officers in the lead up to the merger between the two banks, plaintiffs contend, gave rise to violations of Sections 10(b), 14(a), and 20(a) of the Securities Exchange Act of 1934, and violations of Sections 11, 12, and 15 of the Securities Act of 1933.
In mid-September 2008, Bank of America announced the potential acquisition of Merrill Lynch and a shareholder vote to follow in December of 2008. Much of the behind-the-scenes negotiations were conducted by John Thain and Michael Lewis, the CEOs of Merrill Lynch and Bank of America, respectively. These negotiations included whether Bank of America would subsidize prospective year-end bonuses for Merrill Lynch executives and employees for the 2008 year, a condition to which Bank of America agreed. The parties also agreed that these bonuses would be paid out in December of 2008, prior to the merger officially closing. Leading up to a shareholder vote on the merger, Merrill Lynch incurred losses of $7.5 billion in October, and $5.8 billion in November (with an additional “goodwill impairment” of $2.2 billion tied to the subprime residential mortgage side of Merrill Lynch's operations)—a total loss of $15.5 billion over the first two months of the quarter alone. Neither financial institution revealed to shareholders or the public the extent of Merrill Lynch's losses during the fourth quarter. In November 2008, instead of disclosing any discussion of the agreement on bonuses or Merrill Lynch's losses, Bank of America and Merrill Lynch filed a Joint Definitive Proxy Statement seeking approval of the merger from shareholders. Shareholders thereafter voted to approve the merger.
In their complaint plaintiffs allege that after the shareholder vote some senior Bank of America executives who were aware of Merrill Lynch's losses sought to invoke a “material adverse change” clause to terminate the merger between the banks. The plaintiffs claim that Bank of America was stopped from invoking the clause and halting the merger by then-Secretary of the Treasury Henry Paulson and then-Chairman of the Federal Reserve Ben Bernanke. The plaintiffs further allege that the government did not credit Bank of America's assertions that Merrill Lynch's insolvency took the bank by surprise because it had had three months to investigate Merrill Lynch. Bank of America, the plaintiffs allege, was nonetheless able to negotiate a resolution with the federal government: agreeing not to invoke the “material adverse change” clause so long as the federal government provided Bank of America with a $138 billion bailout, consisting of $20 billion of capital infusion and an asset guarantee of $118 billion.
At the time the merger closed on January 1, 2009, shareholders remained unaware that the projected losses for Merrill Lynch in the fourth quarter of 2008 were over $21 billion; that Bank of America executives had attempted to...
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