Jaroslawicz v. M&T Bank Corporation et alREPLY BRIEF re MOTION to Dismiss the Amended ComplaintD. Del.July 20, 2016 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE DAVID JAROSLAWICZ, Individually, and on behalf of all others similarly situated, Plaintiffs, v. M&T BANK CORPORATION, HUDSON CITY BANCORP, INC., ROBERT G. WILMERS, RENÉ 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. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Civil Action No. 15–897–RGA REPLY MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS Kevin R. Shannon (DE Bar No. 3137) POTTER ANDERSON & CORROON LLP Hercules Plaza 1313 N. Market Street, 6th Floor Wilmington, Delaware 19899 (302) 984–6000 Tracy Richelle High (admitted pro hac vice) Christen M. Martosella (admitted pro hac vice) SULLIVAN & CROMWELL LLP 125 Broad Street New York, New York 10004 (212) 558–4000 Attorneys 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 July 20, 2016 John C. Cordrey (DE Bar No. 5324) REED SMITH LLP 1201 Market Street, Suite 1500 Wilmington, Delaware 19801 (302) 778–7500 George T. Conway III (admitted pro hac vice) Adam D. Gold (admitted pro hac vice) Jordan L. Pietzsch (admitted pro hac vice) WACHTELL, LIPTON, ROSEN & KATZ 51 West 52nd Street New York, New York 10019 (212) 403–1000 Attorneys for Defendants M&T Bank Corporation, Robert G. Wilmers, René 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 Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 1 of 26 PageID #: 1101 TABLE OF CONTENTS Page PRELIMINARY STATEMENT .....................................................................................................1 ARGUMENT ...................................................................................................................................4 I. PLAINTIFFS HAVE FAILED TO PLEAD A MATERIALLY FALSE OR MISLEADING STATEMENT IN THE PROXY. .................................................................4 A. The representation and warranty in Section 4.9 of the merger agreement was neither false nor actionable. .................................................................... 4 1. Section 4.9 was accurate. ............................................................................................5 2. Section 4.9 was not an actionable statement of fact. ..................................................6 B. Plaintiffs’ Section 14(a) claim is foreclosed by proxy materials’ disclosure of the risks of regulatory approval and the Fed’s concerns about M&T’s BSA/AML risk management systems. ..................................... 10 II. PLAINTIFFS HAVE FAILED TO PLEAD LOSS CAUSATION AND DAMAGES. ..........................................................................................................................14 III. PLAINTIFFS HAVE FAILED TO PLEAD ANY NON-EXCULPATED BREACH OF FIDUCIARY DUTY. ....................................................................................18 CONCLUSION ..............................................................................................................................20 Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 2 of 26 PageID #: 1102 ii TABLE OF AUTHORITIES Page(s) Cases ALA, Inc. v. CCAIR, Inc., 29 F.3d 855 (3d Cir. 1994) ..................................................................................................... 5–6 Ashcroft v. Iqbal, 556 U.S. 662 (2009) .................................................................................................................... 4 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ................................................................................................ 4, 17, 17 n.10 Berger v. Intelident Sols., Inc., 911 A.2d 1164 (Del. Ch. 2006) .................................................................................... 11–12 n.7 Brashears v. 1717 Cap. Mgmt., Civ. No. 02–1534–KAJ, 2005 WL 2585247 (D. Del. Oct. 13, 2005) ..................................................................................................... 17 n.11 Brookins v. Red Clay Consol. Sch. Dist., Civ. No. 08–11–GMS–LPS, 2009 WL 2160566 (D. Del. July 17, 2009) .................................................................... 6 n.2, 15 Brown v. Brewer, Civ. No. 06–3731–GHK, 2008 WL 6170885 (C.D. Cal. July 14, 2008) .................................................................................................. 17 n.10 Brown v. Brewer, Civ. No. 06–3731–GHK, 2010 WL 2472182 (C.D. Cal. June 17, 2010) ................................................................................................... 15–16 Burges v. BancorpSouth, Inc., Civ. No. 3–14–1564, 2015 WL 4198795 (M.D. Tenn. July 10, 2015) ..................................................... 2, 8, 9 n.3, 13 Cannon v. Clark, Civ. No. 13–cv–2645 JM (NLS), 2015 WL 4624069 (S.D. Cal. Aug. 3, 2015) ................................................................. 11-12 n.7 Chen v. Howard-Anderson, 87 A.3d 648 (Del. Ch. 2014) ............................................................................................ 19 n.13 Connelly v. Lane Constr. Corp., 809 F.3d 780 (3d Cir. 2016) ....................................................................................................... 4 Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005) ..........................................................................................................17 n.11 EP Medsystems, Inc. v. EchoCath, Inc., 235 F.3d 865 (3d Cir. 2000) ..................................................................................................... 13 Glazer Cap. Mgmt., LP v. Magistri, 549 F.3d 736 (9th Cir. 2008) ............................................................................ 4, 9, 9 n.4, 10 n.6 Gold v. Ford Motor Co., 852 F. Supp. 2d 535 (D. Del. 2012) .................................................................................. 17 n.11 Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 3 of 26 PageID #: 1103 iii Goldkrantz v. Griffin, No. 97 Civ. 9075 (DLC), 1999 WL 191540 (S.D.N.Y. Apr. 6, 1999), aff’d, 201 F.3d 431 (2d Cir. 1999) ...................................................................................... 14, 15 Gould v. Am.-Hawaiian S.S. Co., 535 F.2d 761 (3d Cir. 1976) ........................................................................................... 3, 16 n.9 In re Bank of Am. Corp. Sec., Deriv., & ERISA Litig., 757 F. Supp. 2d 260 (S.D.N.Y. 2010) .......................................................... 9 n.4, 10, 10 n.6, 12 In re BJ’s Wholesale Club, Inc. S’holders Litig., No. 6623–VCN, 2013 WL 396202 (Del. Ch. Jan. 31, 2013) ............................................................................................................ 19 In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410 (3d Cir. 1997) ..................................................................................................... 6 In re Cheyenne Software, Inc., No. 14941, 1996 WL 652765 (Del. Ch. Nov. 7, 1996) ............................................................................................................ 18 In re Cornerstone Therapeutics Inc. S’holder Litig., 115 A.3d 1173 (Del. 2014) ........................................................................................................19 In re DaimlerChrysler AG Sec. Litig., 294 F. Supp. 2d 616 (D. Del. 2003) ................................................................................ 3, 15, 16 In re Del Monte Foods Co. S’holders Litig., No. 6027–VCL, 2011 WL 2535256 (Del. Ch. June 27, 2011) ............................................................................................... 11–12 n.7 In re Heckmann Corp. Sec. Litig., 869 F. Supp. 2d 519 (D. Del. 2012) .................................................................................... 16 n.9 In re Initial Pub. Offering Sec. Litig., 241 F. Supp. 2d 281 (S.D.N.Y. 2003) .......................................................................................11 In re Ltd., Inc., No. 17148–NC, 2002 WL 537692 (Del. Ch. Mar. 27, 2002) ........................................................................................................... 18 In re NAHC, Inc. Sec. Litig., 306 F.3d 1314 (3d Cir. 2002) .................................................................................................... 4 In re Real Estate Assocs. Ltd. P’ship Litig., 223 F. Supp. 2d 1142 (C.D. Cal. 2002) .............................................................................. 15, 16 In re Walt Disney Co. Deriv. Litig., 907 A.2d 693 (Del. Ch. 2005), aff’d, 906 A.2d 27 (Del. 2006) ...................................................................................................18 Kahn v. Roberts, No. 12324, 1995 WL 745056 (Del. Ch. Dec. 6, 1995), aff’d, 679 A.2d 460 (Del. 1996) .................................................................................................18 Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 4 of 26 PageID #: 1104 iv Koger v. Allegheny Cty. Intermediate Unit, Civ. No. 10–1466, 2011 WL 1626542 (W.D. Pa. Apr. 27, 2011) .........................................................................................................5–6 La. Mun. Police Emps.’ Ret. Sys. v. Crawford, No. 2635–N, 2007 WL 625006 (Del. Ch. Feb. 13, 2007) ............................................................................................... 11–12 n.7 Lyondell Chem. Co. v. Ryan, 970 A.2d 235 (Del. 2009) ......................................................................................................... 19 Mass. Mut. Life Ins. Co. v. DB Structured Prods., Inc., Civ. No. 11–30039–MGM, 2015 WL 3964560 (D. Mass. June 19, 2015) ...................................................................................... 9, 9 n.4, 10 n.6 McPadden v. Sidhu, 964 A.2d 1262 (Del. Ch. 2008) ................................................................................................ 18 Mennen v. Wilmington Trust Co., No. 8432–ML, 2015 WL 1914599 (Del. Ch. Apr. 24, 2015), adopted, 2015 WL 4935373 (Del. Ch. Aug. 18, 2015) .................................................... 19 n.13 Noonan v. Harrington, 740 F. Supp. 2d 970 (C.D. Ill. 2010) .............................................................................. 3, 16–17 Norwood Venture Corp. v. Converse Inc., 959 F. Supp. 205 (S.D.N.Y. 1997) ................................................................................... 17 n.11 OFI Risk Arbitrages v. Cooper Tire & Rubber Co., Civ. No. 14–68–RGA, 2015 WL 4036179 (D. Del. July 1, 2015) ....................................................................................................... 7, 8, 13 Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 135 S. Ct. 1318 (2015) ..................................................................... 12–13 Osofsky v. Zipf, 645 F.2d 107 (2d Cir. 1981) ..................................................................................................... 15 Resnik v. Woertz, 774 F. Supp. 2d 614 (D. Del. 2011) .................................................................................. 17 n.11 Sowell v. Butcher & Singer, Inc., 926 F.2d 289 (3d Cir. 1991) ..................................................................................................... 14 State of Wisc. Inv. Bd. v. Bartlett, No. 17727, 2000 WL 238026 (Del. Ch. Feb. 24, 2000) .............................................................................................. 11–12 n.7 Stiner v. Univ. of Del., Civ. No. 02–312–SLR, 2004 WL 1949545 (D. Del. Aug. 27, 2004) ................................................................... 6 n.2, 15 Tracinda Corp. v. DaimlerChrysler AG, 502 F.3d 212 (3d Cir. 2007) ..................................................................................................... 14 Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 5 of 26 PageID #: 1105 v Tse v. Ventana Med. Sys., Inc., Civ. No. 97–37–SLR, 1998 WL 743668 (D. Del. Sept. 23, 1998) ......................................................................... 16 n.9 Tse v. Ventana Med. Sys., Inc., 123 F. Supp. 2d 213 (D. Del. 2000), aff’d, 297 F.3d 210 (3d Cir. 2002) ...................................................................................... 15–16 Tse v. Ventana Med. Sys., Inc., 297 F.3d 210 (3d Cir. 2002) ................................................................................................. 3, 16 Werner v. Werner, 267 F.3d 288 (3d Cir. 2001) ............................................................................................... 10 n.5 Statutes, Regulations and Rules 15 U.S.C. § 78bb ........................................................................................................................... 14 15 U.S.C. § 78n(a) ................................................................................................................. passim 15 U.S.C. § 78t(a) ........................................................................................................................... 3 15 U.S.C. § 78u–4(b) .......................................................................................................................4 28 U.S.C. § 1367(c) .......................................................................................................................18 17 C.F.R. § 229.601 .....................................................................................................................7–8 17 C.F.R. § 240.14a–101 .............................................................................................................7–8 FED. R. CIV. P. 9(b) ..........................................................................................................................4 FED. R. CIV. P. 12(b)(6) ...................................................................................................................4 8 Del. C. § 251(c) ............................................................................................................................ 8 Other Authorities SEC Report of Investigation, Exchange Act Release No. 51283, 2005 WL 1074830 (Mar. 1, 2005) ...........................................................................2, 9, 9 n.4, 10 SEC Form S–4, available at http://bit.ly/2a9yH1F .........................................................................8 Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 6 of 26 PageID #: 1106 PRELMINARY STATEMENT The only false and misleading statements that plaintiffs have identified in their brief are those that plaintiffs themselves have made. For their brief makes clear that their claims rest on their assertion that M&T committed “violations” of “the Bank Secrecy Act and Anti-Money Laundering laws.” Pl. Mem. 1. Plaintiffs repeat that assertion dozens of times in their brief and their complaint: that M&T committed “serious BSA violations” and “violations of regulations promulgated under the BSA and Anti-Money Laundering laws,” had engaged in “vast non- compliance,” was “grossly out of compliance,” “had for years been in violation” of those laws— and was “sanctioned for these violations.” Id. at 3, 4, 10, 11 (emphasis added); accord, e.g., id. at 1, 5, 9, 12, 13, 14, 17, 18, 21 n.15, 24, 27, 28, 30, 39, 40; see also AC ¶¶ 2, 4, 5, 6, 7, 8, 10, 14, 66, 74, 80, 86, 87 n.3, 89, 90, 92, 101, 103, 110, 111, 115, 129, 138. As a result, argue the plaintiffs, M&T’s representation in the merger agreement (appended to the proxy) that the bank “was compliant with the BSA and all other laws” was false. Pl. Mem. 4; see id. at 10–11, 17. Not so. There were no such violations, no such non-compliance, and no such sanctions— and the representation in the merger agreement was thus not false. In fact, the very documents upon which plaintiffs rely—in particular, the Federal Reserve’s September 2015 order approving the merger, Ex. R, Fed Order, cited in, e.g., AC ¶ 113—make that clear. The Fed’s order did not say that M&T violated the BSA, the anti-money laundering laws, or any other statute, rule or regulation. Instead, it said simply that the Fed had found “weaknesses in M&T’s risk- management program”—specifically, that “examiners identified weaknesses in M&T’s overall BSA/AML compliance management program.” Fed Order at 10 (emphasis added). In other words, the Fed found not actual violations of the BSA and anti-money laundering laws, but concluded instead that the prophylactic measures that M&T employed to prevent and detect potential violations needed to be improved. And the Fed did not impose any “sanction” on M&T, as plaintiffs assert. Instead, the agency was deciding whether M&T and Hudson City could combine to become “the 25th largest Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 7 of 26 PageID #: 1107 2 depository organization in the [U.S.]”—thus “significantly increase[ing] the scope of M&T’s operations.” Id. at 3, 13. The Fed ruled that, to be “consistent with approval,” M&T had to improve its “functions, systems and procedures for ensuring regulatory compliance,” so that they would be “reflective of [M&T’s] greater size and complexity” after the merger. Id. at 9, 14. There was no “sanction.” In short, the very documents relied on by plaintiffs refute their assertions that M&T had committed any BSA/AML violation, and, without more, refute any claim that M&T made any false representation to Hudson City in the merger agreement. But there is more: M&T emphatically stated that the contractual representations it made to Hudson City, the company, in the merger agreement were not representations to, and could not be relied upon by, Hudson City’s shareholders. Those representations thus cannot serve as the basis for a Section 14(a) claim here. Even plaintiffs’ own authorities make that clear: they hold that a contractual representation in a merger agreement can be an actionable statement of fact only if a “reasonable investor” could conclude, in the absence of “some qualification” otherwise, that it reflects “the actual state of affairs” of the company. Burges v. BancorpSouth, Inc., No. 3– 14–1564, 2015 WL 4198795, at *5 (M.D. Tenn. July 10, 2015); see also SEC Report of Investigation, Exchange Act Release No. 51283, 2005 WL 1074830, at *2 (Mar. 1, 2005). The proxy here provided more than “some qualification”—it contained an absolute qualification, as it expressly told shareholders that the representation did not reflect “the actual state of facts or condition of M&T.” Ex. A, Proxy at 112–13. On top of that, the proxy issued a host of other specific warnings, all making clear that M&T could provide “no assurances” that regulatory approval for the merger would be “received on a timely basis.” Id. at 15, 99–101. Given these disclosures—and especially given the fact that, six days before the shareholder vote, M&T specifically announced that the merger would in fact be delayed because of the Fed’s concerns about M&T’s BSA/AML risk-management systems—no shareholder would have reasonably believed that the merger agreement’s representations reflected the actual state of affairs at M&T. Yet even that does not exhaust the failings of this meritless strike suit. The coup de grâce is that the plaintiffs and their proposed class profited massively from the deal whose disclosures Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 8 of 26 PageID #: 1108 3 they now so conveniently condemn. They do not and cannot deny that Hudson City’s shareholders made nearly two billion dollars in profit, while handily divesting themselves of stock in a bank whose competitive future as a stand-alone entity was gravely in doubt. A bank that no one else would buy. Under these circumstances, allowing the claim to proceed would not only be a travesty, but contrary to law. For a Section 14(a) claim requires an economic loss, and that the loss be caused by the alleged misrepresentations in the proxy. Here plaintiffs plead no loss, and no causation. Plaintiffs hopelessly try on several alternative theories of harm, but none fits. “Benefit of the bargain” damages don’t work here not only because they are not pleaded in the complaint, but also because plaintiffs got exactly what Hudson City bargained for—highly valuable shares of M&T stock, or their cash equivalent, from which they greatly profited. “Lost opportunity” damages don’t work because plaintiffs can’t plead—as they are required to—any “certain, fixed and demonstrable” profits that Hudson City forewent as a result of the alleged misrepresentations and, instead, assert only speculatively that Hudson City might have negotiated a different deal “had the circumstances been different,” which courts agree is not nearly enough. E.g., Gould v. Am.-Hawaiian S.S. Co., 535 F.2d 761, 782 (3d Cir. 1976); Tse v. Ventana Med. Sys., Inc., 297 F.3d 210, 223 (3d Cir. 2002); see also In re DaimlerChrysler AG Sec. Litig., 294 F. Supp. 2d 616, 627 (D. Del. 2003). Asserting that Hudson City lowered its dividends during the merger delay doesn’t work either, because it doesn’t allege any economic loss as a matter of law. E.g., Noonan v. Harrington, 740 F. Supp. 2d 970, 975 (C.D. Ill. 2010). And neither does saying that Hudson City shareholders received shares of a company with a “spotty regulatory record”—that is not economic loss, especially given how M&T shares have gone up. Finally, because no plausible federal Section 14(a) claim has been pleaded here—and the plaintiffs have abandoned their Section 20(a) claim—this court should decline to exercise supplemental jurisdiction over the complaint’s breach-of-fiduciary-duty claim under Delaware law. Alternatively, this claim can be dismissed on the merits under Delaware law, as plaintiffs have plainly failed to plead any non-exculpated breach of fiduciary duty under M&T’s charter. Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 9 of 26 PageID #: 1109 4 ARGUMENT To begin with, plaintiffs’ attempt to avoid the “particularity standards of Rule 9(b) and the PSLRA” fails. Pl. Mem. 14. Regardless of the “required state of mind” here, the PSLRA still demands that plaintiffs “specify each statement alleged to have been misleading,” as well “the reason or reasons why the statement is misleading,” 15 U.S.C. § 78u–4(b)(1)(B), and Rule 9(b) still requires that plaintiffs “state with particularity the circumstances constituting fraud or mistake,” FED. R. CIV. P. 9(b); see, e.g., In re NAHC, Inc. Sec. Litig., 306 F.3d 1314, 1329 (3d Cir. 2002); Glazer Cap. Mgmt., LP v. Magistri, 549 F.3d 736, 742 (9th Cir. 2008). Even under Rule 12(b)(6), the complaint can survive only if it “contain[s] sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Connelly v. Lane Constr. Corp., 809 F.3d 780, 786 (3d Cir. 2016) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). Under this standard, legal conclusions must be “affirmatively disregard[ed],” as well as allegations “so threadbare or speculative that they fail to cross the line between the conclusory and the factual.” Id. at 790. Plaintiffs’ conclusory allegations and mischaracterizations of the documents cited in the complaint satisfy neither the plausibility standard nor the PSLRA. I. PLAINTIFFS HAVE FAILED TO PLEAD A MATERIALLY FALSE OR MISLEADING STATEMENT IN THE PROXY. A. The representation and warranty in Section 4.9 of the merger agreement was neither false nor actionable. Plaintiffs’ brief affirms that their Section 14(a) claim primarily rests on their assertion that M&T’s representation and warranty in Section 4.9 of the merger agreement—to the effect that M&T has “complied in all material respects with, and [is] not in default or violation in any material respect of, (i) any applicable law,” Proxy App. A, § 4.9—was false. But that contractual representation was entirely accurate, and is not actionable in any event. 1. Section 4.9 was accurate. First, plaintiffs’ theory that Section 4.9 was false is completely contradicted by the underlying documents cited in the complaint—including, most notably, the Federal Reserve’s Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 10 of 26 PageID #: 1110 5 September 30, 2015 order approving the merger. AC ¶¶ 8, 113. That order expressly and repeatedly makes clear that the regulatory issues that held up the merger were not “violations” of, or “non-compliance” with, the BSA or any anti-money laundering laws, as plaintiffs assert. Rather, the Fed explained that, “following the submission of M&T’s application to acquire Hudson City,” and “after consideration of M&T’s [merger application] was well in progress,” “examinations conducted by the Federal Reserve Bank of New York … revealed significant weaknesses in M&T’s risk management program.” Fed Order at 10–11. “In particular, examiners identified weaknesses in M&T’s overall BSA/AML compliance management program.” Id. at 10; see also id. at 11 & n.28; AC ¶ 92; Ex. H, June 2013 Written Agreement at 2 (noting “deficiencies in M&T’s firm-wide compliance risk management program”). As the Fed explained, these weaknesses “raised concerns about whether [M&T’s] managerial resources and the managerial resources of the proposed combined organization were consistent with approval” of a merger that would “significantly increase the scope of M&T’s operations” and would create “the 25th largest depositary institution in the [U.S.]” after the merger. Fed Order at 3, 11, 13. Thus, the Fed delayed approval to allow M&T time to enhance prophylactic procedures for “proactively identifying and promptly addressing” potential violations of law in the future. Id. at 14. Nowhere in the 40-page Fed order—or in the Fed’s June 2013 Written Agreement, or anywhere else—did the Fed conclude or even suggest that M&T violated the BSA or any anti-money laundering law. In short, plaintiffs’ repeated assertions that M&T committed “serious BSA[/AML] violations,” engaged in “vast non- compliance” with those laws, and was “sanctioned for these violations,” Pl. Mem. 3, 10 (emphasis added), are demonstrably false. This Court should, of course, “reject factual claims that are contradicted by documents integral to the pleadings,” Koger v. Allegheny Cty. Intermediate Unit, Civ. No. 10–1466, 2011 WL 1626542, at *1 (W.D. Pa. Apr. 27, 2011) (citing ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 n.8 (3d Cir. 1994))—and thus should reject plaintiffs’ assertions of BSA/AML violations here. Plaintiffs’ claim that the Fed’s conclusions rendered untrue the representation in Section 4.9 accordingly fails. Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 11 of 26 PageID #: 1111 6 Nor is there any basis for plaintiffs’ theory that M&T’s settlement with the CFPB rendered Section 4.9 false. Pl. Mem. 25. For starters, plaintiffs do not dispute that the settlement contained only unlitigated, untested allegations, and that the allegations involved activities that ceased well before the proxy was issued. AC ¶ 106. More significantly, plaintiffs also do not and cannot dispute that the settlement involved a payment of only about $2 million, which amounts to less than two-tenths of one percent of M&T’s 2013 net income of $1.138 billion—a “negligible” amount that “can be ruled immaterial as a matter of law.” In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1427 (3d Cir. 1997); see also Ex. N, Consent Order ¶ 30.1 Indeed, not only was the CFPB settlement immaterial under the federal securities laws, but it was also immaterial under the plain terms of Section 4.9, which represented that M&T had “complied in all material respects with … any applicable law.” Proxy App. A, § 4.9 (emphasis added). The complaint thus fails to plead any plausible basis to find that Section 4.9 was materially false.2 2. Section 4.9 was not an actionable statement of fact. Even if Section 4.9 could be deemed to have been inaccurate, no reasonable shareholder could have considered it as a statement of fact about M&T’s actual state of affairs in light of the extensive disclaimers and cautionary language in the proxy. As a result, Section 4.9 cannot sustain plaintiffs’ Section 14(a) claim. 1 Plaintiffs conclusorily assert that the Fed somehow “verified” the CFPB’s allegations, but the Fed did no such thing. It merely mentioned them. Fed Order at 10 & n.27. It also identified “weaknesses” in M&T’s “consumer compliance program” and decided that M&T also needed to enhance that program, but that was not a finding of a violation of law. Id. at 10–12 (emphasis added). 2 In their answering brief, plaintiffs for the first time challenge M&T’s statement that it “ha[d] approved policies and procedures that are believed to be compliant with the USA Patriot Act” from its Feb. 25, 2013 Form 10–K filing, arguing that it too is false and misleading. Pl. Mem. 18. Because plaintiffs did not plead this in the complaint, they may not now rely on it to survive dismissal. E.g., Stiner v. Univ. of Del., Civ. No. 02–312–SLR, 2004 WL 1949545, at *9 (D. Del. Aug. 27, 2004); Brookins v. Red Clay Consol. Sch. Dist., Civ. No. 08–11–GMS–LPS, 2009 WL 2160566, at *3 (D. Del. July 17, 2009). But even if this statement had been pleaded as a basis for liability, the complaint has not pleaded a plausible basis for its falsity. Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 12 of 26 PageID #: 1112 7 In particular, plaintiffs’ effort to distinguish this Court’s decision in OFI Risk Arbitrages v. Cooper Tire & Rubber Co., Civ. No. 14–68–RGA, 2015 WL 4036179 (D. Del. July 1, 2015) (Andrews, J.), utterly fails. “[U]nlike here,” say plaintiffs, “there was no allegation that the Merger Agreement’s representations were inaccurate when made.” Pl. Mem. 20 (citing 2015 WL 4036179, at *5–*6) (emphasis added)). But that is not so: plaintiffs refer to the wrong part of this Court’s opinion, the part in which the Court held that a warranty repeated in the proxy statement was not materially misleading because it was not false when made. The relevant holding in Cooper Tire, as explained in defendants’ opening brief (at 20–21), is the one that addressed the allegedly “materially false financial projections” contained in the proxy. 2015 WL 4036179 at *6–*7 (emphasis added). Those projections were indeed alleged to have been “false when made,” because the defendants “knew of … lower projections” that were not disclosed in the proxy. Id. at *6. The Court rejected this allegation not by finding that the disclosed projections were accurate, but because the company had expressly disclaimed them: “Cooper did not hold the projections out as accurate in the proxy,” and “the Proxy made clear that the projections were ‘included in [the] proxy statement only because the information was provided to’” the acquiring company and other “bidders and bankers.” Id. at *6–*7. Indeed, the company told shareholders not to rely on the projections as “necessarily predictive of actual future events.” Id. at *6. Given all that, this Court held as a matter of law that the projections could not be deemed to be a false statement, that the “Plaintiffs did not allege falsity,” and that “the strongest inference to be drawn … [was] that Defendants were following Delaware law” in disclosing them. Id. at *6–*7. The Court accordingly dismissed the Section 14(a) claims. Id. at *8. The same should happen here. As in Cooper Tire, the merger agreement was appended to the proxy, not because M&T “chose to speak on the issue of [its] compliance,” Pl. Mem. 20, but because M&T was legally required to provide shareholders with a copy of the merger agreement under both federal and Delaware law. See, e.g., 17 C.F.R. § 229.601; 17 C.F.R. § 240.14a–101 at Item 14; SEC Form S–4 at Item 21, available at http://bit.ly/2a9yH1F; see also 8 Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 13 of 26 PageID #: 1113 8 Del. C. § 251(c). As in Cooper Tire, the proxy here makes “perfectly clear that this is the sole reason [it was] included.” 2015 WL 4036179, at *7; see Proxy at 113. And as in Cooper Tire, the proxy here did not hold Section 4.9 out as accurate. Id. To the contrary, it affirmatively told shareholders not to rely on the representation because: The merger agreement was “included solely to provide investors with information regarding the terms of the merger agreement,” and was “not intended to provide factual information about the parties”; “The representations … were made solely for the benefit of the parties to the merger agreement, [and] may be subject to limitations agreed upon by the contracting parties … instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those generally applicable to investors”; and “[S]uch representations … were not intended by the parties to the merger agreement to be characterizations of the actual state of facts or condition of M&T.” Proxy at 112–13 (emphasis added). Accordingly, as in Cooper Tire, the “strongest inference to be drawn” from appending the merger agreement to the proxy was that M&T “[was] following Delaware [and federal] law” in doing so. Cooper Tire, 2015 WL 4036179, at *7. None of the cases cited by plaintiffs is to the contrary; indeed, they undercut plaintiffs’ claim. Plaintiffs chiefly rely on Burges v. BancorpSouth, Inc., in which the plaintiffs had alleged the falsity of a company’s representation, made in a merger agreement “attached” to a registration statement, that it had “complied in all material respects with … any applicable law … including all Banking Laws.” Civ. No. 3–14–1564, 2015 WL 4198795, at *4 (M.D. Tenn. July 10, 2015). The district court held the representation to be actionable, but did not say that this was automatically so; rather, the court held that “a reasonable juror could conclude that those statements, without some qualification or accompanying disclosure of their non-compliance and/or the pending FDIC review, were misrepresentations because they were, at a minimum, incomplete.” Id. at *5 (emphasis added). In contrast to the proxy in Burges, the proxy here contained more than “some qualification” of the merger representations. The representations were completely disclaimed here: the proxy said that the merger agreement was “not intended to provide factual information about the parties,” or to “characteriz[e] the actual state of facts or Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 14 of 26 PageID #: 1114 9 condition of M&T.” Proxy at 112–13 (emphasis added). And here, moreover, M&T supplementally disclosed the Fed’s concerns about M&T’s risk-management systems before the shareholder vote.3 AC ¶ 87; see also Point I.B., below. Nor do plaintiffs’ other authorities support their claims. Plaintiffs cite the Ninth Circuit’s decision in Glazer and a 2005 SEC release, and a few cases that cite them, for the proposition that “courts and the SEC have refused to recognize the validity of disclaimers as to the accuracy of the Merger Agreement representations and warranties.” Pl. Mem. 19.4 But the authorities do not go that far. At most, they establish the exceedingly narrow proposition that, in the absence of a disclaimer like M&T’s, the fact that a contractual representation was appended to a proxy, as opposed to having been included in the body, “cannot work as a per se bar to securities law liability.” Glazer, 549 F.3d at 741; accord, e.g., Mass. Mut. Life Ins. Co. v. DB Structured Prods., Inc., Civ. No. 11–30039–MGM, 2015 WL 3964560, at *12 n.14 (D. Mass. June 19, 2015) (citing Glazer). Indeed, these authorities confirm that a representation in a merger agreement attached to a public filing can be deemed to be a statement of fact only when the “total mix of information available to the investor” would lead “a reasonable investor [to] conclude that the statements made in the representation describe the actual state of affairs” of the company making the representation. SEC Report of Investigation, Exchange Act Release No. 51283, 2005 WL 1074830, at *2 (Mar. 1, 2005) (emphasis added); see also Bank of Am., 757 F. 3 In Burges, moreover, the defendants allegedly knew, before the registration statement at issue there was filed, of an “existing FDIC review” and that the bank was not in compliance with the law. But here, in contrast to Burges, there is no non-conclusory allegation in the complaint that the Fed had expressed any “concerns” about the merger before the date of the original proxy statement; in fact, the Fed stated that the issues “first surfaced after consideration of M&T’s proposals [to merge with Hudson City] was well in progress.” Fed Order at 11; see also AC ¶¶ 5, 76–77, 83, 87. And the complaint concedes that M&T disclosed the Fed’s concerns and their delaying effect before the April 18 vote. AC ¶¶ 87–88. Given this very different sequence of events, no “reasonable juror could conclude” that Section 4.9 represented the actual state of M&T’s affairs at the time of the stockholder vote. Burges, 2015 WL 4198795, at *5. 4 Citing Glazer, 549 F.3d at 741; Mass. Mut. Life Ins. Co. v. DB Structured Prods., Inc., Civ. No. 11– 30039–MGM, 2015 WL 3964560, at *12 n.14 (D. Mass. June 19, 2015); In re Bank of Am. Corp. Sec., Deriv., & ERISA Litig., 757 F. Supp. 2d 260, 299–300 (S.D.N.Y. 2010); SEC Report of Investigation, Exchange Act Release No. 51283, 2005 WL 1074830 (Mar. 1, 2005). Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 15 of 26 PageID #: 1115 10 Supp. 2d at 298 (“reasonable investor would have understood the Merger Agreement to constitute a statement of fact” under the pleaded facts). Here, the “total mix of information” included an express statement that Section 4.9 was not “intended … to be [a] characterization[] of the actual state of facts or condition of M&T” and an explicit warning that shareholders should not rely on it for “factual information about the parties.” Proxy at 112–13.5 In light of these disclaimers—and given the other extensive cautionary language included in the proxy discussed below—no “reasonable investor” “could conclude that [Section 4.9] describe[s] the actual state of [M&T’s] affairs.” Exchange Act Release No. 51283, 2005 WL 1074830, at *2.6 B. Plaintiffs’ Section 14(a) claim is foreclosed by proxy materials’ disclosure of the risks of regulatory approval and the Fed’s concerns about M&T’s BSA/AML risk management systems. Beyond this, plaintiffs’ Section 14(a) claim cannot stand in light of the extensive disclosures M&T made about the risks of regulatory approval—and, in particular, the delay that it said would in fact be caused by the Fed’s concerns about M&T’s BSA/AML risk management programs. Indeed, given the substance of the pre-shareholder vote disclosure of the Fed’s 5 Plaintiffs’ argument that this disclaimer is “buried” in the proxy is specious. Pl. Mem. 6 n.5. A disclaimer is “buried” only “where the manner of disclosure disguised or seriously distorted important information” in a way that “prevents a reasonable shareholder from realizing the ‘correlation and overall import of the various facts interspersed throughout’ the document.” Werner v. Werner, 267 F.3d 288, 298 (3d Cir. 2001). The proxy plainly did not disguise or seriously distort any information about the merger agreement. To the contrary, pages 16 and 29 disclosed that the merger was conditioned on the accuracy of the parties’ representations and directed readers to page 113. And the disclaimer itself told shareholders not to rely on Section 4.9 as a statement of M&T’s “actual state of affairs.” Proxy at 113. 6 Plaintiffs’ authorities are also factually distinguishable. Glazer’s merger representation was not accompanied by a disclaimer like M&T’s and, unlike here, that case included an allegation that the SEC actually found that the defendants had “violated” several FCPA laws. Glazer, 549 F.3d at 742. Massachusetts Mutual involved alleged material misstatements about underwriting guidelines under Massachusetts law. Mass. Mut., 2015 WL 3964560, at *10. And Bank of America’s merger covenant regarding contingent bonuses to Merrill employees was held to be misleading in light of the complaint’s allegations that “negotiations resulted in an agreement as to both the amount and the timing of bonus payment[s]” in contravention of the covenant. Bank of Am., 757 F. Supp. 2d at 297–300. In contrast, there are no plausible allegations here of any violation of law or noncompliance that would contravene Section 4.9. Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 16 of 26 PageID #: 1116 11 concerns, plaintiffs are reduced to saying that this disclosure came too late to inform shareholders. That argument is meritless. The complaint’s only basis for disregarding the April 12, 2013 disclosure of the Fed’s concerns is a single conclusory statement that the disclosure came “in all likelihood after most shareholders had already cast their ballots.” AC ¶ 11. There are no pleaded facts—let alone plausible ones—that support this speculation. See Pl. Mem. 32. What’s more, this contention is contradicted by the other allegations in the complaint, including the undisputed facts that M&T widely publicized the merger delay by issuing a press release on April 12, AC ¶ 87; filed that release with the SEC on the same day, id. ¶¶ 85, 87; reiterated that information directly to investors on a conference call on April 15, id. ¶ 88; and filed the transcript of that call with the SEC on April 16, id.; see also Pl. Mem. 13. In light of these supplemental disclosures and the proxy’s clear instruction that shareholders could “change [their] vote at any time” up to and including the day of the April 18 vote by merely “logging onto the Internet” or “by calling a telephone number,” Proxy at 7, there is no plausible basis to support plaintiffs’ speculation that the disclosures came too late for shareholders to change their vote—even assuming they had voted yet. Nor is there any basis to find that the substance of the disclosures was not part of the total mix of information when the shareholders cast their votes. Plaintiffs’ authorities from the 1970s, 1980s, and early 1990s are obsolete in light of the “rise of the Internet,” and the SEC’s EDGAR system, which “ensure that information permeates the market faster than ever before.” In re Initial Pub. Offering Sec. Litig., 241 F. Supp. 2d 281, 376 (S.D.N.Y. 2003). And the handful of more recent Delaware authorities providing for more than six calendar days for the market to “absorb[]” information address factual situations and legal issues that are far different from those at issue here.7 Under the facts plaintiffs themselves plead, at least by April 12, the entire 7 Del Monte required an additional 20 days before the vote to permit additional potentially interested buyers to submit offers to buy the company. In re Del Monte Foods Co. S’holders Litig., No. 6027–VCL, 2011 WL 2535256, at *6 (Del. Ch. June 27, 2011). Crawford and Bartlett both involved a concern about permitting enough time for shareholders to “return proxies by mail”—something not necessary here. La. Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 17 of 26 PageID #: 1117 12 internet-using, news-reading world was on notice that the Fed had expressed “concerns” about M&T’s compliance programs and as a result the merger would be “substantially” delayed. AC ¶¶ 87–88. Indeed, the Wall Street Journal and other notable publications reported these developments on April 12. See M&T Bank: Fed’s Concerns Slowing $3.7 Billion Bank Deal (WSJ Blog Apr. 12, 2013), available at http://on.wsj.com/29JQlv5. Such “‘widely reported’ facts disseminated in the news media” are plainly “part of the ‘total mix’ of information.” Bank of Am., 757 F. Supp. 2d at 290. Given those widely reported facts, and given the already significant disclaimers and cautionary language in the proxy, by April 18 no shareholder reasonably could have believed that the merger would timely close.8 And contrary to plaintiffs’ assertions, there was nothing misleading in M&T’s disclosure of the Fed’s concerns. As shown above, the Fed did not find that M&T had violated any law. So the April 15, 2013 statement by M&T’s CFO that M&T had “no reason to believe that the [Fed’s] issues involve any wrongdoing or illegal conduct … or any identifiable instances of actual money laundering using our bank,” AC ¶ 88; see Pl. Mem. 29–30, was entirely true. And plaintiffs’ assertions that M&T “downplayed” the amount of time and resources needed to obtain regulatory approval for the merger, Pl. Mem. 5, 29, likewise fails to sustain their claim. All of these statements were opinions about when M&T believed the merger would close. AC ¶ 87 (stating what “M&T and Hudson City believe[d]” about timing); id. ¶ 88 (M&T’s “anticipate[d]” timing). Because the complaint does not plead that M&T did not actually believe these statements, or omitted to tell shareholders any plausible facts that might “conflict with what a reasonable investor would take from [them],” they are inactionable as a matter of law. Mun. Police Emps.’ Ret. Sys. v. Crawford, No. 2635–N, 2007 WL 625006, at *1 (Del. Ch. Feb. 13, 2007); see also State of Wisc. Inv. Bd. v. Bartlett, Civ. No. 17727, 2000 WL 238026, at *7 (Del. Ch. Feb. 24, 2000); Proxy at 7. Berger involved additional time to see the original proxy—not supplemental disclosures. Berger v. Intelident Sols., Inc., 911 A.2d 1164, 1174 (Del. Ch. 2006). And Cannon addressed the time required by Rule 23.1 to provide notice of dismissal of a derivative action. Cannon v. Clark, Civ. No. 13–cv–2645 JM (NLS), 2015 WL 4624069, at *5–*6 (S.D. Cal. Aug. 3, 2015). 8 Plaintiffs appear to concede that these disclosures were part of the total mix of information by the shareholder vote, as they allege that the disclosures materially misled investors. See Pl. Mem. 28. To be misled, of course, shareholders necessarily had to have been aware of them. Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 18 of 26 PageID #: 1118 13 Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 135 S. Ct. 1318, 1329 (2015). Beyond that, the supplemental disclosures were forward-looking “expectations” about closing, which were accompanied by substantial and specific cautionary language that ensured that shareholders could not be misled. M&T told shareholders on April 12 that: (i) regulatory approval would take a “major initiative” on the bank’s part, (ii) M&T believed the time frame for the closing would “be extended substantially beyond the date previously expected,” and (iii) “there can be no assurances that the merger will be completed by” the revised date of January 31, 2014. AC ¶ 87. Similarly, M&T told shareholders on April 15 that: (i) the Fed recently was “taking notably longer to [give] regulatory approvals,” (ii) M&T “d[idn’t] take regulatory approval for granted” in any timeframe, (iii) the Fed’s concerns “would impact [M&T’s] ability to close the merger … in the near term,” and (iv) while M&T didn’t “anticipate any other material issues cropping up,” additional delays “can never be completely ruled out.” Id. ¶ 88. These are not mixed messages or partial disclosures, as plaintiffs assert, Pl. Mem. 24, 31; these are “forward-looking statements concerning what Defendants anticipated and/or expected to happen concerning the [] merger[]” that were accompanied by specific and meaningful cautionary language, and are thus “protected by the [PSLRA] Safe Harbor” and the bespeaks caution doctrine. Burges, 2015 WL 4198795, at *3; see also EP Medsystems, Inc. v. EchoCath, Inc., 235 F.3d 865, 874 (3d Cir. 2000); Cooper Tire, 2015 WL 4036179, at *4. And these warnings came in the wake of the lengthy warnings the original proxy materials had already made. Even plaintiffs concede those materials contained an “extensive risk factors section.” Pl. Mem. 3, 17. The warnings in those materials speak for themselves: The merger was conditioned on “approvals … from the bank regulatory and other governmental authorities, [which] may impose conditions on the granting of such approvals [that] could have the effect of delaying completion of the merger”; “The regulatory approvals may not be received at any time, may not be received in a timely fashion, and may contain conditions on the completion of the merger”; “M&T … expect[ed] more intense scrutiny in the examination process and more aggressive enforcement of regulations on both the federal and state levels”; Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 19 of 26 PageID #: 1119 14 “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”; “There can be no assurances that the regulatory approvals discussed above will be received on a timely basis”; and “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.” Proxy at 15, 29, 34, 40, 99–101. These extensive and specific disclosures were not boilerplate; they warned shareholders that the merger was subject to Federal Reserve approval; they cautioned that M&T could be expected to be subject to more intense scrutiny from the Federal Reserve during this process; they highlighted the risk that the Fed would identify issues that could delay the merger; and they emphasized that the Fed was taking longer to approve bank mergers than it had been in the past. In light of these warnings, and in light of the supplemental disclosures about the Fed’s concerns and the certainty of regulatory delay, shareholders could not possibly have been misled. II. PLAINTIFFS HAVE FAILED TO PLEAD LOSS CAUSATION AND DAMAGES. Plaintiffs do not dispute that, to survive dismissal, they must adequately plead a loss and loss causation—that there was an injury and that the alleged misrepresentation or omission “caused the plaintiff [that] injury.” Pl. Mem. 34; see also Tracinda Corp. v. DaimlerChrysler AG, 502 F.3d 212, 228 (3d Cir. 2007); 15 U.S.C. §§ 78u–4(b)(4), 78bb. Nor do they dispute the fact that they cannot do so through the “most common[]” and “normal measure” of damages: out-of-pocket loss from a diminution of value of the securities received in the merger. Sowell v. Butcher & Singer, Inc., 926 F.2d 289, 297 (3d Cir. 1991); accord, e.g., Goldkrantz v. Griffin, No. 97 Civ. 9075 (DLC), 1999 WL 191540, at *7 (S.D.N.Y. Apr. 6, 1999), aff’d, 201 F.3d 431 (2d Cir. 1999). Indeed, they have no answer to, and therefore concede, the fact that both named plaintiffs—and the entire purported class—received a windfall attributable to the significant increase in the value of the merger consideration as a result of the delay. Def. Mem. 28; AC ¶¶ 26, 28; see also Pl. Mem. 34 (acknowledging that Hudson shares did not “decline[] in value”). Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 20 of 26 PageID #: 1120 15 As a result, plaintiffs’ brief doubles down on several alternative theories of harm and causation, but all of these fail as a matter of law. Plaintiffs first try “benefit of the bargain” damages, contending “they did not receive the expected value in the Merger with M&T due to the omissions or misrepresentations.” Pl. Mem. 34. This theory is nowhere to be found in the complaint—and is therefore not properly before this Court. See, e.g., Stiner v. Univ. of Del., Civ. No. 02–312–SLR, 2004 WL 1949545, at *9 (D. Del. Aug. 27, 2004); Brookins v. Red Clay Consol. Sch. Dist., Civ. No. 08–11–GMS–LPS, 2009 WL 2160566, at *3 (D. Del. July 17, 2009). Even if it had been pleaded, however, the theory applies only “in the limited instance” where the misrepresentation at issue concerns “the consideration to be forthcoming upon an intended merger.” Goldkrantz, 1999 WL 191540, at *7–*8 (citing Osofsky v. Zipf, 645 F.2d 107, 114 (2d Cir. 1981)); accord, e.g., In re Real Estate Assocs. Ltd. P’ship Litig., 223 F. Supp. 2d 1142, 1152 (C.D. Cal. 2002); In re DaimlerChrysler AG Sec. Litig., 294 F. Supp. 2d 616, 627 (D. Del. 2003); Brown v. Brewer, Civ. No. 06–3731– GHK, 2010 WL 2472182, at *25 (C.D. Cal. June 17, 2010). And here, plaintiffs unquestionably received the benefit of the bargain: there was no “‘difference between what the plaintiff[s] expected [they] would receive ... and the amount [the] plaintiffs] actually received.” Brown, 2010 WL 2472182, at 25. Plaintiffs offer no plausible allegation that the value of the M&T stock or cash they received was diminished by the misrepresentations they assert; to the contrary, as plaintiffs cannot dispute, the value of the merger consideration actually went up. See Def. Mem. 4–5, 16, 28.9 As a result, because plaintiffs’ alleged misrepresentations pertain to M&T’s 9 The alleged drop in M&T stock price of “$4.78 per share” on the day after the Fed issued its order does not come close to pleading plausible harm. Pl. Mem. 8; AC ¶ 117. This assertion ignores that the price of M&T stock used to calculate the merger consideration was more than $30 per share higher than immediately before the merger was announced. Defs. Mem. 16. ($119.75 per share vs. $85.87 per share); see also Exs. B (M&T closing prices), U (M&T Bank Corporation Form 8-K (Nov. 6, 2015)). Shareholders thus got more money than they bargained for here. In any event, the complaint’s other allegations contradict any causal relationship: both the fact of the delay and the Fed’s “concerns” that necessitated that delay were disclosed by M&T in April 2013 and by the Fed’s Written Agreement in June 2013—years before the Fed order was issued. See AC ¶¶ 87-88, 92. Thus, any drop in stock price on October 1, 2015 could not as a matter of law or logic be caused by the alleged misrepresentations. Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 21 of 26 PageID #: 1121 16 legal compliance and have nothing to do with the merger consideration, the benefit-of-the- bargain theory “is wholly inapposite to this case.” Brown, 2010 WL 2472182, at *25. Plaintiffs next try “lost opportunity” damages—contending that but for the alleged misrepresentations and omissions, Hudson City “would have [obtained] a more favorable merger premium.” AC ¶ 115; Pl. Mem. 34. But beyond the general statement that this theory has “repeatedly been upheld as sufficient at the pleading stage,” Pl. Mem. 34, plaintiffs do not offer a single reason why it is sufficiently pleaded here. And that is because it is not. The “lost opportunity” cases hold that a plaintiff can plead loss causation if it can establish a plausible “loss of a possible profit or benefit … unless the loss is wholly speculative.” See, e.g., Brown, 2010 WL 2472182, at *32 (citing Tse v. Ventana Med. Sys., Inc., 123 F. Supp. 2d 213, 223 (D. Del. 2000), aff’d, 297 F.3d 210 (3d Cir. 2002)). A lost opportunity is not wholly speculative when it is “based on certain, fixed and demonstrable profits thwarted by a defendants’ alleged fraud.” Id. (quoting DaimlerChrysler, 294 F. Supp. 2d at 627).10 But the cases uniformly hold that a purported lost opportunity is wholly speculative when it is based on a “hypothetical transaction which would require speculation as to what the parties would have done had the circumstances been different.” DaimlerChrysler, 294 F. Supp. 2d at 627; accord, e.g., Tse, 123 F. Supp. 2d at 223–24; Brown, 2010 WL 2472182, at *32–*33; see also Real Estate Assocs., 223 F. Supp. 2d at 1152. This is all plaintiffs have offered—“that a different transaction might have been negotiated had the full truth been disclosed.” Pl. Mem. 34 (emphasis added). Plaintiffs cannot identify any “certain, fixed and demonstrable” transaction consideration that they missed as a result of the alleged misrepresentations. Brown, 2010 WL 10 When courts have upheld this theory at the pleadings stage, the relevant complaint had sufficiently pleaded a “certain, fixed and demonstrable” profit that shareholders missed as a result of the alleged misrepresentations. Gould v. Am.-Hawaiian S.S. Co., 535 F.2d 761, 782 (3d Cir. 1976) (lost opportunity to obtain an additional $8.25 per share consideration received by “favored shareholders”); accord, e.g., In re Heckmann Corp. Sec. Litig., 869 F. Supp. 2d 519, 542 (D. Del. 2012) (lost opportunity to obtain a contractual distribution of over $400 million if proposed merger was rejected); Tse v. Ventana Med. Sys., Inc., Civ. No. 97–37–SLR, 1998 WL 743668, at *6 (D. Del. Sept. 23, 1998) (lost opportunity to convert notes at $1.62 per share offered to directors and not $5.00 per share offered to plaintiffs). Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 22 of 26 PageID #: 1122 17 2472182, at *32. And they cannot square this theory with the pleaded facts that, despite a two- and-a-half-year delay, Hudson City was not able to secure any better deal for its shareholders. AC ¶¶ 59, 62. Thus, as the Third Circuit did in Tse, this Court should reject plaintiffs’ request for the Court to “reconstruct” hypothetical negotiations between the parties as too speculative to support damages. Tse v. Ventana Med. Sys., Inc., 297 F.3d 210, 223 (3d Cir. 2002). Plaintiffs’ final two “theories” of causation and damages likewise fail as a matter of law. First, they point to “diminished Hudson dividends due to the prolonged Merger delay.” Pl. Mem. 36. Even putting aside the fact that this argument is inconsistent with Hudson City’s underlying SEC filings, see Def. Mem. 31; Ex. P, Hudson City Bancorp, Inc. Form 8–K (Apr. 30, 2013); AC ¶ 116, the decision to retain earnings does not—as a matter of law—result in diminished value for a company’s stock because the shares still reflect the value of the retained earnings. Noonan v. Harrington, 740 F. Supp. 2d 970, 975 (C.D. Ill. 2010). Second, plaintiffs say they incurred damages as a result of receiving stock in a company with a “spotty regulatory record.” AC ¶ 117. This ignores, however, that plaintiffs received a windfall from owning such stock, and that they could have sold this stock in the open market to realize this windfall as soon as the merger closed; and given how M&T stock went up, plaintiffs plead no facts showing that this “spotty” record diminished the value of that stock in any event. In the face of these insurmountable pleading hurdles, plaintiffs’ only remaining argument is that “loss causation is highly fact sensitive, and rarely suitable for determination on the pleadings.” Pl. Mem. 37. But this argument does not exempt plaintiffs from the necessary prerequisite to such “fact sensitive” inquiry—pleading plausible loss causation allegations under Twombly and Iqbal.11 Here, the Court need not resolve any purported factual disputes to dismiss the complaint because plaintiffs’ loss causation and damages theories are not adequately pleaded 11 Indeed, all but one of “Defendants’ ‘lost opportunity’ authorities” cited by plaintiffs for this proposition were decided before Twombly. Pl. Mem. 35–36. And the one case that post-dated Twombly found that the complaint adequately pleaded loss causation as to out-of-pocket damages—which plaintiffs concede are not present here—and not lost opportunity damages. Brown v. Brewer, Civ. No. 06–3731– GHK, 2008 WL 6170885, at *5–6 (C.D. Cal. July 14, 2008). Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 23 of 26 PageID #: 1123 18 as a matter of law. Indeed, courts frequently dismiss securities complaints for this reason.12 The complaint thus fails to plead the element of loss causation—indeed, even a loss—and should be dismissed on this ground as well. III. PLAINTIFFS HAVE FAILED TO PLEAD ANY NON-EXCULPATED BREACH OF FIDUCIARY DUTY. For the reasons stated in defendants’ opening brief (at 35–36), this Court need not decide this claim, as it should decline to exercise supplemental jurisdiction over it in light of plaintiffs’ inability to state a plausible federal cause of action, 28 U.S.C. § 1367(c)(3), and because there is a settlement covering this same claim currently being finalized by the parties in New Jersey state court, 28 U.S.C. § 1367(c)(4).13 But even if the Court considers this claim, plaintiffs have pleaded themselves out of it here. Plaintiffs do not dispute that Hudson City’s charter exculpates the Hudson City board from all breaches of the duty of care, the duty “to act on an informed basis.” In re Cheyenne Software, Inc., No. 14941, 1996 WL 652765, at *2 (Del. Ch. Nov. 7, 1996). Yet plaintiffs’ allegations— addressing only the amount of time and information the board had to consider the disclosures at issue—implicate only the duty of care. See, e.g., In re Ltd., Inc., No. 17148–NC, 2002 WL 537692, at *10 (Del. Ch. Mar. 27, 2002) (“insufficiency of information” implicates duty of care); Kahn v. Roberts, No. 12324, 1995 WL 745056, at *4 (Del. Ch. Dec. 6, 1995) (only duty of care implicated if directors “did not adequately apprise [themselves] of the information material to the 12 See, e.g., Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 347–48 (2005) (complaint “legally insufficient” where failure to plead a “relevant economic loss” or a “causal connection … between that loss and the misrepresentation”); Gold v. Ford Motor Co., 852 F. Supp. 2d 535, 542 (D. Del. 2012) (dismissing § 10(b) claim where complaint pleaded “facts precluding a finding of loss causation”); Resnik v. Woertz, 774 F. Supp. 2d 614, 632 (D. Del. 2011) (dismissing Section 14(a) claim because complaint “[did] not allege an economic injury”); Brashears v. 1717 Cap. Mgmt., Civ. No. 02–1534–KAJ, 2005 WL 2585247, at *4–*5 (D. Del. Oct. 13, 2005) (dismissing Section 10(b) claim because complaint failed to plead “economic loss”); Norwood Venture Corp. v. Converse Inc., 959 F. Supp. 205, 209 (S.D.N.Y. 1997) (dismissing Section 10(b) claim for failure to adequately plead loss causation). 13 The settlement has not been “abandoned”; the parties in that action are currently finalizing a stipulation of settlement. Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 24 of 26 PageID #: 1124 19 decision”), aff’d, 679 A.2d 460 (Del. 1996); see also McPadden v. Sidhu, 964 A.2d 1262, 1274 (Del. Ch. 2008) (even “reckless indifference” implicates only duty of care). Though plaintiffs’ brief mouths phrases like “bad faith” and “some improper motive,” see, e.g., Pl. Mem. 39–40, there are zero factual allegations in the complaint that even suggest that any board member—let alone a majority—“intentionally act[ed] with a purpose other than that of advancing the best interests of the corporation” or “intentionally fail[ed] to act in the face of a known duty to act, demonstrating a conscious disregard for his duties.” E.g., In re Walt Disney Co. Deriv. Litig., 907 A.2d 693, 755 (Del. Ch. 2005), aff’d, 906 A.2d 27 (Del. 2006). Putting aside plaintiffs’ characterizations of the board’s due diligence efforts, the complaint alleges, at most, that the board “only engaged in a week’s worth of ‘reverse due diligence’” and “acted without being fully informed.” AC ¶¶ 148–50. This does not come close to the “extreme set of facts” necessary to show that the board “utterly” and intentionally failed to try to become informed about M&T’s business. Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 243 (Del. 2009) (emphasis added); accord, e.g., In re BJ’s Wholesale Club, Inc. S’holders Litig., No. 6623–VCN, 2013 WL 396202, at *7 (Del. Ch. Jan. 31, 2013).14 Accordingly, “‘fidelity to the purpose of [charter] requires dismissal’ of this claim.” In re Cornerstone Therapeutics Inc. S’holder Litig., 115 A.3d 1173, 1187 (Del. 2014). 14 Plaintiffs’ authorities in this regard are, again, inapposite. Mennen involved an explicit finding that the defendant’s challenged actions “were motivated by [his] preference for his personal interests.” Mennen v. Wilmington Trust Co., No. 8432–ML, 2015 WL 1914599, at *25 (Del. Ch. Apr. 24, 2015), adopted, 2015 WL 4935373 (Del. Ch. Aug. 18, 2015). Similarly, Chen involved an explicit finding that the defendants “knew about the disclosure problems before approving the Proxy” and that “they sought to conceal evidence about potential disclosure issues until after the Merger closed.” Chen v. Howard- Anderson, 87 A.3d 648, 653, 691–93 (Del. Ch. 2014). The complaint is devoid of any similar allegations. Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 25 of 26 PageID #: 1125 20 CONCLUSION It is respectfully submitted that the amended complaint should be dismissed with prejudice. POTTER ANDERSON & CORROON LLP REED SMITH LLP /s/ Kevin R. Shannon /s/ John C. Cordrey Kevin R. Shannon (DE Bar No. 3137) Hercules Plaza 1313 N. Market Street, 6th Floor Wilmington, Delaware 19899 (302) 984–6000 Tracy Richelle High (admitted pro hac vice) Christen M. Martosella (admitted pro hac vice) SULLIVAN & CROMWELL LLP 125 Broad Street New York, New York 10004 (212) 558–4000 Attorneys 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 John C. Cordrey (DE Bar No. 5324) 1201 Market Street, Suite 1500 Wilmington, Delaware 19801 (302) 778–7500 George T. Conway III (admitted pro hac vice) Adam D. Gold (admitted pro hac vice) Jordan L. Pietzsch (admitted pro hac vice) WACHTELL, LIPTON, ROSEN & KATZ 51 West 52nd Street New York, New York 10019 (212) 403–1000 Attorneys for Defendants M&T Bank Corporation, Robert G. Wilmers, René 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 Dated: July 20, 2016 Case 1:15-cv-00897-RGA Document 67 Filed 07/20/16 Page 26 of 26 PageID #: 1126 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE DAVID JAROSLAWICZ, Individually, and on behalf of all others similarly situated, Plaintiffs, v. M&T BANK CORPORATION, HUDSON CITY BANCORP, INC., ROBERT G. WILMERS, RENÉ 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. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Civil Action No. 15–897–RGA CERTIFICATE OF SERVICE I, John C. Cordrey, Esquire, hereby certify that on the 20th day of July, 2016, I caused a true and correct copy of the Reply Memorandum of Law in Support of Defendants’ Motion to Dismiss to be served upon the below-listed counsel as indicated: VIA CM-ECF AND E-MAIL Francis J. Murphy, Jr., Esq. Jonathan L. Parshall, Esq. MURPHY & LANDON 1011 Centre Road, Suite 210 Wilmington, DE 19805 fmurpsh@msllaw.com jonp@msllaw.com VIA E-MAIL Laurence D. Paskowitz, Esq. PASKOWITZ LAW FIRM P.C. 208 East 51st Street, Suite 380 New York, NY 10022 lpaskowitz@pasklaw.com Case 1:15-cv-00897-RGA Document 67-1 Filed 07/20/16 Page 1 of 2 PageID #: 1127 - 2 - VIA CM-ECF AND E-MAIL Deborah R. Gross, Esq. KAUFMAN, COREN & RESS, P.C. 2001 Market St. Philadelphia, PA 19103 dgross@kcr-law.com VIA E-MAIL Roy Jacobs ROY JACOBS & ASSOCIATES 420 Lexington Avenue, Suite 2440 New York, NY 10170 jacobs@jacobsclasslaw.com Dated: July 20, 2016 REED SMITH LLP /s/ John C. Cordrey John C. Cordrey (No. 5324) 1201 Market Street, Suite 1500 Wilmington, Delaware 19801 Telephone: (302) 778-7500 Fax: (302) 778-7575 jcordrey@reedsmith.com Attorneys for Defendants M&T Bank Corporation, Robert G. Wilmers, René 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 Case 1:15-cv-00897-RGA Document 67-1 Filed 07/20/16 Page 2 of 2 PageID #: 1128
