Turkle Trust v. Wells Fargo & Company, No. 4:2011cv06494 - Document 38 (N.D. Cal. 2012)
Court Description: ORDER GRANTING DEFENDANTS 26 MOTION TO DISMISS. Signed by Judge Claudia Wilken on 7/2/2012. (ndr, COURT STAFF) (Filed on 7/2/2012)
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Turkle Trust v. Wells Fargo & Company Doc. 38 1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 5 JAMES L. TURKLE TRUST, individually and on behalf of all others similarly situated, 6 7 8 9 United States District Court For the Northern District of California 10 11 Plaintiff, No. C 11-6494 CW ORDER GRANTING DEFENDANT’S MOTION TO DISMISS (Docket No. 26) v. WELLS FARGO & COMPANY, Defendant. ________________________________/ Defendant Wells Fargo & Company moves to dismiss the 12 complaint filed by Plaintiff James L. Turkle Trust. 13 opposes Defendant’s motion. 14 the parties and their oral arguments at the hearing, the Court 15 GRANTS Defendant’s motion to dismiss. Plaintiff Having considered the papers filed by 16 17 18 19 20 21 22 23 24 25 26 27 28 Dockets.Justia.com 1 BACKGROUND 2 The following facts are taken from Plaintiff’s complaint and 3 from certain documents submitted by Defendant, of which the Court 4 takes judicial notice.1 5 Trust preferred securities are a form of preferred stock 6 commonly issued by bank holding companies since 1996 to increase 7 their Tier I regulatory capital amount, in order to meet the 8 Federal Reserve’s capital adequacy guidelines. 9 These securities often have a high interest rate for investors. United States District Court For the Northern District of California 10 11 Compl. ¶¶ 16-17. Id. at ¶ 18. Plaintiff was a holder of Defendant’s Capital Trust X 7.85% 12 Trust Preferred Securities at the time of their redemption on 13 October 3, 2011. 14 were issued by Wachovia Corporation on November 21, 2007. Compl. ¶¶ 13, 29, 38. The Trust X securities Id. at 15 16 1 17 18 19 20 21 22 23 24 25 26 27 28 Defendant requests that the Court take judicial notice of certain documents filed with the Securities and Exchange Commission (SEC), some of which are documents whose contents are alleged in the complaint. See Request for Judicial Notice (RJN). Plaintiff agrees that the Court may take judicial notice of Exhibits One through Eight, which are SEC filings that relate to the securities at issue in the instant case. “Public records, such as SEC filings, are properly the subject of judicial notice, and routinely considered in deciding a motion to dismiss in a securities case.” In re Extreme Networks, Inc., 573 F. Supp. 2d 1228, 1232 (N.D. Cal. 2008) (citations omitted). See also Dreiling v. Am. Express Co., 458 F.3d 942, 946 (9th Cir. 2006) (“We review de novo a dismissal under Rule 12(b)(6) . . . and may consider documents referred to in the complaint or any matter subject to judicial notice, such as SEC filings.”) (internal citations omitted). Accordingly, the Court GRANTS Defendant’s request as to Exhibits One through Eight. Plaintiff opposes Defendant’s request for judicial notice of Exhibits Nine and Ten, which are SEC filings with excerpts from other banks’ contracts. The Court finds these materials to be immaterial to the resolution of this motion and DENIES Defendant’s request as to Exhibits Nine and Ten. 2 1 ¶ 19. 2 assume all outstanding guarantee obligations of the securities. 3 Id. at ¶ 2. Defendant subsequently merged with Wachovia and agreed to 4 The Trust X securities have several governing documents, 5 including the Trust Agreement, which was superseded by the Amended 6 and Restated Trust Agreement, and the Base Indenture, which was 7 amended and supplemented by the Fourth Supplemental Indenture. 8 See RJN, Exs. 1, 2, 5. 9 included the Prospectus, which referred to provisions in both the The offering documents for the securities United States District Court For the Northern District of California 10 Indenture and the Trust Agreement. 11 parties agree that the Indenture is governed by New York law. 12 Mot. at 10; Opp. at 7 n.4. 13 Fourth Supplemental Indenture, RJN, Ex. 5 at 340. 14 also agree that the Trust Agreement is governed by Delaware law. 15 Mot. at 16 n.3; Opp. at 17 and n.8. 16 Prospectus, RJN, Ex. 3. The See Base Indenture, RJN, Ex. 1 at 23; The parties See RJN, Ex. 2 at 147. The trust documents gave Defendant the right to redeem all or 17 part of the outstanding securities at any time on or after 18 December 15, 2012, which Plaintiff refers to as the “optional 19 redemption date.” Compl. ¶¶ 3, 22; Fourth Supplemental Indenture, 20 RJN, Ex. 5 at 330. The Indenture also gave Defendant the option 21 to redeem all, but not some, of the securities upon the occurrence 22 of a “capital treatment event.” 23 Indenture, RJN, Ex. 5 at 330. 24 204, 254. 25 as 26 27 28 Compl. ¶ 23; Fourth Supplemental See also Prospectus, RJN, Ex. 3 at A capital treatment event is defined in the Indenture the reasonable determination by the Company that, as result of the occurrence of any amendment to, or change (including any announced prospective change) in, the laws (or any rules or regulations thereunder) of the United States or any political subdivision thereof or 3 therein, or as result of any official or administrative pronouncement or action or judicial decision interpreting or applying such laws, rules or regulations, which amendment or change is effective or which pronouncement, action or decision is announced on or after the date of issuance of the Trust Preferred Securities of a Wachovia Trust, there is more than an insubstantial risk that the Company will not be entitled to treat an amount equal to the aggregate Liquidation Amount of such Trust Preferred Securities as ‘tier 1 capital’ (or the then equivalent thereof) for purposes of the capital adequacy guidelines of the Federal Reserve, as then in effect and applicable to the Company. 1 2 3 4 5 6 7 8 Base Indenture, RJN, Ex. 1 at 12. 9 Prospectus, RJN, Ex. 3 at 255. See also Compl. ¶ 23; If a capital treatment event United States District Court For the Northern District of California 10 occurs, Defendant is entitled to redeem the securities for their 11 face value of twenty-five dollars, plus any interest accrued to 12 the date of redemption. 13 Compl. ¶ 24. On July 21, 2010, the President signed into law the 14 Dodd-Frank Wall Street Reform and Consumer Protection Act, 15 including the Collins Amendment. 16 of the Collins Amendment was to disallow the treatment of trust 17 preferred securities as Tier I capital. 18 preferred securities issued before May 19, 2010 by large bank 19 holding companies, the new requirements will be phased in 20 incrementally from January 1, 2013 through January 1, 2016. 21 Before January 1, 2013, bank holding companies will be allowed to 22 treat all of these outstanding trust preferred securities as Tier 23 I capital. 24 1, 2016, they will be allowed to treat at least some of the 25 securities as Tier I capital. 26 of the new requirement would begin after the optional redemption 27 date for these securities passed on December 15, 2012. 28 ¶ 29. Id. Id. at ¶¶ 25-26. One provision Id. at ¶ 26. For trust Id. Until the end of the phase-in period on January Id. 4 Notably, the phase-in period Id. at 1 On September 1, 2011, Defendant announced that it would 2 redeem the Capital Trust X securities on October 3, 2011. 3 ¶ 27. 4 Treatment Event occurred with the passage of the Dodd-Frank Wall 5 Street Reform and Consumer Protection Act.” 6 at 418. 7 amount of the securities was $837.5 million, at twenty-five 8 dollars per share, or 33.5 million shares. 9 2011, Defendant redeemed the outstanding securities. United States District Court For the Northern District of California 10 Id. at Defendant stated that it “has determined that a Capital Form 8-K, RJN Ex. 7 At that time, Defendant reported that the principal Id. On October 3, Compl. ¶ 29. Plaintiff filed the instant action on December 20, 2011. 11 Docket No. 1. 12 and all holders of the Capital Trust X securities on October 3, 13 2011. 14 contract and breach of the implied covenant of good faith and fair 15 dealing for redeeming the Capital Trust X securities on October 3, 16 2011, before Defendant’s optional redemption date of December 15, 17 2012. 18 members have been damaged in the amount of $79.7 million, the 19 amount of dividend payments that 33.5 million shares would have 20 earned between October 3, 2011 and December 15, 2012. 21 ¶¶ 36, 50, 61. 22 Plaintiff seeks to prosecute it on behalf of itself Compl. ¶ 34. Plaintiff charges Defendant with breach of Id. at ¶¶ 41-61. Plaintiff alleges that it and the class Id. at On April 12, 2012, the Court issued an order granting 23 Defendant’s motion to dismiss in a related case, Call v. Wells 24 Fargo & Co., Case No. 11-5215, 2012 U.S. Dist. LEXIS 51731 (N.D. 25 Cal.). 26 against Defendant arising from its redemption of other similar 27 securities, Defendant’s Capital XIV 8.625% Enhanced Trust 28 Preferred Securities, simultaneously with the redemption of the In that case, the plaintiff, Daniel Call, brought claims 5 1 securities at issue in this action. 2 case was also based on its determination that the Dodd-Frank Act 3 constituted a capital treatment event. 4 governing documents, including the capital treatment event clause, 5 for the securities at issue in Call are materially identical to 6 those for the securities here, and that the only relevant 7 difference is that Defendant’s optional redemption date in Call 8 was September 15, 2013, after the start of the phase-in period for 9 the Dodd-Frank Act on January 1, 2013. United States District Court For the Northern District of California 10 11 Defendant’s action in that The parties agree that the LEGAL STANDARD A complaint must contain a “short and plain statement of the 12 claim showing that the pleader is entitled to relief.” 13 Civ. P. 8(a). 14 state a claim, dismissal is appropriate only when the complaint 15 does not give the defendant fair notice of a legally cognizable 16 claim and the grounds on which it rests. 17 Twombly, 550 U.S. 544, 555 (2007). 18 complaint is sufficient to state a claim, the court will take all 19 material allegations as true and construe them in the light most 20 favorable to the plaintiff. 21 896, 898 (9th Cir. 1986). 22 to legal conclusions; “threadbare recitals of the elements of a 23 cause of action, supported by mere conclusory statements,” are not 24 taken as true. 25 (citing Twombly, 550 U.S. at 555). 26 Fed. R. On a motion under Rule 12(b)(6) for failure to Bell Atl. Corp. v. In considering whether the NL Indus., Inc. v. Kaplan, 792 F.2d However, this principle is inapplicable Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-50 (2009) When granting a motion to dismiss, the court is generally 27 required to grant the plaintiff leave to amend, even if no request 28 to amend the pleading was made, unless amendment would be futile. 6 1 Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911 2 F.2d 242, 246-47 (9th Cir. 1990). 3 amendment would be futile, the court examines whether the 4 complaint could be amended to cure the defect requiring dismissal 5 “without contradicting any of the allegations of [the] original 6 complaint.” 7 Cir. 1990). In determining whether Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th 8 DISCUSSION Defendant argues that Plaintiff’s complaint should be 10 United States District Court For the Northern District of California 9 dismissed, because it did not breach the contract as a matter of 11 law and because exercising contractual rights cannot be a breach 12 of the implied covenant of good faith and fair dealing. 13 also argues that Plaintiff lacks standing to sue. 14 I. 15 Defendant Breach of Contract The parties dispute whether Defendant could have reasonably 16 determined that the enactment of the Dodd-Frank Act constituted a 17 capital treatment event, even though it would not affect 18 Defendant’s ability to treat any of the securities as Tier I 19 capital until after the optional redemption date had passed. 20 Defendant contends that the definition of a capital treatment 21 event in the Indenture does not limit such an event to those that 22 will actually go into effect before the optional redemption date. 23 Although Plaintiff agrees that the clause contains forward-looking 24 language and that Defendant may declare a capital treatment event 25 based on a change that will take effect in the future, it argues 26 that the clause cannot reasonably be read to include events that 27 will only occur after the optional redemption date, because such a 28 reading would not comport with the clear purpose of the clause in 7 1 the context of the agreement as a whole. 2 in the alternative, the capital treatment event clause is 3 ambiguous, because it fails to state in definite and precise terms 4 when the threatened loss of Tier I status must occur to trigger 5 its effects. 6 Plaintiff asserts that, New York law governs the application of the capital treatment 7 event clause, which is located in the Indenture. 8 law, ‘the fundamental, neutral precept of contract interpretation 9 is that agreements are construed in accord with the parties’ “Under New York United States District Court For the Northern District of California 10 intent.’” 11 Co., 375 F.3d 168, 177 (2d Cir. 2004) (quoting Greenfield v. 12 Philles Records, Inc., 98 N.Y.2d 562, 569 (2002)). 13 the best evidence of intent is the contract itself; if an 14 agreement is ‘complete, clear and unambiguous on its face[, it] 15 must be enforced according to the plain meaning of its terms.’” 16 Id. (quoting Greenfield, 98 N.Y.2d at 569) (formatting in 17 original). 18 Eternity Global Master Fund Ltd. v. Morgan Guar. Trust “Typically, “Ambiguity is determined by looking within the four corners 19 of the document, not to outside sources.” 20 Corp. v. CRP/Extell Riverside, L.P., 13 N.Y.3d 398, 404 (2009) 21 (quoting Kass v. Kass, 91 N.Y.2d 554, 566 (1998)). 22 of a contract is not made ambiguous simply because the parties 23 urge different interpretations.” 24 Holdings, Inc., 959 F.2d 425, 428 (2d Cir. 1992). 25 a writing is ambiguous is a question of law to be resolved by the 26 courts.” 27 (quoting W.W.W. Assoc., Inc. v. Giancontieri, 77 N.Y.2d 157, 162 28 (1990)). Riverside S. Planning “The language Seiden Associates, Inc. v. ANC “Whether or not Eternity Global Master Fund Ltd., 375 F.3d at 178 8 1 2 Plaintiff argues that the capital treatment event clause can 3 be invoked only if the prospective change in the treatment of the 4 securities as Tier I capital could be reasonably anticipated to 5 have its effect before December 15, 2012. 6 plain language of the capital treatment event clause, nor the 7 contract as a whole, contains such a temporal limitation. 8 definition of a capital treatment event does not refer to December 9 15, 2012 or the optional redemption date generally, or otherwise United States District Court For the Northern District of California 10 However, neither the The state that the event must take effect before any date. 11 Plaintiff argues that the trust documents “stress the 12 interplay between the December 15, 2012 optional redemption date 13 and the possibility of an earlier redemption based on the 14 occurrence of certain events, such as a ‘tax event’ or ‘capital 15 treatment event.’” 16 points reinforces that these are independent events and dates. 17 explaining the various points at which a redemption can occur, the 18 documents use the conjunction “or” between the December 15, 2012 19 date and other events such as “tax event” or “capital treatment 20 event,” not the conjunction “and.” 21 (“At Wachovia’s option, the Trust Preferred securities may be 22 redeemed at 100% of their liquidation amount on or after December 23 15, 2012 or after the occurrence of tax event, capital treatment 24 event or investment company event as described herein . . .”); see 25 also Fourth Supplemental Indenture, RJN, Ex. 5 at 330 (using 26 “or”). 27 lists, in different bullet points or numbers. Opp. at 9. However, the reference to which it In Prospectus, RJN, Ex. 3 at 204 In other places, the documents name these separately in 28 9 See, e.g., Fourth 1 Supplemental Indenture, RJN, Ex. 5 at 338 (numbered list); 2 Prospectus, RJN, Ex. 3 at 254 (bulleted list). 3 Other parts of the documents demonstrate that Defendant, 4 which drafted them, knew how to include language that would limit 5 the time within which a capital treatment event must take place, 6 if such a limitation had been intended. 7 “tax event” was defined to mean 8 9 United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 18 19 20 21 In the Base Indenture, a the receipt by Wachovia Trust of an opinion of counsel experienced in such matters to the effect that as result of any amendment to or change (including any announced prospective change) in, the laws or any regulations thereunder of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which pronouncement or decision is announced on or after the date of issuance of the Trust Preferred Securities of such Wachovia Trust, there is more than an insubstantial risk that (i) such Wachovia Trust is, or will be within 90 days of the date of such Opinion of Counsel, subject to U.S federal income tax with respect to income received or accrued on the corresponding series of Securities issued by the Company to such Wachovia Trust, (ii) interest payable by the Company on such corresponding series of Securities is not, or within 90 days of the date of such Opinion of Counsel, will not be, deductible by the Company in whole or in part for U.S federal income tax purposes or (iii) such Wachovia Trust is, or will be within 90 days of the date of such Opinion of Counsel, subject to more than de minimis amount of other taxes duties or other governmental charges. 22 Base Indenture, RJN, Ex. 1 at 18 (emphasis added). 23 the definition for capital treatment event used the future-looking 24 word “will” without a corresponding temporal limitation as to when 25 the change must take place. 26 In contrast, In fact, a different temporal limitation that otherwise would 27 have applied to capital treatment events was removed deliberately 28 for these securities. The Base Indenture, section 11.7, 10 1 restricted Defendant to using the capital treatment event clause 2 “within 90 days following the occurrence of such” event. 3 Indenture, RJN, Ex. 1 at 67. 4 specifically provides that “Section 11.7 of the Indenture shall 5 not apply” to these securities. 6 RJN, Ex. 5 at 330. 7 Base The Fourth Supplemental Indenture Fourth Supplemental Indenture, Contrary to Plaintiff’s suggestion, the fact that Defendant omitted a temporal limitation in the definition for a capital 9 treatment event, without affirmatively stating that no such 10 United States District Court For the Northern District of California 8 limitation was intended, does not make the clause ambiguous. 11 e.g., Greenfield, 98 N.Y.2d at 573 (the “suggestion that the 12 failure of a contract to address certain categories of royalties 13 allows a court to look beyond the four corners of the document to 14 discern the parties’ true intent conflicts with our established 15 precedent that silence does not equate to contractual ambiguity”) 16 (citing Trustees of Freeholders & Commonalty of Town of 17 Southampton v. Jessup, 173 N.Y. 84, 90 (1903) (“an ambiguity never 18 arises out of what was not written at all, but only out of what 19 was written so blindly and imperfectly that its meaning is 20 doubtful”)). 21 limitation was included in a similar clause but was omitted in 22 this one. 23 See, This is especially true here, where a temporal Plaintiff contends that the capital treatment event clause 24 should be read to allow redemption only if such an event has taken 25 effect before December 15, 2012, because after the optional 26 redemption date has passed, Defendant can redeem the securities 27 for any reason and does not need to rely on the occurrence of a 28 capital treatment event, rendering that clause superfluous. 11 1 Plaintiff states that this understanding would comport with the 2 purposes of the clause in relationship to the agreement as a 3 whole, by protecting the benefit of the bargain for putative class 4 members, who had purchased the securities with the understanding 5 that they would be able to receive a favorable interest rate at 6 least until December 15, 2012. 7 contract makes clear that this benefit was not absolute and was 8 instead contingent upon certain conditions, including that a 9 capital treatment event not occur and that, should one occur, However, the language of the United States District Court For the Northern District of California 10 Defendant not exercise its right to redemption. 11 clear purpose of the forward-looking language in the capital 12 treatment event clause is to allow Defendant the flexibility to 13 redeem the securities before the prospective change affecting the 14 favorable treatment of those securities has actually taken effect, 15 in order to anticipate the change in a manner that it deems to 16 make good business sense and ensure adequate capitalization, 17 rather than requiring it to redeem the securities en masse at the 18 moment the change takes effect or on the optional redemption date, 19 if sooner. 20 redemption date to redeem the securities, even though it knew 21 that, shortly thereafter, it would lose the ability to treat as 22 Tier I capital the liquidation amount of the securities, thus does 23 not comport with the purpose of this clause in relation to the 24 documents as a whole. 25 Further, the To require Defendant to wait until the optional Further, under the definition of capital treatment event, 26 Defendant was required only to make a “reasonable determination” 27 that the triggering conditions had occurred; Defendant was not 28 required to be correct in its determination. 12 Under the 1 allegations of the complaint, Defendant’s determination was 2 reasonable, because the enactment of the Dodd-Frank Act into law 3 meant that Defendant would not be able to treat an amount of the 4 securities equal to the liquidation amount as Tier I capital. 5 Without reading a temporal limitation into the capital 6 treatment event clause, Plaintiff has failed to state a claim 7 against Defendant for breach of contract, and the Court GRANTS 8 Defendant’s motion to dismiss this claim. 9 can cure these deficiencies without contradicting the terms of the Because no amendment United States District Court For the Northern District of California 10 governing contracts, dismissal is without leave to amend. 11 II. 12 Breach of Covenant of Good Faith and Fair Dealing New York law implies a covenant of good faith and fair 13 dealing “pursuant to which neither party to a contract shall do 14 anything which has the effect of destroying or injuring the right 15 of the other party to receive the fruits of the contract.” 16 Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400, 407 (2d Cir. 17 2006) (citation omitted). 18 Defendant argues that Plaintiff’s claim should be dismissed 19 because it attacks Defendant’s exercise of an express provision of 20 the agreement. 21 understood” the capital treatment event clause “to be limited to 22 changes or proposed changes of law that threatened to use the 23 Capital X TruPS as Tier 1 capital prior to December 15, 2012.” 24 Opp. at 14. 25 consistent with other mutually agreed upon terms in the contract. 26 It does not add to the contract a substantive provision not 27 included by the parties.” 28 F.3d 187, 198-99 (2d Cir. 2005) (citation omitted). Plaintiff responds that investors “reasonably However, the covenant “can only impose an obligation Broder v. Cablevision Sys. Corp., 418 13 As already 1 addressed above, Plaintiff’s interpretation would add to the 2 contract an additional temporal limitation on the use of the 3 capital treatment event clause that is not otherwise included in 4 any of the document governing the securities. 5 Further, this claim is redundant of Plaintiff’s breach of 6 contract claim and New York law does not recognize a separate 7 cause of action for breach of the implied covenant of good faith 8 and fair dealing when the claim is based on the same allegations 9 as a breach of contract claim. See Serdarevic v. Centex Homes, United States District Court For the Northern District of California 10 LLC, 760 F. Supp. 2d 322, 334 (S.D.N.Y. 2010) (“A claim for breach 11 of the implied covenant [of good faith and fair dealing] will be 12 dismissed as redundant where the conduct allegedly violating the 13 implied covenant is also the predicate for breach of a covenant of 14 an express provision of the underlying contract.”). 15 Accordingly, the Court GRANTS Defendant’s motion to dismiss 16 Plaintiff’s claim alleging breach of the covenant of good faith 17 and fair dealing. 18 deficiencies without contradicting the terms of the governing 19 documents for the securities, dismissal is without leave to amend. 20 Because no amendment can cure these Because the Court dismisses both of Plaintiff’s claims, it 21 does not reach Defendant’s argument that Plaintiff lacks standing 22 to bring these claims. 23 24 25 26 27 28 14 1 2 3 4 5 6 CONCLUSION For the reasons set forth above, the Court GRANTS Defendant’s motion to dismiss (Docket No. 26). The Clerk shall enter judgment and close the file. Defendant shall recover its costs from Plaintiff. IT IS SO ORDERED. 7 8 9 Dated: 7/2/2012 CLAUDIA WILKEN United States District Judge United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15
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