City of Westland Police & Fire Ret. Sys. v. Stumpf
Court Approves Landmark Wells Fargo Robo-Signing Derivative Settlement
On July 25, 2014, United States Senior District Judge Susan Illston of the Northern District of California granted final approval of a settlement reached by the parties in City of Westland Police & Fire Ret. Sys. v. Stumpf.
The settlement, believed to be the first of its kind involving shareholder derivative claims, provides $67 million in funding for initiatives designed to realign Wells Fargo & Company’s (“Wells Fargo”) position and reputation in communities adversely impacted by alleged “robo-signing,” i.e., the execution and submission of false legal documents in courts across the country without verification of their truth or accuracy in order to expedite foreclosures, and the financial crisis that ensued. The initiatives will be concentrated in cities severely impacted by the foreclosure practices and include $36.5 million for down payment assistance in the Stockton/Modesto/Fresno Metropolitan Statistical Areas (“MSA”) ($7.5 million); Bakersfield, California MSA ($4.75 million); Detroit, Michigan MSA ($5.25 million); Albuquerque, New Mexico MSA ($4.75 million); Virginia Beach, Virginia MSA ($4.75 million); St. Louis, Missouri MSA ($4.75 million); and New Haven, Connecticut MSA ($4.75 million).
The settlement also provides for $6 million in credit counseling programs to be implemented through a network of local HUD-certified, non-profit housing counselors for the benefit of Wells Fargo customers experiencing mortgage payment challenges. These counselors will provide Wells Fargo customers with credit-related counseling designed to prevent and recover from foreclosure, manage debt, understand housing opportunities, and maintain overall financial health. The settlement further provides that Wells Fargo shall invest at least $24.5 million for the integration of Wells Fargo’s mortgage servicing computer systems to enhance the execution and efficiency of Wells Fargo’s mortgage servicing procedures nationwide.
In addition to foreclosure-related relief, the settlement also calls for Wells Fargo to adopt a comprehensive system for the analysis and review of shareholder proposals by directors, as well as a strict ban on stock pledges by Wells Fargo executives. To aid in the oversight of the implementation of the settlement terms, the Honorable James Ware, United States District Judge (Ret.), has agreed to assist in the monitoring of the settlement and to resolve disputes, if any, that may arise during the implementation of the settlement. Robbins Geller is one of the two firms appointed to serve as lead counsel.
City of Westland Police and Fire Retirement System, an institutional investor, commenced the action on May 13, 2011, by filing a shareholder derivative complaint in federal court in San Francisco, California. The complaint alleged that the Wells Fargo board of directors breached its fiduciary duty of loyalty in connection with the company’s alleged robo-signing.
On October 5, 2011, defendants filed a motion to dismiss the operative complaint, which the district court, after briefing and oral argument, denied in part and granted in part on February 9, 2012. The district court found, among other things, that the complaint “sufficiently alleged that defendants breached their duty of loyalty by failing to disclose that, in the course of government investigations, Wells Fargo had opposed discovery requests, filed motions to quash, and refused to provide details concerning the Company’s policies.” The court further found that “[d]efendants explicitly recommended that shareholders vote against the proposal for a new internal investigation in order to ensure that the Company would fully cooperate with government regulators. The fact that the Company was allegedly stymying the government regulators is certainly material to stockholders when considering whether to authorize a more serious internal investigation. If, as alleged, defendants did not disclose material information within the Board’s control, defendants breached their duty of loyalty to the Company.”
Between April 2012 and December 2012, the parties engaged in extensive document and deposition discovery, as well as filed numerous requests to compel discovery with the district court. Additionally, on April 13, 2012, defendants filed a motion to bifurcate discovery, which the district court denied on May 17, 2012.
As pretrial preparation continued, the parties engaged in preliminary discussions regarding resolution of the disputed claims. In early December 2012, the discussions resulted in an agreement between the parties to pursue formal mediation. Towards that end, between December 2012 and January 2014, the parties engaged in a formal mediation process before the Honorable Layn R. Phillips, United States District Judge (Ret.). The year-long mediation proceedings ultimately resulted in the parties reaching an agreement on the material terms of the settlement on January 16, 2014, which the court finally approved on July 25, 2014.
“The settlement is an extraordinary result for Wells Fargo and its shareholders. It affords Wells Fargo the opportunity to restore its reputation by regaining trust and rebuilding strong ties in communities adversely impacted by the alleged robo-signing and the mortgage foreclosure crisis,” said Robbins Geller partner Shawn A. Williams.
City of Westland Police & Fire Ret. Sys. v. Stumpf, No. 3:11-cv-02369 (N.D. Cal.).