S&C Obtains Dismissal of Stockholder Derivative Claims for Wells Fargo

March 2, 2022

Wells Fargo & Co. obtained the dismissal of stockholder derivative litigation arising from its response to regulatory consent orders. On February 4, Judge Maxine Chesney of the U.S. District Court for the Northern District of California dismissed a consolidated complaint against nominal defendant Wells Fargo and 14 current and former officers and directors that asserted claims for breach of fiduciary duty, waste of corporate assets, unjust enrichment and violations of the federal securities laws.
Judge Chesney held that plaintiffs failed to show that the directors faced a substantial likelihood of liability on plaintiffs' negligence claim under Section 14(a) of the Exchange Act because Wells Fargo's charter exculpates directors for liability for negligence. This holding effectively requires well-pled allegations of bad faith when plaintiffs pursue negligence-based Section 14(a) derivative claims against any company that incorporates a Delaware General Corporation Law Section 102(b)(7) exculpatory provision in its charter.
The court also held that none of the directors faced liability for plaintiffs' claim under Sections 10(b) and 21D of the Exchange Act because it was brought only against two non-directors. The court dismissed both federal securities law claims with prejudice. With the two federal claims dismissed, the court declined to exercise supplemental jurisdiction over the remaining state law claims for alleged breaches of fiduciary duties.
The S&C team representing Wells Fargo included Rick Pepperman, Brendan Cullen, Christopher Viapiano, Lenny Traps, Sverker Högberg, Ollie Engebretson-Schooley and Rebekah Raybuck.