In re Wells Fargo & Co. Stockholder Derivative Litig.

In re Wells Fargo & Co. Stockholder Derivative Litig.

Opinion

ORDER GRANTING WELLS FARGO & COMPANY'S MOTION TO DISMISS CONSOLIDATED SHAREHOLDER DERIVATIVE COMPLAINT PURSUANT TO RULE 23.1

Before the Court is nominal defendant Wells Fargo & Company's ("Wells Fargo" or "the Company") motion, filed June 22, 2021, to dismiss the Verified Consolidated Shareholder Derivative Complaint pursuant to Rule 23.1 of the Federal Rules of Civil Procedure. (See Dkt. No. 59.) Defendants Celeste A. Clark ("Clark"), Theodore F. Craver Jr. ("Craver"), Wayne M. Hewett ("Hewett"), Donald M. James ("James"), Maria R. Morris ("Morris"), Charles H. Noski ("Noski"), C. Allen Parker ("Parker"), Richard B. Payne Jr. ("Payne"), Juan A. Pujadas ("Pujadas"), Ronald L. Sargent ("Sargent"), Charles W. Scharf ("Scharf"), John R. Shrewsberry ("Shrewsberry"), [*3]  Timothy J. Sloan ("Sloan"), and Suzanne M. Vautrinot ("Vautrinot") (collectively, "Individual Defendants") have joined in Wells Fargo's motion. (See Dkt. Nos. 60, 62-64, 68.) Plaintiffs Timothy Himstreet, the Montini Family Trust, and Clyde V. Cotton have filed opposition (see Dkt. No. 69), and Wells Fargo has filed a reply in which the Individual Defendants have joined (see Dkt. Nos. 72-76). The Court, having considered the papers filed in support of and in opposition to the motion, rules as follows.¹

BACKGROUND

Plaintiffs, who assert they are shareholders of Wells Fargo, allege that, in response to "unlawful and pervasive sales practices that led to consumer abuses spanning nearly two decades" (see Compl. ¶ 3), Wells Fargo, on February 2, 2018, entered into a regulatory consent order with the Federal Reserve System ("FRS") and, thereafter, on April 20, 2018, entered into "two coordinated consent orders" with, respectively, the Consumer Financial Protection Bureau ("CFPB") and the Office of the Comptroller of the Currency ("OCC") (see Compl. ¶ 7). Plaintiffs allege the FRS consent order required Wells Fargo to "improve Board oversight and remediate Wells Fargo's compliance and [*4]  operational risk management policies and procedures," and that the CFPB and OCC consent orders similarly required Wells Fargo to "strengthen its compliance and risk management." (See Compl. ¶ 7.) Plaintiffs further allege that the FRS consent order imposed an asset cap whereby Wells Fargo "would be restricted from growing any larger than its total asset size as of the end of 2017" (see Compl. ¶ 91), and that the CFPB and OCC consent orders imposed on Wells Fargo $1 billion in fines (see Compl. ¶ 7).

According to plaintiffs, the Individual Defendants subsequently "publicly represented that Wells Fargo had implemented and would continue to implement meaningful corporate reforms, and that their reform efforts were in compliance with the regulatory consent orders," which "representations . . . were false." (See Compl. ¶¶ 8-9.) In particular, plaintiffs allege that, despite Wells Fargo's obligations to meaningfully address its risk and compliance programs, such programs "continued to be woefully deficient" (see Compl. ¶ 9) and that Wells Fargo was so advised by the above-referenced regulatory agencies (see Compl. ¶¶ 219-20). In particular, plaintiffs allege that on March 4, 2020, the House [*5]  Committee on Financial Services reported that "Wells Fargo had repeatedly failed to satisfy the terms of the consent orders" (see Compl. ¶ 218), that "the risk management plans that Wells Fargo submitted to the FRS . . . were 'materially incomplete' . . . despite the Company having received constant feedback and guidance from the FRS" (see Compl. ¶ 219), that "Wells Fargo was informed that its plan [submitted to the FRS] was 'riddled with errors and discrepancies, such as incorrect progress indicators for deliverables and illogical timeframes for achieving future milestones'" (see Compl. ¶ 219), that "the OCC [had] admonished the Company's 'very slow' progress," most of which "appear[ed] to come after repeated pressure by the regulators, calling out missed deadlines, failed validations, and poor quality action plans" (see Compl. ¶ 220), and that "the Company's risk management infrastructure remain[ed] broken and woefully inadequate to prevent future harm to consumers" (see Compl. ¶ 221). In addition, plaintiffs allege that, on March 10, 2020, Scharf testified before the House Committee on Financial Services and "admitted that Wells Fargo ha[d] 'not yet done what is necessary to address [*6]  [its] shortcomings,' noting that the Company's 'culture was broken.'" (See Compl. ¶ 14.)

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