Jaroslawicz v. M&T Bank Corporation

Facts

The Hudson City Bank (Hudson) and M&T Bank Corporation (D) successfully merged in 2015. The merger agreement promised Hudson shareholders a mixture of cash and D stock and required approval by the shareholders of both banks. Hudson and D opted to issue a Joint Prospectus (Joint Proxy) and filed a single Form S-4 in accordance with SEC rules. That form requires issuers to provide, among other things, 'the information required by Item 503 of Regulation S-K.' Item 503 asks for 'the most significant factors that make an investment in the registrant or offering speculative or risky.' The regulation cautions filers to omit 'risks that could apply generically to any registrant or any offering.' The Joint Proxy included a section titled 'Risks Related to D' with subsections on 'Risks Relating to Economic and Market Conditions,' 'Risks Relating to d's Business,' and 'Risks Relating to the Regulatory Environment.' The Joint Proxy noted that 'D is subject to extensive government regulation and supervision' because of 'the Dodd-Frank Act and related regulations.' It cautioned that 'D expects to face increased regulation of its industry as a result of current and possible future initiatives.' That 'intense scrutiny in the examination process and more aggressive enforcement of regulations on both the federal and state levels,' which would 'likely increase D's costs, reduce its revenue, and may limit its ability to pursue certain desirable business opportunities.' The Joint Proxy also stated that D is, or may become, the subject of governmental and self-regulatory agency information-gathering requests, reviews, investigations, and proceedings and other forms of regulatory inquiry, including by the SEC and law enforcement authorities.' That ongoing oversight, in turn, might lead to 'significant monetary damages or penalties, adverse judgments, settlements, fines, injunctions, restrictions on the way in which D conducts its business, or reputational harm.' The Joint Proxy noted operational risks 'encompass[ing] reputational risk and compliance and legal risk, which is the risk of loss from violations of, or noncompliance with, laws, rules, regulations, prescribed practices or ethical standards, as well as the risk of noncompliance with contractual and other obligations.' A few additional statements related to risk appeared elsewhere in the Joint Proxy. A section titled, 'Regulatory Approvals Required for the Merger' advised that 'completion of the merger . . . [is] subject to the receipt of all approvals required to complete the transactions contemplated by the merger agreement . . . from the Federal Reserve Board.' The Joint Proxy incorporated D's Annual Report on Form 10-K as permitted by Form S-4. D warned that the Patriot Act requires that 'U.S. financial institutions . . . implement and maintain appropriate policies, procedures, and controls which are reasonably designed to prevent, detect and report instances of money laundering.' D explained, that D's 'approved policies and procedures [are] believed to comply with the USA Patriot Act.' The Joint Proxy was declared effective mailed to shareholders. A few days before the ballots, D and Hudson announced that 'additional time will be required to obtain a regulatory determination on the applications necessary to complete their proposed merger.' D revealed that the Federal Reserve Board identified 'certain regulatory concerns' about 'procedures, systems, and processes relating to D's Bank Secrecy Act and anti-money-laundering compliance program.' D and Hudson amended their merger agreement and moved the closure back several months. The shareholder vote remained as scheduled. And these revelations did not deter the shareholders, who overwhelmingly approved the merger. It took nearly two and a half more years before regulators allowed the deal to close. The Consumer Financial Protection Bureau (CFPB) announced an enforcement action against D for offering customers free checking before switching them to fee-based accounts without notice. A practice, the CFPB noted, that was in place when the merger was first proposed, and that had impacted nearly 60,000 customers. M&T agreed to pay $2.045 million to settle the allegations, the approximate amount of the customer injuries. A few weeks before the merger closed, P, a Hudson shareholder, filed a putative class action against D, Hudson, and their directors and officers. P claimed that the Joint Proxy omitted material risks associated with the merger in violation of the Securities Exchange Act, 15 U.S.C. § 78n(a)(1) and 17 C.F.R. § 240.14a-9(a). P brought a claim for breach of fiduciary duty under Delaware law. D moved to dismiss for failure to plead an actionable claim. The District Court granted that motion but allowed the Shareholders to amend. D again moved to dismiss. The District Court granted D's motion. In their Second Amended Complaint, Ps contend that D failed to disclose material risk factors facing the merger, as required by Item 105. They assert that D's failure to discuss these allegedly non-compliant practices rendered D's opinion statements about its adherence to regulatory requirements and the prospects for prompt approval of the merger, misleading. The District Court held that the Joint Proxy sufficiently disclosed the regulatory risks. The Court also held that D did not have to disclose the consumer checking violations exposed after the merger announcement. The Court found no misleading opinions. Ps asked for a final order of dismissal with prejudice to file this appeal.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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