Call v. Wells Fargo & Company et al

Filing 36

ORDER GRANTING DEFENDANTS 7 MOTION TO DISMISS AND DENYING AS MOOT PLAINTIFFS 17 MOTION TO CERTIFY CLASS. Signed by Judge Claudia Wilken on 4/12/2012. (ndr, COURT STAFF) (Filed on 4/12/2012)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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DANIEL CALL, individually and on
behalf of a class of persons
similarly situated,

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United States District Court
For the Northern District of California

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ORDER GRANTING
DEFENDANT’S MOTION
TO DISMISS AND
DENYING AS MOOT
PLAINTIFF’S MOTION
TO CERTIFY CLASS
(Docket Nos. 7 and
17)

Plaintiff,
v.
WELLS FARGO & COMPANY, a Delaware
corporation; and THE BANK OF NEW
YORK MELLON TRUST COMPANY, N.A.,
a United States corporation, as
Trustee of the Wells Fargo
Capital XIV Trust,
Defendants.

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No. C 11-5215 CW

________________________________/

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Defendant Wells Fargo & Company moves to dismiss Plaintiff
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Daniel Call’s complaint against it.1

Plaintiff opposes

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Defendant’s motion.

Plaintiff has filed a motion for class

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certification, which Defendant opposes.

Having considered the

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papers filed by the parties and their oral arguments at the
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hearing, the Court GRANTS Defendant’s motion to dismiss and DENIES
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AS MOOT Plaintiff’s motion for class certification.
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On November 17, 2011, the parties filed a stipulation to
dismiss Defendant The Bank of New York Mellon Trust Company, N.A.
pursuant to Rule 41(a)(1)(A). Docket No. 6.

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BACKGROUND

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The following facts are taken from Plaintiff’s complaint and

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from certain documents submitted by Defendant, of which the Court

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takes judicial notice.2

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Trust preferred securities are a form of preferred stock

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commonly issued by bank holding companies since 1996 to increase

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their Tier I regulatory capital amount, which is used by the

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Federal Reserve to measure the strength and financial stability of

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bank holding companies.

United States District Court
For the Northern District of California

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Compl. ¶¶ 12-13.

Plaintiff was a holder of Defendant’s Capital XIV 8.625%

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Enhanced Trust Preferred Securities at the time of their

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redemption on October 3, 2011.

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documents for the securities, which were issued on August 19,

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2008, included the Prospectus, the Amended and Restated

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Declaration of Trust and Trust Agreement (Amended Trust

Id. at ¶¶ 1, 16.

The offering

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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 Nine, 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.2 (N.D. Cal. 2008) (collecting cases). See also
Dreiling v. Am. Express Co., 458 F.3d 942, 946 (9th Cir. 2006)
(stating that, in reviewing a dismissal under Rule 12(b)(6), the
court “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 Nine.
Plaintiff opposes Defendant’s request for judicial notice of
Exhibits Ten and Eleven, 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 Ten and Eleven.
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Agreement), and the Fifth Supplemental Indenture, which

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supplemented the Junior Subordinated Indenture and Fourth

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Supplemental Indenture (hereinafter, collectively referred to as

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the Indenture).

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Indenture is governed by New York law.

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Indenture, RJN Ex. 1, at 29; Fifth Supplemental Indenture, RJN Ex.

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6, at 395.

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Amended Trust Agreement, RJN Ex. 6, at 446.

Id. at ¶¶ 16, 17-18; RJN, Exs. 1, 5, 6.

The

Junior Subordinated

The Trust Agreement is governed by Delaware law.

The Indenture gives Defendant the right to redeem shares in

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United States District Court
For the Northern District of California

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whole or in part at its option at any time on or after September

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15, 2013.

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Indenture also gives Defendant the right to redeem the securities

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“in whole but not in part after the occurrence of a

. . . Capital

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Treatment Event . . . prior to September 15, 2013.”

Fifth

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Supplemental Indenture, RJN Ex. 6, at 383.

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“Capital Treatment Event” as

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Fifth Supplemental Indenture, RJN Ex. 6, at 383.

The

The Prospectus defines

our reasonable determination that, as a result of any
amendment to, or change in, including any announced
proposed change in, the laws or regulations of the
United States, or any political subdivision thereof or
therein, or as a result of any official or
administrative pronouncement or action or judicial
decision interpreting or applying such laws or
regulations, which amendment or change is effective or
which proposed change, pronouncement, action or decision
is announced on or after the date hereof, there is more
than an insubstantial risk that Wells Fargo will not be
entitled to treat an amount equal to the liquidation
amount of the capital securities as Tier I capital, or
the equivalent thereof, for purposes of the capital
adequacy guidelines of the Federal Reserve, as currently
in effect and applicable to Wells Fargo.

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Prospectus, RJN Ex. 5, at 291.3

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section of the Prospectus that summarizes the Indenture terms and

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which begins with a statement that the “summary is not complete”

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and that parties should also refer to the Indenture itself and

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supplements thereto.

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provision should be interpreted in accordance with New York law.

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Mot. at 9; Opp. at 5 n.3.

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Defendant is entitled to redeem the securities for their face

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value of twenty-five dollars, plus any interest accrued to the

This definition appears in a

Id. at 279.

The parties agree that this

If a capital treatment event occurs,

United States District Court
For the Northern District of California

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date of redemption; this is the liquidation amount.

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See Amended Trust Agreement, RJN Ex. 6, at 407, 409.

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Compl. ¶ 21.

On July 21, 2010, the President signed into law the

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Dodd-Frank Wall Street Reform and Consumer Protection Act,

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including the Collins Amendment.

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of the Collins Amendment was to disallow the treatment of trust

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preferred securities as Tier I capital.

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preferred securities issued before May 19, 2010 by large bank

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holding companies, the new requirements will be phased in

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incrementally from January 1, 2013 through January 1, 2016.

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Before January 1, 2013, bank holding companies will be allowed to

Compl. ¶¶ 14-15.

One provision

Id. at ¶ 15.

For trust

Id.

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The language in the definition contained in the Fourth
Supplemental Indenture and the Base Indenture varies slightly from
that in the definition in the Prospectus. For example, the former
two documents use “announced prospective change” instead of
“announced proposed change.” See Subordinated Indenture, RJN Ex.
1, at 14-15; Fourth Supplemental Indenture, RJN Ex. 3 at 211;
Prospectus, RJN Ex. 5, at 291. The Base Indenture inserts the
word “aggregate” before the words “liquidation amount”.
Subordinated Indenture, RJN Ex. 1, at 15. In his opposition,
Plaintiff points to the definition in the Prospectus as the
controlling definition. Opp. at 3. Defendant argues that the
differences are not material, Mot. at 7, n.1; Reply at 4, n.2, and
the Court agrees.
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treat all of these outstanding trust preferred securities as Tier

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I capital.

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1, 2016, they will be allowed to treat at least some of the

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securities as Tier I capital.

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Id.

Until the end of the phase in period on January

Id.

On September 1, 2011, Defendant announced that it would

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redeem the Capital XIV Trust Preferred Securities on October 3,

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2011.

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announcement, Defendant stated that it “has determined that a

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Capital Treatment Event occurred with the passage of the

Compl. ¶ 22; Form 8-K, RJN Ex. 8, at 485.

In the

United States District Court
For the Northern District of California

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Dodd-Frank Wall Street Reform and Consumer Protection Act.”

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8-K, RJN Ex. 8, at 485.

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principal amount of the securities was $690 million, at

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twenty-five dollars per share, or 27.6 million shares.

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October 3, 2011, Defendant redeemed all of the securities.

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¶ 25.

Form

At that time, Defendant reported that the

Id.

On
Compl.

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Plaintiff filed the instant action on October 25, 2011.

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seeks to bring it on behalf of himself and all those who held the

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securities on October 3, 2011.

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Defendant with breach of contract and breach of the implied

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covenant of good faith and fair dealing for redeeming its Capital

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XIV 8.625% Enhanced Trust Preferred Securities on October 3, 2011,

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before the optional redemption date of September 15, 2013.

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¶¶ 1, 4-7.

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been damaged in the amount of $116,253,185, that is, the amount of

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interest that 27.6 million shares would have earned between

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October 3, 2011 and September 15, 2013, the optional redemption

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date.

Compl. ¶ 32.

He

Plaintiff charges

Id. at

Plaintiff alleges that he and the class members have

Id. at ¶ 45.

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LEGAL STANDARD
A complaint must contain a “short and plain statement of the
claim showing that the pleader is entitled to relief.”

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Civ. P. 8(a).

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state a claim, dismissal is appropriate only when the complaint

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does not give the defendant fair notice of a legally cognizable

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claim and the grounds on which it rests.

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Twombly, 550 U.S. 544, 555 (2007).

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complaint is sufficient to state a claim, the court will take all

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United States District Court
For the Northern District of California

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material allegations as true and construe them in the light most

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favorable to the plaintiff.

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896, 898 (9th Cir. 1986).

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to legal conclusions; “threadbare recitals of the elements of a

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cause of action, supported by mere conclusory statements,” are not

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taken as true.

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(citing Twombly, 550 U.S. at 555).

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)

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When granting a motion to dismiss, the court is generally

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required to grant the plaintiff leave to amend, even if no request

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to amend the pleading was made, unless amendment would be futile.

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Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911

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F.2d 242, 246-47 (9th Cir. 1990).

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amendment would be futile, the court examines whether the

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complaint could be amended to cure the defect requiring dismissal

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“without contradicting any of the allegations of [the] original

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complaint.”

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Cir. 1990).

In determining whether

Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th

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DISCUSSION

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Defendant argues that Plaintiff’s complaint should be

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dismissed, because it did not breach the contract as a matter of

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law and because exercising contractual rights cannot be a breach

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of the implied covenant of good faith and fair dealing.

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also argues that Plaintiff lacks standing to sue.

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I.

Defendant

Breach of Contract

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Defendant argues that Plaintiff fails adequately to allege

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that it breached the relevant contracts, because the Dodd-Frank

United States District Court
For the Northern District of California

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Act was a capital treatment event and therefore its redemption of

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the securities was authorized by the Indenture as a matter of law.

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In response, Plaintiff argues that the Dodd-Frank Act will not

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constitute a capital treatment event until January 1, 2016, that

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the premature redemption was contrary to the parties’ reasonable

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expectations and that Defendant’s redemption was unreasonable.

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Plaintiff alternatively argues that the capital treatment event

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clause is ambiguous.

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As previously noted, New York law governs the application of

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the capital treatment event clause.

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fundamental, neutral precept of contract interpretation is that

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agreements are construed in accord with the parties’ intent.’”

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Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co., 375

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F.3d 168, 177 (2d Cir. 2004) (quoting Greenfield v. Philles

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Records, Inc., 98 N.Y.2d 562, 569 (2002)).

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evidence of intent is the contract itself; if an agreement is

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‘complete, clear and unambiguous on its face[, it] must be

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enforced according to the plain meaning of its terms.’”

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(quoting Greenfield, 98 N.Y.2d at 569) (formatting in original).
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“Under New York law, ‘the

“Typically, the best

Id.

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“The language of a contract is not made ambiguous simply because

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the parties urge different interpretations.”

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Inc. v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir. 1992).

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“Whether or not a writing is ambiguous is a question of law to be

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resolved by the courts.”

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F.3d at 178 (quoting W.W.W. Assoc., Inc. v. Giancontieri, 77

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N.Y.2d 157, 162 (1990)).

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Seiden Associates,

Eternity Global Master Fund Ltd., 375

Both parties agree that, as of January 1, 2016, Defendant
will not be able to treat an amount equal to the liquidation

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United States District Court
For the Northern District of California

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amount of all the securities as Tier I capital, because the

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relevant provision of the Dodd-Frank Act will be fully implemented

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on that date.

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2013 and January 1, 2016, Defendant will lose the ability to treat

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some of the securities as Tier I capital.

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The parties also agree that, between January 1,

Plaintiff argues that the Dodd-Frank Act cannot qualify as a

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capital treatment event until January 1, 2016, because between

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January 1, 2013 and January 1, 2016, Defendant will be able to

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consider at least part of these securities as Tier I capital and

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thus will not have lost the ability to treat the entirety of the

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aggregate liquidation amount of the securities as Tier I capital;

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under this interpretation, Defendant could only redeem the

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securities when it lost the ability to treat the last dollar of

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the securities as Tier I capital.

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event clause is not reasonably susceptible to this interpretation.

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Under the clause, the triggering event is when Defendant

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reasonably believes that it will not be able “to treat an amount

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equal to the liquidation amount of the capital securities as Tier

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I capital.”

RJN, Ex. 5, at 291.

However, the capital treatment

Under the plain meaning of this
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phrase, this condition is satisfied when Defendant reasonably

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anticipates that it will be able to treat as Tier I capital an

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amount less than the liquidation amount of the securities, i.e.,

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the first dollar.

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clear intention of this clause is to protect Defendant from having

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to continue to pay the high interest rate of the securities if it

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reasonably believes that it will lose the benefit of being able to

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treat these securities as Tier I capital.

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with this intention if the phrase were interpreted to prevent

As both parties agreed at the hearing, the

It would not comport

United States District Court
For the Northern District of California

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Defendant from invoking its protections if Defendant reasonably

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believed that it could not treat ninety-nine percent of the

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securities as Tier I capital, yet that is what Plaintiff’s

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construction would mean.

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Further, under the clause, Defendant was not required to wait

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to redeem the securities until it actually lost the ability to

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treat the first dollar of securities as Tier I capital.

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the clause is clearly written with forward-looking language and

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states that the event is triggered when Defendant determines there

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is “more than an insubstantial risk that it will not be entitled

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to treat” the securities as such.

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added).

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changes in the law that were announced after the securities were

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offered.

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Ex. 3 at 211.

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was significantly more than an insubstantial risk that Defendant

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would not be able to treat the full amount of the securities as

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Tier I capital.

Instead,

RJN, Ex. 5, at 291 (emphasis

It specifically encompasses “proposed” or “prospective”

RJN, Ex. 5, at 291; Fourth Supplemental Indenture, RJN
When the Dodd-Frank Act was signed into law, there

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To the extent that Plaintiff argues that Defendant acted on

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its determination that a capital treatment event had occurred

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arbitrarily or unreasonably because it did so thirteen months

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after the enactment of the Dodd-Frank Act, this is irrelevant.

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The Fifth Supplemental Indenture specifically allows Defendant to

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redeem the securities before its optional redemption date “after

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the occurrence of a . . . Capital Treatment Event,” with no time

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limitation as to how long after the capital treatment event

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Defendant may exercise this right.

It does not provide that

United States District Court
For the Northern District of California

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Defendant waives the right by failing to exercise it within a

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particular amount of time after the event.

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being prejudiced by Defendant’s decision to wait to exercise the

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redemption right, the putative class members benefited by earning

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additional interest during that thirteen-month period.

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Further, rather than

Further, under the definition of capital treatment event,

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Defendant was required to make a “reasonable determination” that

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the triggering conditions had occurred; Defendant was not required

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to be correct in its determination.

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complaint, Defendant’s determination was reasonable, because the

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enactment of the Dodd-Frank Act into law meant that Defendant

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would not be able to treat an amount of the securities equal to

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the liquidation amount as Tier I capital.

Under the allegations of the

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Thus, Plaintiff has failed to state a claim against Defendant

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for breach of contract, and the Court GRANTS Defendant’s motion to

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dismiss this claim.

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deficiencies without contradicting the terms of the governing

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contracts, dismissal is without leave to amend.

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II.

Because no amendment can cure these

Breach of Covenant of Good Faith and Fair Dealing
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New York law implies a covenant of good faith and fair

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dealing “pursuant to which neither party to a contract shall do

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anything which has the effect of destroying or injuring the right

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of the other party to receive the fruits of the contract.”

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Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400, 407 (2d Cir.

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2006) (citation omitted).

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obligation consistent with other mutually agreed upon terms in the

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contract.

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not included by the parties.”

United States District Court
For the Northern District of California

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The covenant “can only impose an

It does not add to the contract a substantive provision
Broder v. Cablevision Sys. Corp.,

418 F.3d 187, 198-99 (2d Cir. 2005) (citation omitted).
Defendant argues that Plaintiff’s claim should be dismissed

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because it attacks Defendant’s exercise of an express contractual

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right.

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that Defendant’s “premature redemption” breached the implied

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covenant of good faith and fair dealing, because it deprived the

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putative class members “of a significant benefit of the agreement:

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the right to receive the above-market interest rate payments until

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at least September 15, 2013.”

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language of the contract makes clear that this “right” was not

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absolute and was instead contingent upon certain conditions,

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including that a capital treatment event not occur and that,

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should one occur, Defendant not exercise its right to redemption.

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Plaintiff also argues that Defendant did not act in good

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faith in invoking the capital treatment event provision, reasoning

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again that the Dodd-Frank Act created a risk of changed capital

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treatment for the full liquidation value only on January 1, 2016

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and that therefore Defendant acted in bad faith by redeeming the

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securities before it faced risk of changed capital treatment for

Plaintiff responds that the complaint properly alleges

Opp. at 12 13.

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However, the

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this full value.

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terms give Defendant the right to invoke this provision in such an

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event.

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However, as stated above, the express contract

Further, this claim is redundant to Plaintiff’s breach of

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contract claim and New York law does not recognize a separate

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cause of action for breach of the implied covenant of good faith

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and fair dealing when the claim is based on the same allegations

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as a breach of contract claim.

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LLC, 760 F. Supp. 2d 322, 334 (S.D.N.Y. 2010) (“A claim for breach

See Serdarevic v. Centex Homes,

United States District Court
For the Northern District of California

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of the implied covenant [of good faith and fair dealing] will be

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dismissed as redundant where the conduct allegedly violating the

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implied covenant is also the predicate for breach of a covenant of

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an express provision of the underlying contract.”).

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Accordingly, the Court GRANTS Defendant’s motion to dismiss

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Plaintiff’s claim alleging breach of the covenant of good faith

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and fair dealing.

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deficiencies without contradicting the terms of the governing

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documents for the securities, dismissal is without leave to amend.

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Because no amendment can cure these

Because the Court dismisses both of Plaintiff’s claims, it

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does not reach Defendant’s argument that Plaintiff lacks standing

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to bring these claims.

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CONCLUSION
For the reasons set forth above, the Court GRANTS Defendant’s

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motion to dismiss (Docket No. 7) and DENIES AS MOOT Plaintiff’s

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motion for class certification (Docket No. 17).

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The Clerk shall enter judgment and close the file.

Defendant

shall recover its costs from Plaintiff.
IT IS SO ORDERED.

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United States District Court
For the Northern District of California

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Dated:

4/12/2012

CLAUDIA WILKEN
United States District Judge

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