City of Hollywood Firefighters' Pension System v. Wells Fargo & Company

Background

City of Hollywood Firefighters' Pension System filed a shareholder derivative complaint against Wells Fargo & Company and certain Wells Fargo directors. The complaint alleges breaches of fiduciary duty connected to Wells Fargo’s alleged failure to comply with federal law and requirements in multiple regulatory consent orders issued since 2018.

Asbestos Workers Philadelphia Welfare and Pension Fund, Jose F. Isais, and Lubna Salah moved to intervene and stay the case. Intervention is a procedure that allows a nonparty to join an existing lawsuit. They sought intervention as of right under Federal Rule of Civil Procedure 24(a) and, alternatively, permissive intervention under Rule 24(b). They also sought a stay, meaning a pause in the litigation.

Intervention as of right

Rule 24(a) requires an applicant to show that the request is timely, that the applicant has a significant protectable interest related to the lawsuit, that resolving the case could impair the applicant’s ability to protect that interest, and that the existing parties may not adequately represent the applicant’s interest.

The proposed intervenors argued that they had an interest in transactions involving similar and overlapping fiduciary-duty breaches that allegedly harmed Wells Fargo. The plaintiff argued that the derivative nature of the case prevented the proposed intervenors from having a significant protectable interest.

The court agreed with the plaintiff. In a derivative action, the corporation is the real party in interest, while the shareholder plaintiff is only the nominal plaintiff. Any remedy belongs to the corporation, which is bound by the result. Because this was a derivative action, the court held that the proposed intervenors had no significant protectable interest in the outcome.

The court also held that the proposed intervenors could not show inadequate representation. When an applicant and an existing party seek the same ultimate result, the existing party is presumed to represent the applicant adequately. The proposed intervenors argued that the plaintiff had not conducted a diligent investigation under Section 220 of the Delaware General Corporation Law before filing suit. The court found that argument insufficient because the plaintiff had conducted a Section 220 investigation, its complaint addressed board failures from 2018 through April 2021, and it referenced a 2022 Consumer Financial Protection Bureau order.

The court acknowledged that a derivative complaint by the proposed intervenors might cover a somewhat different period and might not be completely covered by the plaintiff’s claims. It nevertheless concluded that these differences did not show that the plaintiff was an inadequate representative. The court therefore denied the proposed intervenors’ motion to intervene as of right.

Permissive intervention and stay

Rule 24(b) permits intervention when the applicant has an independent basis for jurisdiction, the request is timely, and the applicant’s claim or defense shares a common question of law or fact with the existing case. The court must also consider whether intervention would unduly delay or prejudice the original parties’ rights.

The parties did not dispute that the motion was timely or that common legal or factual questions existed. The court denied permissive intervention because the proposed intervenors had not identified an independent basis for jurisdiction, as Rule 24(b) requires.

The court was also unpersuaded that the requested stay would not cause undue delay. The proposed intervenors said they needed only a limited stay to investigate their potential claims, but they could not provide a definite end date. The court noted that there was no estimate for how long they would need to obtain and review requested records and prepare a derivative complaint. Because deadlines concerning the appointment of lead plaintiff and lead counsel were approaching, the court found a significant potential for delay if it granted a stay of undetermined length.

Disposition

The court denied the motion to intervene as of right, denied permissive intervention for lack of an independent jurisdictional basis, and declined to exercise its discretion to grant permissive intervention because of the potential for delay from the requested stay. The order did not decide the underlying fiduciary-duty allegations against Wells Fargo or its directors.