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Wachovia Corp. v. Citigroup, Inc., 634 F.Supp.2d 445

Facts

In September 2008, Wachovia Corporation was facing financial difficulties and entered into an exclusivity agreement with Citigroup for a potential acquisition. However, on October 2, 2008, Wells Fargo made an unsolicited offer to acquire Wachovia, which the Wachovia board accepted. The merger was announced on October 3, 2008, the same day the Emergency Economic Stabilization Act was enacted, which included provisions that affected the enforceability of exclusivity agreements.

By the end of September 2008, the nation had witnessed the collapse and bailout of an unprecedented number of banks and other financial institutions: Freddie Mac and Fannie Mae, Lehman Brothers, Merrill Lynch, American International Group ('AIG'), and Washington Mutual.

Issue

Whether the exclusivity agreement between Wachovia and Citigroup was enforceable in light of the Emergency Economic Stabilization Act, which was enacted after the agreement was signed.

Citigroup contends that section 126(c) of the EESA does not apply to the Exclusivity Agreement that was entered into for the benefit of the Citigroup Transaction.

Rule

The Emergency Economic Stabilization Act (EESA) includes a provision stating that no existing or future exclusivity agreements shall be enforceable against any person offering to acquire an insured depository institution when the FDIC exercises its authority.

Section 126(c) of the Act provides: UNENFORCEABILITY OF CERTAIN AGREEMENTS—No provision contained in any existing or future standstill, confidentiality, or other agreement that, directly or indirectly—(A) affects, restricts, or limits the ability of any person to offer or acquire, (B) prohibits any person from offering to acquire or acquiring, or (C) prohibits any person from using any previously disclosed information in connection with any such offer to acquire or acquisition of, all or part of any insured depository institution, including any liabilities, assets, or interest therein, in connection with any transaction in which the [FDIC] exercises its authority under Section 11 or 13, shall be enforceable against or impose any liability on such person, as such enforcement or liability shall be contrary to public policy.

Analysis

The court analyzed the language of the EESA and determined that the exclusivity agreement was unenforceable because the Wells Fargo transaction was part of a broader FDIC-supervised effort to stabilize Wachovia. The court concluded that the exclusivity agreement limited Wachovia's ability to consider other offers, which was contrary to the public policy goals of the EESA.

Wachovia does not dispute that the Citigroup Transaction was the only transaction that received approval of FDIC assistance pursuant to section 13 of the FDIA. Nevertheless, Wachovia contends that the FDIC exercised its authority pursuant to section 13 not only when the FDIC offered assistance to the Citigroup Transaction, but also throughout the process as it facilitated the competitive bidding of Wells Fargo and Citigroup over Wachovia.

Conclusion

The court denied Citigroup's motion for partial judgment on the pleadings, ruling that the exclusivity agreement was unenforceable under the EESA, allowing Wachovia to proceed with its merger with Wells Fargo.

For the reasons stated above, Citigroup's motion pursuant to Rule 12(c) for judgment on the pleadings is denied.

Who won?

Wachovia Corporation prevailed in the case because the court found that the exclusivity agreement with Citigroup was unenforceable under the Emergency Economic Stabilization Act.

Wachovia does not dispute that the text of section 126(c) supports its application to protect subsequent bidders from liability.

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