In Jaroslawicz v. M&T Bank Corp., No. 15-897-RGA, 2017 BL 385847 (D. Del. Oct. 27, 2017), the United States District Court for the District of Delaware granted M&T Bank Corp.’s (“M&T”) and Hudson City Bancorp, Inc.’s (“Hudson City”), along with the companies’ directors and officers at the time the companies merged, (collectively “Defendants”) motion to dismiss the second amended class action complaint by David Jaroslawicz, individually and on behalf of former Hudson City Bancorp stockholders (“Plaintiffs”).

In February 2013, M&T and Hudson City executed a merger agreement and issued a Joint Proxy statement, which included the text of the merger agreement. The merger was initially expected to close in the second quarter of 2013. On April 12, 2013, M&T and Hudson City issued a joint press release, and Proxy supplement, explaining that the merger would be delayed because the Federal Reserve Board raised concerns with M&T's anti-money-laundering compliance program and M&T needed time to demonstrate compliance and provide additional information. M&T also discussed the press release during an April 15, 2013 conference call discussing first quarter earnings. Hudson City stockholders approved the merger on April 18, 2013. On October 9, 2014, the Consumer Financial Protection Bureau ("CFPB") announced M&T had violated consumer disclosure laws, which prolonged the merger closing. On September 30, 2015, the Federal Reserve Board approved the merger. The merger finally closed on November 1, 2015.

Plaintiffs alleged that Defendants violated Section 14(a) of the Securities Exchange Act (“Exchange Act”) by: (1) failing to disclose significant risk factors required under Item 503 of Regulation S-K; (2) making misleading opinion statements; and (3) disclosing the Federal Reserve Board’s concerns on April 12, 2013, which was only few days prior to the stockholder vote on the merger on April 18, 2013.

Under Item 503(c) of Regulation S-K, a party must provide a "concise discussion" of "the most significant factors that make the offering speculative or risky.”

To succeed on a claim alleging a misleading opinion statement under Section 14(a) when the plaintiffs’ claim is an opinion, party must show: (1) the speaker did not believe the statement made at the time, (2) the opinion contained untrue facts, or (3) material facts were omitted in the speaker’s “inquiry into or knowledge concerning a statement of opinion” that “conflict with what a reasonable investor would take from the statement itself.”

The court determined Plaintiffs’ claim under Item 503 failed because “there can be no omission where the allegedly omitted facts are disclosed.” The court concluded Defendants disclosed the relevant material facts in the Proxy, pointing to a portion of the Proxy entitled “risk factors,” which explained regulatory approvals might be delayed. Plaintiffs argued the court should infer that causes of the CFPB and Federal Reserve Board investigations existed at the time the Proxy was issued and should have been disclosed. The court disagreed and found Plaintiffs failed to sufficiently allege the risk of either investigation was present at the time the Proxy was issued. The court concluded, “liability cannot be imposed on the basis of subsequent events.”

Addressing Plaintiffs’ argument under the third prong of Section 14(a), the only prong the plaintiffs’ pled, the court found Defendants did not omit material facts contrary to the belief of a reasonable investor. The court explained Plaintiffs failed to show the Proxy was misleading based on an omission of the Defendants’ knowledge or process. Because Defendants were unaware of the Federal Reserve Board’s findings at the time the Proxy was issued, Defendants did not mislead investors by omitting “information in the speaker’s possession” at the time.

The court also found Plaintiffs failed to demonstrate an omission based on process. Plaintiffs did not plead material facts showing Defendants omitted information about how the opinion in the Proxy was formed or explaining how the formation of the opinion would conflict with “what a reasonable investor would expect” reading the Proxy "fairly and in context." Examining the alleged omission in the context of the timing of the Proxy, the court concluded no reasonable investor would have been misled based on Defendants’ actions.

Finally, the court examined Plaintiff’s claim that Defendants’ April disclosures (the April 12, 2013 press release and the April 15, 2013 conference call) were impermissibly untimely and misleading under Section 14(a) because Defendants’ disclosed the information in such close proximity to the Proxy vote on April 18, 2013. Plaintiffs first relied on several S.E.C. Releases requiring “ample time for voters to consider the information provided” before a Proxy vote. The court rejected Plaintiffs’ argument, explaining the Releases Plaintiffs cited were not relevant because the Release only required issuers to expeditiously distribute Proxy information to banks and brokers in order to allow enough time for the banks and brokers to distribute the information to beneficial owners.

Plaintiffs also pointed to case law in which courts granted injunctions to delay Proxy votes after supplemental disclosures. Plaintiffs argued that because the injunctions granted in cases were longer than the period between the disclosures and the vote in the instant case, Defendants violated Section 14(a). The court expressed discomfort with Plaintiffs’ reasoning because Plaintiffs sought damages, not injunctive relief. The court determined that in order to pursue a claim based on the timing of the disclosures and the Proxy vote, Plaintiffs needed to “present authorities showing that securities law offers a post-closing remedy for this claim.”

For the above reasons, the United States District Court for the District of Delaware granted Defendants’ motion to dismiss without prejudice.

The primary materials for this case may be found on the DU Corporate Governance website.