More often than not, when two stock banks make a merger announcement, a gang of lawyers are hot on their heels.
Law firms nationwide shoot off press releases, questioning the deal’s legality and whether the banks are paying a high enough price to shareholders. An “investigation” into the deal is launched, along with solicitations for shareholders to come forward with complaints. If complaints are filed, a lawsuit soon follows, and no matter the outcome, it all ends up costing the banks.
The practice – grown more common in the past several years – has drawn fierce contempt from the Massachusetts banking community. But last month brought some vindication for parties involved in a pair of high-profile mergers, as a Massachusetts judge roundly rejected attempts to disrupt mergers.
A Hard Line
On Oct. 22, Massachusetts Superior Court Judge Judith Fabricant denied requests that would have disrupted a shareholder vote on the merger of North Andover’s RiverBank with Connecticut’s People’s United Bank. She did the same on Oct. 1 for lawyers trying to execute a similar strategy after the announced merger of Wainwright Bank & Trust Co. and Eastern Bank, both of Boston.
The legal team for shareholders in both cases claimed that the banks failed to include enough information on the deal, especially about financial performance projections for the combined banks. To which Fabricant replied, in both cases, that there was more than enough information in the banks’ filings – a ruling which allowed shareholders’ votes to proceed uninterrupted.
Boston law firm Nutter McClennen & Fish was involved with both cases, representing Eastern and RiverBank. Ian Roffman, partner at the law firm, said in many cases banks agree to a settlement with these law firms because they know fighting the charges will cost them more up front. What’s most galling about that strategy, he said, is that win or lose, adversarial law firms go home with money in their pockets from legal fees.
The banks in these cases instead decided to take on the challenge – leaving plaintiffs’ lawyers empty-handed. But more importantly, Roffman said, it sets a precedent that such frivolous suits won’t be rewarded in Massachusetts.
Gerald Mulligan, CEO of RiverBank, never expected to have a court battle over his bank’s merger with People’s United because he considered the price to be fair. He’d gone through a similar merger 10 years ago with no such trouble, and was surprised at what seemed to him to be a troubling recent trend.
“This seemed to me a complete fabrication, to try to get unjust enrichment,” he told Banker & Tradesman, and added that as a non-practicing lawyer himself, the suit offended him. When the shareholder vote went ahead as planned on Oct. 27, almost every vote was in favor of the merger.
Mulligan’s bank fought the plaintiff’s lawyers partly on principle, but also because he wanted to help discourage this kind of chicanery in Massachusetts.
“My own hope is that people take a hard line, and this stuff stops,” he said.
Prudence Or Piracy?
But law firms on the other side defend their actions, saying they fight on behalf of shareholders.
Juan Monteverde of New York law firm Faruqi & Faruqi, plaintiffs’ counsel in the RiverBank case, said it’s no wonder banks and their lawyers bristle – law firms like his are questioning their behavior and putting them on the defensive.
“We monitor and protect shareholder interests,” he said, adding it was important that shareholders are fully informed about merger and acquisition deals.
He wouldn’t disclose how his firm works with shareholders to form their cases against banks, citing attorney-client privilege.
From the outside, though, such firms seem to have similar strategies.
On June 29, news broke that Eastern Bank was buying Wainwright for $163 million. The next day, the Kendall Law Group, announced it was launching an investigation into whether the banks were stiffing their shareholders – “breach of fiduciary duty,” in legal parlance.
So did The Briscoe Law Firm and Cash Powers Taylor, another firm. Later, the law offices of Howard G. Smith and Faruqi & Faruqi, announced they, too, were investigating. All sent out press releases questioning whether Eastern was paying a high enough price on Wainwright, and were looking for shareholders to come forward and form a class to launch a lawsuit.
None of the suing law firms have offices in Massachusetts, and most are based in Texas.
On July 15, People’s United announced it was buying Andover’s RiverBank. Two law firms, including Faruqi & Faruqi, announced more investigations the next day.
William P. Mayer, Boston-based partner with Goodwin Procter, called it professionally irresponsible.
“These plaintiff’s lawyers aren’t a hell of a lot different than pirates off the coast of Somalia,” he said, and paying them off only encourages them to keep running the same game.
Roffman said Massachusetts courts were improving the situations by rejecting plaintiffs’ attorney requests.
Between these two cases and similar lawsuits involving non-bank companies, judicial decisions tended to side against shareholders.
“It’s becoming clear that Massachusetts business judges are skeptical of these claims,” he said.
