Judge rejects Citigroup claim
A federal judge in New York City rejected the claim by Citigroup Inc. that its unsuccessful attempt to purchase Wachovia Corp. last fall was protected by an exclusivity arrangement.
Wachovia was bought by Wells Fargo & Co., which offered a higher price.
Judge Shira Scheindlin on Wednesday ruled the Emergency Economic Stabilization Act made the Citigroup exclusivity contract unenforceable
Comment: Didn't think it would go far. Earlier post: "While I'm not a lawyer, I think that the Citicorp legal challenge will soon evaporate. "
Updated (thanks to Jeremy Cobb): Federal Judge Finds Bailout Act Voids Citigroup's Bid for Wachovia
The emergency bailout package passed by Congress in October voided an exclusivity agreement that Citigroup had for buying embattled Wachovia Corp. in a deal that was ultimately trumped by Wells Fargo, a federal judge has ruled.
Rejecting Citigroup's bid for as much as $60 billion in damages against Wells Fargo, Judge Shira A. Scheindlin ruled Wednesday that §126(c) of the Emergency Economic Stabilization Act (EESA), passed on Oct. 3, 2008, renders the exclusivity agreement unenforceable.
The judge's resolution of the issue gets rid of most, but not all, of Citigroup's case for damages pending before Manhattan Supreme Court Justice Charles Ramos. The action before Ramos had been stayed pending Scheindlin's decision.
The ruling does not affect a constitutional challenge to the Emergency Economic Stabilization Act that Citigroup may pursue in federal court, where a conference before Scheindlin is scheduled for July 22.
Citigroup had what it thought were exclusive rights through Oct. 7, 2008, to close a deal for $2.1 billion, or $1 per Wachovia share. The transaction would have been made with some assistance by the FDIC, which was invoking its authority under §13 of the Federal Deposit Insurance Act to take action where there is the possibility of "systemic risk" to the economy. The FDIC insisted that, unless the deal was closed by Oct. 6, Wachovia would be forced into receivership.
On Oct. 2, Wells Fargo jumped in with a $15 billion offer for Wachovia, approximately $7 per share. Significantly, the deal required no assistance from the FDIC. The merger was announced on Oct. 3, the same day the act was passed.
On Oct. 4, Citigroup sued in state court, charging Wachovia with breach of contract and Wells Fargo with tortious interference with contract. The case was first removed to federal court but later was remanded back to state court and Justice Ramos.
The same day, Wells Fargo and Wachovia filed their own actions in federal court seeking a declaratory judgment that their transaction was valid. Within a week, Citigroup dropped its attempt to block the sale but insisted it would continue its damages claim.
Scheindlin's decision in Wachovia Corp. v. Citigroup, Inc., 08 Civ. 8503, was the first by a federal judge interpreting §126(c), which renders unenforceable an agreement restricting the ability to acquire any insured depository institution where the FDIC exercises its authority under Federal Deposit Insurance Act §§11 or 13.