Wells Fargo wants shareholder class action dismissed

Attorneys for Wells Fargo & Co. urged a federal judge on Tuesday to dismiss a putative class action accusing the bank of neglecting discriminatory mortgage lending practices, arguing that the shareholder plaintiffs were wrongly accusing the board of directors. 

Sullivan & Cromwell LLP partner Christopher M. Viapiano told U.S. District Judge Trina L. Thompson in San Francisco that the plaintiffs did not sufficiently plead "demand futility," a legal doctrine that states a company's board of directors cannot impartially consider the shareholders' demands before a lawsuit is filed.  

In 2022, Bloomberg reported that Wells Fargo was a significant outlier among large banks, including Citigroup and Bank of America, when it came to approving mortgage loans to Black and Hispanic applicants. The report found that Wells Fargo approved more than 70% of white candidates. In re: Wells Fargo & Co. Hiring Practices Derivative Litigation, 3:22-cv-05173-TLT (N.D. Cal., filed Sept. 9, 2022). 

The investors did not allege that most of the board of directors acted in bad faith, as required by law, said Viapiano, adding that the evidence did not support that the board took no action to address discriminatory practices at Wells Fargo.

To make their lawsuit viable, "the plaintiffs have to plead that the board utterly failed to implement any reporting or information system," said Viapiano, referring to Wells Fargo's corporate responsibility committee established to oversee the company's policies and programs. 

"This is not a one-off thing," said Viapiano, arguing that the plaintiffs were unlawfully picking arbitrary points in time with no reporting to support their position. 

Thompson asked the attorney how he defined "utter failure" when monitoring company practices. 

"What that means, your honor, is not trying at all," Viapiano replied, noting that the plaintiffs acknowledged Wells Fargo's reporting systems in court filings. He also highlighted that, after the Bloomberg report, the board met to discuss next steps. 

High earning executives have an obligation to ensure reasonable and routine oversight of "mission critical" compliance issues, Motley Rice LLC partner Marlon E. Kimpson, a former South Carolina state senator, said on behalf of the plaintiffs. 

Case law requires that such a reporting system "should include a regular process in which the board receives regular reports from management and engages in regular discussions about these issues on a regular basis," Kimpson continued. The attorney said he was "sure" Wells Fargo understood that Jim Crow laws were a vestige of the past.

Bleichmar Fonti & Auld LLP partner Lesley E. Weaver pushed back against Wells Fargo's position that it immediately addressed red flags as they appeared. Disagreeing with Viapiano's interpretation of the "demand futility" standard, Weaver said the financial institution did not act in good faith and received isolated reports about compliance issues. 

"We have neither a fairness in lending nor a fairness in hiring committee in this case," said Weaver. She added that Wells Fargo reacted when the report was publicized but should have been overseeing its policies the entire time. 

"The board discussions focused primarily on the fact that the underlying lending data was going to be made public and how to weather the inevitable storm," said Weaver. 

A proposed class action by consumer plaintiffs challenging Wells Fargo's mortgage lending practices is before U.S. District Judge James Donato in San Francisco.