Occidental Petroleum Corp. v. Wells Fargo Bank, N.A.

573 F.Supp.3d 1161

OCCIDENTAL PETROLEUM CORP., Plaintiff,

v.WELLS FARGO BANK, N.A., Defendant.

CIVIL ACTION NO. H-21-1126

United States District Court, S.D. Texas, Houston Division.

Signed November 30, 2021

Kathy Dawn Patrick, Gibbs Bruns LLP, Houston, TX, for Plaintiff.

Christian Kemnitz, Katten Muchin Rosenman LLP, Chicago, IL, Jeffrey Lloyd Joyce, Joyce McFarland LLP, Houston, TX, Kelly Dean Hine, Katten Muchin Rosenman LLP, Dallas, TX, Rebecca K. Lindahl, Katten Muchin et al., Charlotte, NC, for Defendant.

MEMORANDUM OPINION AND ORDER

Lee H. Rosenthal, Chief United States District Judge

This case presents a number of questions. The first question the parties ask the court to address is whether, under their agreement, the defendant owed a fiduciary duty to the plaintiff. The agreement the parties entered is known as a rabbi trust because the first such agreement involved a rabbi. The agreement has nothing to do with the rabbinate and is in many ways unlike a conventional trust. A rabbi trust is essentially a bank account set up to hold money set aside for a company's deferred compensation for high level executives, designed to minimize the tax impacts of setting aside the money. The structure used to achieve this tax avoidance uses the word trust, but it is more precisely a bank account in which a company puts money it commits to pay its executive employees and shields that money from certain tax consequences. Calling the account a "trust" and the entity managing the account a "trustee" does not create a fiduciary relationship between the company and the trustee.

Wells Fargo Bank, N.A. was the successor bank holding the money that Occidental Petroleum's predecessor placed in a rabbi trust to achieve the favorable tax treatment. In 2019, Wells Fargo agreed to a request by Occidental to sell certain Occidental shares held in the trust on certain dates. The sales were delayed. Between the dates they should have occurred and the dates they did occur, COVID-19 hit and the stock market dropped, a lot. Occidental alleges that the trades resulted in far lower payments than if they had been done when promised, and that a payment from Wells Fargo to Occidental in April 2020 was millions of dollars lower than it would have been if Wells Fargo had timely executed the trades. Occidental sued Wells Fargo for the delay in placing the trades and the resulting price and payment drop, asserting claims for breach of fiduciary duty and breach of contract. (Occidental raised, then dropped, a claim for breach of a duty to indemnify.) Wells Fargo has moved to dismiss the breach of fiduciary duty cause of action, and Occidental responded. Wells Fargo also counterclaimed, and Occidental moved to dismiss the counterclaim. The court heard argument on the motions.

Based on the pleadings, the motions and responses; the arguments; and the applicable law, the court grants Wells Fargo's motion to dismiss the fiduciary breach claim. (Docket Entry No. 24). Wells Fargo may owe contractual and other duties that would make it liable for some or all of the losses Occidental seeks, but that liability is not properly based on a breach of fiduciary duty owed by Wells Fargo to Occidental. Wells Fargo's motion to dismiss the indemnity claim, (Docket Entry No. 24), is granted. Occidental's motion to dismiss Wells Fargo's counterclaim, (Docket Entry No. 29), is also granted. The reasons are set out below.

I. Background

Anadarko Petroleum Corporation entered into a Benefits Trust Agreement with Wachovia Bank of North Carolina, N.A., in May 1995, for the benefit of certain Anadarko employees. (Docket Entry No. 24-1 at 6). The Trust was established to guarantee payment to certain high level Anadarko employees under deferred compensation plans or other employee benefit arrangements exempt from ERISA. (Docket Entry No. 24-1 at 6). Each benefit arrangement is considered a "Plan" under the Trust Agreement. (Docket Entry No. 24-1 at 6). The Plan Participants are the current or former highly compensated employees and directors of Anadarko who were participating in a Plan, and the current or former directors, employees, and others who were not participating but who were eligible to receive benefits under a Plan. (Docket Entry No. 24-1 at 9). Beneficiaries are designated under a Plan to receive benefits in the event of the death of a Participant. (Docket Entry No. 24-1 at 8).

Anadarko is now a wholly owned subsidiary of Occidental Petroleum Corporation. (Docket Entry No. 14 at ¶ 6). This change in control converted the shares of Anadarko stock in the Trust to shares of Occidental stock. (Docket Entry No. 14 at ¶ 15). Wells Fargo is the legal successor to Wachovia Bank. (Docket Entry No. 14 at ¶ 6).

Under the Benefits Trust Agreement, the Trust principal and earnings are assets and taxable property of Occidental, not of the employee Participants. The Trust assets are subject to claims by Occidental's general creditors. Occidental alleges that the Trust "employee participants do not have ‘any beneficial interest’ in the Benefits Trust Agreement." (Docket Entry No. 14 at ¶ 7 (citing Docket Entry 14-1 at 6)). Under Section 4.1 of the Trust Agreement, Occidental "has a right to reversionary distributions from the Trust when the Trust assets exceed 125% of the value of Current Aggregate Accrued Obligations."

(Docket Entry No. 14 at ¶ 8). The Trustee's rights and duties include to: "invest and reinvest part or all of the Trust Fund"; "retain in cash such amounts as the Trustee considers advisable"; "manage, sell, insure, and otherwise deal with all real and personal property"; "make payments from the Trust Fund to provide benefits that have become payable under the Plans pursuant to direction from the Company"; "maintain records reflecting all receipts and payments under this Agreement"; "report to the Company as of each calendar year end, and at such other times as the Company may request, the then net worth of the Trust Fund"; and "invest in securities (including stock or rights to acquire stock) or obligations issued by the Company." (Docket Entry No. 24-1 at 13). The Company may direct the Trustee "to acquire, retain, or dispose of such investments as the Company directs," but the Company's right to direct the Trustee ends following a change in control. (Docket Entry No. 24-1 at 13). After that, "the Trustee's exercise or nonexercise of its powers and discretion in good faith shall be conclusive on all persons." (Docket Entry No. 24-1 at 29).

On December 19, 2019, Wells Fargo agreed to Occidental's request to liquidate shares of Occidental stock from the Trust, "beginning on January 6, 2020, sell 381,420 shares each day over the course of the week, with a final liquidation on January 10, 2020." (Docket Entry No. 14 at ¶ 16). Some of the shares to be liquidated were held at Depository Trust Company, and others were held by Equiniti Trust Company. Wells Fargo argues that this was merely a request from Occidental, not an instruction, although Wells Fargo acknowledges that it agreed to the request. While Wells Fargo acknowledges that it agreed to liquidate the shares on the specified timetable, it also argues that Occidental offered no consideration for Wells Fargo's agreement. (Docket Entry No. 24 at 13).

The parties agree that the shares were not sold on the prescribed dates. They dispute who is to blame. Wells Fargo sold the first tranche of 381,420 shares on January 6, 2020, but sold only 352,080 shares on January 7, instead of the agreed upon 381,420. (Docket Entry No. 14 at ¶ 22–23). Wells Fargo then sold 29,340 shares on both January 13, 2020, and January 14, 2020, far short of the specified number. (Docket Entry No. 14 at ¶ 28). Occidental alleges that Wells Fargo knew on January 31, 2020, that hundreds of thousands of shares held at Equiniti had not been sold. (Docket Entry No. 14 at ¶ 29). Wells Fargo did not sell the remaining 1,114,920 shares until March 20, 2020. (Docket Entry No. 14 at ¶ 30). On the dates that Occidental alleges Wells Fargo had agreed to sell the shares, January 6 through January 10, 2020, the share price ranged from $44.98 to $45.90. (Docket Entry No. 14 at ¶ 28). When Wells Fargo sold the remaining shares on March 20, 2020, the market was in its post-COVID dive, and the share price was $9.98. (Docket Entry No. 14 at 9).

Under Section 4.1 of the Trust Agreement, if the value of the Trust exceeds 125% of "Current Aggregate Accrued Obligations under the Plans," Occidental was permitted to request a refund of the excess assets "so as to reduce the net assets of the Trust to no less than one hundred twenty-five percent (125%) of the then Current Aggregate Accrued Obligations." (Docket Entry No. 24-1 at 10–11). In April 2021, Wells Fargo transferred $23,696,213.01 to Occidental because the Trust was overfunded. (Docket Entry No. 14 at ¶ 35). Occidental alleges that if Wells Fargo had sold the stock on the dates that Occidental had requested and Wells Fargo had agreed to do, the overfunded amount would have been $30 million greater, and Occidental would have received $30 million more than it did. (Docket Entry No. 14 at 10).

Occidental sued for breach of contract based on the Trust Agreement and Wells Fargo's written commitment to sell the specified stock amounts from January 6, 2020, to January 10, 2020. Occidental also sued for breach of fiduciary duties based on Wells Fargo's status as Trustee and Occidental's status as a party to the Trust Agreement, the owner of the Trust assets, and as an "interested person" and beneficiary under the Texas Property Code. (Docket Entry No. 14 at ¶ 47 (citing Tex. Prop. Code § 115.011 )). Occidental also asserted a claim for breach of the indemnity provision of the Trust Agreement. Wells Fargo moved to dismiss Occidental's claims for breach of fiduciary duty and breach of the indemnity provision. Occidental has agreed to dismiss its breach of indemnity claim.

Wells Fargo brought a counterclaim against Occidental...