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

622 F.Supp.3d 495

OCCIDENTAL PETROLEUM CORP. and Anadarko Petroleum Corp., Plaintiffs, v. WELLS FARGO BANK, N.A., Defendant.

CIVIL ACTION NO. H-21-1126

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

Signed August 18, 2022

Mark R. Dore, Kathy Dawn Patrick, Gibbs & Bruns LLP, Houston, TX, for Plaintiffs.

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

MEMORANDUM AND ORDER

Lee H. Rosenthal, Chief United States District Judge

This case involves missteps in executing planned stock sales that delayed the sales long enough for the global pandemic and stock market drop to greatly reduce the selling price. Wells Fargo was the trustee for a so-called rabbi trust that held stock and money to pay deferred compensation to high-level executives at an oil and gas company, with a favorable tax treatment. The company recommended to Wells Fargo that it diversify the trust holdings and sell the company's shares in the trust on specific dates in January 2020. Wells Fargo agreed to follow the recommendation, but it did not follow through. Wells Fargo failed to sell most of the shares until March 2020. By that time, COVID had hit and the stock market had plummeted. The result was a roughly $39 million drop between the share price in January and the price when the shares were sold in March.

The company, Occidental Petroleum, and its predecessor, Anadarko Petroleum, (together, Occidental) sued Wells Fargo for the losses Occidental alleged resulted from the botched sales efforts and the delay in the sales. Motions practice resulted in the dismissal of some of the claims. Occidental's breach of contract claim remains. Wells Fargo has filed a counterclaim against Occidental based on the alleged negligence of Occidental's transfer agent, Equiniti Trust Company, in selling the shares. Wells Fargo's counterclaim against Equiniti was dismissed for lack of personal jurisdiction.

Occidental has moved for summary judgment to recover on its claims against Wells Fargo and to have Wells Fargo's counterclaim dismissed. Wells Fargo has moved for summary judgment on its counterclaim against Occidental and to have Occidental's claims dismissed. The court heard oral argument on the cross motions.

Based on the pleadings; the motions, responses, and replies; the applicable law; the summary judgment record; and the arguments of able counsel, Occidental's motion for summary judgment, (Docket Entry No. 80), is granted as to its claim that Wells Fargo is liable for breach of contract and that Wells Fargo's counterclaim fails and is dismissed. Wells Fargo's motion for summary judgment is denied. (Docket Entry No. 81). Occidental's motion for leave to amend and the motions to seal are granted. (Docket Entry Nos. 74, 83, 92). No later than September 9, 2022, the parties must provide a proposed amended scheduling order, agreed upon if possible, to resolve the remaining issues.

The reasons for these rulings are explained below.

I. Factual Background

Anadarko, Occidental's predecessor, established the rabbi trust in May 1995 through a Benefits Trust Agreement between Anadarko, as grantor, and Wachovia Bank of North Carolina, N.A., as Trustee. (Docket Entry No. 80-4 at 1). Wells Fargo acquired Wachovia in December 2008 and became the Trustee. (Docket Entry No. 80-4 at 2). Each benefit arrangement with a Plan Participant is considered a Plan under the Benefits Trust Agreement. (Docket Entry No. 80-3 at 5). The Plan Participants were 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. 80-3 at 8). Beneficiaries were designated under a Plan to receive benefits in the event of the death of a Participant. (Docket Entry No. 80-3 at 7). Federal law required the Plans to remain unfunded pending the payout of benefits, to allow the Plan Participants to defer tax liability.

The Trust Agreement provided that before a change in control, Anadarko could direct the Trustee to acquire, retain, or dispose of investments. (Docket Entry No. 80-3 at 12). Anadarko could also direct the Trustee to return to the company assets in excess of 100 percent of the current aggregate accrued obligations under the Plans. (Docket Entry No. 80-3 at 9). Anadarko's right to direct the Trustee ended following a change in control. (Docket Entry No. 80-3 at 12, 24). When the assets reached more than 125 percent of the current aggregate accrued obligations under the Plans, the successor company could request a disbursement of assets, but the Trustee was not required to make the disbursement. (Docket Entry No. 80-3 at 9-10).

Occidental acquired Anadarko in August 2019. This was a change in control under the Trust Agreement. (Docket Entry No. 80-4 at 3). When Occidental acquired Anadarko, the Trust held 6.5 million shares of Anadarko common stock and roughly $30 million in cash from accrued dividends on those shares. (Docket Entry No. 82-4). Upon closing, each share of the Anadarko stock in the Trust converted to the right to receive .2934 shares of Occidental stock and $59 in cash. (Docket Entry No. 80-4 at 2). Following conversion, the Trust held roughly $500 million in assets—1,907,100 shares of Occidental stock, worth about $82 million as of August 31, 2019, and $413 million in cash. (Docket Entry No. 80-4 at 10, 11; Docket Entry No. 82-5 at 3).

The Trust account was considered a "Top-50" relationship for Wells Fargo. (Docket Entry No. 80-7). Wells Fargo's Institutional Retirement and Trust division assigned a three-person team of professionals to the Trust account: Monique Etheridge as the relationship manager; Terri Montgomery as the client service associate; and Nikki Tanner as the investment manager. (Docket Entry No. 80-5 at 3; Docket Entry No. 80-7 at 4, Docket Entry No. 80-12 at 3). Etheridge was responsible for coordinating client resources, Montgomery was responsible for the Trust's daily operations, and Tanner was responsible for the Trust's asset management and investment strategy. (Docket Entry No. 80-7 at 5; Docket Entry No. 80-12 at 3).

In October 2019, Tanner concluded that roughly $240 million of the almost $500 million held in the Trust needed to be kept in cash to pay out employee benefits and separation agreements in the near term. (Docket Entry No. 80-7 at 10-11). The Plan owed $185 million in future obligations. Tanner intended that the Trust would keep the remaining $73 million in cash. (Docket Entry No. 80-13).

On October 24, 2019, Tanner presented an investment strategy to Occidental. (Docket Entry No. 80-7 at 11; Docket Entry No. 81-1 at 323). Tanner explained the need to sell Occidental stock because it was contrary to Wells Fargo's investment guidelines to have the Trust assets in a single stock. (Docket Entry No. 80-7 at 9). Occidental agreed. (Docket Entry No. 80-7 at 12). Wells Fargo was aware that the sale could trigger tax liability for Occidental, so Wells Fargo asked for Occidental's input. (Docket Entry No. 80-7 at 12). Tanner first reached out to the Occidental team immediately following the October 24, 2019, presentation. (Docket Entry No. 81-1 at 323). She received no response and emailed again in November 2019. (Docket Entry No. 81-1 at 90, 339). On December 10, 2019, Etheridge sent Megan Bruegger, a legacy Anadarko employee, the following email:

Hi Megan,

This email is a follow up to my voice message.

Please let Nikki and [me] know when the team has any additional input regarding the sale of Anadarko stock. If we do not hear from Oxy by 12/17/2019, we will assume that there is no additional input.

(Docket Entry No. 81-1 at 337).

Bruegger forwarded this email to Karen Lippe, who was Occidental's Director of Corporate Accounting and who was involved in the October 2019 discussions, and to Jason Schmitz, who was in the Occidental Treasury Department. (Docket Entry No. 81-1 at 173-75). Occidental's representatives explained that they were concerned that a "volume discount" would result if many shares were sold at once, and that the structure and timing of the sale would disrupt the stock market liquidity. (Docket Entry No. 80-15 at 19; Docket Entry No. 80-17 at 6).

On December 16, 2019, Etheridge emailed Schmitz, Lippe, and Bruegger, as follows:

Hi Everyone,

Nikki and I are checking in. We have not received a response regarding the Oxy team conducting an internal meeting to discuss the liquidation of Oxy stock. Please provide an update. If we do not receive an update by Wed at 3 PM EST, we will assume there is no additional input and will proceed with the plan that was presented on October 24, 2019.

(Docket Entry No. 96-4 at 2-3).

On December 17, 2019, Schmitz and Jessica Myers from Occidental's Treasury Department spoke with Etheridge and Tanner from Wells Fargo to discuss the liquidation and sale process. (Docket Entry No. 80-7 at 14). On December 17, 2019, Schmitz emailed Tanner the following proposal:

Hi Nikki/Monique -

Treasury would appreciate if Wells could agree to a ratable liquidation plan for Oxy Stock as follows:

Beginning January 6, 2020, sell 381,420 shares each day over the course of the week with a final liquidation on January 10, 2020

1,907,100/5 = 381,420 Please let me know if you have any questions or would like to discuss. Regards, Jason.

(Docket Entry No. 80-19).

Tanner wrote back, saying:

Wells Fargo accepts your recommendation for the ratable liquidation plan as follows:

Beginning January 6, 2020, sell 381,420 shares each day over the course of the week with a final liquidation on January 10, 2020.

1,907,100 / 5 = 381,420

(Docket Entry No. 80-32). Schmitz then replied to Tanner, "Hi Nikki - thanks for accepting the...