Legal News

Wachovia Takes Round 1 of the Citi-Wachovia Fracas

By Amir Efrati

Remember when the stock market was tanking last fall and troubled financial firms were being scooped up by rivals?

We do, and so does Citigroup, which was about to scoop up the banking operations of one such firm — Wachovia — only to see its merger agreement torn up when Wells Fargo stepped in a few days later to buy all of Wachovia.

Feeling betrayed, Citigroup filed some suits. (Prior LB coverage here.) Yesterday, however, Citigroup — which needed a bailout following the failed merger — got some bad news about one of those suits.

The suit sought to resolve the question of whether the exclusivity agreement reached between Citi and Wachovia on Sept. 29 enabled Citi to collect damages against Wachovia for leaving it at the alter and hooking up with Wells Fargo.

In a ruling made public on Wednesday, U.S. District Judge Shira Scheindlin in Manhattan said “no.” She found that a section of the Bailout Bill, passed on Oct. 2 — the same day Wells Fargo snagged Wachovia — rendered the exclusivity agreement between Citigroup and Wachovia unenforceable. A provision of the Bailout Bill says, in essence, that there shall be no liability against a third party (in this case Wells Fargo) for having acquired a target (Wachovia) that previously reached an exclusivity agreement with someone else (Citigroup).

“Because Wells Fargo acquired all of Wachovia, imposing liability on Wachovia would be equivalent to penalizing Wells Fargo,” the judge said. Citigroup says it will appeal.

Separately, Citigroup still has a suit in state court alleging that Wells interfered with the merger talks and seeking damages. That case has been stayed until Oct. 1, according to the WSJ story.

Full post as published by Law Blog - WSJ.com on July 16, 2009 (boomark / email).