Trustee Duties
Occidental Petroleum v. Wells Fargo
Date: Sept. 18, 2024
Issue: Whether Wells Fargo breached its trustee duties by failing to sell Occidental Petroleum stock between the agreed-upon period of Jan. 6 to Jan. 10, 2020, and was judicially estopped from arguing its trust agreement was not a contract.
Case Summary: In a 2-1 decision, a Fifth Circuit panel affirmed a Texas federal court decision ruling Wells Fargo breached its trustee duties by failing to timely sell Occidental Petroleum stock and was judicially estopped from arguing its trust agreement was not a contract.
Anadarko Petroleum, which Occidental acquired in 2019, entered into a trust agreement with Wells Fargo and appointed the bank as a trustee for a “rabbi trust” containing stock. In a December 2019 email chain, Wells Fargo and Occidental agreed to sell the stock between Jan. 6 and Jan. 10, 2020. Nikki Tanner, Wells Fargo’s appointed investment manager, contacted Equiniti Trust Company, Occidental’s transfer agent, to sell 29,340 stock shares but was denied because her request lacked a “medallion stamp.” After Tanner submitted a new request, Equiniti processed the request and sold the shares twice. Wells Fargo then requested Equiniti to sell 381,420 shares. However, as Equiniti processed Tanner’s shares twice, it did not have enough stock shares to complete Wells Fargo’s order. Equiniti sent a letter to Wells Fargo to clarify the number of shares the bank needed to sell. Despite this, Wells Fargo did not become aware that the sale did not occur until February 2020. When Wells Fargo informed Occidental that the sale did not place, the COVID-19 pandemic caused the Occidental share price to drop from $45 per share to under $10 per share.
In April 2021, Occidental and Anadarko (collectively Occidental) sued Wells Fargo, alleging it suffered financially because of the bank’s delayed securities sales. Occidental also argued its trust agreement and the email chain constituted contracts, which Wells Fargo breached by not executing the sales. In August 2022, Judge Lee H. Rosenthal of the Southern District of Texas granted summary judgment for Occidental, ruling the trust agreement and email thread constituted contracts, which Wells Fargo breached by not selling the Occidental stock during the agreed-upon dates.
The Fifth Circuit panel affirmed on appeal. First, the panel rejected Wells Fargo’s argument claiming neither the email chain nor the trust agreement were contracts. The panel conceded the email chain was not an enforceable contract because it lacks mutuality of obligation. However, the panel determined Wells Fargo’s argument is barred by judicial estoppel, which prevents a party from asserting a position in a legal proceeding contrary to a position previously taken in the same or some earlier proceeding. The panel explained the Fifth Circuit articulated two elements for judicial estoppel to apply: the position of the party being estopped must be “clearly inconsistent” with its previous position; and the party must have convinced the court to accept the previous position.
The panel determined the first element was met as Wells Fargo’s position claiming the trust agreement is not a contract was “clearly inconsistent” with the position it took in its motion to dismiss. In the bank’s motion to dismiss Occidental’s claim asserting the bank had a fiduciary duty to sell its stock shares, the panel reasoned that Wells Fargo repeatedly described its relationship with Occidental as “contractual in nature.” In addition, the panel determined the second element was met as the district court relied on Wells Fargo’s representations to dismiss Occidental’s fiduciary claim. The panel also found that Wells Fargo would gain an unfair advantage, and Occidental would suffer an unfair detriment absent estoppel.
Because the panel determined Wells Fargo was estopped from arguing the trust agreement is not a contract, the court evaluated whether the bank breached the agreement. In Wells Fargo’s view, “even if the trust agreement could create a contract, nothing in the record established what those duties were or how they were breached.” However, the panel found the district court properly granted summary judgment, and Wells Fargo did not execute the plan formed with Occidental in the email chain.
Second, the panel rejected Wells Fargo’s argument claiming the district court erred by disregarding reinvestment when calculating damages. According to Wells Fargo, “reinvestment of the sale proceeds was an essential, unambiguous term” of the trust agreement and should factor into the district court’s damages calculations. However, the panel agreed with the district court, which found reinvestment calculations were “speculative and not supported by the record.” As described by the panel, “a party may not recover damages for breach of contract if those damages are remote, contingent, speculative or conjectural.” While these principles typically serve to prevent plaintiffs from receiving an undeserved windfall, the panel concluded the principles should also apply to prevent defendants from receiving a reverse windfall by avoiding payment of foreseeable damages.
Third, the panel rejected Wells Fargo’s argument claiming the district court erred in dismissing Wells Fargo’s counterclaim against Occidental based on Equiniti’s actions. Wells Fargo cited several federal regulations governing a transfer agent’s conduct and argued Equiniti’s alleged violation of those regulations amounts to negligence per se. Wells Fargo also argued Equiniti owed it a duty to execute its requested sale of Occidental’s shares. However, the panel explained Wells Fargo needed to show a duty to breach existed before proving Equiniti’s alleged violation of the cited federal regulations constitute a breach. In turn, the panel agreed with the district court finding Wells Fargo did not explain what the cited regulation requires or a common law duty under Texas law. Accordingly, the panel dismissed the counterclaim.
Finally, the panel rejected Wells Fargo’s final two arguments contending the district court erred by disregarding the bank’s affirmative defense in granting Occidental summary judgment and not segregating legal fees owed by the bank in its individual capacity and those it owed as trustee. The panel affirmed that the district court properly granted summary judgment for Occidental, calculating damages, dismissing Wells Fargo’s counterclaim and affirmative defenses, and awarding attorney’s fees.
In dissent, Judge Irma Carrillo Ramirez contended that applying judicial estoppel in this case does not “serve substantial justice” but instead acts as an overly harsh punishment against Wells Fargo. Ramirez stressed that judicial estoppel is an “extraordinary remedy to be invoked when a party’s inconsistent behavior will otherwise result in a miscarriage of justice. Ramirez also emphasized that estopping a party from arguing a position is an extreme measure, only taken where the equities are clearly in its favor. While Ramirez concurred with the rest of the opinion, she would have vacated the district court’s summary judgment orders for the trust agreement-related breach-of-contract claim and remanded for further proceedings.
Bottom Line: As of Sept. 1, Wells Fargo has not filed for an en banc (full panel) petition for rehearing.
Documents: Opinion
