The fight between Citigroup and Wells Fargo for the remains of Wachovia moved into North Carolina’s courts this weekend.  The new Complaint was filed by Wachovia’s former CEO, Bud Baker, and another Wachovia shareholder to enjoin Citigroup from seeking to enforce its Letter Agreement to acquire Wachovia.

The Plaintiffs obtained an immediate Temporary Restraining Order in Mecklenburg County from Superior Court Judge Robert Johnston on Sunday, October 5th.  (Coincidentally, Judge Johnston entered a pivotal order in the North Carolina litigation over First Union’s acquisition of Wachovia back in 2000.) 

The TRO enjoins Citigroup from:

“(i) filing or continuing any legal action against Wachovia or Wells Fargo to enforce the terms of the second paragraph of the Letter Agreement; (ii) making public representations about the validity of the second paragraph of the Letter Agreement; (iii) making public representations about the invalidity of the Wachovia/Wells Fargo merger agreement.”

If the TRO sticks, that means that Citigroup won’t be able to continue with its New York state court lawsuit against Wachovia and Wells Fargo.  The New York Times Dealbook blog has an excellent summary of the New York litigation.

In the Conclusions of Law to the North Carolina TRO, Judge Johnston found that “Plaintiffs [are] likely to succeed on the merits of their claims because they have made a strong showing that the exclusivity provisions contained in the second paragraph of the Letter Agreement [between Wachovia and Citigroup] are invalid and unenforceable under North Carolina law.” 

The TRO doesn’t reference any authority for the proposition that the exclusivity provisions are void.  The only reference to any North Carolina law in the TRO is to Section 53-128 of the North Carolina General Statutes, which is titled "[w]illfully and maliciously making derogatory reports."  That statute, under which there are no reported decisions, provides that: 

"Any person who shall willfully and maliciously make, circulate, or transmit to another or others any statement, rumor, or suggestion, written, printed, or by word of mouth, which is directly or by inference false and derogatory to the financial condition, or affects the solvency or financial standing of any bank, or who shall counsel, aid, procure, or induce another to state, transmit, or circulate any such statement or rumor shall be guilty of a Class 1 misdemeanor."

This promises to be interesting, though possibly short-lived.  If the case ends up in the North Carolina Business Court, that Court often stays North Carolina lawsuits if there is a forum which is the more logical center for resolution of the matters in dispute.  In fact, two of those recent cases were brought by Wachovia, and in both of them the Court stayed the North Carolina case to allow litigation involving the same matters to go forward in other states.  One is Wachovia Bank, N.A. v Harbinger Capital Partners Master Fund I, Ltd., 2008 NCBC 6 (N.C. Super. Ct. March 13, 2008) the other is Wachovia Bank v. Deutsche Bank Trust Company Americas, 2006 NCBC 8 (N.C. Super. Ct. June 2, 2006).

Wachovia’s lawyers (the same lawyers representing the Plaintiffs in the North Carolina Citigroup lawsuit) tried exactly the same legal maneuver in Harbinger: obtaining an injunction barring litigation in New York so that Wachovia could have its claims resolved in North Carolina.  Judge Diaz of the Business Court granted a Motion to Stay the North Carolina case brought by Wachovia, ruling that there was a "practical reality that the New York Action is better able to arrive at a more comprehensive resolution of the litigation, given the broader scope of claims and parties before it." 

The North Carolina Complaint indicates that one of the Plaintiffs is a New York resident, so a stay in favor of a resolution in New York might be granted if requested by Citigroup.

[Update: Citigroup designated the case to the Business Court on October 6th.  The Notice of Designation is here.  The case has been assigned to Judge Diaz.]