One of the unusual things about the litigation over the Wachovia-Wells Fargo merger (which I’m hoping will come to a close soon so this blog won’t be all Wachovia all the time) was the flood of letters and emails written to the Court. Judge Diaz received over 200 pieces of correspondence about the case.
The most high profile of those communications was the one from State Treasurer Richard Moore, who had said in a television interview that the merger amounted to "highway robbery." Ever since Moore wrote his letter, I’ve been wondering why he didn’t move to intervene in the case. That would have let him speak directly on behalf of the North Carolina Retirement System (the NCRS), which has lost nearly $20 million on its investment in Wachovia.
A likely answer why that didn’t happen came this week from the unlikeliest of places, a decision from Judge Keenan of the Southern District of New York, in a case called Kuriakose v. Federal Home Loan Mortgage Company. The opinion dealt with who should be the lead plaintiff in that class action under the Private Securities Litigation Reform Act (the PSLRA), and whether the State Treasurer has the power to seek to be a plaintiff in litigation.
The NCRS was vying in Kuriakose for the lead plaintiff position. It looked like it had that spot locked up, because the Court determined that it was “the presumptively most adequate plaintiff under the PSLRA.” This isn’t much of compliment, because adequacy turns mainly on the extent of the plaintiff’s financial loss. The NCRS is down more than $18,000,000 on its investment in Freddie Mac stock, per an Affidavit filed by Moore in the case.
But Judge Keenan held that the NCRS couldn’t be lead plaintiff, because there was a substantial question whether Moore had the right to initiate litigation on its behalf. In filings in the Southern District, the North Carolina Attorney General and the State Treasurer had gone to war over the authority of the State Treasurer to initiate the litigation and to retain outside counsel to represent the NCRS.
The battle started in late October 2008, with North Carolina’s Attorney General Roy Cooper writing to Moore’s counsel questioning Moore’s ability to retain counsel and to initiate litigation without his approval and demanding that he immediately withdraw his request for lead counsel status. Moore’s lawyers wrote back, disputing Cooper’s assertions, and stating that he was "jeopardiz[ing] the ability of the Treasurer to protect the state employees’ retirement funds and to recover the significant losses."
The argument then spilled into the federal court in New York. Cooper filed a Brief, explaining that while Moore served in various capacities to the various retirement systems which are members of the NCRS, that each of the constituent systems has its own "board of trustees with specific management and fiduciary duties specified by North Carolina law." Brf. at 2. Cooper asserted that the Treasurer, while a member of some of those boards, "does not have independent authority to prosecute any legal action on behalf of the retirement system. Such authority lies solely with the respective board of trustees." Brf. at 4.
That authority, according to Cooper, had not been sought by Moore from the respective boards. Cooper further argued, relying on N.C. Gen. Stat. §114-2.3, that the approval of the Attorney General was necessary before the retention of private counsel for a state agency. That statute says that "every agency . . . shall obtain written permission from the Attorney General prior to employing private counsel."
Moore disputed Cooper’s statutory interpretation in a Response Brief, and pointed to N.C. Gen. Stat. §147-71, which says that the Treasurer has the power "to demand, sue for, collect and receive all money and property of the State not held by some person under authority of law," as well as N.C. Gen. Stat. §147-69.3(g), which empowers the Treasurer to "retain the services of . . . attorneys . . . possessing specialized skills or knowledge necessary for the proper administration of investment programs created pursuant to this section."
Judge Keenan didn’t pounce on the opportunity to resolve this North Carolina state government dispute, but instead held:
Given the uncertainty surrounding the Treasurer’s legal authority to act on NCRS’s behalf, the Court cannot accept his certification that NCRS is willing and able to serve as lead plaintiff. Nor would it be in the class’s interest to have a lead plaintiff likely to become bogged down in state court litigation concerning its participation in this federal securities class action. Therefore, Treasurer Moore’s motion to have NCRS appointed as lead plaintiff is denied.
This is a thorny and interesting issue of the power of the State Treasurer versus that of the Attorney General. Maybe it will be resolved one day in a court closer to home.