MILBERG WEISS BERSHAD
HYNES & LERACH
WILLIAM S. LERACH (68581)
600 West Broadway, Suite 1900
San Diego, California 92101
Telephone: 619/231-1058
- and -
MILBERG WEISS BERSHAD
HYNES & LERACH
JEFF S. WESTERMAN (94559)
355 South Grand Avenue
Suite 4170
Los Angeles, California 90071
Telephone: 213/617-9007
BLUMENTHAL & OSTROFF SULLIVAN, HILL,
LEWIN & MARKHAM
A Partnership of DAVID MARKHAM
Professional Law Corporations 550 West "C" Street
NORMAN BLUMENTHAL Suite 1500
1420 Kettner Boulevard San Diego, California 92101
Seventh floor Telephone: 619/233-4100
San Diego, California 92101
Telephone: 619/239-7373
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
(213) 687-5000
Attorneys for Plaintiff
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES
BERT L. EAVES, IRA, On Behalf of Himself ) Case No. 11C137380
and All Others Similarly Situated, )
) CLASS ACTION
Plaintiff, )
)
vs. ) CLASS ACTION COMPLAINT
) FOR BREACH OF FIDUCIARY
JOHN E. BRYSON, DON C. FRISBEE, ) DUTY, ABUSE OF CONTROL,
STEVEN B. SAMPLE, EDWARD M. CARSON, ) UNJUST ENRICHMENT,
GEORGE M. KELLER, FORREST N. SHUMWAY, ) INTERFERENCE WITH
JEWEL PLUMMER COBB, W.F. KIESCHNICK, ) PROSPECTIVE ECONOMIC
WILLIAM B. START, RALPH P. DAVIDSON, ) ADVANTAGE AND EQUITABLE
THOMAS L. LEE, RICHARD J. STEGEMEIER, ) RELIEF AND DAMAGES
MYRON DuBAIN, WILLIAM F. MILLER, DAN- )
IEL M. TELLEP and J.J. PINOLA, )
)
Defendants. ) Plaintiff Demands A
) Trial By Jury
- - ------------------------------------------- ---------------------------
Plaintiff, as and for his complaint, alleges as follows upon information
and belief except as to paragraph 5, which is alleged upon knowledge.
Plaintiff's information and belief is based upon, inter alia, the
investigation made by plaintiff by and through his counsel.
INTRODUCTION AND OVERVIEW
1. This is a shareholder class action seeking equitable
relief and compensatory damages on behalf of all shareholders of First
Interstate Bancorp ("First Interstate" or the "Company") against First
Interstate's top officers and the members of the Board of Directors of First
Interstate, seeking to remedy violations of state law arising out of these
defendants' actions and conduct undertaken to defeat a highly favorable
acquisition offer for First Interstate stock by Wells Fargo & Co. ("Wells
Fargo"). First Interstate's Board of Directors has pursued a course of conduct
intended to and having the effect of making it extremely difficult for any
outside party to successfully acquire First Interstate, even at prices well in
excess of First Interstate stock's historical price range. This course of
conduct has been undertaken by the defendants to secure and retain their
lucrative positions of power, prestige and profit with respect to First
Interstate and to enhance and aggrandize their own interests at the expense of
First Interstate's other shareholders.
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2. On October 18, 1995, Wells Fargo, a highly successful, profitable and
well-capitalized bank, made an offer to acquire First Interstate at a price
far in excess of First Interstate's then-market price, by exchanging in a
tax-free exchange .625 shares of Wells Fargo stock for each share of First
Interstate stock, an offer worth $133.50 per share based on the October 17,
1995 closing price of Wells Fargo stock of $213.62 per share. First
Interstate's stock jumped from $106 per share to $140 per share upon this
announcement. While Wells Fargo's stock increased to $228.65 per share, making
the offer worth $142.65 per First Interstate share. However, the defendants
are rejecting such offer and have refused to negotiate an acquisition of the
Company at any higher price, even though Wells Fargo has told First
Interstate's Board it is willing to negotiate a higher price and thus to offer
a fair and reasonable price for First Interstate stock, well above the levels
at which the stock has traded historically.
3. In recent years, defendants have consistently refused to entertain
highly favorable acquisition offers or overtures for First Interstate, thus
preventing an acquisition of the Company at a favorable price for the
shareholders. Defendants have done this to retain their positions of prestige,
power and profit, as they know they will lose those positions in the event
First Interstate is acquired. Defendants' interests in
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holding on to their positions of power, prestige and profit as officers and
directors of First Interstate far exceeds their interests as shareholders in
First Interstate, as they collectively own only about 144,000 of First
Interstate's 75.7 million shares -- a minuscule .001% of its outstanding
stock.
PARTIES AND ACTORS
4. Plaintiff Roger Mondschein, the owner of shares of First Interstate,
is and was at all times relevant hereto a common shareholder of First
Interstate. Plaintiff brings this action on behalf of the holders of the
common stock of First Interstate for injunctive and other relief in connection
with the proposed acquisition of First Interstate by Wells Fargo.
5. (a) First Interstate is a corporation with its principal executive
offices in Los Angeles, California and which operates principally in
California, as well as several other western states. First Interstate is a
bank holding company.
(b) At December 31, 1994, it owned 16 banks (the "Subsidiary
Banks") which operated approximately 1,100 banking offices in 13 states,
including California. Ranked according to assets, the Company was the
fourteenth largest commercial banking organization in the United States at
December 31, 1994, having total deposits of $48.4 billion and total assets of
$55.8 billion.
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(c) The Subsidiary Banks accept checking, savings and other time
deposit accounts and employ these funds principally by making consumer, real
estate and commercial loans and investing in securities and other
interest-bearing assets.
(d) The Company also provides banking-related financial services
and products. These include asset-based commercial financing, asset management
and investment counseling, bank card operations, mortgage banking, venture
capital and investment products. It engages in these activities both through
non-bank subsidiaries of the Company and through the Subsidiary Banks and
their subsidiaries.
(e) The larger Subsidiary Banks provided international banking
services on a limited basis through the international departments of their
domestic offices. They also maintain correspondent relationships with major
banks throughout the world.
6. (a) Defendant John E. Bryson ("Bryson") was a direc-
tor of First Interstate and Board Chairman and Chief Executive
Officer or SCECorp and Southern Edison Company at all times
relevant hereto.
(b) Defendant Don C. Frisbee ("Frisbee") was a First Interstate
director and Chairman Emeritus PacifiCorp at all times relevant hereto.
6
(c) Defendant Steven B. Sample ("Sample") was a
First Interstate director and President University of Southern
California at all times relevant hereto.
(d) Defendant Edward M. Carson ("Carson") was Chair-
man of the Board of First Interstate at all times relevant
hereto.
(e) Defendant George M. Keller ("Keller") was a director of First
Interstate and the retired Chairman and Chief Executive Officer of Chevron
Corporation at all times relevant hereto.
(f) Defendant Forrest N. Shumway ("Shumway") was a
director of First Interstate and former Vice-Chairman of the
Board Allied-Signal, Inc. at all times relevant hereto.
(g) Defendant Jewel Plummer Cobb ("Cobb") was a director of First
Interstate and President Emeritus California State University, Fullerton at
all times relevant hereto.
(h) Defendant W.F. Kieschnick ("Kieschnick") was a
director of First Interstate and retired President and Chief
Executive Officer Atlantic Richfield Company at all times
relevant hereto.
(i) Defendant William B. Siart ("Siart") was Presi-
dent and Chief Executive Officer First Interstate and a direc-
tor at all times relevant hereto.
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(j) Defendant Ralph P. Davidson ("Davidson") was a director of
First Interstate and former Chairman of The John F. Kennedy Center for the
Performing Arts at all times relevant hereto.
(k) Defendant Thomas L. Lee ("Lee") was a director
of First Interstate and Chairman and Chief Executive Officer of
The Newhall Land and Farming Company at all times relevant
hereto.
(l) Defendant Richard J. Stegemeier ("Stegemeier") was a director
of First Interstate and Chairman of the Board Unocal Corporation at all times
relevant hereto.
(m) Defendant Myron DuBain ("DuBain") was a director of First
Interstate and retired Chairman and Chief Executive Officer Fireman's Fund
Corporation at all times relevant hereto.
(n) Defendant William F. Miller ("Miller") was a
director of First Interstate and President Emeritus SRI Inter-
national at all times relevant hereto.
(o) Defendant Daniel M. Tellap ("Tellap") was a director of First
Interstate and Chairman and Chief Executive Officer Lockheed Corporation at
all times relevant hereto.
(p) Defendant J.J. Pinola ("Pinola"), was the retired Chairman and
Chief Executive Officer of First Interstate and a director at all times
relevant hereto.
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7. Defendants (hereinafter collectively referred to as the "Individual
Defendants") are each members of First Interstate's Board of Directors.
8. The Individual Defendants owed and owe First Interstate's public
shareholders fiduciary obligations and were and are required to: (i) use their
ability to manage First Interstate in a fair, just and equitable manner; (ii)
act in furtherance of the best interests of First Interstate and its
shareholders; (iii) act to maximize shareholder value; (iv) govern First
Interstate in such a manner as to head the expressed views of its public
shareholders; (v) refrain from abusing their positions of control, power,
prestige and profit; and (vi) not favor their own interests at the expense of
First Interstate and its shareholders. By reason of their fiduciary
relationships, these defendants owed and owe plaintiff and other members of
the Class the highest obligation of good faith, fair dealing, loyalty and due
care.
9. Wells Fargo is a corporation with its principal executive offices in
San Francisco, California. Wells Fargo is a huge bank holding company and one
of the most well-managed, profitable and well-capitalized banks in the United
States. With more than 600 branch outlets, 1,900 round-the-clock Wells Fargo
Express(TM) ATMs and a popular 24-hour telephone banking service, Wells Fargo
operates one of the largest and busiest
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consumer banking businesses in the United States. Besides serving as banker to
some 3.5 million California households, Wells Fargo provides a full range of
banking services to commercial, agribusiness, real estate and small-business
customers, mainly in California. It is one of the nation's leading managers of
personal trust accounts, corporate 401(k) plans and mutual funds, with
approximately $57 billion in assets under its management and administration.
10. Each defendant herein is sued individually as a conspirator and
aider and abettor, as well as in his capacity as a director of the Company,
and the liability of each arises from the fact that he has engaged in all or
part of the unlawful acts, plans, schemes, or transactions complained of
herein.
CLASS ACTION ALLEGATIONS
11. Plaintiff brings this lawsuit on behalf of himself
and all other common shareholders of First Interstate (except defendants
herein and any person, firm, trust, corporation or other entity related to,
controlled by or affiliated with any of the defendants and any of their
successors in interest (the "Class").
12. This action is properly maintainable as a class
action for the following reasons:
(a) The Class is so numerous that joinder of all
Class members is impracticable. As of January 31, 1995, First
10
Interstate had over 75 million shares of common stock outstanding owned by
over 20,000 shareholders. Members of the Class are scattered throughout the
United States and are so numerous as to make it impracticable to bring them
all before this Court.
13. There are questions of law and fact which are common to members of
the Class and which predominate over any questions affecting only individual
members. The common questions include, inter alia, the following:
(a) Whether the Individual Defendants have breached their
fiduciary duties owed by them to plaintiff and the other members of the Class;
(b) Whether the Individual Defendants have failed, in violation of
their fiduciary duties, to hold a fair auction of the Company or its assets or
to sell the Company on the favorable terms;
(c) Whether the Individual Defendants have failed,
in violation of their fiduciary duties, to provide for a mail
of First Interstate;
(d) Whether plaintiff and the other members of the
Class will be irreparably damaged if the Wells Fargo acquisi-
tion is not completed;
(e) Whether the Individual Defendants have breached
or aided and abetted the breach of the fiduciary and other
11
common law duties owed by them to plaintiff and other members
of the Class; and
(f) Whether plaintiff and other members of the Class are being and
will continue to be injured by the wrongful conduct alleged herein and, if so,
what is the proper remedy and/or measure of damages.
14. The claims of plaintiff are typical of the claims of other members
of the Class and plaintiff has no interests that are adverse and antagonistic
to the interests of the Class.
15. Plaintiff is committed to the vigorous prosecution of this action
and has retained competent counsel experienced in litigation of this nature.
Accordingly, plaintiff is an adequate representative of the class and will
fairly and adequately protect the interests of the Class.
16. Plaintiff anticipates that there will not be any
difficulty in the management of this litigation as a class
action.
17. For the reasons stated herein, a class action is superior to any
other method available for the fair and efficient adjudication of this
controversy since it would be impractical and undesirable for each of the
members of the class who has suffered or will suffer damages to bring separate
actions in various parts of the country. Classwide remedies
12
will assure uniform standards of conduct for the Individual Defendants and
avoid the risk of inconsistent judgments.
SUBSTANTIVE ALLEGATIONS
18. As pleaded earlier, First Interstate is an interstate banking
corporation. First Interstate's stock performed poorly in 1994 through
mid-1995, due to First Interstate's lackluster performance and perceptions
that it was poorly managed. For instance, First Interstate's stock traded at a
high of $85 per share and then fell, falling to a low of $67 per share in
December 1994. First Interstate did not reach $85 per share again until
mid-1995. After June 1995, First Interstate's stock performed better, reaching
over $100 per share in late September 1995, due to an increase in the prices
in bank stocks generally and because of rumors that a favorable acquisition
offer for First Interstate would be forthcoming as part of the waive of bank
acquisitions and mergers now sweeping the United States. However, even with
this increase, First Interstate's stock has been relatively poor performer
when compared to other bank stocks. Because in recent years First Interstate
has not been viewed to be well-managed as many other large banks and thus has
not performed as well in terms of many of its key ratios and measurements of
success as other banks, its stock has not performed well and thus,
shareholders in First Interstate have, in recent years, obtained a
below-industry
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trendline or industry average return. The chart below shows the price action
of First Interstate stock in 1994-1995:
[The hardcopy Complaint filed with the Court contains a
line graph showing the daily common stock price for First Inter-
state for the period December 31, 1993 through October 17, 1995.
Because the document for which this Complaint is an Exhibit has
been filed with the Securities and Exchange Commission by elec-
tronic transmission, this graph is not contained herein. The
following information summarizes the First Interstate daily
closing stock price, plotted along the graph's vertical axis,
for the dates indicated on the horizontal axis of the graph:
Date Common Stock Price
- - ---- ------------------
December 31, 1993 64 1/8
March 25, 1994 77 7/8
June 17, 1994 75 3/4
September 9, 1994 79 1/4
December 2, 1994 69 3/8
February 24, 1995 81 3/8
May 19, 1995 81
August 11, 1995 87 1/2
October 17, 1995 106]
19. In recent years, certain other large financial institutions have
approached First Interstate with favorable acquisition inquiries and offers.
Some years ago, Bank of America approached First Interstate about a possible
acquisition. Approximately a year ago, Wells Fargo approached First Interstate
about a possible acquisition of First Interstate at a premium price. First
Interstate's Board and its top management have rejected and frustrated all of
these prior acquisition overtures and offers, even though those offers would
have resulted in First Interstate shareholders receiving a substantial premium
over the then-market price of First Interstate stock. Defendants have done
this because they know that in the event First Interstate is acquired by
another bank, most or all of the directors of First Interstate will, either in
connection with the acquisition or shortly thereafter, be removed from the
board of the surviving bank because their services will not be necessary and
they will be mere surplusage and thus such an
14
acquisition would bring an end to their positions of power, prestige and
profit as directors of this huge bank. At the same time, top managers at First
Interstate have caused these prior acquisition overtures and offers to be
rejected and/or frustrated, because they also know that, in the event of an
acquisition, they will also lose their prestigious positions of power,
prestige and profit as officers of a major banking institution. In so acting,
these defendants have been aggrandizing their own personal positions and
interests over that of First Interstate and its broader shareholder community
to whom they owe fiduciary duties to bring about a sales of First Interstate
on favorable terms to all the shareholders, even if it results in them losing
their lucrative positions.
20. Shortly prior to October 18, 1995, Wells Fargo approached First
Interstate and offered to negotiate an acquisition of First Interstate for a
price far in excess of First Interstate's current stock price. First
Interstate's Chairman refused this offer and told Wells Fargo that First
Interstate would not negotiate to sell the bank and would resist any offer by
Wells Fargo to buy the bank. On October 18, 1995, Wells Fargo made an
unsolicited acquisition offer for First Interstate offering to exchange .625
shares of its stock for each share of First Interstate stock, a $133.50 per
share offer based on the October 17, 1995 closing price of Wells Fargo
15
stock of $213.62 per share. Upon the announcement of this favorable
acquisition offer, First Interstate's stock instantly skyrocketed from $106
per share to over $140 per share, reflecting the extremely large premium being
offered to First Interstate shareholders in this tax-free exchange, and the
increase in Wells Fargo's stock price to $228 per share making the offer worth
$142 per First Interstate share. Wells Fargo's offer to acquire First
Interstate is approximately three times First Interstate's book value, which
is a high offer compared to recent bank acquisition prices. The acquisition
price is also approximately 12.1 times First Interstate's estimated 1995
earnings per share of $11.29 per share, which is also reasonable in light of
other recent bank acquisitions, although it is lower than 15 times the
estimated next year's earnings paid in other bank acquisitions.
21. Wells Fargo has privately indicated to First Inter- state's officers
and directors that they are willing and will increase the price of their offer
to acquire First Interstate if First Interstate's Board will cooperate in
bringing about a consensual acquisition. However, First Interstate's top
officers and its Board are resisting and are going to continue to resist this
acquisition offer so that they can, as they have in the past, retain
themselves in their positions or power, prestige and profit. For instance,
members of First Interstate's
16
Board of Directors own only a minuscule portion of First Inter- state's
outstanding common stock. They actually own only 144,000 shares of First
Interstate's 75.7 million shares of outstanding common stock, or just .001% of
the stock. Thus, whatever interest the defendants have as shareholders in
First Interstate based on their minuscule holdings of the Company's stock is
far outweighed by their interest in retaining their lucrative positions of
power, prestige and profit as directors and/or officers of the Company from
which they receive lucrative fees, prestige in the community, large salaries,
and other emoluments of office, which they will lose if First Interstate is
acquired.
22. The rejection of the Wells Fargo offer is a breach of defendants'
fiduciary duties, an abuse of control, provides unjust enrichment to all
defendants, is an unfair business practice and has been perpetrated through
tortious interference with the class members' prospective economic interests
and opportunities and through material misrepresentations and the failure by
defendants to disclose material information to the members of the Class.
23. Unless defendants are enjoined from refusing to negotiate a sale of
First Interstate, plaintiff and the members of the Class will continue to
suffer injury. Plaintiff and the members of the Class have no adequate remedy
at law.
17
FIRST CAUSE OF ACTION
BREACH OF FIDUCIARY DUTIES
24. Plaintiff incorporates by reference P. P. 1-23 above.
25. The Individual Defendants engaged in the aforesaid
conduct in intentional breach and/or reckless disregard of their fiduciary
duties to plaintiff and the members of the Class.
26. Defendants, at the time they rejected Wells Fargo's offer, knew that
the market price of First Interstate stock reflected both the intrinsic value
of First Interstate and a premium which resulted from market expectations that
Wells Fargo's efforts to acquire control of First Interstate would produce
greater returns for investors.
27. As a proximate result, the plaintiff an other members of the Class
have been substantially injured and request compensatory damages.
SECOND CAUSE OF ACTION
NEGLIGENT BREACH OF FIDUCIARY DUTIES
28. Plaintiff incorporates by reference P. P. 1-23 above.
29. The Individual Defendants engaged in the aforesaid
conduct without exercising the reasonable and ordinary care which directors
and officers owe to their shareholders, and thereby breached their fiduciary
duties to plaintiff and other members of the Class.
18
30. Defendants, at the time they rejected Wells Fargo's offer, knew or
should have known, that the market price of First Interstate stock at the time
reflected both the intrinsic value of First Interstate and a premium which
resulted from market expectations that Wells Fargo's efforts to acquire
control of First Interstate would produce a greater return for investors.
31. As a proximate result, the plaintiff and other members of the Class
have been substantially injured and request compensatory damages.
32. Defendants did the things alleged herein without exercising the
reasonable and ordinary care owed by corporate directors and officers.
THIRD CAUSE OF ACTION
ABUSE OF CONTROL
33. Plaintiff incorporates by reference P. P. 1-23 above.
34. The Individual Defendants owed duties as controlling
persons and/or as controlling or dominant directors to plaintiff and the other
members of the Class not to use their positions of control of First Interstate
for their own personal interests and contrary to the interests of First
Interstate's remaining shareholders.
35. The foregoing conduct by the director defendants
amount to an abuse of their abilities to control First Inter-
19
state in violation of their obligations to plaintiff and the
other members of the Class.
36. As a proximate result, plaintiff and the other members of the Class
have been damaged and will continue to be damaged unless defendants are
enjoined, and defendants are each jointly and severally liable to plaintiff
and the other members of the Class for all loss and damage they have suffered
reflect in from the matters set forth herein.
FOURTH CAUSE OF ACTION
UNJUST ENRICHMENT
37. Plaintiff incorporates by reference P. P. 1-23 above.
38. As a proximate result of the tortious conduct de-
scribed above, all of the defendants have been and will be unjustly enriched
at the expense of the members of the Class. The director defendants will
retain control of First Interstate and their positions of power, prestige and
profit. Defendants have obtained these unjust benefits at the expense of the
members of the Class by rejecting the Wells Fargo offer and refusing to
negotiate a beneficial sale of First Interstate.
FIFTH CAUSE OF ACTION
TORTIOUS INTERFERENCE WITH
PROSPECTIVE ECONOMIC ADVANTAGE
39. Plaintiff incorporates by reference P. P. 1-23 above.
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40. By reason, inter alia, of Wells Fargo's announced offer to purchase
First Interstate stock at $133+ a share, plaintiff and the members of the
Class had an expectancy that they could tender their shares and realize at
least the $133+ per share offer. Moreover, all class members had the
expectancy of sharing in any premium that results from acquisition attempts.
41. Defendants knew of these prospective advantages presented to
plaintiff and the members of the Class and defendants intended to interfere
and did interfere with those advantages when they rejected the Wells Fargo
offer.
42. Plaintiff and the members of the Class were prevented from obtaining
the foregoing advantages as a result of the conduct of all defendants
described above.
43. The defendants, and each of them, did the things alleged in this
Complaint with the intent to injure plaintiff and the members of the Class.
WHEREFORE, plaintiff and members of the Class demand judgment against
defendants as follows:
1. Declaring that this action is properly maintainable
as a class action and certifying plaintiff as the representa-
tive of the Class;
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2. Declaring that the defendants have breached and are
breaching their fiduciary and other duties to plaintiff and
other members of the Class;
3. Preliminary and permanently enjoining the defendants and their
counsel, agents, employees and all persons acting under, in concert with, or
for them, from taking to prevent or frustrate the sale to Wells Fargo or
refusing to proceed with negotiations with Wells Fargo to increase the offered
price;
4. Awarding compensatory damages against defendants individually and
severally in an amount to be determined at trial, together with prejudgment
interest at the maximum rate allowable by law, arising from the proposed
transaction;
5. Awarding plaintiff his costs and disbursements and
reasonable allowances of fees for plaintiff's counsel and
experts and reimbursement of expenses; and
6. Granting plaintiff and the Class such other and
further relief as the Court may deem just and proper.
JURY DEMAND
Plaintiff demands a trial by jury.
DATED: October 19, 1995
WILBERG WEISS BERSHAD
HYNES & LERACH
---------------------------------
WILLIAM S. LERACH
22
600 West Broadway, Suite 1800
San Diego, California 92101
Telephone: 619/231-1058
-and-
JEFF S. WESTERMAN
255 South Grand Avenue
Suite 4170
Los Angeles, California 90071
Telephone: 213/617-9007
BLUMENTHAL & OSTROFF
A Partnership of
Professional Law Corporations
NORMAN BLUMENTHAL
1420 Kettner Boulevard
Seventh Floor
San Diego, California 92101
Telephone: 619/239-7373
SULLIVAN, HILL, LEWIN
& MARKHAM
DAVID MARKHAM
500 West "C" Street
Suite 1500
San Diego, California 92101
Telephone: 619/233-4100
Attorneys for Plaintiff
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