Wachovia Legal Tangle: Fiduciary Duty v. Exclusivity

In an angrily worded press release issued Friday, Citigroup said “a transaction with Wells Fargo is in clear breach of an exclusivity agreement between Citigroup and Wachovia. In addition, Wells Fargo’s conduct constitutes tortious interference,” a legal term meaning intentional interference with a contract.

Of course, it is not that simple. Several lawyers said that courts did not always tolerate companies’ efforts to tie their own hands, especially when doing so might hurt investors. In this case, Wachovia’s lawyers may well argue that it had to entertain the possibility of a better deal when one appeared and that to ignore a better offer would violate its fiduciary duties, or its legal obligations to protect the interests of its shareholders.

“Bidders jump deals all the time,” said Jill Fisch, a law professor at the University of Pennsylvania. “A new buyer comes in, jumps a deal, makes a better offer.”

In fact, some lawyers had already prepared to file a lawsuit on behalf of Wachovia shareholders to block the Citigroup deal, probably planning to argue that its terms were unfavorable to investors, said Stuart Grant, a securities lawyer at Grant & Eisenhofer in Wilmington, Del. “Those were literally in the works,” Mr. Grant said of the shareholder lawsuits.

Note: This pickup was originally to a CNN Money article, but since CNN can't keep the article up, NYTimes gets the link.