Wells Fargo motion to dismiss deemed moot by Fifth Circuit

DALLAS (Legal Newsline) - Wells Fargo Capital Finance's appeal in the U.S. Court of Appeals for the Fifth Circuit was recently dismissed as moot after three circuit judges had to decide between a consolidated complaint and a "significantly amended" complaint.

Wells Fargo's appeal sought review of the district court's interpretation of the facial allegations in the consolidated complaint. However, the class action plaintiffs argued that because the consolidated complaint has been superseded in California state court by a "significantly amended" complaint, and because the third amended complaint is not before the court, the present appeal should be dismissed as moot, according to an appeal document filed Feb. 5 in the U.S. Court of Appeals for the Fifth Circuit.

Wells Fargo argued the third amended complaint "does not abandon the claims at issue in this appeal" and has concrete interest in the outcome and because the consolidated complaint and the third amended complaint allege the same theories of harm in connection with the exchange offering, the document states.

Circuit Judges Thomas Morrow Reavley, Edward C. Prado and Priscilla Owen disagreed with Wells Fargo.

The crux of the appeal, and of the underlying adversary proceeding, challenges whether a specific cause of action belongs to a bankruptcy estate, according to the document.

"In the adversary proceeding, Wells Fargo challenged only the allegations in the consolidated complaint. Similarly, on appeal, Wells Fargo has raised only the causes of action asserted in the consolidated complaint," the document states.

The consolidated complaint, however, is no longer the operative complaint and has no legal effect because the third amended complaint has superseded it and does not incorporate the consolidated complaint, according to the decision.

"We need not decide whether the amendment of the complaint, alone, is sufficient to moot this appeal. It suffices to hold that the facts alleged in the third amended complaint are sufficiently different from those the bankruptcy court and district court reviewed...the differences between the two complaints are such that Wells Fargo no longer has a right to be vindicated or a stake in the outcome of the consolidated complaint. Wells Fargo's appeal is moot," the court wrote.

Gordon Noble, Arlene Dea Deeley, Fredric C. Mendes, Nancy Rapp, Phillip Cantor, John Emanuele, Irene Lee and David Nolan filed a putative class action complaint in California state court against Wells Fargo. The present appeal stems from Wells Fargo's "attempt to attack the consolidated complaint through an action in the United States Bankruptcy Court for the Northern District of Texas."

The class action plaintiffs are former investors in R.E. Loans, which suffered from a liquidity shortage and entered into a senior secured credit facility with Wells Fargo, according to court documents.

The class action plaintiffs claimed they were induced into participating in the exchange offering through misrepresentations REL managers made to them and that Wells Fargo provided assistance in the misrepresentations.

"Wells Fargo, in turn, commenced an adversary proceeding in the bankruptcy court, and moved therein to enjoin prosecution of the consolidated complaint on the ground that the asserted causes of action were property of the REL estate and that the REL estate had released all claims against Wells Fargo, the document states.

The bankruptcy court denied the motion and dismissed the adversary proceeding. On appeal, the U.S. District Court for the Northern District of Texas affirmed in part and reversed in part.

U.S. Court of Appeals for the Fifth Circuit case number: 13-10468