Damages in Occidental Petroleum v. Wells Fargo

In May, 1995, the predecessor of Occidental Petroleum Corp. (Occidental) established a rabbi trust through the predecessor of Wells Fargo Bank (Well Fargo).  The parties in December 2019 or January 2020 agreed that Wells Fargo would sell 381,420 shares each day from January 6 until January 10, 2020.  For typical too-big-to-fail reasons, this did not occur.  The people responsible for Occidental's account did not really understand the transactions that they were to oversee (and I don't blame them!),  and there was miscommunication or non-communication between Wells Fargo and its transfer agent, Equiniti.  As a result, most of the shares did not get liquidated until March 20th, by which time the value of the shares had declined by eighty percent.

In a prior opinion, the District Court for the Southern District of Texas had granted summary judgment for Occidental on its breach of contract claim and denied Wells Fargo's motion for summary judgment on the quite reasonable ground that "Wells Fargo ha[d] not recited the elements of its affirmative defenses, nor pointed to evidence supporting its affirmative defenses."  Ouch.  To big to bother with elementary pleading standards.  

In May, 2023 (yes, I'm that far behind!), the same court ruled on damages in Occidental Petroleum Corp. v. Wells Fargo Bank.  Occidental sought $38 million in damages, representing the difference between what it would have gotten had Wells Fargo done what it promised to do and what it got for its shares when Wells Fargo finally got around to selling them.  Wells Fargo estimated damages at between $ 9.764 and $18.5 million.  Guess what!  The court once again sided with Occidental, awarding it just over $38 million in damages.

Given that we recently posted on new scholarship on consequential damages, I thought it interesting that Wells Fargo's main argument in its brief on damages was that "Occidental failed to identify whether the damages it seeks are direct or consequential."  The Authors of the piece we discussed last week find evidence that transactional lawyers do not really know the difference between direct and consequential damages, but they expect litigators to be able to make that distinction.  Not so, apparently.  Wells Fargo argued that the damages arose as a consequence of a sharp and unforeseeable decline in stock prices (thanks once again, COVID-19!).  Very clever, said the court. However, "Damages can directly and foreseeably flow from a breach, even if the exact amount cannot be foreseen."  I may use this case to teach damages, because it does a great job clarifying, for the benefit of Wells Fargo's learned counsel, how to calculate expectation damages.

The court also rejects a more serious but still erroneous argument from Wells Fargo.  Wells Fargo wanted damages to be adjusted to reflect Occidental's obligation to reinvest the proceeds of the sales.  Had Occidental done so, whatever it bought also would have declined in value, because everything declined in value in March 2020.  The facts did not support Wells Fargo's contention; Occidental was permitted and did retain the funds as cash.  However, even if it had been obligated to reinvest, the consequences of that reinvestment were speculative and could not be taken into consideration when calculating expectation damages.

In August, 2023, the parties were back before the District Court for a ruling on attorneys fees.  it is not clear what Occidental asked for, but it looks like it pretty much got everything.  The court awarded $1.5 million in attorneys fees.