The Western Union Company Must Face Shareholder Double Derivative Action Filed by Rigrodsky & Long, P.A.

The Western Union Company Must Face Shareholder Double Derivative Action Filed by Rigrodsky & Long, P.A.

Plaintiff U.F.C.W. Local 1776 & Participating Employers Pension Fund commenced this shareholder double derivative action seeking injunctive and other relief on behalf of Nominal Defendants The Western Union Company (“WUC”) and its wholly owned subsidiary Western Union Financial Services, Inc. (“WUFSI”) (collectively, the “Company”) arising from violations of fiduciary duty owed to the Company by its directors and/or officers.

As detailed in plaintiff’s complaint, the Individual Defendants consciously and systemically failed to implement and oversee the Company’s compliance with applicable anti-money laundering (“AML”) laws, regulations, and rules known to them, including but not limited to the Bank Secrecy Act (“BSA”), 31 U.S.C. §§ 5311 et seq., and A.R.S. § 13-2317, that caused substantial losses to the Company beginning on September 29, 2006 through December 31, 2007 (the “Relevant Period”). The Company and the Individual Defendants knew about these requirements but ignored them with catastrophic financial results to the Company.

The unlawful and systemic course of misconduct by the Company and the Individual Defendants spawned a Settlement Agreement dated February 11, 2010, with the Arizona Attorney General (in cooperation with the Attorneys General for the States of California, New Mexico, and Texas) (the “Settlement Agreement”) in which the Company agreed to pay $94 million to resolve all potential regulatory, civil, and criminal claims arising from certain conduct specified in the Settlement Agreement involving payments tied to money laundering violations that facilitated human smuggling from Mexico into the United States through Arizona, all of which could, and should, have been prevented had the Individual Defendants complied with their fiduciary duties. Among other things, human smuggling of illegal immigrants from Mexican and Central American locations has substantial negative effects on efforts to improve working conditions for all members of the United States workforce.

On September 29, 2011, the Honorable Robert C. Jones of the United States District Court for the District of Arizona issued an Order denying defendants’ motions to dismiss plaintiff’s double derivative lawsuit for lack of personal jurisdiction and granted plaintiff’s motion to compel. Judge Jones stated:

Although there is no general jurisdiction over Movants, there may be specific jurisdiction over them. The corporate Defendants are Delaware and Colorado corporations with their principal places of business in Colorado. (Id. ¶¶ 9–10). Plaintiff does not appear to allege any Movant’s physical entry into Arizona related to the claims, although the granting of the present motion to compel may reveal such evidence. Plaintiff currently alleges only that Movants’ mismanagement of Western Union’s business—by not closely supervising wire transfer practices—led to civil and criminal investigations against Western Union and eventually a $94 million settlement agreement with the U.S. Attorney General and several state attorneys general, including Arizona’s. Plaintiffs argue that the mismanagement was directed at Arizona because a substantial portion of the illegal wire transfers occurred in Arizona.

The Court finds that this is enough to establish personal jurisdiction over the non-resident directors. The alleged money laundering and wire fraud appears to have occurred in Arizona before Movants held their positions. Still, the practice continued afterwards directed toward Mexico, and the continued malfeasance, though not directed at Arizona, certainly contributed to the investigations in that state and led to the resulting settlement. Also, the claim that Movants’ settlement with the Arizona Attorney General constituted corporate waste is enough to show that Movants purposely availed themselves of the privilege of doing business in Arizona, without more. The alleged tortious act was corporate waste based on a settlement agreement entered into with, inter alia, the State of Arizona itself in order to avoid civil, regulatory, and even criminal penalties and to ensure the ability of the corporation to do business there in the future. It cannot be said that a settlement of a massive conglomeration of claims by a state attorney general in order to secure a corporation’s ability to do business in the state in the future does not constitute “purposeful availment.”