A New Jersey federal judge on Wednesday dismissed an investor class action over TD Bank's failed $13.4 billion merger with First Horizon Corp., finding that First Horizon investors can't sue because they never held TD Bank shares and the deal didn't close.

U.S. District Judge Renée Marie Bumb issued an order agreeing with the defendants that the plaintiffs, who are First Horizon shareholders, lack statutory standing to bring claims against TD Bank.

The judge pointed to the so-called purchaser-seller rule, which states that plaintiffs who are alleging misstatements by a company must be actual purchasers or sellers of that company's stock in order to sue.

"Thus, plaintiffs — as purchasers and sellers of First Horizon securities only — do not have standing to sue TD Bank for its misstatements unless those statements were about First Horizon," the judge said.

According to the order, the plaintiffs argued that TD Bank's alleged misstatements can be imputed to First Horizon because they were made in the context of the merger.

However, Judge Bumb said the alleged misstatements are only "self-referential misstatements" made by TD Bank about its interactions with regulators, its compliance with regulatory requirements and the likely timing of regulatory approval of the First Horizon transaction.

"Plaintiffs essentially contend that TD Bank's alleged misstatements — about its own regulatory compliance and its own commitment to the merger — were actually about First Horizon because they were made in the context of the pending merger," the order states. "The mere fact that the alleged misstatements were made in the context of the merger does not transform TD Bank's self-referential comments about its own 'legal, regulatory, [anti-money laundering] and [Bank Secrecy Act] compliance' into statements about First Horizon."

"Even TD Bank's comments regarding its commitment to the merger and the timeline for obtaining regulatory approval for the merger are not about First Horizon," the order added.

The judge noted that both before the merger and up until the present day, TD Bank and First Horizon have been "two entirely separate companies."

The plaintiffs have also failed to adequately plead scienter, or knowledge of wrongdoing, Judge Bumb said.

"The allegations against the First Horizon defendants amount merely to an accusation that 'they-must-have-known' because TD Bank and First Horizon executives spoke regularly about the merger, First Horizon conducted due diligence ahead of the merger, and TD Bank's AML deficiencies were widespread and pervasive," the order states. "But the facts alleged do not support this inference. And the isolated, limited insider sales add no facts supporting scienter to this picture."

Since the merger was never completed, "any alleged misstatement or omissions in the proxy statement could not have injured [plaintiffs] in [their] rights of corporate suffrage," the judge also found.

Judge Bumb noted that the operative complaint was the plaintiffs' fourth opportunity to plead their claims, questioning whether the investors can, "in good faith," remedy the deficiencies she has identified. Despite her apparent skepticism, the judge stated the investors may have one final opportunity to amend their complaint.

In a statement to Law360 on Wednesday, Brandon Arnold of Herbert Smith Freehills Kramer LLP, counsel for First Horizon, said: "We believed that the claims against our clients were entirely without merit and are pleased with the court's thorough and well-reasoned opinion dismissing the case."

Counsel for the other parties did not immediately respond to requests for comment.

The Arbitrage Fund, an investment fund that purchased First Horizon shares during the proposed class period, sued TD Bank in 2023, arguing the institution and other individual defendants repeatedly claimed they expected to close the $13.4 billion acquisition of First Horizon with all the necessary regulatory approvals within the first quarter of 2023, causing significant losses and damages to shareholders when the deal fell through.

The banks announced the deal had been nixed on May 4, 2023, citing uncertainty over whether TD Bank would secure regulatory approvals by an already extended deadline.

The investors are represented by Maya Saxena, Joseph E. White III, Steven B. Singer and David J. Schwartz of Saxena White PA, Salvatore J. Graziano, Michael Blatchley and Aasiya Mirza Glover of Bernstein Litowitz Berger & Grossmann LLP, and James E. Cecchi of Carella Byrne Cecchi Brody & Agnello PC.

TD Bank is represented by Susan M. Leming of Brown & Connery LLP, and Susanna M. Buergel, Andrew G. Gordon and Paul A. Paterson of Paul Weiss Rifkind Wharton & Garrison LLP.

First Horizon is represented by Marjorie E. Sheldon and Brandon L. Arnold of Herbert Smith Freehills Kramer LLP.

Defendant Michael Bowman is represented by Scott B. Klugman, Seth L. Levine and Alison M. Bonelli of Levine Lee LLP.

Defendant Mia Levine is represented by Diane P. Sullivan, Chantale Fiebig and Joshua S. Amsel of Weil Gotshal & Manges LLP.

The case is In Re Toronto-Dominion Bank/First Horizon Corporation Securities Litigation, case number 1:23-cv-02763, in the U.S. District Court for the District of New Jersey.