In Re Wachovia Shareholders Litigation

607 S.E.2d 48 (N.C. App. 2005)

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Nature of the Case

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Facts

D and First Union announced their planned merger. Their merger agreement included a cross option provision and a non-termination provision. Under the cross-option provision, if a merger fails to close, and one partner merged with a third entity within eighteen (18) months, the remaining partner was potentially entitled to a '$780 million break-up fee.' Under the non-termination provision, the companies agreed their merger agreement will not terminate until some future specified date even if either of their shareholders fail to approve the merger in the initial vote. A number of suits were filed alleging that the Board of Directors of D had breached its statutory 'fiduciary' duties. Further, Suntrust Banks, Inc. ('Suntrust') made a hostile bid on D. First Union filed suit against Suntrust ('the Suntrust suit'). The business court issued an order holding that the cross-option was a valid provision, but that the non-termination provision impermissibly restricted the ability of D's Board to consider merger partners other than First Union and was thus invalid and unenforceable. The court determined that the non-termination provision cornered D Board of Directors into the position of either breaching their fiduciary duty or breaching the merger agreement if a better merger offer came along during the agreement's dormancy. It also found the provision coercive upon the shareholders because the longer the option was effective; the more likely shareholders are to vote for the current deal. Ps then petitioned the business court for attorney's fees. The court then considered awarding funds under the 'corporate benefit' theory and adopting the Delaware decision framework held that the common law recognized that shareholders who file class actions in merger and acquisition cases and produce a real corporate demonstrable benefit for shareholders should be permitted to apply for attorney fees and expenses. Ps were awarded $325,000 in attorney's fees and $36,000 for expenses. This appeal resulted.