In re Wachovia Shareholders Litigation

On April 15, 2001, Wachovia Corporation (Wachovia) and First Union Corporation (First Union) announced their plan to merge. Wachovia and First Union agreed that the merger agreement would not terminate until January 2002, even if the shareholders failed to approve the merger. Shareholders of Wachovia (plaintiffs) filed lawsuits seeking to stop the merger. Following a trial, Wachovia’s board of directors (defendants) were found to be either violating their fiduciary duty or, if another offer to merge appeared during the agreement period, breaching the merger agreement. Furthermore, the merger agreement was found invalid due to the nontermination provision. Based on this finding, the shareholders requested attorney’s fees, and the court granted $325,000 in attorney’s fees and $36,000 for expenses. In awarding the attorney’s fees, the court made its decision under the corporate-benefit doctrine. To be entitled to an award of fees under the corporate-benefit doctrine, an applicant had to show that (1) the suit was meritorious when filed; (2) the action producing benefit to the corporation was taken by the defendants before a judicial resolution was achieved; and (3) the resulting corporate benefit was causally related to the lawsuit. The business court held that the shareholders produced a corporate benefit for the other shareholders through the lawsuit and were entitled to attorney’s fees. However, there was no increase in the stock price following the lawsuits, and no other merger offer appeared after the merger agreement was deemed invalid. The board of directors appealed.