## Facts

- Wachovia Corporation and First Union Corporation announced a merger agreement containing two deal-protection provisions: a cross-option that could trigger an approximately $780 million break-up fee and a non-termination clause delaying termination until January 2002 even if shareholders initially voted down the merger.
- Wachovia shareholders sued to block or modify the merger terms, alleging the board breached statutory fiduciary duties by approving the contested provisions.
- The North Carolina Business Court upheld the cross-option provision but held the non-termination provision invalid and unenforceable because it impermissibly constrained the board’s ability to consider superior merger proposals and was coercive to shareholders’ voting.
- After the merits ruling, the shareholder suits were dismissed as moot in light of the merger proceeding with modifications and the challenged non-termination clause being struck down.
- Shareholder plaintiffs sought attorneys’ fees and expenses despite no common fund, no stock-price increase attributed to the litigation, and no subsequent competing bidder emerging.
- The Business Court awarded approximately $325,000 in fees and about $36,000 in expenses, finding the litigation conferred a substantial “corporate benefit” by eliminating the coercive non-termination provision.
- Wachovia appealed only the authority to award fees on a corporate-benefit theory absent a common fund or express statutory authorization.

## Issues

1. Whether North Carolina courts may award attorneys’ fees in shareholder litigation under an equitable corporate-benefit doctrine when no common fund was created and no statute expressly authorizes fees.
2. Whether invalidation of a coercive merger provision can constitute a substantial, non-monetary corporate benefit sufficient to support a fee award payable by the corporation.
3. What standards govern entitlement to fees under the corporate-benefit doctrine in North Carolina.

## Decision

- The North Carolina Court of Appeals affirmed the Business Court’s fee and expense award.
- The court held that North Carolina equity permits fee-shifting under a corporate-benefit doctrine even without creation of a common fund.
- The court concluded the elimination of the non-termination provision constituted a substantial corporate and shareholder benefit tied to the litigation.
- The court rejected the argument that existing statutory fee provisions impliedly displaced equitable authority to award fees in these circumstances.

## Legal Principles

- Under the American Rule, parties generally bear their own attorneys’ fees absent statutory or contractual authorization, but equitable exceptions may apply.
- A corporate-benefit doctrine permits an equitable fee award where shareholder litigation confers a substantial benefit on the corporation or shareholders, including non-monetary benefits.
- A claimant must show: (1) the suit was meritorious when filed; (2) defendants took action producing a benefit before final judicial resolution or in response to the litigation; and (3) the benefit was causally related to the lawsuit.
- A common monetary fund is not a prerequisite to an equitable fee award; the absence of a fund affects payment mechanics, not the availability of the doctrine.
- Statutory fee-shifting provisions do not, without express language, eliminate courts’ preexisting equitable authority to award fees to prevent unjust enrichment of passive beneficiaries.

## Conclusion

The court upheld an attorneys’ fee award to shareholder plaintiffs, recognizing that North Carolina equity allows fee-shifting under a corporate-benefit doctrine for substantial non-monetary gains—such as removing coercive merger restrictions—even when no common fund exists and no statute expressly authorizes fees.


In re Wachovia S'holders Litig., 168 N.C. App. 135, 607 S.E.2d 48 (N.C. Ct. App. 2005)