Mergers

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The Court denied a motion for preliminary injunction in this litigation involving the merger of Wachovia and Wells Fargo.

The principal holdings of the decision were  that (1) the Wachovia Board of Directors, in approving the merger deal, satisfied its obligations under the Business Judgment Rule in light of the dire economic circumstances and lack of alternatives faced by the Board, (2) the Board complied with North Carolina law in the issuance of new shares of stock to Wells Fargo which gave it 39.9% of the voting control over Wachovia…

Continue Reading Ehrenhaus v. Baker, 2008 NCBC 20 (N.C. Super. Ct. Dec. 5, 2008)

The Court denied a Motion for Expedited Discovery in a shareholder class action seeking injunctive relief against the merger of two national banks, finding that the facts necessary to decide the motion were already publicly known.

The Court considered several different tests for when expedited discovery should be allowed, including:

Crown Crafts, Inc. v. Aldrich, 148 F.R.D. 151, 152 (E.D.N.C. 1993), in which the court held that the plaintiff should be required “to demonstrate (1) irreparable injury, (2) some probability of success on the merits, (3) some connection between

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Continue Reading Ehrenhaus v. Baker, 2008 NCBC 19 (N.C. Super. Ct. November 3, 2008)(Diaz)

This post is about three significant business decisions from courts in other jurisdictions.  They involve an issue of attorney-client privilege for limited liability companies, whether an LLC member can waive his statutory right to seek dissolution of an LLC, and board duties in a merger context.

First, if there’s litigation between a member-manager of an LLC and the LLC, does the LLC have an attorney-client privilege to assert against its own member-manager? This issue hasn’t arisen in any case before the North Carolina Business Court, but it undoubtedly will. 

A federal court in Nevada confronted…

Continue Reading Some Meaty (But Not North Carolina) Court Decisions On Business Issues

A manager of an limited liability company may not, as a condition of the payment of consideration from a merger of the LLC, require that the member receiving the consideration execute a general release exonerating the manager and insiders from any misconduct.  Holding the consideration "hostage" in exchange for such a release might amount to willful and wanton conduct warranting punitive damages.

An LLC member pursuing a derivative claim must be a member of the LLC at the time the suit is filed.  Where the LLC no longer existed at the time…

Continue Reading Fliehr v. Storick, December 3, 2007 (Diaz)(unpublished)

Plaintiff sought to enjoin a merger. He alleged that the defendants, directors of the company to be acquired, had breached their fiduciary duties by failing to disclose pertinent information to the shareholders, failing to maximize shareholder value, and agreeing to a coercive and unreasonable termination fee.

The Court noted that it was uncertain whether plaintiff was entitled to make direct claims, as directors of a corporation owe their fiduciary duties to the company, as opposed to the shareholders, and a claim for breach of those duties belong to the corporation.

Continue Reading Whitney v. Winston, June 20, 2007 (Jolly)(unpublished)

There were parallel actions challenging a merger, one in Delaware and one, filed first, in North Carolina. Defendant filed a motion to stay the North Carolina action. The Court identified twelve factors it would consider in such situations, including whether the issues should be settled in the corporation’s state of incorporation, the convenience of parties and witnesses, and the significance, if any, of the first to file. The Court stayed the North Carolina action pending the Delaware Court’s consideration of a proposed settlement.

Full OpinionContinue Reading Levy Investments v. James River Group, Inc., September 19, 2007 (Tennille)(unpublished)

Defendant, via a counterclaim, sought damages as a result of a concluded merger involving a Delaware LLC. The Court held that the decision whether to merge belonged to the Management Committee of the LLC, and that it would review that decision pursuant to the Business Judgment Rule.

Defendant contended that company insiders "stood on both sides of the deal," and they were therefore conflicted in their ability to properly approve this merger. The Court rejected this contention. It held that "the mere presence of managers on both sides of a…

Continue Reading Wachovia Capital Partners, LLC v. Frank Harvey Investment Family Limited Partnership, 2007 NCBC 7 (N.C. Super. Ct. Mar. 5, 2007)(Tennille)

This action sought to enjoin a merger involving a publicly traded company. The Court addressed whether the action was derivative or direct under Delaware law. If it was derivative, the Court held that the complaint suffered from three flaws: it was not verified, the corporation had not been joined as a party, and there were no allegations with respect to demand futility as required by North Carolina law.

The Court held, under Delaware precedent, that a shareholder claiming that the merger price is the product of a breach of the…

Continue Reading Marcoux v. Prim, 2004 NCBC 5 (N.C. Super. Ct. Apr. 16, 2004)(Tennille)

This opinion on attorneys’ fees was issued in tandem with the opinion in In re Wachovia Shareholders Litigation. Lawsuits had filed over a tender offer for the company, which led the Board of Directors to conduct an auction process which led to a higher price per share. Thereafter, class counsel and the defendant had agreed to permit the Court to set the fee, not to exceed $450,000, and the defendant had agreed not to object.

The Court considered, as it would have if there had been an objection: (1)…

Continue Reading In re Quintiles Transnational Corp. Shareholders Litigation, 2003 NCBC 11 (N.C. Super. Ct. Dec. 19, 2003)(Tennille)

The Court considered an award of attorneys fees following its determination that certain termination provisions of a merger agreement were invalid. This opinion was issued in tandem with opinion in In re Quintiles Transnational Shareholders Litigation.

Fee applications were made by attorneys representing a class of shareholders, as well as attorneys representing a derivative plaintiff. The Court observed that the derivative action did not fit well in the "fast paced" context of litigation over a merger. It stated that such claims were more suited to being litigated as shareholder…

Continue Reading In re Wachovia Shareholders Litigation, 2003 NCBC 10 (N.C. Super. Ct. Dec. 19, 2003)(Tennille)