The Court, faced with significant litigation over the proposed merger of two major banks and the validity of deal protection provisions in the approved merger agreement, engaged in a thorough discussion of the underpinnings and evolution of the business judgment rule as well as the development of Delaware law in the area of corporate change of control.  The Court articulated the standard it would apply in reviewing the validity of such provisions.

At the heart of the Court’s discussion is an analysis of the tension between the degree of freedom which corporate boards should have to make decisions, and the level of review which a Court should apply to such decisions.

The Court held that "our system requires: (a) that directors have the power and authority to plan, develop, design, negotiate and contract for mergers and other acquisitions fundamental to the corporation’s business strategy, (b) that shareholders have the right to vote on any such fundamental changes in corporate structure and (c) that their vote results in a free, uncoerced and informed valuation of the proposed corporate action. Exposing a transaction to valuation in the marketplace is the best test of its worth. When corporate law adopts a review process that insures that these structural requirements are met, it promotes corporate value."

The Court held that directors of North Carolina corporations do not have Revlon duties, based on the amendment of N.C.G.S. Sec. 55-8-30(d), which provides that "the duties of a director weighing a change in control situation shall not be any different, nor the standard of care any higher, than otherwise provided in this section."  It determined that the policy of North Carolina demanded deference to the strategic decisions of directors, but at the same time a vigorous preservation of the voting rights of shareholders. 

The Court held that it would apply the following standard in cases seeking injunctive relief against deal protection devices in a stock for stock merger:

In reviewing deal protection measures in a stock-for-stock merger subject to shareholder approval, the court will first review the transaction, including the adoption of deal protection measures, to determine if the directors have complied with their statutory duty of care under N.C.G.S. § 55-8-30. The burden is upon the shareholder challenging their actions to prove that a breach of duty has occurred. If no breach of duty is proven, the action of the directors is entitled to a strong presumption of reasonableness and validity, including noncoercion, and the court should not intervene unless the shareholder can rebut that presumption by clear and convincing evidence that the deal protection provisions were actionably coercive, or that the deal protection provisions prevented the directors from performing their statutory duties. If a breach of duty is established, the burden shifts to the directors to prove that their actions were reasonable and that it is in the best interests of the shareholders that they be permitted to vote on the transaction, and, if at issue, that the deal protection measures were not actionably coercive and did not prevent the directors from performing their statutory duties. Where the court finds that the deal protection measures are coercive or require directors to breach their statutory duties, the court must then weigh the harm to the shareholders in enjoining either the deal protection measures, the vote on the transaction or the merger, if the transaction is approved, against the harm resulting from not entering injunctive relief.

Applying this standard, the Court found no breach of duty on the part of the Wachovia directors.  They had acted with due care, and were entitled in their determination to rely upon the advice of legal counsel, investment bankers, and other professionals in managing the business of the corporation.  They had negotiated a higher price than initially offered, and had obtained a fiduciary out to the no-shop provision in the merger agreement.  In response to SunTrust’s argument that the directors did not fully understand the economic impact of a cross-option agreement which they had approved, the Court held that it made no difference that the directors did not understand the intricacies of the break up fee resulting from that agreement.  The directors understood the bottom line, which was $780 million, and the Court found that sufficient.

The Court found that the deal protection measures before it were not coercive.  It held "they do not force management’s preferred alternative on the shareholders.  There is no preordained result or any structural or situational coercion.  Wachovia shareholders can vote their economic interests.  The Court is convinced that those shareholders have an unfettered, fully informed opportunity to exercise their right to approve or disapprove of the merger their board has proposed to them, and that is the market test our system prefers."

The Court found invalid, however, a provision in the merger agreement which kept the merger agreement in place for five months past the date scheduled for the shareholders meeting at which the merger was to be presented for approval.  It referred to this as "numb hands" for the Wachovia board, and an "impermissible abrogation" of their duties.  The Court held that if the merger were not approved, "this board has impermissibly tied its hand and cannot do the very thing the Delaware Supreme Court found to be of fundamental importance to the shareholders — ‘negotiating a possible sale of the corporation.’"

Full Opinion

Plaintiff was not entitled to proceed on its derivative action seeking to enjoin a merger because it had not waited for the 90 day period required by N.C.G.S. §55-7-42. Plaintiff failed to sufficiently plead irreparable harm, which might have excused it from waiting the 90 day period.

It was not irreparable harm that the company’s shareholders would be called upon to vote on the merger transaction before the expiration of the 90 day period, because there was an absolute statutory right to vote on the merger absent a showing of breach of fiduciary duty by the company’s directors, and plaintiff could present its position through a proxy fight if it desired.

Plaintiff’s rote allegations regarding a breach of fiduciary duty were insufficient to survive a motion to dismiss or to overcome the presumption of the business judgment rule.

Full Opinion

The challenge to the provisions of a merger agreement by a spurned acquiror would be governed by the law of North Carolina, because that was the place of execution of the merger agreement at issue and therefore the place of the last act causing injury, and also because North Carolina was the state having the most significant relationship to the controversy.

There was no unfair and deceptive practices claim to be made because the transaction involved securities.

Full Opinion

A shareholder qualified under N.C.G.S. § 55-16-02 to inspect the shareholder records of a corporation may share the information with another contestant in a proxy fight who is not a qualified shareholder.

Thus, the corporate defendant was obligated to provide its shareholder list to a shareholder even though that shareholder intended to provided to an entity which would not have been entitled to obtain the list, in order to use it in a proxy fight.

Full Opinion

A myriad of claims were at issue in this case, which involved claims of misuse of funds in trust. Some of plaintiff’s claims were barred by a settlement agreement it had entered into with other entities. Others were dismissed because the court determined that a trustee had repudiated his fiduciary relationship, and could not be held liable for breach of fiduciary duty. Also considered were claims for fraud, tortious interference with contract, negligent misrepresentation. constructive fraud, the statute of limitations, and breach of contract.

Full Opinion

This was a straight up contractual interpretation case, chockablock with rules of contract construction and a discussion of grammar, punctation, and antecedent clauses. The principle that all words in a contract must be given effect helped lead to a grant of summary judgment for the plaintiff.

Full Opinion

The Court granted defendant’s motion to compel arbitration, noting North Carolina’s "strong public policy in support of arbitration." The Court rejected the argument that defendant had waived its right to arbitration by delay and through its pursuit of discovery.

Full Opinion

In the absence of the negotiation by the parties to a requirements contract of specific performance as a remedy, the seller was not entitled to seek that remedy. Instead, its sole remedies were those permitted by Section 2-708 of the Uniform Commercial Code.

Full Opinion

The issuance of a credit card to plaintiff was an offer to extend to him an open line of credit. The plaintiff’s acceptance of that offer subjected him to the terms of the credit card agreement, which permitted the issuer to amend, modify, or terminate the credit terms. The annual fee paid was not consideration for a favorable annual fee. The credit card issuer was therefore entitled to raise the applicable interest rate.

The Court granted summary judgment on plaintiff’s claim that the credit card issuer had improperly raised his interest rate, because the plaintiff had voluntarily renewed his credit card with knowledge of the increased rate. (This case involved Georgia law).

Full Opinion

The Court found that a demand made simultaneously with the filing of a complaint was insufficient to satisfy the derivative action demand requirement of N.C. Gen. Stat. §55-7-42. The purpose of this statutory scheme is to give a Board of Directors the opportunity "to fulfill its duties before the corporation incurs legal expenses or the litigation escalates into counterclaims and crossclaims."

The Court also discussed the plaintiff’s conspiracy claim. It focused on the doctrine of intracorporate immunity, which says that a corporation cannot conspire with itself or with its agents, officers, or employees. It found that plaintiff could not state a claim for conspiracy, notwithstanding its allegation that the company’s majority shareholder had an "independent personal stake in achieving the corporation’s illegal objective."

Full Opinion