Ehrenhaus v Baker
Annotate this Case
Download PDF
NO. COA10-1034 NORTH CAROLINA COURT OF APPEALS Filed: 4 October 2011 IRVING EHRENHAUS, On Behalf of Himself and All Others Similarly Situated, Plaintiff-appellee, v. Mecklenburg County No. 08 CVS 22632 JOHN D. BAKER, II, PETER C. BROWNING, JOHN T. CASTEEN, III, JERRY GITT, WILLIAM H. GOODWIN, JR., MARYELLEN C. HERRINGER, ROBERT A. INGRAM, DONALD M. JAMES, MACKEY J. MCDONALD, JOSEPH NEUBAUER, TIMOTHY D. PROCTOR, ERNEST S. RADY, VAN I. RICHEY, RUTH G. SHAW, LANTY L. SMITH, DONA DAVIS YOUNG, WACHOVIA CORPORATION and WELLS FARGO & COMPANY, Defendants-appellees, v. NORWOOD ROBINSON and JOHN LOUGHRIDGE, JR., Objectors-appellants. Appeal February by 2010 Superior Court. H. Objectors-appellants by Judge Albert from Diaz in judgment entered Mecklenburg 5 County Heard in the Court of Appeals 9 February 2011. Greg Jones & Associates, P.A., by Gregory Jones, and Wolf Popper LLP, by Robert M. Kornreich, Chet Waldman, and Carl L. Stine, for Plaintiff-appellee. -2Robinson Bradshaw & Hinson, P.A., by Robert W. Fuller, Mark W. Merritt, Louis A. Bledsoe, III, and Adam K. Doerr, for Defendants-appellees. Norwood Robinson and John H. Loughridge, pro se. HUNTER, JR., Robert N., Judge. I. Introduction As of 30 September 2008, Wachovia Corporation ( Wachovia ) was the nation s fourth largest banking institution. Founded in 1908, Wachovia s stock was widely held throughout this state. Many regarded Wachovia as a conservative, sound financial institution that had survived previous financial crises such as the Great Depression. When the 2008 financial collapse began, Wachovia s loan portfolio was encumbered with a large number of mortgages that it had obtained through its 2007 acquisition of Golden West Financial Corporation ( Golden West ), the nation s second largest dedicated mortgage bank. These mortgage liabilities caused Wachovia s depositors and investors to lose confidence in that developed, causing ( FDIC ) to inform Wachovia board of institution the Federal Wachovia s directors and a Deposit run Insurance corporate (the on the Corporation officers Wachovia bank Board and the or the Board ) that Wachovia needed to merge with a solvent financial institution or be placed into receivership. After negotiation -3with other financial institutions, the Board agreed to a merger proposal (the Proposed Merger or the Merger ) from Wells Fargo & Company ( Wells Fargo ). Shortly Ehrenhaus after filed the this Proposed class Merger action, was on announced, behalf of Irving a class consisting of all shareholders of Wachovia common stock (the Class ), challenging the Merger and seeking injunctive relief. After the Ehrenhaus s entered trial court motion into a for granted a in part preliminary settlement (the and denied injunction, Proposed in the Settlement part parties or the Settlement ), which resolved or released the Class s claims both pending claims and any pertaining to the Merger. individuals ultimately and groups approved the claims that could be asserted The trial court heard from several that objected Settlement to after the a Settlement, fairness but hearing. The final Settlement did not release claims pending in other courts. This precipitous appeal decline concerns of the events Wachovia, its which led subsequent to the Merger with Wells Fargo, the dissatisfaction with that Merger, the ensuing litigation Settlement. and Settlement, Norwood and the Robinson dissatisfaction and John H. with that Loughridge -4( Objectors-appellants ) are dissatisfied with the court- approved Settlement and raise five central arguments asking this court to reverse the Merger. erred in denying First, they argue the trial court Ehrenhaus s motion for a preliminary injunction, and in doing so, the trial court denied Wachovia shareholders their statutory voting rights. Objectors- appellants second argument is that the trial court failed to examine properly the qualifications and adequacy of the Class representative (Ehrenhaus) and his counsel. appellants contend the inadequate Settlement. trial court Third, Objectors- approved an unreasonable, Objectors-appellants fourth argument is that Wachovia shareholders were wrongfully denied the right to opt out of the Class and pursue their own causes of action. Finally, Objectors-appellants omitting certain consider that evidence evidence in argue from the the approving trial record the court and erred in failing to Settlement. After careful review, we affirm in part and reverse in part. II. Factual & Procedural Background The causes of the financial collapse were not at issue before the trial court. However, the events leading to the Wachovia Wells Fargo Merger, and the rapidity with which they occurred, provide the context for the Board s decision to -5approve the Merger and the parties decision Settlement. The following narrative is primarily derived from the findings factual contained in the trial to approve court s the orders. These findings are binding because they are either unchallenged or supported by competent evidence. Blitz v. Agean, Inc., 197 N.C. App. 296, 300, 677 S.E.2d 1, 4 (2009). A. The Financial Approval Crisis, Merger Negotiations, Beginning in the spring of 2008, and Merger a series of financial failures began to erode confidence in our nation s financial institutions. The following events culminated in a rapid decline in the public confidence in banks that held large positions in government-backed mortgage securities. On 7 September 2008 the United States government seized control of two mortgage giants: the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).1 September 1 2008, Lehman Brothers Holding, Inc. On 15 collapsed and Freddie Mac and Fannie Mae are government-sponsored enterprises whose stock was publically traded. These organizations would buy mortgages on the secondary market, pool them, and sell them as mortgage backed securities to investors. By purchasing mortgages from conventional lenders, the lenders assets could be used for additional loans, theoretically expanding the secondary mortgage market. The seizure of these institutions signaled that mortgage backed securities held by financial institutions were problematic to their holders, including investment banks. -6filed for bankruptcy. The same day, Merrill Lynch & Co. avoided filing for bankruptcy by agreeing to be acquired by Bank of America. agreed On 16 September 2008, the United States government to a multi-billion dollar rescue plan for American International Group, Inc. ( AIG ). The Wachovia Board met by telephone on 16 September 2008. Management informed the Board that the bank was experiencing liquidity Board problems expressed a due to financial preference for market the conditions. bank to The remain an independent entity and directed management to pursue that goal. Realizing Wachovia might not be able to stand on its own, the Board also directed management to explore a potential merger. On 20 September concern to 2008, U.S. Wachovia s government management officials concerning expressed the bank s liquidity, encouraging management to enter discussion with an unidentified potential merger partner. Those negotiations proved fruitless. On 25 September 2008, the FDIC seized the banking assets of Washington Mutual, Inc. That same day, the United States House of Representatives rejected the initial bailout plan proposed by the United States Department of the Treasury for the nation s financial system. These two events exacerbated Wachovia s -7liquidity crisis. Wachovia s share price descended to $1.84 down over 90 percent from the closing price ten days earlier. The Wachovia Board met again by telephone conference the following day, when management informed it that, if Wachovia did not arrange a merger by 29 September, the FDIC would place Wachovia s bank subsidiaries into receivership. Wachovia engaged in parallel negotiations with Citigroup, Inc. and Wells Fargo over the terms of a potential merger during the weekend of 27 September 2008. However, both suitors were unwilling to move forward without government assistance in the form of a loss-sharing arrangement. On 28 September, the FDIC notified Wachovia that the bank posed a systemic risk to the banking system authority to institution. would have and force that a the sale of FDIC intended Wachovia to to exercise another its financial The FDIC rejected a Wachovia counterproposal that given the FDIC an equity stake in Wachovia and allowed the firm to remain independent. Wachovia subsequently entered into a non-binding agreement in principle by which Citigroup would acquire Wachovia s bank subsidiaries with assistance from the FDIC. have paid Wachovia $2.16 billion in cash assumed $53.2 billion of Wachovia s debt. Citigroup would and/or stock and The merger would have -8left Wachovia as a stand-alone entity, but with its principal businesses limited operations. to its retail Disagreements brokerage between the and mutual two fund financial institutions remained, however, and Citigroup insisted the two firms finalize the deal by 3 October 2008. p.m. on 2 October 2008, Wells Fargo Shortly before 9:00 forwarded a merger agreement, approved by its board, to Wachovia representatives. This merger agreement required Wachovia and Wells Fargo to conduct a separate share exchange, pursuant to which Wells Fargo would acquire ten newly issued shares of Wachovia Series M, Class A Preferred Stock, representing 39.9 percent of Wachovia s aggregate voting rights, including the right to vote on the approval of the proposed merger, in exchange for 1000 shares of Wells Fargo common stock. These shares were subject to a tail provision, providing they could not be redeemed by Wachovia for eighteen months following the shareholder vote on the merger agreement even if the merger was not consummated. Unlike the proposed Citigroup merger, the proposed Wells Fargo merger did not contain a material adverse change clause. 2 2 The exchange A material adverse change provision gives the acquiring company the right to walk away from the deal in the event the target company experiences a significant adverse event or a material decline in value in the time period between signing and closing. -9ratio provided that Wachovia s public shareholders would receive 0.1991 shares of Wells Fargo common stock in exchange for each share of Wachovia common stock they owned. The proposal also contained a fiduciary out provision that required Wachovia s Board to submit the merger to a vote even if the Board no longer recommended the merger. The Wachovia Board convened at 11:00 p.m. to consider the Wells Fargo Sachs, merger financial counseled the proposal. services Board Perella firms hired the offer that Weinberg to and advise was Goldman the fair Board, under the circumstances and counseled against attempting to negotiate with Wells Fargo for more favorable terms in light constraints imposed upon Wachovia by the FDIC. of the time (The following day was the deadline to agree to the proposed Citigroup merger.) These advisors stated the exchange ratio was fair. In light of Wachovia s increasingly perilous liquidity problem, the FDIC s refusal other to Wachovia considerations,3 alternative 3 provide and the with Board unanimously government was voted left to assistance, with no approve and reasonable the Merger. Wachovia s financial advisors (Parella Weinberg and Goldman Sachs) both expected pending completion of due diligence and a financial review of the final documentation to be able to render an opinion that the exchange ratio pursuant to the merger agreement was fair to Wachovia s shareholders. These opinions were later confirmed in writing. -10Shortly thereafter, Wachovia notified Citigroup intended to merge with Wells Fargo.4 announcement of the Merger that Wachovia The next day, the public agreement alleviated Wachovia s liquidity crisis; its share price closed at $6.21 up from the previous day s close of $3.91.5 On 8 October 2008, Ehrenhaus filed this class action on behalf of against Board. the public Wachovia, See infra shareholders Wells Fargo, Section and II.B. of Wachovia members of Wachovia and common the stock Wachovia Wells Fargo pressed on to consummate the Merger. The Board of Governors of the Federal Reserve System (the Fed Board ) quickly approved the Merger agreement on 12 October 2008. In doing so, the Fed Board noted, [T]he unusual and exigent circumstances affecting the financial markets [and] the weakened financial condition of Wachovia . . . justified expeditious action on [the Merger Agreement]. (Second and third alterations in original.) 4 Citigroup initiated litigation to force Wachovia to merge with Citigroup, rather than Wells Fargo, but was ultimately unsuccessful. 5 Several days after the Board executed the merger documents, Wachovia reported a $9.1 billion loss for the second quarter of 2008 on 22 October 2008. Wachovia s poor performance was due in part to losses related to assets acquired as part of its purchase of Golden West. -11Pursuant to a 1990 amendment to the Wachovia articles of incorporation, the Wachovia Board issued ten shares of Series M, Class A Preferred agreement. Stock Wachovia pursuant and Wells to Fargo the share completed exchange the share exchange on 20 October 2008. The Wachovia Board scheduled a special for shareholders meeting 23 December 2008 for the on the purpose of voting on the Merger agreement. B. The Action and Preliminary Injunction Proceedings Ehrenhaus s complaint challenged the Merger following grounds: (1) the share exchange, which provided Wells Fargo with 39.9 percent of the voting power for the Merger, invalidly disenfranchised provision was coercive Wachovia shareholders; (2) the tail with respect to the shareholder vote because it impeded the Board from seeking out other bidders for at least eighteen months after a shareholder vote rejecting the Merger; (3) the Merger provided Wachovia shareholders with insufficient consideration in exchange for their shares; and (4) the fiduciary out clause was inadequate because the Board would have been required to submit the Merger to a vote in the event of a superior proposal, rather than withdraw entirely from the Merger agreement. The complaint sought to enjoin the Merger or rescind it if consummated. The complaint also sought a judgment -12directing caused Defendants-appellees to them and account to for pay all the Class profits all damages any special and benefits obtained as a result of their wrongful conduct. On 15 October injunction, 2008, seeking to Ehrenhaus moved invalidate the for tail a preliminary provision, the fiduciary out provision contained in the Merger agreement, and the issuance of the preferred stock to Wells Fargo. court held a hearing on 24 November 2008. The trial Wachovia shareholders did not personally receive notice of the hearing. At this time, however, the legal proceedings had attracted attention from the news media and public. The trial court received over 200 letters and emails from public officials, Wachovia shareholders, and others on the subject, most expressing dissatisfaction with the Proposed Merger. For example, the Charlotte Observer published an editorial entitled, Let Shareholders Have Their Say on Wells Deal. No other shareholder sought to intervene under Rule 24 and offered to serve as class representative at any time prior to the fairness hearing. The trial court granted in part Ehrenhaus s preliminary injunction motion. and denied in part Wachovia and Wells Fargo were successful in protecting the core components of the Merger. The trial court concluded the Board s approval of the -13Merger agreement was an informed decision, made in good faith, with an honest belief that the action was in the best interests of Wachovia preliminary preferred and its shareholders. injunctive stock disenfranchise and relief as concluded Wachovia s The to the trial the issuance preferred shareholders court of the did stock because denied not Wells Fargo ha[d] not locked up an absolute majority of the votes required for approval of the Merger Agreement. preferred bidder, stock was according to not the The existence of the coercive or preclusive trial court because, of another other than Citigroup, there was no other offer to consider, and it was unlikely that another suitor would emerge. Therefore, the trial court approve concluded the Board s decision to agreement was reasonable under the circumstances. the merger The trial court granted partial preliminary injunctive relief, voiding the tail provision because the court concluded the provision would impede the Board in fulfilling its fiduciary duty to seek out merger partners in the event a potential suitor s overtures had been rejected. C. The Amended Complaint, Negotiations, Terms of the Proposed Settlement, Merger Approval, Preliminary Class Certification, and Preliminary Settlement Approval -14Following the issuance of the partial injunction, Ehrenhaus amended his complaint to allege Wachovia s proxy statement contained material false and misleading statements and omitted material information related to the Merger. The parties began settlement negotiations shortly thereafter, and on 17 December 2008, they entered into a memorandum of understanding ( MOU ) setting forth an agreement-in-principle to settle the case. settlement reflected additional disclosures Disclosures ). in the MOU regarding required the Wachovia Merger (the to The make Additional Pursuant to this requirement, Wachovia filed a Form 8-K with the Securities and Exchange Commission, put out a press release, materials and disclosed published matters a post related on to its website. previous These omissions Ehrenhaus alleged in his complaint. Wells Fargo agreed to absorb the cost of providing notice to the Class of the proposed settlement and to pay up to $1.975 million in attorney s fees to Class counsel. was to be awarded by the court. The final amount The Proposed Settlement would release and discharge all causes of action against Defendantsappellees arising from the allegations contained in Ehrenhaus s complaint as well as any claims not asserted in the complaint that Class members could have brought related to the Merger. -15These claims expressly did not include (1) enforcement of the Proposed Settlement or (2) the claims asserted by [the] plaintiffs in the Amended Class Action Complaint for Violations of the Federal Securities Laws filed in the Lipetz v. Wachovia Corp., No. 08 Civ. 6171 (RJS) (S.D.N.Y.), litigation. The Proposed Settlement agreement also provided that Class counsel would conduct confirmatory discovery to ensure the fairness of the Settlement. On 23 December 2008, the Merger was approved by 76 percent of the votes entitled to be common and preferred stock.6 31 December 2008. cast of Wachovia s outstanding The firms consummated the Merger on During the time period between 31 December 2008 and 24 April 2009, Class counsel reviewed documents and took depositions to examine the conduct of corporate officials with regard to the Merger. Upon completing this due diligence, the parties entered into a stipulation of settlement. On approval 24 of stipulation. April the 2009, the Proposed This trial court Settlement preliminary granted based approval on order preliminary the parties conditionally certified the case as a non-opt-out class action, Ehrenhaus as 6 If the voting power held by Wells Fargo is completely disregarded, i.e., we assume the shares were never issued to Wells Fargo, over 50 percent of the independent Wachovia shareholders voted to approve the Merger. -16Class representative, the law firm of Wolf Popper LLP as Ehrenhaus s lead counsel, and Greg Jones & Associates, P.A. as North Carolina Liaison Counsel. Pursuant to this order, Wells Fargo distributed over one million copies of a notice of the pending class action settlement to Class members. D. Objections to the Proposed Settlement and Resolution At a settlement fairness hearing held on 20 August 2009, the trial court heard from several parties who objected to the Proposed Settlement, including Objectors-appellants Robinson and John H. Loughridge, Jr. Norwood Following the hearing, the Orange County Employees Retirement System and a group led by John M. Rivers withdrew their objections after agreeing to a modification include of claims negotiation of the not release arising terms and of out claims of stipulation. either disclosures the related Merger to the These or the Merger. These also include claims arising from Wachovia s business or Defendants-appellees Class period. Mr. acts or omissions Robinson and Mr. before or after Loughridge filed the an objection to the Revised Stipulation, attaching a complaint they and others Wachovia filed Board asserting related to claims against Wachovia s Wachovia 2006 and acquisition the of -17mortgage lender Golden West. All other objectors withdrew their objection to the Proposed Settlement. On 5 February 2010, the trial court entered its final order certifying the Class and approving the Proposed Settlement. The court awarded $932,621.98 in attorney s fees to Class counsel. III. Analysis Objectors-appellants make four general arguments on appeal: (1) the trial court should have enjoined the Merger; (2) the trial court erred in certifying the Class; (3) the trial court erred in approving the Settlement; and (4) the trial court failed to consider critical evidence. North Carolina Rule of Civil Procedure 23 provides, If persons constituting a class are so numerous as to make it impracticable to bring them all before the court, such of them, one or more, as will fairly insure the adequate representation of all may, on behalf of all, sue or be sued. 23(a). as it N.C.R. Civ. P. This rule is based on the federal counterpart to Rule 23 existed prior to 1966, when North Carolina adopted a modified version of the Federal Rules of Civil Procedure for state proceedings. See generally Crow v. Citicorp Acceptance Co., 319 N.C. 274, 277 80, 354 S.E.2d 459, 463 64 (1987). While the language of North Carolina Rule 23 has remained constant, -18Federal Rule 23 has been amended, and the case law interpreting the rule is extensive. [W]hile federal class action cases are not binding on [North Carolina courts,] we have held in the past that the reasoning in such cases can be instructive. This is so even though North Carolina s [Rule 23] . . . is quite different from the present federal Rule 23. Scarvey v. First Fed. Sav. & Loan Ass n., 146 N.C. App. 33, 41, 552 S.E.2d 655, 660 (2001) (citations omitted). The requirements of establishing a class action have been established by our Supreme Court in Crow. The party seeking to bring a class action under Rule 23(a) has the burden of showing that the prerequisites to utilizing the class action procedure are present. First, parties seeking to employ the class action procedure under our Rule 23 must establish the existence of a class. As we have indicated, the plaintiffs properly alleged the existence of a class. On remand, however, the plaintiffs also will be required to demonstrate the actual existence of the class. The named representatives also must establish that they will fairly and adequately represent the interests of all members of the class. This prerequisite is a requirement of due process. The named representatives must show that there is no conflict of interest between them and the members of the class who are not named parties, so that the interests of the unnamed class members will be adequately -19and fairly protected. The named parties also must have a genuine personal interest, not a mere technical interest, in the outcome of the action. The class representatives within this jurisdiction also must establish that they will adequately represent those outside the jurisdiction. The class the plaintiffs in the present case seek to represent is defined as including only current residents of North Carolina. Therefore, by definition, there are no class members outside the jurisdiction. Parties seeking to utilize Rule 23 also must establish that the class members are so numerous that it is impractical to bring them all before the court. It is not necessary that they demonstrate the impossibility of joining class members, but they must demonstrate substantial difficulty or inconvenience in joining all members of the class. There can be no firm rule for determining when a class is so numerous that joinder of all members is impractical. The number is not dependent upon any arbitrary limit, but rather upon the circumstances of each case. Additionally, although Rule 23(a) says nothing about the need for notice to members of the class represented, we believe that fundamental fairness and due process dictate that adequate notice of the class action be given to them. The actual manner and form of the notice is largely within the discretion of the trial court. The trial court may require, among other things, that it review the content of any notice before its dissemination. The trial court should require that the best notice practical under the circumstances be -20given to class members. Such notice should include individual notice to all members who can be identified through reasonable efforts, but it need not comply with the formalities of service of process. Notice of the action should be given as soon as possible after the action is commenced. As part of the notification, the trial court may require that potential class members be given an opportunity to request exclusion from the class within a specified time in a manner similar to the current federal practice. 319 N.C. at 282 84, 354 S.E.2d at 465 66. In reviewing the decisions of a trial court involving class certifications, our Supreme Court has instructed us to apply the abuse of discretion standard. Frost v. Mazda Motor of Am., Inc., 353 N.C. 188, 199, 540 S.E.2d 324, 331 (2000). A trial court abuses its discretion when its decision is manifestly unsupported by reason or so arbitrary that it could not have been the result of a reasoned decision. Id. (citations omitted) (internal quotation marks omitted). Rule 23(c) provides, A class action shall not be dismissed or compromised without the approval of the judge. Because settlements are compromises, a class action must therefore be subject to judicial review before it can be effectuated. While our business courts have reviewed class action settlements with regularity under a fairness, reasonable and adequacy standard -21based upon persuasive authority developed by federal courts and cases from other jurisdictions, no North Carolina court has specifically reviewed this standard. appellate For example, Judge Diaz in his February 2008 opinion viewed the standards as follows: Settlement has long been favored over litigation, and public policy favors upholding good faith settlements, even without strong regard to the consideration underlying the settlement. In light of the law and policy favoring settlement, federal courts reviewing a settlement agreement in class action cases conduct first a preliminary approval hearing to determine whether there is probable cause to notify class members of the proposed settlement, then a fairness hearing to determine if the proposed settlement is fair, reasonable, and adequate. The burden is on the proponents of the settlement to demonstrate the proposed settlement is fair, reasonable, and adequate. The weight given to each factor in evaluating the fairness, reasonableness, and adequacy of a proposed class action settlement varies depending on the circumstances of a given case. Generally, a trial court should ensure that the proposed settlement is not the product of collusion between the parties, and should evaluate its terms relative to the strength of the plaintiff s case. In addition to the strength of the plaintiff s case, some factors commonly evaluated include: (a) the defendant s -22ability to pay; (b) the complexity and cost of further litigation; (c) the amount of opposition to the settlement; (d) class members reaction to the proposed settlement; (e) counsel s opinion; and (f) the stage of the proceedings and how much discovery has been completed. (Citations omitted.) Our judicial system has a strong preference for settlement over litigation. Courts are generally indifferent to the nature of the parties agreement; why or how the case is settled is of little concern. See, e.g., Knight Publ g Co., Inc. v. Chase Manhattan Bank, N.A., 131 N.C. App. 257, 262, 506 S.E.2d 728, 731 (1998) ( The real consideration is not found in the parties[ ] sacrifice of rights, but in the bare fact that they have settled the dispute. ). applies to class actions. This preference for settlement See Ass n For Disabled Americans v. Amoco Oil Co., 211 F.R.D. 457, 466 (S.D. Fla. 2002) ( There is an overriding particularly in public class interest actions in that favor have reputation as being most complex. ). of the settlement, well-deserved But due to unique due process concerns implicated by binding a group of individuals not before the court, we are concerned with the circumstances and terms of class action settlements. Thus, parties cannot -23settle a class action without court approval. 23(c). N.C.R. Civ. P. The purpose of the settlement approval requirement is to (1) assure[] that any person whose rights would be affected by settlement has the opportunity to support or oppose it; (2) prevent[] private arrangements that may constitute sweetheart deals contrary to the best interests of the class; (3) protect[] the rights of those whose interests may not have been given due regard by the negotiating parties; and finally, (4) assure[] each member of the class that his or her integrity and right to express views and be heard on matters of vital personal interest has not been violated by others who have arrogated to themselves the power to speak and bind without consultation and consent. In re Agent Orange Prod. Liab. Litig., 597 F. Supp. 740, 758 (E.D.N.Y. 1984) (citations omitted), aff d sub nom., In re Agent Orange Prod. Liab. Litig. MDL No. 381, 818 F.2d 145 (2d Cir. 1987). A trial court evaluating a class action settlement should follow courts. the two-step procedure generally employed by federal First, the trial court should conduct a preliminary approval or pre-notification hearing to determine whether the proposed settlement is within the range of possible approval or, in other words, whether there is probable cause to notify the class of the proposed settlement. Horton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 855 F. Supp. 825, 827 (E.D.N.C. -241994). If the trial court grants preliminary approval, notice is sent to the class, [and] the court conducts a fairness hearing, at which all interested parties are afforded opportunity to be heard on the proposed settlement. an Id.; cf. Frost, 353 N.C. at 197, 540 S.E.2d at 330 ( [N.C.] Rule 23 does not by its terms require notice to class members, but adequate notice is dictated by fundamental fairness and due process. (quoting Crow, 319 N.C. at 283, 354 S.E.2d at 466)). second hearing, proposed Horton, the trial settlement 855 F. Supp. is at court must ascertain fair, reasonable, 827. Proponents whether and of At this the adequate. class action settlements bear the burden of showing the settlement meets this standard. Cir. 1983). Holmes v. Cont l Can Co., 706 F.2d 1144, 1147 (11th Appellate courts review the decision to approve a settlement for abuse of discretion. 7B Charles Alan Wright et al., Federal Practice & Procedure § 1797.1, at 80 (3d ed. 2005); see also Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998) ( [T]he decision to approve or reject a settlement is committed to the sound discretion of the trial judge because he is exposed to the litigants, and their strategies, positions and proof. (quotation marks omitted) (citation omitted). -25When reviewing a class action settlement, the trial court must protect, to the extent practicable, the rights of passive class members. of collusion It should also be sensitive to the possibility by the parties actively involved Wright et al., supra, § 1797.1, at 79. accepted (e.g., that where approval settlement for settlement precedes and in the case. [I]t is generally class certification certification are sought simultaneously, as is the case here) district courts must be even more scrupulous than usual when examining the fairness of the proposed settlement. In re Sprint Corp. ERISA Litig., 443 F. (D. Supp. 2d 1249, 1255 Kan. 2006) (citation omitted). Courts consider a variety of factors in evaluating a settlement, giving heavy weight to two in particular. The first is the likelihood the class will prevail should litigation go forward and the potential spoils of victory, balanced against benefits to the class offered in the settlement. State of W. Va. v. Chas. Pfizer & Co., 440 F.2d 1079, 1085 (2d Cir. 1971); see also Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424 25, 20 L. Ed. 2d 1, 10 (1968) ( Basic to this process in every instance, of course, is the need to compare the terms of the compromise with the likely rewards of litigation. It is here that we must start in the -26present case. ). settlement. The second is the class s reaction to the Sala v. Nat l R.R. Passenger Corp., 721 F. Supp. 80, 83 (E.D. Pa. 1989) ( [T]he reaction of the class to the settlement is perhaps the most significant factor to be weighed in considering its adequacy. ). Professor Wright emphasizes, among other things, the points of law on which the settlement is based[;] . . . if the action went forward, the plan for allocating the settlement among the class members or for distributing the settlement to the class[;] whether proper procedures were adopted for giving notice to the absent class members[;] and whether a settlement would waive other viable claims. Wright et al., supra, § 1797.1, at 82 94 (footnotes omitted); see also 4 Abba Conte & Herbert Newberg, Newberg on Class Action § 13:68, at 479 81 (4th ed. 2002). also a relevant factor. The opinion of counsel is Armstrong v. Bd. of Sch. Dir. of City of Milwaukee, 616 F.2d 305, 314 (7th Cir. 1980), overruled on other grounds by Felzen v. Andreas, 134 F.3d 873 (7th Cir. 1998). Because the trial court s final order both certified the class and approved a final settlement, contest portions of each determination. Objectors-appellants Of the multiple Crow requirements to certify a class, Objectors-appellants contest only two requirements: the adequacy of class representative, see -27infra Section III.B.1; and the adequacy of class counsel, see infra Section III.B.2. process argument certify the III.B.3. Objectors-appellants also raise a due concerning the Class as a non-opt-out Objectors-appellants approved trial a reasonable. settlement that court s class, also not the fair, to Section trial court adequate and See infra Section III.C. Our analysis proceeds as follows. first see infra contend was decision contention Ehrenhaus s is motion that for the a trial Objectors-appellants court preliminary erred in injunction. denying Appellees respond that Objectors-appellants lack standing to appeal the denial of the injunction. While we decline to answer that question, see infra Section III.A, the substantive issues raised by Objectors-appellants preliminary injunction argument are resolved in other portions of our analysis. We next turn to Objectors-appellants argument that Ehrenhaus, as Class representative, and his attorneys, as Class counsel, are not qualified to serve the Class. See infra Sections III.B.1 2, respectively. We then address the third class the certification issue: whether certifying a non-opt-out class. trial court erred See infra Section III.B.3. in -28Objectors-appellants next take issue court s decision to approve the Settlement. (1) the probability the with the trial Our review examines Class would have prevailed had this matter been litigated in full and the potential benefits to the Class, see Section III.C.1; (2) the merits of a claim that was not the thrust of Ehrenhaus s litigation strategy: a claim for damages against the Wachovia Board, see Section III.C.2; and (3) the reaction of the Class, recommendations of counsel, and notice adequacy, see Section III.C.3. We then turn to the trial court s award of attorney s fees. See infra Section III.C.4. Finally, we address Objectors- appellants allegations that the trial court omitted evidence from the record and refused to consider material evidence. See infra Section III.D. A. The Denial of the Motion for a Preliminary Injunction Objectors-appellants argue the trial court erred in denying Ehrenhaus s motion for a preliminary injunction to enjoin the issuance of Series M shares to Wells Fargo. Specifically, they argue Wachovia s articles of incorporation did not authorize the issuance of the shares. Before attempting to settle the case, Ehrenhaus sought to enjoin the issuance of these shares to Wells Fargo. After -29failing to convince the trial court to issue the preliminary injunction, Ehrenhaus opted to settle. Objectors-appellants became involved in this case only when Appellees sought court approval of the settlement. Prior to that time, they did not seek to intervene or to represent the Class themselves. Thus, Objectors-appellants not only appeal the class certification and settlement approval which appellants intervened process but also in seek were this entered case appellate after through review of objectors- the objection an order have no entered before they participated in this case. Appellees appeal the appellants contend denial have in not Objectors-appellants part of directed the us injunction. to any right to Objectors- binding authority establishing that a party may appeal under these circumstances. Nor has our research discovered any. Neither party has briefed the practical strengths or weaknesses of a procedural rule that would permit an objector to appeal under these circumstances. For this reason, and because we address Objectors-appellant s argument below, (reviewing the fairness of the the see infra Settlement), substance of Section III.B we decline to expound on whether Objectors-appellants have a right to appeal -30the denial of a preliminary injunction under these circumstances. B. Class Certification The trial court s decision to certify the class was appropriately based on the Crow requirements. We now consider (1) whether the Class representative was adequate; (2) whether Class counsel was adequate; and (3) whether Class members should have been permitted to opt-out. 1. Class representative Objectors-appellants argue Ehrenhaus was an inadequate Class representative and that the trial court selected him as the Class representative because the court failed to conduct an adequate inquiry of his qualifications. We disagree. The trial court concluded Ehrenhaus fairly and adequately represents the interests of the Class because [Ehrenhaus] is a Class member with the same legal claims as the other Class members, he has a genuine personal interest in the outcome of the litigation, and he has no conflict of interest with other Class members because he will not receive compensation for serving as Class Representative. Ehrenhaus owned 1080 shares of Wachovia stock before Wells Fargo acquired the stock and will not be compensated for serving as Class representative. Objectors-appellants fail to direct us -31to any fact indicating Ehrenhaus s interest in the litigation would be different from the remainder of the Class. Their brief implies that his ownership of 1080 shares is problematic because there were stock. over two billion outstanding shares of Wachovia But owning a (relatively) small number of shares is not a bar to a class member serving as class representative. Cf. Kornberg v. Carnival Cruise Lines, Inc., 741 F.2d 1332, 1337 (11th Cir. 1984) ( Differences in the amount of damages between the class representative and other class members does not affect typicality. ).7 Objectors-appellants maintain [t]here was no one to represent the Wachovia Shareholders after the MOU was executed. Essentially, conducting entered a into Objectors-appellants final the certification MOU and the detriment. Objectors-appellants 7 that parties a were trial that, colluding court to hearing contend consummated, proposition object cite may to no not the after once the trial the the court parties MOU was shareholders authority conduct for a the final Objectors-appellants do not point to any evidence in the record that Ehrenhaus purchased stock immediately prior to the Merger for the sole purpose of challenging the Merger or that he conspired with management to engage in sweetheart litigation to eliminate legitimate claims of Class members. Had such evidence existed, the Court s determination may have been different, but speculation that such a conflict of interest is present is very distinct from proof of such a conflict. -32certification hearing after the parties have agreed in principle to a settlement, and we see no reason why the trial court s approach was inappropriate, particularly in light of the time constraints imposed by financial crisis. In contending the Class received no representation following the date of the MOU, Objectors-appellants post-MOU discovery completely fail to mention the extensive conducted by Class counsel in order to confirm the Proposed Settlement was fair and adequate. After the parties agreed on the MOU, Class counsel conducted four depositions and reviewed nearly 10,000 pages of documents. The Settlement was contingent on Ehrenhaus determining whether the discovery confirmed the Settlement was fair; Ehrenhaus could walk away from the Proposed Settlement, in his sole discretion, if the confirmatory discovery indicated the Settlement was unfair. Ehrenhaus retained a financial advisor to concerning provide an opinion statement as well. deficiencies in the proxy Objectors-appellants have not referred us to anything in the record indicating Ehrenhaus or Class counsel were covertly engaged in conduct contrary to the Class s best interests. Finally, we note that no other shareholder came forward at this time to intervene seeking to serve as Class representative. -332. Class counsel Objectors-appellants also take issue with the adequacy of Class counsel. They maintain there was a direct conflict of interest between the attorneys and their clients, shareholders, forward following the date of the MOU. Objectors-appellants do not, however, explain what this conflict is. They take issue with Class counsel being paid on a contingency basis, citing the North Carolina Rules of Professional Conduct for the proposition that Rule 1.8(f) . . . recognizes the inherent conflict where a third party defendant (Wells Fargo) pays for a litigant s attorneys fee [sic], but provide no further analysis. Rule 1.8(f) does not prohibit a lawyer from representing a class on a contingency basis. very nature In fact, some class actions are by their contingency fee cases. Long v. Abbott Laboratories, 97-CVS-8289, 1999 WL 33545517 (N.C. Super. July 30, 1999) (discussing class actions that create a common fund). We also note that the trial court found that Class counsel is highly respected and experienced in shareholder class action litigation. We are not persuaded that Class counsel deprived the Class of adequate and reasonable representation by virtue of a conflict of interest or insufficient class action proficiency. 3. Opt-out certification -34Objectors-appellants certification of a contend non-opt-out the Class trial below fell court s procedural guarantees of the Due Process Clause of the Constitution of the United States. Specifically, Objectors-appellants maintain they should have been able to opt out of the Class and bring an action seeking damages. As this issue concerns a question of law, we review the trial court s decision in this matter de novo. Blitz, 197 N.C. App. at 300, 677 S.E.2d at 4. Citing Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 n.3, 86 L. Ed. 2d, 628, 642 n.3 (1985), the trial court concluded the Class did not attempt require to opt-out bind rights Class because members with predominantly seeking monetary relief. the parties respect to did not claims In doing so, the court explained that, from the outset, Ehrenhaus pled and litigated the case as one seeking predominantly equitable relief. The trial court focused on whether Ehrenhaus s claim sought equitable, rather than monetary, relief. The trial court s analysis relied heavily on the predominance opt-out analysis employed by many courts. Court recently Although the United States Supreme criticized reliance on that analysis, we nevertheless hold the trial court reached the correct result. The term opt-out refers to a class member s ability -35exclude himself from a class action settlement. By opting out, the class member avoids the preclusive effect of the settlement, in that he is free to bring his own lawsuit. He also forgoes any payments he might receive from the settlement. In Shutts, the United States Supreme Court held that, when a class action seeks to bind the class members concerning claims wholly or predominately for money judgments, due process requires opt-out rights for class members. L. Ed. 2d at 642 n.3. Id. at 812 n.3, 86 Federal Rule 23 authorizes non-opt-out classes, and the federal courts have developed a substantial, albeit somewhat inconsistent, body of law pertaining to class certification and opt-out rights. Under Federal Rule 23, there are three categories of class actions: the (b)(1) class, which, as a general adjudication is matter, can unworkable; be the certified (b)(2) when class, individual which can be certified when injunctive or declaratory relief will affect the entire class certified at when once; a and class the action (b)(3) is a class, which superior can be manner of adjudicating common questions of law or fact applicable to the entire class. See Fed. R. Civ. P. 23(b); Allison v. Citgo Petroleum Corp., 151 F.3d 402, 412 (5th Cir. 1998). Rule 23 requires opt-out rights Federal for (b)(3) classes, but not -36(b)(1) and decisions (b)(2) classes. concerning whether Consequently, (b)(1) and classes are appropriate are instructive. federal particularly court (b)(2) See Frost, 353 N.C. at 196, 540 S.E.2d at 330 (stating our decisions should be informed by federal decisions where appropriate). There are certification monetary numerous is appropriate, relief, predominate or federal provided are decisions even the when damages incidental to the stating the (b)(2) action sought seeks do injunctive not relief. E.g., Lemon v. Int l Union of Operating Engineers, Local No. 139, AFL-CIO, 216 F.3d 577, 581 (7th Cir. 2000); Allison, 151 F.3d at 412; DeBoer v. Mellon Mortg. Co., 64 F.3d 1171, 1175 (8th Cir. 1995); see also Manual for Complex Litigation (Fourth) § 21.221 (2004). or declaratory avoid When the class representative seeks injunctive relief, unnecessary litigation. a non-opt-out inconsistencies DeBoer, 64 F.3d class and at is necessary compromises 1175. If a in to future prospective settlement cannot bind all members of the class, the defendant has little motivation to settle. The underlying premise of the (b)(2) class is that it enjoys uniformity and therefore a lack of conflicts among class members. [A] class seeking primarily Allison, 151 F.3d at 413. equitable relief for a common -37injury is assumed to be a cohesive group with few conflicting interests, giving rise to a presumption that adequate representation alone provides sufficient procedural protection. In re Veneman, 309 F.3d 789, 792 (D.C. Cir. 2002). However, this homogeneity breaks down when claims for monetary relief hinge on individual injuries that differ across the class. Allison, 151 F.3d at 413. The part) federal involves courts a analysis balancing of (implicitly, judicial for the most economy and the procedural component of the Fourteenth Amendment. Stores v. Dukes, 564 U.S. ___, (2011) ( Similarly, (b)(2) See Wal-Mart ___, 180 L. Ed. 2d. 374, 397-98 does not require . . . opt-out rights, presumably because it is thought (rightly or wrongly) that notice has no purpose when the class is mandatory, and that depriving people of their right to sue in this manner complies with the Due Process Clause. ). The fundamental requisite of due process of law is the opportunity to be heard. Grannis v. Ordean, 234 U.S. 385, 394, 58 L. Ed. 1363, 1369 (1914). When homogeneity exists and the class s interests are aligned, nonopt-out certification does not offend due process. each litigant does not need to be heard individually. We assume But when uniformity is lacking, the class members interests may not be -38aligned. Individual class members must be able to opt-out in these situations and exercise their right to be heard. Recently, in Wal-Mart Stores, the United States Supreme Court noted that there was a serious possibility that the Due Process Clause might forbid the certification of monetary claims in non-opt-out classes, even when they do not predominate. U.S. at ___, 180 L. Ed. 2d at 398. 564 This possibility was one reason why the Court determined the class action could not be certified under (b)(2). Id. The Court explained that a mere predominance of a proper (b)(2) claim does not cure notice and opt-out plaintiffs problems. pleaded Id. claims for In Wal-Mart injunctive Stores, relief the and named monetary relief in the form of back pay, which is equitable in nature. Id. They did not plead claims seeking compensatory damages. Id. This made it less likely that the monetary claims asserted in the lawsuit would predominate. Id. The Court explained that this strategy also created the possibility (if the predominance test were correct) that individual class members compensatorydamages claims would be precluded by litigation they had no power to hold themselves apart from. If it were determined, for example, that a particular class member is not entitled to backpay because her denial of increased pay or a promotion was not the product of -39discrimination, that employee might be collaterally estopped from independently seeking compensatory damages based on the same denial. That possibility underscores the need for plaintiffs with individual monetary claims to decide for themselves whether to tie their fates to the class representatives [sic] or go it alone a choice Rule 23(b)(2) does not ensure that they have. Id. The Court explicitly stated that its ruling did not address whether any form of incidental monetary relief could comply with the Due Process clause, Id., but it does indicate courts must be careful more careful than they have previously been to protect class members involved. due process rights when monetary claims are Wal-Mart Stores also establishes that the claims pled by the named plaintiff are not the only claims that must be considered. It is critical that courts determine whether it offends due process to preclude monetary claims that are not plead as a basis for relief. In this case, Objectors-appellants take issue with the preclusion of potential claims for damages against the Wachovia Board. court. These claims were not articulated before the trial The only claims brought to this Court s attention on appeal that could be brought as a class action are potential claims for diminution of shareholder voting strength and -40inadequate merger consideration. Because no Class member presented these to the trial court, there is no record for us to review. Although a trial court should examine potential liability of the Board for claims before approving a settlement, without a additional proffer and speculative. claims by an Objector, unarticulated claims an by evaluation this court of any would be Furthermore, it appears to us that the equitable brought by Ehrenhaus fully resolve any claim for diminution of shareholder voting strength, and the record fails to disclose any set of facts upon which a claim for inadequate merger consideration could have been based. the issue of whether any derivative We need not address action could have been brought because the procedural requirements for bringing such a claim are not in the record and it is unlikely that any such claim would be successful under these factual circumstances. The predominant enjoin the Merger. claim here was Ehrenhaus s attempt to Objectors-appellants did not explain to the trial court, with any specificity, what causes of action they wished to bring and how the nature of those claims might impact the due process analysis. court s ruling. Our role is to review the trial Based on the claims that were articulated to the trial court by Appellees and Objectors-appellants, the trial -41court correctly determined due process does not require opt-out rights in this case. * * * * In conclusion, we disagree with Objectors-appellants three arguments challenging class certification. First, the trial court s selection of Ehrenhaus as Class representative did not deprive the Class of adequate representation. not persuaded Class counsel was inadequate. Second, we are Third, the trial court did not err certifying a non-opt-out class. hold the trial court did not err in Therefore, we certifying this class action. C. Settlement Approval 1. The likelihood of success and the benefits of the Settlement The amended complaint sought relief based on allegations that the Wachovia Board breached its fiduciary duties by employing improper deal protection measures, failing to comply with statutory share exchange requirements, and failing to make material complaint disclosures also concerning alleged an the aiding Merger. and fiduciary duty claim against Wells Fargo. owe fiduciary duties to the corporation. abetting The amended breach of Corporate directors Pierce Concrete, Inc. -42v. Cannon Realty & Constr. Co., Inc., 77 N.C. App. 411, 413 14, 335 S.E.2d 30, 31 (1985). A fiduciary duty is one in which there has been a special confidence reposed in one who in equity and good conscience is bound to act in good faith and with due regard to the interests of the one reposing confidence . . . , [and] it extends to any possible case in which a fiduciary relationship exists in fact, and in which there is confidence reposed on one side, and resulting domination and influence on the other. Dalton v. Camp, 353 N.C. 647, 651, 548 S.E.2d 704, 707 08 (2001) (quoting Abbitt v. Gregory, 201 N.C. 577, 598, 160 S.E. 896, 906 (1931) (some citations omitted). The General Statutes prescribe a standard of conduct for corporate directors: a director must discharge his duties (1) [i]n good faith; (2) [w]ith the care an ordinarily prudent person in a like position would exercise under similar circumstances; and (3) [i]n a manner he reasonably believes to be in the best interests of the corporation. Gen. Stat. § 55-8-30(a) (2009). In discharging his duties a director is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by: (1) One or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented; N.C. -43(2) Legal counsel, public accountants, or other persons as to matters the director reasonably believes are within their professional or expert competence; or (3) A committee of the board of directors of which he is not a member if the director reasonably believes the committee merits confidence. N.C. Gen. weighing Stat. a § 55-8-30(b). change of control The duties situation of shall a director not be any different, nor the standard of care any higher, than otherwise provided in this section. N.C. Gen. Stat. § 55-8-30(d). The business judgment rule is a standard of review courts use to determine whether standard of conduct. directors have met the statutory The rule creates, first, an initial evidentiary presumption that in making a decision the directors acted with due care (i.e., on an informed basis) and in good faith in the honest belief that their action was in the best interest of the corporation, and second, absent rebuttal of the initial presumption, a powerful substantive presumption that a decision by a loyal and informed board will not be overturned by a court unless it cannot be attributed to any rational business purpose. Hammonds v. Lumbee River Elec. Membership Corp., 178 N.C. App. 1, 20 21, 631 S.E.2d 1, 13 (2006) (quoting Russell M. Robinson, II, Robinson on North Carolina Corporation Law § 14.06, at 14-16 to -17 (2005)). -44We first address the allegation in Ehrenhaus s amended complaint that the share exchange violated Chapter 55 of the General Statutes when Wachovia issued the Wachovia Series M, Class A Preferred Stock, representing 39.9 percent of the Wachovia s aggregate voting rights in exchange for 1000 shares of Wells Fargo common stock. mounting further challenges (The class is prohibited from to the share exchange by the Settlement.) Ehrenhaus alleged, and Objectors-appellants maintain, the Wachovia Board failed to comply with subsection 55-10-03(b), which states that after adopting the proposed amendment [of the articles of incorporation] the board of directors must submit the amendment to the shareholders for their approval. Gen. Stat. § 55-10-03(b) (2009). N.C. In a proper case, a breach of fiduciary duty claim may be premised on a violation of the North Carolina Business Corporation 14.03[3], at 14-9 directors of to every -10 Act. ( The corporation See duty to of see Robinson, care that supra, requires it is § the operated according to the terms of its articles of incorporation, and, it would seem, also according to law. (footnotes omitted)); Miller v. Am. Tel. & Tel. Co., 507 F.2d 759, 763 (3d Cir. 1974) (concluding statutory violation could form the basis for breach -45of fiduciary duty claim). Objectors-appellants contend an amendment is required because section 55-10-02, which provides a list of amendments that do not require shareholder approval, does not authorize shareholder (2009). voting the issuance rights. of See shares N.C. that Stat. Gen. will § dilute 55-10-02 This line of reasoning assumes an amendment to the articles of incorporation was required. Subsection incorporation number of 55-6-01(a) must shares from adopting [t]he the classes of of class that the several [a] that prescribe each authorized to issue. Aside states articles shares of and the corporation is N.C. Gen. Stat. § 55-6-01(a) (2009). exceptions proposed amendment not applicable the board of here, after directors must submit the amendment to the shareholders for their approval. N.C. Gen. Stat. § 55-10-03(b) (2009). In 1990, the Wachovia (then First Union Corporation) shareholders authorized the Board to issue the Class A preferred shares. The articles of incorporation were modified to allow the board to issue Class A Preferred Stock. The amendment permitted the Board to issue the shares from time to time in one or more series. It also authorized the Board to set the provisions as to voting rights, -46if any. Thus, it appears the shareholders previously authorized the Series M, Class A Preferred Stock. Objectors-appellants also point out that section 55-10-04 provides circumstances under which shareholders must be entitled to vote as a class. See N.C. Gen. Stat. § 55-10-04 (2009). But this section applies to amendments to articles of incorporation not the issuance of a class of shares already authorized by articles of incorporation. Objectors-appellants See id. next argue that, pursuant to subsection 55-11-03(a), the Board was required to submit the share exchange to the shareholders for a vote. Subsection 55- 11-03(a) provides: After adopting a plan of merger or share exchange, the board of directors of each corporation party to the merger, and the board of directors of the corporation whose shares will be acquired in the share exchange, shall submit the plan of merger . . . or share exchange for approval by its shareholders. N.C. Gen. Stat. § 55-11-03(a) (2009). However, the term share exchange, as it is employed by Chapter 55, does not apply to the transaction between Wachovia and Wells Fargo. Under Chapter 55, a share exchange is a transaction by which a corporation becomes the owner of all the outstanding shares of one or more classes of another corporation by an exchange that is compulsory -47on all owners of the acquired shares. N.C. Gen. Stat. § 55-11- 02 commentary (2009); see also N.C. Gen. Stat. § 55-11-02(a) ( A corporation may acquire all of the outstanding shares of one or more classes or series of another corporation if the board of directors of each corporation shareholders . . . approve This transaction acquired shares Fargo. There was not because were the no exchange. compulsory they adopts were on (emphasis any issued prior-owners of and added)). owners directly the its of to acquired the Wells shares. Wells Fargo provided consideration to Wachovia in the form of Wells Fargo shares, but this type of share exchange does not trigger the voting rights set forth in section 55-11-03. We also prevailing in conclude a the Class had little breach-of-fiduciary-duty or claim no chance against of the Wachovia Board related to allegations that the share exchange was coercive. Among other prerequisites, in order for Wachovia and Wells Fargo to merge, a majority of Wachovia shareholder votes needed to be cast in favor of the Merger. Stat. §§ 55-11-01, -03 (2009). See N.C. Gen. The failure to vote in favor of the Merger amounted to a vote against it. See id. Our research does not disclose any controlling authority on such a claim. Based on our review of Delaware decisions, we -48conclude that, in North Carolina, a deal protection measure, such as the share exchange here, cannot be so coercive that it deprives the pre-exchange shareholders of the opportunity exercise their voting rights in a meaningful way. to If the vote will be a valid and independent exercise of the shareholders franchise, precludes without them any from specific rationally preordained determining the result fate proposed merger [a court] has no basis to intervene. which of the In re IXC Communications, Inc. S holder Litig., No. 17334, 1999 Del. Ch. LEXIS 210 at *3 (Oct. 27, 1999). Two Delaware decisions illustrate this principle. In In re IXC Communications, Inc. S holder Litig., Vice Chancellor similar (now Delaware situation. The Chief case Justice) involved Steele a addressed merger between a IXC Communications, Inc. ( IXC ) and Cincinnati Bell, Inc. ( CBI ). Id. at *2. The General Electric Pension Trust ( GEPT ) was IXC s largest shareholder. Id. at *7. CBI acquired half of GEPT s IXC holdings and secured a promise from GEPT to support the IXC CBI merger with GEPT s remaining shares. Id. at *21. This effectively gave CBI control of about 40 percent of IXC s shares. Id. at *23. -49Noting that an independent majority of IXC shareholders controlled nearly 60 percent of all IXC shares, Chief Justice Steele stated that CBI had not, in fact, locked up an absolute majority of the votes required for the merger through the GEPT deal. Id. at *23 24. He opined that [a]lmost locked up does not mean locked up, and scant power may mean less power, but it decidedly does not mean no power. *24. Id. at Because a numerical majority of independent shareholders were in a position to defeat the merger, he concluded, the votebuying agreement did not have the purpose or effect disenfranchising this remaining majority of shareholders. In Court cannot Omnicare, of Delaware accede to Inc. v. held [a absolute lock-up. NCS that a Healthcare, corporate controlling Inc., board shareholder] the of Id. Supreme directors demand 818 A.2d 914, 938 (Del. 2003). of for an There, Genesis, Health Care Ventures, Inc. ( Genesis ) and Omnicare, Inc. ( Omnicare ) were competing to acquire NCS Healthcare, Inc. ( NCS ). Id. at 917. The NCS board approved a merger agreement with Genesis pursuant to which the NCS board was required to place the agreement before the NCS shareholders for a vote, even if the NCS board no longer recommended the merger. Id. at 918. Two NCS stockholders held a majority of the shareholder voting -50power; they entered into an agreement shares in favor of the merger. withdrew its support for the Id. to vote all of their The NCS board eventually merger, submitting it to the shareholders with a recommendation that the shareholders reject the proposed merger because the competing Omnicare bid was a superior transaction. Id. In holding the NCS board breached its fiduciary duty to minority shareholders, the court explained that its decision [did] not involve the general validity of either stockholder voting agreements or the authority of directors to insert a . . . provision in a merger agreement [requiring the board to submit a merger to the shareholders even if the board later came to disapprove of the merger]. In this case, the NCS board combined those two otherwise valid actions and caused them to operate in concert as an absolute lock up, in the absence of an effective fiduciary out clause in the Genesis merger agreement. Id. at 939. Returning to the matter at bar, the trial court concluded in its order denying Ehrenhaus s motion for preliminary injunction that he failed to establish by clear and convincing evidence that the share exchange was coercive. In so ruling, the court noted there were few (if any) entities in position to offer likelihood, a superior the merger federal proposal, government and would that, not in all provide any -51financial assistance to Wachovia. Wells Fargo acquired only 40 percent of the Wachovia voting rights nearly identical to the amount the GEPT effectively Communications, Inc. Omnicare, Wachovia the S holder controlled Litig. Board agreed in In re As was the case to a fiduciary IXC in out provision. The facts of this case fall between the two Delaware decisions, but the critical distinction between the matter at bar and Omnicare is that the merger protection measures here did not prevent the shareholders from voting down the Merger. In Omnicare, the shareholders in favor of the merger had already locked up enough votes to ensure the merger would succeed. The fiduciary out clause forced the NCS board to submit the proposed merger for a shareholder vote, even if a superior merger opportunity arose; and a superior merger opportunity did, in fact, come available. While there was a similar fiduciary out clause in the matter at bar, independent shareholders held 60 percent of the voting rights and there was very little chance the Wachovia Board would receive a comparable merger offer from a different suitor. Once the voting agreement and fiduciary out clause were in place in Omnicare, the board of directors could not protect the independent shareholders from being forced into -52an inferior transaction. In this case, on the other hand, the independent shareholders could protect themselves. We conclude that, under these facts, it is highly unlikely the Class would have prevailed on a breach of fiduciary duty claim alleging the Wachovia Board breached its fiduciary duty by approving a coercive share exchange.8 The amended complaint also alleged the definitive Proxy Statement contain[ed] omissions and materially that misleading [w]ithout material statements and and accurate information, Wachovia s public shareholders c[ould not] make an informed Merger. judgment as to whether to vote for or against the We find the Delaware courts articulation of the non- disclosure principle persuasive. We hold that North Carolina directors are under a fiduciary duty to disclose fully and fairly all material information within the board s control when it seeks shareholder action. 8 Stroud v. Grace, 606 A.2d 75, 84 Delaware applies various standards of review to evaluate director conduct related to different types of transactions. See Thanos Panagopoulos, 3 Berkley Bus. L.J. 437 (2006). In Omnicare, the Delaware Supreme Court employed the Unocal standard of review, which places enhanced scrutiny on deal protection measures beyond that of the business judgment rule. 818 A.2d at 934. Nothing in our opinion should be construed as adopting a standard of review that varies from the business judgment rule; that issue is not before us. Rather, we contrast Omnicare with In re IXC Communications, Inc. S holder Litig. to illustrate the considerations involved in determining whether deal protection measures are coercive. -53(Del. 1992). Delaware has adopted a definition of the term material from a United States Supreme Court securities law decision: An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. This standard is fully consistent with Mills [v. Elec. Auto-Lite Co., 396 U.S. 375, 90 S. Ct. 616, 24 L. Ed. 2d 593] general description of materiality as a requirement that the defect have a significant propensity to affect the voting process. It does not require proof of a substantial likelihood that disclosure of the omitted fact would have caused the reasonable investor to change his vote. What the standard does contemplate is a showing of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information made available. Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985) (alteration in original) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449, 48 L. Ed. 2d 757, 766 (1976)). believe indicates this is an Ehrenhaus appropriate raised standard, potentially and We our review meritorious claims related to the fiduciary duty to disclose material facts. -54Ehrenhaus also claimed that Wells Fargo aided and abetted a breach of fiduciary duty by the Wachovia Board. First, it is unclear whether such a cause of action exists in North Carolina. In re Bostic Constr., Inc., 435 B.R. 46, 66 (Bankr. M.D.N.C. 2010) ( It is not even clear that North Carolina recognizes a cause of action for aiding and abetting breach of fiduciary duty. ); Battleground Veterinary Hosp., P.C. v. McGeough, No. 05 CVS 18918, slip op. at 7 (N.C. Super. Ct. Oct. 19, 2007) ( It remains an open question whether North Carolina law recognizes a claim for aiding and abetting breach of fiduciary duty. ). Compare Ahmed v. Porter, 1:09CV101, 2009 WL 2581615 (W.D.N.C. June 23, 2009) (unpublished) (concluding North Carolina recognizes such a claim), with Laws v. Priority Tr. Servs. of N.C., L.L.C., 610 F. Supp. 2d 528, 532 (W.D.N.C. 2009) (concluding North Carolina does not recognize such a claim). This Court recognized an aiding and abetting theory of liability for federal securities laws violations in Blow v. Shaugnessy, 88 N.C. App. 484, 490, 364 S.E.2d 444, 447 (1988). However, the underlying rationale of that decision was abrogated by Cent. Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 128 L. Ed. 2d 119 (1994). Laws, 610 F. Supp. 2d at 532. We elect not to delve into whether such a claim exists because it -55is highly unlikely Ehrenhaus or another Class member could establish a primary fiduciary duty violation by the Wachovia Board. and See Blow, 88 N.C. App. at 489, 364 S.E.2d at 447 (aiding abetting theory required a securities law violation ); Allied Capital Corp. v. GC-Sun Holdings, L.P., 910 A.2d 1020, 1039 (Del. Ch. 2006) (Delaware claim requires the fiduciary to breach his fiduciary duty and the non-fiduciary to participate knowingly in that breach). difficult time establishing Because Ehrenhaus would have had a the Wachovia Board breached its fiduciary duties, it would have been very difficult to establish Wells Fargo aided and abetted in a breach of fiduciary duty (assuming such a claim exists in this state). The class action also sought relief on the basis that the tail provision which provided the shares issued to Wells Fargo could not be redeemed by Wachovia for eighteen months following the shareholder vote on the Merger agreement, even if the Merger was The not consummated constituted trial court agreed, a breach enjoining the of fiduciary tail duty. provision. Ultimately, the tail provision was eliminated from the share exchange, claim. so the Class had no chance of prevailing on this -56In addition to negating the tail, Ehrenhaus was successful in securing disclosures by the Wachovia Board that aided shareholders in making an informed vote on the Merger. trial court found, the Settlement complaint. These disclosures included information concerning potential Ehrenhaus s the deficiencies with in remedied disclosure communications alleged largely As the suitors, amended communications with regulatory authorities prior to the Wachovia Board s vote on the Merger, and some of the methodologies utilized by Wachovia s financial advisors in evaluating the Merger. The trial court noted the Settlement did not require disclosure concerning a tax benefit to which Wells Fargo might be entitled as a result of the Merger. information would As we note above, however, we fail to see how concerning have shareholders. Wachovia issues been In pursuant raised allegations. by a tax critical sum, to the benefits the the most obtained piece of additional Settlement Wells part Fargo information disclosures largely meritorious by made alleviated of for by the Ehrenhaus s -572. Other claims released by the Settlement The Released Claims include all causes of action against Defendants-appellees arising under Ehrenhaus s complaint as well as any claims related to: (i) the Merger, the Merger Agreement, the Share Exchange Agreement or any amendment thereto; (ii) the fiduciary obligations of any of the Defendants in connection with the Merger, the Merger Agreement, and the Share Exchange Agreement; (iii) any discussions or negotiations in connection with the Merger, or Merger Agreement, the Share Exchange Agreement, or any amendment thereto; (iv) the issuance and terms of the Series M Shares; (v) the amendment to Wachovia s articles of incorporation with respect to the issuance of the Series M Shares; (vi) the Proxy Statement or any amendment or supplement thereto; and (vii) the disclosure obligations of any of the Defendants in connection with the Merger, the Merger Agreement, the Share Exchange Agreement, and any discussions or conduct preparatory thereto . . . . Initially, the Proposed Settlement excluded the following from the Released Claims: (i) the right of the Plaintiff or any members of the Class to enforce in the Court the terms of the Stipulation; or (ii) the claims asserted by plaintiffs in the Amended Class Action Complaint for Violations of the Federal Securities Laws, dated December 15, 2008, in Lipetz v. Wachovia Corp. et al., Civil Action No. 08-6171 (RJS) (S.D.N.Y.). The -58Settlement was modified to exclude the following from the Released Claims: (iii) the claims asserted by plaintiffs in the Consolidated Class Action Complaint filed on September 4, 2009 in In Re Wachovia Preferred Securities and Bond/Notes Litigation, Master File No. 09 Civ 6351 (RJS) (S.D.N.Y.); (iv) claims not arising out of either the Merger or events involving the negotiation of, terms of and disclosures related to the Merger, (v) claims that arise from Wachovia s business or the Defendants /Released Persons acts or omissions before or after the Class period; (vi) claims arising from alleged mismanagement, misconduct, misrepresentations, or non-disclosures about Wachovia s business and/or its securities during the Class period unrelated to the Merger; (vii) claims relating to the decline in value of Wachovia s share price before the Class period, or (viii) claims relating to the decline in value of Wachovia s share price during the Class period to the extent that such claims either arise from events, acts, or omissions that preceded the Class period or do not arise from the Merger. Notably, claims seeking relief based on a decrease in Wachovia s share price due to Wachovia s acquisition of Golden West fall into at least one of the categories of additional exclusions from the Released Claims. However, the exclusions from the Released Claims do not cover claims for damages related to un-alleged claims concerning the inadequacy of the Merger consideration. While Objectors- -59appellants failed to explain specifically what type of claim they wish to pursue, we note here that any action against the Wachovia Board would have little, if any, chance of success. This type of lawsuit must hurdle the business judgment rule, which creates a strong presumption that the Wachovia Board acted with due care. A plaintiff may defeat this presumption only by demonstrating the Wachovia Board s conduct cannot be attributed to any rational business purpose. N.C. App. at 20 21, 631 S.E.2d at 13. Hammonds, 178 Given the time demands and tumultuous market conditions, the business judgment rule is likely insurmountable in this case. After the FDIC notified Wachovia that the FDIC intended to exercise its authority to conduct a forced sale of Wachovia to another pressure financial to work institution, out a deal the Wachovia Board with Citigroup or was Wells under Fargo. These were the only two potential suitors; the FDIC had rejected a deal that would have given the regulatory body an equity stake in Wachovia. Wells Fargo offered more monetary consideration per share than Citigroup. And unlike Citigroup s offer, the proposal from Wells Fargo did not contain a material adverse change provision that would have allowed the acquiring institution to walk away -60from the deal if Wachovia experienced a material decline in value between signing the merger agreement and consummating it. Wachovia was Wells Fargo. successful in negotiating some concessions from Initially, Wells Fargo sought, through the share exchange, 50 percent of the voting power on the Merger. Wachovia negotiated the percentage down to 39.9 percent. The Wachovia Board s advisors, Perella Weinberg and Goldman Sachs, uniformly advised against attempting to negotiate for superior terms in light of the time constraints imposed by the market and the FDIC. A director is entitled to rely on the advice of [l]egal counsel, public accountants, or other persons as to matters the director reasonably believes are within their professional or expert competence. 30(b)(2) (2009). N.C. Gen. Stat. § 55-8- The director loses that protection, however, if he has actual knowledge concerning the matter in question that makes reliance unwarranted. (2009). N.C. Gen. Stat. § 55-8-30(c) We note that in this case, a large portion of both financial advisors fees were contingent on the success of the merger with Wells Fargo. tempered its reliance While the Wachovia Board should have accordingly and nothing suggests the Board did not we believe Perella Weinberg s and Goldman Sachs -61advice indicates the Board s conduct was reasonable under the circumstances. 3. The reaction of the Class, recommendations of counsel, and notice adequacy There were over 150,000 Wachovia shareholders and over two billion shares of stock. The trial court received over 200 letters and emails regarding this case and remarked that much of that correspondence was directed to issues that were not before the court. Counsel indicated they received hundreds of calls from individuals unhappy with the Settlement, but there are only two remaining Loughridge. objectors In the construed as assent. in this class case: action context, notice of and silence Mr. may be the terms of a Provided there has been settlement, objections may indicate a settlement is fair. Note Holographics, Inc., 127 F. 2001). Robinson In re GNC S holder Litig.: All Actions, 668 F. Supp. 450, 451 (W.D. Pa. 1987). adequate Mr. a dearth of In re Am. Bank Supp. 2d 418, 425 (S.D.N.Y. The trial court viewed the reaction of the Class as muted, which supported a finding that the Settlement is fair, reasonable, position Settlement to and adequate. determine raised The whether fairness trial the court public concerns was in outcry grounded the best over the in law. -62Furthermore, given the unlikely prospect of success on any of the claims in this case, even if the trial court underestimated the legitimate complaints of Class members, the court s appraisal of the Class reaction did not rise to the level of an abuse of discretion. The trial court also recommendations of counsel. based its decision on the The trial court specifically found that Ehrenhaus s attorneys are highly respected and experienced in shareholder class action litigation. The court agreed with both plaintiff and defense counsel that reasonable compromise given the the uncertain Settlement is a value of the remaining claims and the expense and delay that would result from further litigation. [T]he opinion of experienced and informed counsel is entitled to considerable weight. 430. At the Settlement approval hearing, the Id. at trial court inquired as to why the discovery confirmed the reasonableness of the Settlement. depositions of Ehrenhaus s counsel replied that, based on the executives involved in the case, there were pieces here and there that . . . were favorable to [Ehrenhaus s] position, but overall it wasn t even close. Our review also indicates the parties employed proper procedures for providing notice to absent Class members. The -63trial court required Wells Fargo to mail notice of the Proposed Settlement to Class members on or before 24 May 2009 at the last address appearing in Wachovia s stock transfer records. The notice instructed record owners of stock who were not also the beneficial to Wells holders. holders forward Fargo the employed notice to Georgeson, solicitation firm, to distribute the notice. the beneficial Inc., a proxy Georgeson, Inc., distributed the notice to the required recipients on 22 May 2009. The firm also contacted over 450 banks, brokers, and other intermediaries that might have held shares on behalf of beneficial owners of Wachovia stock. the notice were distributed to Over one million copies of Class members. Our review indicates the contents of the notice adequately apprised Class members of the Proposed Settlement and Settlement hearing. 4. Attorneys Fees In their factual analysis, Objectors-appellants state, In the Court s 5 February 2010 Order, the fact that the [sic] Ehrenhaus s counsel had a contingency fee agreement was revealed for the first time and yet a fee was allowed by the Court despite no award to the shareholders. Their contentions are that the Settlement was negotiated prior to any hearing on the adequacy of Class counsel and an agreement that Class counsel -64was to be paid $2 million by the [Defendants-appellees] and the shareholders were to receive nothing. Objectors-appellants further contend that, [f]rom the date of the settlement (17 December 2008) there was a direct conflict of interest between the attorneys and their clients, the shareholders, forward. attorneys for the shareholders have refused to talk The with Appellants or correspond with them in any way concerning the facts of the case. Furthermore, Objectors-appellants contend, Ehrenhaus [s] attorneys were to be paid, by agreement, almost $2,000,000 by Wells Fargo. $900,000 plus expenses. The Court finally approved a fee of There is no evidence as to what the attorneys or Ehrenhaus have actually received or been promised. The Objectors-appellants contend that the trial court did not perform the rigorous analysis required under Rule 23. North Carolina follows the American Rule with regard to award of attorney s fees. In Stillwell Enterprises, Inc. v. Interstate Equipment Co., our Supreme Court opined as follows: As was stated by Chief Judge (now Justice) Brock in Supply, Inc. v. Allen, [t]he jurisprudence of North Carolina traditionally has frowned upon contractual obligations for attorney s fees as part of the costs of an action. Certainly in the absence of any contractual agreement allocating the costs of future litigation, it is well established that the nonallowance of counsel fees has prevailed as -65the policy of this state at least since 1879. Thus the general rule has long obtained that a successful litigant may not recover attorneys fees, whether as costs or as an item of damages, unless such a recovery is expressly authorized by statute. Even in the face of a carefully drafted contractual provision indemnifying a party for such attorneys fees as may be necessitated by a successful action on the contract itself, our courts have consistently refused to sustain such an award absent statutory authority therefor. 300 N.C. 286, 289, 266 S.E.2d 812, 814-15 (1980) (citations omitted). There are, however, certain exceptions to this rule. One such exception, which applies in North Carolina, is the common fund doctrine : [T]he rule is well established that a court of equity, or a court in the exercise of equitable jurisdiction, may in its discretion, and without statutory authorization, order an allowance for attorney fees to a litigant who at his own expense has maintained a successful suit for the preservation, protection, or increase of a common fund or of common property, or who has created at his own expense or brought into court a fund which others may share with him. Horner v. Chamber of Commerce, 236 N.C. 96, 97 98, 72 S.E.2d 21, 22 (1952). When, as here, there is no common fund, courts in some jurisdictions can award attorney s fees under the common benefit doctrine. -66The common benefit doctrine exception to the American Rule. is another equitable The Delaware Supreme Court explained the doctrine as follows: [A] litigant who confers a common monetary benefit upon an ascertainable stockholder class is entitled to an award of counsel fees and expenses for its efforts in creating the benefit . . . . [T]o be entitled to an award of fees under the corporate benefit doctrine, an applicant must 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. Cal Maine Foods, Inc. v. Pyles, 858 A.2d 927, 929 (Del. 2004) (quoting United Vanguard Fund v. Takecare, Inc., 693 A.2d 1076, 1079 (Del. 1997)) (alterations in original). The parties to this Settlement originally entered into a memorandum of understanding and a stipulation that, subject to court approval, settled all outstanding issues between Class, Wachovia, the Wachovia Board, and Wells Fargo. of the stipulation reads as follows: As part of the terms and conditions of this Stipulation, Wells Fargo agrees to pay to Plaintiff s Counsel, for their efforts in achieving the benefits of the Settlement of this Action, the sum of $1.975 million, for their fees and litigation-related expenses, subject to Court approval of the Settlement contemplated by this Stipulation. Wells Fargo shall make payment to Wolf Popper LLP the The text -67of the fees and expenses provided in this paragraph within five days of the Court s order approving the Settlement, subject to Plaintiff s Counsel s obligation to repay such amount as may become necessary should the Settlement not obtain Final Court Approval or the fees and expenses become reduced or modified on any appeal. This stipulation was later modified so that the trial court had to determine the final amount of the fees to be awarded and the parties agree only to pay up to $1.975 million. further found that Plaintiff s counsel did records detailing the work done on the case. not The court submit time Furthermore, the lodestar calculation as submitted by counsel requested an award of $1,325,168.50 in fees and $32,621,.98 in expenses. We read the procedure as adopted by the trail court as the functional equivalent of requiring the court to make an award of attorney s expressly fees. This dependent attorney s fees. case upon does payment not of a involve a liquidated settlement amount of However, here the court was asked to award a fee and not approve a fee agreed to by the parties. While any compromise in a class action must be reviewed by a court, a court cannot modify a purely contractual settlement. See Cabarrus Cty. v. Systel Bus. Equip. Co., 171 N.C. App. 423, 425, 614 S.E.2d 596, 597 (2005) (stating settlements are interpreted according to general principles of contract law); Cherry, -68Bekaert & Holland v. Worsham, 81 N.C. App. 116, 120, 344 S.E.2d 97, 100 (1986) (stating that courts cannot rewrite the plain language of a contract). Regrettably, we are unable to adequately review the decision of the trial court for lack of complete findings of fact and conclusions of law on the issue of attorney s fees. For the following reasons, we vacate that portion of the court s order regarding additional attorney s findings of fact fees and and remand the conclusions of matter for law. The reasonableness of attorney s fees in this state is governed by the factors found in Rule 1.5 of the Revised Professional Conduct of the North Carolina State Bar. (a) A lawyer shall not make an agreement for, charge, or collect an illegal or clearly excessive fee or charge or collect a clearly excessive amount for expenses. The factors to be considered in determining whether a fee is clearly excessive include the following: (1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; (3) the fee customarily charged locality for similar legal services; in the Rules of -69(4) the amount obtained; involved and the (5) the time limitations imposed client or by the circumstances; results by the (6) the nature and length of the professional relationship with the client; (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and (8) whether the fee is fixed or contingent. (b) When the lawyer has not regularly represented the client, the scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation. (c) A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is prohibited by paragraph (d) or other law. A contingent fee agreement shall be in a writing signed by the client and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal; litigation and other expenses to be deducted from the recovery; and whether such expenses are to be deducted before or after the contingent fee is calculated. The agreement must clearly notify the client of any expenses for which the client will be liable whether or not the client is the prevailing party. Upon conclusion of a contingent fee matter, the -70lawyer shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination. (d) A lawyer shall not enter into arrangement for, charge, or collect: an . . . . (2) a contingent fee in a civil case which such a fee is prohibited by law. in (e) A division of a fee between lawyers who are not in the same firm may be made only if: (1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation; (2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and (3) the total fee is reasonable. N.C. Rev. R. Prof. Conduct 1.5 (2011). At the fairness representative negotiated was hearing, announced a that contingent Class the fee. counsel fee and agreement Without the they the Class had written agreement of the parties, as required by Rule 1.5, as to their agreed-upon compensation, it would be problematic for the Court to determine what amount would be reasonable. -71Second, the decision of the court fails to make allowance for an award to North Carolina local counsel. any Clearly both the local and Class counsel participated in the results obtained and the award, if any, should consider both firms efforts. Furthermore, Rule 1.5(e)(2) provides that the client must agree to any fee sharing agreement in writing. Id. The record contains no such agreement. Next, the attorneys did not present contemporaneous records showing the number of hours expended and the hourly rates for the attorneys charged. It would be difficult for the Court to draw a conclusion of what amount of time Class counsel spent litigating compensable matters Furthermore, although Court the may without take such judicial records. notice of these efforts, some evidence must be presented from a witness that the fee sought would be that which is customarily charged in the locality for similar legal services. Rule 1.5(e) also provides that a contingency fee cannot be charged in a civil case in which such a fee is prohibited by law. Because the trial court did not examine the contingency fee nature of the written agreement, we cannot know the legal basis upon which the parties agreed to the contingency. In In re Wachovia S holder Litig., the trial court awarded attorney s -72fees using the common benefit doctrine and urged the appellate courts of this state adopt this exception to the American Rule. See 2003 NCBC 10 ¶74 (N.C. Super. Ct. Dec. 19, 2004) (unpublished), rev d, In re Wachovia S holder Litig., 168 N.C. App. 135, 607 S.E.2d 48 (2005). However, this Court specifically rejected the common benefit theory as an exception to the American Rule in this state. In re Wachovia Shareholders Litig., 168 N.C. App. at 140, 607 S.E.2d at 51.9 We view the resolution of this issue as central to the question of whether there is any evidence of a settlement. faith on the part of all counsel While we presume good admitted to practice, the shareholders had a right to adequate disclosure of information on this issue since they are being asked to pay a portion of the fees and a fiduciary relationship exists. While the trial court s analysis did partially complete its task, it did not finish the task of reviewing the necessary evidence to make its decision. On remand, we trust the trial court to examine additional evidence and to make the appropriate findings of fact and conclusions of law, including a reasoned decision on the issue of how it arrived at the figure to be 9 The trial court cited In re Wachovia Shareholders Litig., 2003 NCBC 10, but it is unclear whether that opinion formed the basis for the trial court s decision to award attorney s fees in this case. -73awarded. D. Alleged Omission of Evidence from the Record and Refusal to Consider Material Evidence The heading of Objectors-appellants brief states that the trial court erred in omitting from the record and failing to consider material evidence (Capitalization omitted). support this argument in approving the settlement. The body of this section fails to with even a single citation to authority, violating the Rules of Appellate Procedure. legal N.C.R. App. P. 28(b)(6) ( The body of the argument . . . shall contain citations of the authorities upon which the appellant relies. ); cf. Hatcher v. Harrah s NC Casino Co., 169 N.C. App. 151, 159, 610 S.E.2d 210, 214 15 (2005) ( [P]laintiff fails to cite any legal authority in support of his position. Accordingly, we conclude that this issue does not warrant appellate review, and we dismiss this assignment of error. ). Furthermore, Objectors- appellants fail to explain what legal principle would entitle them to relief on appeal. This argument is without merit. IV. Conclusion For the foregoing reasons, the ruling of the trial court is Affirmed in part and Reversed in part. Judges CALABRIA and STROUD concur.
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
