Ehrenhaus v. Baker

• Decision Date: 15 September 2015
• Docket Number: Nos. COA14–1201,COA14–1083.,s. COA14–1201
• Citation: 776 S.E.2d 699,243 N.C.App. 17
• Court: North Carolina Court of Appeals
• Parties: Irving EHRENHAUS, on behalf of himself and all others Similarly Situated, Plaintiff, v. 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 L. Richey, Ruth G. Shaw, Lanty L. Smith, Dona Davis Young, Wachovia Corporation and Wells Fargo & Company, Defendants. Irving Ehrenhaus, on behalf of himself and all others Similarly Situated, Plaintiff, v. 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; and Wells Fargo & Company, Defendants.

243 N.C.App. 17

776 S.E.2d 699

Irving EHRENHAUS, on behalf of himself and all others Similarly Situated, Plaintiff,

v.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 L. Richey, Ruth G. Shaw, Lanty L. Smith, Dona Davis Young, Wachovia Corporation and Wells Fargo & Company, Defendants.

Irving Ehrenhaus, on behalf of himself and all others Similarly Situated, Plaintiff,

v.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; and Wells Fargo & Company, Defendants.

Nos. COA14–1201

COA14–1083.

Court of Appeals of North Carolina.

Sept. 15, 2015.

Greg Jones & Associates, P.A., Wilmington, by Gregory L. Jones, and Wolf Popper LLP, New York, by Chet B. Waldman, pro hac vice, for plaintiff-appellant.

Robinson, Bradshaw & Hinson, P.A., Charlotte, by Adam K. Doerr and Robert W. Fuller, for defendants-appellees.

Michael L. Robinson and John H. Loughridge, Jr., pro se.

DAVIS, Judge.

In this consolidated appeal from the class action that was filed concerning the merger between Wachovia Corporation ("Wachovia") and Wells Fargo & Company ("Wells Fargo"), Michael L. Robinson and John H. Loughridge, Jr. ("Objectors") appeal in COA14–1201 from the Honorable Calvin E. Murphy's 25 March 2014 order awarding Wolf Popper LLP ("Wolf Popper") $1,056,067.57 in attorneys' fees and expenses, contending that the award of legal fees and expenses is not supported by North Carolina law and must be vacated. In COA14–1083, Plaintiff appeals from Judge James L. Gale's 16 July 2014 order dismissing his attempted cross-appeal from Judge Murphy's order, arguing that the defects in his notice of appeal were nonjurisdictional such that the dismissal of his appeal was improper. After careful review, we affirm Judge Murphy's order and dismiss Plaintiff's appeal of Judge Gale's order.

Factual Background

This matter is before this Court for a second time. The facts surrounding this action are set out more fully in Ehrenhaus v. Baker, 216 N.C.App. 59, 717 S.E.2d 9 (2011), appeal dismissed and disc. review denied, 366 N.C. 420, 735 S.E.2d 332 (2012) ("Ehrenhaus I "), but are summarized in pertinent part as follows: In 2008, a national financial crisis ensued as a series of financial collapses eroded confidence in our nation's banking and mortgage institutions. Various events, including the United States government's decision to place the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation under government control and conservatorship on 7 September 2008, "culminated in a rapid decline in the public confidence in banks that held large positions in government-backed mortgage securities." Id. at 63, 717 S.E.2d at 13.

Wachovia, which in September 2008 was the fourth largest banking institution in the nation, was one such bank. It had acquired a substantial number of mortgages as a result of its 2007 purchase of Golden West Financial Corporation, the second largest dedicated mortgage bank in the country at the time. Indeed, "[t]hese mortgage liabilities caused Wachovia's depositors and investors to lose confidence in that institution and a ‘run’ on the bank developed, causing the Federal Deposit Insurance Corporation (‘FDIC’) to inform Wachovia's corporate officers and the Wachovia board of directors ... that Wachovia needed to merge with a solvent financial institution or be placed into receivership." Id. at 62, 717 S.E.2d at 12–13.

After several other potential mergers did not materialize, Wachovia's board of directors ("the Board") ultimately accepted a merger proposal advanced by Wells Fargo whereby Wells Fargo would acquire all of Wachovia's assets without government assistance. The agreement called for a separate share exchange between Wachovia and Wells Fargo "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." Id. at 64–65, 717 S.E.2d at 14.

Under the agreement, these newly issued, preferred shares of Wachovia stock would be subject to a "tail provision," meaning that the shares were not redeemable by Wachovia for 18 months following the shareholder vote on the merger—even if the merger was not effectuated. Id. at 65, 717 S.E.2d at 14. The agreement provided for a share exchange in which Wachovia's public shareholders would obtain 0.1991 shares of Wells Fargo common stock in exchange for each share of Wachovia common stock. Id. The agreement also included a "fiduciary out" provision that required the Board to submit the proposed merger for a vote even if the Board was no longer recommending it. Id. The Board voted unanimously to approve the proposed merger, and the Federal Reserve System's board of governors approved the merger shortly thereafter. Id. at 66, 717 S.E.2d at 15.

On 8 October 2008, Irving Ehrenhaus ("Plaintiff") filed this class action on behalf of Wachovia's shareholders of common stock—challenging the merger and asserting a breach of fiduciary duty claim against Wachovia, members of the Board, and Wells Fargo (collectively "Defendants"). In his complaint, Plaintiff alleged that (1) the share exchange providing Wells Fargo with 39.9% of the voting power for the merger "invalidly disenfranchised Wachovia shareholders"; (2) the tail provision was overly coercive because "it impeded the Board from seeking out other bidders for at least eighteen months after a shareholder vote rejecting the Merger"; (3) the exchange ratio contained in the merger agreement offered inadequate consideration to Wachovia shareholders in exchange for their shares; and (4) the fiduciary out provision was inadequate because the Board could not withdraw from the merger agreement if a superior proposal was offered but rather would be required to submit the Wells Fargo merger agreement to a vote despite the existence of the better offer. Id. In his lawsuit, Plaintiff sought to enjoin—or, alternatively, rescind—the merger. The case was subsequently designated as a mandatory complex business case and assigned to the North Carolina Business Court.

On 15 October 2008, Plaintiff filed a motion for a preliminary injunction, requesting that the trial court invalidate the tail provision, the fiduciary out provision, and the share exchange provision of the merger agreement. The trial court granted partial preliminary injunctive relief, enjoining the tail provision based on its determination that this 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." iD. at 67, 717 s.E.2D at 16. AS a whole, however, the trial court concluded that the Board's approval of the Merger was "an informed decision, made in good faith, with an honest belief that the action was in the best interests of Wachovia and its shareholders" and was reasonable under the circumstances. Id.

Following the partial injunction, Plaintiff amended his original complaint to add allegations that Wachovia's proxy statement "contained material false and misleading statements and omitted material information related to the Merger." Id. at 67–68, 717 S.E.2d at 16. The parties began settlement negotiations shortly thereafter and entered into a memorandum of understanding ("MOU") containing an agreement to settle the action. The MOU required Wachovia to make additional disclosures relating to the omitted information that Plaintiff had referenced in his amended complaint. The MOU also provided that (1) Wells Fargo would pay the costs associated with providing notice of the proposed settlement to the class members; (2) Wells Fargo would pay up to $1.975 million in attorneys' fees to class counsel; and (3) all causes of action against Defendants arising from the allegations contained in Plaintiff's amended complaint and related to the merger—excluding actions to enforce the merger and claims alleging violations of federal securities laws—would be released and discharged. Id. at 68, 717 S.E.2d at 16. The MOU allowed class counsel to conduct confirmatory discovery in order to ensure the fairness of the settlement. Id.

The merger was approved on 23 December 2008 by 76% of the votes entitled to be cast on Wachovia's outstanding common and preferred stock and consummated on 31 December 2008. Id. The trial court entered an order granting preliminary approval of the settlement and certifying the action as a non-opt out class action, naming Plaintiff as the class representative, Wolf Popper (a New York law firm) as Plaintiff's lead counsel, and Greg Jones & Associates, P.A. ("Jones") as Plaintiff's local counsel. Id. at 68, 717 S.E.2d at 17.

On 20 August 2009, the trial court held a fairness hearing on the proposed settlement and heard from various parties who objected to the settlement, including Objectors. On 5 February 2010, the court entered an order approving the settlement and awarding class counsel $932,621.98 in attorneys' fees.

Objectors appealed from this order, and in Ehrenhaus I, we affirmed the trial court's approval of the settlement but vacated the award of attorneys' fees. We remanded the case to the trial court for additional findings of fact and conclusions of law concerning the reasonableness of the attorneys' fee award, explaining that the lack of findings on this issue in the 5 February 2010 order prevented us from conducting meaningful appellate review of the fee award. Id. at 96, 717 S.E.2d at 33. Objectors filed a petition...