Title: Willard v. Moneta Building Supply

State: virginia

Issuer: Virginia Supreme Court

Document:

Present:  All the Justices 
RONALD L. WILLARD, ON BEHALF OF 
MONETA BUILDING SUPPLY, INC. 
AND ALL ITS SHAREHOLDERS 
 
v. Record No. 981836  OPINION BY JUSTICE CYNTHIA D. KINSER 
 
 
 
 
 
 
 
 
June 11, 1999 
MONETA BUILDING SUPPLY, INC., ET AL. 
FROM THE CIRCUIT COURT OF BEDFORD COUNTY 
James W. Updike, Jr., Judge 
 
 
 
This appeal involves a sale of the assets of a closely 
held corporation.  The minority stockholder of the 
corporation has attacked the propriety of the transaction, 
primarily on the grounds that the corporation’s directors, 
who were also its majority stockholders, breached their 
statutory and common law duties by failing to maximize the 
sales price, by authorizing a transaction in which they had 
a conflict of interests, and by failing to comply with the 
statutory procedures for selling the assets of a 
corporation, not in the ordinary course of business.  
Finding no error, we will affirm the circuit court’s 
judgment upholding the transaction. 
FACTS AND MATERIAL PROCEEDINGS 
 
In 1978, Ronald L. Willard and Cappellari, Inc. 
(Cappellari), acquired a building supply business located 
in Bedford County.  Cappellari was a West Virginia 
corporation owned primarily by Amerigo S. (A.S.) and Rose 
Mary Cappellari.  The purchasers incorporated the newly 
acquired business in Virginia under the name of Moneta 
Building Supply, Inc. (Moneta).  Willard purchased 20 
percent of the shares of stock issued in Moneta, and 
Cappellari purchased 80 percent.1
 
In 1986, A.S. and Rose Mary dissolved Cappellari and 
distributed its shares of Moneta stock in the following 
proportions:  A.S. received 253 shares (49.8 percent), Rose 
Mary received 129 shares (25.4 percent), and David Lawrence 
Cappellari, the son of A.S. and Rose Mary, received 18 
shares.2  Willard owned the remaining 100 shares (19.7 
percent) of Moneta stock. 
 
David served as president, director, and manager of 
Moneta from its inception until he resigned from those 
positions in 1996.  Willard was Moneta’s only other officer 
and director during those initial years until A.S. and Rose 
Mary dissolved Cappellari.  Then, A.S. and Rose Mary, both 
of whom had lived in West Virginia and had participated 
________________________ 
1 Originally, Willard and his wife purchased the 20 
percent interest in Moneta.  Willard later obtained sole 
ownership of that interest. 
 
2 David ultimately purchased another eight shares of 
stock from Moneta after the corporation increased the 
number of its authorized shares.  After that purchase, 
David owned 26 shares (5.1 percent). 
 
 
2
very little in the operation or management of Moneta, moved 
to Virginia and eventually became officers and directors of 
the corporation along with David and Willard. 
 
No one disputes that Moneta experienced success in the 
building supply industry and achieved annual sales in 
excess of four million dollars by 1990.  However, David 
became increasingly concerned about his future at Moneta 
because of a December 1, 1978 “Stock Purchase Agreement” 
entered into among Moneta, Cappellari, and the Willards.  
That agreement granted each of Moneta’s stockholders a 
right of first refusal in the event that any one of the 
other stockholders desired to dispose of shares of Moneta 
stock.  David was dissatisfied with his percentage of 
ownership interest in Moneta and his inability to acquire 
additional shares from his parents due to the “Stock 
Purchase Agreement.”3
Consequently, David began developing a business plan 
to start his own building supply company.  On September 18, 
1996, David resigned from his positions as an officer and 
________________________ 
3 David and his parents challenged the continuing 
applicability of the “Stock Purchase Agreement” by filing a 
declaratory judgment action in the Circuit Court of Bedford 
County.  In an order dated November 7, 1995, the court held 
that the agreement governed both inter vivos and 
testamentary transfers of shares of Moneta stock.  This 
Court refused a petition for appeal in that case. 
 
3
director of Moneta.  At an October 3, 1996 meeting of the 
Moneta board of directors, the board accepted David’s 
resignation and elected A.S. as president of Moneta, Rose 
Mary as vice-president, and Willard as treasurer.  The 
board also decided to continue Moneta’s operations and to 
retain David as the interim manager while the board 
searched for a new manager.4
 
On October 7, 1996, Willard called a special meeting 
of the stockholders.  At that meeting, Willard offered to 
sell his shares of stock in Moneta for one million dollars.  
No action was taken on Willard’s offer.  During the 
meeting, David informed the stockholders that he might be 
interested in purchasing Moneta’s assets, depending on what 
direction the company decided to take.  When Willard was 
asked whether he might also be interested in purchasing the 
assets, he indicated that he was not.5  Subsequent to the 
meeting, Willard tendered a letter of resignation as a 
director and officer of Moneta.  He cited “continuing 
________________________ 
4 Willard voted against the election of officers and 
the decision to employ David as the interim manager. 
 
5 It was also announced at that meeting that another 
Moneta employee had been promoted to manager, effective 
November 1, 1996. 
 
 
4
oppression and unfair treatment” as the reasons for his 
decision. 
 
After David’s resignation from Moneta, he pursued his 
plans to open a building supply business.  He incorporated 
a new company under the name of Capps Home & Building 
Supply, Inc. (Capps).  On October 8, 1996, David entered 
into a “Confidentiality Agreement” with Moneta for the 
“exchange of certain information pertaining to [Moneta] and 
. . . the acquisition of certain assets of [Moneta] by 
[David].”  A.S. executed the agreement in his capacity as 
president of Moneta. 
These events prompted Willard to file a suit seeking 
the dissolution of Moneta and a preliminary injunction to 
enjoin any Moneta stockholder from competing with Moneta 
until the corporation could be dissolved and the assets 
liquidated.6  The circuit court heard evidence and argument 
on October 24, 1996, and denied the requested injunction. 
On November 15, 1996, Capps, through its counsel, 
submitted a proposed “Asset Purchase Agreement” to A.S. and 
________________________ 
 
6 This suit was the second time that Willard had 
attempted to have Moneta dissolved.  In the 1995 
declaratory judgment action, Willard filed a counterclaim 
to dissolve Moneta on the basis that the majority 
stockholders had engaged in oppressive and unfair business 
practices to the detriment of the corporation and minority 
stockholder.  The counterclaim was dismissed. 
 
5
Rose Mary, in their capacities as directors and officers of 
Moneta.  In the agreement, Capps offered to purchase the 
assets of Moneta for approximately $1.3 million.  The offer 
would expire, however, if not accepted by November 23, 
1996.  Capps also informed A.S. and Rose Mary that David 
had acquired bank financing to provide the necessary funds 
if the proposed agreement received the approval of Moneta’s 
board of directors and stockholders.  Finally, Capps 
included a valuation of Moneta’s assets with the agreement.  
Hope Player and Associates, P.C., had prepared a valuation 
report (the Player report) for Capps and, in that report, 
opined that the fair market value of Moneta’s assets as of 
September 30, 1996, was $1.3 million. 
On November 19, 1996, A.S. and Rose Mary, as the only 
remaining members of Moneta’s board of directors, held a 
special meeting of the board at their home to consider the 
offer from Capps.  The board “voted unanimously to accept 
the offer and direct[ed] the President to sign the Asset 
Purchase Agreement . . . reserving the right to negotiate 
the Seller’s Representations contained in paragraph 4 of 
the . . . Agreement, and any other matters of concern to 
the shareholders.”  The board also voted to hire an 
___________________ 
 
 
6
independent certified public accountant or other valuation 
expert to evaluate whether the amount of the Capps offer 
reflected the fair market value of Moneta’s assets.  
Finally, the board decided to refer the proposed 
transaction to the stockholders without any recommendation 
from the directors and to call a special meeting of the 
stockholders to be held on December 20, 1996, for the 
purpose of voting on the offer from Capps. 
On November 21, 1996, Capps submitted a revised “Asset 
Purchase Agreement” to Moneta.  In exchange for a reduction 
in the purchase price of approximately $150,000, Capps 
agreed to assume certain liabilities of Moneta.  A.S. 
signed the revised agreement as president of Moneta without 
first presenting the changes to the board of directors. 
A.S. then sent a notice to all Moneta stockholders 
advising them that a special meeting would be held on 
December 20 for the purpose of considering and voting upon 
the offer from Capps.  The notice included a disclosure 
concerning the familial relationship among A.S., Rose Mary, 
and David, and copies of the revised “Asset Purchase 
Agreement” and the Player report. 
After receiving notice of the December 20 special 
meeting, Willard sent a letter, dated December 10, 1996, to 
A.S. and Rose Mary informing them that he believed that 
 
7
Capps’ offer was too low and that it did not “adequately 
reflect fair value.”  In that letter, Willard offered to 
purchase Moneta’s assets for $400,000 more than the amount 
Capps had offered.  However, Willard stipulated that his 
offer was good only until 3:00 p.m. on December 13, 1996. 
In a letter dated December 13, 1996, A.S. advised 
Willard that he and Rose Mary believed that it would be 
inappropriate for the board to consider his offer prior to 
the stockholders’ meeting on December 20.  Since Willard’s 
offer specified that it would expire on December 13, A.S. 
encouraged Willard to come to the stockholders’ meeting and 
present his offer at that time. 
One day before the special meeting of the 
stockholders, Willard sent a second letter to A.S. and Rose 
Mary.  In that letter, Willard increased his offer to 
$600,000 more than the amount offered by Capps.  Willard 
also requested 30 days in which to evaluate the assets and 
determine if an even higher purchase price was warranted. 
As authorized by the board of directors, Moneta 
obtained an opinion from Dr. Larry A. Lynch, a business 
valuation expert, with regard to whether the amount of 
Capps’ offer reflected the fair market value of Moneta’s 
assets.  In a report dated December 12, 1996, Dr. Lynch 
stated that the value of Moneta’s assets ranged from 
 
8
$1,357,531 to $1,449,746, depending on the valuation method 
utilized.  He concluded that Capps’ offer of $1.3 million 
was fair and reasonable upon taking into consideration the 
fact that the “going concern assumption may be affected by 
the loss of key personnel and pending litigation.”  A copy 
of Dr. Lynch’s report was forwarded to the stockholders 
prior to the special meeting on December 20. 
The stockholders’ special meeting proceeded as called 
on December 20, 1996.7  A.S., David, and Willard were in 
attendance.  Rose Mary did not attend, but she had given 
A.S. her proxy for the purpose of voting her shares of 
stock.8  All parties in attendance were represented by 
legal counsel.  At the meeting, A.S. informed the other 
stockholders about the recent offers tendered by Willard, 
including Willard’s offer to sell his shares of stock in 
Moneta.  A.S. advised Willard that he and Rose Mary would 
sell their stock for the same price per share, but Willard 
________________________ 
 
7 Willard filed an action in the circuit court to 
enjoin the stockholders from convening the special meeting.  
After hearing evidence on December 17, 1996, the circuit 
court denied Willard’s request for injunctive relief. 
 
8 David’s resignation from Moneta had caused discord 
within the Cappellari family.  Consequently, Rose Mary had 
delegated her authority as an officer and director of 
Moneta to A.S. at the end of the year.  She was 
hospitalized at the time of the special meeting of 
 
9
did not respond to that proposal.  A.S. further stated “he 
would consider the best interest of the employees of 
[Moneta] as well as other non-monetary factors including 
the business’ customers, continuity of management and the 
realistic threat to [Moneta] from competition if the 
property were not sold to Capps.”  Willard noted his 
objections to the offer from Capps and reiterated that he 
had a counter-offer on the table.  A.S. stated that the 
only item of business to be acted upon at the meeting was 
the offer from Capps.  A.S. and Rose Mary, by proxy, then 
voted to accept the offer from Capps.  Willard voted 
against the proposal, and David abstained from voting.  
Thus, a majority of Moneta’s stockholders approved the 
revised “Asset Purchase Agreement.” 
On April 23, 1997, Willard, on behalf of Moneta and 
all its stockholders, filed this shareholders’ derivative 
suit pursuant to Code §§ 13.1-672.1 et seq., naming Moneta, 
A.S., Rose Mary, David, and Capps as defendants.  In an 
amended bill of complaint, Willard sought to void the sale 
of Moneta’s assets to Capps on the basis that the 
transaction violated the provisions of Code § 13.1-691 
dealing with conflict of interests.  He also requested an 
___________________ 
 
stockholders, but she was present at the special meeting of 
 
10
award of damages for breach of fiduciary duties, violation 
of Code § 18.2-499, and common law conspiracy; the 
imposition of a constructive trust over the income and 
assets of Capps; and an award of expenses, attorney’s fees, 
and court costs. 
 
During a bench trial, the circuit court heard 
testimony with regard to the facts already recited.  In 
addition, the court received evidence from several experts 
who had appraised the value of Moneta’s assets.  These 
experts differed in their opinions with regard to the 
appropriate valuation method and the actual value of the 
assets.  For example, Harry Schwarz testified that he 
valued the assets at $2,675,000 as of September 30, 1996, 
but acknowledged that he had not considered what effect, if 
any, David’s leaving Moneta and opening his own building 
supply business would have on the value of the assets.  
Schwarz also included cash and securities in his valuation, 
but those assets were not sold to Capps.  
Hope Player, who had prepared the Player report, 
testified that Moneta was surpassing its peers in terms of 
profitability.  She attributed that accomplishment to 
David’s superior management skills.  Accordingly, she 
___________________ 
directors on November 19, 1996. 
 
11
factored the effect of David’s resignation into her 
valuation.  Player also testified that, when comparing two 
offers to purchase, a prudent seller would take into 
consideration any contingencies associated with the offers, 
assuming that the buyers had equal motivation and ability. 
Dr. Vittorio Bonomo, a professor of finance at 
Virginia Polytechnic Institute and State University, opined 
that any amount over $800,000 was a fair price for Moneta’s 
assets.  Dr. Bonomo believed that, during the first seven 
years after David left Moneta and opened his own competing 
business, Moneta’s annual profits would fall by an amount 
somewhere between $400,000 and $100,000, primarily for two 
reasons: Moneta would be splitting the market with another 
competitor and that competitor would have “a good manager” 
rather than just “a norm manager.”  Thus, Dr. Bonomo opined 
that a director who was faced with the events that had 
occurred during the fall of 1996 would have to consider the 
subsequent financial consequences to Moneta if the Capps 
offer were not accepted. 
In a letter opinion dated May 14, 1998, the circuit 
court explained that “[t]he wide discrepancy in valuation 
often depended upon the method utilized by the expert, and 
the extent to which the expert viewed, as a financial 
impact, the consequences of a competing business and the 
 
12
loss of key personnel.”  The testimony of Dr. Bonomo, Dr. 
Lynch, and Ms. Player was more persuasive to the court than 
that of the other experts.  Finding that Willard had failed 
to present sufficient evidence to prove his claims, the 
circuit court dismissed each of the seven counts in his 
amended bill of complaint in an order dated June 4, 1998.  
We awarded Willard this appeal. 
STANDARD OF REVIEW 
 
The standard of appellate review applicable to this 
appeal is well settled.  Since the circuit court heard the 
evidence ore tenus, its factual findings carry the same 
weight as a jury’s verdict.  W.S. Carnes, Inc. v. Board of 
Supervisors of Chesterfield County, 252 Va. 377, 385, 478 
S.E.2d 295, 301 (1996).  Under the provisions of Code 
§ 8.01-680, the circuit court’s judgment cannot be set 
aside unless it appears from the evidence that the judgment 
is plainly wrong or without evidence to support it.  Thus, 
we examine the evidence in the light most favorable to the 
defendants, the prevailing parties at trial.  Id.
DIRECTOR’S DISCHARGE OF DUTIES 
 
In his first two assignments of error, Willard 
contends that the circuit court erred by ruling that A.S. 
and Rose Mary, as the only remaining directors of Moneta, 
did not have a duty to maximize the price received for the 
 
13
sale of Moneta’s assets and by concluding that they 
discharged their duties in accordance with the provisions 
of Code § 13.1-690.  Willard asks us to judge the 
directors’ decision to sell Moneta’s assets to Capps by the 
test articulated in Revlon, Inc. v. MacAndrews & Forbes 
Holdings, Inc., 506 A.2d 173 (Del. 1986).  The Revlon court 
held that the duty of a board of directors changed from one 
of preserving the corporate entity “to the maximization of 
the company’s value at a sale for the stockholders’ 
benefit” when it becomes apparent that the sale of the 
company is inevitable.  Id. at 182.  “The directors’ role 
[in that instance] change[s] from defenders of the 
corporate bastion to auctioneers charged with getting the 
best price for the stockholders at a sale of the company.”  
Id. 
 
In addressing these issues, the circuit court found 
that A.S. and Rose Mary were not liable under Code § 13.1-
690 because “[t]he evidence . . . clearly demonstrate[d] 
that defendants A.S. Cappellari and Rose Mary Cappellari, 
as directors of [Moneta], engaged in an informed decision 
making process that . . . produce[d] a defensible business 
decision.”  The court stated that § 13.1-690 does not 
require a director to maximize profits by accepting the 
highest bid when selling the assets of a corporation.  
 
14
Instead, a director is required to “act in accordance with 
‘his good faith business judgment of the best interests of 
the corporation.’”  The court further concluded that “[a] 
director may consider not only the quantity of an offer to 
purchase assets, but the quality of the offer.”  We agree. 
The General Assembly has mandated the standard by 
which to evaluate a director’s discharge of duties in 
Virginia.  The applicable statute is Code § 13.1-690: 
A.  A director shall discharge his duties as a 
director, including his duties as a member of a 
committee, in accordance with his good faith business 
judgment of the best interests of the corporation. 
B.  Unless he has knowledge or information 
concerning the matter in question that makes reliance 
unwarranted, 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 believes, in good faith, 
to be reliable and competent in the matters presented; 
2. Legal counsel, public accountants, or other 
persons as to matters the director believes, in good 
faith, are within the person’s professional or expert 
competence; or 
3. A committee of the board of directors of which 
he is not a member if the director believes, in good 
faith, that the committee merits confidence. 
C.  A director is not liable for any action taken 
as a director, or any failure to take any action, if 
he performed the duties of his office in compliance 
with this section. 
D.  A person alleging a violation of this section 
has the burden of proving the violation. 
 
Code § 13.1-690(A) does not abrogate the common law 
duties of a director.  It does, however, set the standard 
 
15
by which a director is to discharge those duties.  If a 
director acts in accordance with that standard, Code 
§ 13.1-690(C) provides a “safe harbor” that shields a 
director from liability for any action taken as a director, 
and for failure to take action.  Commonwealth Transp. 
Comm’r v. Matyiko, 253 Va. 1, 6, 481 S.E.2d 468, 470 
(1997). 
 
In adopting Code § 13.1-690, the General Assembly 
rejected § 8.30 of the Revised Model Business Corporation 
Act (RMBCA).  WLR Foods, Inc. v. Tyson Foods, Inc., 65 F.3d 
1172, 1185 (4th Cir. 1995), cert. denied, 516 U.S. 1117 
(1996); The Revision of Chapters 1 and 2 of Title 13.1 of 
the Code of Virginia, Report of the Virginia Code 
Commission to the Governor and the General Assembly of 
Virginia, H. Doc. No. 13, at 48-49 (1985).  That provision 
of the RMBCA requires a director to discharge the duties of 
the office in good faith, with the care that an ordinary 
prudent person in similar circumstances would exercise, and 
in a manner reasonably believed to be in the best interests 
of the corporation. 
The contrast between the provisions of Code § 13.1-690 
and those contained in § 8.30 of the RMBCA convinces us 
that, in Virginia, a director’s discharge of duties is not 
measured by what a reasonable person would do in similar 
 
16
circumstances or by the rationality of the ultimate 
decision.  Instead, a director must act in accordance with 
his/her good faith business judgment of what is in the best 
interests of the corporation.  Thus, the Revlon test is not 
applicable in Virginia. 
Accordingly, we conclude that A.S. and Rose Mary were 
entitled to consider the quantity and quality of the offers 
to purchase Moneta’s assets.9  Contrary to Willard’s 
argument, they were not required to accept an offer merely 
because it maximized the purchase price.  Such a rule would 
mean that only one offer, among many, was in the best 
interests of the corporation.  That result would erode the 
deference afforded a director’s discharge of duties under 
Code § 13.1-690. 
Turning to the facts of the present case, we agree 
with the circuit court’s judgment that A.S. and Rose Mary 
engaged in an informed decision-making process.  Pursuant 
________________________ 
9 In Mills Acquisition Co. v. MacMillan, Inc., 559 A.2d 
1261, 1282 n. 29 (Del. 1989), the court recognized that, in 
obtaining the highest price reasonably available for a 
corporation, a board of directors may consider “the 
adequacy and terms of the offer; its fairness and 
feasibility; the proposed or actual financing for the 
offer, and the consequences of that financing; . . . the 
risk of nonconsumation; the basic stockholder interests at 
stake; the bidder’s identity, prior background and other 
business venture experiences; and the bidder’s business 
 
 
17
to Code § 13.1-690(B), a director can rely on information 
and opinions from, inter alia, legal counsel, accountants, 
and other experts unless the director has knowledge that 
such reliance is unwarranted.  Thus, a director may use an 
informed decision-making process in discharging the duties 
of the office as long as the director does so in good 
faith.  See WLR Foods, 65 F.3d at 1185.  When a director 
resorts to such a process, the ultimate decision must still 
reflect the director’s “good faith business judgment of the 
best interests of the corporation” in order to receive the 
benefit of the “safe harbor” afforded in Code § 13.1-
690(C). 
A.S. testified that, when he received the first Asset 
Purchase Agreement, he compared the amount of the purchase 
price with a report dated July 15, 1996, from James T. 
Shepherd, a certified public accountant.10  Shepherd had 
estimated that the value of Moneta was $2,008,300.  
However, that amount included $240,900 for marketable 
securities that were not to be sold to Capps.  Shepherd 
___________________ 
 
plans for the corporation and their effects on stockholder 
interests.” 
 
10 David had obtained the report from Shepherd when he  
first started developing his business plan.  The report was 
sent to A.S. by mistake. 
 
 
18
also did not include any discounts for marketability or 
minority interests.  A.S. also testified that he looked at 
the balance sheets for Moneta and concluded that the amount 
of the offer approximated the total amount of the 
stockholders’ equity.  So, before the special meeting of 
the directors on November 19, A.S. and Rose Mary had had 
the benefit of this information along with the Player 
report.  By the time the stockholders met on December 20, 
they had received Dr. Lynch’s report in which he opined 
that the offer from Capps was fair to the corporation. 
Other factors were also relevant to the directors’ 
discharge of their duties with regard to the sale of 
Moneta’s assets.  Willard first indicated that he was not 
interested in purchasing the assets, but then he made an 
offer that expired three days later.  He did not submit his 
second offer until one day before the stockholders’ special 
meeting.  Furthermore, in Willard’s second offer, he 
requested an additional 30 days in which to review the 
financial records of Moneta in more detail so that he could 
determine if an even higher purchase price was warranted.  
Thus, A.S. and Rose Mary were justified in their fear that 
the value of Moneta’s assets would decline significantly if 
___________________ 
 
 
19
they waited and David opened his new business during those 
30 days.  A.S. and Rose Mary were obliged to consider this 
potential consequence.  Even Willard had acknowledged the 
adverse impact that David’s new business would have on the 
value of Moneta’s assets.11
Thus, we conclude that A.S. and Rose Mary, in their 
capacities as directors, acted in good faith and used their 
business judgment by pursuing a course to achieve the 
result that they considered to be in the best interests of 
Moneta.  They discharged their duties in accordance with 
Code § 13.1-690 and are, therefore, protected by the “safe 
harbor” afforded under subsection C of that statutory 
provision.12
________________________ 
11 At the hearing on October 24, Willard stated, “After 
Dave announces his opening and comes out of the ground, you 
can pretty much shut [Moneta] down by about a third right 
then.” 
 
12 Because the objective reasonableness of a director’s 
decision or conduct is not a relevant inquiry under § 13.1-
690, we also conclude that the circuit court correctly held 
that Willard was not entitled to discover the substance of 
certain legal and financial advice that the defendants 
received.  See WLR Foods, 65 F.3d at 1187.  Furthermore, 
the circuit court actually reviewed all the requested 
material in camera and ordered the defendants to provide 
some of the documents to Willard.  “Generally, the granting 
or denying of discovery is a matter within the discretion 
of the trial court and will not be reversed on appeal 
unless ‘the action taken was improvident and affected 
substantial rights.’”  O’Brian v. Langley School, 256 Va. 
 
 
20
CONFLICT OF INTERESTS 
Willard’s third and fourth assignments of error 
address an alleged conflict of interests and a director’s 
duty of loyalty.  Specifically, Willard asserts that the 
circuit court erred by ruling that A.S. and Rose Mary did 
not have a conflict of interests in the transaction to sell 
Moneta’s assets to a corporation owned by their son. 
The statute at issue is Code § 13.1-691, which 
provides the following, in pertinent part: 
A.  A conflict of interests transaction is a 
transaction with the corporation in which a director 
of the corporation has a direct or indirect personal 
interest.  A conflict of interests transaction is not 
voidable by the corporation solely because of the 
director’s interest in the transaction if any one of 
the following is true: 
1. The material facts of the transaction and the 
director’s interest were disclosed or known to the 
board of directors or a committee of the board of 
directors and the board of directors or committee 
authorized, approved, or ratified the transaction;  
2. The material facts of the transaction and the 
director’s interest were disclosed to the shareholders 
entitled to vote and they authorized, approved, or 
ratified the transaction; or 
3. The transaction was fair to the corporation. 
B.  For the purposes of this section, a director 
of the corporation has an indirect personal interest 
in a transaction if: 
1. Another entity in which he has a material 
financial interest or in which he is a general partner 
is a party to the transaction; or 
___________________ 
547, 552, 507 S.E.2d 363, 366 (1998) (quoting Rakes v. 
Fulcher, 210 Va. 542, 546, 172 S.E.2d 751, 755 (1970)). 
 
 
21
2. Another entity of which he is a director, 
officer or trustee is a party to the transaction and 
the transaction is or should be considered by the 
board of directors of the corporation. 
 
Relying on our decision in Izadpanah v. Boeing Joint 
Venture, 243 Va. 81, 412 S.E.2d 708 (1992), the circuit 
court ruled that Willard had the initial burden of 
establishing a conflict of interests and that he failed to 
do so.13  The court determined that A.S. and Rose Mary, in 
their capacities as directors, did not have an “indirect 
personal interest” in the transaction, as that term is 
defined in Code § 13.1-691(B).  Aside from the familial 
relationship between son and parents, the court also found 
no evidence of a “direct personal interest in the 
transaction.”  According to the court, the evidence 
actually demonstrated that David’s resignation as an 
officer and director of Moneta and his new business plans 
had caused considerable discord between him and his 
parents. 
________________________ 
13 The court also stated that if a plaintiff 
establishes a conflict of interests, the director then has 
the burden to prove compliance with Code § 13.1-691.  This 
allocation of the burden of proof is correct.  “[W]hen a 
conflict of interest as defined in § 13.1-691 exists, . . . 
the burden shifts to the directors to show that their 
actions complied with the requirements of that section.”  
Izadpanah, 243 Va. at 83, 412 S.E.2d at 709; accord 
Giannotti v. Hamway, 239 Va. 14, 24, 387 S.E.2d 725, 731 
(1990). 
 
 
22
As an alternative finding, the court determined that, 
even if A.S. and Rose Mary had conflicts of interests in 
their capacities as directors, the transaction was, 
nevertheless, “fair to the corporation” pursuant to Code 
§ 13.1-691(A)(3).  Thus, the circuit court held that the 
sale of Moneta’s assets was not a voidable transaction 
under Code § 13.1-691.  Because we agree that the 
transaction was “fair,” we need not address whether A.S. 
and Rose Mary had a conflict of interests because their son 
owned the corporation that purchased the assets of Moneta.14
No inflexible rule can be established by which to test 
the “fairness” of a transaction.  It depends largely on the 
nature and circumstances of the business action.  But 
generally, a director must act in good faith, and the 
transaction must, “as a whole, [be] open, fair and honest 
at the time it was consummated.”  Deford v. Ballentine 
Realty Corp., 164 Va. 436, 449, 180 S.E. 164, 169 (1935); 
accord Adelman v. Conotti Corp., 215 Va. 782, 789-90, 213 
S.E.2d 774, 779 (1975).  In sum, a transaction in which a 
___________________ 
 
 
14 Although the General Assembly did not define “direct 
personal interest,” we note that the RMBCA includes, in the 
definition of a “conflicting interest,” a transaction with 
the corporation when the director knows that he or a 
related person is a party to or has a beneficial interest 
 
23
director has a conflict of interests should bear “the 
earmarks of an arm’s length bargain” in order to be deemed 
“fair to the corporation” under Code § 13.1-691(A)(3).  
Pepper v. Litton, 308 U.S. 295, 306-07 (1939). 
Using these guidelines to review all aspects of the 
transaction in this case, we conclude that A.S. and Rose 
Mary carried their burden of proving that the sale of 
Moneta’s assets to Capps was “fair to the corporation.”  
Although we believe that the standard by which a 
transaction is judged under Code § 13.1-691(A)(3) is more 
exacting than that under § 13.1-690, the facts that support 
the circuit court’s conclusion that A.S. and Rose Mary 
exercised their “good faith business judgment of the best 
interests of the corporation” equally sustain the court’s 
judgment on this issue and need not be repeated. 
Furthermore, when A.S. and Rose Mary, acting as 
Moneta’s directors, accepted the offer from Capps, it was 
the only offer that had been presented to the board of 
directors at that time.  After Willard made his first 
offer, the directors did not refuse to consider it.  
Instead, they believed it would be inappropriate to take 
any action on the offer prior to the special meeting of the 
___________________ 
 
in the transaction.  § 8.60(1).  Under § 8.60(3), the term 
 
24
stockholders since the notice for that meeting had already 
been given to the stockholders.  Even though Willard’s 
first offer expired three days after he made it, A.S. 
encouraged Willard to present his offer to the 
stockholders.  Willard did not make his second offer until 
one day before the stockholders’ special meeting.15  
However, that offer included Willard’s request for 30 days 
in which to evaluate the value of Moneta’s assets. 
During the stockholders’ meeting, A.S. informed 
everyone about Willard’s offers.  The stockholders had 
already received copies of the revised “Asset Purchase 
Agreement” and the reports from Dr. Lynch and Player.  
Thus, the directors and stockholders of this closely held 
corporation possessed all the available information 
concerning the value and sale of Moneta’s assets.  When the 
stockholders met on December 20, the options were either to 
accept the offer from Capps or to forego that opportunity 
to sell Moneta’s assets and wait for the outcome of a 
further evaluation of the assets by Willard while David 
opened his competing business.  Therefore, we conclude that 
the transaction was, “as a whole, open, fair and honest at 
___________________ 
“related person” encompasses children of the director. 
 
25
the time it was consummated” and is, accordingly, not 
voidable under Code § 13.1-691. 
Willard, nevertheless, asserts that a finding that the 
sale of assets is not voidable under Code § 13.1-691 does 
not necessarily resolve the question whether A.S. and Rose 
Mary are liable for breach of their common law duty of 
loyalty.  Generally, we agree with that proposition. 
However, having established the “fairness” of the 
transaction under Code § 13.1-691(A)(3), it necessarily 
follows that A.S. and Rose Mary discharged their duty of 
loyalty in compliance with Code § 13.1-690. 
MAJORITY STOCKHOLDERS’ RIGHTS 
We next address Willard’s contention that the circuit 
court erred by finding that A.S. and Rose Mary could “avoid 
the fiduciary duties they owed as directors by simply 
referring the asset sale to themselves as shareholders and 
then voting ‘as shareholders’ to approve the transaction.”  
Willard argues that directors cannot be allowed to abdicate 
their duties by replacing their “director[s’] hats” with 
their “shareholder[s’] hats.” 
___________________ 
15 In fact, Willard did not present his second offer 
until after his unsuccessful attempt to enjoin the 
stockholders from convening the special meeting. 
 
26
With regard to the duties of majority stockholders, 
the circuit court determined that A.S.’s decision to vote 
his and Rose Mary’s shares of stock to accept the revised 
“Asset Purchase Agreement” was not “illegal, oppressive, 
fraudulent, or wasteful.”  Absent a violation of Code 
§ 13.1-747,16 the court opined that stockholders own their 
stock and can vote it. 
In Glass v. Glass, 228 Va. 39, 53-54, 321 S.E.2d 69, 
78 (1984), we recognized that “majority stockholders [have] 
rights for which they [are] entitled to protection.  They 
[have] the right to retain their stock, to control the 
management of the [c]orporation, and to act together to 
accomplish their legitimate aims.”  Similarly, in Fein v. 
Lanston Monotype Mach. Co., 196 Va. 753, 766, 85 S.E.2d 
353, 360 (1955), we stated that “[t]he holders of the 
majority of the shares of a corporation have the right and 
the power, by the election of directors and by the vote of 
their stock, to determine the policy of their corporation 
and to manage and control its action.” 
________________________ 
16 Code § 13.1-747 provides, in part, that a circuit 
court may dissolve a corporation if, inter alia, the 
directors are acting in a manner that is illegal, 
oppressive, or fraudulent. 
 
 
27
Accordingly, we conclude that A.S. and Rose Mary were 
entitled to exercise their rights as the majority 
stockholders by voting to approve the sale of assets to 
Capps.  We agree with the circuit court’s judgment that 
their conduct was not “illegal, oppressive, or fraudulent” 
under Code § 13.1-747.  Any self-interest on the part of a 
majority stockholder “is not a disqualification of the 
right to vote, in the absence of fraud or other 
disqualification.”  196 Va. at 766, 85 S.E.2d at 360. 
STATUTORY REQUIREMENTS FOR 
 SELLING CORPORATION’S ASSETS 
 
Willard next attacks the directors’ compliance with 
the provisions of Code § 13.1-724.17  Specifically, Willard 
________________________ 
 
17 Code § 13.1-724 provides the following, in pertinent 
part:  
A.  A corporation may sell, lease, exchange, or 
otherwise dispose of all, or substantially all, of its 
property, otherwise than in the usual and regular 
course of business, on the terms and conditions and 
for the consideration determined by the corporation’s 
board of directors, if the board of directors adopts 
and its shareholders approve the proposed transaction. 
B.  For a transaction to be authorized: 
1. The board of directors shall submit the 
proposed transaction to the shareholders with its 
recommendation unless the board of directors 
determines that because of conflict of interests or 
other special circumstances it should make no 
recommendation and communicates the basis for its 
determination to the shareholders with the submission 
of the proposed transaction; and  
2. The shareholders entitled to vote shall  
 
28
asserts that A.S. and Rose Mary failed to follow the 
procedures contained in subsection (B)(1) in two respects: 
(1) that the board of directors failed to communicate the 
“basis for its determination” that the proposed transaction 
would be submitted to the stockholders with no 
recommendation from the directors; and (2) that the 
proposed “Asset Purchase Agreement” sent to the 
stockholders for approval was actually different from the 
one approved by the board of directors. 
 
The notice of the December 20, 1996 special meeting of 
stockholders disclosed the familial relationship among 
A.S., Rose Mary, and David.  According to the circuit 
court, that relationship was a “special circumstance” that 
formed the basis of the decision by the board to refer the 
proposed transaction to the stockholders without a 
recommendation.  We agree.  Disclosure of the familial 
relationship in the notice for the special meeting of 
stockholders was sufficient notification of the basis for 
the board’s decision.  Thus, the disclosure satisfied the 
requirements of Code § 13.1-747(B)(1). 
___________________ 
approve the transaction as provided in subsection E of 
this section. 
 
 
 
29
 
The court also found that the terms of the revised 
“Asset Purchase Agreement,” which A.S. signed without board 
approval, fell within the authority to negotiate that the 
board of directors had granted to him at the special 
meeting on November 19, 1996.  The minutes of the special 
meeting of the board of directors on November 19 reflect 
that the board authorized A.S. to sign the agreement but 
reserved the right for him to negotiate any matters of 
concern to the stockholders.  In the revised document, 
Capps agreed to assume certain liabilities of Moneta; 
whereas, the original agreement stated that Capps “shall 
not assume any liabilities of [Moneta].”  While this 
modification resulted in a reduction in the purchase price, 
we believe that the outstanding liabilities of the seller 
and the extent to which the buyer will assume those 
liabilities are matters of concern to stockholders.  Thus, 
we conclude that A.S. acted within the authority granted to 
him when he executed the revised “Asset Purchase Agreement” 
and that the submission of that agreement to the 
stockholders for approval did not violate the requirements 
of Code § 13.1-724(B)(1), even though it contained some 
terms that were different from those in the original 
agreement approved by the board of directors. 
CONCLUSION 
 
30
 
To summarize, A.S. and Rose Mary, as the only 
remaining directors of Moneta, discharged their duties in 
accordance with their “good faith business judgment of the 
best interests of the corporation” by approving the sale of 
Moneta’s assets to Capps.  They not only engaged in an 
informed decision-making process to the extent possible, 
given the limited amount of time in which they had to 
evaluate the offers from Capps and Willard, but they also 
considered both the quantity and quality of the offers.  
Moreover, the transaction was “fair to the corporation” 
under the more demanding standard mandated by Code § 13.1-
691(A)(3).  A.S. and Rose Mary also complied with the 
procedures required in Code § 13.1-724 for the sale of a 
corporation’s assets, not in the ordinary course of 
business.  Thus, for the reasons stated, we will affirm the 
judgment of the circuit court.18
Affirmed. 
JUSTICE KOONTZ, with whom JUSTICE HASSELL joins, 
dissenting. 
 
________________________ 
18 Willard also assigned error to the circuit court’s 
refusal to impose a constructive trust on the assets sold 
to Capps and to award Willard his attorney’s fees and 
costs.  However, on brief, Willard asked this Court to 
reverse the circuit court’s decision on this issue if we 
also reversed the court’s approval of the transaction.  
Since we are affirming the circuit court’s judgment, we 
need not address this assignment of error on its merits. 
 
31
 
I respectfully dissent.  In my view, only by placing 
form over substance can the record in this case support the 
trial court’s judgment that Ronald L. Willard failed to 
carry his burden of proof that Amerigo S. and Rose Mary 
Cappellari, the sole directors and majority stockholders of 
Moneta Building Supply, Inc. (Moneta), did not discharge 
their duty of loyalty in compliance with Code § 13.1-690. 
 
Without repeating the generally undisputed facts 
recited in the majority opinion, it is clear that the 
record establishes that Mr. and Mrs. Cappellari knew that 
the transaction in question involved the sale of Moneta’s 
operating assets to Capps Home & Building Supply Center, 
Inc. (Capps), a corporation owned by their son, David 
Lawrence Cappellari.  In addition, the record establishes 
that although Mr. and Mrs. Cappellari were unhappy with 
their son’s decision to leave Moneta and to open Capps in 
direct competition with it, they were aware that the 
acquisition of Moneta’s assets would shorten the time until 
Capps would become operational and be a source of 
substantial income for their son.  Indeed, this transaction 
would permit their son to begin operating Capps in Moneta’s 
real estate with its entire inventory and, thus, become 
operational immediately upon the close of the transaction 
 
32
without the delays inherent in opening any new business.  
This benefit to their son is patent. 
 
Under these circumstances, Mr. and Mrs. Cappellari had 
a conflict of interests in this transaction because they 
had a “direct personal . . . interest” in that transaction 
as contemplated by Code § 13.1-691.  That statute does not 
define this term.  However, “direct . . . personal 
interest” is a broad term and, absent restrictive language 
in the statute, it is not limited to direct financial 
considerations.  Rather, common sense dictates that where a 
parent is in a position as a director of a closely held 
corporation to assist his or her child in acquiring the 
assets of the corporation to the benefit of the child, that 
director has a direct personal interest in such a 
transaction as contemplated by Code § 13.1-691. 
 
Notwithstanding this conflict of interests, I do not 
disagree with the majority’s conclusion that on this record 
this transaction was not void or voidable under Code 
§ 13.1-691.  In the context of that code section, the 
record supports the trial court’s judgment, and the 
majority opinion, that the transaction was “fair to the 
corporation” under Code § 13.1-691(A)(3).  This is so 
because Capps’ offer was at least consistent with the value 
of Moneta’s assets. 
 
33
 
However, Code § 13.1-691 by its express terms merely 
protects a conflict of interests transaction from being 
rendered void solely because of a director’s conflict.  
This code section does not address the potential liability 
of a director who has a conflict of interests in a 
particular transaction.  That issue is to be resolved under 
Code § 13.1-690, which requires the director to discharge 
his duties “in accordance with his good faith business 
judgment of the best interests of the corporation.”  It is 
in this context that I disagree with the conclusion of the 
majority opinion, on the particular facts of this case, 
that because the transaction in question was not voidable 
because it was “fair” under Code § 13.1-691(A)(3), it 
necessarily follows that the directors discharged their 
duty of loyalty in compliance with Code § 13.1-690. 
 
It is undisputed that on November 15, 1996, Capps 
offered $1.3 million to purchase the assets of Moneta, 
including its real estate, inventory, equipment, vehicles, 
supplies, office furniture, fixtures, improvements and the 
exclusive right to use the trade name “Moneta Building 
Supply.”  Without question, once this transaction was 
complete Moneta would cease to exist as an operating 
business.  All that would remain to be done would be a 
distribution of the proceeds of this sale to the 
 
34
shareholders.  It is also undisputed that prior to the 
shareholder approval of this offer, the directors received 
two offers from Willard.  In pertinent part, the last offer 
contained the following provisions: 
I am now offering to pay $600,000.00 more than 
Capps for the same assets as set forth in the 
November 15, 1996 Asset Purchase Agreement, and 
under the same terms an [sic] conditions as set 
forth therein, provided that the business is run 
in the ordinary course until closing and the 
telephone number of the business is included in 
the assets. 
. . . . 
I am making my offer without any real 
opportunity to investigate in detail the value of 
the assets of Moneta Building Supply, Inc.  I am 
confident that if given that opportunity, I would 
further increase my offer substantially.  
Accordingly, while the foregoing offer remains in 
effect, I would request 30 days to fully evaluate 
the assets and determine whether a higher value 
is appropriate. 
 
 
There is no suggestion in the record that Willard was 
not financially able to consummate this offer if it was 
accepted.  Willard’s offer of $600,000 more than the Capps 
offer was not conditioned upon being granted an additional 
30 days in which to review financial records of Moneta in 
more detail.  Thus, the record establishes that the 
directors had two competing offers to consider, and one in 
which they had a direct personal interest.  Significantly, 
the latter offer was the lower of the two offers. 
 
35
 
In this context, the record does not support the trial 
court’s conclusion that Mr. and Mrs. Cappellari “engaged in 
an informed decision making process that . . . produce[d] a 
defensible business decision.”  The record reflects that 
they never met as directors to consider Willard’s offer.  
Thus, the record does not support the conclusion that they 
discharged their duties as directors in accordance with 
their “good faith business judgment of the best interests 
of the corporation” as contemplated by Code § 13.1-690.  
Rather, the record establishes that the directors preferred 
their son to be able to purchase Moneta’s assets and that 
they engaged professional advice solely to shape a process 
under Code § 13.1-690 to accomplish that end.  This was 
mere form over substance. 
While I agree with the majority that Mr. and Mrs. 
Cappellari were not required to accept Willard’s offer 
merely because it maximized the purchase price and that 
they were entitled to consider not only the quantity of the 
offer but also the quality of the offer, the record simply 
does not support the conclusion that this was done.  
Moreover, because of their direct personal interest in the 
Capps transaction, it is clear that they were not 
exercising good faith business judgment because all their 
efforts were directed at upholding the Capps offer to the 
 
36
exclusion of any consideration of the Willard offer.  Under 
these circumstances they were not entitled to the 
protection of Code § 13.2-690(C) and they failed to 
discharge their duty of loyalty in not considering the 
offer that would maximize the purchase price for Moneta’s 
assets. 
 
For these reasons, I would reverse the judgment of the 
trial court and remand this case to the trial court for a 
determination of what damages, if any, Willard might 
establish in a new trial limited to that issue. 
 
37