Opinion ID: 1304086
Heading Depth: 3
Heading Rank: 2

Heading: Interested-Director Transaction

Text: Onvoy also asserts the lease is void and not subject to arbitration because the individually-named defendants negotiated the lease on behalf of Onvoy while either being board members or employees of SHAL. Onvoy alleges that Onvoy's Network Committee made multiple decisions that unnecessarily ratcheted up the cost benchmark, making it more likely that SHAL could win the bid. Onvoy claims that this amounts to self-dealing, which is void under Minnesota law as an interested director contract. SHAL maintains that a transaction involving interested directors makes a lease at most voidable. The district court, in analyzing SHAL's motion to dismiss, found that Onvoy had adequately [pled] a claim for rescission based upon an interested director transaction. The court of appeals did not reach this issue. A claim that interested directors sullied a transaction is governed by statute in Minnesota. Minnesota Statutes § 302A.255 (2002) presumes a transaction is not void or voidable, even if approved by directors, officers, or legal representatives with a material financial interest as long as the party asserting the validity of the transaction can satisfy one of four safe harbor provisions. The defendant (in this case SHAL and the individually-named defendants) has the burden of proving the validity of the transaction. See 18 John H. Matheson & Philip S. Garon, Minnesota Practice, Corporation Law and Practice § 3.32 at 93 (1996). The defendant must show either (1) that the transaction was fair and reasonable to the corporation at the time it was approved; (2) that material facts about the contract and the directors' interest were fully disclosed and the contract was approved in good faith by at least two-thirds of the disinterested corporate shareholders; (3) that material facts about the contract and the directors' conflicts were known by a board or committee who authorized the transaction without the vote of interested directors; or (4) that the contract is a distribution, merger, or exchange. See Minn.Stat. § 302A.255. Onvoy alleges in its complaint that none of the statute's safe harbor provisions apply to the facts of this case. Minnesota Statutes § 302A.255 leaves open the possibility that a transaction may be void as a result of the participation of an interested director. Because Onvoy alleges that interested directors improperly negotiated the lease, the burden shifts to SHAL and the individually-named defendants to establish the existence of one of the safe harbors. At this stage in the proceedings, SHAL and the individually-named defendants have not had the opportunity to develop a record on this issue and, therefore, it is not ripe for decision. Therefore, we remand to the district court to determine whether this lease is the product of an interested-director transaction sufficient to void the lease under Minn.Stat. § 302A.255. If the district court determines the lease is void under our corporate law statute, Onvoy's interested-director claim may be heard by the district court instead of an arbitrator. If the district court determines the lease is only voidable, Onvoy's claims must be compelled to arbitration pursuant to the Prima Paint ruling. See Sphere Drake, 263 F.3d at 32.