Opinion ID: 703999
Heading Depth: 2
Heading Rank: 4

Heading: Control Share Referendum

Text: 84 Finally, we reach Tyson's last challenge to the rulings below. After Tyson acquired the requisite percentage of WLR's stock to trigger a loss of voting rights under the Virginia Control Share Act, Va.Code Ann. Secs. 13.1-728.1 to -728.9, a shareholder referendum was scheduled to determine whether Tyson's shares would reacquire any voting rights. Under the Control Share Act, Tyson needed a majority of the votes of the disinterested shareholders in order to gain such rights. The control share referendum was held on May 21, 1994, and was defeated. Tyson contends that by virtue of certain defensive measures taken by the WLR Board at its meeting on February 4, 1994, interested parties were permitted to vote in the control share referendum, thereby skewing the outcome of the vote. On appeal, Tyson contests the district court's finding that the challenged shares were not interested for purposes of the vote. Factual findings of the district court will be reversed only if they are clearly erroneous. Freed, 30 F.3d at 506. 4 85 Interested shares may not be counted in a vote under the Control Share Act. Va.Code Ann. Sec. 13.1-728.3(B). Interested shares are defined by the Control Share Act as shares held by the following: (1) the acquiring person in a control share acquisition, (2) an officer of the target corporation, or (3) an employee of the target corporation who is also a director of that corporation. Id. Sec. 13.1-728.1. In addition, shares are interested if they are held by the associates of one of the above persons, who are defined as: 86 (i) any other person who directly or indirectly controls, or is controlled by or under common control with, any such person or who is acting or intends to act jointly or in concert with any such person in connection with the acquisition of or exercise of beneficial ownership over shares; (ii) any corporation or organization of which any such person is an officer, director or partner or as to which any such person performs a similar function; (iii) any other person having direct or indirect beneficial ownership of ten percent or more of any class of equity securities of any such person; (iv) any trust or estate in which any such person has a beneficial interest or as to which any such person serves as trustee or in a similar fiduciary capacity; and (v) any relative or spouse of any such person, or any relative of such spouse, any one of whom has the same residence as any such person.... 87 Id. The status of the shares is to be determined as of the record date. Id. Sec. 13.1-728.3(B). 88 Tyson claims that the votes of the four directors who resigned as employees prior to the record date for the May 21, 1994 vote, Charles Wampler, William Wampler, Herman Mason, and George Bryan, should not have been counted in the control share referendum, because their resignations were not genuine. 5 According to Tyson, since the four men continued to be employees of WLR, their shares were interested for purposes of the control share referendum. See id. Sec. 13.1-728.1 (shares of directors who are also employees are interested). Further, Tyson claims that simply subtracting the votes of the four directors and their associates from the final result to determine what the referendum count would have been if the allegedly interested shares had not been cast does not suffice as a remedy, because other voters were intimidated by the fact that the directors were planning to vote against Tyson and therefore voted the same way. In other words, Tyson claims that the entire result of the referendum was tainted by allowing the purportedly interested parties to vote. 6 89 The Virginia statute is clear that the status of a share as interested should be determined as of the record date. See id. Sec. 13.1-728.3(B). Therefore, if the four directors were no longer employees on the record date, they were entitled under the statute to cast their votes in the referendum. The district court performed an analysis of the functions and capacities of each of the four directors individually to determine whether they had actually ceased to function as employees on the record date. He found that, even before the record date for the referendum, the four directors in question had minimal involvement with the daily operations of WLR. Charles Wampler did not report to anyone at WLR. He signed no checks for the company, and did not have authority to direct WLR employees. He gave up his salary when he resigned as an employee. Similarly, William Wampler had drawn no salary from WLR since his resignation on February 4, 1994, had no office or secretary at the company, and did not direct other employees. Herman Mason also did not collect a salary as of April 14, 1994, could not hire or fire workers for WLR, had no secretary at the company, and other than performing his functions as a director, he served WLR only by giving advice to Keeler, which Keeler was free to follow or to disregard. Finally, George Bryan no longer received a salary as of February 4, 1994, and had not been instrumental in WLR's operations since the 1970s. In fact, he had been ill since before February 4, 1994, and had ceased to perform functions for WLR. 90 The district judge concluded, after his careful analysis of the functions and positions of the four directors, that none of the four was working as an employee of WLR on the record date. He also found that the health benefits which the four directors received were retirement benefits, as opposed to ongoing compensation for employee services. Although Tyson has mounted a broad challenge to the district judge's findings on the employee status of the four directors, Tyson has not pointed to any specific facts tending to show that the determination that the directors ceased to function as employees was incorrect. The district judge's factual findings regarding the status of the four directors, and his conclusion that they were no longer WLR employees as of the record date, are amply supported by evidence in the record. 91 Tyson also claims that the entire WLR Board should have been precluded from voting in the referendum, because its members worked with Keeler, an interested director, 7 in procuring the resignations of the four directors, and thus should have been considered his associates in the sense used in the Virginia Control Share Act. Tyson therefore argues that the Board members were owners of interested shares not entitled to vote in the referendum. However, Tyson's contention in this regard depends largely upon its claim that the resignations of the four directors were sham resignations procured by Keeler with the help of other Board members. Under the factual findings of the district judge, which are supported by the record, we do not accept Tyson's theory of a great conspiracy among the Board of Directors of WLR. The Board members were simply not Keeler's associates as defined by the Control Share Act, id. Sec. 13.1-728.1. The members of the Board whom Tyson wishes to classify as associates of Keeler were legitimately entitled to vote in the control share referendum. 92 Finally, Tyson contends that certain other individuals functioned as officers of WLR, and thus should have been excluded from the referendum voting. See id. Sec. 13.1-728.1 (shares of officers of issuing public corporation are interested). Tyson claims that these officers agreed to vote against Tyson in exchange for receiving benefits and perks. Although WLR did, in fact, grant benefits to some of the people identified by Tyson, we find Tyson's challenge to their votes, also, to lack support in the record. 93 The shares of the four directors, as well as the shares of the other directors on the Board (excepting Keeler) were not interested, and they therefore were properly cast in the control share referendum. In addition, Tyson's contention that certain other individuals should be treated as officers and therefore not entitled to vote is without merit.