Opinion ID: 852988
Heading Depth: 3
Heading Rank: 2

Heading: Removal of Directors Elected Generally by the Shareholders

Text: Murray was most recently elected to the Conseco Board of Directors at the annual meeting of shareholders held in June 2000. Like most directors of publicly held companies, Murray was elected along with the rest of management's slate by a vote of over ninety percent of the shareholders eligible to vote for directors. In Conseco's case, those shareholders were the holders of common stock listed on the New York Stock Exchange and also holders of preferred stock. All voting shares voted as one, except that each preferred share carried voting weight different from the one vote accorded each common share. Although there are no directors elected by any subset of Conseco's outstanding securities, Murray contends that the holders of the common and preferred stock collectively form a voting group that elected him. Because of our conclusion in Part I.A. that voting group representatives are protected from removal without cause by the directors, Murray argues that the shareholders are the only body that can remove him. In support of his position Murray cites the last sentence of the statutory definition of voting group, which says that all shares entitled ... to vote generally on the matter are for that purpose a single voting group. I.C. § 23-1-20-28. From this, Murray reasons that the shareholders as a body are a voting group who elected him, and, by reason of subsection 8(b), only the shareholders are authorized to remove him. There is a logic to Murray's position. This definition of voting group comes from section 1.40(26) of the MBCA. The Commentary to that section of the MBCA explains, as one would expect, that shares entitled to vote generally means shares that have a vote on a matter without any right to be counted separately. Thus all of Conseco's voting shares are in this category and constitute a single voting group for various purposes under the Act. Despite the statutory definition of voting group in both the MBCA and in the Indiana BCL, we think this definition does not make Conseco's directors elected by a voting group as the term is used in subsection 8(b). We concluded in Part I.A. that subsection 8(b) operates as a limitation on the ability of the board to remove one of its members who was elected by a voting group. However, we think elected by a voting group, in subsection 8(b) refers to groups that elect separate directors, and does not apply to directors elected by a voting group consisting of all voting shares voting generally. First, subsection 8(b) is meaningless unless there are separate groups who elect separate directors. It makes no sense to speak of participation only by the shareholders in the group if there is only one group to consider. Second, the reason to find subsection 8(a) to prohibit removal of a director elected by a separate group of shareholders has no application to a director elected by all shareholders. We reach the conclusion that subsection 8(b) has the effect of precluding removal by the board, not by strict reading of the language of the subsection, but by attempting to fit subsection 8(a) into the logic of this comprehensive and detailed statute. Although the reading given subsection 8(b) by the Court of Appeals to Indiana's version is certainly consistent with the literal language of that section, it would frustrate the elevated status that section 4 clearly gives to board representation for less than majority shareholdings who are entitled to elect directors as a separate voting group. For that reason, we concluded that subsection 8(b), carried over from the MBCA that assumed only shareholders could accomplish a removal, implies a prohibition on board removal of a director elected by a voting group. That rationale has no application to a director elected by all of the shareholders. Third, Murray's contention relies on the statutory definition of voting group to include a block of all shareholders if all are entitled to vote. Indiana's BCL is based on the MBCA, but layers onto that structure a number of unique provisions, of which the board's power to remove a director is one. We think there is an obvious purpose to treating all the shareholders as a voting group, as that term is used in the MBCA and in other parts of the Indiana BCL. This definitional provision is necessary to make many provisions in the statute work properly in the case of a corporation that does not vote by class. For example, under Indiana Code section 23-1-30-1 voting lists at shareholder meetings are to be arranged within each voting group by class, and section 23-1-38-3 requires that an amendment to the articles be approved by a majority of any voting group whose dissenters' rights are affected. These provisions, and several others, obviously are intended to apply not only to a separate voting group that has special voting rights, but also to the shareholders as a whole in the much more common situation where, as in Conseco's case, all shareholders vote together. In sum, although we do not agree that subsection (b) permits removal by the directors if the director was elected by a separate voting group, we nevertheless agree with the Court of Appeals' conclusion that the Board had the power to remove Murray. Concern for preserving the rights of a voting group has no application to Conseco. There is no separate group that elected Murray, and the implied protection subsection 8(b) gives to separate groups does not apply to him. Although we are mindful of the maxim that the language of the statute is the first and often the last resort in interpreting legislation, it is also important to bear in mind how statutory provisions interact. See Milk Control Bd. v. Pursifull, 219 Ind. 396, 402, 38 N.E.2d 246, 249 (1941) (In the interpretation of a part of a statute we must consider the act as a whole and its general purpose.). In a complex and interrelated statute such as the BCL it is not unusual to find situations where a definition designed to accomplish one purpose has unintended consequences if applied literally across the board. We find an implied limitation on removal despite its absence from the literal language of section 8 to accommodate the needs of section 4. That concern goes only as far as the purpose of section 4 takes it. Limiting the board's power to remove directors elected by separate voting groups preserves the rights given under section 4 to minorities and fifty percent shareholder blocks to representation on the board. But that does not require immunizing all directors of all corporations in the face of the clear directive that the board has the power to remove one of its members. In both cases, we construe the specific provision (board power to remove and specific endorsement of voting group representation) to prevail over the general statutory definition. As a result the Board had authority under the statute to remove a member elected by the shareholders generally, as Murray was.