Opinion ID: 2378317
Heading Depth: 4
Heading Rank: 2

Heading: Specific breach of fiduciary duty: the late-bird letter

Text: The election campaign for three positions on CAC's board of directors began in the summer of 2004 and continued through October. That year, CAC's board nominated one candidate for each open position on the board, thereby presenting a board slate to the shareholders for the annual election. Other candidates not endorsed by the board conducted independent campaigns for positions on the board. CAC and at least some of the independent candidates mailed campaign materials to shareholders, encouraging them to vote by proxy if they would not be able to attend the annual meeting. In early October, Henrichs authorized a late-bird proxy solicitation letter to be mailed to CAC's shareholders. [2] The late-bird letter encouraged shareholders to participate in the October election by returning signed proxies. It offered shareholders who returned valid proxies to the inspector of elections by 5:00 p.m. on October 20th entry into a drawing for $17,500 in prize money. The late-bird letter also stated that [t]he corporation has filed a formal complaint with the State Division of Banking, Securities and Corporations concerning a non-board [proxy] solicitation and that the validity of proxies provided in response to that solicitation may be in question. Shortly after the late-bird letter was mailed, several shareholders filed complaints with the Division of Banking, Securities, and Corporations (Division) alleging that the late-bird letter contained materially false and misleading statements. The Division was concerned that a sentence within the letter could inappropriately influence the shareholder's choice of proxy, and it eventually determined the late-bird letter contained a materially misleading statement. At the Division's request, CAC mailed another letter to shareholders clarifying the late-bird letter's allegedly false and misleading statement. Specifically, the corrective letter explained that all shareholders whose shares are voted either in person or by way of a proxy that is valid at the time voted will be eligible for prizes. After the 2004 election, a new board majority reinstated Buretta as chair, but Henrichs continued to serve as a member of the board until he lost reelection in 2005. In April 2005 the Division and CAC entered into a consent agreement requiring CAC to pay the Division $10,000 towards the expenses it incurred investigating shareholders' complaints that the late-bird letter contained a false or misleading statement. The jury heard considerable evidence clarifying the concerns about the late-bird letter. Buretta testified that she thought the late-bird letter was meant to imply that our [non-board slate] proxies were invalid and that [shareholders] needed to send in new proxies because [the board slate was] ... behind. CAC also introduced a letter CAC's Investigation Committee sent to Henrichs pointing out questionable aspects of the late-bird letter. First, though the late-bird letter stated that its purpose was to encourage shareholder participation in the election and ensure a quorum, the Investigation Committee observed that a quorum had already been established by October 5, 2004, before the late-bird letter was mailed. Second, the late-bird letter was signed Sincerely  The Chugach Corporation Board of Directors even though four of the board's nine members did not know the letter existed until after it had been sent to shareholders. The Investigation Committee concluded that the clear implication of the late-bird letter was that those who return proxies for the non-board [slate] solicitation may not be eligible for the prizes, and if a shareholder wants to be sure to be eligible for the late-bird prize, the only way to do that is to turn in a Board [slate] proxy. The jury decided that Henrichs breached his fiduciary duty by authorizing the allegedly false and misleading late-bird letter and awarded CAC $34,500 in damages.