Opinion ID: 703999
Heading Depth: 3
Heading Rank: 1

Heading: Applicability of Sec. 690

Text: 38 Tyson first challenges the district court's finding that Sec. 690 applies to Tyson's claims against the directors on the WLR Board. Tyson argues that in certain situations, the statutory standard for judging director activity in Virginia embodied in Sec. 690 should be abandoned in favor of the Virginia common law standard of duty of loyalty. Tyson claims that two such situations existed in the instant case: (1) a conflict of interest was present on the target board of directors, and (2) the directors were sued for an injunction rather than for damages. The district judge rejected Tyson's arguments, finding that Sec. 690 provides the exclusive standard by which director actions are measured in Virginia in a case such as the instant one. We agree. 39 The Virginia Code contains a statutory standard of care for directors, which applies to all aspects of a Board's actions in responding to a tender offer. For example, the Code expressly provides that actions of directors with respect to issuing rights or options for the purchase of shares of a corporation are subject to review under the standard articulated in Sec. 690. See Va.Code Ann. Sec. 13.1-646(B). Similarly, the Code provides that conduct concerning affiliated transactions, see id. Sec. 13.1-727.1, as well as transactions involved in control share acquisitions, see id. Sec. 13.1-728.9, are subject to Sec. 690. In other words, actions taken by directors in responding to tender offers are explicitly made subject to Sec. 690 standards by the Virginia Code, thereby foreclosing reliance on common law. See Higgins v. Bowdoin, 238 Va. 134, 140, 380 S.E.2d 904, 908 (1989) (holding that a statute that applied to a certain set of circumstances supplanted the contrary common law in that situation). 40 Further, Tyson has not provided us with any convincing reasons for which Sec. 690 should not apply in the instant case. Tyson's first argument, that a conflict of interest was present on the WLR Board which should preclude the application of Sec. 690 to Tyson's claims and allow recourse to the common law, is without merit. Virginia law contains a statutory provision which addresses director conflicts of interest arising from hostile takeover situations. See Va.Code Ann. Sec. 13.1-691; see also Izadpanah v. Boeing Joint Venture, 243 Va. 81, 83, 412 S.E.2d 708, 709 (1992). The Virginia Code provides: 41 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.... 42 .... 43 B. For the purposes of this section, a director of the corporation has an indirect personal interest in a transaction if: 44 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 45 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. 46 Va.Code Ann. Sec. 13.1-691. Tyson has failed to show that any WLR Board member had a conflict of interest as defined in Sec. 13.1-691, and even if Tyson could prove such a conflict, Tyson's claim would be governed by the statutory standard in Sec. 13.1-691, not by Virginia common law. Tyson's attempt to escape from the statutory standard of care for directors is simply unavailing in the face of the statutory scheme in Virginia. 47 We also reject Tyson's second argument, that Sec. 690 does not apply when directors are sued for injunctions. Section 690 states that [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. Va.Code Ann. Sec. 13.1-690(C). Tyson claims that the purpose of Sec. 690 is to protect directors only from personal liability, and argues that it would be more appropriate to resort to common law standards to assess director behavior in injunctive actions. However, Sec. 690 by its terms establishes standards of conduct for the director of a corporation in discharg[ing] his duties as a director; the provision does not merely shield from liability a director who has complied with the standard, once he is sued. It is clear from the language of the statute that the articulated standard is meant not only to provide a way in which to assess a director's personal liability, but also to establish a benchmark against which a director's actions shall be measured in other contexts. See Daniel T. Murphy, The New Virginia Stock Corporation Act: A Primer, 20 U. Rich. L.Rev. 67, 107 (1985). In addition, the references to Sec. 690 in the provisions of the Virginia Code dealing with various aspects of tender offers are pervasive. In the face of the clear language of the statute dictating the broad application of Sec. 690, Tyson has pointed to no Virginia law to support its contention that Sec. 690 does not apply to injunctive actions against corporate directors. We therefore find that Sec. 690 applies to director behavior in actions such as the instant one. 48 Virginia has provided for a statutory standard to govern the duty of directors in tender offer situations. Tyson has failed to convince us that there is any reason not to use that standard in the instant case. We find that the district court was correct in deciding that, in the Commonwealth of Virginia, the actions of directors in tender offer situations such as the instant one must be examined under Sec. 690.