344 P.3d 294
Alaska2015Background
- W.B.H. Corp., a closely held Alaska corporation, owned a single asset, the Bittner Lode mining claims; the corporation was insolvent and the shareholders agreed in Dec. 2009 to dissolve and sell the claims with a minimum bid of $100,000.
- Three shareholder-directors: Brooks (one-third) and Horner and Warner (two-thirds). At the shareholders’ meeting they delegated winding-up authority to Horner.
- Horner and Warner marketed the claims, received little interest, and formed a joint venture (JV) that submitted the sole bid of $105,000 in late March 2010. The JV’s pre-qualification letter arrived five days after an announced pre-qualification deadline but before bid opening.
- At an April 2 directors’ meeting (all three present), counsel opened sealed bids, revealed only the JV bid, Burns warned of an apparent conflict, Brooks moved to accept the bid and voted in favor; Horner and Warner paid by cashier’s check immediately.
- Brooks later sued individually and on behalf of W.B.H. to void the sale, alleging nondisclosure, conflict of interest, usurpation of corporate opportunity, defective notice, and that the transaction was not just and reasonable. The superior court found the sale conflicted but was validated under AS 10.06.478(a) because Brooks (the only disinterested director) knowingly approved it and the transaction was just and reasonable. The Supreme Court affirmed.
Issues
| Issue | Plaintiff's Argument (Brooks) | Defendant's Argument (Horner & Warner) | Held |
|---|---|---|---|
| Whether directors disclosed all material facts under AS 10.06.478(a)(1) | The JV missed the pre-qualification deadline; that omission was material and Brooks lacked full knowledge when he voted | The pre-qualification date was arbitrary, the JV’s financials were verified before bid opening and the JV was financially qualified; Brooks knew the marketing and bid conditions | Court held Brooks had knowledge of material facts; late pre-qualification was not a material omission and did not vitiate approval |
| Whether the April meeting’s notice/validity voided Brooks’s vote | Notice of the special directors’ meeting was defective, so Brooks’s vote was ineffective | Brooks attended and did not object, thereby waiving notice under the bylaws and AS 10.06.470(c) | Court held Brooks waived notice by attending without protest; meeting valid |
| Whether the board had authority to approve the sale during winding up | Brooks argued the board could not dissolve/complete sale on its own authority | Shareholders had previously resolved to dissolve; AS 10.06.615(b) authorizes the board to act in winding up and settle affairs | Court held board acted within winding-up authority and Brooks had authority to vote to accept the bid |
| Whether the transaction was "just and reasonable" given self-interest | The sale and marketing were inadequate; entire-fairness/heightened scrutiny should show the transaction was unfair | Price exceeded prior unanimously agreed $100,000 minimum; circumstances (insolvency, need to liquidate) justified process and price; marketing was reasonable given limited funds | Court held defendants met burden: transaction was just and reasonable; price acceptable and process not unfair |
Key Cases Cited
- Riggs v. Coonradt, 335 P.3d 1103 (Alaska 2014) (trial court is finder of fact and credibility determinations reviewed for clear error)
- Holmes v. Wolf, 243 P.3d 584 (Alaska 2010) (standard for reviewing mixed questions of law and application)
- Alaska Plastics, Inc. v. Coppock, 621 P.2d 270 (Alaska 1980) (existence of fiduciary duty among shareholders and scrutiny of interested transactions)
- Norlin Corp. v. Rooney, Pace Inc., 744 F.2d 255 (2d Cir. 1984) (once self-dealing is shown, burden shifts to interested directors to prove transaction fair)
- Gottlieb v. Heyden Chem. Corp., 90 A.2d 660 (Del. 1952) (standard that a bargain with self-interested directors must be at least as favorable as with strangers)