Summary
The Alaska Supreme Court reviewed a dispute concerning the sale of a closely held corporation's sole asset, a group of mining claims, to two interested shareholder-directors. The court held that the disinterested shareholder had knowledge of the material facts, validly approved the transaction, and that the interested directors established that the sale was just and reasonable to the corporation. The court affirmed the superior court's judgment.
Topics
Practice areas
Questions Presented
- Whether Horner and Warner satisfied AS 10.06.478(a)'s requirements for validating a self-interested transaction by disclosing or making known all material facts, obtaining approval by a sufficient vote, and proving that the transaction was just and reasonable to the corporation.
- Whether Brooks had knowledge of all material facts despite the joint venture's late submission of its financial pre-qualification letter.
- Whether Brooks waived notice of the directors' meeting by attending without protesting and whether the corporate bylaws permissibly allowed that waiver.
- Whether the board had authority to approve the sale as part of the corporation's winding-up activities.
- Whether the marketing process, bid conditions, and $105,000 price rendered the transaction unfair or unreasonable.
Holdings
- The sale was valid because the interested directors established that the material facts were disclosed or known, the transaction was approved by a sufficient vote without counting the interested directors' votes, and the transaction was just and reasonable as to the corporation.
- The joint venture's submission of its financial pre-qualification letter five days after the stated deadline was not a material fact requiring invalidation of the sale under the circumstances.
- Brooks waived notice of the April 2010 directors' meeting by attending without protesting before the meeting or at its commencement that the meeting had not been lawfully called or convened.
- Brooks had authority to vote on approval of the sale because the shareholders had already elected to dissolve and liquidate the corporation, and the board retained power to wind up and settle the corporation's affairs.
- The superior court did not clearly err in finding that the $105,000 sale was just and reasonable to W.B.H. Corp.
Key quotations
“This higher standard is codified in AS 10.06.478(a), which requires a court to find that (1) “the material facts as to the transaction and as to the director’s interest are fully disclosed or known to” the other directors; (2) the board nonetheless approves the transaction “in good faith,” not counting the votes of the interested directors; and (3) “the person asserting the validity of the contract or transaction sustains the burden of proving that the contract or transaction was just and reasonable as to the corporation at the time it was authorized, approved, or ratified.”” (Opinion p. 6)
“Most courts model their standard in such cases after Delaware’s, which requires “the [self-interested] directors to prove that the bargain [was] at least as favorable to the corporation as they would have required if the deal had been made with strangers.”” (Opinion p. 13)
“Having carefully weighed the marketing efforts and bid conditions against the corporation’s need to liquidate its sole asset at minimal cost, the superior court did not clearly err in finding that the transaction was just and reasonable.” (Opinion p. 15)
Factual background
W.B.H. Corp. was a closely held Alaska corporation whose sole asset was a group of mining claims known as Bittner Lode. In December 2009, its three shareholder-directors agreed to dissolve the corporation, liquidate the claims, and accept a minimum bid of $100,000; Brooks also voted to appoint Horner to supervise the winding-up process and indicated he was too busy to participate. Horner and Warner later submitted a $105,000 bid through a joint venture in which they were interested, and Brooks moved to accept that bid and voted for it after hearing about the marketing efforts and bid terms. Brooks subsequently challenged the transaction, alleging nondisclosure, inadequate notice and authority, breach of fiduciary duty, and unfairness.
Procedural history
The Alaska Superior Court for the Fourth Judicial District held a bench trial and found that Horner and Warner overcame their conflict of interest, did not misrepresent or improperly market the sale, did not breach their fiduciary duties, and completed a just and reasonable transaction. Brooks appealed the judgment, and the Alaska Supreme Court affirmed.