Willard v. Moneta Bldg. Supply

• Citation: 258 Va. 140,515 S.E.2d 277
• Decision Date: 11 June 1999
• Docket Number: Record No. 981836.
• Parties: Ronald L. WILLARD, on Behalf of MONETA BUILDING SUPPLY, INC. and all its Shareholders v. MONETA BUILDING SUPPLY, INC., et al.
• Court: Supreme Court of Virginia

515 S.E.2d 277

258 Va. 140

Ronald L. WILLARD, on Behalf of MONETA BUILDING SUPPLY, INC. and all its Shareholders v. MONETA BUILDING SUPPLY, INC., et al.

Record No. 981836.

Supreme Court of Virginia.

June 11, 1999.

William B. Poff (Frank K. Friedman; Mark D. Loftis; Nicholas C. Conte; George I. Vogel, II; Woods, Rogers & Hazlegrove; Vogel & Cromwell, on briefs), Roanoke, for appellant.

P. Brent Brown (Patrick T. Fennell; William B. Hopkins, Jr.; Carter, Brown & Osborne; Martin, Hopkins & Lemon, on brief), Roanoke, for appellees A.S. and Rose Mary Cappellari and Moneta Building Supply.

William R. Rakes (K. Brett Marston; Gentry Locke Rakes & Moore, on brief), Roanoke, for appellees David L. Cappellari and Capps Home & Building Center, Inc.

Present: All the Justices.

KINSER, Justice.

This appeal involves a sale of the assets of a closely held corporation. The minority stockholder of the corporation has attacked the propriety of the transaction, primarily on the grounds that the corporation's directors, who were also its majority stockholders, breached their statutory and common law duties by failing to maximize the sales price, by authorizing a transaction in which they had a conflict of interests, and by failing to comply with the statutory procedures for selling the assets of a corporation, not in the ordinary course of business. Finding no error, we will affirm the circuit court's judgment upholding the transaction.

FACTS AND MATERIAL PROCEEDINGS

In 1978, Ronald L. Willard and Cappellari, Inc. (Cappellari), acquired a building supply business located in Bedford County. Cappellari was a West Virginia corporation owned primarily by Amerigo S. (A.S.) and Rose Mary Cappellari. The purchasers incorporated the newly acquired business in Virginia under the name of Moneta Building Supply, Inc. (Moneta). Willard purchased 20 percent of the shares of stock issued in Moneta, and Cappellari purchased 80 percent.¹

In 1986, A.S. and Rose Mary dissolved Cappellari and distributed its shares of Moneta stock in the following proportions: A.S. received 253 shares (49.8 percent), Rose Mary received 129 shares (25.4 percent), and David Lawrence Cappellari, the son of A.S. and Rose Mary, received 18 shares.² Willard owned the remaining 100 shares (19.7 percent) of Moneta stock.

David served as president, director, and manager of Moneta from its inception until he resigned from those positions in 1996. Willard was Moneta's only other officer and director during those initial years until A.S. and Rose Mary dissolved Cappellari. Then, A.S. and Rose Mary, both of whom had lived in West Virginia and had participated very little in the operation or management of Moneta, moved to Virginia and eventually became officers and directors of the corporation along with David and Willard.

No one disputes that Moneta experienced success in the building supply industry and achieved annual sales in excess of four million dollars by 1990. However, David became increasingly concerned about his future at Moneta because of a December 1, 1978 "Stock Purchase Agreement" entered into among Moneta, Cappellari, and the Willards. That agreement granted each of Moneta's stockholders a right of first refusal in the event that any one of the other stockholders desired to dispose of shares of Moneta stock. David was dissatisfied with his percentage of ownership interest in Moneta and his inability to acquire additional shares from his parents due to the "Stock Purchase Agreement."³

Consequently, David began developing a business plan to start his own building supply company. On September 18, 1996, David resigned from his positions as an officer and director of Moneta. At an October 3, 1996 meeting of the Moneta board of directors, the board accepted David's resignation and elected A.S. as president of Moneta, Rose Mary as vice-president, and Willard as treasurer. The board also decided to continue Moneta's operations and to retain David as the interim manager while the board searched for a new manager.⁴

On October 7, 1996, Willard called a special meeting of the stockholders. At that meeting, Willard offered to sell his shares of stock in Moneta for one million dollars. No action was taken on Willard's offer. During the meeting, David informed the stockholders that he might be interested in purchasing Moneta's assets, depending on what direction the company decided to take. When Willard was asked whether he might also be interested in purchasing the assets, he indicated that he was not.⁵ Subsequent to the meeting, Willard tendered a letter of resignation as a director and officer of Moneta. He cited "continuing oppression and unfair treatment" as the reasons for his decision.

After David's resignation from Moneta, he pursued his plans to open a building supply business. He incorporated a new company under the name of Capps Home & Building Supply, Inc. (Capps). On October 8, 1996, David entered into a "Confidentiality Agreement" with Moneta for the "exchange of certain information pertaining to [Moneta] and ... the acquisition of certain assets of [Moneta] by [David]." A.S. executed the agreement in his capacity as president of Moneta.

These events prompted Willard to file a suit seeking the dissolution of Moneta and a preliminary injunction to enjoin any Moneta stockholder from competing with Moneta until the corporation could be dissolved and the assets liquidated.⁶ The circuit court heard evidence and argument on October 24, 1996, and denied the requested injunction.

On November 15, 1996, Capps, through its counsel, submitted a proposed "Asset Purchase Agreement" to A.S. and Rose Mary, in their capacities as directors and officers of Moneta. In the agreement, Capps offered to purchase the assets of Moneta for approximately $1.3 million. The offer would expire, however, if not accepted by November 23, 1996. Capps also informed A.S. and Rose Mary that David had acquired bank financing to provide the necessary funds if the proposed agreement received the approval of Moneta's board of directors and stockholders. Finally, Capps included a valuation of Moneta's assets with the agreement. Hope Player and Associates, P.C., had prepared a valuation report (the Player report) for Capps and, in that report, opined that the fair market value of Moneta's assets as of September 30, 1996, was $1.3 million.

On November 19, 1996, A.S. and Rose Mary, as the only remaining members of Moneta's board of directors, held a special meeting of the board at their home to consider the offer from Capps. The board "voted unanimously to accept the offer and direct[ed] the President to sign the Asset Purchase Agreement ... reserving the right to negotiate the Seller's Representations contained in paragraph 4 of the ... Agreement, and any other matters of concern to the shareholders." The board also voted to hire an independent certified public accountant or other valuation expert to evaluate whether the amount of the Capps offer reflected the fair market value of Moneta's assets. Finally, the board decided to refer the proposed transaction to the stockholders without any recommendation from the directors and to call a special meeting of the stockholders to be held on December 20, 1996, for the purpose of voting on the offer from Capps.

On November 21, 1996, Capps submitted a revised "Asset Purchase Agreement" to Moneta. In exchange for a reduction in the purchase price of approximately $150,000, Capps agreed to assume certain liabilities of Moneta. A.S. signed the revised agreement as president of Moneta without first presenting the changes to the board of directors.

A.S. then sent a notice to all Moneta stockholders advising them that a special meeting would be held on December 20 for the purpose of considering and voting upon the offer from Capps. The notice included a disclosure concerning the familial relationship among A.S., Rose Mary, and David, and copies of the revised "Asset Purchase Agreement" and the Player report.

After receiving notice of the December 20 special meeting, Willard sent a letter, dated December 10, 1996, to A.S. and Rose Mary informing them that he believed that Capps' offer was too low and that it did not "adequately reflect fair value." In that letter, Willard offered to purchase Moneta's assets for $400,000 more than the amount Capps had offered. However, Willard stipulated that his offer was good only until 3:00 p.m. on December 13, 1996.

In a letter dated December 13, 1996, A.S. advised Willard that he and Rose Mary believed that it would be inappropriate for the board to consider his offer prior to the stockholders' meeting on December 20. Since Willard's offer specified that it would expire on December 13, A.S. encouraged Willard to come to the stockholders' meeting and present his offer at that time.

One day before the special meeting of the stockholders, Willard sent a second letter to A.S. and Rose Mary. In that letter, Willard increased his offer to $600,000 more than the amount offered by Capps. Willard also requested 30 days in which to evaluate the assets and determine if an even higher purchase price was warranted.

As authorized by the board of directors, Moneta obtained an opinion from Dr. Larry A. Lynch, a business valuation expert, with regard to whether the amount of Capps' offer reflected the fair market value of Moneta's assets. In a report dated December 12, 1996, Dr. Lynch stated that the value of Moneta's assets ranged from $1,357,531 to $1,449,746, depending on the valuation method utilized. He concluded that Capps' offer of $1.3 million was fair and reasonable upon taking into consideration the fact that the "going concern assumption may be affected by the loss of key personnel and pending litigation." A copy of Dr. Lynch's report was forwarded to the stockholders prior to the special meeting on December 20.

The stockholders' special meeting proceeded as called on December 20, 1996.⁷ A.S., David, and...