Shoen v. Amerco

• Decision Date: 06 October 1994
• Docket Number: No. CV-N-94-0475-ECR.,CV-N-94-0475-ECR.
• Citation: 885 F. Supp. 1332
• Parties: Paul F. SHOEN, Plaintiff, v. AMERCO, a Nevada corporation; Edward J. Shoen, Mark V. Shoen, Aubrey K. Johnson, Richard J. Herrera, William E. Carty, Charles J. Bayer, John M. Dodds, and James P. Shoen, in their capacities as directors of AMERCO; AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan; Edward J. Shoen, Donald W. Murney, and Gary B. Horton, in their capacities as trustees of AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan, Defendants.
• Court: U.S. District Court — District of Nevada

885 F. Supp. 1332

Paul F. SHOEN, Plaintiff, v. AMERCO, a Nevada corporation; Edward J. Shoen, Mark V. Shoen, Aubrey K. Johnson, Richard J. Herrera, William E. Carty, Charles J. Bayer, John M. Dodds, and James P. Shoen, in their capacities as directors of AMERCO; AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan; Edward J. Shoen, Donald W. Murney, and Gary B. Horton, in their capacities as trustees of AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan, Defendants.

No. CV-N-94-0475-ECR.

United States District Court, D. Nevada.

October 6, 1994.

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COPYRIGHT MATERIAL OMITTED

Richard L. Elmore, Hale, Lane, Peek, Dennison & Howard, Reno, NV, Marc W. Rappel, Gary R. Ignatin, Latham & Watkins, Los Angeles, CA, Mark W. Smith, Latham & Watkins, San Francisco, CA, for plaintiff.

Paul J. Anderson, Walther, Ken, Maupin, Oats, Cox, Klaich & LeGoy, Reno, NV, and Kenneth B. Segel, Seeley, Segel, Goldman & Mazotta, P.C., Albany, NY, for defendants AMERCO Employee Sav., Profit Sharing & Employee Sav., Profit Sharing and Employee Stock Ownership plan.

Gregg W. Zive, Bible, Hoy, Trachok, Wadhams & Zive, Reno, NV, and James A. Ryan, Streich Lang, Renaissance One, Phoenix, AZ, and Jeffrey Willis, Streich Lang, P.A., Tucson, AZ, for defendant AMERCO, a Nev. Corp.

MEMORANDUM AND ORDER

EDWARD C. REED, Jr., District Judge.

I. BACKGROUND.

AMERCO is a holding company. Its principal subsidiary is U-Haul International, Inc. Paul Shoen ("Paul")¹ owns just under nine percent of AMERCO's common stock, with an appraised value of over $59 million.² Paul is trying to change the composition of AMERCO's board of directors and amend the company's bylaws. Hence this litigation. He has filed suit against AMERCO, its directors, its employee stock ownership plan (or "ESOP"), and the ESOP's trustees, alleging that they have violated federal securities laws and breached their fiduciary duties under Nevada corporation law (in the case of the AMERCO directors) and ERISA (in the case of the ESOP trustees).

Paul seeks a preliminary injunction appointing a neutral trustee for the ESOP, voiding any proxies already obtained, and barring AMERCO from holding its annual meeting until the company circulates "curative disclosures" and files proxy materials with the SEC.³ Also, he seeks a temporary restraining order compelling the ESOP trustees to either forward his proxy solicitation materials to the ESOP's participants or provide him with a list of the participants so he can send those materials to them himself.⁴ The motions for a preliminary injunction and a TRO will be considered together, as one consolidated motion seeking various forms of relief against AMERCO and the trustees.

Over ninety percent of AMERCO's voting common stock is held by L.S. Shoen, the founder of U-Haul, and his twelve children.⁵ The AMERCO common stock not owned by members of the Shoen family is held by the ESOP (about 7.3%), Rappel Aff. Ex. II at 10, and, Paul states, by approximately 160 individuals (about 2.2%). Prelim. Motion at 2. AMERCO's common stock is not publicly traded and the company's bylaws give it a right of first refusal on all sales and transfers of its stock. Shoen Aff. ¶ 2.

The Shoen family is split into two factions.⁶ One, led by Samuel ("Sam") Shoen and L.S. Shoen, controls about 47.21% of AMERCO's common stock. Rappel Aff. Ex. II at 7. The other faction, led by defendant Joe Shoen, controls the company. Joe's faction is held together by a shareholder agreement. Paul is, involuntarily, a member of Joe's faction, because his AMERCO shares are subject to the shareholder agreement, as are Sophia Shoen's and the ESOP's non-allocated AMERCO shares. Whoever controls a majority of the shares subject to the shareholder agreement gets to vote all of the shares subject to the agreement — currently, 47.56% of AMERCO's common stock, id. at 5, although this number will fall to 46.3% upon completion by Sophia Shoen of a sale of 500,000 of her shares. Id. at 10. Joe, Mark Shoen and James ("Jim") Shoen are directors of AMERCO. Id. at 5. Together, they hold a majority of the shares subject to the agreement and therefore can vote all of the shares subject to the agreement. Id. at 8 n. 1.

There are at least two threats to Joe's control of the company. First, Paul and Sophia are seeking to be released from the shareholder agreement. Id. at 10-11. If they are successful, Joe's faction will control only about 32.6% of AMERCO's common stock and could well lose control of the company. Id. That dispute has been submitted to arbitration. The parties suggested that the matter would be resolved by September 9, 1994. It is now more than three weeks after that date and the court has not been notified of a decision.

Second, of the 7.3% of AMERCO stock held by the ESOP, approximately 4.5% is either (1) not allocated (i.e., not assigned to an individual participant in the ESOP) or (2) allocated to the ESOP trust accounts of Joe, Mark, Jim, Paul and Sophia Shoen.⁷ Only that 4.5% must, pursuant to the shareholder agreement,⁸ be voted by the ESOP trustees in support of Joe's faction. Id. at 8 n. 1. The other 2.8% of AMERCO common stock held by the ESOP has been allocated to the accounts of the approximately 5,500 other individual ESOP participants. Each participant, as the beneficial owner of the AMERCO shares allocated to his or her account, can instruct the ESOP trustees how to vote those shares. Id. at 10. However, if a participant does not direct the trustees how to vote his or her allocated shares, then the trustees themselves vote the shares. Rappel Aff. Ex. KK at 4. So, the fewer ESOP participants who tell the trustees how to vote their allocated shares, the greater the number of shares that will, by default, be voted by the trustees in favor of incumbent management.

Without control of the allocated ESOP shares and after completion of Sophia Shoen's sale of 500,000 of her shares, but with the shareholder agreement still in effect, Joe's faction will therefore have firm control over only about 43.5% of AMERCO's total outstanding common stock.

The essential point, for present purposes, is this: as long as the shareholder agreement is in effect, the two Shoen factions control roughly equal numbers of shares in the company. Therefore, AMERCO's other individual shareholders, and the ESOP participants who direct the trustees how to vote the shares allocated to their individual accounts, will cast the swing votes in the company's upcoming elections.

At this year's annual meeting, the board seats held by Joe, Mark Shoen, and Aubrey Johnson are at stake. Each incumbent is running for re-election. Id., Ex. HH at 2; Ex. II at 2-3. Paul is a candidate for the board seat currently held by Joe. Shoen Aff. ¶ 2. Paul states that Sophia Shoen, too, is a candidate for the board, and that members of Sam's faction are also running against the three incumbents. Prelim. Motion at 3. Moreover, Paul has submitted four proposals to be considered by shareholders at AMERCO's annual meeting. Shoen Aff. ¶ 4. One of those proposals would revise AMERCO's bylaws to eliminate the company's right of first refusal on sales and transfers of its stock, and is included in AMERCO's proxy materials pursuant to SEC Rule 14a-8. Rappel Aff.Ex. HH; see 17 C.F.R. § 240.14a-8. Losses in the board of directors elections could cost Joe's faction three seats on the board. Passage of the proposal to eliminate the company's right of first refusal on sales or transfers of its stock would diminish Joe's control of the company. Indeed, if members of Sam's faction were to purchase a sufficient number of AMERCO shares on the open market, Joe could lose control of the company.

Hence this dispute. In summary, Paul complains that AMERCO's board of directors, in collusion with the ESOP trustees:

(1) moved the date of the annual meeting forward by two months, in order both to preempt a possible arbitration decision terminating the shareholder agreement and to make it practically impossible for him to communicate effectively with the ESOP participants;

(2) solicited voting directions (de facto proxies) from the ESOP participants by means of premature, false and misleading proxy materials; and (3) improperly prevented him from communicating with the ESOP's participants, all in an attempt to maintain current management's control of the company and to ensure the defeat of both his proposals to the shareholders and his bid for election to the board of directors. See generally Prelim. Motion at 4-7. He seeks the relief described above.

II. JURISDICTION.

The court has jurisdiction over the ERISA claims in this matter pursuant to 29 U.S.C. § 1132(e) and over the Securities Exchange Act claims pursuant to 15 U.S.C. § 78aa. The state corporation law claims are pendent.

III. STANDARD OF REVIEW.

In this circuit,

`to obtain a preliminary injunction, a party must show either (1) a likelihood of success on the merits and the possibility of irreparable injury, or (2) the existence of serious questions going to the merits and the balance of hardships tipping in the movant's favor. These two formulations represent two points on a sliding scale in which the required degree of irreparable harm increases as the probability of success decreases.'

In other words, `where a party can show a strong chance of success on the merits, he need only show a possibility of irreparable harm. Where, on the other hand, a party can show only that serious questions are raised, he must show that the balance of hardships tips sharply in his favor.'

MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511, 516-17 (9th Cir.1993) (citations omitted).

A. PROBABILITY OF SUCCESS ON THE MERITS.

1. Facts.

Paul is a party to a registration rights agreement — formally titled "Share Repurchase and Registration Rights Agreement" — with AMERCO, which provides that AMERCO must "take all steps necessary to...