Sandberg v. Virginia Bankshares, Inc.
| Decision Date | 21 June 1977 |
| Citation | 979 F.2d 332 |
| Parties | , Fed. Sec. L. Rep. P 97,054, 23 Fed.R.Serv.3d 1141, 36 Fed. R. Evid. Serv. 1491 Doris I. SANDBERG, individually and on Behalf of other minority stockholders, Plaintiff-Appellant, v. VIRGINIA BANKSHARES, INC.; First American Bankshares, Inc.; Jack W. Beddow; Milton L. Drewer, Jr.; E. Guy Ridgely; Emanuel A. Baker, Jr.; Harriet F. Bradley; Joel T. Broyhill; Thomas B. Chamberlin; Thomas P. Chisman; Sidney O. Dewberry; Eric W. Erdossy; George W. Johnson; Charles T. Lindsay, Jr.; Donald R. Maxfield; Linda H. Michael; Milton V. Peterson; Glenn W. Saunders, Jr.; Charles H. Smith, Jr.; Verlin W. Smith; Henry A. Thomas; Stephen G. Yeonas, Defendants-Appellees, and Thomas G. Mays; Dwight C. Schar, Defendants. Paul H. WEINSTEIN; Roslyn Weinstein; Jay Weinstein; Richard Weinstein; Helen Weinstein; Leonard Weinstein; Evelyn Bushwick; Gary Plushnick; Carol V. Plushnick; William Dockser; Laura Lee Cookson; Philip Gross; Nancy Gross; John P. Kyle; Kay Kyle; Robert I. Schattner; Helen Mackey Gray; Dante E. Guazzo; General Harry J. Engel; Helen D. Engel; Joseph M. Eller; Barbara L. Eller; Henry P. Deyerle, Individually and as Executor of the Estate of Evelyn B. Deyerle; W.G. Dolvin; Cynthia B. Dolvin; Kathryn M. Everhart; Norman T. Henry; Omer L. Hirst; Katherine Ann Johnson; Dorothy Fowler Cooper; Thelma H. Loehler; Edward S. Loveless; Michael A. Puzak; Elizabeth K. Puzak; Benjamin Weiner; Said Haddad; Harold E. Shomo; Joseph B. Latshaw, Jr.; P.S. Webb Company; Claude E. Keener, Sr.; Claude E. Keener, Jr.; Luther A. Gilliam; Foundation for Middle East Peace; William L. Mason, By and Through First Florida Bank, N.A. as Trustee of the William L. Mason Trust dated |
| Court | U.S. Court of Appeals — Fourth Circuit |
Joseph Mark Hassett, Hogan & Hartson, Washington, D.C., argued (John C. Keeney, Jr., George H. Mernick, III, Albert W. Turnbull, Gregory A. Kalscheur, on the brief), for plaintiffs-appellants.
John Sutton Stump, McGuire, Woods, Battle & Boothe, McLean, Va., Lawrence C. Marshall, Mayer, Brown & Platt, Chicago, Ill., argued (Sean F. Murphy, Robert R. Vieth, McGuire, Woods, Battle & Boothe, McLean, Va., Stephen M. Shapiro, Andrew L. Frey, Kenneth S. Geller, Mayer, Brown & Platt, Chicago, Ill., Stephen M. Sayers, Thomas J. Cawley, Hunton & Williams, Fairfax, Va., on the brief), for defendants-appellees.
Before HALL and WILLIAMS, Circuit Judges, and WILLIAMS, Senior United States District Judge for the Western District of Virginia, sitting by designation.
This case is before us for the third time, although it presents new issues that we previously were not required to address. Following our first decision, the Supreme Court reversed our judgment and remanded for further consideration. Sandberg v. Virginia Bankshares, Inc., 891 F.2d 1112 (4th Cir.1989), rev'd and , --- U.S. ----, 111 S.Ct. 2749, 115 L.Ed.2d 929 (1991) (Sandberg/Weinstein ). Specifically, the Court overturned the jury verdict for Plaintiffs on their federal securities law claim. We remanded to the district court to assess the effect of the Supreme Court's decision on Plaintiffs' other claim for breach of fiduciary duties under Virginia law.
On remand, the district court held that Virginia law placed a cap on the liability of the directors of the First American Bank. The district court found that Plaintiffs had waived their challenge to the application of the cap. The court vacated the two judgments (Sandberg and Weinstein ) from which the original consolidated appeal was taken and certified a class that included both sets of plaintiffs. The district court also denied Plaintiffs' 1 motion for a new trial against First American Bankshares and Virginia Bankshares, both of which had prevailed on the fiduciary duties claim in the original trial. In its motion, Plaintiffs urged that the district court had erred in denying a motion to compel discovery on the ground of attorney-client privilege. Plaintiffs then appealed to this Court.
We agree with the district court that the Weinstein Plaintiffs have waived their challenge to the applicability of the cap. Because we find that the cap does not apply in Sandberg, however, we vacate the district court's judgment and remand. Furthermore, because we conclude that the evidence Plaintiffs sought was not privileged, we reverse the district court's denial of a new trial.
In December 1986, First American Bankshares, Inc. (FABI), a bank holding company, sought to consolidate its operations by merging the First American Bank, Inc. (Bank), with Virginia Bankshares, Inc. (VBI) (VBI and FABI are collectively referred to as Bankshares). VBI, a wholly owned subsidiary of FABI, owned 85% of the Bank's stock. Some 2,000 minority shareholders held the remaining 15% of the Bank's stock. FABI hired an investment banking firm, which recommended $42 per share as an appropriate price for the stock of the minority shareholders. The Bank did not obtain an independent valuation of the stock on behalf of the minority shareholders. The executive committee of the Bank approved the merger proposal at the recommended price, and the Bank's full board followed suit.
The directors of the Bank (Directors) solicited proxies for voting on the proposal at the annual shareholders' meeting set for April 21, 1987. In their solicitation, the directors urged adoption of the proposal and stated that the merger plan was in the best interests of minority shareholders because the price to be paid for the stock, $42, was thirty percent higher than the price at which the stock then traded.
Appellant Doris I. Sandberg, who owned 2,442 shares, did not give the requested proxy. After the shareholders approved the merger, Sandberg filed suit in the United States District Court for the Eastern District of Virginia against Bankshares and the Directors. She raised two claims: one for soliciting proxies in violation of § 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a) (1988), 2 and Securities and Exchange Commission (SEC) Rule 14a-9, 17 C.F.R. 240.14a-9 (1992); 3 the other for breaching fiduciary duties owed to the minority shareholders under state law. 4 The district court denied Sandberg's motion to certify a class of minority shareholders.
The jury found that all the Defendants had violated § 14(a) and Rule 14a-9, but that only the Directors had breached their fiduciary duties. The jury determined that Sandberg was entitled to $18 per share above the $42 price authorized at the shareholders meeting. Her award totaled $43,956. The district court entered the jury's finding on the state law claim as an "alternative judgment." 5
While Sandberg's case was pending, Appellant Weinstein and several other minority shareholders brought a separate action against Bankshares and the Directors in the United States District Court for the District of Columbia. Weinstein, like Sandberg, had withheld his proxy. The case was transferred to the Eastern District of Virginia. Following the Sandberg judgment, the district court applied issue preclusion and granted the Weinstein Plaintiffs summary judgment as to liability on both the federal securities law claim and the breach of fiduciary duties claim. The district court entered a judgment of $3,292,236 on the federal securities law claim, and entered an alternative judgment of $2,346,553.34 against the Directors for breach of fiduciary duties. The alternative judgment reflected the cap on the liability of corporate directors imposed under Virginia law. Va.Code Ann. § 13.1-692.1 (Michie 1989).
Defendants appealed both Sandberg and Weinstein to this Court. We affirmed the district court judgments, including the application of the damage cap in Weinstein, but reversed the denial of class certification in Sandberg. Sandberg/Weinstein, 891 F.2d at 1126. Because we affirmed, we did not address Plaintiffs' contention on cross-appeal that they were entitled to a new trial against Bankshares on the breach of fiduciary duties claim because the district court had erroneously denied a motion to compel discovery on the ground of privilege. We remanded to the district court with instructions to certify a class including all minority shareholders except the Weinstein Plaintiffs and the Directors. Id. at 1126-27. Defendants then appealed to the Supreme Court.
On appeal to the Supreme Court, the Defendants argued that they were not liable under § 14(a) and Rule 14a-9 because the misrepresentations in the proxy statements were merely statements of opinion. Sandberg/Weinstein, --- U.S. at ----, 111 S.Ct. at 2757. Defendants also argued that Plaintiffs had not proven causation because the Bank controlled enough stock to authorize the merger without the approval of any minority...
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