State ex rel. Starkey v. Alaska Airlines, Inc.

• Decision Date: 07 April 1966
• Docket Number: No. 37933,37933
• Citation: 68 Wn.2d 318,413 P.2d 352
• Parties: STATE of Washington on the relation of Ralph W. STARKEY and H. W. Robinson, Appellants, v. ALASKA AIRLINES, INC., Respondent.
• Court: Washington Supreme Court

Page 318

68 Wn.2d 318

413 P.2d 352

STATE of Washington on the relation of Ralph W. STARKEY and H. W. Robinson, Appellants, v. ALASKA AIRLINES, INC., Respondent.

No. 37933.

Supreme Court of Washington, En Banc.

April 7, 1966.

Rehearing Denied July 11, 1966.

Coney & Collier, Seattle, for appellants.

Allen, DeGarmo & Leedy, Seth Morrison, Seattle, for respondent.

DONWORTH, Judge.

This is the second legal action since 1963 which has resulted from the efforts of the majority shareholders and their directors to exclude directors-elect from the board of directors of Alaska Airlines, Inc., after the directors-elect were elected by a minority shareholder group by the use of cumulative voting. The first case was tried in October 1963, and a decision unfavorable to Alaska Airlines, Inc., the defendant, was rendered from which Alaska Airlines, Inc., has appealed.

The present case arose because Alaska Airlines, Inc., took steps which would have rendered the decision in the first case moot even before it could be heard on appeal, unless the validity of the subsequent steps were successfully challenged in court. Defendant, Alaska Airlines, Inc., won the second suit at the trial level, and that decision is now here in this appeal.

The two cases were heard on appeal together because they were so closely interrelated, and because the second case potentially made the first case moot. For the purpose of this opinion, it is necessary to discuss only the occurrences subsequent to the decision in the first case, except for a very brief history.

The majority shareholder faction and the minority shareholder faction engaged in proxy solicitations prior to the August, 1963, election of directors by shareholders. In August, 1963, at the annual shareholders' meeting in Seattle, th minority successfully elected three directors, Ralph W. Starkey, Homer W. Robinson, and Raymond W. Marshall, out of the total of eleven directors elected, using the cumulative voting method. Due to a bylaw change not challenged in this lawsuit, the number of directors for Alaska Airlines, Inc., was increased from 11 to 13, thereby reducing to 2 the number of directors who could be elected by the minority faction voting their shares cumulatively in the 1964 election.

The statutory history in Alaska Business Corporation Law becomes very important. Alaska Airlines, Inc., was incorporated in Alaska in 1937, under Alaska Laws, 1931, chapter 8, p. 31. Under that statute, only cumulative voting for directors was allowed (that is to say, it was the option of each shareholder to decide whether he would vote his shares by the direct or cumulative method). There was no reservation of the power to amend, alter, or repeal provisions of this statute included within these statutory provisions.

The territory of Alaska, in 1957, adopted the Model Business Corporations Act, which was enacted as Laws of Alaska, 1957, chapter 126, and is now codified as Alaska Statute, Title 10, chapter 5. That act contained a section, later codified as Alaska Statutes § 10.05.162, which provided that each shareholder in an Alaska corporation should have the option of deciding whether or not he would vote his shares cumulatively. Section 153 of Laws of Alaska, 1957, chapter 126, did reserve to the Alaska legislature the power to amend, repeal, or modify this act. On March 9, 1964, the Alaska legislature amended § 10.05.162 by the addition of the italicized portion at the end of the section, which now reads:

Sec. 10.05.162. Voting for Directors and Cumulative Voting Option. At an election for directors every shareholder entitled to vote may vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has a right to vote, or may cumulate his votes by giving one candidate as many votes as the number of directors to be elected multiplied by the number of his shares equals, or by distributing these votes on the same principle among any number of candidates. Any corporation may provide in its bylaws that shareholders shall not cumulate their votes but must vote shares held by them for as many persons as there are directors to be elected. (Italics ours.)

March 10, 1964, this amendment became effective. On June 1, 1964, the board of directors of Alaska Airlines, Inc., amended the bylaws of the corporation to read:

Sec. 6. Every stockholder shall have the right to vote in person or by proxy the number of shares of stock owned by him. Stockholders shall not cumulate their votes but must vote shares held by them for as many persons as there are Directors to be elected.

Prior to this amendment, the bylaw provision had read:

Sec. 6. Every stockholder shall have the right to vote in person or by proxy, for the number of shares of stock owned by him for as many persons as there are directors or managers to be elected, or to cumulate said shares and give one candidate as many votes as the number of directors multiplied by the number of his shares of stock shall equal, or to distribute them on the same principal among as many candidates as he shall think fit.

On July 29, 1964, Starkey and Robinson, the relators in this case, filed an application for an alternative writ of mandamus in the Superior Court of King County to require the corporation to use the cumulative voting method. The election of directors was to be held at the annual shareholders' meeting in Seattle on August 4, 1964. The matter could not be heard on its merits prior to that time, and, therefore, the trial court entered an order which permitted Alaska Airlines, Inc., to hold the election for the directors using the direct method (which would normally have been prohibited under the alternative writ), but also required the corporation to hold an election using the cumulative method of voting for directors. The matter was then to be further heard by the trial court after the result of each method of voting was known and a determination made by the trial court as to which method of voting was valid.

At the election held August 4, 1964, in Seattle, under the cumulative voting method, Starkey and Robinson were elected directors by a wide majority over any of the candidates supported by the majority shareholders. Under the direct (noncumulative) method of voting, neither Starkey nor Robinson was elected as director.

At the trial on the merits, it was made clear by both counsel that there were no issues of fact. No testimony was received, and counsel stipulated as to the relevant factual matters, such as to the amendment of the corporate organization statute by the Alaska legislature, the amendment of the bylaws by the board of directors of Alaska Airlines, Inc., and the results of the vote by the two different methods in the election of directors.

Appellants Starkey and Robinson assigned error to the trial court's conclusions of law Nos. 2 and 3, which read:

2. That the amendment by the Board of Directors of Alaska Airlines, Inc. on June 1, 1964, of the corporation's By-laws to eliminate cumulative voting for directors at stockholders meetings was a legal amendment in all respects, the election of directors at the 1964 annual meeting by the direct voting method was proper and in accordance with the By-laws then in effect, and the Plaintiffs Robinson and Starkey were not elected as directors of Alaska Airlines, Inc. at the 1964 annual meeting.

3. That the Defendant is entitled to recover its costs herein incurred.

Appellants have argued, in support of this assignment of error, that the state of Alaska could not amend its statutory grant of cumulative voting method to minority shareholders of corporations incorporated in Alaska under the 1931 Uniform Business Corporations Act. This is the statute under which Alaska Airlines, Inc., was organized in 1937, as was stated above in this opinion. Appellants argue that at the time of incorporation there was no power to amend, alter, or repeal reserved to the Alaska legislature either by the 1931 statute or by any prior organic act or statute, and that this right to cumulative voting has become part of the contract between the shareholder and the corporation and between the shareholder and the state.

Certain principles of law concerning corporations which are applicable to this problem should be stated, even though it is doubtful if any party to this cause would seriously dispute them. They are:

The United States Constitution, Art. 1, § 10, states:

1. No State shall * * * pass any * * * Law impairing the Obligation of Contracts; * * *.

Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518, 4 L.Ed. 629 (1819), holds that the state cannot alter or repeal a corporate charter unless it has reserved the power to do so in the charter or the law giving the corporation its existence.

In 7 Fletcher, Cyclopedia, Corporations § 3658, pp. 815--816 (1964 Rev. Vol.), is the statement of the general principle of this case, as it has been construed to date. This treatise reads:

The charter of a corporation, whether conferred by special act or existing under general laws, being, as stated above, a contract, as such is protected by constitutional provisions. Where the constitutionality of an act of the legislature amending or repealing a corporate charter is challenged, the question is whether the act violates any of the litigant's constitutional rights to have the obligation of his contract unimpaired and his property and liberty uninterfered with except by due process of law, and to the protection of equal laws. The clause of the Federal Constitution which declares that no state shall pass any law impairing the obligation of contract, and which applies to the various states of the Union, extends to the contract existing with the corporation in all its aspects. Thus it extends to the obligations of the contract between the corporation and the state, between the stockholders and the state and between...