No. 21752 - STATE OF WEST VIRGINIA EX REL. HERBERT ELISH, HARVEY L. SPERRY, WARREN E. BARTEL, DAVID M. GOULD, JAMES
BRUHN, DAVID L. ROBERTSON, F. JAMES RECHIN, RICHARD
F. SCHUBERT, GORDON C. HURLBERT, LAWRENCE M. ISAACS, IRVING BLUESTONE, THOMAS R. STURGES, JR., THOMAS W. EVANS, JOHN T. GILMORE, AND WEIRTON STEEL CORPORATION,
A DELAWARE CORPORATION V. HONORABLE RONALD E. WILSON, JUDGE OF THE CIRCUIT COURT OF HANCOCK COUNTY, LARRY G. GODICH, JOHN L. BIRD, RAYMOND A. SACRIPANTI, SR.,
SHERIDAN BUFFINGTON, THOMAS M. RODGERS, MARTIN A. REITTER, JO ANN BRANLETT, EDWARD A. GODICH, AND BARBARA J. WILSON
Miller, Justice, concurring:
Although I agree with the majority that this writ should
be denied, I disagree with the majority's interpretation of W. Va.
Code, 31-1-94 (1974), and W. Va. Code, 31-1-103, in regard to
voting trust certificates. The majority recognizes that, under
West Virginia law, a shareholder derivative suit may be filed by
holders of voting trust certificates. W. Va. Code, 31-1-103.
However, the majority concludes that holders of shares under an
employee stock option plan (ESOP) in this case are not holders of
voting trust certificates. I believe that under West Virginia law,
the respondents, equitable shareholders of Weirton Steel stock
under this ESOP, have standing to bring the underlying action
because, in essence, they are holders of record of voting trust
The majority cites W. Va. Code, 31-1-94, to support its
contention that this ESOP is not a voting trust. ___ W. Va. at
___, ___ S.E.2d at ___ (Slip op. at 7). W. Va. Code, 31-1-94, sets
out the following method of creating a voting trust: (1) Any
number of shareholders of the corporation may create a voting trust
by conferring upon a trustee or trustees the right to vote or
otherwise represent their shares; (2) the voting trust may not
exceed a period of ten years; (3) the voting trust must be a
written agreement specifying the terms and conditions of the voting
trust; (4) the voting trust agreement must be deposited with the
corporation at its principal office; and (5) the shares must be
transferred to the trustee.
Although it is true that the ESOP does not meet the ten-year limitation on voting trusts prescribed by W. Va. Code, 31-1-94,See footnote 1 it is also true that the ESOP satisfies the purpose of the
ten-year limitation in substance if not form. The ten-year rule is
designed to protect shareholders from signing away their voting
rights for a prolonged period of time. Thus, voting trust
participants only are locked in for a limited time if they become
disenchanted with the trustee's representation. The ESOP provides
that shareholders may make periodic withdrawals of their interests
under the trust as early as one year after joining the ESOP. Thus,
the purpose of the ten-year rule is satisfied. See Oceanic
Exploration Co. v. Grynberg, 428 A.2d 1, 5 (Del. Sup. 1981), where
the Delaware court held that, in regard to the applicability of the
Delaware voting trust statute "the test is whether the substance
and purpose of the stock arrangement is 'sufficiently close to the
substance and purpose of (the [voting trust] statute) to warrant
its being subject to the restrictions and conditions imposed
[thereby].'" Quoting Lehrman v. Cohen, 222 A.2d 806, 806 (Del.
Sup. 1966)). See generally Annot., Validity of Voting Trust or
Similar Agreement for Control of Voting Power of Corporate Stocks,
98 A.L.R.2d 376 (1964).
Moreover, the majority's reliance on W. Va. Code, 31-1-94, in interpreting W. Va. Code, 31-1-103, is misplaced. W. Va.
Code, 31-1-94, is designed not to restrict shareholder rights, but
rather to enhance them. Regulation of voting trusts serves the
important purpose of preventing secret and uncontrolled groups of
shareholders from acquiring control of a corporation to the
detriment of non-shareholders. Oceanic Exploration Co., 428 A.2d
at 7 (citing Lehrman, 222 A.2d at 807). See generally 76 Am. Jur.
2d Trusts § 11 at 43 (1992); 18A Am. Jur. 2d Corporations § 1125,
et seq. (1985). Certainly, the ESOP is neither secret nor
uncontrolled. It was created for the purpose of divorcing the
self-interest of the employees from management decisions and to
facilitate corporate growth to the benefit of all shareholders.
Thus, it meets the traditional purpose of a voting trust.
In the context of W. Va. Code, 31-1-103, one must then
look to the purpose of the statute -- and the purpose is clearly to
permit interested shareholders to protect the corporate interests.
It limits the right to file a derivative action to shareholders
with more than mere partial equitable interests. However, it
permits traditional voting trust participants the right to file a
derivative action because their share interests are deemed strong
enough to sustain such an action. Thus, it is the amount of
control over one's share to which the standing limitation in W. Va.
Code, 31-1-103, is directed.
In this case, the respondents, as members of the ESOP, do
not have all the rights of traditional shareholders. Their rights
to sell their shares are limited. However, their interests are
much stronger than those who are traditional participants in voting
trusts. The respondents have the right to direct the trustee to
vote their shares according to the respondents' wishes, thus giving
them more control than traditional voting trust participants. I
believe that the shareholder derivative suit statute must be
construed in light of its purpose, which is to allow shareholders
to file a derivative action if their control of their shares is
strong enough. Thus, any shareholder with interests and control
greater than participants in a traditional voting trust would have
standing to file a shareholder derivative action under W. Va. Code,
Although case law in this area is rather limited, one
jurisdiction has dealt with the analogous situation of participants
in a stock bonus plan and found that such participants qualify as
holders of record of voting trust certificates. In Foltz v. United
States News & World Report, Inc., 627 F. Supp. 1143, 1159 (D.D.C.
1986), the court stated the following:
"What a participant in the stock bonus plan had were voting trust certificates which were redeemable as stock at the termination of the participant's employment, should the magazine decline its option to repurchase the stock represented by the certificates. In that eventuality, the participant would hold a stock certificate, with which he could do as he wished. Looking then at the plain language of the statute, Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 756, 95 S. Ct. 1917, 1935, 44 L. Ed. 2d 539 (1975), citing in Daniel, 439 U.S. at 558, 99 S. Ct. at 795, it would appear that interests in the U.S. News stock bonus plan represent either 'stock' or 'voting-trust certificates' within the meaning of the securities laws." (Footnote omitted).
In any event, I believe, for purposes of standing under
the West Virginia shareholder derivative suit statute, W. Va. Code,
31-1-103, that the substance and purpose of the ESOP meets the
qualifications of a voting trust, and that the respondents should
be permitted to proceed on that basis.
Footnote: 1The majority also suggests that a voting trust must be "signed." This assertion is unsupported by the statute, which merely states that the voting trust must be written. The ESOP meets that qualification. Moreover, the majority claims that the ESOP is not a voting trust because the ESOP was created before the respondents became shareholders. Such an argument is hyper-technical and wrong. The fact is that the respondents meet the statutory requirement that they be shareholders who confer upon trustees certain representation interests.