G. Nicholas Casey, Jr., Esq.
Paul M. Friedberg
Lewis, Friedberg, Glasser, Casey & Rollins
Charleston, West Virginia
Attorneys for the Plaintiffs-Appellants
Edward M. Kowal, Esq.
Cheryl Lynne Connelly, Esq.
Campbell, Woods, Bagley, Emerson, McNeer & Herndon
Huntington, West Virginia
Attorneys for Defendants-Appellants R. Frank Carmazzi, Sales One,
Inc., Sales Two, Inc., John C. Morton, W. Guy Wiles, Jr.,
William A. Tantlinger, Persingers Incorporated,
and William F. Agee
William C. Beatty, Esq.
Daniel J. Konrad, Esq.
Huddleston, Bolen, Beatty, Porter & Copen
Huntington, West Virginia
Attorneys for Defendant-Appellee First Huntington National Bank
JUSTICE NEELY delivered the Opinion of the Court.
1. Under the West Virginia Corporation Act, W. Va. Code
31-1-19 , shareholders are entitled only to receive notice of
the place, day and hour of the annual meeting. Nowhere does the
West Virginia Corporation Act provide that prior notice of a
proposed bylaw amendment is required before it may be considered at
an annual meeting. Notice need be given only when shareholders
will be required to vote on an amendment to the articles of
incorporation, merger, sale of assets, or dissolution.
2. A shareholder has a legal right, at a meeting of the
shareholders, to vote upon a measure even though he has a personal
interest therein separate from other shareholders. In such a
meeting, each shareholder represents himself and his interests
solely and in no sense acts as a trustee or representative of
3. A corporation's redemption of its own stock does not
constitute a breach of fiduciary duty unless the redemption plan
has been shown to be illegal, ultra vires or fraudulent, or
majority stockholders used their voting power for some self-serving
purpose adverse to the interests of the corporation and its
minority stockholders in voting for the redemption.
4. When a majority stockholder or majority stockholders seek to effect a corporation's merger, they may do so for any purpose whatsoever, so long as the terms tendered to the minority stockholders accurately reflect the fair market value of the minority interest.
This matter is before this Court pursuant to W. Va. Code
51-1A-1 et seq. See footnote 1 on an order of certification from the
United States Court of Appeals for the Fourth Circuit. We would
point out initially that we are not sitting as an appellate court.
Rather, pursuant to W. Va. Code 51-1A-1  our job is simply to
answer the questions of law posed by the Fourth Circuit. Thus, we
assume the findings of fact given us in the Fourth Circuit
Certification Order are correct. See Mustafis v. Erie Insurance
Exchange, 174 W. Va. 660, 328 S.E.2d 675 (1985).
The findings of fact certified by the Fourth Circuit, in
summary, are as follows: The plaintiffs in this action, self-named
the "Meredith Persinger Group," (the Persinger Group) held
approximately 16% of the stock of Persingers Incorporated (PI), a
West Virginia corporation engaged in selling mine and mill supplies
in southern West Virginia.
At the annual shareholders' meeting on 2 March 1985,
plaintiff Meredith Persinger was removed and defendant Frank
Carmazzi installed as president and CEO of PI. In addition, the
shareholders elected six directors: Meredith, Thomas and John A.
Persinger, and defendants R. Frank Carmazzi, W. Guy Wiles, Jr. and
John C. Morton.
Six days after the shareholders' meeting, John A.
Persinger, son of PI's founder and nephew of Meredith Persinger,
died. John A. Persinger was the controlling shareholder of PI,
holding approximately 48% of PI's stock. The First Huntington
National Bank (First Huntington) was named executor of his estate.
As executor, First Huntington, acting through William Agee, Vice
President and Trust Officer of First Huntington, controlled the 48%
interest in PI.
Thereafter, Meredith Persinger and Thomas Persinger
continued as directors of PI, but refused to attend board meetings.
In addition, members of the Persinger Group attempted
unsuccessfully to secure an agreement with First Huntington whereby
they would be entitled to three members of a seven-member board and
Meredith Persinger would be appointed chairman and CEO. On a 17
September 1985 special shareholders' meeting, Mr. Agee was elected
as a director of PI to fill the vacancy resulting from John A.
At the 1 March 1986 annual meeting, the shareholders
approved a revision in section 5.4 of the corporation's bylaws that
allowed the corporation to purchase for corporate purposes any
shares of the capital stock of the corporation available for
purchase and giving the corporation priority over any other
shareholders to make such purchases.
On 20 November 1986, acting on the request of certain
shareholders that their stock be redeemed, PI's directors
authorized redemption of 40 shares of the stock owned by one of
these shareholders at a price of $220 per share. By letter dated
13 December 1986, Howard M. Persinger, on behalf of himself and
fellow shareholders Sylvia P. Lentz, Sarah P. Altizer, and Anna S.
Athey, indicated he had been informed that the Board of PI had
offered to purchase the shares of the Persinger Group and that the
Persinger Group had until 15 December 1986 to accept or reject this
offer. Mr. Persinger stated that he and the other shareholders
mentioned in his letter wished to continue to own their PI shares
if the Persinger Group accepted PI's offer to buy their shares; if,
however, the Persinger Group rejected the offer and remained in the
corporation, those shareholders requested the Board to offer to
purchase their shares. None of the shares of the Persinger Group
was offered to PI pursuant to its 15 December 1986 offer.
On 16 February 1987, notice was sent to the shareholders
of PI that their annual meeting would be held on 7 March 1987. This notice did not state that the shareholders would be asked to
vote on the repeal of section 5.4 of the bylaws, Mr. Carmazzi
having determined after the notice was mailed that the repeal would
At the 7 March 1987 annual shareholders' meeting, a total
of 69% of the shares voted in favor of repeal of section 5.4. At
the annual Board of Directors' meeting held on the same day, the
directors voted to redeem all of the shares offered for redemption
at a price of $220 per share,See footnote 2 boosting the percentage of
outstanding stock owned by the Persinger Group from 16.12% to
17.43% and the percentage of outstanding shares owned by First
Huntington from 48% to a 52% absolute majority position.
Also on 7 March 1987, First Huntington agreed to grant
Mr. Carmazzi the right to purchase First Huntington's shares of PI
at a price of $275 per share, subject to Mr. Carmazzi's ability to
obtain financing. First Huntington agreed not to sell or agree to
sell its shares to any other person for 45 days so that Mr.
Carmazzi would have adequate time to pursue financing for the
transaction. These negotiations were not disclosed to Thomas
Persinger or to the shareholders before or during the directors'
and shareholders' meetings on 7 March 1987.
In mid-March 1987, Mr. Carmazzi caused the formation of
Sales One, a West Virginia corporation with its principal officers
in Charleston, West Virginia. Mr. Carmazzi contributed to Sales
One the 40 shares of PI stock owned by him as well as $1,000 and
received in exchange all outstanding stock of Sales One. In early
April 1987, Sales One caused Sales Two, a West Virginia corporation
with its principal place of business in Charleston, West Virginia,
to be formed as a wholly-owned subsidiary of Sales One.
On 13 March 1987, Mr. Carmazzi submitted a financing plan
to the National Bank of Commerce (NBofC), in response to NBofC's
requirement that 100% of PI stock be purchased if it were to make
a loan to Mr. Carmazzi to finance the buyout of PI. The plan
provided for the purchase of the remaining outstanding shares of PI
by means of merger. On 17 April 1987, Mr Carmazzi and NBofC
executed a loan agreement whereby NBofC agreed to lend Mr. Carmazzi
$1,800,000. To secure the loan, NBofC required Mr. Carmazzi's
personal guarantee and pledge of all stock of Sales One, Sales Two
and the PI stock owned by Sales One as well as a first lien
security interest in substantially all of the assets of PI upon the
merger of Sales Two and PI.
On 17 April 1987, Sales One and Sales Two jointly
borrowed $1,537,800 from NBofC. From these proceeds, Sales One
acquired all of First Huntington's PI shares or 52.45% of issued
and outstanding PI stock at a price of $220 per share. Thereafter, Mr. Carmazzi, through Sales One and Sales Two, proposed to PI a
merger agreement under which (i) Sales Two would be merged into PI,
with PI as the surviving corporation; and (ii) each of the common
shares of PI outstanding before consummation, other than the stock
of PI owned by Sales One, would be converted into the right to
receive $222 in cash. This figure arose as a result of a Coopers
& Lybrand appraisal of PI stock as of 28 February 1987.
On 18 April 1987, notice was mailed to all PI directors
that a meeting would be held on 27 April 1987 to consider the Sales
One and Sales Two offer. At the 27 April 1987 directors' meeting,
a majority of PI directors, with Mr. Carmazzi abstaining and Thomas
Persinger dissenting, voted to approve the merger agreement and
submit it to the PI shareholders. Also at that meeting, Mr. Agee
resigned as a PI director, with defendant William A. Tantlinger, a
friend of Mr. Carmazzi, elected to succeed Mr. Agee.
On 28 April 1987, notice was mailed to all PI
shareholders that a shareholders' meeting would be held on 19 May
1987 for the purpose of considering and acting upon the merger of
PI and Sales Two. Included in the notice was a statement
describing dissenting shareholders' rights to appraisal and the
By a 5 May 1987 letter to Mr. Carmazzi, Southeast Bank
(Southeast), trustee of a deceased PI shareholder holding 5.92% of the corporation's outstanding stock, indicated that he estimated
the cash offer to be low and requested the meeting with Mr.
Carmazzi to discuss receiving a higher value for his shares. On 11
May 1987, Southeast and Joseph M. Persinger instituted the present
action on behalf of themselves and all other shareholders against
the defendants named in this action. In their complaint, the
plaintiffs sought to enjoin the merger of Sales Two into PI and
claimed damages against the directors. The district court refused
to issue a temporary restraining order on the merger.
On 21 May 1987, Sales One offered to sell its 5,592 PI
shares acquired from First Huntington to PI for a price of $275 per
share. A directors' meeting was called for 27 May 1987 to consider
the offer. On 26 May 1987, plaintiff Joseph M. Persinger, as well
as other members of the Persinger Group, offered to purchase the
shares offered to PI by Sales One for $285 per share. Provided
that such a purchase and sale were consummated, Joseph M. Persinger
stated that he would make a tender offer to all PI shareholders to
purchase their shares for $300 per share. On 27 May 1987, Sales
One amended its offer to sell its 5,592 PI share to PI,
conditioning the offer to prevent the resale of the shares to any
member or entity representing the Persinger Group.
At the 27 May 1987 directors' meeting, a majority of the
PI directors rejected the Sales One offer. Having rejected that
offer, they did not consider the Joseph M. Persinger offer, which was conditioned on the PI purchase of its stock offered by Sales
On 29 May 1987, the PI shareholders voted to approve the
merger of Sales Two into PI by a margin of 68% to 31%. On the same
day, the merger was consummated. The plaintiffs and all other
members of the Persinger Group effectively dissented from the
merger. As a result of the merger, the shares of Southeast, Joseph
M. Persinger and all other minority shareholder have been converted
to the right to receive $222 per share. Mr. Carmazzi and Sales One
remain as sole PI shareholders.
This case is before the Court on four certified questions:
1. Did West Virginia law require advance notice that a vote to repeal Bylaw §5.4 would be considered at the annual shareholders meeting held on March 9, 1987?
2. Do the facts state a claim under West Virginia law that the defendants or any of them breached any fiduciary duties they owed to PI's minority shareholders?
3. If the answer to either 1 or 2 is yes, is the remedy of the minority shareholders limited to the statutory valuation procedure under W. Va. Code § 31-1-123?
4. If the answer to 3 is no, what additional remedies do the minority shareholders have under West Virginia law?
We address these questions seriatim.
The first certified question asks whether West Virginia
law required advance notice that a vote to repeal Bylaw section 5.4
would be considered at the annual shareholders meeting held on 9
Under West Virginia law, shareholders are entitled only
to receive notice of the place, day and hour of the annual meeting.
W. Va. Code 31-1-19  of the West Virginia Corporation Act
Unless otherwise provided in the bylaws, written notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose of [sic] purposes for which the meeting is called, shall be delivered... .
Section 29 of the Model Business Corporation Act, 2d Ed.,
(Model Act), which is identical to W. Va. Code 31-1-19  in
its notice requirements and its omission of a requirement that
notice of the purpose of the annual meeting be given, explains why
such notice of purpose is not required:
The text of section 29 reflects an important difference between the annual meeting and a special meeting. Since the earliest days of corporate practice, the annual meeting has been regarded as a forum for free expression of shareholder views, whether or not sought by management. Thus the Model Act does not require that a notice of an annual meeting state the purpose or purposes for which the meeting is called, though it does so require in the case of special meetings. Indeed, it could not properly require that the notice of an annual meeting state the purposes for which the meeting is called in the sense of precluding consideration of any other matters, since that would limit the freedoms of stockholders to discuss matters of interest to them and restrict them to matters designated by management . . . . Model Business Corporation Act Annotated, Second Edition, (1971) at p. 599.
The official commentary to section 7.05 of the revised
Model Act supports the position that notice of an annual meeting
need not set forth the purposes of the meeting:
Notice of all special meetings must include of the purpose or purposes for which the meeting is called and the matters acted upon at the meeting are limited to those within the notice of the meeting. By contrast, the notice of an annual meeting usually need not refer to any specific purpose or purposes, and any matter appropriate for shareholder action may be considered. As recognized in subsection (b), however, other provisions of the revised Model Act provide that certain types of fundamental corporate changes may be considered at an annual meeting only if specific reference to the proposed action appears in the notice of the meeting. See §§ 10.03 [Amendment of Corporate Charter], 11.03 [Merger], 12.02 [Sale of Corporate Assets other than in ordinary course], and 14.02 [Dissolution]. Model Business Corporation Act Annotated, official comment to §7.05 (3d Ed. 1984) at pp. 548-549.
The West Virginia Corporations Act, patterned after the
Model Act, recognizes the same four narrow exceptions to the
limited rule that no advance notice is required. Under our Act,
notice need be given only when shareholders will be required to vote on an amendment to the articles of incorporation,See footnote 3 merger,See footnote 4
sale of assets,See footnote 5 or dissolution.See footnote 6 No other exceptions are mentioned. Nowhere does the West Virginia Act provide that prior
notice of a proposed bylaw amendment is required before it may be
considered at an annual meeting:
The initial bylaws of a corporation shall be adopted by its board of directors. The power to alter, amend or repeal the bylaws or adopt new bylaws, subject to repeal or change by action of the shareholders or members, shall be vested in the board of directors unless reserved to the shareholders or members by the articles of incorporation. The bylaws may contain any provisions for the regulation and management of the affairs of the corporation not inconsistent with the law or the articles of incorporation. W. Va. Code 31-1-17 
Thus, a bylaw like section 5.4 may be proposed, amended
or repealed by act of the shareholders at an annual meeting without
The second certified question asks whether the facts
certified by the Fourth Circuit state a claim under West Virginia
law that the defendants or any of them breached any fiduciary
duties owed to PI's minority shareholders.
The plaintiffs argue that majority shareholders in a
corporation owe a fiduciary duty to the minority shareholders as do
the officers and directors. According to the plaintiffs, when
directors of a corporation are on both sides of a transaction,
those directors are required to demonstrate their utmost good faith. The plaintiffs assert that the defendants violated a
fiduciary duty to the minority shareholders by gaining advantage as
a result of an improper use of their fiduciary position to effect
the merger of PI and Sales Two and to eliminate the minority
In assessing the fairness of events surrounding the
merger transaction, we must consider two aspects: fair dealing and
fair price. Fair dealing embraces questions of when the
transaction was timed, how it was initiated, structured,
negotiated, disclosed to the directors and how the approvals of the
directors and stockholders were obtained. Fair price relates to
the economic and financial considerations of the proposed merger.
See Moore, The "Interested" Director or Officer Transaction, 4
Del.J.Corp.L. 674, 676 (1979).
Part of fair dealing is the obvious duty of candor. See
Weinberger v. UOP, Inc., 457 A.2d 701 (Del.Supr. 1983). Moreover,
one possessing superior knowledge may not mislead any stockholder
by use of corporate information to which the latter is not privy.
15 U.S.C. §§78ff and 78j(b) [Securities Exchange Act of 1934,
§10(b)] and rules promulgated by the Securities and Exchange
Commission thereunder, particularly Rule 10b-5; Dirks v. Securities
and Exchange Commission, 463 U.S. 646 (1983); Chiarella v. United States, 445 U.S. 222 (1980); United States v. Chestman, 947 F.2d
551 (2nd Cir. 1991) The plaintiffs allege that the appellants
violated their fiduciary duty by scheming the repeal of Bylaw
section 5.4, which had given PI the right to purchase its own
shares, in order to enable Mr. Carmazzi to purchase the absolute
majority percentage of stock held by First Huntington and then buy
out the shares of the corporation.
The plaintiffs' contention, however, contradicts both the
facts certified by the Fourth Circuit and West Virginia Law.
According to paragraph 14 of the Fourth Circuit's statement of
facts, Mr. Carmazzi decided only after notice was mailed that the
repeal of section 5.4 should be considered by the shareholders.
Neither First Huntington nor Mr. Agee, the majority shareholders of
the corporation, had notice before the annual meeting that a
proposal to repeal section 5.4 of the bylaws was to be placed
before the shareholders. Such lack of notice defeats the
plaintiffs' contention that a plan had been concocted before the
annual meeting to repeal the bylaw.
Furthermore, it is well-settled in West Virginia that
"[a]lthough directors may occupy a fiduciary capacity in some
instances, such relationship is lacking in others." Bank of Mill
Creek v. Elk Horn Coal, 133 W.Va. 639, 57 S.E.2d 736, 748 (1950).
It is equally well-established that at a shareholders' meeting,
each shareholder, even a director-shareholder, represents himself and his own interests and in no sense acts as a fiduciary for
either minority or majority shareholders. As we stated in Thurman
v. Paragon Colliery Co., 82 W.Va. 49, 95 S.E. 816, 817-818 (1918):
The reason for denying to a director of a corporation the right to vote on a matter in which he is otherwise interested than as a stockholder in the corporation is because of the fiduciary or trust relation he bears toward it. But that reason does not apply to a stockholder, and he is not denied his right to vote on any matter properly coming before a stockholders' meeting on account of any private interest he may have which is detrimental to the corporation. In Gamble v. Queens County Water Co., 123 N.Y. 91, 25 N.E. 201, 9 LRA 527, it was held: 'a shareholder has a legal right, at a meeting of the shareholders, to vote upon a measure even though he has a personal interest therein separate from other shareholders. In such a meeting each shareholder represents himself and his interests solely, and he in no sense acts as a trustee or representative of others.
Therefore, all majority shareholders acted within their right to vote for the repeal of §5.4 and violated no fiduciary duty to minority shareholders.
A West Virginia corporation has the general power to
redeem its own stock. Under W. Va. Code 31-1-83  (captioned
"Rights of Corporation to acquire and dispose of its shares"), "a
corporation shall have the right to purchase, take, receive or
otherwise acquire, own, pledge, transfer or otherwise dispose of
its own share."
We may assume that if the plan were shown to be illegal,
ultra vires or fraudulent, it might constitute a breach of
fiduciary duty. We may also assume that a breach would occur if
majority stockholders used their voting power for their own
benefit, for some self-serving purpose adverse to the interests of
the corporation and its stockholders as such. We have no such case
here.See footnote 8 The record clearly shows that the plan did not originate
with the defendants. The offer to sell was put forward by various
minority stockholders who requested that the Board offer to purchase their shares if the Persinger Group remained in the
In short, the fact that First Huntington gained a
majority of the voting stock by dint of the 7 March 1987 redemption
is not in itself a badge of fraud. The purchase and retirement of
some shares of common stock necessarily have the effect of
increasing the proportionate voting power of all other holders of
common stock. As the Fourth Circuit's statement of facts shows,
the percentage of the outstanding stock of PI owned by the
Persinger Group increased in the same proportion as First
Huntington's. The Persinger Group lost no voting power by the
transaction, but had been and remained minority stockholders. See Baker v. Standard Lime & Stone Co., 203 Md. 270, 100 A.2d 822
(1953). We find no breach of duty in the Board of Directors' vote
to redeem corporate stock.
Finally, the plaintiffs allege that the defendants
devised and executed a plan to freeze out the minority shareholders
of any benefit from their ownership or investment in the
corporation by PI's cash-out merger. According to the plaintiffs,
the elimination of minority shareholders by merger for the benefit
of one selected shareholder is not a legitimate business purpose and is recognized under general corporation law as a breach of a
Under the business purpose doctrine, a corporation's
merger transaction caused by a majority stockholder that occurs
solely for the purpose of cashing out minority stockholders fails
to meet the business purpose requirement. Singer v. Magnavox Co.,
380 A.2d 969, 978 (Del.Supr. 1977). In Weinberger v. UOP, Inc.,
457 A.2d 701, 715 (Del.Supr. 1983), however, the Supreme Court of
Delaware struck down the business purpose requirement articulated
in Singer, supra, stating:
In view of the fairness which has long been applicable to parent-subsidiary mergers . . ., the expanded appraisal remedy now available to shareholders, and the broad discretion of [a court] to fashion such relief as the facts of a given case may dictate, we do not believe any additional meaningful protection is afforded minority shareholders by the business purpose requirement."
We have never agreed with the business purpose doctrine
because attempting to infer the motivations behind a majority
stockholder's buyout of minority shares is like trying to catch the
wind in a net. In the often clashing cross-purposes and constant
friction of haggling and dickering that characterize a corporation,
it is perfectly reasonable for a majority shareholder to rid
himself of minority shareholders who he perceives may compromise
fundamentally that corporation's interests. Consequently, our rule
in West Virginia is that when a majority stockholder or majority
stockholders seek to effect a corporation's merger, they may do so for any purpose whatsoever, so long as the terms tendered to the
minority stockholders accurately reflect the fair market value of
the minority interest.
Under W. Va. Code 31-1-123 , the West Virginia
legislature has created a sophisticated scheme to assure fairness
in a cash-out merger.See footnote 9 In Matter of Fair Value of Shares, 184
W.Va. 96, 399 S.E.2d 678, 682 (1990), this Court expressly
acknowledged that cash out mergers are not illegal:
Courts have developed several general rules regarding dissenters' rights statutes. The first is that ordinarily such a statute provides the exclusive remedy for a dissenting shareholder in the absence of a showing of fraud, unfairness or illegality. See generally 18A Am.Jur.2d Corporations §809. Although our statute does not contain any specific provisions as to exclusivity, we agree with the general rule.
The facts in the case before us show no fraud,
unfairness, or illegality on the part of the defendants in the
cash-out merger. Indeed, the cash-out merger was required by NBofC
-- the financier of the purchase -- and not by any of the
defendants. Moreover, it appears that Mr. Carmazzi, through his
personal guarantee backing up the NBofC loan was willing to accept
financial exposure in order to restore morale and end the
disruption and strife caused by the Persinger Group.
In sum, we conclude that the statement of facts contained
in the Fourth Circuit Certification Order makes no showing that the
minority shareholders were treated unfairly, that the defendants
acted improperly with regard to the minority shareholders or that
the defendants gained any particular advantage as a result of an
improper use of their fiduciary position. Because the answers to
certified questions 1 and 2 are no, questions 3 and 4 of the
certified questions need not be addressed.
Certified questions answered.