The United States District Court for the Northern District of Illinois in Banco Panamericano, Inc. v. Health Risk Management, Inc., 78 F. Supp. 2d 804 (N.D. Ill. Dec. 21, 1999), in a decision written by Judge James B. Moran, certified three corporate governance issues controlled by Minnesota law to the Minnesota Supreme Court.
The case involved a refusal by the board of directors of Health Risk Management, Inc. ("HRMI"), a Minnesota corporation, to schedule a special meeting of HRMI shareholders requested by the owners of 10 to 15 percent of the corporation's stock, almost all of which was held in street name. The meeting was requested pursuant to Minn. Stat. ' 302A.433 in order to give shareholders an opportunity to vote on (1) whether to repeal a poison pill shareholders rights plan, and (2) whether to amend HRMI's certificate of incorporation to revise director qualification requirements in a manner that would prevent a majority of HRMI's directors from seeking reelection.
HRMI's directors refused to schedule the meeting because, they contended, to HRMI, only record holders may call a special meeting, a poison pill rights plan cannot be repealed by shareholders, and the effort to call a special meeting was an effort to "directly or indirectly facilitate or effect a business combination" and as a result the percentage of shareholders required to call a meeting under Minn. Stat. ' 302A.433 is 25 percent.
The court certified the following three questions:
1. Does the word "shareholder," as used in Minn. Stat. ' 302A.433, subd. 1(e) and subd. 2, include a beneficial owner of shares held in street name, or does it mean only a person registered on the books or records of a corporation or its transfer agent or registrar as the owner?
2. Is the repeal of a corporation's "poison pill" a matter that may properly be mandated by the shareholders of a corporation or is that a power reserved exclusively for the Board of Directors under Minnesota corporate law?
3. Is a hostile takeover attempt wherein the hostile party seeks to repeal a corporate "poison pill" so as to facilitate its acquisition of additional shares and seeks to amend the articles of incorporation to change directors' qualifications in a manner that prevents a majority of the incumbent directors from standing for reelection to the board, all for the purpose of acquiring control, but with no expression of any intention to achieve or facilitate a "business combination" as that term is defined by Minn. Stat. ' 302A.011, subd. 46, an effort "to directly or indirectly facilitate or effect a business combination" for the purposes of Minn. Stat. ' 302A.433, subd. 1(e)?
The court stated "[t]he United States Supreme Court has strongly endorsed the certification procedure for federal courts faced with novel and unsettled questions of state law" and added that "[w]e do not intend our formulation of the question to limit the scope of the inquiry and acknowledge that the Minnesota Supreme Court may reformulate the questions."
The court thus took the same step taken by the United States Court of Appeals for the Tenth Circuit in International Brotherhood of Teamsters General Fund v. Fleming Cos., Nos. 97-6037, 97-6132 (10th Cir. Sept. 23, 1997), reprinted in 13 Corporate Officers & Directors Liability Litig. Rptr. No. 7, Feb. 9, 1998, at D1, a decision that led to the Oklahoma Supreme Court's decision in International Brotherhood of Teamsters General Fund v. Fleming Cos., 975 P.2d 907 (Okla. 1999). The Oklahoma Supreme Court's decision in Fleming held that Oklahoma law does not restrict the authority to create and implement shareholder rights plans to directors and thus permits shareholders to propose restrictions requiring that shareholder rights plans be submitted to shareholders for shareholder approval. [For a discussion of the Oklahoma Supreme Court's decision in Fleming, see Oklahoma Supreme Court Validates Poison Pill Shareholder Rights Plan Resolution, Business & Securities Litigator, May 1999, at 3.]
The case involved a refusal by the board of directors of Health Risk Management, Inc. ("HRMI"), a Minnesota corporation, to schedule a special meeting of HRMI shareholders requested by the owners of 10 to 15 percent of the corporation's stock, almost all of which was held in street name. The meeting was requested pursuant to Minn. Stat. ' 302A.433 in order to give shareholders an opportunity to vote on (1) whether to repeal a poison pill shareholders rights plan, and (2) whether to amend HRMI's certificate of incorporation to revise director qualification requirements in a manner that would prevent a majority of HRMI's directors from seeking reelection.
HRMI's directors refused to schedule the meeting because, they contended, to HRMI, only record holders may call a special meeting, a poison pill rights plan cannot be repealed by shareholders, and the effort to call a special meeting was an effort to "directly or indirectly facilitate or effect a business combination" and as a result the percentage of shareholders required to call a meeting under Minn. Stat. ' 302A.433 is 25 percent.
The court certified the following three questions:
1. Does the word "shareholder," as used in Minn. Stat. ' 302A.433, subd. 1(e) and subd. 2, include a beneficial owner of shares held in street name, or does it mean only a person registered on the books or records of a corporation or its transfer agent or registrar as the owner?
2. Is the repeal of a corporation's "poison pill" a matter that may properly be mandated by the shareholders of a corporation or is that a power reserved exclusively for the Board of Directors under Minnesota corporate law?
3. Is a hostile takeover attempt wherein the hostile party seeks to repeal a corporate "poison pill" so as to facilitate its acquisition of additional shares and seeks to amend the articles of incorporation to change directors' qualifications in a manner that prevents a majority of the incumbent directors from standing for reelection to the board, all for the purpose of acquiring control, but with no expression of any intention to achieve or facilitate a "business combination" as that term is defined by Minn. Stat. ' 302A.011, subd. 46, an effort "to directly or indirectly facilitate or effect a business combination" for the purposes of Minn. Stat. ' 302A.433, subd. 1(e)?
The court stated "[t]he United States Supreme Court has strongly endorsed the certification procedure for federal courts faced with novel and unsettled questions of state law" and added that "[w]e do not intend our formulation of the question to limit the scope of the inquiry and acknowledge that the Minnesota Supreme Court may reformulate the questions."
The court thus took the same step taken by the United States Court of Appeals for the Tenth Circuit in International Brotherhood of Teamsters General Fund v. Fleming Cos., Nos. 97-6037, 97-6132 (10th Cir. Sept. 23, 1997), reprinted in 13 Corporate Officers & Directors Liability Litig. Rptr. No. 7, Feb. 9, 1998, at D1, a decision that led to the Oklahoma Supreme Court's decision in International Brotherhood of Teamsters General Fund v. Fleming Cos., 975 P.2d 907 (Okla. 1999). The Oklahoma Supreme Court's decision in Fleming held that Oklahoma law does not restrict the authority to create and implement shareholder rights plans to directors and thus permits shareholders to propose restrictions requiring that shareholder rights plans be submitted to shareholders for shareholder approval. [For a discussion of the Oklahoma Supreme Court's decision in Fleming, see Oklahoma Supreme Court Validates Poison Pill Shareholder Rights Plan Resolution, Business & Securities Litigator, May 1999, at 3.]