International Brotherhood of Teamsters General Fund v. Fleming Companies, Inc.
70 O.B.A.J. 464, 1999 OK 3, 975 P.2d 907 (1999)
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Rule of Law:
Under Oklahoma law, a corporation's board of directors does not possess exclusive authority to create and implement shareholder rights plans; shareholders may propose and adopt bylaws that restrict the board's ability to implement such plans, provided the certificate of incorporation does not explicitly provide otherwise.
Facts:
- In 1986, Fleming Companies, Inc. (Fleming) implemented a shareholder rights plan, commonly known as a 'poison pill,' an anti-takeover mechanism designed to make takeovers without incumbent management's approval more difficult, with the plan set to expire in 1996.
- The International Brotherhood of the Teamsters General Fund (Teamsters) owned sixty-five shares of Fleming stock and viewed Fleming’s rights plan as a means of entrenching the current board of directors.
- In 1996, the Teamsters introduced a non-binding resolution at Fleming's annual shareholders meeting, calling on the board to redeem the existing rights plan.
- Despite a majority shareholder vote in agreement with the Teamsters’ 1996 resolution, Fleming’s board did not redeem the rights plan, and it remained intact.
- In 1997, the Teamsters prepared a proxy statement to propose an amendment to Fleming’s bylaws that would require any rights plan implemented by the board of directors to be put to the shareholders for a majority vote.
- Fleming refused to include the Teamsters' 1997 resolution in its proxy materials, declaring the proposal was not a proper subject for shareholder action under Oklahoma law.
Procedural Posture:
- The Teamsters brought an action in the Federal District Court for the Western District of Oklahoma.
- The district court ruled in favor of the Teamsters, finding that 'shareholders, through the devise of bylaws, have a right of review,' and issued an injunction.
- Fleming appealed the district court's decision to the U.S. Court of Appeals for the Tenth Circuit (appellant Fleming, appellee Teamsters).
- The Tenth Circuit Court of Appeals denied Fleming’s motion to suspend the injunction, compelling Fleming to allow a shareholder vote on the Teamsters' proxy.
- The U.S. Court of Appeals for the Tenth Circuit then certified a question of law to the Oklahoma Supreme Court pursuant to 20 O.S.1991, § 1601.
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Issue:
Does Oklahoma law grant a corporation's board of directors exclusive authority to create and implement shareholder rights plans, or do shareholders have the power to propose resolutions or bylaws that require such plans to be submitted for a shareholder vote?
Opinions:
Majority - Simms, J.
No, Oklahoma law does not grant a corporation's board of directors exclusive authority to create and implement shareholder rights plans; instead, shareholders may propose and adopt bylaws requiring such plans to be submitted for a vote. The court found that the Oklahoma General Corporation Act, specifically 18 O.S.1991 §§ 1013 and 1038, does not give exclusive authority to boards in this area. It reasoned that the terms 'corporation' and 'board of directors' are used distinctly throughout the Act, meaning that the power granted to a 'corporation' in § 1038 to create and issue rights does not automatically translate to exclusive authority for the 'board of directors' over such matters. The court noted that shareholder rights plans are essentially a variety of stock option plans, which precedent (e.g., Michelson v. Duncan) and federal tax law (26 U.S.C §§ 422, 423) show can be subject to shareholder approval or ratification. Furthermore, 18 O.S.1991 § 1013(B) allows bylaws not inconsistent with law or the certificate of incorporation, relating to the business, corporate affairs, and rights or powers of shareholders and directors. Since Fleming's certificate of incorporation was silent on the board's authority regarding shareholder rights plans, and Oklahoma has not enacted a specific 'shareholder rights plan endorsement statute' (unlike many other states) to grant boards explicit autonomous authority, the board remains subject to general corporate governance procedures, including shareholder-enacted bylaws.
Analysis:
This case significantly clarifies the balance of power in corporate governance in Oklahoma, empowering shareholders by affirming their right to challenge and limit a board's unilateral implementation of anti-takeover defenses. It establishes that, absent specific statutory grants of exclusive authority to the board or explicit provisions in the certificate of incorporation, shareholders retain the ability to influence critical strategic decisions through the bylaw amendment process. The ruling underscores the importance of a state's legislative framework (or lack thereof, as in Oklahoma's case regarding endorsement statutes) in defining the scope of board discretion versus shareholder oversight, potentially encouraging more shareholder activism in states with similar corporate law structures.
