Ramos v. Estrada
8 Cal. App. 4th 1070, 10 Cal. Rptr. 2d 833 (1992)
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Rule of Law:
A written shareholder voting agreement, in which shareholders agree to vote their shares as determined by a majority of the group, is valid and enforceable even if the corporation is not a statutory close corporation. Such agreements are not illegal proxies and are preserved under California Corporations Code § 706(d).
Facts:
- Leopoldo Ramos and several other couples, including Tila and Angel Estrada, formed Broadcast Corp., with each couple except the Ramoses holding a 10% interest.
- Broadcast Corp. later merged with a competitor to form a new entity, Costa del Oro Television, Inc. (Television Inc.).
- To maintain their voting power as a bloc within the new company, the original Broadcast Corp. shareholders, including the Estradas, executed the 'June Broadcast Agreement'.
- This agreement required all signatory shareholders to consult and vote their shares in the manner decided by a majority of the group.
- The agreement specified that failure to comply would trigger a mandatory buy/sell provision, forcing the breaching shareholder to sell their shares to the others.
- At a directors' meeting for Television Inc., Tila Estrada voted with the opposing shareholder group to remove Leopoldo Ramos as president.
- Subsequently, the Broadcast Group met without the Estradas and voted to nominate a new slate of directors that excluded Tila Estrada.
- The Estradas then sent a letter declaring the June Broadcast Agreement null and void and refused to abide by the group's vote.
Procedural Posture:
- Leopoldo Ramos and other shareholders of the 'Broadcast Group' sued Tila and Angel Estrada in a California trial court for breach of a written shareholder voting agreement.
- The trial court found that the Estradas had materially breached the agreement, which it ruled was valid and enforceable.
- The trial court issued a judgment ordering specific performance of the agreement's buy/sell provision, requiring the Estradas to sell their shares, and enjoined them from voting contrary to the agreement.
- The Estradas, as appellants, appealed the trial court's judgment to the California Court of Appeal.
- Ramos et al. are the appellees in this appeal.
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Issue:
Is a written shareholder voting agreement requiring shareholders of a non-close corporation to vote their shares in accordance with the majority decision of their shareholder group valid and specifically enforceable?
Opinions:
Majority - Gilbert, J.
Yes, a written shareholder voting agreement is valid and enforceable for a non-close corporation. The agreement here is not an illegal proxy but a valid shareholders' voting agreement. California Corporations Code § 706(a) expressly authorizes such agreements for close corporations, and § 706(d) acts as a savings clause, stating that the section does not invalidate voting agreements for other types of corporations that are not otherwise illegal. The court reasoned that the agreement was not a proxy because it did not give another person the power to vote the shareholders' shares; rather, it was an agreement among shareholders on how they would personally vote their own shares. Citing precedent like Smith v. S. F. & N. P. Ry. Co., the court affirmed that it is not against public policy for shareholders to agree to be bound by the will of the majority to achieve a common purpose. The agreement was supported by valid consideration—namely, the mutual desire to preserve the group's relative voting power and prevent control from passing to incompatible interests.
Analysis:
This decision clarifies that shareholder voting agreements, often called 'pooling agreements,' are not exclusively for statutory close corporations in California. By interpreting Corporations Code § 706(d) as a broad savings clause, the court affirmed the enforceability of such agreements for any corporation, so long as the agreement is not otherwise illegal. This provides greater certainty and flexibility for shareholders in standard corporations who wish to use voting agreements to maintain control, manage corporate affairs, and ensure stability. The ruling solidifies the judicial trend of enforcing private ordering among shareholders and underscores that breaching such an agreement can trigger contractually specified remedies like a forced buyout.
