Willard v. Moneta Building Supply, Inc.

Present: All the Justices

RONALD L. WILLARD, ON BEHALF OF
MONETA BUILDING SUPPLY, INC.
AND ALL ITS SHAREHOLDERS

v. Record No. 981836 OPINION BY JUSTICE CYNTHIA D. KINSER
June 11, 1999
MONETA BUILDING SUPPLY, INC., ET AL.

FROM THE CIRCUIT COURT OF BEDFORD COUNTY
James W. Updike, Jr., Judge

This appeal involves a sale of the assets of a closely

held corporation. The minority stockholder of the

corporation has attacked the propriety of the transaction,

primarily on the grounds that the corporation’s directors,

who were also its majority stockholders, breached their

statutory and common law duties by failing to maximize the

sales price, by authorizing a transaction in which they had

a conflict of interests, and by failing to comply with the

statutory procedures for selling the assets of a

corporation, not in the ordinary course of business.

Finding no error, we will affirm the circuit court’s

judgment upholding the transaction.

FACTS AND MATERIAL PROCEEDINGS

In 1978, Ronald L. Willard and Cappellari, Inc.

(Cappellari), acquired a building supply business located

in Bedford County. Cappellari was a West Virginia

corporation owned primarily by Amerigo S. (A.S.) and Rose
Mary Cappellari. The purchasers incorporated the newly

acquired business in Virginia under the name of Moneta

Building Supply, Inc. (Moneta). Willard purchased 20

percent of the shares of stock issued in Moneta, and

Cappellari purchased 80 percent. 1

In 1986, A.S. and Rose Mary dissolved Cappellari and

distributed its shares of Moneta stock in the following

proportions: A.S. received 253 shares (49.8 percent), Rose

Mary received 129 shares (25.4 percent), and David Lawrence

Cappellari, the son of A.S. and Rose Mary, received 18

shares. 2 Willard owned the remaining 100 shares (19.7

percent) of Moneta stock.

David served as president, director, and manager of

Moneta from its inception until he resigned from those

positions in 1996. Willard was Moneta’s only other officer

and director during those initial years until A.S. and Rose

Mary dissolved Cappellari. Then, A.S. and Rose Mary, both

of whom had lived in West Virginia and had participated

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1
Originally, Willard and his wife purchased the 20
percent interest in Moneta. Willard later obtained sole
ownership of that interest.
2
David ultimately purchased another eight shares of
stock from Moneta after the corporation increased the
number of its authorized shares. After that purchase,
David owned 26 shares (5.1 percent).

2
very little in the operation or management of Moneta, moved

to Virginia and eventually became officers and directors of

the corporation along with David and Willard.

No one disputes that Moneta experienced success in the

building supply industry and achieved annual sales in

excess of four million dollars by 1990. However, David

became increasingly concerned about his future at Moneta

because of a December 1, 1978 “Stock Purchase Agreement”

entered into among Moneta, Cappellari, and the Willards.

That agreement granted each of Moneta’s stockholders a

right of first refusal in the event that any one of the

other stockholders desired to dispose of shares of Moneta

stock. David was dissatisfied with his percentage of

ownership interest in Moneta and his inability to acquire

additional shares from his parents due to the “Stock

Purchase Agreement.” 3

Consequently, David began developing a business plan

to start his own building supply company. On September 18,

1996, David resigned from his positions as an officer and

________________________
3
David and his parents challenged the continuing
applicability of the “Stock Purchase Agreement” by filing a
declaratory judgment action in the Circuit Court of Bedford
County. In an order dated November 7, 1995, the court held
that the agreement governed both inter vivos and
testamentary transfers of shares of Moneta stock. This
Court refused a petition for appeal in that case.

3
director of Moneta. At an October 3, 1996 meeting of the

Moneta board of directors, the board accepted David’s

resignation and elected A.S. as president of Moneta, Rose

Mary as vice-president, and Willard as treasurer. The

board also decided to continue Moneta’s operations and to

retain David as the interim manager while the board

searched for a new manager. 4

On October 7, 1996, Willard called a special meeting

of the stockholders. At that meeting, Willard offered to

sell his shares of stock in Moneta for one million dollars.

No action was taken on Willard’s offer. During the

meeting, David informed the stockholders that he might be

interested in purchasing Moneta’s assets, depending on what

direction the company decided to take. When Willard was

asked whether he might also be interested in purchasing the

assets, he indicated that he was not. 5 Subsequent to the

meeting, Willard tendered a letter of resignation as a

director and officer of Moneta. He cited “continuing

________________________
4
Willard voted against the election of officers and
the decision to employ David as the interim manager.
5
It was also announced at that meeting that another
Moneta employee had been promoted to manager, effective
November 1, 1996.

4
oppression and unfair treatment” as the reasons for his

decision.

After David’s resignation from Moneta, he pursued his

plans to open a building supply business. He incorporated

a new company under the name of Capps Home & Building

Supply, Inc. (Capps). On October 8, 1996, David entered

into a “Confidentiality Agreement” with Moneta for the

“exchange of certain information pertaining to [Moneta] and

. . . the acquisition of certain assets of [Moneta] by

[David].” A.S. executed the agreement in his capacity as

president of Moneta.

These events prompted Willard to file a suit seeking

the dissolution of Moneta and a preliminary injunction to

enjoin any Moneta stockholder from competing with Moneta

until the corporation could be dissolved and the assets

liquidated. 6 The circuit court heard evidence and argument

on October 24, 1996, and denied the requested injunction.

On November 15, 1996, Capps, through its counsel,

submitted a proposed “Asset Purchase Agreement” to A.S. and

________________________
6
This suit was the second time that Willard had
attempted to have Moneta dissolved. In the 1995
declaratory judgment action, Willard filed a counterclaim
to dissolve Moneta on the basis that the majority
stockholders had engaged in oppressive and unfair business
practices to the detriment of the corporation and minority
stockholder. The counterclaim was dismissed.

5
Rose Mary, in their capacities as directors and officers of

Moneta. In the agreement, Capps offered to purchase the

assets of Moneta for approximately $1.3 million. The offer

would expire, however, if not accepted by November 23,

1996. Capps also informed A.S. and Rose Mary that David

had acquired bank financing to provide the necessary funds

if the proposed agreement received the approval of Moneta’s

board of directors and stockholders. Finally, Capps

included a valuation of Moneta’s assets with the agreement.

Hope Player and Associates, P.C., had prepared a valuation

report (the Player report) for Capps and, in that report,

opined that the fair market value of Moneta’s assets as of

September 30, 1996, was $1.3 million.

On November 19, 1996, A.S. and Rose Mary, as the only

remaining members of Moneta’s board of directors, held a

special meeting of the board at their home to consider the

offer from Capps. The board “voted unanimously to accept

the offer and direct[ed] the President to sign the Asset

Purchase Agreement . . . reserving the right to negotiate

the Seller’s Representations contained in paragraph 4 of

the . . . Agreement, and any other matters of concern to

the shareholders.” The board also voted to hire an

___________________

6
independent certified public accountant or other valuation

expert to evaluate whether the amount of the Capps offer

reflected the fair market value of Moneta’s assets.

Finally, the board decided to refer the proposed

transaction to the stockholders without any recommendation

from the directors and to call a special meeting of the

stockholders to be held on December 20, 1996, for the

purpose of voting on the offer from Capps.

On November 21, 1996, Capps submitted a revised “Asset

Purchase Agreement” to Moneta. In exchange for a reduction

in the purchase price of approximately $150,000, Capps

agreed to assume certain liabilities of Moneta. A.S.

signed the revised agreement as president of Moneta without

first presenting the changes to the board of directors.

A.S. then sent a notice to all Moneta stockholders

advising them that a special meeting would be held on

December 20 for the purpose of considering and voting upon

the offer from Capps. The notice included a disclosure

concerning the familial relationship among A.S., Rose Mary,

and David, and copies of the revised “Asset Purchase

Agreement” and the Player report.

After receiving notice of the December 20 special

meeting, Willard sent a letter, dated December 10, 1996, to

A.S. and Rose Mary informing them that he believed that

7
Capps’ offer was too low and that it did not “adequately

reflect fair value.” In that letter, Willard offered to

purchase Moneta’s assets for $400,000 more than the amount

Capps had offered. However, Willard stipulated that his

offer was good only until 3:00 p.m. on December 13, 1996.

In a letter dated December 13, 1996, A.S. advised

Willard that he and Rose Mary believed that it would be

inappropriate for the board to consider his offer prior to

the stockholders’ meeting on December 20. Since Willard’s

offer specified that it would expire on December 13, A.S.

encouraged Willard to come to the stockholders’ meeting and

present his offer at that time.

One day before the special meeting of the

stockholders, Willard sent a second letter to A.S. and Rose

Mary. In that letter, Willard increased his offer to

$600,000 more than the amount offered by Capps. Willard

also requested 30 days in which to evaluate the assets and

determine if an even higher purchase price was warranted.

As authorized by the board of directors, Moneta

obtained an opinion from Dr. Larry A. Lynch, a business

valuation expert, with regard to whether the amount of

Capps’ offer reflected the fair market value of Moneta’s

assets. In a report dated December 12, 1996, Dr. Lynch

stated that the value of Moneta’s assets ranged from

8
$1,357,531 to $1,449,746, depending on the valuation method

utilized. He concluded that Capps’ offer of $1.3 million

was fair and reasonable upon taking into consideration the

fact that the “going concern assumption may be affected by

the loss of key personnel and pending litigation.” A copy

of Dr. Lynch’s report was forwarded to the stockholders

prior to the special meeting on December 20.

The stockholders’ special meeting proceeded as called

on December 20, 1996. 7 A.S., David, and Willard were in

attendance. Rose Mary did not attend, but she had given

A.S. her proxy for the purpose of voting her shares of

stock. 8 All parties in attendance were represented by

legal counsel. At the meeting, A.S. informed the other

stockholders about the recent offers tendered by Willard,

including Willard’s offer to sell his shares of stock in

Moneta. A.S. advised Willard that he and Rose Mary would

sell their stock for the same price per share, but Willard

________________________
7
Willard filed an action in the circuit court to
enjoin the stockholders from convening the special meeting.
After hearing evidence on December 17, 1996, the circuit
court denied Willard’s request for injunctive relief.
8
David’s resignation from Moneta had caused discord
within the Cappellari family. Consequently, Rose Mary had
delegated her authority as an officer and director of
Moneta to A.S. at the end of the year. She was
hospitalized at the time of the special meeting of

9
 did not respond to that proposal. A.S. further stated “he

would consider the best interest of the employees of

[Moneta] as well as other non-monetary factors including

the business’ customers, continuity of management and the

realistic threat to [Moneta] from competition if the

property were not sold to Capps.” Willard noted his

objections to the offer from Capps and reiterated that he

had a counter-offer on the table. A.S. stated that the

only item of business to be acted upon at the meeting was

the offer from Capps. A.S. and Rose Mary, by proxy, then

voted to accept the offer from Capps. Willard voted

against the proposal, and David abstained from voting.

Thus, a majority of Moneta’s stockholders approved the

revised “Asset Purchase Agreement.”

On April 23, 1997, Willard, on behalf of Moneta and

all its stockholders, filed this shareholders’ derivative

suit pursuant to Code §§ 13.1-672.1 et seq., naming Moneta,

A.S., Rose Mary, David, and Capps as defendants. In an

amended bill of complaint, Willard sought to void the sale

of Moneta’s assets to Capps on the basis that the

transaction violated the provisions of Code § 13.1-691

dealing with conflict of interests. He also requested an

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stockholders, but she was present at the special meeting of

10
award of damages for breach of fiduciary duties, violation

of Code § 18.2-499, and common law conspiracy; the

imposition of a constructive trust over the income and

assets of Capps; and an award of expenses, attorney’s fees,

and court costs.

During a bench trial, the circuit court heard

testimony with regard to the facts already recited. In

addition, the court received evidence from several experts

who had appraised the value of Moneta’s assets. These

experts differed in their opinions with regard to the

appropriate valuation method and the actual value of the

assets. For example, Harry Schwarz testified that he

valued the assets at $2,675,000 as of September 30, 1996,

but acknowledged that he had not considered what effect, if

any, David’s leaving Moneta and opening his own building

supply business would have on the value of the assets.

Schwarz also included cash and securities in his valuation,

but those assets were not sold to Capps.

Hope Player, who had prepared the Player report,

testified that Moneta was surpassing its peers in terms of

profitability. She attributed that accomplishment to

David’s superior management skills. Accordingly, she

___________________
directors on November 19, 1996.

11
factored the effect of David’s resignation into her

valuation. Player also testified that, when comparing two

offers to purchase, a prudent seller would take into

consideration any contingencies associated with the offers,

assuming that the buyers had equal motivation and ability.

Dr. Vittorio Bonomo, a professor of finance at

Virginia Polytechnic Institute and State University, opined

that any amount over $800,000 was a fair price for Moneta’s

assets. Dr. Bonomo believed that, during the first seven

years after David left Moneta and opened his own competing

business, Moneta’s annual profits would fall by an amount

somewhere between $400,000 and $100,000, primarily for two

reasons: Moneta would be splitting the market with another

competitor and that competitor would have “a good manager”

rather than just “a norm manager.” Thus, Dr. Bonomo opined

that a director who was faced with the events that had

occurred during the fall of 1996 would have to consider the

subsequent financial consequences to Moneta if the Capps

offer were not accepted.

In a letter opinion dated May 14, 1998, the circuit

court explained that “[t]he wide discrepancy in valuation

often depended upon the method utilized by the expert, and

the extent to which the expert viewed, as a financial

impact, the consequences of a competing business and the

12
loss of key personnel.” The testimony of Dr. Bonomo, Dr.

Lynch, and Ms. Player was more persuasive to the court than

that of the other experts. Finding that Willard had failed

to present sufficient evidence to prove his claims, the

circuit court dismissed each of the seven counts in his

amended bill of complaint in an order dated June 4, 1998.

We awarded Willard this appeal.

STANDARD OF REVIEW

The standard of appellate review applicable to this

appeal is well settled. Since the circuit court heard the

evidence ore tenus, its factual findings carry the same

weight as a jury’s verdict. W.S. Carnes, Inc. v. Board of

Supervisors of Chesterfield County, 252 Va. 377, 385, 478

S.E.2d 295, 301 (1996). Under the provisions of Code

§ 8.01-680, the circuit court’s judgment cannot be set

aside unless it appears from the evidence that the judgment

is plainly wrong or without evidence to support it. Thus,

we examine the evidence in the light most favorable to the

defendants, the prevailing parties at trial. Id.

DIRECTOR’S DISCHARGE OF DUTIES

In his first two assignments of error, Willard

contends that the circuit court erred by ruling that A.S.

and Rose Mary, as the only remaining directors of Moneta,

did not have a duty to maximize the price received for the

13
sale of Moneta’s assets and by concluding that they

discharged their duties in accordance with the provisions

of Code § 13.1-690. Willard asks us to judge the

directors’ decision to sell Moneta’s assets to Capps by the

test articulated in Revlon, Inc. v. MacAndrews & Forbes

Holdings, Inc., 506 A.2d 173 (Del. 1986). The Revlon court

held that the duty of a board of directors changed from one

of preserving the corporate entity “to the maximization of

the company’s value at a sale for the stockholders’

benefit” when it becomes apparent that the sale of the

company is inevitable. Id. at 182. “The directors’ role

[in that instance] change[s] from defenders of the

corporate bastion to auctioneers charged with getting the

best price for the stockholders at a sale of the company.”

Id.

In addressing these issues, the circuit court found

that A.S. and Rose Mary were not liable under Code § 13.1-

690 because “[t]he evidence . . . clearly demonstrate[d]

that defendants A.S. Cappellari and Rose Mary Cappellari,

as directors of [Moneta], engaged in an informed decision

making process that . . . produce[d] a defensible business

decision.” The court stated that § 13.1-690 does not

require a director to maximize profits by accepting the

highest bid when selling the assets of a corporation.

14
Instead, a director is required to “act in accordance with

‘his good faith business judgment of the best interests of

the corporation.’” The court further concluded that “[a]

director may consider not only the quantity of an offer to

purchase assets, but the quality of the offer.” We agree.

The General Assembly has mandated the standard by

which to evaluate a director’s discharge of duties in

Virginia. The applicable statute is Code § 13.1-690:

A. A director shall discharge his duties as a
director, including his duties as a member of a
committee, in accordance with his good faith business
judgment of the best interests of the corporation.
B. Unless he has knowledge or information
concerning the matter in question that makes reliance
unwarranted, a director is entitled to rely on
information, opinions, reports or statements,
including financial statements and other financial
data, if prepared or presented by:
1. One or more officers or employees of the
corporation whom the director believes, in good faith,
to be reliable and competent in the matters presented;
2. Legal counsel, public accountants, or other
persons as to matters the director believes, in good
faith, are within the person’s professional or expert
competence; or
3. A committee of the board of directors of which
he is not a member if the director believes, in good
faith, that the committee merits confidence.
C. A director is not liable for any action taken
as a director, or any failure to take any action, if
he performed the duties of his office in compliance
with this section.
D. A person alleging a violation of this section
has the burden of proving the violation.

Code § 13.1-690(A) does not abrogate the common law

duties of a director. It does, however, set the standard

15
by which a director is to discharge those duties. If a

director acts in accordance with that standard, Code

§ 13.1-690(C) provides a “safe harbor” that shields a

director from liability for any action taken as a director,

and for failure to take action. Commonwealth Transp.

Comm’r v. Matyiko, 253 Va. 1, 6, 481 S.E.2d 468, 470

(1997).

In adopting Code § 13.1-690, the General Assembly

rejected § 8.30 of the Revised Model Business Corporation

Act (RMBCA). WLR Foods, Inc. v. Tyson Foods, Inc., 65 F.3d

1172, 1185 (4th Cir. 1995), cert. denied, 516 U.S. 1117

(1996); The Revision of Chapters 1 and 2 of Title 13.1 of

the Code of Virginia, Report of the Virginia Code

Commission to the Governor and the General Assembly of

Virginia, H. Doc. No. 13, at 48-49 (1985). That provision

of the RMBCA requires a director to discharge the duties of

the office in good faith, with the care that an ordinary

prudent person in similar circumstances would exercise, and

in a manner reasonably believed to be in the best interests

of the corporation.

The contrast between the provisions of Code § 13.1-690

and those contained in § 8.30 of the RMBCA convinces us

that, in Virginia, a director’s discharge of duties is not

measured by what a reasonable person would do in similar

16
circumstances or by the rationality of the ultimate

decision. Instead, a director must act in accordance with

his/her good faith business judgment of what is in the best

interests of the corporation. Thus, the Revlon test is not

applicable in Virginia.

Accordingly, we conclude that A.S. and Rose Mary were

entitled to consider the quantity and quality of the offers

to purchase Moneta’s assets. 9 Contrary to Willard’s

argument, they were not required to accept an offer merely

because it maximized the purchase price. Such a rule would

mean that only one offer, among many, was in the best

interests of the corporation. That result would erode the

deference afforded a director’s discharge of duties under

Code § 13.1-690.

Turning to the facts of the present case, we agree

with the circuit court’s judgment that A.S. and Rose Mary

engaged in an informed decision-making process. Pursuant

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9
In Mills Acquisition Co. v. MacMillan, Inc., 559 A.2d
1261, 1282 n. 29 (Del. 1989), the court recognized that, in
obtaining the highest price reasonably available for a
corporation, a board of directors may consider “the
adequacy and terms of the offer; its fairness and
feasibility; the proposed or actual financing for the
offer, and the consequences of that financing; . . . the
risk of nonconsumation; the basic stockholder interests at
stake; the bidder’s identity, prior background and other
business venture experiences; and the bidder’s business

17
to Code § 13.1-690(B), a director can rely on information

and opinions from, inter alia, legal counsel, accountants,

and other experts unless the director has knowledge that

such reliance is unwarranted. Thus, a director may use an

informed decision-making process in discharging the duties

of the office as long as the director does so in good

faith. See WLR Foods, 65 F.3d at 1185. When a director

resorts to such a process, the ultimate decision must still

reflect the director’s “good faith business judgment of the

best interests of the corporation” in order to receive the

benefit of the “safe harbor” afforded in Code § 13.1-

690(C).

A.S. testified that, when he received the first Asset

Purchase Agreement, he compared the amount of the purchase

price with a report dated July 15, 1996, from James T.

Shepherd, a certified public accountant. 10 Shepherd had

estimated that the value of Moneta was $2,008,300.

However, that amount included $240,900 for marketable

securities that were not to be sold to Capps. Shepherd

___________________
plans for the corporation and their effects on stockholder
interests.”
10
David had obtained the report from Shepherd when he
first started developing his business plan. The report was
sent to A.S. by mistake.

18
also did not include any discounts for marketability or

minority interests. A.S. also testified that he looked at

the balance sheets for Moneta and concluded that the amount

of the offer approximated the total amount of the

stockholders’ equity. So, before the special meeting of

the directors on November 19, A.S. and Rose Mary had had

the benefit of this information along with the Player

report. By the time the stockholders met on December 20,

they had received Dr. Lynch’s report in which he opined

that the offer from Capps was fair to the corporation.

Other factors were also relevant to the directors’

discharge of their duties with regard to the sale of

Moneta’s assets. Willard first indicated that he was not

interested in purchasing the assets, but then he made an

offer that expired three days later. He did not submit his

second offer until one day before the stockholders’ special

meeting. Furthermore, in Willard’s second offer, he

requested an additional 30 days in which to review the

financial records of Moneta in more detail so that he could

determine if an even higher purchase price was warranted.

Thus, A.S. and Rose Mary were justified in their fear that

the value of Moneta’s assets would decline significantly if

___________________

19
they waited and David opened his new business during those

30 days. A.S. and Rose Mary were obliged to consider this

potential consequence. Even Willard had acknowledged the

adverse impact that David’s new business would have on the

value of Moneta’s assets. 11

Thus, we conclude that A.S. and Rose Mary, in their

capacities as directors, acted in good faith and used their

business judgment by pursuing a course to achieve the

result that they considered to be in the best interests of

Moneta. They discharged their duties in accordance with

Code § 13.1-690 and are, therefore, protected by the “safe

harbor” afforded under subsection C of that statutory

provision. 12

________________________
11
At the hearing on October 24, Willard stated, “After
Dave announces his opening and comes out of the ground, you
can pretty much shut [Moneta] down by about a third right
then.”
12
Because the objective reasonableness of a director’s
decision or conduct is not a relevant inquiry under § 13.1-
690, we also conclude that the circuit court correctly held
that Willard was not entitled to discover the substance of
certain legal and financial advice that the defendants
received. See WLR Foods, 65 F.3d at 1187. Furthermore,
the circuit court actually reviewed all the requested
material in camera and ordered the defendants to provide
some of the documents to Willard. “Generally, the granting
or denying of discovery is a matter within the discretion
of the trial court and will not be reversed on appeal
unless ‘the action taken was improvident and affected
substantial rights.’” O’Brian v. Langley School, 256 Va.

20
 CONFLICT OF INTERESTS

Willard’s third and fourth assignments of error

address an alleged conflict of interests and a director’s

duty of loyalty. Specifically, Willard asserts that the

circuit court erred by ruling that A.S. and Rose Mary did

not have a conflict of interests in the transaction to sell

Moneta’s assets to a corporation owned by their son.

The statute at issue is Code § 13.1-691, which

provides the following, in pertinent part:

A. A conflict of interests transaction is a
transaction with the corporation in which a director
of the corporation has a direct or indirect personal
interest. A conflict of interests transaction is not
voidable by the corporation solely because of the
director’s interest in the transaction if any one of
the following is true:
1. The material facts of the transaction and the
director’s interest were disclosed or known to the
board of directors or a committee of the board of
directors and the board of directors or committee
authorized, approved, or ratified the transaction;
2. The material facts of the transaction and the
director’s interest were disclosed to the shareholders
entitled to vote and they authorized, approved, or
ratified the transaction; or
3. The transaction was fair to the corporation.
B. For the purposes of this section, a director
of the corporation has an indirect personal interest
in a transaction if:
1. Another entity in which he has a material
financial interest or in which he is a general partner
is a party to the transaction; or

___________________
547, 552, 507 S.E.2d 363, 366 (1998) (quoting Rakes v.
Fulcher, 210 Va. 542, 546, 172 S.E.2d 751, 755 (1970)).

21
 2. Another entity of which he is a director,
officer or trustee is a party to the transaction and
the transaction is or should be considered by the
board of directors of the corporation.

Relying on our decision in Izadpanah v. Boeing Joint

Venture, 243 Va. 81, 412 S.E.2d 708 (1992), the circuit

court ruled that Willard had the initial burden of

establishing a conflict of interests and that he failed to

do so. 13 The court determined that A.S. and Rose Mary, in

their capacities as directors, did not have an “indirect

personal interest” in the transaction, as that term is

defined in Code § 13.1-691(B). Aside from the familial

relationship between son and parents, the court also found

no evidence of a “direct personal interest in the

transaction.” According to the court, the evidence

actually demonstrated that David’s resignation as an

officer and director of Moneta and his new business plans

had caused considerable discord between him and his

parents.

________________________
13
The court also stated that if a plaintiff
establishes a conflict of interests, the director then has
the burden to prove compliance with Code § 13.1-691. This
allocation of the burden of proof is correct. “[W]hen a
conflict of interest as defined in § 13.1-691 exists, . . .
the burden shifts to the directors to show that their
actions complied with the requirements of that section.”
Izadpanah, 243 Va. at 83, 412 S.E.2d at 709; accord
Giannotti v. Hamway, 239 Va. 14, 24, 387 S.E.2d 725, 731
(1990).

22
 As an alternative finding, the court determined that,

even if A.S. and Rose Mary had conflicts of interests in

their capacities as directors, the transaction was,

nevertheless, “fair to the corporation” pursuant to Code

§ 13.1-691(A)(3). Thus, the circuit court held that the

sale of Moneta’s assets was not a voidable transaction

under Code § 13.1-691. Because we agree that the

transaction was “fair,” we need not address whether A.S.

and Rose Mary had a conflict of interests because their son

owned the corporation that purchased the assets of Moneta. 14

No inflexible rule can be established by which to test

the “fairness” of a transaction. It depends largely on the

nature and circumstances of the business action. But

generally, a director must act in good faith, and the

transaction must, “as a whole, [be] open, fair and honest

at the time it was consummated.” Deford v. Ballentine

Realty Corp., 164 Va. 436, 449, 180 S.E. 164, 169 (1935);

accord Adelman v. Conotti Corp., 215 Va. 782, 789-90, 213

S.E.2d 774, 779 (1975). In sum, a transaction in which a

___________________
14
Although the General Assembly did not define “direct
personal interest,” we note that the RMBCA includes, in the
definition of a “conflicting interest,” a transaction with
the corporation when the director knows that he or a
related person is a party to or has a beneficial interest

23
director has a conflict of interests should bear “the

earmarks of an arm’s length bargain” in order to be deemed

“fair to the corporation” under Code § 13.1-691(A)(3).

Pepper v. Litton, 308 U.S. 295, 306-07 (1939).

Using these guidelines to review all aspects of the

transaction in this case, we conclude that A.S. and Rose

Mary carried their burden of proving that the sale of

Moneta’s assets to Capps was “fair to the corporation.”

Although we believe that the standard by which a

transaction is judged under Code § 13.1-691(A)(3) is more

exacting than that under § 13.1-690, the facts that support

the circuit court’s conclusion that A.S. and Rose Mary

exercised their “good faith business judgment of the best

interests of the corporation” equally sustain the court’s

judgment on this issue and need not be repeated.

Furthermore, when A.S. and Rose Mary, acting as

Moneta’s directors, accepted the offer from Capps, it was

the only offer that had been presented to the board of

directors at that time. After Willard made his first

offer, the directors did not refuse to consider it.

Instead, they believed it would be inappropriate to take

any action on the offer prior to the special meeting of the

___________________
in the transaction. § 8.60(1). Under § 8.60(3), the term

24
stockholders since the notice for that meeting had already

been given to the stockholders. Even though Willard’s

first offer expired three days after he made it, A.S.

encouraged Willard to present his offer to the

stockholders. Willard did not make his second offer until

one day before the stockholders’ special meeting. 15

However, that offer included Willard’s request for 30 days

in which to evaluate the value of Moneta’s assets.

During the stockholders’ meeting, A.S. informed

everyone about Willard’s offers. The stockholders had

already received copies of the revised “Asset Purchase

Agreement” and the reports from Dr. Lynch and Player.

Thus, the directors and stockholders of this closely held

corporation possessed all the available information

concerning the value and sale of Moneta’s assets. When the

stockholders met on December 20, the options were either to

accept the offer from Capps or to forego that opportunity

to sell Moneta’s assets and wait for the outcome of a

further evaluation of the assets by Willard while David

opened his competing business. Therefore, we conclude that

the transaction was, “as a whole, open, fair and honest at

___________________
“related person” encompasses children of the director.

25
the time it was consummated” and is, accordingly, not

voidable under Code § 13.1-691.

Willard, nevertheless, asserts that a finding that the

sale of assets is not voidable under Code § 13.1-691 does

not necessarily resolve the question whether A.S. and Rose

Mary are liable for breach of their common law duty of

loyalty. Generally, we agree with that proposition.

However, having established the “fairness” of the

transaction under Code § 13.1-691(A)(3), it necessarily

follows that A.S. and Rose Mary discharged their duty of

loyalty in compliance with Code § 13.1-690.

MAJORITY STOCKHOLDERS’ RIGHTS

We next address Willard’s contention that the circuit

court erred by finding that A.S. and Rose Mary could “avoid

the fiduciary duties they owed as directors by simply

referring the asset sale to themselves as shareholders and

then voting ‘as shareholders’ to approve the transaction.”

Willard argues that directors cannot be allowed to abdicate

their duties by replacing their “director[s’] hats” with

their “shareholder[s’] hats.”

___________________
15
In fact, Willard did not present his second offer
until after his unsuccessful attempt to enjoin the
stockholders from convening the special meeting.

26
 With regard to the duties of majority stockholders,

the circuit court determined that A.S.’s decision to vote

his and Rose Mary’s shares of stock to accept the revised

“Asset Purchase Agreement” was not “illegal, oppressive,

fraudulent, or wasteful.” Absent a violation of Code

§ 13.1-747, 16 the court opined that stockholders own their

stock and can vote it.

In Glass v. Glass, 228 Va. 39, 53-54, 321 S.E.2d 69,

78 (1984), we recognized that “majority stockholders [have]

rights for which they [are] entitled to protection. They

[have] the right to retain their stock, to control the

management of the [c]orporation, and to act together to

accomplish their legitimate aims.” Similarly, in Fein v.

Lanston Monotype Mach. Co., 196 Va. 753, 766, 85 S.E.2d

353, 360 (1955), we stated that “[t]he holders of the

majority of the shares of a corporation have the right and

the power, by the election of directors and by the vote of

their stock, to determine the policy of their corporation

and to manage and control its action.”

________________________
16
Code § 13.1-747 provides, in part, that a circuit
court may dissolve a corporation if, inter alia, the
directors are acting in a manner that is illegal,
oppressive, or fraudulent.

27
 Accordingly, we conclude that A.S. and Rose Mary were

entitled to exercise their rights as the majority

stockholders by voting to approve the sale of assets to

Capps. We agree with the circuit court’s judgment that

their conduct was not “illegal, oppressive, or fraudulent”

under Code § 13.1-747. Any self-interest on the part of a

majority stockholder “is not a disqualification of the

right to vote, in the absence of fraud or other

disqualification.” 196 Va. at 766, 85 S.E.2d at 360.

STATUTORY REQUIREMENTS FOR
SELLING CORPORATION’S ASSETS

Willard next attacks the directors’ compliance with

the provisions of Code § 13.1-724. 17 Specifically, Willard

________________________
17
Code § 13.1-724 provides the following, in pertinent
part:
A. A corporation may sell, lease, exchange, or
otherwise dispose of all, or substantially all, of its
property, otherwise than in the usual and regular
course of business, on the terms and conditions and
for the consideration determined by the corporation’s
board of directors, if the board of directors adopts
and its shareholders approve the proposed transaction.
B. For a transaction to be authorized:
1. The board of directors shall submit the
proposed transaction to the shareholders with its
recommendation unless the board of directors
determines that because of conflict of interests or
other special circumstances it should make no
recommendation and communicates the basis for its
determination to the shareholders with the submission
of the proposed transaction; and
2. The shareholders entitled to vote shall

28
asserts that A.S. and Rose Mary failed to follow the

procedures contained in subsection (B)(1) in two respects:

(1) that the board of directors failed to communicate the

“basis for its determination” that the proposed transaction

would be submitted to the stockholders with no

recommendation from the directors; and (2) that the

proposed “Asset Purchase Agreement” sent to the

stockholders for approval was actually different from the

one approved by the board of directors.

The notice of the December 20, 1996 special meeting of

stockholders disclosed the familial relationship among

A.S., Rose Mary, and David. According to the circuit

court, that relationship was a “special circumstance” that

formed the basis of the decision by the board to refer the

proposed transaction to the stockholders without a

recommendation. We agree. Disclosure of the familial

relationship in the notice for the special meeting of

stockholders was sufficient notification of the basis for

the board’s decision. Thus, the disclosure satisfied the

requirements of Code § 13.1-747(B)(1).

___________________
approve the transaction as provided in subsection E of
this section.

29
 The court also found that the terms of the revised

“Asset Purchase Agreement,” which A.S. signed without board

approval, fell within the authority to negotiate that the

board of directors had granted to him at the special

meeting on November 19, 1996. The minutes of the special

meeting of the board of directors on November 19 reflect

that the board authorized A.S. to sign the agreement but

reserved the right for him to negotiate any matters of

concern to the stockholders. In the revised document,

Capps agreed to assume certain liabilities of Moneta;

whereas, the original agreement stated that Capps “shall

not assume any liabilities of [Moneta].” While this

modification resulted in a reduction in the purchase price,

we believe that the outstanding liabilities of the seller

and the extent to which the buyer will assume those

liabilities are matters of concern to stockholders. Thus,

we conclude that A.S. acted within the authority granted to

him when he executed the revised “Asset Purchase Agreement”

and that the submission of that agreement to the

stockholders for approval did not violate the requirements

of Code § 13.1-724(B)(1), even though it contained some

terms that were different from those in the original

agreement approved by the board of directors.

CONCLUSION

30
 To summarize, A.S. and Rose Mary, as the only

remaining directors of Moneta, discharged their duties in

accordance with their “good faith business judgment of the

best interests of the corporation” by approving the sale of

Moneta’s assets to Capps. They not only engaged in an

informed decision-making process to the extent possible,

given the limited amount of time in which they had to

evaluate the offers from Capps and Willard, but they also

considered both the quantity and quality of the offers.

Moreover, the transaction was “fair to the corporation”

under the more demanding standard mandated by Code § 13.1-

691(A)(3). A.S. and Rose Mary also complied with the

procedures required in Code § 13.1-724 for the sale of a

corporation’s assets, not in the ordinary course of

business. Thus, for the reasons stated, we will affirm the

judgment of the circuit court. 18

Affirmed.

JUSTICE KOONTZ, with whom JUSTICE HASSELL joins,
dissenting.

________________________
18
Willard also assigned error to the circuit court’s
refusal to impose a constructive trust on the assets sold
to Capps and to award Willard his attorney’s fees and
costs. However, on brief, Willard asked this Court to
reverse the circuit court’s decision on this issue if we
also reversed the court’s approval of the transaction.
Since we are affirming the circuit court’s judgment, we
need not address this assignment of error on its merits.

31
 I respectfully dissent. In my view, only by placing

form over substance can the record in this case support the

trial court’s judgment that Ronald L. Willard failed to

carry his burden of proof that Amerigo S. and Rose Mary

Cappellari, the sole directors and majority stockholders of

Moneta Building Supply, Inc. (Moneta), did not discharge

their duty of loyalty in compliance with Code § 13.1-690.

Without repeating the generally undisputed facts

recited in the majority opinion, it is clear that the

record establishes that Mr. and Mrs. Cappellari knew that

the transaction in question involved the sale of Moneta’s

operating assets to Capps Home & Building Supply Center,

Inc. (Capps), a corporation owned by their son, David

Lawrence Cappellari. In addition, the record establishes

that although Mr. and Mrs. Cappellari were unhappy with

their son’s decision to leave Moneta and to open Capps in

direct competition with it, they were aware that the

acquisition of Moneta’s assets would shorten the time until

Capps would become operational and be a source of

substantial income for their son. Indeed, this transaction

would permit their son to begin operating Capps in Moneta’s

real estate with its entire inventory and, thus, become

operational immediately upon the close of the transaction

32
without the delays inherent in opening any new business.

This benefit to their son is patent.

Under these circumstances, Mr. and Mrs. Cappellari had

a conflict of interests in this transaction because they

had a “direct personal . . . interest” in that transaction

as contemplated by Code § 13.1-691. That statute does not

define this term. However, “direct . . . personal

interest” is a broad term and, absent restrictive language

in the statute, it is not limited to direct financial

considerations. Rather, common sense dictates that where a

parent is in a position as a director of a closely held

corporation to assist his or her child in acquiring the

assets of the corporation to the benefit of the child, that

director has a direct personal interest in such a

transaction as contemplated by Code § 13.1-691.

Notwithstanding this conflict of interests, I do not

disagree with the majority’s conclusion that on this record

this transaction was not void or voidable under Code

§ 13.1-691. In the context of that code section, the

record supports the trial court’s judgment, and the

majority opinion, that the transaction was “fair to the

corporation” under Code § 13.1-691(A)(3). This is so

because Capps’ offer was at least consistent with the value

of Moneta’s assets.

33
 However, Code § 13.1-691 by its express terms merely

protects a conflict of interests transaction from being

rendered void solely because of a director’s conflict.

This code section does not address the potential liability

of a director who has a conflict of interests in a

particular transaction. That issue is to be resolved under

Code § 13.1-690, which requires the director to discharge

his duties “in accordance with his good faith business

judgment of the best interests of the corporation.” It is

in this context that I disagree with the conclusion of the

majority opinion, on the particular facts of this case,

that because the transaction in question was not voidable

because it was “fair” under Code § 13.1-691(A)(3), it

necessarily follows that the directors discharged their

duty of loyalty in compliance with Code § 13.1-690.

It is undisputed that on November 15, 1996, Capps

offered $1.3 million to purchase the assets of Moneta,

including its real estate, inventory, equipment, vehicles,

supplies, office furniture, fixtures, improvements and the

exclusive right to use the trade name “Moneta Building

Supply.” Without question, once this transaction was

complete Moneta would cease to exist as an operating

business. All that would remain to be done would be a

distribution of the proceeds of this sale to the

34
shareholders. It is also undisputed that prior to the

shareholder approval of this offer, the directors received

two offers from Willard. In pertinent part, the last offer

contained the following provisions:

I am now offering to pay $600,000.00 more than
Capps for the same assets as set forth in the
November 15, 1996 Asset Purchase Agreement, and
under the same terms an [sic] conditions as set
forth therein, provided that the business is run
in the ordinary course until closing and the
telephone number of the business is included in
the assets.
. . . .

I am making my offer without any real
opportunity to investigate in detail the value of
the assets of Moneta Building Supply, Inc. I am
confident that if given that opportunity, I would
further increase my offer substantially.
Accordingly, while the foregoing offer remains in
effect, I would request 30 days to fully evaluate
the assets and determine whether a higher value
is appropriate.

There is no suggestion in the record that Willard was

not financially able to consummate this offer if it was

accepted. Willard’s offer of $600,000 more than the Capps

offer was not conditioned upon being granted an additional

30 days in which to review financial records of Moneta in

more detail. Thus, the record establishes that the

directors had two competing offers to consider, and one in

which they had a direct personal interest. Significantly,

the latter offer was the lower of the two offers.

35
 In this context, the record does not support the trial

court’s conclusion that Mr. and Mrs. Cappellari “engaged in

an informed decision making process that . . . produce[d] a

defensible business decision.” The record reflects that

they never met as directors to consider Willard’s offer.

Thus, the record does not support the conclusion that they

discharged their duties as directors in accordance with

their “good faith business judgment of the best interests

of the corporation” as contemplated by Code § 13.1-690.

Rather, the record establishes that the directors preferred

their son to be able to purchase Moneta’s assets and that

they engaged professional advice solely to shape a process

under Code § 13.1-690 to accomplish that end. This was

mere form over substance.

While I agree with the majority that Mr. and Mrs.

Cappellari were not required to accept Willard’s offer

merely because it maximized the purchase price and that

they were entitled to consider not only the quantity of the

offer but also the quality of the offer, the record simply

does not support the conclusion that this was done.

Moreover, because of their direct personal interest in the

Capps transaction, it is clear that they were not

exercising good faith business judgment because all their

efforts were directed at upholding the Capps offer to the

36
exclusion of any consideration of the Willard offer. Under

these circumstances they were not entitled to the

protection of Code § 13.2-690(C) and they failed to

discharge their duty of loyalty in not considering the

offer that would maximize the purchase price for Moneta’s

assets.

For these reasons, I would reverse the judgment of the

trial court and remand this case to the trial court for a

determination of what damages, if any, Willard might

establish in a new trial limited to that issue.

37