State Ex Rel. Elish v. Wilson

434 S.E.2d 411, 189 W. Va. 739, 1993 W. Va. LEXIS 132
CourtWest Virginia Supreme Court
DecidedJuly 22, 1993
Docket21752
StatusPublished
Cited by12 cases

This text of 434 S.E.2d 411 (State Ex Rel. Elish v. Wilson) is published on Counsel Stack Legal Research, covering West Virginia Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
State Ex Rel. Elish v. Wilson, 434 S.E.2d 411, 189 W. Va. 739, 1993 W. Va. LEXIS 132 (W. Va. 1993).

Opinions

BROTHERTON, Justice:

This case is before the Court on a motion for a writ of prohibition by the petitioners, the Board of Directors at Weirton Steel, and Weirton Steel. These parties petition the Court to prohibit the Circuit Court of Hancock County from refusing to dismiss Larry G. Godich, John L. Bird, Raymond A. Sacripanti, Sr., Sheridan Buffington, Martin A. Reitter, Jo Ann Branlett, Edward A. Godich, and Barbara J. Wilson from the shareholder derivative suit on the grounds that the respondent “exceeded his legitimate powers under W.Va.Code § 53-1-1.”

The shareholder derivative suit was filed on August 6, 1992, by the respondents, plaintiffs below, active members of the Weirton Steel Employee Stock Ownership Plan (ESOP). They seek to recover damages as beneficial shareholders of Weirton Steel from the individuals listed as petitioners above because of an alleged breach of fiduciary duty. The petitioners, defendants below, are current and former officers and members of the Board of Directors of Weirton Steel. The respondents contend that the petitioners were grossly negligent in taking certain actions during the course of contracting for the construction of two reheat furnaces.

The ESOP participants of Weirton Steel contend that they brought suit because the defendants issued a purchase order to construct two new reheat furnaces at the cost of $49,065,740.00, and that they knew or should have known that Briekmont & Associates, the company hired to provide the furnaces, had a negative net worth of $1,466,105.00. They also contend that the Board should have known that Briekmont & Associates could not provide a performance bond, yet they paid the company $28,132,190.00 prior to the execution of the contract without a performance bond. Finally, they complain that at the completion of the first reheat furnace, Briekmont had been paid approximately $50,000,000.00. As a result, they contend that Weirton Steel had to pay in excess of $30,000,000.00 to complete the project.

This case was initially before Judge Craig Broadwater. However, after the circuit judges rotated, Judge Wilson became the presiding judge. On February 8, 1993, the defendants below, the members of the Board of Directors, filed a joint motion to dismiss eight of the nine plaintiffs below on the basis that they lacked standing to bring the derivative action because they were not “holders of record” of Weirton Steel shares as required under W.Va.Code § 31-1-103 (1988).1

On April 20, 1993, Judge Wilson denied the defendants’ joint motion to dismiss. In its order and opinion dated April 20, 1993, the Hancock County Circuit Court examined the history of the Model Business Corporation Act of 1969, which was used as the basis for W.Va.Code § 31-1-1 et seq., adopted in 1974. The court found that W.Va.Code § 31-1-103, which required, in part, that a plaintiff must be a “holder of [742]*742record,” also required contemporaneous ownership, which “did not exclude the concept of equitable ownership.” 2 The court noted that the majority of jurisdictions, including Delaware, find equitable ownership is enough to bring a derivative suit. Rosenthal v. Burry Biscuit Corp., 60 A.2d 106 (Del.Ch.1948). More recently, the Delaware legislature, in Title 8, § 327, allowed equitable or beneficial owners to sue under their statute.

Similarly, Judge Wilson concluded that under the common law of West Virginia, an equitable owner of stock could maintain a derivative suit. He found that the “holder of record” requirement in W.Va.Code § 31-1-103 mandated contemporaneous ownership, which did not preclude an action by equitable owners of stock. He noted that the interests of ESOP members and registered shareholders are identical. Thus, Judge Wilson found there was no basis for a distinction. He also stated that the legislature never intended to bar ESOP employees from bringing a derivative law suit because until 1989, there were no Weirton Steel shareholders of record. Under the petitioners’ interpretation of W.Va.Code § 31-1-103, no one was entitled to bring a shareholder derivative suit prior to 1989, when the company went public. Consequently, the court refused to dismiss the plaintiffs. The defendants below, now petitioners, filed this appeal from the April 20, 1993, order of the Hancock County Circuit Court.

The petitioners contend that in doing so, Judge Wilson, in effect, “rewrote the statute to permit what he considered to be equitable holders to maintain shareholder derivative actions in West Virginia.” The petitioners seek a writ of prohibition from the Court in order to preclude Judge Wilson, the respondent, from refusing to dismiss the eight plaintiffs who were not holders of record of Weirton Steel stock.

All nine plaintiffs are employees of Weir-ton Steel and participate in Weirton Steel’s employee stock ownership plan (ESOP). Under the terms of the ESOP, an account is maintained for each participating Weir-ton Steel employee and shares of Weirton Steel stock, which are owned of record by the ESOP trust, are allocated to each participant’s account. The ESOP provides the participants with pass through voting rights through the trustee and receive dividends through the transfer agent into their accounts. The allegation that they do not have standing is based on the fact that the respondents are not actually owners of record of the stock, with the exception of the one plaintiff with preferred shares, because the stock shares are owned of record by the ESOP trust.

Thus, the issue to be addressed by this Court is whether the plaintiffs below have standing in West Virginia to initiate a shareholder derivative suit when they are participants in an employee stock ownership plan, but do not hold actual title of the stock certificates.

West Virginia Code § 53-1-1 (1981) provides that a “writ of prohibition shall lie as a matter of right in all cases of usurpation and abuse of power, when the inferior court has not jurisdiction of the subject matter in controversy, or, having such jurisdiction, it exceeds its legitimate powers.” In this case, there is no question that Judge Wilson has the jurisdiction over the subject matter in controversy. The second question then, is whether, having such jurisdiction, he has exceeded his legitimate power by refusing to dismiss the plaintiffs. In cases involving writs of prohibition, we have held that:

In determining whether to grant a rule to show cause in prohibition when a court is not acting in excess of its jurisdiction, this Court will look to the adequacy of other available remedies such as appeal and to the over-all economy of effort and money among the litigants, lawyers and courts; however, this Court will use prohibition in this discretionary way to correct only substantial, clear-cut, legal errors plainly in contravention of a [743]*743clear statutory, constitutional or common law mandate which may be resolved independently of any disputed facts and only in cases where there is a high probability that the trial will be completely reversed if the error is not corrected in advance.

Syl. pt. 1, Hinkle v. Black, 164 W.Va. 112, 262 S.E.2d 744 (1979).

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State Ex Rel. Elish v. Wilson
434 S.E.2d 411 (West Virginia Supreme Court, 1993)

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Bluebook (online)
434 S.E.2d 411, 189 W. Va. 739, 1993 W. Va. LEXIS 132, Counsel Stack Legal Research, https://law.counselstack.com/opinion/state-ex-rel-elish-v-wilson-wva-1993.