International Brotherhood of Teamsters General Fund v. Fleming Companies, Inc.

Brief Fact Summary.

International Brotherhood of Teamsters General Fund (Plaintiff) owned sixty-five shares of Fleming Companies, Inc. (Defendant) and sought to restrict Defendant’s ability to adopt anti-takeover measures without the approval of shareholders.

Synopsis of Rule of Law.

Shareholders may, through proper channels of corporate governance, restrict the authority a board of directors has to implement shareholder rights plans. res without the approval of shareholders.

Facts.

International Brotherhood of Teamsters General Fund (Teamsters) (Plaintiff) owned sixty-five shares of Fleming Companies, Inc. (Defendant).  Defendant implemented a shareholder rights plan as an anti-takeover mechanism.  Teamsters (Plaintiff) alleged that the plan was a way to entrench the current Defendant board of directors in the event Defendant became the target of a takeover.  Teamsters (Plaintiff) prepared a proxy statement and proposal that regarding any rights plan, a majority vote by shareholders be required.  Defendant refused to include the Plaintiff’s resolution in its 1997 proxy statement and Plaintiff brought suit in federal court.  The district court ruled in favor of Plaintiff and Defendant appealed to the Tenth Circuit Court of Appeals, which submitted the certified question to the state Supreme Court.

Issue.

May shareholders, through proper channels of corporate governance, restrict the authority a board of directors has to implement shareholder rights plans?

Held.

(Simms, J.)  Yes.  Shareholders may, through proper channels of corporate governance, restrict the authority a board of directors has to implement shareholder rights plans.  No exclusive authority is granted boards of directors to create and implement shareholder rights plans, where shareholders’ objection passes through official channels.  Shareholders may restrict the board authority to implement shareholder rights plans.

Discussion.

The court noted that the Oklahoma legislature had not enacted a share rights plan endorsement statute, unlike at least twenty-four other states that have.  The court found that a certificate of incorporation that is silent on the issue does not preclude shareholder-enacted bylaws regarding the implementation of rights plans.