Quick Summary
Leopoldo L. Ramos (plaintiff) and his associates were in dispute with Tila and Angel Estrada (defendants) over a shareholder voting agreement related to their joint ownership of Television Inc., a company formed to operate a television station. The plaintiffs argued that Estrada breached their shareholder voting agreement by not voting with the majority and sought specific performance to enforce her share sale.
The main issue revolved around whether the agreement constituted an irrevocable proxy or was enforceable under corporate law. The California Court of Appeal affirmed the trial court’s ruling, finding that the agreement was enforceable and ordering Estrada to sell her shares according to its terms.
Facts of the Case
Leopoldo L. Ramos and others (plaintiffs) were part of a group that formed Broadcast Corporation with the goal of securing a permit from the Federal Communications Commission (FCC) to establish a Spanish language television station in Ventura County. The plaintiffs owned a 50 percent stake in Broadcast Corporation, while Tila and Angel Estrada (defendants) held a 10 percent interest.
The Broadcast Corporation merged with Ventura 41 Television Associates to create Costa del Oro Television, Inc. (Television Inc.), in which the shareholders of Broadcast Corporation and Ventura 41 had equal voting rights with stipulated restrictions on stock transfer and requirements for internal shareholder agreements. In accordance with the agreement, the shareholders were to vote in unison as determined by a majority.
Contrary to the agreement, Tila Estrada voted with Ventura 41 to oust Ramos as president of Television Inc., leading to the plaintiffs suing her for breach of contract and seeking specific performance to enforce the sale of her shares. The trial court sided with the plaintiffs, and the defendants appealed, arguing that the agreement was effectively a proxy that had been revoked by Estrada.
Procedural Posture and History
- The plaintiffs sued the defendants for breach of a shareholder voting agreement in the trial court.
- The trial court ruled in favor of the plaintiffs, enforcing the shareholder agreement and ordering the sale of Estrada’s shares.
- The defendants appealed the decision to the California Court of Appeal, arguing that the agreement was an expired proxy.
I.R.A.C. Format
Issue
Whether the shareholder voting agreement constituted an irrevocable proxy or was a valid and enforceable agreement under California Corporations Code section 706, despite not being a close corporation as defined by statute.
Rule of Law
A corporate shareholders’ voting agreement may be valid even if the corporation is not technically a close corporation, and such agreements are not invalidated by section 706 of the Corporations Code provided they are not otherwise illegal.
Reasoning and Analysis
The court examined whether the shareholder voting agreement in question constituted a proxy or a valid shareholders’ voting agreement. It was determined that no proxies were created by this agreement; rather, it resembled a pooling agreement similar to those authorized for close corporations under section 706 of the Corporations Code.
Even though Television Inc. did not qualify as a close corporation, the court found the agreement valid and binding based on section 706, subdivision (d), which preserves voting agreements among shareholders that are not otherwise illegal. The court also addressed the defendants’ contention that the forced sale provision in the agreement was unconscionable and oppressive.
However, evidence showed that Tila Estrada was an experienced businesswoman who had ample opportunity to review and understand the terms of the agreement. The breach of this agreement by the defendants triggered a provision that required them to sell their shares at a predetermined valuation, which was deemed neither unconscionable nor a forfeiture as it was voluntary and provided full compensation as per their prior consent.
Conclusion
The court affirmed the trial court’s decision, holding that the shareholder voting agreement was valid and enforceable, leading to specific performance requiring Estrada to sell her shares as per the terms of the agreement.
Key Takeaways
- A shareholders’ voting agreement can be valid and enforceable even if the corporation is not a close corporation as defined by statute.
- Pooling agreements are recognized by California law and can be enforced through specific performance if shareholders breach their terms.
- Agreements among shareholders that are not otherwise illegal are preserved under California Corporations Code section 706, subdivision (d).
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References
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