At the heart of the SAG v. SAG lawsuit

At the heart of the complaint filed by SAG officers Alan Rosenberg (AR) and Anne Marie Johnson (AMJ) against the new board majority (New Majority) is whether or not the written assent procedure used by the New Majority to fire SAG NED Doug Allen and replace the Negotiating Committee with a new Task Force is legal.

That means considering how a provision in the SAG Constitution and By-Laws operates relative to a provision found in the California statute that governs mutual benefit corporations like SAG.

The Constitutional provision (Art. V.1.J(4)) reads as follows:

Except as provided otherwise in this Constitution, any acts shall be valid for all purposes with or without a meeting if approved by the written assent of a majority of the votes of the Board of Directors, or such higher percentage of the Board votes as may be required by this Constitution. 

The relevant statutory provision (Section 7211(b)) reads:

An action required or permitted to be taken by the board may be taken without a meeting, if all members of the board shall individually or collectively consent in writing to that action. The written consent or consents shall be filed with the minutes of the proceedings of the board. The action by written consent shall have the same force and effect as a unanimous vote of the directors.

AR and AMJ are arguing that because the statute requires unanimity the SAG Constitutional provision is illegal.

However, that argument raises two problems: 1) it fails to explain how a provision in the Constitution could sit there for so long and yet not be valid under state law; and 2) it would require a court to agree to override a basic approach to statutory interpretation which favors reconciling what might otherwise appear to be contradictory provisions in favor of the organization’s own democratically agreed upon rules. The latter principle is based in the support in corporate law for “private ordering,” where the arrangements of private parties are favored.

The only problem for the New Majority is that when it comes to things like firing a CEO courts look with disfavor on any attempt to use majority decision making without a meeting. Thus, if a board is required to make a decision by a meeting and does not meet, then the statute mandates the use of the unanimous written consent procedure.

Unanimity is viewed as important because it provides assurance that all board members had notice of the issue and time to consider it. This is considered vital because the central principle of board governance is “collegiality,” meaning a chance for all board members to discuss the issue and attempt to reach a reasoned decision.

What likely saves the argument, though, for the New Majority is that there was, in fact, a meeting. The National Board of SAG met and discussed the question of Doug Allen and the task force thoroughly for thirty hours only a few days before the preparation of the written assent. Only the abuse of Robert’s Rules – by the very same plaintiffs now attempting to block the written assent – prevented the board from taking a vote and implementing the same changes found in the written assent.

I realize the temptation to suggest that to mention collegiality in the sentence as a SAG board meeting borders on an oxymoronic remark, but keep in mind that “collegiality” here must be considered from a purely functional point of view: in other words, did board members have an opportunity to consider the action to be taken, to express their views and to be heard by other board members. Without a doubt that is true in these circumstances: there is not a single board member who has not already thoroughly considered the decision being made and expressed their views.

No doubt one defense to the complaint will be that the plaintiffs are estopped from raising their challenge to the written assent because they themselves illegally prevented the SAG board from carrying out the action at a meeting. In legal terms, the plaintiffs have unclean hands and thus are disfavored when coming to a court “in equity” and asking that court to intervene on their behalf.

Thus, this written assent was carrying out the will of the majority expressed at a board meeting and thus does not touch at all upon the unanimous written consent requirement of Section 7211.

Of course, careful readers will have noticed that the SAG Constitution also allows majority written assent in situations where an act is taken by the board without a meeting. Whether that provision can be sustained under 7211 is a little less clear. There may be ministerial acts that the board can take without a meeting and thus could do so by majority written assent. To survive legal challenge, however, those acts would have to be of a nature that would not require the “collegiality” factor that underpins the meeting requirement.

However, that part of the Constitutional provision is not at issue in these circumstances and so a court is unlikely to wander into that particular thicket. It does point to the need for SAG to carefully consider its Constitutional provisions relative to the statute. Vallywood readers will recall the battle some weeks ago around whether or not board members could attend board meeting via teleconference. In this case the statute default makes clear that the Guild must allow this to take place, though they have the option of preventing it if they see fit.

2 thoughts on “At the heart of the SAG v. SAG lawsuit”

  1. No, sorry, this is not right. In fact, 7211(b) is a mandatory provision. Thus 7211(a) begins with a provision that allows a corporation to alter the rules that follow (like the provision that allows for telephone attendance at board meetings). But Section (b) does not provide that option.

    Nonetheless, SAG properly prevailed in the lawsuit as I had though it would.

    Why?

    The reasoning is pretty straightforward but not apparent from the language of the statute itself. The central principle of corporate law is that the board of directors manages the organization, either directly or by delegation to officers, committees, task forces, etc.

    One means by which it manages the organizations is through meetings where decisions are made. Meetings are not well understood either. Board meetings are not legislative assemblies or debating societies, they are decision making events.

    In order to reach a valid decision a board must act collegially. Individual board members do not have authority to act for the corporation, only the board as a body does. Thus, collegiality is required.

    Collegiality does not mean in corporate law what many people think. It is not about getting along. It is about the ability of board members to hear other board member’s views, consider them and then participate in a vote to reach a decision. That is one reason why California’s corporate law was amended to provide for telephonic or video conferencing but only if all board members can hear (or hear and see) each other. Absent that ability the requisite “collegiality” could not take place.

    What does this have to do with 7211(b)? Well, if collegiality is required and it is something that seems to occur only when a board “meets” can a board make a decision without a meeting? Section 7211(b) says yes, but if and only if the decision made without a meeting is unanimous and in writing. Those two requirements act as a substitute for the absence of the full collegiality that would occur if a meeting took place.

    So SAG cannot amend or eliminate 7211(b) in its by-laws. If there is to be a decision that ordinarily requires a meeting but where no meeting takes place, it must be unanimous and in writing. That gives a single board member a hold out option. That forces the proponents to engage in persuasion, if necessary, and thus is seen as an adequate substitute for the “collegiality” of a meeting.

    So what happens to the written assent provision in SAG’s Constitution and By Laws? A careful reading of the provision makes clear that it is complimentary to 7211 not contradictory. Thus the judge was right today to conclude that 7150 allows SAG to draft its by laws as it sees fit. (Of course that is only true as long as they do not contradict the mandatory provisions of state law.)

    How does the written assent procedure work? It either applies when there is a meeting (as there was in the case at hand) or it applies when a meeting is not required. In the former it does not contradict 7211(b) because there is, in fact, a meeting thus the collegiality principle is satisfied. In the latter, no meeting is required for the board to act so there is no need for either collegiality or its substitute in 7211(b), unanimity and a writing. Given the need for collegiality as a general principle of board decision making I think the SAG board could only use the written assent procedure “without a meeting” in circumstances involving ministerial acts that would not require debate.

  2. ….

    After much thought, I have reached the conclusion that Corp. Code section 7211(b) — the one dealing with actions taken without a meeting — falls in the category of “default” provisions that the Code supplies for corporations that have not otherwise specified something in their articles or by-laws. In other words, it is an automatic authorization, with nothing further required, allowing any California corporation to handle corporate matters using consent resolutions.

    However, that does not mean it constitutes a prohibition on any other form of written consent that may be established in the by-laws.

    It is significant that this statute nowhere states that it is the exclusive method of handling written consents without a meeting. Elsewhere in the code there are specific provisions stating that certain actions or by-law provisions are forbidden. Nothing like that appears here.

    Section 7211(a)(8) contains the statement, “The articles or bylaws may not provide that a lesser vote than a majority of the directors present at a meeting is the act of the board.” This majority-rule principle is, I think, the ultimate test of the validity of any governance provision that a corporation may enact in its bylaws.

    Here, SAG’s “written assent” provision provides for action without a meeting based on an absolute majority of the board votes. In other words, quorum doesn’t even enter into it; the provision requires an absolute majority of the board to sign off on the written assent.

    Given the general philosophy of the Corporations Code that allows corporations broad latitude to set up governance provisions, and imposes only certain specific restrictions on this general freedom, my view is that SAG’s written assent provision should be found valid under California law.

    VG

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