Finnegan v. Baker

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13-P-1995 Appeals Court

J. BRENT FINNEGAN & others1 vs. RICHARD BAKER & others.2

No. 13-P-1995.

Suffolk. January 6, 2015. - August 14, 2015.

Present: Grainger, Brown, & Milkey, JJ.

Corporation, Close corporation, Stock. Loan.

Civil action commenced in the Superior Court Department on
September 4, 2009.

The case was heard by Peter M. Lauriat, J., and entry of
separate and final judgment was ordered by him.

Ilyas J. Rona for the plaintiffs.
David B. Chaffin for the defendants.

BROWN, J. This is a shareholder dispute over control of

VBenx Corporation (VBenx), a closely held Delaware corporation

1
Finnegan and Kenneth F. Phillips bring this action for
themselves and in the right and for the benefit of VBenx
Corporation; Karen W. Finnegan was joined by court order as a
plaintiff, in the right and for the benefit of VBenx
Corporation, and not individually.
2
Peter Marcia, Walter Smith, and D. Michael Sherman.
2

that has depended largely on financing from its shareholders to

stay afloat, some of which was in the form of promissory notes

convertible to shares of VBenx stock. The plaintiffs appeal

from a Superior Court judgment dismissing their claims for

breach of fiduciary duty, unjust enrichment, and rescission,

stemming from the defendants' conversion of their notes to VBenx

stock, pursuant to which the defendants gained a majority

interest in the company. Following a jury-waived trial, the

judge upheld the validity of the loan transactions.

The issues on appeal involve Delaware law as it applies to

the convertible notes, which were issued to VBenx shareholders

without formal director approval and often without

contemporaneous documentation, and the question whether the

notes were void, or merely voidable and thus subject to

ratification. The judge determined that the loan transactions

were not void but were, at most, voidable, and that the VBenx

board of directors had impliedly ratified the convertible nature

of the loans. We affirm.

1. Background. We summarize the facts relevant to this

appeal from the judge's very thorough October 18, 2012,

"Findings of Fact, Rulings of Law and Order for Entry of

Judgment." The plaintiffs, J. Brent Finnegan (Finnegan),

Kenneth F. Phillips, and Karen W. Finnegan, seek to invalidate

shares of VBenx stock issued to the defendants, principally
3

Walter Smith and Peter Marcia, who made convertible loans to

VBenx and subsequently converted their notes to stock. Other

defendants include Richard Baker, a VBenx director and chief

financial officer, and D. Michael Sherman, a VBenx shareholder

as of 2010.

All of the parties are shareholders in VBenx.3 VBenx was

formed by Finnegan, Phillips, Salvatore Percia, Baker, and

Marcia in 2004, with its headquarters in Duluth, Georgia, and

sales offices in Boston and Richmond, Virginia. VBenx provides

employers with an Internet portal that communicates offerings of

benefits and other products to employees. As of trial, the

company had never made a profit, but survived on a series of

loans from shareholders as well as a loan from Baytree National

Bank & Trust (Baytree). Early on, the shareholder loans were

rarely documented or accompanied by formal board action.

Beginning in 2007, most of the shareholder loans were

memorialized by promissory notes, though generally not

contemporaneous with the loans, and sometimes issued long after

and in various forms. On July 6, 2007, the board of directors

voted to issue convertible promissory notes to Marcia and

3
Karen Finnegan, the spouse of J. Brent Finnegan, belatedly
claimed to own shares of VBenx stock, although her status as a
shareholder did not appear in the trial record. She was joined
as a plaintiff by order of the court on March 6, 2012, and
enjoined from pursuing a similar action in the Delaware Court of
Chancery.
4

Finnegan, "substantially on the terms of the promissory notes

previously issued to Company founders and officers." Those

previously issued notes did not provide for conversion of the

loans to shares of VBenx stock, but some of the subsequent

promissory notes, issued in 2007 and thereafter, did so,

stating, in various language, that the principal and interest

due on the note may, at the holder's option at any time, be

converted into VBenx common stock.

Enter Smith, an attorney and former colleague of Marcia at

an insurance brokerage firm, who became interested in investing

in VBenx in late 2008. On February 26, 2009, Smith lent VBenx

$100,000, and received a copy of a promissory note that outside

counsel for VBenx, Philip Lotane, described as "a recent version

of the promissory note that we've been using." The note

provided for conversion to VBenx stock, at the holder's option,

but did not specify the price per share.

On March 31, 2009, in lieu of the annual shareholders'

meeting, Finnegan, Marcia, and Baker, as majority shareholders,

elected themselves as directors by written consent, and

subsequently amended the consent to include Smith as a director

as well. By this time, Smith was doing legal work for VBenx.

Phillips and Percia were not included as directors, and were
5

therefore eliminated.4 On April 22, 2009, Finnegan, Baker,

Percia, Phillips, Marcia, Smith, and Mann participated in a

shareholder meeting in which Finnegan reported that Baytree

wanted its loans paid off, and that finding a new investor would

likely require that the minority shareholders be bought out.

All shareholders agreed that a term sheet stating a price of

$0.1575 per share would be sent to Baker, Percia, and Phillips,

as minority shareholders. Finnegan approved of the written

proposal and did not state any objection to the price.5 The

minority shareholders, however, did not accept the offer.

On May 18, 2009, Finnegan, Marcia, and Baker met by

telephone at a special meeting of the shareholders, and approved

a $300,000 convertible note from Smith, on the same terms as the

most recent notes taken from shareholders. Smith sent a draft

note to Baker for his $300,000 loan, which included the right to

convert the loan to VBenx stock at $0.1575 a share. On June 18,

2009, Smith requested authorization from Finnegan, Marcia, and

Baker to amend the company's articles of incorporation to

4
The judge's finding as to the composition of the board
after March 31, 2009, is contested by Karen Finnegan.
5
Indeed, Finnegan enthusiastically indorsed the price
offered to the minority shareholders. In response to an April
27, 2009, electronic mail message from Smith indicating that the
price was "arguably above market, so a shareholder could not
complain the price was too low," Finnegan responded, "Excellent
strategy!"
6

increase the number of authorized shares from 10 million to 20

million, because "if everybody converted everything now, it

looks like we could go a little over 10,000,000, which is our

limit." Smith, Marcia, and Baker signaled their approval via

electronic mail, and Finnegan provided written authorization.

Smith then filed the amended certificate of incorporation with

the Delaware Secretary of State on July 6, 2009.

Finnegan and Smith had a falling out in July, 2009, in part

because Smith suggested that removing Finnegan's son from the

company payroll might help alleviate the company's continuing

financial problems. Finnegan began to hatch a plan with

Phillips to eliminate Smith and Marcia from the company.

Hearing word of the plan, Smith notified VBenx on July 22, 2009,

that he intended to convert his $300,000 note to VBenx stock,

along with a $32,000 note that he had purchased from Baker, and

that Marcia intended to convert his notes, in the amount of

$380,000, to stock as well. Finnegan realized that if both

Smith and Marcia converted their notes at $0.1575 per share,

they would gain control of the company, and he sought Mann's

advice to prevent or delay the conversion. Nevertheless, on

July 25, 2009, Smith and Marcia converted their notes to VBenx

stock, at $0.1575 per share. At a board of directors meeting on

July 27, 2009, Finnegan demanded documentation that he had

approved Smith's conversion rights. The meeting devolved into
7

chaos and was adjourned. In January, 2010, Finnegan demanded

that VBenx immediately repay all of his outstanding loans, in

the total amount of $365,000, plus $67,274.14 in interest. At a

special meeting of the directors held on January 14, 2010,

Baker, Marcia, and Smith voted to accept a loan from Sherman, an

outside investor, to pay off Finnegan's notes and to convert

Sherman's loan to VBenx stock at $0.1575 per share. They also

voted to remove Finnegan as an officer and director.

On September 4, 2009, Finnegan and Phillips filed this

action, claiming breach of fiduciary duty and related claims in

connection with Smith and Marcia's conversion of their loans to

VBenx stock. The defendants filed several counterclaims,

alleging misconduct in the plaintiffs' attempts to regain

control of VBenx; the counterclaims were stayed until after the

plaintiffs' claims were tried. The plaintiffs' claims were

tried jury-waived over twenty-five days in April, May, and June,

2011. The judge found in favor of the defendants, and judgment

under Mass.R.Civ.P. 54(b), 365 Mass. 821 (1974), was entered on

April 4, 2013.

2. Rule 54(b). The judge allowed the defendants' motion

for entry of separate and final judgment, finding that there was

no just reason for delay, and noting that the litigation had

proceeded in stages, was nearly four years old, and required

prompt review. Though not challenged by the plaintiffs, we
8

questioned the basis for the rule 54(b) certification at oral

argument and requested additional briefing on the issue.

Determination whether there exists a just reason for delay

is within the sound discretion of the trial judge and will be

reversed only for an abuse of that discretion. Long v. Wickett,

50 Mass. App. Ct. 380, 386 (2000). The judge gave as his first

reason that the litigation had proceeded in stages, and the

docket reflects that on December 31, 2010, discovery on the

defendants' counterclaims was stayed until after the scheduled

trial of the plaintiffs' claims. "To satisfy the requirements

of Rule 54(b) . . . the claim [finally] adjudicated must be a

'claim for relief' separable from and independent of the

remaining claims in the case." Id. at 391, quoting from

Brunswick Corp. v. Sheridan, 582 F.2d 175, 182 (2d Cir. 1978).

According to the defendants, the claims and counterclaims are

distinct: the plaintiffs' claims, involving the right to

convert loans to shares, relate, with one exception, to events

that occurred before August, 2009, while the defendants'

counterclaims, involving the plaintiffs' allegedly bad faith

attempts to regain control of the company, relate predominantly

to events that have occurred since August, 2009. This does not

appear to be a case where "the facts underlying the adjudicated

portion of the case are largely the same as or substantially

overlap those forming the basis for the unadjudicated issues."
9

Long v. Wickett, supra at 392. Moreover, the parties report

that the counterclaims will not be pursued if the judgment is

reversed on appeal. Compare id. at 399 n.15 (remaining claims

would proceed regardless of outcome of appeal).

The judge additionally relied on the fact the case had been

underway for four years when judgment under rule 54(b) entered,

and the defendants indicate in their supplemental filing that

uncertainty as to control is harming the company. According to

the judge, the parties themselves are largely to blame for this

protracted litigation.6 Nevertheless, the record supports the

judge's reasoning, in that the company and its employees would

benefit from prompt review. See, e.g., Navitag Technologies,

Inc. v. Silva, 738 F. Supp. 2d 207, 211 (D. Mass. 2010).

Our review of the record confirms that adequate

justification existed for the order, and that it was not an

abuse of discretion. Nevertheless, we think it worth

reiterating that trial judges should provide a sufficient

statement of the reasons for certification. See, e.g., J.B.L.

Constr. Co. v. Lincoln Homes Corp., 9 Mass. App. Ct. 250, 253

(1980); Kobico, Inc. v. Pipe, 44 Mass. App. Ct. 103, 104-105 n.2

6
As the judge described in his findings, "What should, or
at least could have been a fairly straight-forward civil action
has devolved, due largely to the personalities and deep pockets
of the parties and the zealousness of their counsel, into an
all-out war of attrition, retribution, name-calling, and over-
the-top, scorched-earth litigation."
10

(1997); Long v. Wickett, 50 Mass. App. Ct. at 403 (findings

lacked the requisite balancing of competing purposes underlying

the rule or an evaluation of the relationship between the claims

dismissed and those left pending). "It is essential . . . that

a reviewing court have some basis for distinguishing between

well-reasoned conclusions arrived at after a comprehensive

consideration of all relevant factors, and mere boiler-plate

approval phrased in appropriate language but unsupported by

evaluation of the facts or analysis of the law." Long v.

Wickett, supra at 402, quoting from Protective Committee v.

Anderson, 390 U.S. 414, 434 (1968). Ever mindful of our long-

standing and fundamental policy "against premature and piecemeal

appeals," Long v. Wickett, supra at 388, trial judges are urged

to provide the more thorough analysis outlined in Long v.

Wickett, supra at 395-403, consistent with what should be "the

restrictive and infrequent use of rule 54(b)." Id. at 389.

3. Void versus voidable acts. The judge first tackled the

issue whether the absence of corporate formalities in connection

with the board's approval of convertible loans to VBenx

shareholders meant the transactions were void, or merely

voidable, under Delaware law. "[T]he essential distinction

between voidable and void acts is that the former are those

which may be found to have been performed in the interest of the

corporation but beyond the authority of management, as
11

distinguished from acts which are ultra vires, fraudulent or

gifts or waste of corporate assets." Klaassen v. Allegro Dev.

Corp., 106 A.3d 1035, 1046 (Del. 2014), quoting from Michelson

v. Duncan, 407 A.2d 211, 218-219 (Del. 1979). At the time of

trial, the distinction was critical to the plaintiffs' case, as

"voidable acts are susceptible to cure by shareholder approval

while void acts are not." Michelson v. Duncan, supra at 219.

The defendants maintain that the plaintiffs ratified the

convertible loans and other corporate acts now complained of, an

argument that would not assist the defense if the transactions

were void. See, e.g., STAAR Surgical Co. v. Waggoner, 588 A.2d

1130, 1134 (Del. 1991). The trial judge determined that the

lack of compliance with corporate formalities in the directors'

approval of the convertible loans did not require that they be

held void, given the informal manner in which the VBenx board

had handled its corporate affairs from the company's inception.

Since trial, the necessity of distinguishing between void

and voidable corporate acts has been largely eliminated by

enactment of two amendments to the Delaware General Corporation

Law, Del. Code Ann. tit. 8, §§ 204 and 205 (2014).7 The

7
For our purposes, the amendments may be summarized as
follows: "Sections 204 and 205, effective April 1, 2014,
provide that 'no defective corporate act or putative stock shall
be void or voidable solely as a result of a failure of
authorization if ratified . . . or validated[, Del. Code Ann.
tit. 8, § 204(a),]' pursuant to the sections and that the Court
12

amendments, which became effective on April 1, 2014, were

recently applied retroactively, to corporate acts that occurred

prior to the amendment of the statute, by the Delaware Court of

Chancery in In re Numoda Corp. Shareholders Litigation, C.A. No.

9163-VNC (Del. Ch. Jan. 30, 2015), issued after oral argument in

this case. The amendments essentially abolished the distinction

between void and voidable transactions and overturned the case

law on which the plaintiffs here rely.8 "Part of this effort was

to eliminate hyper-technical distinctions and the uncertain

divide between void and voidable acts." Id. As the court

may '[d]etermine the validity of any corporate act or
transaction and any stock, rights or options to acquire stock[,
Del. Code Ann. tit. 8, § 205(a)(4)].' Section 204 provides a
roadmap for a board to remedy what would otherwise be void or
voidable corporate acts and stock. The legislation facilitates
self-help, but it also provides Section 205 for situations where
judicial intervention is preferable or necessary -- such as when
the sitting board has questionable status." In re Numoda Corp.
Shareholders Litigation, C.A. No. 9163-VCN (Del. Ch. Jan. 30,
2015).
8
The legislative synopsis for § 204 provides that the
section "is intended to overturn the holdings in case law, such
as STAAR Surgical Co. v. Waggoner, 588 A.2d 1130 (Del. 1991) and
[Blades vs. Wisehart, C.A. No. 5317-VCS (Del. Ch. Nov. 17,
2010)], that corporate acts or transactions and stocks found to
be 'void' due to failure to comply with applicable provisions of
the General Corporation Law or the corporation's organizational
documents may not be ratified or otherwise validated on
equitable grounds." In re Numoda Corp. Shareholders Litigation,
supra, quoting from H.R. 127, 147th General Assembly, Reg. Sess.
(Del. 2013). A related case relied upon by the plaintiffs,
Boris vs. Schaheen, C.A. No. 8160-VCN (Del. Ch. Dec. 2, 2013),
is now moot under In re Numoda Corp. Shareholders Litigation,
supra.
13

explained, pursuant to § 205, "[t]he legislation thus empowers

the Court to grant an equitable remedy for corporate acts that

once would have been void at law and unreachable by equity."

Id. As such, the defective corporate acts at issue in this

case, whether void or voidable, would be subject to ratification

under the amendments.

The plaintiffs point out that the defendants did not comply

with the procedures set out in § 204, allowing for ratification

of a void corporate act through the board's adoption of the

appropriate resolution, or plead § 205 and seek a declaration

from the trial court in accordance with the factors suggested

for consideration in that section. Of course, the amendments

became effective one and one-half years after the judge had

issued his findings in this case and the defendants had

prevailed. We note that the judge's comprehensive findings in

this case are consistent with those factors to be considered

under § 205, and we think the defendants would be entitled under

§ 205 to a declaration to that effect.9 See, e.g., In re Numoda

9
Among the § 205 factors the court may consider are "(1)
[w]hether the defective corporate act was originally approved or
effectuated with the belief that the approval or effectuation
was in compliance with the provisions of this title, the
certificate of incorporation or bylaws of the corporation; (2)
[w]hether the corporation and board of directors has treated the
defective corporate act as a valid act or transaction and
whether any person has acted in reliance on the public record
that such defective corporate act was valid; (3) [w]hether any
person will be or was harmed by the ratification or validation
14

Corp. Shareholders Litigation, supra ("The legislation thus

empowers the Court to grant an equitable remedy for corporate

acts that once would have been void at law and unreachable by

equity").

Even apart from the recent amendments, however, the judge's

ruling that the convertible loan transactions were not void for

lack of corporate formalities was fully consistent with Delaware

case law. Because the VBenx board of directors was authorized

to issue stock, their failure to follow corporate formalities in

so doing would render the shares voidable, rather than void.

See Carramerica Realty Corp. v. Kaidanow, 321 F.3d 165, 170-171

(D.C. Cir. 2003) (corporation did not lack the power to issue

the shares, but its method for issuing shares violated Delaware

statutory requirements, rendering them merely voidable);

Kalageorgi v. Victor Kamkin, Inc., 750 A.2d 531, 538-539 (Del.

Ch. 1999) (despite the absence of a formal board meeting or

written consent, the evidence supported only one inference, that

of the defective corporate act, excluding any harm that would
have resulted if the defective corporate act had been valid when
approved or effectuated; (4) [w]hether any person will be harmed
by the failure to ratify or validate the defective corporate
act; and (5) [a]ny other factors or considerations the Court
deems just and equitable." Del. Code Ann. tit. 8, § 205(d)
(2014).
15

the directors intended to authorize the issuance of shares to

the defendants).10

The plaintiffs, citing In re Numoda Corp. Shareholders

Litigation, supra, regarding the necessity for a distinction

between corporate acts and mere informal intentions or

discussions, posit that informal discussions or casual

agreements among two or three directors should not be recognized

as board approval, even in a company where the directors'

actions are typically informal.11 The court in In re Numoda

Corp. Shareholders Litigation found that in the context of a

corporation that did not hold formal board meetings, take

minutes, or issue stock certificates, corporate action was

established when the directors "met with an intent to discuss

board business," as distinguished from "a passing conversation

at the water cooler." Id. In the present case, the evidence

was overwhelming that the VBenx board members intended to take

10
Even were we to consider STAAR Surgical Co. v. Waggoner,
588 A.2d 1130 (Del. 1991), the holding is not applicable to
these facts, as that case involved the issuance of preferred
shares, which were not authorized by the certificate of
incorporation and were, accordingly, held void as beyond the
board's authority. Id. at 1137.
11
While the evidence indicates that all the directors were
present and voted to authorize Smith's note at the May 18, 2009,
meeting, the plaintiffs claim that the meeting was specifically
called as a shareholder meeting, and not a board of directors
meeting, and that the vote, therefore, did not comply with the
corporate formalities necessary to constitute a board vote.
16

official action on the convertible loans, consistent with the

manner in which the company had operated for years. See, e.g.,

In re Numoda Corp. Shareholder Litigation, supra (court "looks

for evidence of a bona fide effort bearing resemblance to a

corporate act but for some defect that made it void or

voidable").

4. Ratification. Under Delaware law, voidable corporate

acts are subject to equitable defenses, including ratification.

Carramerica Realty Corp. v. Kaidanow, 321 F.3d at 171, 173. See

Michelson v. Duncan, 407 A.2d at 219-220. The plaintiffs again

point to the lack of formal board action or shareholder vote to

argue against ratification, but the judge properly relied on

cases holding that implied ratification may be gleaned from

conduct or acquiescence indicating acceptance. See, e.g., Frank

v. Wilson & Co., 32 A.2d 277, 283 (Del. 1943). Ratification may

be implied if the board, with knowledge of the facts, retains

the benefits of the act, treats it as binding, or acquiesces in

it. Carramerica Realty Corp. v. Kaidanow, 321 F.3d at 173.

The judge found that the VBenx directors ratified the

ongoing practice of funding VBenx through shareholder loans that

were convertible to stock and, in particular, that the directors

ratified Smith's $300,000 convertible loan at a price of $0.1575

per share at the May 18, 2009, meeting. The judge found that

all of the VBenx convertible loans were authorized by the
17

directors and were ratified by their acceptance of the loan

proceeds with full knowledge of the nature of the transactions.

See, e.g., Kalageorgi v. Victor Kamkin, Inc., 750 A.2d at 538-

539 (board's pattern of conduct after issuing the contested

stock without formal approval at a board meeting showed clear

proof of its intention to authorize the issuance).

The evidence supported the judge's finding of ratification.

Aside from the general practice of issuing convertible

promissory notes to receive funds from shareholders in order to

keep the company going, there was evidence that the plaintiffs

knew and approved of Smith's initial loan to VBenx of $100,000,

which was convertible to shares at any time after April 15,

2009, in accordance with the terms of a promissory note dated

April 15, 2009. Subsequently, at the April 22, 2009,

shareholders' meeting, Finnegan informed the others that Baytree

would like to be repaid and that VBenx needed to raise capital

from a new investor, likely requiring that the minority

shareholders be bought out. All the shareholders agreed that a

term sheet stating the price of $0.1575 per share would be sent

to Baker, Percia, and Phillips, as the minority shareholders.

The judge found that Finnegan "liked the proposal and stated no
18

objection to the price per share," and, in the judge's view, the

price "was reasonable if not exceedingly generous."12

The evidence further supported the judge's finding that

when the three minority shareholders did not accept VBenx's

offer, the directors, including Finnegan, Marcia, Baker, and

Smith, held a special meeting on May 18, 2009, when all agreed

that Smith would provide a loan of $300,000, on the same terms

as the most recent notes to the shareholders, which the judge

found to be convertible at a price of $0.1575 per share.

Further, in June, 2009, the board approved and authorized

amendment of the certificate of incorporation to permit the

issuance of additional shares, specifically so that there would

be enough shares available in case all the shareholders chose to

convert their loans. Their approval of the amendment at that

time would be nonsensical if, as the plaintiffs insist, they

thought Smith lent the money without conversion rights.

Whatever may have been Finnegan's subjective intent, his

conduct, along with that of the rest of the board, established

that all were fully informed of the convertible nature of the

loans, benefited from the receipt of the funds to VBenx, and

accepted that the loans could be converted to shares if the

12
The plaintiffs acknowledged at oral argument that there
was evidence to support the judge's finding that the price of
$0.1575 per share was fair as of July 25, 2009, and that the
finding was not clearly erroneous.
19

shareholders so elected. See, e.g., Carramerica Realty Corp. v.

Kaidanow, 321 F.3d at 173 (board resolution authorizing

additional shares was only logical if the board was aware of and

had previously approved the conversion rights); Klaassen v.

Allegro Dev. Corp., 106 A.3d 1035, 1048 (Del. 2014). Grimes v.

Alteon, Inc., 804 A.2d 256 (Del. 2002), on which the plaintiffs

rely, and which ruled unenforceable an oral promise by a

corporate officer to sell a shareholder private stock in the

future, has no bearing on the facts here.

5. Remaining matters. The plaintiffs claim that the

amendment to the certificate of incorporation to authorize an

increase in shares lacked director approval, and that the shares

issued to Sherman exceeded the limit authorized by the

certificate and were therefore void. The evidence is to the

contrary. On June 18, 2009, Smith notified Finnegan, Marcia,

and Baker that the company's articles of incorporation should be

amended to increase the number of authorized shares from 10

million to 20 million. He specifically gave as a reason that

"[i]f everybody converted everything now, it looks like we could

go a little over 10,000,000, which is our limit." Finnegan,

Marcia, and Baker signaled their approval via electronic mail,

and on June 30, 2009, Finnegan signed an "Action in Writing of

Shareholders of VBenx Corporation" authorizing the increase. On
20

July 6, 2009, Smith filed a certificate of amendment with the

Division of Corporations of the Secretary of State of Delaware.

We reject the plaintiffs' challenge to the validity of the

amendment based on their contention that the board did not adopt

a resolution declaring the amendment advisable and that the

shareholders did not meet to approve the amendment. For the

same reason that the judge upheld the other board actions as

valid despite the lack of corporate formalities, the judge ruled

that the increase was approved by all members of the board, who

were also the owners of the majority of the common stock. The

judge ruled that the filing satisfied the requirements of Del.

Code Ann. tit. 8, § 242(b)(1), and the plaintiffs have not

persuaded us otherwise.

As a final matter, Karen Finnegan appeals from the judge's

ruling regarding the composition of the board of directors as a

result of the March 31, 2009, written consent selecting Marcia,

Baker, Finnegan, and Smith as directors. We agree with the

judge that, according to the evidence, the subsequent conduct of

all parties supported the conclusion that Phillips and Percia

were no longer directors after the annual shareholders meeting.

Judgment affirmed.