No Resignation by Conduct: Sixth Circuit Clarifies That Share Transfers Alone Do Not Remove Directors or Officers under Kentucky Law

Commentary on C-Ville Fabricating, Inc. v. Joshua Tarter, 25 F.4th ___ (6th Cir. 2025)

I. Introduction

Family businesses often run on informality; courts, however, do not. C-Ville Fabricating, Inc. (“Tarter Industries”) and its sister companies (“Tarter Companies”) are Kentucky-incorporated, family-owned entities that for years ignored basic corporate formalities such as annual meetings and written resignations. When allegations surfaced that a fourth-generation family member (Josh Tarter) and associates secretly profited from self-dealing import arrangements, three shareholders sought to sue in the company’s name. Whether the suit could proceed turned entirely on who still sat on the board of directors and who still held corporate office—issues muddied by decade-old share transfers and inaction.

The Sixth Circuit’s published decision tackles that mess head-on. In doing so, it establishes an important rule of Kentucky corporate law (likely influential elsewhere in the MBCA world): directors and officers do not relinquish their positions merely by transferring their shares or through “resignation by conduct”; valid resignation requires written or, at most, oral notice compliant with Ky. Rev. Stat. § 271B.1-410.

II. Summary of the Judgment

• The court vacated summary judgment for the defendants and reinstated the direct action filed by Tarter Industries, holding that the company validly authorized the lawsuit at a 2018 special board meeting.
• It found that the four third-generation family members (David, Donald, Joy, Anna Lou) remained directors and officers because none had delivered written or oral resignations as required by statute and bylaws.
• Because a quorum of that board met (three of four) and a majority voted to sue (David and Anna Lou), the corporation consented to litigation in its own name.
• The derivative claims were dismissed or mooted:
  • Moot as to Tarter Industries (because the company now sues directly).
  • Barred as to Tarter Management under the business-judgment rule after a demand was made and rejected.
  • Waived as to the remaining entities for lack of developed argument.

III. Analysis

A. Precedents Cited

The panel drew on an eclectic mix of Kentucky, Delaware and other state authorities:

• Kentucky cases: Bacigalupo v. Kohlhepp; Allied Ready Mix v. Allen; Bear, Inc. v. Smith; Shawnee Telecom v. Brown; Big Sandy v. EQT.
• Delaware cases: Biolase, Inc. v. Oracle Partners (Del. 2014) (oral resignations permissible); Sinclair Oil v. Levien (business judgment rule).
• Other states: Spence v. Sloan (Wyo. 2022) (similar interpretation of MBCA); Kemmer v. Newman (Idaho 2016) (contrary view).
• Federal procedural law: references to Article III standing (Allen v. Wright) and pleading standards.

Delaware authorities receive outsized weight because Kentucky courts frequently “borrow” from Delaware in corporate matters. However, the Sixth Circuit highlighted a critical statutory difference: Kentucky’s general notice statute (§ 271B.1-410) narrows permissible forms of resignation to written or oral, whereas Delaware’s statute lacks that limiting notice provision.

B. Legal Reasoning

1. Contract-like interpretation of bylaws. Corporate bylaws are treated as a contract among shareholders, officers, and directors. Applying ordinary contract principles, the court parsed the director-resignation bylaw (“may resign at any time by filing a written resignation with the secretary”) and concluded it is permissive about resignation, not mandatory as to the method, unless state law says otherwise.
2. Interaction with Kentucky statutes.
   • Ky. Rev. Stat. § 271B.8-070 (director resignation) and § 271B.8-430 (officer resignation) both permit resignation via “written notice.”
   • Section 271B.1-410 (general notice) provides the exclusive means of giving notice (“in writing unless oral notice is reasonable under the circumstances”).
   • Because the legislature defined “notice,” courts cannot expand it to include “resignation by conduct.” A bylaw interpretation that allowed resignation through “conduct” would therefore conflict with statutory law and be invalid.
3. Application to the facts.
   • No director/officer delivered written or oral notice of resignation when the 2012 share transfers occurred.
   • Subsequent reports and behavior (e.g., listing new officers on annual reports, decades of inaction) were circumstantial “conduct,” insufficient under the statute.
   • Thus, all four third-generation family members remained directors and officers through 2018; Anna Lou remained secretary, David remained president.
   • The 2018 special meeting was properly called (secretary at the president’s request), had a quorum (three present of four), and a majority vote (two) to sue.
4. Derivative versus direct actions.
   • Once the corporation validly authorizes suit, derivative claims on its behalf are unnecessary and moot.
   • For Tarter Management, plaintiffs made a demand, triggering the business-judgment rule. Absent evidence of bad faith or self-dealing by the two-member board (Joy & Anna Lou), refusal to sue was protected.

C. Likely Impact of the Precedent

• Corporate governance in Kentucky. The decision supplies an authoritative interpretation of §§ 271B.8-070, 8-430 and 1-410 and will bind district courts in the Sixth Circuit. Kentucky state courts are also likely to find it persuasive.
• Closely held & family corporations. Families often equate stock ownership with board status; the ruling warns that formalities matter. Transferring shares without documenting resignations leaves “zombie directors” who may unexpectedly control corporate decisions years later.
• Litigation authorization. Defendants accused of wrongdoing within a corporation can no longer rely on informal leadership transitions to challenge standing. Plaintiffs, conversely, must examine statutory notice rules before asserting that prior directors have vacated office.
• Pleading practice. The panel clarifies that board-authorization questions are not issues of Article III standing and need not be pleaded in a complaint; they are, at most, affirmative defenses or counterclaims.
• MBCA jurisdictions. Kentucky’s reading of the Model Act’s notice provisions may influence other MBCA states faced with “resignation by conduct” arguments, especially where the state adopted § 1.41 unchanged.

IV. Complex Concepts Simplified

1. Resignation by Conduct

“Resignation by conduct” is the idea that a director/officer loses office merely by actions implying departure (e.g., stopping participation, selling shares). The Sixth Circuit says Kentucky does not recognize this; a resignation must be communicated—written or oral—to the corporation.

2. Quorum & Majority

A quorum is the minimum number of directors who must be present to conduct board business. Under the Tarter bylaws (and Kentucky default rules), a majority of the directors then in office constitutes a quorum, and actions pass by majority vote of those present.

3. Derivative Action

In a derivative suit, shareholders sue to enforce corporate rights because the board will not. They must first “demand” the board act unless demand would be futile. If demand is made and refused, courts review the refusal under the deferential business-judgment rule.

4. Business-Judgment Rule

A judicial presumption that directors act on an informed basis, in good faith, and in the corporation’s best interests. Shareholders challenging a board decision (or refusal) must rebut that presumption by showing bad faith, self-dealing, or lack of rational purpose.

5. De Facto Director Doctrine (Mentioned in Passing)

Recognizes that a person who acts as a director under color of authority but is technically invalidly elected still binds the corporation vis-à-vis third parties.

V. Conclusion

C-Ville Fabricating, Inc. v. Tarter is more than a colorful saga of intra-family strife; it is a doctrinally significant decision that tightens the bolts on Kentucky’s corporate-governance machinery. By holding that directors and officers remain in place until they expressly resign in accordance with statutory notice requirements, the Sixth Circuit forces closely held corporations to respect formal resignation procedures. The ruling also reinforces the limited role of federal courts in policing those internal formalities—treating them as issues of corporate authority or affirmative defense, not Article III standing. Practitioners should advise clients—especially family businesses—that casual governance shortcuts can resurface years later with expensive consequences.