Linde, S. v. Linde Enterprises, Inc.
118 A.3d 422
| Pa. Super. Ct. | 2015Background
- LEI had 735 shares: Scott (320), Eric (300), Barbara (115). Bylaws required 10 days' notice for special shareholder meetings.
- Barbara and Eric held a December 3, 2012 special shareholders’ meeting without giving Scott notice and adopted resolutions removing Scott as director/officer and electing Barbara president.
- On December 13, 2012 (properly noticed), shareholders (including Scott) voted to affirm/ratify the December 3 actions and elected Eric, Barbara, and Gary to the board.
- Petitioners then sought judicial relief challenging the validity of the December 3, December 13, and January 31 actions; defendants moved for summary judgment.
- Trial court granted defendants’ summary judgment, holding the December 3 actions were voidable (not void), ratified by the December 13 meeting, and that Scott was removed as director effective December 3, 2012. Appellants appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether failure to give Scott notice of the Dec. 3 meeting rendered Dec. 3 resolutions void ab initio | Linde: lack of notice makes Dec. 3 resolutions null and void and not subject to ratification | Defs: failure of notice made actions voidable, and the Dec. 13 properly noticed meeting ratified them | The court held the Dec. 3 resolutions were voidable (not void) and were ratified at the Dec. 13 meeting |
| Whether unanimous written consent statute (15 Pa.C.S.A. § 1766) required written consent to validate Dec. 3 actions | Linde: absence of his consent makes the actions void under §1766 | Defs: §1766 applies only to action taken without a meeting; here ratification occurred at a formal meeting so §1766 is inapplicable | The court held §1766 does not apply and provides no basis to void the ratification |
| Whether a subsequent properly noticed meeting can ratify an earlier illegally noticed meeting | Linde: ratification cannot be accomplished merely by holding a later meeting with proper notice | Defs: a later valid meeting that informs shareholders can ratify prior voidable acts | The court held a subsequent properly noticed meeting can validly ratify prior voidable actions if no timely avoidance was pursued |
Key Cases Cited
- Stone v. Am. Lacquer Solvents Co., 345 A.2d 174 (Pa. 1975) (special meetings held without required notice are illegal but actions are invalid only absent later ratification or estoppel)
- Fishkin v. Hi-Acres, Inc., 341 A.2d 95 (Pa. 1975) (statutory notice requirement construed as directory; noncompliance makes transactions voidable, not void ab initio)
- Michelson v. Duncan, 407 A.2d 211 (Del. 1979) (distinguishes void and voidable acts; voidable acts may be ratified while void acts cannot)
- Chambers v. Beaver-Advance Corp., 140 A.2d 808 (Pa. 1958) (shareholders may ratify board actions they could lawfully have authorized, subject to limits against fraud/waste)
- McCay v. Luzerne & Carbon County Motor Transit Co., 189 A. 772 (Pa. Super. 1937) (proceedings at illegal or irregular meetings may be ratified at subsequent legal meetings)