306 N.Y. 427 | NY | 1954
Lead Opinion
This article 78 of the Civil Practice Act proceeding was brought by class A stockholders of appellant R. Hoe & Co., Inc., for an order in the nature of mandamus to compel the president of Hoe to comply with a positive duty imposed on him by the corporation’s by-laws. Section 2 of article I of those by-laws says that “ It shall be the duty of the President to call a special meeting whenever requested in writing so to do, by stockholders owning a majority of the capital stock entitled to vote at such meeting ”. On October 16, 1953, petitioners submitted to the president written requests for a special meeting of class A stockholders, which writings were signed in the names of the holders of record of slightly more than 55% of the class A stock. The president failed to call the meeting and, after waiting a week, the petitioners brought the present proceeding. The answer of the corporation and its president was not forthcoming until October 28, 1953, and it contained, in response to the petition’s allegation that the demand was by more than a majority of class, A stockholders, only a denial that the corporation and the president had any knowledge or information sufficient to form a belief as to the
The petition was opposed on the further alleged ground that none of the four purposes for which petitioners wished the meeting called was a proper one for such a class A stockholders’ meeting. Those four stated purposes were these: (A) to vote upon a resolution indorsing the administration of petitioner Joseph L. Auer, who had been removed as president by the directors, and demanding that he be reinstated as such president; (B) voting upon a proposal to amend the charter and by-laws to provide that vacancies on the board of directors, arising from the removal of a director by stockholders or by resignation of a director against whom charges have been preferred, may be filled, for the unexpired term, by the stockholders only of the class theretofore represented by the director so removed or so resigned; (C) voting upon a proposal that the stockholders hear certain charges preferred, in the requests, against four of the directors, determine whether the conduct
The Hoe certificate of incorporation provides for eleven directors, of whom the class A stockholders, more than a majority of whom join in this petition, elect nine and the common stockholders elect two. The obvious purpose of the meeting here sought to be called (aside from the indorsement and reinstatement of former president Auer) is to hear charges against four of the class A directors, to remove them if the charges be proven, to amend the by-laws so that the successor directors be elected by the class A stockholders, and further to amend the by-laws so that an effective quorum of directors will be made up of no fewer than half of the directors in office and no fewer than one third of the whole authorized number of directors. No reason appears why the class A stockholders should not be allowed to vote on any or all of those proposals.
The stockholders, by expressing their approval of Mr. Auer’s conduct as president and their demand that he be put back in that office, will not be able, directly, to effect that change in officers, but there is nothing invalid in their so expressing themselves and thus putting on notice the directors who will stand for election at the annual meeting. As to purpose (B), that is, amending the charter and by-laws to authorize the stockholders to fill vacancies as to class A directors who have been removed on charges or who have resigned, it seems to be settled law that the stockholders who are empowered to elect directors have the inherent power to remove them for cause (Matter of Koch, 257 N. Y. 318, 321, 322; Ablerger v. Kulp, 156 Misc. 210, 212; 1 White on New York Corporations, pp. 558-559; 2 Fletcher’s Cyclopedia Corporations [Perm, ed.], §§ 351, 356). Of course, as the Koch case points out, there must be the service of specific charges, adequate notice and full opportunity of meeting the accusations, but there is no present showing of any lack of any of those in this instance. Since these particular stockholders
We fail to see, in the proposal to allow class A stockholders to fill vacancies as to class A directors, any impairment or any violation of paragraph (h) of article Third of the certificate of incorporation, which says that class A stock has exclusive voting rights with respect to all matters “ other than the election of directors ’ \ That negative language should not be taken •to mean that class A stockholders, who have an absolute right to elect nine of these eleven directors, cannot amend their bylaws to guarantee a similar right in the class A stockholders, and to the exclusion of common stockholders, to fill vacancies in the class A group of directors.
There is urged upon us the impracticability and unfairness of constituting the numerous stockholders a tribunal to hear charges made by themselves, and the incongruity of letting the stockholders hear and pass on those charges by proxy. Such questions are really not before us at all on this appeal. The
The order should be affirmed, with costs, and the Special Term directed forthwith to make an order in the same form as the Appellate Division order with appropriate changes of dates.
Dissenting Opinion
(dissenting). This proceeding has been instituted under article 78 of the Civil Practice Act to compel, by way of mandamus, the president of B. Hoe & Co., Inc., to call a special meeting of the class A stockholders to act upon four enumerated proposals. ‘ ‘ In the case of special meetings, the notice must state the business to be transacted, and no other business than that stated can be transacted.” (5 Fletcher’s Cyclopedia Corporations. [Perm, ed.], § 2009.) The president of Hoe was justified in declining to call a class A stockholders ’ meeting pursuant to the demand of these shareholders, regardless of whether they constituted a majority of that class (cf. ByLaws, art. I, § 2) if the proposed meeting would be futile for the reason that none of the proposals could be acted upon for which the meeting was to be called. Stockholders’ meetings at which illegal action is proposed to be taken are restrained by injunction (Ripin v. United States Woven Label Co., 205 N. Y. 442). Certainly the calling of meetings to conduct business which cannot legally be transacted, will not be compelled by mandamus, which lies only to enforce a clear legal right (People ex rel. Empire City Trotting Club v. State Racing Comm., 190 N. Y. 31; Matter of Picone v. Commissioner of Licenses, 241 N. Y. 157). When mandamus is invoked to compel officers to call stockholders’ meetings, “ It is within the discretion of the court to deny the writ for good legal reasons ” (5 Fletcher’s Cyclopedia Corporations, § 2000). This is a “ judicial” discretion (Matter of Shulman v. Dejonge S Co., 270 App. Div. 147; People ex rel. Walker v. Board of Governors of Albany Hosp., 61 Barb. 397), and is reviewable in the Court of Appeals, at least where, as here, the relief has been granted (Gentilala v. Fay Taxicabs, 243 N. Y. 397). Moreover, apart from any
An examination of the request for a special meeting by these stockholders indicates that none of the proposals could be voted upon legally at the projected meeting. The purposes of the meeting are listed as A, B, C and D. Purpose A is described as “ Voting upon a resolution endorsing the administration of Joseph L. Auer, as President of the corporation, and demanding his immediate reinstatement as President.” For the stockholders to vote on this proposition would be an idle gesture, since it is provided by section 27 of the General Corporation Law that “ The business of a corporation shall be managed by its board of directors ”. The directors of Hoe have been elected by the stockholders for stated terms which have not expired, and it is their function and not that of the stockholders to appoint the officers of the corporation (Stock Corporation Law, § 60).
Purpose B of the special meeting is to vote upon a proposal to amend the certificate and the by-laws so as to provide “ that vacancies on the Board of Directors arising from the removal of a director by stockholders or by resignation of a director against whom charges have been preferred may be filled, for the unexpired term, only by the stockholders of the class theretofore represented by the director so removed.” This proposal is interwoven with the next one (C), which is about to be discussed, which is to remove four directors from office before the expiration of their terms in order to alter the control of the corporation. Proposal B must be read in the context that the certificate of incorporation provides for eleven directors, of whom the class A stockholders elect nine and the common stockholders two. So long as any class A shares are outstanding, the voting rights with respect to all matters “ other than the election of directors ’ ’ are vested exclusively in the holders of class A stock, with one exception now irrelevant. This means that the common stockholders are entitled to participate directly in the election of two directors, who, in turn, are authorized by the certificate to vote to fill vacancies occu
Purpose C of the special meeting is to vote “ upon a proposal that the Stockholders (1) hear the charges preferred against Harry K. Barr, William L. Canady, Neil P. Cullom and Edwin L. Munzert, and their answers thereto; (2) determine whether such conduct on their part or on the part of any of them was inimical to the best interest of R. Hoe & Co., Inc., and if so (3) vote upon the removal of said persons or any of them as directors of R. Hoe & Co., Inc., for such conduct, and (4) vote for the election of directors to fill any vacancies on the Board of Directors which the Stockholders may be authorized to fill.” By means of this proposal, it is sought to change the control of the corporation and to accomplish what A could not achieve, viz., remove the existing president and reappoint Mr. Joseph L. Auer as president of the corporation. Neither the language nor the policy of the corporation law subjects directors to recall by the stockholders before their terms of office have expired, merely for the reason that the stockholders wish to change the policy of the corporation. In People ex rel. Manice v. Powell (201 N. Y. 194, 201) this court said that “ It would be somewhat startling to the business world if we definitely announced that the directors of a corporation were mere employees and that the stockholders of the corporation
Petitioners have instituted this proceeding on the theory that although no power is conferred upon the stockholders by the certificate or the by-laws to remove directors before the expiration of their terms, with or without cause, power to do so for cause is inherent in them as the body authorized to elect the directors (citing Matter of Koch, 257 N. Y. 318, supra; 2 Fletcher’s Cyclopedia Corporations [Perm, ed.], §§ 352, 357; Ballantine on Corporations, § 185.) Petitioners have argued that the grant of this power to the board of directors to remove some of their number for cause after trial, does not eliminate what is asserted to be the inherent right of the stockholders to do likewise. No cases are cited in support of the latter proposition. To the contrary is Fletcher, in the same section cited by petitioners as authorizing the stockholders to act (§ 357), who continues by stating: “ Of course, if the statutes, charter or by-laws place the power of removal in the directors or other officers, they are the ones to exercise it.” In the same section, Fletcher also states: ‘ ‘ The general right of removal of directors is with the stockholders, and ordinarily a director cannot be removed by his fellow directors, but this power the stockholders may delegate to the directors.”
Such cases as have been cited in support of a power in the stockholders to remove directors for cause are clear in holding that such action can be taken only subject to the rule that ‘ ‘ specific charges must be served, adequate notice must be given and full opportunity of meeting the accusations must be afforded” (Matter of Koch, 257 N. Y. 318, 322, supra).
Although the demand by these petitioners for a special meeting contains no specification of charges against these four directors, the proxy statement, circulated by their protective committee, does describe certain charges. No point appears to be made of the circumstance that they are not contained in the demand for the meeting. Nevertheless, although this proxy statement enumerates these charges and announces that a resolution will be introduced at the special meeting to hear them, to determine whether sufficient cause exists for the removal of said persons as directors, and, if so, to remove them and to fill the resulting vacancies, the stockholders thus solicited are requested to sign proxies running to persons nominated by petitioners’ protective committee. Inasmuch as this committee, with which petitioners are affiliated, has already charged in the most forceful terms that at least one of these directors has been guilty of misconduct and that ‘1 his clique of directors have removed Joseph L. Auer as President ”, it is reasonable to assume that the case of the accused directors has already been prejudged by those who will vote the proxies alleged to represent 255,658 shares of class A stock, and that the 1,200 shareholders who are claimed to have signed proxies have (whether they know it or not) voted, in effect, to remove these directors before they have been tried. The consequence is that these directors are to be adjudged guilty of fraud or breach of faith in
It is not for the courts to determine which of these warring factions is pursuing the wiser policy for the corporation. If these petitioners consider that the stockholders made a mistake in the election of the present directors, they should not be permitted to correct it by recalling them before the expiration of their terms on charges of fraud or breach of fiduciary duty without a full and fair trial, which, if not conducted in court under section 60 of the General Corporation Law, is required to be held before the remaining directors under paragraph Fourteenth of the certificate of incorporation. The difficulty inherent in conducting such a trial by proxy may well have been the reason on account of which the incorporators delegated that function to the board of directors under paragraph Fourteenth of the certificate of incorporation. If it were to develop (the papers before the court do not contain evidence of such a fact) that enough of the other directors would be disqualified so that it would be impossible to obtain a quorum for the purpose, it may well be doubted that these directors could be tried before so large a number of stockholders sitting in person (if it were possible to assemble them in one place) or that they could sit in judgment by proxy. In ancient Athens evidence is said to have been heard and judgment pronounced in court by as many as 500 jurors known as dicasts, but in this instance, if petitioners be correct in their figures, there are 1,200 class A stockholders who have signed requests or proxies, and these are alleged to hold only somewhat more than half of the outstanding shares. Since it would be impossible for so large a number to conduct a trial in person, they could only do so by proxy. Voting by proxy is the accepted procedure to express the will of large numbers of stockholders on questions of corporate policy within their province to determine, and it would be suit
The final proposal to be voted on at this special meeting (D) relates simply to an amendment to the by-laws so as to provide that a quorum shall consist of not less than one half of the number of directors holding office and in no event less than one third of the authorized number of directors. Section 8 of article II of the by-laws already provides that one half of the total number of directors shall constitute a quorum; the modification that a quorum shall in no event be less than one third of the authorized number of directors was proposed in the event of the removal of the four defendant directors whom petitioners seek to eliminate.
Inasmuch as we consider that for the foregoing reasons none of the business for which the special meeting is proposed to be called could legally be transacted, this proceeding should be dismissed. It is not necessary to analyze whether under other circumstances an order would lie in the nature of an alternative rather than a peremptory mandamus.
The petition should be dismissed, with costs in all courts.
Lewis, Ch. J., Dye, Furd and Froesser, JJ., concur with Desmond, J.; Van Yoorhis, J., dissents in opinion in which Conway, J., concurs.
Order affirmed.
It appears that Hr. John Kadel entered a formal appearance upon the argument herein at Special Term, wherein he described himself on the record as follows: “A stockholder of R. Hoe & Company and the person who made the complaint about the actions of the directors which is the basis of a campaign now being waged and that has been waged by R. Hoe Stockholders Protective Committee. In other words, I am, what you might say, the nominal plaintiff in the action.” This is a formal indication, if such were necessary, that the charges on which these directors are to be tried at the stockholders’ meeting have already been decided against them.